Digital communities and the technology underlying them have changed the world. As consumers, we are more connected and enabled to shop, share information, and make better decisions than ever before. And these technologies are having a similar impact in business for the procurement function. Procurement has traditionally been recognized and rewarded on the basis of its ability to wring costs out of the business. But through the productive use of automated systems and business networks, the function has been able to move beyond simply meeting savings targets to work more collaboratively with finance, and help address larger, more-complex issues such as minimizing liability and risk, and enforcing compliance.
Take ING U.S. While many companies were still debating whether the Internet was a viable channel for business—or even a tool to power it—ING tapped into the Ariba Network and began leveraging the cloud-based applications delivered on it to align its procurement and accounts payable functions and transform its procure-to-pay process. James McDonald, director of procurement operations, recently discussed the move and the results that ING has seen since making it.
ING U.S. was an early adopter of procure-to-pay automation. Why did ING make the move so early on, and what were key elements of the business case?
McDonald: ING is the result of many acquisitions, and the firm had no managed procurement function or centralized accounts payable group. In the early 2000s, ING saw this as an opportunity to eliminate redundancies, consolidate spend, and gain new leverage from these acquisitions by bringing procurement and accounts payable in alignment and introducing automation across the procure-to-pay function. The opportunity to implement an integrated procure-pay solution suite that could link back to sourcing while enforcing compliance to purchasing policies, provide visibility into spend across all business units, and automate the invoice process were key components of the business case.
PO invoicing is important to ING. What steps have you taken to drive higher volumes of PO invoicing?
McDonald: About 60 percent of our spend—essentially any controllable expense where we can assign a general ledger and commodity code—requires a purchase order. We also have catalogs for certain commodities, and when buyers order off a catalog, this really streamlines the approval flow. Plus we know that the goods and service being purchased are from the right supplier at the right price, and this will automatically be applied to the invoice coming into AP. This drives a touchless process end-to-end, from procure to pay.
In addition, we have strict rules governing our PO policy, with training for all employees on how to follow the process, so support across the company is very high. Whenever a PO invoice comes into accounts payable without the PO, it’s flagged as an exception, and the requester must create a PO after the fact. This serves to discourage people from not following the policy. The same holds true for our suppliers. They know that PO numbers must appear on their invoices, and when they don’t follow our policy, their payment is delayed. That’s quite an incentive for them to go along with it.
What advice would you have for organizations that have low PO usage?
McDonald: Begin by identifying the types of expenses, categories, and commodities where you need increased control. Then, define a clear procure-to-pay policy and promote it broadly. Have consequences when people don’t follow the process. And it’s very important is to have senior leadership support. They must know the value of invoicing against POs and other aspects of compliance, and commit to supporting the policy.
How does ING handle invoice exceptions?
McDonald: We immediately validate invoices and auto-reject those that don’t match to an open PO or meet other critical reconciliation rules. We create an invoice reconciliation document for every invoice that comes into our procure-to-pay system. This document can automatically reconcile invoices to POs and, once completed, sends the invoice to a PO approver, who serves as a pseudo receipt function before the invoice is scheduled to pay.