Procure-to-pay (P2P) should be a simple process. The purchasing manager orders an item, the product or raw material arrives as ordered and on time, and the accounts payable team receives an invoice and pays it promptly. Unfortunately, the process is anything but easy. Companies often place this behind-the-scenes effort on the back burner where procurement, approvals, invoice validation, accounts payable and spend analytics become disjointed activities performed manually, and often inaccurately.
However, technology is pushing this back-office procedure to the forefront, where it’s automated, connected and mobile. For companies, like Starwood Hotels & Resorts Worldwide, a hotelier with more than 1,300 hotels in over 100 countries, automating P2P is making all the difference in the world.
“We have at least nine procurement systems around the globe; all of varying types and none of which talked to each other,” says Tad Wampfler, chief supply chain officer for Starwood. He cites Starwood’s Middle East hotels as an example of how siloed their procurement process had become--each hotel there had a one-off P2P system, eliminating any possibility of “cross hotel visibility.”
“There was no way to leverage spend above the hotel level,” Wampfler laments.
Worse is the fact that Starwood’s situation is hardly unique. “Supply chains are far flung, they are dispersed throughout the world; it’s really hard to piece them together with point-to-point solutions,” emphasizes Bryan Nella, director of corporate communications at GT Nexus, an international firm offering a cloud-based P2P platform.
Aman Mann, CEO of Procurify, a Canadian manufacturer of a cloud-based procurement solution, says he sees many businesses burdened with siloed systems such as the one Wampfler describes. “Data centralization is one of the weakest links in business,” he says. “Many businesses lack a singular platform that can collect required data and centralize it for an organization.”
Wampfler knows the situation these experts describe all too well. Starwood’s disparate hotel purchasing-related processes and e-procurement limited the company’s ability to drive supply chain benefits to hotels from a central point, and contributed to a lack of spend oversight and financial controls.
Starwood, well known for its Westin and Sheraton brands, sought a solution that implemented a global standard for hotel-based electronic procurement in order to enable consistent and efficient supply chain clustering, financial controls, IT support, supplier tracking and uniform hotel operations. The company partnered with BirchStreet, an international provider of P2P solutions in the hospitality space; and ReadSoft, a global provider of applications that automate business processes; to develop a comprehensive P2P solution.
“SAP is the Starwood financial system where accounts payable and supplier information sits; that’s our ERP. BirchStreet is our front-end e-procurement system, and Readsoft is our OCR that loads the invoice directly into the system,” explains Wampfler.
Automation a Game Changer
Starwood operates its resulting system in 75 North American hotels and plans to add hotels weekly until all of its sites are on the same system. Once everyone is on the same page—or system in this case, Wampfler says the entire procurement process will be automated from product order to approvals all the way to receipt of the order, billing and payment.
Wampfler describes this automation as a real game changer. Standardizing P2P will dramatically reduce the costs and errors associated with manual efforts to prepare, place, receive and pay for orders. The results included better financial controls, lower product costs, reduced overhead and improved relationships with operations staff and suppliers.
Spend visibility and strategic sourcing are two areas Starwood is vastly improving upon. The supply chain requires spend visibility in order to identify areas for strategic sourcing.
Fully understanding what hotels are purchasing helps the hotel chain aggregate its spend and leverage the buying power of the Starwood system. It also aids the company in ensuring its hotels source the right products. “If we have a brand standard, like a Westin shampoo, we now have visibility into who is buying it, and who is not, which helps us ensure guests get the experience we want them to have,” Wampfler says.
This capability also enables the hotelier to identify vendors/suppliers who do not meet Starwood’s global citizenship standards. For example, a paper company that misrepresents its products as green. “We can identify vendors we don’t want to do business with, and if one of our vendors issues a recall, we are able to quickly notify all of our hotels about it,” he says.
Emily Rakowski, global vice president of Audience Marketing and Demand Management for SAP Ariba, emphasizes that when the P2P process is standardized and connected, it enables companies to fully maximize the benefits of strategic sourcing. If a company’s strategic sourcing staff saves 30 percent on pallets but that pricing isn’t entered into the ERP, then the next time the procurement manager cuts a PO, the old pricing will be there. “So strategic sourcing negotiated this great deal where we would get an extra 10 percent off of all orders after a $100,000 spend, but because we didn’t put the contract into the backend system, we never received it,” she says. “A P2P system automatically calculates how much spend you’ve accumulated and applies discounts once you reach a certain threshold.”
An automated P2P solution also helps supply chain managers get a grip on maverick spending. P2P solutions typically have an e-market for easy shopping, e-routing to obtain the necessary procurement approvals, and a real-time checkbook to pay suppliers. The goal is to get as much spending through an automated and managed tool as possible. “It enables customers to capture the long tail of spend. A lot of those little one-off purchases with one-off vendors adds up to quite a bit of spending,” states Rakowski.
However, automating the work isn’t a magic pill solving all ills. Companies also must shut off the other channels that make maverick spending possible. “Eliminate P-card uses at stores outside the office, eliminate post facto invoices coming in and go with a ‘No PO, No Pay Policy,’ ” Rakowski says.
A P2P system also creates greater synergies between companies and their suppliers so that they can collaborate better and build greater efficiencies into the supply chain. If both suppliers and buyers can see all procurement documents—the POs, approvals and invoices, it removes friction in the supply chain and keeps everyone working off the same data. “A manufacturer can signal a supplier in advance that they will be placing an order for 10,000 widgets, and the supplier can say, ‘I need access to this much capital, these raw materials in hand and this level of factory capacity by this date.’ It’s a more strategic approach to P2P,” says Nella.
Add in Accounts Payable
Standardizing and automating its e-procurement process is enabling Starwood to also automate accounts payable. Employees scan invoices with ReadSoft’s OCR capability, which dramatically reduces data entry labor and errors. POs are routed for approval based on company guidelines, invoices are read by the system and electronically compared to the order and good receipt, and when the three-way match occurs, the invoice is processed for payment.
P2P systems like Starwood’s can conduct two-way, three-way and four-way matches automatically. “That’s the ultimate goal of P2P--to automate as much as possible and remove the inefficiencies,” says Robert Cohen, vice president-North America of Basware, a global supplier of P2P and e-invoicing solutions. “Unfortunately there’s still a lot of paper out there; more than 50 percent of invoices are still received in paper form.”
When companies begin drowning in a sea of paper, they often fail to pay suppliers on time because invoices sit in the field, on people’s desks or go missing entirely. Cohen recalls that years ago a large client’s credit rating once dropped because of late payments. The problem didn’t pertain to financial difficulties; they simply couldn’t keep up with the flood of invoices in accounts payable.
Late payments also can cost a company money. When an invoice with a 30-day term is mailed, the buyer might receive it a week before it’s due, which doesn’t allow much time to route it for approvals and send payment before incurring late fees. “But if I send it electronically, you get it seconds after I send it, and it gives you more options to pay the invoice. I can now ask: ‘If I pay you before the 30-day term is over, can I get a discount?’ ” says Cohen.
Boosting the Benefits of P2P
“Sometimes building a financial case is what’s needed to get these systems in place,” says Cohen. “If a financial officer can see how the system will impact the bottom line, they start to listen a bit more.”
A more efficient P2P process lowers the labor resources needed to perform three-way matches and get suppliers paid, and also ensures the company maximizes its spend, and receives agreed upon discounts. Because of this, Wampfler predicts Starwood’s system will pay for itself fairly quickly. The hotelier expects to break even on its investment by 2019 and predicts a 30+ percent ROI, and this does not include the return expected from greater spend visibility that will be leveraged in negotiations with suppliers.
Starwood’s estimated ROI is pretty typical. Cohen says on the accounts payable side the ROI can reach 60-80 percent within a year or less. By putting spend under management, the ROI might be as high as 50 percent; in saved labor alone. Add in dynamic discounting and the savings might climb even higher.
However, Wampfler’s quick to point out that to successfully implement an automated P2P system and achieve this kind of ROI requires companies to do their homework. Starwood spent 18 months researching vendors and testing P2P systems before taking action. The company asked each vendor to spend a day performing live demonstrations in front of 40 Starwood employees. Jim De Filippo, director--IT Supply Chain, Starwood Hotels & Resorts, says they’d ask questions like: You place an order, someone decides to change the order, only half gets delivered, how do you track the second half of the order? Can you assemble a recipe in the system, cost is out on a per plate basis, then scale the recipe to serve to 150 people at a banquet, and place the order for all of the necessary ingredients within the system?
Starwood employees also focused these demonstrations on each system’s reporting function. Who approved these orders? Show me the last 20 orders this employee approved. How much wine did we order from this vendor last year?
Involving all stakeholders in the selection process is essential, which is why Starwood asked key employees to participate in the selection process. “You need support from the top down, and in different functions from finance to supply chain to operations,” Wampfler says. “If you don’t have that, you don’t stand a chance.”
When considering systems, Nella also recommends considering the type of procurement you will be doing. Direct procurement, the act of acquiring raw materials and goods for production, is very different from indirect procurement, the act of purchasing services or supplies to keep business running. A system that handles indirect procurement, may not work well for direct procurement. “Direct spend is more complex and it powers production of goods that directly drive business growth, such as auto car parts, sweaters, or pharmaceuticals,” he says, and as such will require a more robust tool.
Testing before you buy is also critical. Starwood piloted the system in Toronto and kept adding pilots across North America to tweak its procurement processes and develop training programs. This effort took the company more than a year.
“Training is probably the most critical thing we did, followed by tracking the metrics to ensure the benefits forecasted are being received,” Wampfler says. “When you start automating processes, people don’t want to change. But when something isn’t working, 99 percent of the time it’s because people have gone off the reservation and tried to do it their own way. It’s not the technology that’s the problem.”
According to Mann, there is often only five to 10 percent adoption of software within a company, and that’s not enough to gain the full benefit from an automated P2P solution. “Unless you get 60-70 percent of the organization on board with a new workflow and new process, you won’t get the real maximized efficiency or effectiveness out of the system.”