In our last article, we discussed the opportunity that exists for many enterprises to improve their P2P operations (P2P is defined more broadly as Procurement and Accounts Payable – not simply POs and invoices) and the idea that the relationship between the Chief Financial Officer and the Chief Procurement Officer (as well as other procurement and AP leaders) can be a or the critical factor in establishing a successful P2P operation. For enterprises striving for P2P excellence and for financial agility in its management of cash, collaboration between finance and procurement is now a requirement.
Organizations that lack a seamless P2P process typically see an erosion of value as they move across the entire process. Sometimes the gaps exist solely within the procurement department. For example, poor visibility into enterprise spend makes it difficult to identify the best sourcing opportunities, while disconnected sourcing and contracting processes make it more difficult to capture all of the savings that was negotiated or identified during the sourcing process. Sometimes the gaps exist solely within the AP department. For example, lack of visibility into invoice status makes it all but impossible to understand with certainty, the timing and amount of upcoming invoice payments and their impact on cash positions. And, sometimes the gaps exist across the two departments. For example, a higher percentage of non-PO invoices can result in a more costly impact on invoice processing, while the inability to view contractual payment terms makes it more difficult to develop proactive payment strategies.
From the procurement perspective, P2P has traditionally been about establishing and maintaining processes that reduce operational costs, continuously deliver savings and provide accurate data. Procurement is focused on getting more spend under management, negotiating and capturing the savings from the sourcing process, and managing supplier risk and performance. The second “P,” or what happens after delivery, has generally been an after-thought for the average procurement team – a different process that was managed by a completely different team.
Likewise, the typical accounts payable team sits apart from procurement and remains focused on a distinct set of processes that begin when an invoice is received and ends when a payment is made. Making sure that exceptions and errors are kept to a minimum, invoices are met with the appropriate approvals, and inquiries are responded to in a timely manner are among the most common priorities for AP; considerations that deal with the supplier relationship in a broader context are often out of scope, and hence, out of mind for an AP staff.
As more CFOs and CPOs gain awareness regarding the opportunities (but also, the problems) that exist within their current P2P operations and begin to champion P2P transformation initiatives, more enterprises will invest resources to improve performance by linking processes, demanding visibility and joint accountability, and deploying P2P solutions.
Like yesterday’s article, today’s is based upon a recent report “The Path to Procure-to-Pay Excellence: Building a More Perfect Union for the CFO and the CPO” that was sponsored by Basware. The report includes a discussion of P2P enablers, opportunities, challenges, as well as some recommendations. It is available by clicking here (free, registration required – you may have to page down to view the report).