Today’s article is centered on our recent Sailing Downstream: Why “Source-to-Settle” Defines Procurement Transformation in 2015 report, sponsored by Zycus, and available for download here (registration required).
This report argues that it is preferential for Chief Procurement Officers (CPOs) and procurement teams to begin a procurement transformation project “upstream” with strategic sourcing processes and then “sail downstream” towards procure-to-pay (P2P). In doing so, enterprise procurement teams can extend the value that they secured during the strategic sourcing process in the form of smarter, more competitive, strongly-negotiated, and tightly-executed contracts with suppliers and linking them to purchasing events within the P2P process. And with P2P resources, like eProcurement and AP automation, procurement teams can ensure optimal visibility and contracting with established vendors that are paid on time and remain part of the procurement value chain.
However, there can also be value for CPOs and procurement teams to start a transformation project downstream with P2P processes and tools and then sail upstream towards strategic sourcing. Departmental budgets, circumstances, and strategies will vary; and there is more than one way to transform the source-to-settle value chain. Above all, it’s important to take a holistic view of transformation, engage all relevant stakeholders, and finish the job, wherever started. Thus, today’s CPO Rising article sails upstream and examines procurement transformation from the P2P end, first.
Sailing Upstream – the P2P Way
When CPOs and procurement teams tackle procurement transformation from a P2P perspective, they focus on the tactical, operational part of the source-to-settle process and drive value through tighter, more efficient buying and transactions. If budgets allow, they adopt systems (like eProcurement and AP automation tools) to gain visibility into existing contracts and processes, develop policies and procedures around spend and payments, and drive smarter enterprise buying decisions. After doing their homework, procurement teams understand what resources they have and decide what they can more competitively and strategically source – i.e., they look upstream for greater sourcing value.
Before sailing upstream, let’s look in greater detail at some P2P linchpins:
- AP-Procurement collaboration establishes the foundation for P2P transformation, for it is here where two traditionally-siloed departments come together to align existing processes and systems, or plan to implement process improvements and adopt automated systems to elevate their performance to the next level. In order to successfully transform, both “P”s in the P2P process need to seek each other’s buy-in, align project goals, system requirements, strategies, and processes, and collaborate to successfully execute an upstream transformation plan.
- eProcurement tools drive greater visibility into existing contracts with suppliers and save enterprise buyers from recreating the sourcing wheel every time they need to procure a good or service for the enterprise. Modern eProcurement tools resemble online marketplaces, like Amazon, and offer a seamless “requisition-to-order-to-payment” process, linking the first “P” with the last “P” in the P2P process. Buying via eProcurement systems leverages existing sourcing and supplier arrangements and saves the enterprise money and time that can be reinvested upstream.
- AP Automation tools links procurement activities, like buying, with accounts payable/finance activities (like invoicing and payment), allowing for digital, paperless, straight-through processing. Linking procurement with AP and automating this process closes gaps between these two traditionally-siloed departments and results in many improvements, like reduction in invoice processing and payment errors, reduced time to payment/reduced total days outstanding, and allowing AP to take advantage of any early-payment discounts. Resultant savings can also be reinvested upstream.
With AP and procurement strategically and technologically aligned, and with implemented processes and systems driving greater cost savings, AP and procurement leaders can turn their enterprise “into the wind” and sail upstream towards strategic sourcing. Savings generated through tighter operational execution can be reinvested in strategic sourcing initiatives, like hiring data scientists to conduct wider and deeper spend analyses, and category managers to take enterprise sourcing projects to the next level.
As in P2P, strategic sourcing process automation tools (like spend analytics and eSourcing) can increase process efficiencies, resulting in more detailed and accurate spend intelligence, more informed sourcing decisions, and increased quality (and quantity) of sourcing events. Continuing upstream, stakeholders can hire more staff to serve as contract and supplier managers, and implement contract and supplier management tools to facilitate tighter execution and performance management – internally and externally.
There’s more than one way to drive transformation through the source-to-settle process. Although it is preferable to start upstream with strategic sourcing initiatives and continue downstream, swimming upstream can also provide significant value to the enterprise. After AP and Procurement teams secure each other’s buy-in and take stock of existing processes and systems, they can leverage and tighten existing processes and systems to extract more value for transformation, and then take those savings and reinvest them upstream with strategic sourcing processes that have the potential to drive even greater savings and true procurement transformation for the enterprise. Keeping a holistic view of the process, engaging all stakeholders (namely AP and IT), and keeping the wind in their sails through the end of the journey are the main ways that CPOs and enterprise procurement teams can ensure a successful procurement transformation project.
Would you like to learn more? Interested readers can download the report by clicking here.