This extract is a preview taken from the Making Procurement Simple series. To read the full article and find out more about making procurement simple, click here.
It does not matter if you have the fastest sprinter; mess up the baton change and you won't win the relay. This applies to world class procurement as much as it does to Olympic teams. The problem for procurement is that different legs of a supplier's journey with the buying organisation have been built by different people at different times. What's needed is an end-to-end approach – from the starter's gun to the finish line – giving the organisation complete visibility over the whole picture, from source to order to pay.
It's more common, however, to see parts of the picture, but not the whole thing. Philip Brown, head of purchasing projects at National Express, says: “Some organisations have a very fractured approach to procurement. Departments may design their own processes without being aware of the bigger picture.”
To understand procurement – from business need, to sourcing, right though to paying suppliers – it helps to map out each step with the end-users, Brown says. “I have worked on these mapping exercises and you identify gaps between what might be good processes in themselves. However, it's often the case that each department works in a silo.
“Typically, an end-user has a legitimate conversation with the supplier, writes down their requirement and maybe produces a purchase order. By the time an invoice arrives it may match the purchase order, but unless it has a specific product number you find, in many cases, the wording is different,” Brown says. The matching process in accounts payable (AP) then has to try to make sense of information that doesn't quite fit together. “You are relying on [AP] to interpret the invoice, without knowing any of the earlier conversations, and decide whether it's right to pay the supplier.”
Fractured processes obscure visibility
Brown says that beyond the obvious risks of fraud, price escalation and mistakes, a fractured procurement process means businesses can have no clear visibility of financial liabilities and cash flow with suppliers.
Moreover, with different solutions – such as spend analysis tools, contract management tools and payment systems – that don't work well together, if at all, it's typically necessary to have to copy over and reformat data files or to manually rekey data. That causes delay and introduces the risk of errors.
Whatever systems a company uses, the purchasing function should own the source-to-pay process, instil a policy of ‘no PO, no payment' with suppliers, and ensure interactions with suppliers are recorded properly. It need not cost a lot for procurement to gain more influence over the process and more opportunities for strategic activities, Brown says.
“The immediate benefit is procurement taking ownership of important processes. Simply understanding payment terms with all suppliers can give you more flexibility in negotiations and you will understand end-users and start to influence their behaviour,” he says.
Bits and pieces
But Brown's experience of fractured procurement processes is not uncommon. SAP Ariba sees a number of common trends as they talk to businesses about their procurement processes.
“The vast majority of businesses have done some process automation but most likely it's in bits and pieces. In a lot of circumstances those projects are done by different teams with different objectives, and they're not looking at the entirety of the end-to-end process,” says Emily Rakowski, global vice president audience marketing and demand management with SAP Ariba.
Where there is an effort to integrate procurement processes, it is often limited in scope, she says. “For strategic sourcing, you might see some locations band together to do some automation, but only leverage a small portion of spend. Typically, they do an evaluation based on a very specific set of requirements, but they don't look at the big goals and the big picture.”
The problem is that if sourcing and contracting, for example, are not linked to the day-to-day procurement systems, the procurement department will never accrue the savings they expect from the outset, Rakowski says. Even with a well-sourced category, savings can easily leak out from not having its management fully implemented.
“If you're not sure how to implement the contract, then you are leaving savings on the table. You need to understand how it can be executed and make sure the organisation knows about it and is using it,” she says.
This is an extract. You can read the rest of the article here.
The Making Procurement Simple series is produced in partnership with Ariba, an SAP company.
Pre-order your free Making Procurement Simple ebook here.