Building a Business Case for Procure-to-Pay

Procurement today faces myriad of challenges in areas such as supplier management. As the organization grows and spreads so does its purchases and the number of suppliers from whom the purchases are made. strategies. The most competitive procurement organizations will become capable of connecting information — generated both internally and externally — from many sources. As the volume increases. www. Gaining visibility: While the past decade has seen many companies make enormous progress in establishing spend visibility.0 Introduction Becoming that well-equipped procurement and supply management organization means recruiting the right talent into procurement. cash flow. market leadership and innovation A typical procurement organization is involved in the sourcing of a lot of materials .zycus. low cost country sourcing. Obtain collaborative and corrective behaviors from the people who spend and Align every strategy and activity that procurement undertakes with such business performance measures as cost of goods sold. relying on solutions to promote compliance assumes people can easily adopt and use the solutions. For procurement to succeed as an explicit driver of business performance. This translates to following key imperatives for procurement. standards and decisions. languages and formats to create 360˚ visibility that supports a full range of strategic procurement activities (not just spend management and strategic sourcing). Of course. they need to ! ! ! ! ! ! Thoroughly understand the spending needs of the business Extract the greatest possible value from global supply markets Build collaborative relationships with high-performing suppliers Minimize supply risks. it increasingly becomes difficult to monitor each and every purchases happening within an organization. working capital. communication.Building a Business Case for Procure-to-Pay 1. A recent in-depth Zycus study covering some 600 procurement organizations worldwide finds compliance in general growing from a platform that combines alignment of . adopting proven best processes and using technology strategically to: overcome human limitations for processing information. locations. shareholder value. the coming decade will see companies taking more holistic approaches to procurement visibility. ensure efficiency and maximize return on investment in procurement. compliance etc. Ensuring Compliance: Driving business performance from procurement means convincing employees to line up with and adopt preferred procurement processes. remove physical obstacles to collaboration. & indirect purchases. systems. collaboration and consistent technology adoption.

and ultimately the suppliers. often selecting items from a limited catalog or template of items that they are permitted to order.zycus. the fulfillment of the order. Until very recently. but the situation is changing rapidly. P2P automation refers to using technology to streamline part or all of the procurement process. Procurement's imperative is to make sure the results of its work materialize either on the top or bottom lines of the business in highly quantifiable ways. and then payment for the product. Automation of the function allows the operations staff to complete the requisitions electronically.Generating Savings through procurement initiatives: Procurement's core performance focus – minimizing costs . It constitutes a multifunctional process.0 Why P2P P2P is the transactional flow that surrounds an order that is sent to a supplier. this whitepaper will look into the impact of Procure to Pay (P2P) on 4 key areas of a procurement function. The figure below provides the common components of the procurement process that are automated. www. departments/functions (Finance and Accounting. cutting across users (requisitions and desktop buying). setting/enforcing policies).can often feel at odds with other business objectives. Keeping in mind the key imperatives of procurement. Requisition Payment is issued Approval Receipt of Invoice & Matching Receipt of Goods/Service Purchase order generation Requisitioning – Requisitions are generated by operation staff that wish to purchase goods or services. money tracking and funds transfer. paying bills. sourcing (deal making to reduce cost or increase value). Accounts Payable. . this need had been ill met from a procurement technology perspective.

invoices should be matched to purchase orders and receipts so that appropriate payment is made to the vendor. invoices can be received electronically and in case of invoices received manually can be scanned creating a fully electronic environment. it needs to be approved before sending it out to suppliers.0 Benefits of P2P P2P benefits stem from automating procurement activities and streamlining purchasing workflow. steadily reducing the number of checks issued by many organizations.Invoices are mostly submitted by suppliers via mail which upon receipt. 3. is critical. Automation solutions contribute to processing efficiency. Manual approval processes have long proven to be ineffective. a combination of ACH and procurement cards are quickly increasing the volume of payments processed electronically. Without automation. Too often. and orders are delivered to suppliers in electronic format. Automation allows for these requisitions to be routed electronically. Matching Invoices – Once received. However. In automated AP departments. spend visibility. Issuance of Purchase Orders – Once a Requisition is approved a purchase order is issued to a vendor. reducing approval time. it has taken a much longer time for adoption to occur. For channel compliance. purchases can be reviewed and approved electronically using sophisticated workflow tools. are manually entered. senior executives want to insulate their organization from the need to comply because “they are different” or “Procurement doesn't understand” and thus become the root cause behind e-procurement spend channel policies that do not work. purchase orders are called-in to vendors or faxed. as approvals are often not obtained or obtained after-the fact due to the time required to obtain . Hackett benchmarks suggest that world class P2P efforts yield significant results for companies (compared with average performers)—World class organizations: ! ! ! Are able to lower PO process costs by nearly two-thirds Can more than double the number of POs each FTE can manage Can reduce by nearly half the number of FTEs required to manage each billion dollars of indirect spend 1.zycus. Buyers can order products from online catalogs. including assignment to the department or budget centre where the spending resides. Issuing Payments – In the world of business-to-business commerce. Receiving Invoices . In case of automation. both internally and with vendors. www.Requisition Approval – Once a requisition is raised. purchase orders are sent electronically with acknowledgements being returned electronically from the vendor. Impact on compliance Compliance entails policies that drive users to the company's channel of choice (use the tool or adoption) and those that ensure that the negotiated savings show up in the bottom line.

5 11. Impact on transaction processing Manual processes and paper work concerned with Purchase order (PO) processing are characterized by human errors. What this implies is reduction in maverick spending.1 7. Also as discussed earlier it is seen that organizations with implemented P2P solutions are better able to manage the catalogs which inturn further increases compliance. Impact on transaction processing 25 21. Impact on compliance 88 90 80 70 60 50 40 30 20 10 0 85 81 75 75 59 53 % Spend under management % of orders compliant with contracts % of spend compliant with contracts Industry Average Laggard 74 29 Best in Class Source: Aberdeen 2008 2. of days 15 Impact on compliance 12.In the figure below it is seen that best-in-class companies (characterized by 80% + spend under management) with implemented P2P solution show 85% orders compliant with contracts and 75% of spend compliant to contracts.4 10.1 1 0 Best in Class 5 2.zycus. Finding products is easier when vendor catalogs and product information are available online and amenable to searches.5 20 18.2 No. escalations and triggering events ensures that POs are expedited quickly. From the results of the research conducted by Aberdeen group it can be seen that P2P implementation has a significant impact on the cycle time for requisition to . Research from Aberdeen group suggest reduction of maverick spending to merely 15-20%. Automating approvals. inaccuracies and reworks.5 Source: Aberdeen 2008 www.6 Requisition to order cycle time Average time to onboard a new supplier Average time to process & implement a catalog Change Industry Average Laggard 10 3. Issuing a PO is quicker when it is generated and submitted automatically. The main reason for this impact can be related to automation and process based workflow.

Consider an organization using scanning and work flow (which involves $5.41 processing cost per invoice). Impact on invoice processing cost 10 8 $7. The study from Hackett group as shown in the figure below reveals the cost of processing a single invoice through four different methods.22 $5 85% $4 60 $3.39 Paper based Imaging with workflow OCR 4 $3. 80% of invoices electronically) realize discounting participation rates nearly four times as high as bottom quartile performers (which process only 2% of invoices electronically) and also at the same time show a nearly 60% reduction in processing cost per invoice. on average. The figure below shows the impact of P2P solution on the invoice processing cost.65 $ . Let's consider the impact of these figures based on an example.25 42% 40 $2.99 6 $5.13 2 eInvoicing 0 Paper based Imaging with workflow OCR eInvoicing Source: Hackett group Impact of P2P on early payment discount Hackett data suggests that those companies in the top quartile of performance which adopt early payment discounts (and process.41 $4.14 $2 20 16% 2% 0 1st Q 2nd Q 3rd Q 4th Q $0 Source: Hackett group 80 $3 % of electronic invoice line item Process cost per Invoice On time payment rates $1 www. Impact on Invoice processing cost Automating the purchasing process lowers transaction costs per PO and reduces the administrative overhead of the purchasing organization.3. Impact on electric invoicing (median) 100 92% 80% 89% $6 85% $4. If the organization moves to OCR they will save 18% on processing cost per invoice while at the same time if the organization implements eInvoicing they can look at a potential savings of 42% in the processing cost per invoice.zycus.

As seen from the table. 20 FTE per billion dollar 15.4. with cost per FTE being $ . Impact on FTE This benchmark from the Hackett group says that a top performing organization with implemented P2P solutions can operate with an (Accounts Payable) AP headcount of 6. consider an organization with 15 AP head count per billion dollar for an organization using manual methods for invoice processing.2 5 Top performers Non top performers 0 Top performers Non top performers Let us consider the impact on FTE with the help of an example as shown in the table below eInvoice implementation Number of FTE (AP headcount)/ billion dollar spend Cost/FTE ($) Total Cost ($) Savings ($) Pre implementation 15 20000 300000 Post implementation 8 20000 160000 140000 . it would translate into savings of close to 50% www. Going by the research report if the company were to adopt an eInvoicing solution and even it were able to reduce the AP head count to 8.2 per $billion spend.zycus.1 15 10 6.

This provides maximum compliance to contracts & accurately classified for granular spend visibility. www. E-procurement increases efficiency. reduces inventory requirements. This is all valuable (especially in organizations that typically only see 30% to 60% of negotiated savings realized). Zycus offers a comprehensive and easy-to-use P2P solution including eProcurement. ease of use and mass adoption . where you can get started with a full-feature evaluation in less than a week and experience rapid implementation. and slashes maverick spending. and ensures that all spend . order from preferred suppliers. it has become important for procurement to not only develop a strategic outlook towards its sourcing & supplier management initiatives but also to back its strategies by ensuring its savings initiatives are realized.4. punchout or free-form . Our patented Artificial Intelligence based Auto-classification engine offers a one-of-its-kind Guided Buying experience to help requisitioners buy preferred items. and route the request to appropriate buyers for sourcing. monitoring and compliance checking. but the largest contribution of a properly implemented and heavily used eprocurement system is a centralized. .which can often deliver savings opportunities on many spend categories in the 5% to 15% range when there is an e-procurement system in place to capture and enforce the negotiated savings. improves cash it catalog. P2P solutions by automating all or most of the components within a procurement function provides procurement with the much need visibility into its processes and most importantly increases compliance to processes to have a direct impact on the targeted savings. can generally do much more sophisticated types of analysis. automatically enforcing approval limits.zycus. data store that provides a solid foundation for spend analysis and e-sourcing -. or guiding or restricting procurement to preferred vendors) without involving a spend analytics solution.0 Creating a new savings wave – Linking P2P with spend & sourcing A good P2P (Procure-to-Pay) system may provide a few of the monitoring and compliance checking capabilities (for example. Spend analytics tools integrated with contract management and P2P systems. Zycus is currently offering P2P Pilot Program.first hand. Conclusion As organizations across the globe are increasingly banking on procurement to deliver on hard dollar savings to counter the challenging macroeconomic conditions. eInvoicing and Supplier for more information. and often represents a process and prevented over-payment savings of 2% to 5% in many organizations. Contact information@zycus.

Ph: 847-993-3180 Atlanta: 555 North Point Center East. Behind every Zycus solution stands an organization that possesses deep. +49 (0) 69 27-4015-111 Paris: 20. With our spirit of innovation and a passion to help procurement create even greater business advantages. Rosemont. Alpharetta. and Financial Savings Management. Ph :+33 (1) 393-58023 London: Office 404. Carnegie Center Suite 117. W1B3HH.River Road. 4th Floor. Andheri (East). Ph: 678-366-5000 EUROPE Frankfurt: EPJ Business Center. NORTH AMERICA Princeton: 103. Princeton. London. GJ – 07. We are a large — 600+ and growing — company with a physical presence in virtually every major region of the globe. Ph : +49 (0) 69 27-4015-251. Maharashtra 400 096 Ph: +91-22-66407676 . Seepz++.Z About Zycus At Zycus we are 100% dedicated to positioning procurement at the heart of business performance. Mainzer Landstrasse. +49 (0) 172-614-4874. For more than a decade we have been the world's most trusted leader in Spend Analysis. We incorporate these practices into easy-to-use solutions that give procurement teams the power to get moving quickly — from any point of departure — and to continue innovating and pushing business and procurement performance to new heights. 4th floor. detailed procurement expertise and a sharp focus on being responsive to customers. we search the world continually for procurement practices proven to drive competitive business performance. 1L 60018. Supplier Management. NJ 08540 Ph: 609-799-5664 Chicago: 5600 N. Seepz SEZ. With more than 200 solution deployments among Global 1000 clients. Mumbai. Suite # 418. GA 30022. 324/326 Regent Street. Albany House. Suite 800. 27-31 60329 Frankfurt am Main. Contract Management. Bis rue Louis Philippe. e-Sourcing. we have evolved our portfolio to a full suite of Procurement Performance Solutions — Spend Analysis. Germany. Ph : +44 (0)800 6226561 ASIA Mumbai: Plot No. We see each customer as a partner in innovation and no client is too small to deserve our attention. 92200 Neuilly sur Seine.

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