Automating Procure-to-Pay: Benefits, Approach and Six Key Issues Identified that Need Consideration

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In the age of fast-growing technology and increasing competitiveness globally, it requires us to seize every opportunity possible either to enter a new market or to sustain in the existing market. But it is quite a task when it comes to the procure-to-pay process in any business.

The Procure-to-pay arena involves a lot of goods purchases and invoices. It involves planning, issue requisition, approvals of purchase orders (PO), collecting and maintaining supplier information, creating and issuing PO, processing invoices, ERP process, payment, and reporting. To reduce operational costs, while increasing the P2P process efficiency, it is important to implement RPA throughout the procure-to-pay cycle. With electronic purchase requisitions that automatically convert to purchase orders when approved, automated approval routing and e-invoicing, RPA digitally transforms the entire procure-to-pay cycle. Adopting this technology allows the procurement team to focus more of its efforts on high-value-added activities to add value to the organization while enabling the accounts payable department to be more productive and cost-effective. You’ll no longer have to worry about late payment fees and may even be able to capture early payment discounts by implementing RPA.

In recent times, the regulatory compliance reinforced the process with documentation having separate duties and steps. This makes the process more tedious adding more regulators and auditors to monitor. The P2P is a line of convene where, raw data such as purchase request, order of goods are assembled to generate receipt paving way for further payments.

According to a recent study, more than 40% of the procure-to-pay (P2P) companies trust RPA to make a significant impact on manual processes that worked for ages.

Robotic process automation (RPA), as the industry experts describe is an emerging form of business process automation technology based on the notion of artificial intelligence or software robots.

In other words, it is about performing repetitive tasks like information or money transaction through computer-controlled tools without manual interventions or monitoring. We can implement RPA across various industries in different processes like insurance claim processing, procurement, and database maintenance, which are data-intensive in nature.

In organizations, RPA is used to automate the end-to-end procurement process without major investment by utilizing resources and automating manual tasks like:

  • Planning requirements, collecting data, monitoring inventories, creating PO
  • Tracking resource utilization, expiry dates, payment dates and date of receiving goods
  • Strategizing approval workflow throughout processes
  • Managing and evaluating vendor or third party information
  • Automating and controlling request generation and closures

Strict rule-based and transactional procure-to-pay process benefits from the robotic process automation application. We use this to manage documents, identify mismatch, and reconcile accounts resulting in improved efficiency, less process time and cost-saving without risks.

Considering a real-time scenario where human resources access an enormous amount of emails every day by validating them and uploading them into the system. This tedious process in large companies consumes a lot of man-hours and still, the errors keep popping often. With the rise of RPA, organizations are able to execute the work quickly and accurately reducing manual efforts and errors.

While RPA is suitable for a process that does not require manual intervention or decision making, it is not ideal for a process involving decision making with volumes of data. This is when cognitive automation comes into the picture to resolve it. It imitates human behavior to solve complex and unstructured data by extracting them into the system and further used by RPA for rule-based automation to help optimize works on a daily basis. It is a subset of artificial intelligence that uses advanced technology, machine learning, and programming knowledge to ease human’s decision-making process. It simply means the application of cognitive computing like data mining, natural language processing to the procurement process and replaces chain assistants, PO systems and supplier on-boarding process. Thus, with the help of cognitive automation humans will just have to approve or change transaction records created by virtual machines.

This results in less consumption of time that allows the organization to spend more time on development strategy enabling the business to move faster like never before. The other benefits are

  • Cost reduction on e-mail management, quote processing
  • Improvement in compliance, business quality
  • Higher scalability and lower error rates
  • Strengthening regulatory tracking and reporting
  • Resolving invoice enquires and payment status
  • Quick response to market insights and supplier performance

A popular software company adapted RPA to automate their choked billing and payment process that often required human intervention. RPA helped reduce the intervention up to 95% and eventually led to a drastic decrease in the resolution time from 30 minutes to 90 seconds.

It is imperative to choose the right type of technology depending on the nature of business. The Procure-to-Pay world revolves around structured and unstructured data and RPA with cognitive automation is the ideal way to take businesses to the next level. With proper strategy, organizations can leverage RPA to automate procure-to-pay process and move further towards resolving complexities. Its favorable returns on cost-saving, efficiency, flexibility and traceability make it inevitable for quality growth in Procure-to-pay departments.

Recently I have come across survey research regarding how much inefficiencies are costing organisations in terms of procure-to-pay (P2P). The study suggests that, on a yearly basis, the actual average cost per business in dealing with procure-to-pay (P2P) issues is remarkably high. In the US, the costs exceed $170,000 per year, while in the UK the num­ber is over £88,000 – expenses which are essentially wasted.

Therefore, this seriously challenges the current state of procure-to-pay (P2P) process in originations and presents a significant opportunity. Imagine if we save this much money, what we could do? We can fund an engineer or top-notch buyer to do value-added things!

In reality, the procure-to-pay (P2P) activities are meant to process saving, and it is potentially very difficult to bank these savings, as they are mainly efficiency savings made up of people’s time. Therefore, the real action item here is to identify which elements of procure-to-pay (P2P) process would benefit you most if improved. Then, embark on an improvement process using the key enablers that we have identified.

Furthermore, friction in the procure-to-pay (P2P) process is a common prob­lem for businesses around the world, although the causes of friction do vary somewhat by region. For example, many large businesses in Europe source vendors from multiple countries, a scenario that creates additional regulatory and tax complexities.

My experience and the facts mentioned above suggest a few basic questions:

Do we know which procure-to-pay (P2P) process elements we should try to improve?

What are the typical cost & time inefficiencies or wastes we face before we try to improve?

Who is the owner of a procure-to-pay (P2P) process?

Whilst the answers of these questions might differ to a certain extent depending on the size of the organisation, in my experience, there are six common procure-to-pay (P2P) issues that are crippling the procurement resources.

Six Common Issues That Need Consideration

1. High Proportion of Paper Invoices Received

It goes without saying that rattling through paper invoices to clear them is cumbersome. I find it daunting when my direct reports put a pile in front of me to sign for approval. I certainly don’t have time to clear all the exceptions. What is more annoying is when auditors come in and ask me loads of questions regarding those invoices! For me, it is a no-brainer to use automated and smooth procure to procure-to-pay (P2P) solutions.

2. Non-PO (Purchase Order) Based Invoices

Since I have learned the benefits of three-way matching early on my life, I didn’t understand why we would even have non-PO invoices from supplier. But in reality, we do. And these are the ones which go on problem invoices that cannot be matched to PO (as it does not exist), as well as invoice holds. Therefore, non-PO invoices still require substantial manual effort without a proper solution.

I can sympathize and understand why non-PO invoices drive Accounts Payable (AP) folks crazy. But I argue that AP professionals are no longer just data-entry professionals who process payments. Now, they are expected to be analytical problem solvers who can perform root-cause analysis and improve operations by eliminating issues before they exist, or come up with the process to resolve them.

3. Suppliers Chasing Buyers for Unpaid Invoices

This is probably the most common, painful task in a buyer’s life: unpaid suppliers chasing for invoices and occasionally threatening to put deliveries or services on STOP, which can impact your customer service and lead to loss of revenue.

Dealing with late payment and unpaid invoices can feel a bit like a very precarious course. On one hand, is the need to solve the problem while maintaining a cordial supplier relationship. And, on the other hands, it is not always in your hands to get it resolved. This is where the relationship with your Finance Manager comes in handy!

Late payments can be a serious threat to SME suppliers. A research shows, the average SME is owed £40,857 in unpaid invoices, with £20,937 of that total overdue. For an SME business, this amount can be a difference between profit or loss in a particular month and can put them at risk of closure.

4. Lack of Automation

I believe that if you are going to hire the best people, you also need to give them the best tools to make the most of their talents. While most organisations have access to an ERP system, they should also focus on Procure-to-Pay (P2P) automation. The successful organisation focuses on eliminating waste by reducing manual or non-value-added activities by adoption more automation tools.

A study by Tungsten Network shows organisations wasted on averages 125 hours per week. By automating Procure-to-Pay (P2P) process, you can focus your procurement resources in delivering commodity strategy, drive cost reduction and focus on technologies that truly make a difference in terms of analytics and intelligence.

5. Lack of Accurate Spend Visibility

Even today, some medium to large businesses struggle to have complete spend visibility. Accurate, reliable and easy-to-access visibility of how much is spent, on what and with whom, is something most business should strive for. However, solving the problem of poor spend visibility is not intrinsically build into most ERP systems. Therefore, procurement folks have to do with software and system outside ERP.

In this day and age when trends like Big Data, Artificial Intelligence and Machine Learning are manifesting themselves, I don’t think it is too far fetch to assume we can run spend analytics and cost-saving with press of a button!

6. No Single Accountable P2P Owner

So, who owns a Procure-to-Pay (P2P) process? Is it finance or procurement function? Traditionally, it is usually split between procurement and AP team in Finance. However, I argue this arrangement, and I think one person or one function should be held accountable. I am not too particular about either; it should Procurement or AP, but it has to be one team. Having said that, like most things in supply chain and procurement, the owner needs to coordinate with every stakeholder in business to achieve the desired result.

Moreover, the actual reporting lines do not matter. Organisations must consider segregation of duties and other controls must always be present, for example, SOX compliance for US-based businesses.

This list of six Procure-to-Pay (P2P) mistakes is not exhaustive. I have not mentioned the other lurking issues like violation of contract terms, duplicate invoices, etc. However, they are the most common I have found in my experience.

Final Thoughts

The successful companies who master robust Procure-to-Pay (P2P) process do look at ways to use technology and other means to create a better experience for employees while finding ways to save money.

They also treat Procure-to-Pay (P2P) as the transactional process, meaning they use valuable human resources to conduct a process that can be automated with some work. Top performing firms ensure that Procurement’s hard work gets realized at the moment of truth: driving cost reduction, spend management, sourcing, new product introduction and service innovation.

The thinking point here is this: what we have to do to free procurement professionals from the lower-value Procure-to-Pay (P2P) activities and support them to focus on introducing new products and services. My other suggestions would be:

  • Ensure all processes are tied back to a good “system of record”
  • Optimize working capital to support both Days Payable Outstanding (DPO) requirements while also aggressively taking early payment discounts
  • Find ways to achieve intuitive and flexible communication with suppliers via supplier portal and third-party connectivity.

Last but not least- Implementing enabling procure-to-pay (P2P) software is just one aspect of the overall procurement process. The procurement community must also focus on rationalising your supply base, appropriately training people, and creating a better supplier relationship.

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