Organisations that have robust
methodologies for sourcing and managing suppliers are neglecting
transactional
processes, with potentially serious consequences, reports Rima Evans
By Joris Bonants, Finn Wynstra and Frank Verbeeten
Organisations
are increasing risk and inefficiency by failing to define and implement optimal
purchase-to-pay (P2P) process flows by spend category, research has revealed.
The Hackett
Group found that only 63 per cent of world-class organisations have defined the P2P
transactional channels they feel are optimal, compared with 53 per cent of
their peer group. These percentages are low, according to Hackett.
Companies
commonly define sourcing and supplier management processes by spend category to
ensure maximum efficiency, but they often do not apply the same techniques for
buying from and paying those suppliers, the study said. Similarly, where
companies usually have some formal sourcing methodology, they may have tens if
not hundreds of different ways to buy and pay for goods and services. “This can
reduce efficiency and customer satisfaction and lead to higher noncompliance
rates and greater risk,” the report said.
Melani Flores,
European procurement advisory practice leader at the Hackett Group, said
companies were also compromising potential cost savings.
“Clear
benefits of defining P2P process flows by spend category are reducing
complexity and process costs.”
She added:
“More important is that it increases compliance and effectiveness, which can
have an impact on negotiated cost savings. In some indirect spending categories
an average 12 per cent of negotiated savings can be lost because of maverick
spending.”
Flores said
the main reasons organisations were weak in this area was a lack of
understanding of the impact of having so many different P2P channels, a lack of
clarity on how many channels were being used, as well as silo working and poor
interface between the sourcing and transactional areas.
“Proper
transactional control can be a bit neglected because of the idea that it is
entirely separate,” Flores said.
The study went
on to highlight that different companies have different P2P channel
requirements. For example, manufacturers may be biased toward a three-way match
process or evaluated receipts settlement for managing direct materials
procurement. Meanwhile, services organisations might have a higher mix of
procurement cards, assumed receipts, or invoice-only transactions. Whatever the
requirements, the study said, procurement organisations wanting to improve
their overall source-to-settle performance must:
1. Possess a
unified spend category taxonomy.
2. Define a
rationalised set of transactional purchasing and payment processes (fewer than
five is a good target) that are then explicitly mapped to spend categories
and/or associated suppliers.
3. Ensure that
individual P2P transactional channels balance cash, cost and stakeholder
satisfaction.
4. Integrate a
channel strategy selection and implementation plan into the category management
process.
“It’s
fundamental to have a unified spend category taxonomy,” Flores said. “But all
of these steps are important, since they are different pieces of the puzzle.
The most common mistake organisations make is to implement just one or two of
these which means they don’t get the benefit of a complete solution.”
The report
went on to conclude: “Many procurement organisations are looking for ways to
free up funds for investing in higher-impact activities. Being successful
requires that they first define the optimal service delivery model for their
various transactional processes.”
Download the
research here.
Joris Bonants (joris.bonants@philips.com) is supply planner
EMEA at Philips Lighting Electronics, based in the Netherlands. Finn
Wynstra (fwynstra@rsm.nl) is professor of purchasing and
supply management at Rotterdam School of Management, Erasmus University,
where Frank Verbeeten is assistant professor, accounting & control
