Create strong processes that support organizational-level business goals on your path to success.
Procurement is experiencing a shift. It's no longer a cost-savings pursuit above all else. Marching forward, it's about driving greater value that stretches horizontally across your organization and vertically through your internal and external partnerships.
Perched at the top of this transformation, is your procure-to-pay (P2P) process, and efficiency is the target. By implementing a clearly defined, systematized process to integrate your purchase and accounts payable for end-to-end security in supplies and services, you absolutely support your higher organizational goals. An excellent P2P process creates value in addition to achieving cost savings. Many forward-focused leaders are turning to exciting and innovative procure-to-pay software solutions that extend their ability to work proactively while also tracking their continuous improvement.
There are many moving parts. Manual processes simply don't keep up, creating bottlenecks at each point. For each and every agreement, you must:
- Select goods and services.
- Assess the true need for them.
- Check for appropriate pricing and timelines.
- Monitor and enforce compliance around each order.
- Receive and reconcile requests.
- Oversee invoicing.
- Ensure prompt, accurate payment.
What Is Procure-To-Pay and How Does It Differ From Source-To-Pay
It's important to differentiate the P2P and source-to-pay (S2P) processes. Because both hold similarities, it's not always clear to see. Yet, knowing the differences supports you in implementing stronger procurement strategies overall.
P2P involves working with a vendor already qualified on your approved vendor list and familiar with your organizational processes. The process flows from the requisition stage, to purchase, receipt and eventually payment for goods and services. S2P, on the other hand, is used when it's necessary to source new vendors, often in pursuit of more favorable terms or pricing. It's an intensive process built around strategic sourcing solutions and occurs much prior to transactional execution.
To clarify, here are some key differentiators:
Unlike P2P, S2P entails strategic sourcing aspects of vendor and supplier relationships. It often includes performing business-needs assessment, vendor analysis, planning and execution based on organizational budget and supplier base. It requires strategic vendor sourcing, negotiating and contracting with vendors to enable efficient payment for goods and services.
P2P involves the management of transactional processes within vendor management, delivery, compliance, and payment. It includes managing risk, vendor performance, and other category-level management details.
As Procurement's role continues to expand into a wider sphere of influence, mastering the procure-to-pay process holds the incredible opportunity to generate profitability today but also to future-proof your organization for the longer term through value creation and cost-saving realization.
Why is it more important now than ever? Because you're steering your company through decades-high inflation, supply chain uncertainty, and labor shortages. When you streamline your P2P process, you gain speed, accuracy, and better cash flow optimization. You control costs better, avoid operational interruptions, and stop cost overruns.
Every procurement professional has unique challenges and opportunities specific to their company and industry. But in general, there are five key steps within the P2P process bursting with opportunity to create value across your organization.
Let's dive in so you can unlock greater potential starting today.
5 Actionable Steps to Master Your P2P Process
By breaking the procure-to-pay process into five steps, we aim to make these tips comprehensive, practical, and impactful. Let's get started.
1: Identify and Validate Needs
Mastering your procurement process starts with a crystal clear understanding of your business requirements. Excellent communication with your cross-functional stakeholders is critical. Working in procurement is a strategic role where you're constantly balancing your organization's long-term business strategy and immediate, ongoing operational needs. That means you hold real power to prioritize purchases for the good of your organization. Knowing this, you can quickly sort out which requests are actually valid or not.
Once validity is determined, you can work out the high-level specifications for the goods, services, and equipment required to create terms of service and produce statements of work ordered.
Pro Tip: Implement clear feedback loops that include everyone from your executive to operational teams. A well-implemented feedback loop generates opportunities for data use that uncovers long-term trends for continuous improvement and innovation. Use documented feedback to assess and confirm purchasing needs via respecification or by connecting the dots with past projects. Next, perform a clear breakdown of all requirements involved in the potential purchase, including project scope and timelines, and then validate each spec.
2: Create and Approve Requisitions
With admin requirements met, the purchase requisition for goods or services outlines the details of the product or service, the quantity, and price, as well as the name and department of the individual making the request. The requisition may involve anything from standard purchases to subcontracts or consignments.
At this point, Procurement and other applicable department leaders review the requisition. Informed by organizational policy, budget, purchase legitimacy, and business requirements, these leaders will deny or approve the purchase. It's a lot to cover and leading procurement pros are seeking quicker ways to convert requisitions into POs.
Unfortunately, manual purchase requisition and approval processes are error-prone and cost organizations money and time. When submitted inaccurately or incompletely, purchase requisitions may be sent back and forth between the buyer and the vendor many times over.
Pro Tip: Speed up your requisition and approval process by implementing streamlined processes with clearly defined roles, responsibilities, and checklists for all involved. Support your own team and other departments to follow that process by regularly sharing procedures and communicating them across various channels.
3: Generate and Approve Purchase Orders
At this point, the purchase requisition progresses to the purchase order generation stage. Including details around order date, shipping, discount, supplier, pricing, and quantity, the PO travels through an approval process that ensures its legitimacy. Once approved, it's sent off to the vendor for their review and then approval or negotiation. Once signed by the vendor, the PO and its terms become legally binding.
Pro Tip: Create your ideal purchase order system using procure-to-pay software solutions. Procure-to-pay process automation optimizes your entire PO process, supporting you to work strategically. By generating smart purchase order forms held in a central repository, the process becomes more transparent, and efficient, and builds stronger vendor relationships.
4: Monitor Vendor Performance
Once the promised goods or services are delivered, it's critical to evaluate whether they comply with the agreed-upon contract terms. When it comes to supplies, monitoring the delivery process is less complex. But when it comes to external service providers, often performing their service at a later time, the monitoring process has tended to be manual, extremely laborious, and complicated.
Either way, vendor performance must be evaluated to confirm you're reaping the maximum benefit from the contracts you secure. You'll seek to answer the following:
- What is the level of quality of the service or goods provided?
- Was it executed on time?
- Were all contract terms complied with?
- What is the total cost of ownership (TCO) at the end of the project?
With those questions answered, you can confidently approve or reject the goods or services receipt.
Pro Tip: Remember, ERP systems are designed to purchase goods from a catalog, not services for an event that occurs in the future. Advanced procure-to-pay solutions leverage auto-monitoring for real-time flagging and early notification of vendor non-compliance. Use that information to streamline your purchase-to-pay processes with optimal time and material contract terms while also creating a culture of vendor accountability.
5: Approve Invoices and Pay Vendors
With the goods receipt approved, it's time to compare the PO, the vendor's invoice, and the goods receipt against one another. Performed with manual stare-and-compare reconciliation methods, this point of the process is extremely tedious and complex, especially when you're dealing with external workers coming onto your work site.
Once it is confirmed everything checks out free of discrepancies or anomalous entries, the invoice is approved and forwarded to Finance. In the best-case scenario, accurate vendor payment is promptly made.
In the case contract changes were implemented, payment may account for the updates but is typically made in one or any combination of the following: advance, partial, installments at progress points, final, and holdback payments.
Unfortunately, should there be inaccuracies–an all-too-common occurrence when relying on manual contract management processes–the invoice must be sent back to the vendor with the reason(s) for rejection, corrected, and then sent through the process once again. In these cases, it costs valuable internal time and drastically slows vendor payment.
Pro Tip: Centralized digitization in procure-to-pay processing eliminates typical bottlenecks in manual monitoring and approval processes. It's a massive internal time saver that also keeps vendors happy with fast and accurate pay.
Why Using Procure-to-Pay Software Pays Off
Leading procurement professionals are transforming the world of procurement, using their own experience as a guide and leveraging comprehensive procure-to-pay solutions which encompass everything from purchase requisition and purchase order solutions to invoicing and supplier management. That includes embracing new mindsets around what constitutes exceptional procurement. What does this revolution look like?
Procurement visionaries know that any process or system that obstructs communication between departments within the procure-to-pay process harms the organization in many ways. In most cases, these workflows are inefficient, lack transparency, and just plain cause unnecessary cost and value leakage.
Procurement pros see that legacy ERP systems and other semi-digital accounting software lack the ability to pull various procurement tools into a single platform. They also inhibit forecasting ability around services not yet completed. Simplification of the procurement process is the way of the future.
There's more to the mission than a better bottom line
Lack of procure-to-pay software, or even riskier–no process solution–inhibits your profitability. Furthermore, it can damage your most important relationships and compromise secure, continuous operation within your organization's capital and maintenance projects.
Wherever you are in your pursuit of procure-to-pay excellence, keeping processes transparent and effectively communicated makes for positive impacts starting today. Doing so while also meticulously managing your contracts to achieve win-win partnerships is exponentially easier to put into play when you embrace P2P software that digitizes and automates each mission-critical step. The best procurement management solution can be customized to your unique needs and eliminate the worry associated with human error. Remember, advanced technologies are not here to replace you. They're designed to enhance your abilities and boost your career.
Procure-to-Pay KPIs that Matter: You Can't Manage What You Don't Measure
Those who accept nothing but excellence are constantly measuring results in order to set and reach the next goalpost. Procurement leaders are no different. We know you're working to drive so much more value than hard cost savings. We applaud you in your constant hunt for cleaner procurement processes and more sustainable strategies.
It starts with being empowered to make data-driven decisions. But you can also use that data to set ambitious yet realistic key performance indicators (KPIs). Then, track those metrics for regular assessment and continuous improvement. Beyond your own performance, you'll better monitor and evaluate your organization's procurement efficiency so you can optimize your production spend, timeline and quality.
How do your KPIs help you to continuously improve your procurement strategy while achieving larger business objectives and organizational goals? If you create and track KPI metrics around the following, the sky's the limit:
- Enhance compliance rates.
- Reduce business spend undermanagement.
- Quicken PO and invoice cycle time.
- Improve vendor performance.
- Achieve cost reduction, avoidance and savings.
“Every New Day Begins with Possibilities.”
We believe in these wise words from President Ronald Reagan. Imagine, if you improve even one small action item within your procure-to-pay process today, its impacts down the road hold real potential to drive incredible value across your organization. It doesn't have to be a massive and abrupt overhaul. You can take incremental steps to continuously and sustainably improve your P2P process and ultimately, your company's success.
Ready to Lead the Way?
We truly want to support you on your procurement excellence journey. PayShepherd was built with boots-on-the-ground understanding and experience around inefficient P2P processes. We've seen how much they cost companies and strain relationships. We knew there was a better way, so we built it and our client-partners are embracing it too.
How can we help? Let's talk.