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No business stands alone; from office supplies to automotive parts, suppliers provide essential inputs that make business possible.
The process which oversees the purchasing of goods and services is called procure to pay, purchase to pay, or P2P.
In theory, the process is simple. You need something, you buy something. But in business, the P2P process is complex, touches many departments, and has far reaching implications for purchasing power, supplier relations, and working capital.
Get P2P right and you will have a strong cash flow, healthy supplier relations, and competitive pricing. Get it wrong and you risk overpayment for goods, compliance issues and a frustrated workforce.
Process Mining helps get P2P right.
1. Improve Working Relationships Among Teams
Let’s have a look at all the hands that touch a typical P2P process. Keep in mind, this is a very watered down version. Depending upon authority levels of individuals involved and the business structure itself, more layers of this process can easily exist.
User: the person who needs a product or service must communicate the need to procurement. This might be a shipping advisor who needs a new shipping lane established between Mexico and China. This person may hold expertise in shipping lanes, but they don’t hold expertise in terms of pricing and supplier options (procurement does).
Procurement: the person who has vast knowledge of supplier relations and has access to a Business Spend Management (BSM) system like Coupa must provide purchasing options to the user. They try to match the user with a supplier who meets all stated criteria, plus follows internal purchasing policies of which the user might not be aware. The procurement contact is an expert in purchasing, but not in paying and cash flow (but accounting is).
Payables: once the user and procurement have agreed and initiated a purchase, it’s the payables person who must deal with invoices and final payment. This person must ensure the price agreed to is the price paid. They are experts in payment, but not in negotiations.
It’s a lot of back and forth, switching between systems, high risk of rework, process loops, and unnecessary duplications.
Process Mining improves system visibility and can pave the way for smoother communication among departments. By visualizing the process and rooting out inefficient steps, each team member can better communicate their needs and understand the limitations of colleagues.
2. Find Opportunities for Automation
In relation to improving working relations among departments, Process Mining can find opportunities for automation in a P2P cycle. The principle of Robotic Process Automation (RPA) is to transfer low value manual work into the hands of robots, so that knowledge workers can focus on higher value tasks.
The risk here, however, is with poorly targeted processes.
There is a tendency to want to automate “annoying” tasks or those which are frustrating for agents to undergo. The most frustrating step, once automated, does not necessarily deliver the most savings.
Process Mining is able to analyze the P2P process and make the best recommendations for which steps of the process to automate. Purchase orders which are manually closed or low value invoices which go through inefficient approval stages may be ripe for RPA.
3. Optimize Working Capital
Now we’re talking money. The best example of supply chain and P2P disruption is Dell computers circa 1985. Michael Dell decided to do things differently.
First, he built ironclad supplier relations so that Dell didn’t pay for procured computer parts until after the customer had paid for their computer. Then, he created a strong enough brand so that customers were willing to pre-pay for a computer which didn’t even exist yet (it’s so cool, it’s custom made just for you!).
This approach to supply chain management, based on the consignment stock principle, resulted in incredible cash flow and a deep pocket of working capital.
Dell computers paid suppliers as late as possible and received payments from customers as early as possible.
Not all businesses are positioned to operate as Dell did in the mid-80s, but the goal is there for optimizing the P2P cycle. Pay on-time, but as late as possible and collect early.
Process Mining identifies these workflow inefficiencies which can lead to a damaging cash flow situation. Find account payable invoices which are being paid unnecessarily early and, reversely, account receivable invoices which are being paid late.
4. Avoid Compromised Suppliers
Conformance checking in P2P helps root out suppliers which no longer (or temporarily) don’t comply with internal regulations.
Whether part of your corporate governance policy or ethical standards, suppliers must match your business standards.
For example, a clothing manufacturer may avoid fabric supplied by factories without up-to-date safety certifications. An energy company’s procurement strategy may be impacted by embargoes and trade agreements of their host or home nation. Or - in a positive spin - a telco company might strive to work with more family-owned or startup businesses.
Supplier standards, regulations and contracts are logged in systems. But how often are they checked? Does this delay P2P? Does this neglect result in unethical or even illegal purchases? If so, how can that be stopped?
Process Mining visualizes the path between supplier review and purchase. Reduce the time spent on this approval stage, and ensure an ethical and sustainable procurement strategy is followed.
5. Prevent Overpayment
As outlined above in the first tip, P2P touches many hands. This means the person who agreed to a purchase price is not the same person making the final payment. The longer a time gap between an agreed upon price and an issued invoice, the more likely the chance of overpayment.
Process Mining can help prevent overpayment for procured goods and services by finding the causes of past overpayments and correcting these mistakes.
Is your P2P process running smoothly?
Minit Process Mining understands how to maximize the value of your Procure to pay process. We can help your team stop leakage, protect profits and break through performance barriers.
Learn how we helped a global telecommunications company find over $5M in annual savings through optimizing P2P with Minit Process Mining software.
Do you want to find millions in savings as well? Let our powerful technology do the hunting. You may be surprised what you find.
Reach out to our friendly team of process experts today.