Today’s Procure-to-Pay (P2P) technology is making it easier for procurement and finance and accounting departments to share the strategic responsibility of optimizing processes and managing costs. But first things first. Successfully adopting a P2P solution—resulting in end-to-end value—requires a tight alignment between the two functional areas. If procurement and finance are not starting out on the same page, they need to get on the same page before their collaborative efforts can yield expected outcomes.
Let’s look at the relationship dynamics between procurement and finance and explore what can be done to sync them up—so their shared P2P solution can live up to its many promises.
Two Ships Passing in the Night?
In some organizations, the procurement and finance departments simply coexist. In others, they collaborate on certain activities and share a few defined goals. This is mainly because they have different, yet complementary, functions with very different success metrics. From a big-picture perspective, they haven’t shared the spotlight.
The procurement area tends to focus on acquiring goods and services while reducing costs, driving more for less from suppliers. The financial team hones in on working capital and profitability; accounting is very process-oriented in its quest for efficiency. And until now, they’ve all used mostly disparate systems, workflows, and data.
Take a look at these survey results from a recent SAP Ariba study. Participant responses to “How aligned would you say Finance and Procurement are?” form an almost perfect bell curve:
- 3% Not aligned
- 18% Rarely aligned
- 54% Somewhat aligned
- 20% Mostly aligned
- 5% Very aligned
Inefficiencies and Opportunity Costs
Procurement and finance and accounting teams landing on the not-so-aligned portion of the curve tend to suffer some common pains. Business management consultancy Genpact points to these:
- Less awareness of overall spend, especially tail-end spend
- Negative impact on supplier relationships, negotiations
- Late payments, missed early payment discounts
- Tracking of different metrics/KPIs, impacting compliance
Considering the SAP Ariba survey respondents’ top two P2P priorities are to standardize processes globally and automate P2P processes (at 58% and 46%, respectively), it’s easy to see why more alignment between the two departments is a better marker for technology adoption success.
The survey analysis states, “A key reason e-invoicing initiatives fail is because it was driven by Finance, and Procurement wasn’t involved. E-invoicing is a supplier-based program, so make sure that you have support from Procurement.” They conclude that having global process owners drives better and quicker results.
In breaking out comparative results in the SAP Ariba study for companies identified as “top 25%” and “average” performers, in fact, top performers are more likely to manage P2P as an end-to-end process with a single point of accountability rather than as a series of discrete tasks, resulting in higher purchase order and invoice efficiency. The experience of Genpact shows that aligning procurement and finance can deliver savings of up to 25%.
Aligning for Success
For a winning P2P program deployment, procurement and finance and accounting need to share KPIs, vision, and leadership. If it’s a finance-led initiative, procurement should be invited to consider the financial implications of the supply chain. They should work from the same data, when possible, linking procurement objectives to business objectives. The two areas should work together to understand where savings come from and how to best achieve the results they’re looking for, from both strategic and bottom-line perspectives.
The GEP white paper, Perfect Alignment: How Procurement and Finance Can Work Together to Achieve P2P Excellence points out that a P2P system won’t simply make ordering easier for the procurement person. They advise, “Planning and forecasting that takes into account the procurement processes as well as finance imperatives needs to be at the heart of a P2P strategy.”
To get in sync, GEP recommends getting input from both areas to establish a strong understanding of shared objectives. For example, procurement can be involved in the invoice approval workflow while the approval and invoice reconciliation processes that get configured in the purchasing system are approved, or even defined, by finance. This helps with practical things like ensuring orders (and the related data) can be processed by both suppliers as well as the internal accounts payable team—and this, in turn, helps ensure that early payment discounts are more easily captured.
Finally, a P2P system implementation that takes an integrated approach has been shown to lead to better outcomes, such as:
– Increased spend visibility and transparency
– More on-time payments and early payment discounts
– Tighter controls, more robust compliance and governance
– Greater efficiency through fewer errors
– Lower costs through electronic processes
– Better supplier relationship management and supplier satisfaction levels
– Enhanced reporting and optimized use of data and insights
To learn more about P2P systems and how to overcome tech adoption challenges, read Exploring AP Technologies: Complete Procure-to-Pay Solutions and The 3 Components of a Successful Tech-Fueled Procurement Transformation.