Procurement, Procure to Pay (P2P) and Global Business Services (GBS) Leaders face many challenges when it comes to the end-to-end Procure to Pay process. Cash flow, resource allocation, transaction volume, usability of the data they have, value of the technology in place, and on and on.
What I want to share are three focus areas that I centered myself and my Team on in order to communicate, influence and lead the P2P process within a Global Business Services organization.
End to End Process KPI’s
It is no longer good enough to just focus on the payment KPI’s to convey an opinion on the effectiveness of your people, processes, technology, and data. This was fine a decade ago when Global Process Owners were few and far between and the C-Suite was not demanding process integration. This is no longer the case.
An effective set of business driven KPIs must encompass each major component of the entire process. Some examples are; product or service quality, timeliness of product or service receipt, pricing and value, accuracy of supplier master data, strategic suppliers spend as a percent of total spend (by category/product line or in total), first time match rate, and percent of payments on time.
Of course, there are numerous others so I suggest concentrating on 2-3 from each major process step as a starting point and refine from there.
Defects, Defects – They are the Key
It sounds like a simple cheer, but defects are the key to optimizing your process and improving end to end process awareness, understanding, collaboration and alignment. A focus on defects creates a “shift left” focus on the process and root cause analysis. By deciding to spend at least some time on defect identification and correction you are already a leader as many organizations still focus solely on Payables KPIs for throughput and volume.
Defects are crucial because this is where all of your re-work occurs and most of your team’s frustrations lie. Tracking and improving defect KPI’s institutionalize a culture of improvement, partnership, and communication. These are natural outcomes of a defect focus because many defects occur as a result of something happening upstream or downstream that require collaboration, influence, and effective communication to correct.
Some examples of defect KPI’s include; aged goods receipts, aged un-matched invoices, “stale” purchase orders, invalid or incomplete supplier master data, duplicate suppliers, many suppliers in your tail spend numbers, operational segregation of duty issues, invoice to purchase order price variance, and many others.
Who is the Customer Anyway?
Many P2P Leaders find themselves sitting on the wrong side of the Customer/Supplier fence. It can be easy to forget that we are indeed the Customer as suppliers apply pressure to “pay my invoices or the product will go on hold” or ”we are changing our terms and conditions so you must comply.”
It is easy to be consistently reacting to these types of demands. Which is why I implemented a supplier scorecard review done semi-annually with our strategic and sole source suppliers. This took some time and influencing but at the end of the day we had the company’s best interest at heart and this came through as I presented a supplier review process that was focused on our view of the world.
These scorecards had a mix of objective data components as well as subjective, example-based metrics. Our scorecard had a 75/25 mix (objective/subjective) so it was difficult to argue with most of the detail. I put together a team with members from each major area of the process to develop our scorecard and agree to the weightings of each element.
Some examples of the components of the scorecard are; product quality, terms and conditions, spend volume, digitization of the process, i.e. are purchase orders accepted electronically, delivery timeliness, etc. These components were weighted and the results were communicated to our suppliers in 30 minute virtual reviews on a semi-annual basis.
In summary, there are many challenges in a fast changing business. However, I am confident that if you take steps on these three items above you will increase your influence and value across the P2P process, inform yourself, your team and your cross-functional stakeholders along the way, and begin establishing a culture of improvement, development, accountability, leadership, value and success!