Procure to Pay Cycle Best Pratices: Introduction Part 1

A qualitative study of the Procure to Pay (P2P) process was undertaken by our research team to determine the symptoms, root causes, and recommended approaches to identifying and solving the problems associated with the P2P process.

As more companies are seeking to move beyond procurement into fully deployed supply chain systems, a key challenge for many companies is in the area of improving efficiency in their procure to pay cycle for many of their contracted services, especially in the area of facilities maintenance and on-site contract management.  There exist multiple challenges in environments where field associates are working from manual or electronic systems, requisitioning on-site services for maintenance or other activities, and ensuring that this information is captured effectively.  In addition, there exist significant challenges to ensure that the proper service level agreement is fulfilled, the correct price is charged, the purchase order is transmitted correctly, the invoice matches, and finally, that the supplier is paid the correct amount for the actual services delivered.  While many enterprise systems claim that these elements are simply defined within their structural logic, the truth is that there are many opportunities for error, and that without a planned process for managing the procure to pay cycle, your organization may be bearing significant costs due to non-compliance to system or process requirements.

A qualitative study of the Procure to Pay process was undertaken by the research team in order to determine the symptoms, root causes, and recommended approaches to identifying and solving the problems associated with the P2P process.  Moreover, the team was interested in seeking answers to the following questions:
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• What the symptoms of the problem that are being experienced by internal buyers, vendors, and subject matter experts?
• What do these groups of respondents believe are the underlying root cause for these problems?
• What are the recommended solutions and potential benefits associated with the solutions suggested by respondents?

This benchmarking study sought to define and understand the best practices currently being employed by companies in the procure to pay cycle for services.  Specifically, the research team focused in learning and sharing best practices in the following areas shown in Figure 1.

• Forecasting and Planning of Requirements
• Need Clarification / Specification
• Sourcing Decisions in Emergency / Non-emergency situations
• Contract P/O Generation for Structured or Unstructured requirements
• Receiving of Services, Materials, and Documents
• Settlement and Payment in Accounts Payable.

Figure 1

In order to explore how an organization should approach improvements to the P2P cycle, we adopted a grounded case-based research approach to identify the issues and develop a framework for analysis.  Case research requires that a set of detailed interviews with a small sample of firms involved in the phenomenon of interest be studied in detail to determine qualitative insights into the linkages (1). Before beginning a case study, however, it is necessary to have a conceptual model for crafting research instruments and protocol (2). The conceptual model for studying the research questions was therefore derived, based on existing literature as well as a kick-off meeting held in early June.  A comprehensive literature survey was carried out in order to develop a model describing best practices in P2P, which resulted in a five-stage maturity model shared with the core team.  This framework is based on the notion that the P2P must be an integrated approach that includes all of the functions throughout the process to be effective, and is described in the next section.  Some of the initial hypotheses regarding the problems surrounding the P2P process were developed around discussions at an executive workshop and developed into specific questions for the interviews.

Figure 2

Next, an interview protocol was developed based on a general understanding of issues facing the organization and the hypotheses developed.  (See Figure 1.)  Questions focused around the workflow associated with the movement and management of materials and services to the company’s facilities, and included vendors and subject matter experts from a number of external companies.  Key respondents were identified in each of these areas, and interviews were carried out using the structured interview protocol.

Hypothesis

H1

The root cause for problems is associated with a lack of process design and poor communication

H2

The root cause for problems is a lack of a central point of contact – designated relationship manager

H3

The root cause for problems is a lack of standard single input point from suppliers/ field buyers into SAP.

H4

The root cause for problems is the lack of a forecast and planning process.

H5

The root cause for problems is a proliferation of catalog items, suppliers and line items causing increased complexity.

H6

The root cause for problems is a lack of executive support that drives compliance to the process

We interviewed a number of suppliers who had experienced problems associated with the P2P process, and interviewed a number of subject matter experts.  The research identified six key findings that can lead to improvement in the P2P cycle:

• Robust processes and training
• On-site relationship managers to allow field maintenance to focus on doing their job
• Robust technology using single point of contact – supplier portal
• Improve forecasting for maintenance and planning for emergencies that can “flex” with different situations
  that arise
• Reduce complexity in catalogs and buying channels to streamline procurement
• Top management support

Virtually all of the hypotheses we posited at the beginning of the research project were validated by the suppliers and subject matter experts interviewed in the study.   A confluence of respondents each arrived at much the same conclusion:  the P2P cycle truly needs to be re-designed if improvement is to occur.  A suggested approach for improvement of the P2P was documented:

Secure top management support for the initiative and budgeting for the project.  Develop a list of key benefits and deliverables that will occur as a result of the improvements.  Document the cost of leaving the system “broken” in its current state.

1. Map existing processes and problems with the P2P cycle.  Identify where the breakdowns are occurring, and why they are occurring.
2. Understand the needs and requirements of the user groups.  Many of the people involved – maintenance, planning, project management, suppliers accounts payable, buyers, etc. – have specific issues that prevent them from using the existing system. Also, many of the specific sites may have issues that need to be considered in designing the new system.
3. Team Redesign Workshops should be used to bring together key subject matters experts from each of the business units.  Suppliers should also be invited to attend and participate, as they may have solutions they have adopted with other customers that may prove to be efficient and simple to use (e.g. “why re-invent the wheel?”)
4. Explore existing technology solutions with SAP, as well as bolt-on applications.  Map out the business requirements, and ensure they are aligned with the technology solutions that are available.  Begin to estimate cost of deployment, and ensure that adequate planning and due diligence is taken at this step.
5. Following the workshops, define the new process and begin to pilot using a planned technology.  Ensure that it takes place in a “real” environment, with actual non-trained users involved in the pilot before cutting over to the next process.
6. Train and deploy other users based on the new processes and systems.  Be sure to make the training appropriate to the specific functional unit and user groups.
7. Monitor, update and improve the system, ensuring that catalogs are kept up to date.  Hold periodic meetings with suppliers and user groups to solicit input and identify problems with the systems.

As technology and business requirements evolve, the P2P cycle will probably need to be re-visited from time to time to ensure it is meeting the needs of internal customers, and that suppliers are satisfied with the system.

In the next series of articles, we will document the specific best practices advocated by subject matter experts we interviewed as part of this research project.

References:

(1) K. Eisenhart, “Building Theories from Case Studies,” Academy of Management Review, 14, p. 532-550, 1989
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(2) M. Miles, and A. Huberman, Qualitative Data Analysis (Second Edition). Thousand Oaks, CA: Sage Publications, 1994.