Best Practices in Procure to Pay Cycle: Perspectives from suppliers – Part 2

PART 1 PART 2 PART 3
PART 4 PART 5 PART 6
PART 7 PART 8 PART 9
PART 10

We first interviewed eight suppliers who were known to have experienced many of the typical problems associated with the P2P cycle (e.g. late payments, etc.).

Figure 3 – Symptoms Identified by Suppliers

As shown in Figure 3, the most common symptoms experienced by vendors involve high manual workarounds required to address problems, long cycle times for payment, no central point of contact, and a problem with matching the PO and invoice. Some of the typical responses we heard from vendors in these categories included the following:

We have had a lot of money tied up with this customer. This is not good for this customer because they do not recognize their cost until it is approved in their system. We don’t invoice until we receive a service entry number back. If a service entry is not created in their system for an amount equal to or greater than our timesheet and we process our invoice, the invoice will be “parked or blocked”, and will not get paid. Usually these parked or blocked invoices will stay in those statuses until they go into the 60 days column of our aging. At that point I contact their payables person or my contact in their services department to set a meeting to determine why these invoices are not paid. No notification is done to let us know that the invoice is not going to be paid.

It is important to note that all of these examples are symptoms of a set of underlying problems with the P2P process. These examples are also not uncommon. Many of the suppliers we spoke with noted that they had also experienced these problems with other customers, although in this case the company noted was exceptionally bad.

Root Causes Identified by Suppliers

Vendors interviewed also noted a number of root causes associated with the P2P problems. As shown in Figure 4, the most common root causes were associated with the lack of a formally designed P2P process, the lack of a central relationship management, or problems associated with supplier interfaces with SAP. Other reasons included the increased complexity associated with SAP catalog and line items, and the lack of a forecasting process. Some of the common root causes mentioned by vendors included the following:

Figure 4 – Root Causes Identified by Suppliers

As can be seen from these examples – the fundamental root causes are that a lack of a process with designated roles and specific processes associated with different internal and external functions are not defined. Maintenance people, buyers, planners, schedulers, accounts payable, project planners, and others are not “in synch”. Further, the system is not designed to be able to withstand the various approaches in which people are entering data and requesting information. When too many people are not using the system in a unified manner, it is no wonder that the system rejects the input and causes problems! Thispoints to the fact that either the tolerances of such systems must be changed, or the manner in which the system is used is changed.

Recommended Solutions

These same set of issues were identified in recommended solutions suggested by vendors. The vendors recommended that the company explore the following possible actions.

Figure 5 – Recommended Actions Suggested by Suppliers

The top four elements that were identified as possible solutions included redesigning the P2P process, developing a dedicated relationship manager to work with suppliers on key areas of interface, exploring the use of a vendor portal using the CATS interface in SAP, and reducing catalog items through a spend analysis to reduce the inherent complexity of entering information into the SAP system.

Specific recommendations were as follows:

There needs to be a relationship manager, to make the whole purchase to pay situation completely process driven. This is difficult, as there is not a lot of decision-making that can be automated.

Another thing that would really help – we can receive orders electronically. If they use their catalog number – we can receive it automatically and it crosses into our system and there is no question as to what the price, description is.

All of the people in the trenches – financial guy, biller, their cost person, their upload person – all of these people have to understand their function and what the handoffs are. If there is a problem, they all have to understand how to resolve it.

We generate an invoice online – we already have the billable rates, we know the hours – and can send them for approval on a weekly basis….I could easily add a column with the dollars. That number could be used to make the payment – and then we can follow through with an official invoice, and get the i’s dotted and t’s crossed – which would also help with the cash flow position!

_You CANNOT plan for the unexpected on turnarounds – but they should have a history of their turnarounds to look at their paid process. They could come back and audit it and take exception – but to hold our dollars is killing us on a low margin business. 50% exceeding the initial estimate is not a large number on a turnaround. If they could pay us and then and audit the figures – or even if they were able to check part of it we would be willing to credit them later! _