The Business Case for Procure to Pay

The Procure to pay category of applications falls within the enterprise resource planning (ERP) family. Procure to pay cuts across procurement and financial accounting processes to provide end-to-end visibility of a purchasing transaction across purchase demand, procurement, verification of procured goods and services, and payment. It presents purchasing information in an integrated manner, enabling stakeholders to understand the complete picture of what they are spending, with whom, and at what stage.

Enterprise software manufacturers like Oracle, SAP, Microsoft, and Sage are leaders in the sector, providing modular solutions that can provide basic or advanced functionality as required. Procure-to-pay solutions provide accountability, traceability, and transparency around company spending and enable reporting against annual operational budget lines.

Implementation challenges are largely around understanding existing processes, and mapping them to more streamlined processes that can be underpinned by a procure-to-pay solution. Therefore, achieving the benefits requires a combination of software deployment and business/operational change.

The benefits of procure-to-pay solutions include:

• Process handling costs: Reduced paperwork and streamlined stakeholder interaction can yield 5% or more reduction in accounts payable costs.
• Supplier effectiveness: A comprehensive view across the supplier estate, coupled with features such as supplier performance analysis, helps remove unproductive and unfavorable suppliers, enabling up to 20% reduction in the number of suppliers, and consequent focus on more effective delivery.
• Staff productivity: Automating the end-to-end procurement function streamlines manual processes driving at least a 1.5% increase in procurement staff productivity.
• Bottom line: With accurate information for decision making, procure to pay can provide at least a 0.25% increase in operating margins.

There are a host of scenarios where procure to pay can improve organizational insight and management. In principle, information from procure-to-pay solutions helps chief finance officers and chief procurement officers understand and meet both individual and company key performance indicators.

In practice, organizations will adopt procure-to-pay solutions when they are facing specific challenges. These include:

• Procurement inefficiency: An organization can be dealing with significantly slow or costly procurement cycles, which result in missed commitments, deadlines, or payments, adding cost and risk to the business.
• Supplier sprawl: Similarly, the organization can be dealing with an unnecessarily complex web of suppliers, for example because of software adoption outside of procurement, or because of merger and acquisition activity.
• Contract compliance: Existing contracts, including blanket purchase agreements, can be burdensome where they force the company to report certain information to suppliers, partners, or public bodies (e.g. in regulated industries).

In such scenarios, end-to-end visibility into suppliers, purchases, contracts, and so on, not only helps streamline activity, but offers significant aid in decision making and reduces the risk of error. For example, two suppliers may be delivering much the same service, but one comes with significant additional procurement overheads. Equally, procure to pay can help when pockets of purchasing have been made from the same supplier, under the radar of procurement.

Alternatives to automated procure to pay processes include collaborative tools like document sharing, which can initiate processes, capture collective feedback, and enable approvals. These collaborative tools provide traceability of actions from various stakeholders—something that procure-to-pay solutions likewise provide.

Simpler approaches to procure to pay include collating information into ad-hoc tools such as spreadsheets. These can be useful when building an initial picture of existing processes, and identifying inefficiencies which can be addressed by a fully fledged procure-to-pay solution.

CapEx and OpEx costs vary by market, with some tier-one providers charging between $150 and $350 per user, per month. There will be upfront costs for a solution integrator to support the rollout, with prices ranging from $20,000 to $60,000. Depending upon the modules implemented, that figure can go higher or lower.

These figures should be considered against the financial gains to be realized from deploying a procure-to-pay solution. Overall costs per year for example are unlikely to exceed the costs of employing an additional person responsible for dealing with the consequences of the existing situation.

From a risk perspective, key elements to look out for are:

• Change management: Procure to pay requires business/operational change, not just solution deployment. If this isn’t taken into account, for example lack of executive buy-in, then the overall success of the deployment will be undermined.
• Slow uptake: The chosen procurement solution may not be fully embraced by employees, or may end up running in parallel with existing systems/financial dashboards, also undermining its benefits as it becomes another overhead.
• Increased project cost: It is important to plan the project, model and lock down the processes concerned, as-is and to-be. Otherwise, scope creep can lead to extra project costs and incomplete realization of benefits.
• Skill gaps: Procure-to-pay solutions may require upskilling of IT staff and business users, to avoid operational challenges and inefficient use of the resulting solution.

• 30 Days: Perform a strategic enterprise analysis documenting the procurement function’s current as-is and future to-be character. This analysis must clearly define pain points, requirements, and competencies, as well as document existing services, processes, IT architecture, and ongoing procurement projects.
• 60 Days: Stakeholder review and approval of high level to-be models (setting scope) and procure-to-pay solution options. This should include gaining executive buy-in as to costs and benefits of delivery.
• 90 Days: Engaged project planning, starting with documenting the project charter and defining change management, methodology, executive sponsor, and project team. Focus should also be on the selection strategies for software and for solution integrators.