best practices in procure to pay article

7/27/2019 Best Practices in Procure to Pay Article

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Best Practices in Procure to Pay

Introduction Part 1

Written by:Rob Handfield, SCRCKevin McCormack, and Wolfgang Steininger

As more companies are seeking to move beyond procurement into fully deployedsupply chain systems, a key challenge for many companies is in the area ofimproving efficiency in their procure to pay cycle for many of their contractedservices, especially in the area of facilities maintenance and on-site contractmanagement. There exist multiple challenges in environments where fieldassociates are working from manual or electronic systems, requisitioning on-siteservices for maintenance or other activities, and ensuring that this information is

captured effectively. In addition, there exist significant challenges to ensure thatthe proper service level agreement is fulfilled, the correct price is charged, thepurchase order is transmitted correctly, the invoice matches, and finally, that thesupplier is paid the correct amount for the actual services delivered. While manyenterprise systems claim that these elements are simply defined within theirstructural logic, the truth is that there are many opportunities for error, and thatwithout a planned process for managing the procure to pay cycle, yourorganization may be bearing significant costs due to non-compliance to systemor 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, andrecommended approaches to identifying and solving the problems associatedwith the P2P process. Moreover, the team was interested in seeking answers tothe following questions:

What the symptoms of the problem that are being experienced by internalbuyers, vendors, and subject matter experts?

What do these groups of respondents believe are the underlying root causefor these problems?

What are the recommended solutions and potential benefits associatedwith the solutions suggested by respondents?

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


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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. The Procure to Pay High Level Process

In order to explore how an organization should approach improvements to theP2P cycle, we adopted a grounded case-based research approach to identify theissues and develop a framework for analysis. Case research requires that a setof 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 conceptualmodel for crafting research instruments and protocol (2). The conceptual modelfor studying the research questions was therefore derived, based on existingliterature as well as a kick-off meeting held in early June. A comprehensiveliterature survey was carried out in order to develop a model describing bestpractices in P2P, which resulted in a five-stage maturity model shared with thecore team. This framework is based on the notion that the P2P must be anintegrated approach that includes all of the functions throughout the process tobe effective, and is described in the next section. Some of the initial hypothesesregarding the problems surrounding the P2P process were developed around

discussions at an executive workshop and developed into specific questions forthe interviews.


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Figure 2

Next, an interview protocol was developed based on a general understanding ofissues facing the organization and the hypotheses developed. (See Figure 1.)Questions focused around the workflow associated with the movement andmanagement of materials and services to the companys facilities, and includedvendors and subject matter experts from a number of external companies. Keyrespondents were identified in each of these areas, and interviews were carriedout using the structured interview protocol.

Hypothesis

H1 The root cause for problems is associated with a lack ofprocess design and poor communication

H2 The root cause for problems is a lack of a central pointof contact - designated relationship manager

H3 The root cause for problems is a lack of standard singleinput point from suppliers/ field buyers into SAP.

H4 The root cause for problems is the lack of a forecastand planning process.

H5 The root cause for problems is a proliferation of catalogitems, suppliers and line items causing increasedcomplexity.


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H6 The root cause for problems is a lack of executivesupport 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. Theresearch identified six key findings that can lead to improvement in the P2Pcycle:

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 projectwere validated by the suppliers and subject matter experts interviewed in thestudy. 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. Asuggested approach for improvement of the P2P was documented:

1. Secure top management support for the initiative and budgeting for theproject. Develop a list of key benefits and deliverables that will occur as a

result of the improvements. Document the cost of leaving the systembroken in its current state.

2. Map existing processes and problems with the P2P cycle. Identify wherethe breakdowns are occurring, and why they are occurring.

3. Understand the needs and requirements of the user groups. Many of thepeople involved maintenance, planning, project management, suppliersaccounts payable, buyers, etc. have specific issues that prevent themfrom using the existing system. Also, many of the specific sites may haveissues that need to be considered in designing the new system.

4. Team Redesign Workshops should be used to bring together key subjectmatters experts from each of the business units. Suppliers should also be

invited to attend and participate, as they may have solutions they haveadopted with other customers that may prove to be efficient and simple touse (e.g. why re-invent the wheel?)

5. Explore existing technology solutions with SAP, as well as bolt-onapplications. Map out the business requirements, and ensure they arealigned with the technology solutions that are available. Begin to estimatecost of deployment, and ensure that adequate planning and due diligenceis taken at this step.


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6. Following the workshops, define the new process and begin to pilot usinga planned technology. Ensure that it takes place in a real environment,with actual non-trained users involved in the pilot before cutting over to thenext process.

7. Train and deploy other users based on the new processes and systems.

Be sure to make the training appropriate to the specific functional unit anduser groups.8. Monitor, update and improve the system, ensuring that catalogs are kept

up to date. Hold periodic meetings with suppliers and user groups tosolicit input and identify problems with the systems.

As technology and business requirements evolve, the P2P cycle will probablyneed to be re-visited from time to time to ensure it is meeting the needs ofinternal 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 researchproject.

References:

(1) K. Eisenhart, Building Theories from Case Studies, Academy ofManagement Review, 14, p. 532-550, 1989.

(2) M. Miles, and A. Huberman, Qualitative Data Analysis (Second Edition).Thousand Oaks, CA: Sage Publications, 1994.

Part 2:

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


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Figure 3 Symptoms Identified by Suppliers

As shown in Figure 3, the most common symptoms experienced by vendorsinvolve high manual workarounds required to address problems, long cycle times

for payment, no central point of contact, and a problem with matching the PO andinvoice. Some of the typical responses we heard from vendors in thesecategories included the following:

We have had a lot of money tied up with this customer. This is not good for thiscustomer because they do not recognize their cost until it is approved in theirsystem. We dont invoice until we receive a service entry number back. If aservice entry is not created in their system for an amount equal to or greater thanour timesheet and we process our invoice, the invoice will be parked orblocked, and will not get paid. Usually these parked or blocked invoices willstay 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 departmentto set a meeting to determine why these invoices are not paid. No notification isdone 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 ofunderlying problems with the P2P process. These examples are also notuncommon. Many of the suppliers we spoke with noted that they had alsoexperienced these problems with other customers, although in this case thecompany noted was exceptionally bad.

Root Causes Identified by Suppliers

Vendors interviewed also noted a number of root causes associated with the P2Pproblems. As shown in Figure 4, the most common root causes were associatedwith the lack of a formally designed P2P process, the lack of a centralrelationship management, or problems associated with supplier interfaces withSAP. Other reasons included the increased complexity associated with SAPcatalog and line items, and the lack of a forecasting process. Some of thecommon root causes mentioned by vendors included the following:


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Figure 4 Root Causes Identified by Suppliers

As can be seen from these examples the fundamental root causes are that alack of a process with designated roles and specific processes associated withdifferent internal and external functions are not defined. Maintenance people,buyers, planners, schedulers, accounts payable, project planners, and others arenot in synch. Further, the system is not designed to be able to withstand thevarious approaches in which people are entering data and requestinginformation. When too many people are not using the system in a unifiedmanner, 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 bechanged, or the manner in which the system is used is changed.

Recommended SolutionsThese same set of issues were identified in recommended solutions suggestedby vendors. The vendors recommended that the company explore the followingpossible actions.


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Figure 5 Recommended Actions Suggested by Suppliers

The top four elements that were identified as possible solutions includedredesigning the P2P process, developing a dedicated relationship manager towork with suppliers on key areas of interface, exploring the use of a vendor portalusing the CATS interface in SAP, and reducing catalog items through a spendanalysis to reduce the inherent complexity of entering information into the SAPsystem.

Specific recommendations were as follows:

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

Another thing that would really help we can receive orders electronically. Ifthey use their catalog number we can receive it automatically and it crossesinto 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, theirupload person all of these people have to understand their function and whatthe handoffs are. If there is a problem, they all have to understand how toresolve it.

We generate an invoice online we already have the billable rates, we know thehours and can send them for approval on a weekly basis.I could easily add acolumn with the dollars. That number could be used to make the payment andthen we can follow through with an official invoice, and get the is dotted and tscrossed which would also help with the cash flow position!


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You CANNOT plan for the unexpected on turnarounds but they should have ahistory of their turnarounds to look at their paid process. They could come backand audit it and take exception but to hold our dollars is killing us on a lowmargin business. 50% exceeding the initial estimate is not a large number on aturnaround. 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!

Part 3:

The supplier responses to P2P problems by and large provide significant insightsinto the problems and complexities associated with improving the P2P cycle froma suppliers perspective. Unfortunately, these issues also translate intosignificant problems for the purchasing company, which is often lost in translationwhen the need for P2P improvement is communicated to a senior managementteam.

An important component to consider in making an argument for improvement tothe P2P process is the Cost to Serve of different customers from a suppliersperspective shown in Figure 6. As shown in the figure below, Cost to Serve isan important component of developing aligned strategies between customersand suppliers.

Figure 6: Cost to Serve Model

Suppliers will seek to align with customers that may have a high cost to serve,but are willing to pay for the service provided through improved responsiveness.In addition, customers that have lower requirements may not require the samelevel of demand attention, when there is a good match with general capabilities.However, teams should re-examine strategies for low margin customers that are


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aggressive and low margin, and question whether these customers are a goodmatch.

Late payment and excessive workaround to obtain payment in a timely mannerwill definitely increase the cost to serve for companies with a broken P2P

process. Some of the typical problems that can occur when a malfunctioningP2P process is not fixed include one or more of the following events:

Deteriorating response time from suppliers, who have no motivation to

improve performance and respond quickly to a customer who fails to paythem for 90 days or more.

Lower service levels from suppliers, who may choose to service their more

profitable customers first in their Cost to Serve Model Deterioration as the Customer of Choice in the mind of suppliers senior

management, which further breaks down trust and strategic alignment Delivery delays

Higher pricing due to the cost of money that is attributed to late paymentand excessive manpower allocated to the account

Increased manpower on non-value added activities (e.g. chasing

payments) to the detriment of other value-added activities that canimprove customer service

Loss of the supplier as a critical link in the supply chain

Higher costs internally for the purchasing company, who must alsodedicate AP people and buyers to non-value-added activities

Additional validation of these insights were also required to understand if bestpractices form other industries were relevant as well.

Part 4:

A number of senior executives from a variety of different industries were alsointerviewed to understand their responses to the same problems associated withthe P2P cycle.

These included the following:

Director Energy Company

VP Procurement ContractedPharmaceutical Services

ProviderCPO Consumer Packaged Goods

Manufacturer

CPO Pharmaceutical Company

IT ProcessOwner

Energy Company

Director of Electronics Manufacturer


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EProcurement

Consultant Big Three Consulting Company

VP SCM Composites Manufacturer

CPO Chemical Company

Each of these individuals provided a different perspective on how to improve theP2P process, but when combined resulted in some common themes thatvalidated many of the vendors suggested recommendations as well. Theseresponses are organized around the six hypotheses initially identified in ourmodel, and validate that problems associated with the P2P process is indeed afunction of multiple sources.

Common Themes

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

Each of these themes will be the focus of subsequent articles in the series.

Robust Processes and Training

Another critical element identified by all of the subject matter experts was theneed to develop standardized processes and training around the P2P process.Specifically, roles and duties of the different people involved in the process mustbe clearly defined, and training should emphasize how invoices and requestsshould be processed, and the reasons why deviation from the process isunacceptable and the consequences involved with deviating from the process.This ensures that everyone is not only compliant, but understands the need andrationale behind the compliance. Part of the process redesign effort should alsofocus on simplifying processes to reduce complexity. If there is no need for aspecific channel for purchasing, then eliminate it.

Some of the comments are shared below:

One of the most important discoveries we made is that we did NOT have atechnology problem; we had a people and process problem. The technologywasnt working the way it was supposed do, because we did not have a robust

process to use it. We did not want to invest in a customized Graphical UserInterface, but decided then that the simplest way for us to get maximum ROI forwhat we had was. Once we started down that path, we recognized that the


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design of the interface that we had was not user friendly, and users didnt reallyhave training. They had a LOT of training on SAP that was not useful in terms ofwhat they did in their jobs! So we asked the question if a requisitioner onlyneeds to know 3 things about SAP in this function, do people really need a week-long class? Instead we re-tailored the training to the function that the people had

and we also used our website portal to put in help screens on HOW to inputa requisition. We provided step by step instructions for material or for servicesthat utilized a decision tree that was very straightforward. We actually put in theactual screen looks and feel so that when they clicked on the link it would looklike their PC! It was a very common sense approach, but very practical!

Good data analysis and firm processes will greatly reduce the number offrustrated invoices. This begins by negotiating contracts/PO's with a firm NTE

price for the job. A best way to treat these buys is to analyze the yearly spend inthe commodity and then find supplier solutions that will enhance the suppliersservices and reduce the extra administration to a companies internal processes.

Most likely the suppliers have ideas and systems that will reduce the paperworkside of things. A second task is to reduce PO's being input internal legacysystems: Do we need to put PO's in the system for low dollar commitments? Ifwe leverage the commodity with a supplier then we should let the end user eithercall in for services or get on line with the supplier to request services based on amaster agreement. Of course the process would be to get a name, departmentnumber and charge number from the end user prior to any work being done.

At our company we had problems getting the requisitioner to put in a properrequisition according to the standard we had in the system, and getting it routedto the right person within SAP so that it matched all the key elements, and going

to accounts payable. The problems were multiple: whether it had anappropriate requisition in SAP, that procurement had done the right thing with it,that the supplier had put in the right invoice, and that AP was able to match it

properly, and that the whole activity was done correctly and the supplier could bepaid. One of the things we did was to work with the different business people tolook at the AS IS process, and work to a Should Be. This helped us understandwhat you think is happening, what is really happening and mapping it out.Then we asked questions such as what culture is there, what kinds of things DOthey want to have happen, and how detailed is their SAP system? What doesthe system design look like and does it match users expectations! What wediscovered of course is that our design did NOT match our expectations! Wethought we had spent money that would do req to pay simply but we foundinstead that it doesnt work that way. We had a problem getting work paidbecause work wasnt getting requisitioned appropriately, and invoices werentbeing put in properly. One practical solution we used upfront was to have theuser groups send out their expectation in writing this is what we want to havehappen and we responded that we respect you and your organization to workwith your team to make it happen.


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Part 5:

An important point that many respondents noted was the need to establishdedicated roles around on-site relationship managers from procurement who

were on-site to manage invoices, service entries, and the like. The simple fact isthat many maintenance and project managers do not think in terms ofprocurement, but rather are focused on people, equipment, and schedules anddo not have the time or patience required to ensure that the correct entries areput into a P2P system. The relationship manager can also act as the liaisonbetween the supplier and the maintenance organization, to ensure promptpayment, resolution of issues, and improvement of processes.

Some of the sample responses included the following:

It is important to establish a logistics person on site in the field to help facilitate

and work the system. Field people are focused on executing the work, notsupporting it. Construction people are focused on execution of work they arenot good systems thinkers and are sloppy about the logistics side of the work. Alogistics person is turned on by excellent logistics and not focused on workexecution. If they plan their jobs better, logistics people can set up good bill ofmaterials and planning templates and they can pull them down and they donthave to pick form a catalog.

Even the break-in work and emergency work can be converted into BOMtemplates. So you can classify work into some standard categories. If it is abreak in emergency, pull down this job plan, attach it to the work plan, and the

standard BOMS drives the order. The field people have to focus on gettingpeople in, scheduling people, getting the work done, so choosing from a catalogis the lowest priority for them.

Our focus is on how to position SCM resources to make their work a lot easierand make the planners life a lot easier so they can add maximum value thesupply chain function. Initially you dont know 100% what the material will beused on that job. At the end of the job the SCM person goes in and looks atreturns and adjusts the requirement accordingly. You do three iterations and youwill get the BOM right for that job type! Having that SCM person in the field whocan talk their lingo is key to success

Part 6:

A number of SMEs described the need to eliminate the manual intervention ofmultiple untrained individuals in entering information into systems such as SAP.Many ERP systems have modules for purchasing and plant maintenance, butthey all require significant configuration. On the other hand, a number of bolt-on


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packages are also available, but our SMEs advise against these due to the highprobability of interface issues associated with deployment.

For example, some of the comments that came back include:

The CATS interface on SAP does need configuration. The beauty of it is that itputs the service entry sheet on the person using it, and puts the burden onpeople who know. So when it arrives at SAP it is already matched. When theinvoice arrives it is easy to check if it matches what the requisitioner required.

It is important first to ensure that the business process is very good and canadopt to changing buying requirements. There are one time services like legal for something like that a blanket PO with some sort of a manual receipt

process and invoice process is the only way to go. Project oriented monthlybilling is important. When you get into temporary services where you mayhave 300 or 400 administrative staff that work for an outplacement company, the

situation is different. This is high volume, with people inputting time on a weeklybasis and cost center owners need to understand what their exposure is costcenter by cost center. If I am hiring ten temps for a full year, and each is getting20,000 per year I need to accrue for that amount of money and draw thatdown.but you need to guess at things like overtime, weekend work at time anda half. It can be done, but it is difficult.

The problem is that with many of the laws regarding contractors versusemployees it is necessary to set these people up as a pseudo employee. Youhave a purchase order that has line items that equate to each one of these

people for external services and a range of hourly rates, and how long you

expect them to be employed, etc. So we now have two extremes high valuemanual processes, and low value but lots of them.

When it comes to the payment and invoicing part of this purchasing is out ofthe loop. You want to decentralize this process as much as possible and push itas close to the people who are doing the work as you can.a web-based time-entry system. Some type of identification (we used the PO number and linenumber as the ID) is required and vendors need a secure environment to includethis with us. The other challenge is that frequently you dont have peopleworking in one geographic area so it becomes difficult to track temps at salesoffices. So a web-based solution is the way to go on this. Once a week, the

work flow can be configured to route that time sheet to the sponsor. Thatsponsor reviews all of the time sheets they are responsible for, and that getsentered into SAP as a service entry sheet. Now, all of your accounting and POare now updated so when the invoice comes in there shouldnt be discrepancies.If you trust your supplier, I would recommend going to evaluated receiptssettlement. As the service entry sheets are entered, AP creates a batch programand they simply run this batch program and it creates the invoice and the checkgoes out. You need to audit from time to time, but it is always cheaper to do a


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post-audit to do one upfront. I would not recommend starting that way and youneed a long-term strategic relationship with that supplier. In the end however,what value does an invoice add? If there is a problem such as if we havent paidenough, then let the vendor come to me and well fix the problem.

We are working to develop a contractor charge collection product that is web-based. We will require contractors who execute the work at the end of the day tofill in a labor equipment materials sheet (WEM) and the supervisor to generate aWEM for that day which indicates how much labor we utilized. If you havenegotiated those rates in the contract, then it becomes relatively easy for thesupervisor to enter it into the system. Now you have a statement of WEMdelivered and you can put it in front of someone who can validate that it wasdone. It also lets you track earned value against a PO value- and you know youare getting to upper end of work (e.g. we have spent 80% of budget but only50% of work executed) the supervisor knows there is an issue, which he canresolve in real time. But if John Smith is collecting his WEMS for the work and

sending it weekly to the main office and collecting it in the system at the end ofthe month, you are in for a surprise when AP kicks in and generates a massiveinvoice to the client. You are getting the overrun signal a long time after the work

period.

Construction people are like dogs they need to be punished close to the event,or they dont understand! If you have all of those lags it doesnt let the controlsignals act. Contractor Charge Collection (CCC) systems allow tradesman toenter WEMS on a daily basis and sent to contract coordinator or work supervisorto acknowledge that work was delivered and can let you know totalcommitment of dollar spent versus overall scope of the contract. If the ratio of

dollar spent is out of whack with work complete then they have a signal, andmanagement can hold that person accountable. Otherwise mgmt has not way tohold the person accountable.

SAP has something called CAPS it is just a grungy interface tool to dowhatever you want it to do. We are configuring CAPs to do whatever WE want itto do. Time Industrial is another company that has a system that supports theentry of WEMS a web-based system and you pay them a fee. It is verycomparable to what we are developing. They charge a fee to every WEMentered and a fee to the contractor for every WEM entered collect money fromboth parties. When we looked at it Rita said it was a good tool we should lookat but some bells and whistles we wanted as found as repairedrequirements. Maintenance need to know how we found it and how we left it forreliability engineering. Time Industrial just collects WEMs, and did not addressthe as found as repaired requirements. That is why we went with our own.

Anyone can go with it. For us it was not a trivial figure in terms of price but ifyou look at the comparative analysis on cost overruns, lack of ability to audit,lack of dual charges through using a consistent system that we would have

paid for the fees within the first year of use.


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Part 7:

The need to improve forecasting processes is a critical element in ensuring thatmaintenance needs are met in the P2P cycle. While maintenance is often an

emergency, there are many scheduled maintenance activities that can beplanned and communicated to suppliers. Even in emergency situations, having aplan in place with a designated supplier can avoid many of the problems thatoccur downstream in the P2P cycle. Too often, data, invoices, service entries,and other key elements are entered incorrectly due to a fundamental lack ofplanning and forecasting. These elements need to be incorporated into thedesign of new P2P systems.

Some of the comments include the following:

You need to convince maintenance that planning is a wonderful thing. They

need to get into a maintenance culture of planning. The plan needs to be linkedto resources. If they dont plan like that the supply chain people will bechallenged on how to predict demand. By putting supply chain people closer tothe customer, you can become better in managing that demand. You can movethose goods requested into the right channels to position them properly. The

people in the field should not be buyers, so you need to place buyers that canunderstand the maintenance people and translate their requirements into thesystem. We had one lady working at our facility in this role who knew themaintenance work better than the maintenance people! When they said we aretaking the equipment down, she knew the library of materials and servicesrequired, and she was on the ball talking to the buyers and suppliers required to

support that before the maintenance people even put in the orders! Themaintenance people came to trust her, and she was able to improve thepredictability of demand which made it so much easier to work with our suppliers,rather than jerking them around at the last minute.

Even for emergency maintenance the maintenance manager on duty HAS toknow about it, and HAS to send in an email and write the requisition for POgeneration. Another important best practice is that we have already pre-negotiated terms and conditions for all emergency services and we have 3vendors for EHS and boiler emergencies. When maintenance requiresemergency work, the contract is already signed sealed and delivered at pre-

negotiated rates. We treat emergencies as natural purchases. We pre-selectthe vendor, execute a PO with terms and conditions, and when the emergencyoccurs, costs are issued at the time of the work and the PO is issued at thattime. If no emergency occurs, the PO is not used, and the vendor is not used.In effect we know that emergencies will occur but not when. So we do nottreat them as an emergency, but as a known, predictable event that willinevitably occur. In routine maintenance you know when you will need to beavailable. In emergency work your JOB is to be available! The environmental


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piece of this is the biggest element that we need to be prepared for. As anexample at one facility we have to keep water effluents at regulated levels and the lakes that purify the waste water at certain water tables determine this.We regulate how much we pump on a regular basis and measure tolerances.When a tornado raises the level of water in the lake we cannot use the lake.

So we have to have an emergency tanker service at the ready to take it to aholding pond. We know this will happen but now when, and pre-negotiate thebusiness. It could happen zero times in a year, or 20! We dont know

Part 8:

Many of the experts also emphasized the need to reduce complexity both in theinterface systems through pre-defined procurement buying channels is critical toimproving the entire P2P cycle. There is no need for users to have multiplechannels for procurement. However, establishing the credibility for users to onlybe able to use these channels also requires significant management support.

Three and a half years ago there were a limited number of catalogs that couldbe accessed. We decided to host a bunch of catalogs on SAP, running fromoffice supplies to MRO parts, in a catalog system. When I left many were upand operational on the system. The order entry catalog controlled by Gillettemakes it easy to track, and shortens the loop.

The end user does the requisition when there is a scope of work on therequisition. The requestor works with sourcing people to ensure that there arerequirements. Once it is approved, the PO gets generated, they perform thework, and when the invoice comes into AP notification goes back to the end

user that there is an invoice against the PO and they have to cut a receipt. Allof this is done online. There are still glitches, however. Every once in a whilewhen somebody leaves the company, then the email has to go to the next

person in charge, and you are tracking back. For example on copier leases, it isa nightmare! People would lease machines, with blanket POs for 3-4 years, andyou would lose control. You would be invoicing against blanket POs for years,and you might be paying for a copier that they took out 6-9 months before. Ihave told the copier company they are the next thing to organized crime!

If we receive an invoice with no PO we kick it back to purchasing, who contactsthe requisitioner. There is no excuse for this to happen. Even on emergency

services, we delegate an approval level for a specific individual who we know willbe on the night shift, to ensure that they do not miss out on the requisition. Theindividual is able to generate an electronic requisition with electronic approval and the PO is generated automatically. If the service comes in and the service isnot approved that individual is yellow carded, and if it happens again, theyare sacked. There are no exceptions. The reason this works well is thatmanagement fully supports procurement. No one in the company can usurp thatauthority and if so it is very rare and we can pre-empt it from happening.


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Companies should also consider using more blanket orders. Let the end usersget on the system and do the releases. There is no need for Buyers to beinvolved any more. Buyers monitor the weekly and monthly buy patterns andrenegotiate a particular item on the blanket if they see higher usage. Finally,seek to reduce complexity of Procure to Pay Process. Accounting wants 3 or 4

ways to match to pay, but you can reduce it to 2. The most common would be 1)PO and Delivery of goods or service, then pay. (No Invoice Needed), or 2) Payeverything on a Charge Card. The company will obtain a rebate on the spenddollars from the Credit Card Company and have more days outstanding to payand thus have the cash longer. Do the research or analysis after the fact. Thisis done with reports being generated by internal legacy systems and Credit CardCompany systems. In redesigning the process. When you encounterinaccuracies, track the data and find out who, what, when, where and why theissues are happening. Correct the issues at the point of the problem. Finally, itis important to make buyers part of the review and repair team. Have themspend one hour a week to meet with AP and Vendor on a conference call. The

Buyer should facilitate the call. This makes them learn the entire process andbe in charge of processes reengineering and the internal consultant that youwant them to be.

We have structured things a lot for an end user to get their requirements. Wehave a lot fewer AP issues to deal with because we are more structured. Weuse a lot of catalogs, and clean them regularly. We also do a lot of marketintelligence to identify what is changing in our user markets, and ensure thatcatalogs are kept up to date.

A second and much more complex external services scenario involves

Maintenance, Repair, and Overhaul projects. I was team lead for a project thatimplemented MRO services for an electric utility company. Every project has aproject plan, WBS, and activities on that plan if you need to track labor hoursagainst your project plan you would consider a bolt on system. For example,consider when you are performing maintenance on a shop floor or refurbishing amanufacturing line. It has less to do with getting the bill paid, and everything todo with project management. In addition, you may need to track your internalemployees labor and external contractor labor using the same system. Youfrequently need to track labor cost as a component of the overall cost of the

project or the machine being rebuilt. Some companies offer external services time entry systems. This can help with complex time entry, project management,and project accounting. Although they claim to bolt seamlessly to SAP, myexperience is that you need considerable programming effort to get the twosystems to work together. All these bolt-on packages should work with SAPsexternal services module specifically SAPs services master data housedwithin the external services module. With SAPs external services module, youidentify the catalog of external services and apply rates for each service. Theserates need not be $ per hour. At the electric utility company, they hire a


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contractor to dig the trenches and their rate is based on cubic meter of trenchdug.

Part 9:

Having a champion in senior management to send the signal that compliance tothe redesigned P2P process is critical. Ideally, a policy of zero tolerance shouldbe established, with consequences for those who do not pay attention to theguidelines. This will buttress the argument, and ensure that people arecommitted to the change. Re-organization of some departments to establishlines of authority and responsibility, including merging purchasing and accountspayable, is another form of change that would require senior managementsupport to drive change.

Some of the comments in this category included the following:

Purchasing and AP are also probably fighting and pointing fingers. You shouldconsider merging AP people handling these issues into the purchasingdepartment. Then you have shared goals and objectives. The goal is no longerto throw the invoices over to purchasing but to establish a common objective tosolve the problem. We moved people responsible for MRO invoices and putthem into purchasing to have shared goals and objectives, then evaluated themon how well they did to solve the problem. The finger pointing goes awaybecause it becomes OUR problem that we have to fix. In the past, they could

push a button and it became purchasings problem! One needs to consider

culturally how are they set up and what is their coordination. One way to stop itfrom becoming an individual department problem, and then it becomes acompany problem.

One of the first things we did is establish the case for action! Why is itimportant, and who is driving it? My boss was the CFO and sat on the execcommittee and he was able to get stakeholders to agree that it was their

problem not finances problem and that they owned it. We made sure we gotit at the right level and got clarity around what the exec committee wanted! Whois paying the bill on this? The executive committee footed the $40M bill for SAPand we emphasized the need for clarity and matching of the system to different

functional responsibilities. We emphasized that it was important to have the rightresource to work thisand they supported us from the beginning. We took a

pragmatic view. Lets not solve world hunger, but address key pain points andaddress what practical solutions can we come up with to help this along. Theexecutive committee came out with a statement that said We WILL fix this andwe WILL be successful! They understood that is not going to happen if you donthave the right type of people owning it. When we came up with the solutions


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around the training, website, proper use of procurement cards, etc., topmanagement was there to support us in deployment.

The last piece that is the most important is that the only people at our companythat have authority on payment terms is purchasing. Invoices are due on

receipt we go do it, and abide by their terms and conditions in the contract. Ifyou go outside of this system, you have no authority and you will be sacked.ONLY purchasing is responsible for terms of payment NOT AP! We control it,based on a check date. Once the receipt hits the system the clock starts ticking.We are a $XXB business and every transaction requires settlement in twobusiness days due to the nature of the business! If we dont pay suppliers, ourcredit rating is hurt, and this precludes us from working in this business. Cashflow is king.

Part 10:

Virtually all of the hypotheses identified at the beginning of the research projectwere validated by the suppliers and subject matter experts interviewed in thestudy. 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. Asuggested approach that is evident is shown in Figure 7. The rollout forimprovement includes the following:

1. Secure top management support for the initiative and budgeting for theproject. Develop a list of key benefits and deliverables that will occur as a

result of the improvements. Document the cost of leaving the systembroken in its current state.

2. Map existing processes and problems with the P2P cycle. Identify wherethe breakdowns are occurring, and why they are occurring.

3. Understand the needs and requirements of the user groups. Many of thepeople involved maintenance, planning, project management, suppliersaccounts payable, buyers, etc. have specific issues that prevent themfrom using the existing system. Also, many of the specific sites may haveissues that need to be considered in designing the new system.

4. Team Redesign Workshops should be used to bring together key subjectmatters experts from each of the business units. Suppliers should also be

invited to attend and participate, as they may have solutions they haveadopted with other customers that may prove to be efficient and simple touse (e.g. why re-invent the wheel?)

5. Explore existing technology solutions with SAP, as well as bolt-onapplications. Map out the business requirements, and ensure they arealigned with the technology solutions that are available. Begin to estimatecost of deployment, and ensure that adequate planning and due diligenceis taken at this step.


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6. Following the workshops, define the new process and begin to pilot usinga planned technology. Ensure that it takes place in a real environment,with actual non-trained users involved in the pilot before cutting over to thenext process.

7. Train and deploy other users based on the new processes and systems.

Be sure to make the training appropriate to the specific functional unit anduser groups.8. Monitor, update and improve the system, ensuring that catalogs are kept

up to date. Hold periodic meetings with suppliers and user groups tosolicit input and identify problems with the systems.

Figure 7 Improving the P2P Cycle

The primary differences between basic and advanced levels of processmaturity for the P2P Cycle are shown below.


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