purchasing and accounts payable future relationship
TRANSCRIPT
PASIA ConferenceNovember 8 and 9 2016Manila PhilippinesPresented byBill Kohnen
Purchasing and Accounts Payable Future Relationship: What Opportunities and Challenges will arise with the blurring of traditional lines between Purchasing and Accounts Payable
Current StateAccounts Payable
Purchasing
• The lines between traditional Purchasing and Accounts Payable are blurring and in some organizations have already been eliminated.
• As a result there are organizational changes as well as changes in skills needed
• Drivers for this have been technology, Procure to Pay approach, globalization and focus on electronic payments
• In some respects transformation has been significant but still areas of traditional practice. However, speed of change with increase.
Introduction
•Traditional Roles•Emerging Roles•Shared Metrics - Examples•Procure to Pay•Technology Impact•Skills Needed
Overview
Traditional Roles
Purchasing
•Place Orders
AP
•Pay Bills
Traditional Roles
InvoiceReceiptPO
3 Way Match
Traditional Roles
Linear Process
Requestor Approvals Purchasing Vendor Receipt AP Supplier Payment
• Inconsistent supplier master data setup•Poor communication to resolve issues•Frustrating invoice errors•Overlapping AP and purchasing roles that create conflict• Late payments to suppliers that dilute discounts negotiated by
purchasing•Off the record purchases off the purchasing radar
Traditional Issues
Policy• Adopt a “no PO, no pay” policy: This will be challenging. It can also be impractical at first, but the benefits of implementing policies this serious will payoff in the future. Proper planning
is required as well as employee/vendor education campaigns, discipline and executive sponsorship.• Block buyer access to invoices / Block AP from issuing POs: Do NOT allow buyers to approve invoices or issue payments for purchases ordered. Flip the coin and the situation is the
same, you cannot have AP place orders they can quickly approve on their own.• POs must be accurate and complete: The purchasing group must be held accountable for bad data on the PO. Most invoice errors can be tracked back to an incorrect or incomplete PO,
and holding your purchasers to a higher standard can eliminate this problem.• Align purchasing activities with cash flow goals: Take a prudent purchasing approach depending on cash flow. For example, revert to smaller incremental purchases at higher unit price
when cash is tight, even if demand is high.• Resolve pricing and receiving discrepancies through purchasing: Requesters, buyers and receivers are better positioned to track down discrepancy facts. Having this group resolve these
issues is much more efficient and can save time. AP should only mediate as needed.
Process• AP to hold their purchasing related questions till day's end: This works naturally great in centralized purchasing environments, and can be made to work in a decentralized one using
tools to properly dispatch questions. Enforce a 24-hour turnaround. This ensures AP gets their answers without causing distractions and irritations in purchasing.• AP should inform purchasing of payment holds and invoices past due ASAP: Purchasing generally owns supplier relationships and needs reasonable heads up to proactively take the
news to the supplier and do damage control as necessary. The last thing a buyer wants is to be caught off guard by a vendor call asking for payment.• AP should inform purchasing of spend outside vendor contracts: This is also known as maverick spending. AP should report all non-PO to purchasing, reimbursable and P-card activity
by vendor, item category and line-item details if available. Identifying and addressing these will put more spend under control and help negotiate more favorable contracts with suppliers.
• Share monthly reports with executives on key metrics: Don't assume everything is going well if management is not asking for these reports. Agree on key metrics to report on, keep executives informed of departmental performance and looming issues.
• Agree on a process for setting up new vendors: AP and purchasing must work from a unified, agreed upon vendor master list, free from duplicates, and always up to date. AP can take ownership of maintaining that list, and hold purchasing and business unit managers accountable for adhering to it
Traditional Solutions“Aligning Accounts Payable and Purchasing” Hadi Chemaly, 26, 2014 on Spend Matters
• If a firm can’t master the ability of properly managing a straightforward cross-functional process like P2P, then it likely has bigger problems.
• the invisible hand of eInvoicing and advanced analytics will eventually turn most of A/P into a lights out operation.
•Don’t align, abolish:Give payments to Purchasing, Finance and Purchasing collaborate directly on cashflow, strategy etc., An independent witchfinding dept. roots out fraud. (as traditional AP couldn’t catch a cold)
Reponses
•Non Linear Process•Fewer actual touch points•Systems•Upfront work critical•Exception Management•Specialization in detailed process
Emerging Roles
• Created from Catalog
• Created from Order
• Manage and Negotiate
• Matched and paid no touch
E Payment E Catalog
E OrderE Invoice
Emerging Roles – Process DisaggregationPurchasing AP
Sourcing
Vendor Master Records
Supplier Manage
ment
Contracts
Transactions
Supplier Compliance/CSR
Bill Posting
Expense Reporting
Customer
Service
Credit Cards
Cash Forecast
Payments
•Shared Process = Shared Metrics•Finally answer to spend analytics?•Purchasing people will be pleased with treasure trove of data in AP•Total Spend, Who, What, When all there however format may need
work to be more actionable.
•Expense Reports For Example▫Often just high level description Hotel but no requirement to say which one
other than on receipt
Shared Metrics
June July Aug02468
1012141618
Bill Paid Category
IT Marketing Travel
8.23.2
1.4
Invoice TotalsRegion
Million USD
US ASEAN Europe
Alan
Brett
Carol
Danesh
0 50 100 150 200 250 300 350 400 450 500
Bill Processed
Bill Processed
June July Aug0
10203040506070
Exception
Straight Expception
June
July
August
0 10 20 30 40 50 60
12.00
10.00
8.00
8.00
10.00
8.00
15.00
20.00
12.00
7.00
4.00
5.00
3.00
5.00
5.00
7.00
9.00
7.00
Process Times
Request Approval PO Approval PO DeliveryInvoice Received Goods Received Payment
Total Days
35%
30%
20%
15%
Invoice Totals
Under $1000 $1000 to $5000$5000 to $10,000 Over $10,000
Vendor Payments Made Outstanding
Microsoft $4,500,000 $3,000,000
Meralco $2,300,000 $0
Marriott $1,250,000 $655,000
Dell $ 750,000 $2,300,000June July Aug
0
20
40
60
80
100
120
PO vs Non PO
PO Non PO
•Cloud•Touchless Processing•Smart Systems•E Payments•Traditional ERP systems evolving▫Invesetments in IoT ▫4 generation manufacturing▫Cloud
Technology Impact
•Master Data Management•Systems and Technology•Data Analytics•Project Management•Negotiation•Specialization
Skills Needed
•A Single Process from request to pay
• Integrated Process
•System Focus
•Problem Solving and Customer Support
•Even mature R2P typically requires 40% or more exception processing
Procure to Pay (P2P)Request to Pay (R2P)
•Traditional Process and Operations will exist maybe for one more “work generation”▫Lower end industries▫Family owned▫Where regional constraints require traditional process▫Risk of being near potentially corrupt systems ▫Viable source of employment however, limited opportunity, pay
Summary
• Single Process View Brings Together Traditional Purchasing and AP Roles•Merging brings synergy• Professional, High Paying, Opportunity, Stability?
Summary
10%
90%