requisition-to-pay: achieving operational...

Requisition-to-Pay: achieving oPeRational excellenceExEcut ivE REsEaRch : Q3 2012

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Requ is i t ion - to - Pay: ach i ev ing oPeRat ional exce l l ence

contents

2

Requisition-to-Pay: achieving oPeRational excellence

3 Executive Summary4 Introduction5 An Overview of the R2P Process 6 A Profile of Systems7 Dedication of resources in R2P Management8 Effectiveness of Systems10 The Future of R2P11 Requisition13 Approval15 PO Transmission17 Goods receipt and Invoicing19 Conclusion20 Appendix: Demographics


executive summaRy

3

The requisition-to-pay (R2P) process is the heart of business. All its external activi-ties require a robust payment process, not only to monitor outgoings but to ensure the company is managing resources in as efficient a means as possible.

Moreover, in a time when many organ-isations are still feeling the effects of the world financial crisis, a clear understand-ing of its payment processes is vital.

However, our report finds that there are still problematic areas that large com-panies are yet to fully address. We find that the effectiveness of R2P systems di-minish in the later stages (fig 1). For those automated R2P processes, this is chiefly attributable to the ‘garbage in – garbage out’ issue which affects all areas of com-puter programming.

Indeed, we have found that the latter stages of R2P, relating to goods receipt and invoicing, despite the large levels of resource investment they have received, cannot make up for the deficiencies of the earlier stages where requisitioning and approval flows lack control.

The report also uncovers the central role of stakeholder engagement. Indeed, the ease of use by stakeholders is one of

the key determinants for the overall effec-tiveness of the R2P process.

However, key procurement profession-als see ease of use as key benefits of the systems that they have introduced. Sav-ing the role of finance in the co-ordinat-ing of payment, few organisations have ostensibly sought to satisfy stakeholder demand.

Yet, in an age of empowered consum-ers, where individuals are accustomed to the easy usability of consumer websites, R2P systems may struggle to remain rel-evant. Indeed, the risk of non-compliance increases as the expectations of usability rise in the long term. Thus, the issue of stakeholder dissatisfaction impacts upon procurement as frustrated end-users seek to work around procedures which are perceived as unduly difficult.

(fig 1) Effectiveness Score of R2P Stages (out of 5)

3.5

3.4

3.3

3.2

3.1

3.0

2.9

2.8OVERALL REQUISITIONING APPROVAL PO TRANSMISSION INVOICING

inteRnal exteRnal

Key FiguRe:

€159.71average cost per Po raised


intRoDuction

4

the Piu engaged in research in early 2012 to identify some of the key performance benchmarks with some of the leading procurement organisations.

the purpose of this report is to identify some of the emerging trends within the R2P processes within procurement and identify future usage. though we have examined some of the technological solutions available for part of purchasing, this report is principally focused on processes, procedures and workflow.

These look at four areas of R2P processing:

■ Requisitioning■ Approval■ PO transmission■ Goods receipt and invoicing

This report examines each of these in turn, to reveal some of the weaknesses within the R2P processes that may be common across multiple companies.

The research is based on a survey of procurement leaders that we conducted in 2012 Q2, as well as interviews with senior procurement executives and solu-tion providers.


an oveRvieW oF R2P PRocesses

5

an oveRview oF R2P PRocessesThe average profile organisation of this research has 70% of spend under pro-curement’s management, with 62% com-pany spend going through R2P channels. The most intriguing aspect of this is the extent to which even the largest organisa-tions are exposed to financial risk. Nearly 30% of a company’s spend is not con-trolled by a formal R2P process, increas-ing the possibility of financial risk in the supply chain.

Further statistical tests also found that the effectiveness of R2P processes were highly correlated with the volume of spend managed through R2P systems. This suggests that piecemeal systems, or processes which offer work-arounds, will be undermined in their overall effective-ness.

We spoke to a number of organisa-tions that had no ex-ante R2P control. Al-though they were exposed to significant levels of financial risk, in the main, these organisations experienced few direct dif-ficulties. Although invoices may be pro-cessed retrospectively, these were still entered under budget codes for which individuals were accountable and thus

liable to justify purchases to their line manager. There may be no advanced ap-proval of the transaction, and retrospec-tive visibility may be sufficient in itself to prevent widespread abuse.

Another potential lesson, which we shall examine more closely later, is in relation to guided sourcing. By enabling stakeholders to freely choose from a list or catalogue of pre-negotiated products minimises control risks and also increases stakeholder ease of use, which, as we will see later, is also critical to the overall effectiveness of R2P processes.

(fig 2) Most Frequently Used R2P Systems

SAP

Oracle

Comination of SAP and Other offering

Ariba

In-house developed

Other

52%

19%

6%

4%

2%

17%

Key FiguRe:

70%company spend under management

Key FiguRe:

62%company spend through R2P Process


a PRoFile oF systems

6

a PRoFile oF systemsSAP is still the most used R2P offering by our sample, with over half of our sample electing to use this system. We aimed to increase the coverage of emerging R2P providers. However, there seems to be very limited uptake of these new suppliers. Giv-en the recent SAP acquisition of Ariba, their share of the market seems set to increase.

The explanation for this dominance may be partly attributable to the age of the average R2P system, a quarter of which are more than 10 years old. However, there are a larger proportion of systems that seem to be less than five years old in age. It seem that, for the most part, compa-nies either switching their R2P provider, or selecting an entirely novel system, appear to be electing for the established reputa-tion of SAP.

(fig 3) Age of R2P System

More Than Ten Years

Ten Years

Nine Years

Eight Years

Seven Years

Six Years

Five Years

Four Years

Three Years

Two Years

One Year of Less

23%

6%

3%

1%

3%

6%

14%

10%

8%

14%

14%


DeDication oF ResouRces in R2P management

7

(fig 4) Resources Dedicated

Requisitioning

Approval

PO Transmission

Invoicing

37% 41% 24%

36% 44% 15%

41%

32%

30% 21%

45% 21%

Procurement Stakeholders Suppliers

DeDication oF ResouRces in R2P managementIt is important to remember that the R2P process is made complex because of the multitude of organisations that participate in its administration. This does not simply involve various departments and individu-als from within the organisation, but also externally with suppliers. Given the over-lapping of work, the perceived levels of ease of use for both stakeholders and sup-pliers increase in importance.


eFFectiveness oF systems

8

(fig 5) Effectiveness Score of R2P Stages (out of 5)

3.5

3.4

3.3

3.2

3.1

3.0

2.9

2.8OVERALL REQUISITIONING APPROVAL PO TRANSMISSION INVOICING

inteRnal exteRnal

eFFectiveness oF systemsInterestingly, the effectiveness of R2P pro-cesses diminishes through the later stages. The tendency of many organisations and solution providers is in investing heavily in the early stages of requisitioning and ten-dering, both in terms of human capital and technology. The later stages of PO trans-mission and invoicing are relatively less endowed with technological resources, which may in some part explain the lower perceived levels of effectiveness.

A key lesson here is that if there are any difficulties within the R2P system, this is compounded in later processes. The de-clining effectiveness of R2P systems would suggest that this may be the case. In that sense, poor design within the process is cumulative.

Although the survey focused primarily on procurement professionals, respondents were asked to comment on the ease of use for stakeholders and suppliers. There are two interesting outputs of this. Firstly, even though most respondents thought that the systems were ‘acceptable’, there are a large number of ‘don’t know’ responses for suppliers. That suppliers’ views are not even known belies a broader non-

Key FiguRe:effectiveness of R2P system stakeholder ease of usecorrelated to 0.01degree of confidence


eFFectiveness oF systems

9

(fig 6) Stakeholders and Ease of Use

70%

60%

50%

40%

30%

20%

10%

0%NOT AT ALL EASY

TO USENOT EASY TO USE ACCEPTABLE EASY TO USE VERY EASY TO USE DON’T KNOW

Stakeholders Suppliers

consultative attitude within organisations in respect of suppliers. Secondly, there is a significant minority of participants that believe that their R2P systems are not easy to use for stakeholders.

Another key finding of the research is the link between effectiveness and stake-holders ease of use. We ran a series of Pearson bi-variate analyses on a number of variables. The strongest correlations detected were between effectiveness and stakeholder ease of use, which were cor-related to a high degree of statistical sig-nificance.

Stakeholders and their preferences are not exogenous to the success of the R2P system, but rather integral to the core effectiveness of the purchasing process. By ensuring that the systems are easy to use, administrators are creating a choice architecture which encourages use and therefore maximises compliance. With this tacit form of buy-in, the R2P process becomes more of a key part of organisa-tional operations.


the FutuRe oF R2P

10

the FutuRe oF R2POverwhelmingly, the sample intends to move away from multiple region systems. However, an interesting feature of these data is that the intended systems are evenly divided between a single global platform and a best-of-breed system.

Previously, reports such as this would have seen more companies intending to incorporate their R2P process under a sin-gle global platform. However, as interme-diary technologies improve, which enable better communication between disparate systems, more organisations are opting for best-of-breed systems, which are ca-pable of managing multiple stages of the process. As these intermediary technolo-gies improve, we may even see an even greater uptake of these more integrated best-of-breed models.

(fig 7) Current and Future Configuration

35%

30%

25%

20%

15%

10%

5%

0%Single, global platform Global, best-of-breed systems in

a global processMultiple regional and local systems

across different business units and geographies

Current Intended state in two year’s time

11


Requisition

(fig 8) Effectiveness of Requisition Process

VERY INEFFECTIVE INEFFECTIVE NEITHER EFFECTIVE OR INEFFECTIVE

EFFECTIVE VERY EFFECTIVE

4%

16%21%

53%

7%

RequisitionThe requisitioning process has been sub-ject to significant investment and techno-logical development through a range of methods in recent years. Arguably, it has received most attention of all the stages of organisational R2P processes. This at-tention is directly visible in the high level of effectiveness that the respondents have awarded this stage of the process. One respondent offers a hint as to why this might be the case:

“We have to have acceptance by the stakeholder that using the system adds value and will make it easier for the end user. Otherwise, the business will not sup-port additional use of technology.”

Interestingly, for the most part, this is a process in which stakeholders bear the largest administrative burden. How-ever, none of the requisition systems that the sample examined stated that the pri-mary benefit was satisfying stakeholder requirement. Indeed, the most frequently selected benefits in respect of these sys-tems related to compliance and lowest transactional cost.

This may be reflective of the compara-tively low score for stakeholders in ease of use for the R2P process. This may re-flect that for many organisations one of the principle points of stakeholder activity is not directly designed with the end-user in mind.

Added to which, many respondents mentioned that ease of use was a constant problem within the requisitioning process. This also could lead to lower-quality requi-sitions by stakeholders, where the scope, specification, deliverability, timing sched-ule etc could all be unclear, requiring extra clarification and management by procure-ment.

Nevertheless, examining the organi-sational profiles of organisations (table X) to uncover the combination of techniques used within the requisition phase, compa-nies seem to be most reliant on non-auto-mated processes. Two-thirds of respondents processed most of their spend in this area through either procurement contact line or requisitioner roles in business or a mixture of the two. Indicating that, even for the most technologically-intensive area of R2P pro-cesses the human connection was still seen as the most important link in the business.

(fig 9) Division of Total Man-hours in Requisitioning

24%


41%37%

12

(fig 12) Requisition Techniques Profile

SYSTEM PRIMARY BENEFIT % SUPPORT

Procurement Contact Line Compliance and Demand Management 51%

Requisitioner Role in Business Compliance and Demand Management 43%

P-Cards Best Transactional Cost 42%

e-Self Service Best Transactional Cost 40%

e-Catalogues Best Transactional Cost 41%

Supplier Portal Compliance and Demand Management 30%


Requisition

(fig 13) Key Metrics: Requisition

REQUISITION CONVERSION TIME (DAYS)

REQUISITION TO ORDER CYCLE (DAYS)

COMPLIANCE LEVEL (%)

AVERAGE 3.14 4.11 84.38%

LOWEST 0.25 0.25 100%

HIGHEST 14 28 100%

(fig 11) Requisition Techniques and Spend Coverage

Procurement Contact Line70%

60%

50%

40%

30%

20%

10%

0%NONE / NA <50% 69 - 50% 99 - 70% 100%

Requisitioner Role in Business

P-Cards

e-Self Service

e-Catalogues

Supplier Portal

Direct Supplier Ordering by Stakeholder

(fig 10) Age of R2P System

PROFILE TYPE PROPORTION

Mix of Procurement Contact Line and Requisitioner Role in Business 33%

Adoption of a wide range of techniques 25%

Primarily Procurement Contact Line 19%

Primarily Requisitioner Role in Business 15%

Other 8%

PERCENTAGE OF SPEND

13


aPPRoval

aPPRovalApprovals consistently came up as a dif-ficulty for the sample. Mainly, this was hindered by poor processing design. In one instance, a respondent stated that the approvals were only given by senior staff, that travelled often and rarely respondent to approval requests, slowing the entire purchasing cycle.

Most organisations made primary use of workflow design to manage approval, with a combination of these processes and physical sign-off assuming the lion’s share of the stage.

Managing the approval flow can be a key arena for procurement to demonstrate its value to the business. Establishing the appropriate purchasing policies and de-signing approval flows that are efficient and effective are a key means to demon-strate the function’s value to the business.

However, the level of reported effec-tiveness has already diminished com-pared to the requisitioning stage. This may be attributable to the relatively lim-ited range of approval systems that our sample makes use of.

Most of approval appeared to oper-ate through design electronic means, with fewer companies using a physical ap-proval process.

In addition to this, the sample believed that there may be a potential trade-off in the approval process. A physical or elec-tronic approval process was seen as the best way to ensure compliance, whereas where suppliers were entrusted with great-er approval responsibilities, this actually ensured a lower transactional cost.

The main challenge is weighing off the need to ensure approver discipline in responding to requests, against the costs of implementing technological solutions. In one case, a respondent raised the is-sue of an excessive number of approvers in itself leading to excessive costs within the process.

(fig 14) Effectiveness of Approval Process



2%

15%

32%

43%

9%

(fig 15) Division of Total Man-hours in Approval

15%


44%37%

14

(fig 16) Approval Techniques and Spend Coverage

Physical Sign-off70%

60%

50%

40%

30%

20%

10%

0%NONE / NA <50% 69 - 50% 99 - 70% 100%

Workflow

Supplier Manages Approval

Self-approval

(fig 18) Approval Systems and Primary Benefits

SYSTEM PRIMARY BENEFIT % SUPPORT

Physical Sign-off Compliance and Demand Management 66%

Workflow Compliance and Demand Management 56%

Supplier Manages Approval Best Transactional Cost 32%

Self-approval Stakeholder Demand 31%


aPPRoval

(fig 17) Approval Technique Profiles


Primarily Workflow 45%


Mix of Physical Sign-Off and Workflow 16%

Primarily Physical Sign-Off 11%

Other 9%

(fig 19) Key Metrics: Approval

% OF ORDERS THROUGH

CATALOGUES

% ORDER THROUGH APPROVED

VENDORS

% OF ORDERS THROUGH

PURCHASINGN CARDS

AVERAGE 30% 76% 16%

LOWEST 0% 3% 0%

HIGHEST 100% 100% 90%

PERCENTAGE OF SPEND

15

(fig 20) Effectiveness of PO Transmission



5%

12%

40%

33%

12%

(fig 21) Division of Total Man-hours PO Transmission

21%


30%41%


Po tRansmission

Po tRansmissionPO transmission in the stage in which purchase orders are communicated to the relevant processing department.

In many respects, despite the fairly ad-vanced levels of earlier stages of the R2P process. As we can see from our data (Fig 22), many organisation use verbal means to convey the PO. Fortunately, how-ever, this practice appears to be fading from use.

In the main, POs are transmitted through email, with a few early adopters using new XML/EDI. Some even have all POs communicated in this fashion. In gen-eral, we see a wide range of combina-tions in terms of PO transmission. Mostly, companies rely upon email and PDF, but, aside from these, we see a diverse vari-ety in techniques. This suggests that com-panies are still unable to settle upon an industry standard and unlock the value of e-procurement.

For most organisations, the PO trans-mission stage is the arena in which pro-curement makes the greatest contribution. This may be the stage in which the function can demonstrate its role as a ‘facilitator’. This can be detected in the broad spread

of primary benefits given by respondents in respect of systems. These vary signifi-cantly as the PO transmission process var-ies between differing companies as they meet differing organisational needs.

One of the key inhibitors of success in PO transmission came in the quality of data. Change of supplier information was either not picked up by the organi-sation and smaller suppliers could not connect their systems to the R2P process. Compounding this difficulty was the lim-ited spend analysis capabilities of many, which were unable to track their own management information to rapidly con-vey POs.

16

(fig 23) PO Transmission Technique Profiles


email/PDF 41%

Hard copy 14%


A mix of email and hard copies 9%

A mix of email and XML/EDI 7%

Fax 7%

Other 11%

(fig 24) PO Transmission Systems and Primary Benefits

SYSTEM BENEFIT % SUPPORT

Verbal Ease of implementation 56%

Hard Copy Compliance and Demand Management 38%

email/PDF Supplier Need 45%

Self-approval Best Transactional Cost 41%

XML/EDI Best Transactional Cost 75%

(fig 22) Approval Techniques and Spend Coverage

VERBAL70%

60%

50%

40%

30%

20%

10%

0%NONE / NA <50% 69 - 50% 99 - 70% 100%

HARD COPY

FAX

EMAIL / PDF

XML / EDI

(fig 25) Key Metrics: PO Transmission

% OF PAYMENT THROUGH POs

COST PER PO (EURO)

PO PROCESSING TIME (DAYS)

AVERAGE 74.06 159.71 8.97

LOWEST 20% 5 0.04

HIGHEST 100% 1,525 150


Po tRansmission

PERCENTAGE OF SPEND

17

(fig 26) Effectiveness of PO Transmission



13%11%

43%

26%

5%

(fig 27) Division of Total Man-hours in Approval

21%


45%32%


gooDs ReceiPt anD invoicing

gooDs ReceiPt anD invoicingAt the final stage of the R2P process, we start seeing the level of perceived effec-tiveness diminishes to its lowest point. Much of this may be attributable to rather less technological investment than may be present in other areas of R2P processing

This can be evidenced by the sample in this survey, which sees relatively low lev-els of spend covered by more automatic process. For instance, in Fig 29 we see that OCR processing and e-invoicing is generally eschewed in favour of more tra-ditionally means, notably manual invoice processing. Indeed, where there are some signs of automation, there is relatively lim-ited agreement on the accepted standard.

Indeed, judging by the wide variety in the mix of techniques adopted by sampled companies. Again, this is indicative of a broader lack of consensus in the business community as to which e-invoicing option is preferred.

Many of the respondents complained of lack of automation within the invoicing process, with one stating that because of this their system was “close to collapse”.

Interestingly, most of the systems used were deployed, it seems, primarily to satis-

fy the requirements of the finance function. This underlines the 45% of the invoicing stage which is managed by stakehold-ers. However, the group agrees that these more technological alternatives are actu-ally a means to ensure the lowest transac-tional costs.

18

(fig 30) Goods Receipt Systems and Primary Benefits

SYSTEM BENEFIT % SUPPORT

Manual Invoice Processing Finance Requirements 52%

OCR ProcessingFinance Requirements

43%Best Transactional Cost

e-Invoicing Best Transactional Cost 65%

Self Billing Best Transactional Cost 85%

2 Way Match Finance Requirements 56%

3 Way Match Finance Requirements 80%

(fig 31) Key Metrics: Goods Receipt and Invoicing

INVOICES PER FTE PER YEAR FIRST TIME MATCH RATE (%)

AVERAGE 8,060 38%

LOWEST 100 20%

HIGHEST 35,000 100%

(fig 29) Goods Receipt and Invoicing Technique Profiles


3 Way Match 18%


Manual Invoice Processing 13%

e-Invoicing 8%

A mix of Manual Invoice Processing and e-invoicing 8%

A mix of Manual Invoice Processing and 3 Way Match 8%

A mix of OCR Processing and 3 Way Match 8%

Other 18%


gooDs ReceiPt anD invoicing

(fig 28) Goods Receipt and Invoicing and Spend Coverage

Manual Invoice Processing

70%

60%

50%

40%

30%

20%

10%

0%NONE / NA <50% 69 - 50% 99 - 70% 100%

OCR Processing

e-Invoicing

Self Billing

2 Way Match

3 Way Match

PERCENTAGE OF SPEND


conclusion

19

conclusionThis research has received a number of key conclusions:

■ The effectiveness of R2P processes di-minish the deeper one progresses through the levels.

The technological investment made by many organisations in establishing advanced requisitioning systems is not matched by similar upfront investment at the invoicing level. This may be attributable to the level of involvement from finance, which provides the main parameters for these systems. However, by improving some of the technological aspects of this process (eg. scanning or e-invoicing) some issues in the overall R2P process may be eased.

■ Procurement’s role is chiefly one of a policeman.

The principle reasons for many of the systems deployment is primarily one of compliance and monitoring. Few processes are selected because they satisfy stakehold-er requirements or offer greater ease of use. We also witnessed this in the relatively low scoring on the ease-of-use question an-swered by procurement professionals.

■ Stakeholder needs or demands are rarely considered as chief motivators for procurement’s decisions.

Connecting with the above point, the role of stakeholders is non-participatory. However, the one exception seems to be finance, which does appear to determine the nature of many R2P processes, par-ticularly in the final stages.


aPPenDix: DemogRaPhics

20

(fig A2) Respondent bySector

Banking & Financial Services

Food & Beverage

Manufacturing & Engineering

Consumer Goods, Retail & Leisure

Pharmaceuticals & Heathcare

Oil & Chemicals

Telecoms

Governments & Public Sector

Logistics & Transportation

Energy & Utilities

Aviation

Construction & Mining

Technology (Hardware)

Business Services

Automotive

Technology (Software)

Media & Entertainment

Agriculture

Defence

Other (Please Specify)

10%

9%

9%

16%

7%

7%

5%

5%

4%

4%

2%

2%

2%

2%

3%

1%

1%

1%

0%

10%

(fig A1) Respondents by Job Title

Senior Director / DirectorCPO (Chief Procurement Officer)Senior Manager / ManagerSVP / VPSenior Buyer / BuyerOther (Please Specify)

1%

40%

23%

17%

11%

8%


aPPenDix: DemogRaPhics

20

(fig A3) Respondent by Country

United States of America

United Kingdom of Great Britain

Netherlands

India

Switzerland

China

Singapore

Germany

Finland

Australia

Other European

Other Asian

Other Americas

Other African

31%

17%

6%

5%

3%

3%

3%

3%

3%

3%

15%

4%

1%

0% 5% 10% 15% 20% 25% 30% 35%

3%

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