Usually, I go straight to the point, but today I will start with a short story, because it made me to write this article.
A month ago I met a very interesting buyer. His real name is not important, so name him Franek. Franek deals with indirect purchases in a large company from the service industry.
I do not hide that, in my opinion, he is the perfect customer, because NextBuy was even created for such companies. He lacks nothing. Yes, this is an advertisement, but I cannot help it, that NextBuy is a really great tool!
Well … we are talking about the procurement platform, in other words Frank’s requisitions. He heard about them, so he would like to know more. Why not. I do a little research and it turns out that in Frank’s company procurement processes are carried out manually. So I want to tell him about NextBuy, but in a much broader context than just requests and auctions.
Not badly screwed in to talk to Frank, I tell him about the P2P process, which can largely automate the purchasing process. The fact that invoices can be matched with orders and appropriate algorithms can verify them and even approve them. Automation above 90%. At the end, I still pull out my calculators and count savings.
As long as I tell him about the software, I see that Frank’s face gets stranger.
Well, just magic. So it is possible? … And these are the moments in my life, when I realize that what seems obvious to me, for others it is still something new. Then the “missionary” mode turns on me and I start full-time education.
And for those who have not heard about P2P or heard but are willing to organize their knowledge, I decided to describe the entire P2P process and the measurable benefits it brings to the organization.
Let’s start with a short definition.
P2P – Procure To Pay – may be defined as an entire process related to handling orders in your company, from the beginning – that is, the purchase need, to the end – that is payment.
Regardless of whether you like it or not – this process is an inseparable part of the core business functions in company and always occurs. How does it happened?
Each order is processed:
It depends on the scale of your company. Small companies will rather not decide to automate the process by implementing an electronic tool, because the cost of implementing the system is too high, and the potential for savings is small. However, the larger the company, the more you gain from shopping automation. Remember that every organization is primarily: people, tools and processes. If you provide inadequate tools or senseless processes to people, they will either hate their work or find a workaround to not use it.
In that case, you’ll probably ask me right away:
You will find the answer to these questions later in this article. The answer to them requires discussing the stages in the P2P process – all answers are hidden in it.
The P2P process consists mainly of 4 steps: purchase request, ordering, delivery and invoicing.
Purchase request is, in my opinion, the most important step in the whole process, because thanks to that the whole process begins. It is also often called an internal order. Each employee reports different needs that are further processed – and processing is a cost.
I would even dare say that the effectiveness of your organization depends on how many error requests can be rejected at their initial stage, that is, when they do not involve the time of other people. In my experience, companies that have mastered this stage know how much they can gain, and that means they try to control the whole process.
The “incorrect request” is:
Reporting “incorrect request” usually results from:
Request should always be reporting by one communication channel and should be simple for the user. In fact, most employees rarely report new purchase requests. This means that they need a simple and intuitive tool to operate them.
If you buy something regularly, sign the framework agreements with the main suppliers and add their products to the catalog. The catalog is such an internal online store. A good catalog should enable quick searching of products, adding to the basket and sending for acceptance.
If you do not want to keep all directories in your system (someone eventually has to do it) then think about integrating with the catalogs of suppliers. This option is very often used in, for example, office supplies, where products change all the time. All you need to do is connect to the supplier’s API and download products from external catalogs to the purchase request.
If you want the requester to describe what he needs so that the buyer knows what to do next – create forms with dedicated fields describing these needs. You need other information when someone is booking a business trip, purchasing an IT system, new training or marketing materials.
Workflow can consist of automatic or manual steps (user acceptance) and is required to meet two goals:
If the workflow does not accelerate and slows down it means that it does not work properly. The automated steps are used to check the system, for example, the budget of the business unit or the purchasing category, contract terms or other elements verified by accepting requirements by default. If everything is OK, let it automatically accept our needs. Only when the demand deviates from the set process, the system may require additional acceptance or simply reject the request.
In conclusion, thanks to the implementation of automatic verification of requirements, the system can immediately reject everything that is incorrect (or immediately send for improvement), and thus you will save time for all those unnecessarily involved in the process.
The order is the next step in the process, which ends with sending the order with all ordered items to the supplier.
If the requests work in your company as described above, then the order is a kind of formality. The data for the order is collected automatically from the request, as well as the allocation of costs.
If you do not have a request and the order is the initial stage, then all my recommendations described above regarding the needs should be transferred to the orders that is:
When the order is ready for shipment, it is time to send it to the supplier. You can download them to, for example, pdf and send from your email, but my recommendation is of course a system that sends the order to the supplier with one click.
The system gives you an additional advantage. Allows the system to confirm the acceptance of the order by the supplier (or rejection). Functionality as small as possible, but imagine that after a week there is no delivery and … a problem is made. The clients I worked with never really had this problem, because after each order they sent they called the supplier to confirm the receipt of the order. Hmm … let’s assume that your company sends 50 orders a day, 4-5 minutes to order and half FTE you need to confirm orders. Can you afford it?
Delivery and Invoice are the last two stages of the P2P process, which are to lead to the fact that the invoice is accepted and sent for payment.
The process seems simple and really simple. What’s more, it can be automatic, but only if the following steps are met:
This algorithm is called Three Way Matching and means comparing the data on the order with delivery lines and invoice lines.
If everything is correct then the invoice can be immediately sent for payment. Remember that the purchase request was first accepted, then the order, each item has already been allocated to cost accounts – so there is no point in repeating this action once again.
However, if there are discrepancies (not this amount, not this value, other exchange rates, or maybe new items on the invoice, not provided at the order stage), then start an additional acceptance, which may again consist of automated steps (re-review of the budget), and manual (acceptance by “man”). At the same time remember that people’s working time costs. Sometimes it is better to automatically accept the discrepancy to a certain value (eg several thousand PLN) or up to a certain scale, eg 0.5% discrepancy.
Our experience shows that the automation of the order processing process can reach over 90%. This means that if you employ 10 people to settle invoices, then after the implementation of automation, you either reduce 9 FTEs or reduce eg 4 (reductions are inevitable where there is automation) and you have an additional 5 people whose potential you can eventually use in other projects that you did not have previously had. Do you see the value? I am huge.
So, returning to the questions from the beginning of the article, let us answer specific questions.
The level of automation should be adjusted to the scale of your company. If you are a small company, I would suggest increasing monitoring of order generation. In addition, enter the obligation to enter the order number on the invoice (it is a trifle, but it makes it much easier). If you are a large company or corporation, real savings will be achieved by implementing product catalogs and automating the circulation and acceptance of invoices.
Referring to our experience, the automation of the order processing process shortens it by 40-70%, while at the same time gaining a reduction in the number of errors when processing orders. It’s a huge saving, but if you want to see specific numbers, you have to calculate them for your business individually. However, I can tell you how to do it:
If you do not know how to start? Read the next paragraph.
Every action must start sometime. The process of purchasing service automation also needs to be started sometime. For it to work it must be matched to your organization. Start by mapping the purchasing process and identifying the shopping categories that constitute a lot of “pain” in the process and count how much you can “earn” by implementing this automation.
You need help? Write to us. We have everything you need to implement such a project: