Procurement is vital for any business, especially for startups focused on buying hardware. It's about getting what the company needs while ensuring operational efficiency. But it can be slow and distract from other important work. As an engineering director, making this process better and cheaper is key. This means more productivity and value. Auditing and using tools like ControlHub's procurement software helps reduce human error and enhances invoice processing. This article explains the procure-to-pay (P2P) process, a key P2P process as a procurement solution, its benefits, and how to use it for growth, focusing on continuous improvement and best practices.
What is Procure-to-Pay?
Procure-to-pay is part of buying that goes from requesting to paying a supplier, optimizing the entire process. It links the buying and finance teams and shows the whole process. A P2P solution improves procurement strategy and strengthens supplier relationships.
How Procure-to-Pay Works
It's about getting what you need on time and at a good price. Each company does it a bit differently, but it's always about saving time and money. Here's how it usually goes:
- Creating a Purchase Requisition: When a department needs something, they report it and ask formally for what they need, aligning with business requirements.
- Approving the Requisition: Managers and the procurement team check the request. They can approve, reject, or ask for changes, ensuring contract compliance. This approval process is crucial in the P2P cycle.
- Making a Purchase Order: If approved, the procurement office orders from the supplier. When the supplier agrees, it's a legal deal. The order sets payment terms and is a step towards cost control.
- Getting the Order: The supplier delivers, following best practices. The buyer checks the quality, often through three-way matching (invoice, order, and receipt).
- Handling the Invoice: After getting the goods, the seller invoices. The buyer checks it matches the order and receipt. If correct, it goes for payment. If not, it's sent back with an explanation. This step is crucial in vendor payment and reducing manual processes.
- Paying for Goods or Services: Finally, the buyer pays the supplier as agreed in the order. Artificial intelligence can assist the finance team in this process, providing actionable insights and improving the P2P cycle.
This procure-to-pay approach aims for continuous improvement, reducing manual processes, and enhancing operational efficiency.
Challenges to Procure to Pay Optimization
While P2P processes are integral to the success of your engineering company, they shouldn't consume excessive time and resources. Thus, you need to employ best practices in procure-to-pay, including the use of software solutions. One of these best practices is going digital, which offers real-time visibility into the entire P2P process. However, transitioning to digital can be challenging due to various obstacles.
Unlinked Procurement and Account Payable
In many organizations, the account payable and procurement departments handle different stages of the P2P process. The procurement department often deals with supplier selection and issues the formal purchase requisition form, while the payable team is responsible for handling the vendor invoice and finalizing payments to external vendors. Despite their interrelated roles, these departments frequently operate separately, leading to challenges in sharing data. This separation can cause delays, bottlenecks, and maverick spending, all of which can detract from value-adding activities. A centralized supplier database and integrated procurement technologies can mitigate these issues, enhancing supplier management and the efficiency of payable processes.
Cultural Challenges
Many organizations focus on profit and are hesitant to invest in procurement processes and technologies. Leaders might resist adopting new procurement policies or procurement software due to a lack of understanding or fear of change. They may prefer existing methods over newer, potentially more efficient ones like digital procure-to-pay solutions. This resistance can hinder the adoption of practices that enhance supplier performance, such as purchase order approval and tracking supplier invoices. To optimize P2P, it's crucial for procurement professionals to address these cultural barriers and demonstrate how digital transformation can lead to improved supplier management and adherence to procurement policies.
Advantages of Procure to Pay Optimization
When planning to optimize your P2P process, you need everyone on board. The best way to sell the idea to the staff and management is by emphasizing the benefits of P2P optimization, including a more efficient supply chain and data-driven decisions. It will get the staff dedicated to the process and the support of the executive. Here are some benefits of procurement optimization, which include key steps to mitigate manual errors and enhance overall efficiency.
Short and Accurate Procurement Process
One of the challenges you may be facing in the purchasing process function is the time it takes to finish it. You'll spend long hours going through paperwork, creating documents, and doing repetitive tasks. The boredom and tiredness that ensues create a good ground to make errors; after all, you are human.
You can avoid these by adopting P2P software which incorporates machine learning and electronic invoicing. Unlike your staff members, the software doesn't need breaks nor get tired. It also can accomplish huge tasks faster while maintaining high levels of accuracy. You'll get to set standards on transactions and create rules that the software will follow, offering a wide range of automated functionalities. You can let the software approve purchases under certain amounts and automatically create and send purchase orders to suppliers. Additionally, the software will reconcile the invoice automatically, reducing the time spent on the process and supporting informed decisions.
Reduced Costs
While acquiring software will cost you, it will reduce your procurement process expenditure in many ways. First, the software will eliminate the need for labor and reduce your wages.Secondly, the software will help you manage your contracts efficiently to avoid unnecessary renewal costs. It will store them in a central place, track each expiry date, and notify you of impending expiration. You'll also receive a monthly review to keep you on top of things.Thirdly, the software will help you reduce yourinvoice processing cost by eliminating the need to print and scan an invoice before sending it to the seller.
Procure to pay software is your best ally for achieving your procurement savings goals.
Cost Control and Cost Avoidance
Many organizations use bureaucracy to control the budget and spend management. You can avoid this using procurement software.Once you have created your budget, you can incorporate it into the system with the order of not approving maverick spending. Additionally, it will ensure a purchase order is approved by the right person before sending it to the chosen vendor.You'll also be able to generate reports on demand to help the executive monitor and manage expenditure in the company.
Avoiding Disruption Costs
As an engineer, you'll need critical parts to finish a project. Late delivery of such items could add days or even months to your schedule, making you miss completion dates.Unfortunately, the supply chain can be disrupted by natural events, accidents, and even pandemics.A perfect way to shield yourself from such is to optimize your P2P process and conduct strategic sourcing.A procurement process software and strategic sourcing will help you collect data on your vendors, including delivery history. It will then help you engage vendors who deliver on time per your schedule.
How to Implement P2P Optimization
You need to do a few simple things before reaping the benefits of optimizing your purchase-to-pay process. Here are a few steps on how to go about it.
1. Conduct a P2P Audit
The first step to setting up process optimization of your P2P is knowing where you currently stand. Go over your current procedures and determine the following:
- Cost and cycle time for processing purchase orders and invoices
- Percentage of vendors who send manual invoices vs those who send electronic invoices
- Number of errors like duplication and omission
- Challenges in approval workflows
- Existing workflows and internal controls that you can be improve
2. Work on the Areas that Needs Improvement
AutoAfter identifying the areas that need improvement, you can focus on how to make them better. If the problem is a procurement team or member taking too long to approve or high purchase orders, you can take the necessary steps to get it done right.
3. Automate the Process
Automate! Automate! Automate!The world is moving rapidly, and you need to stay relevant and competitive to survive. One good way of managing this is allowing your workers to concentrate on value-adding tasks like customer relationship management and supplier relation development.Automate simple repetitive tasks, save time, increase speed, and reduce errors. Use a good software likeControl Hub
4. Monitor and Improve the Changes
The work does not end after you have optimized and brought technology on board. You have to track, measure, and tweak the process for better results.Formulate purchasing key performance indicators (KPIs) to help you measure and improve areas such as cost of ownership and make the procurement process a source of value and saving.You can also look into integrating your procurement solution with others such as customer resource management and enterprise resource planning. They will show you areas for improvement in all the sectors of the organization.
Optimize your P2P with procurement software (AKA Purchasing Software)
The procurement process can take up your time and divert your attention from your engineering tasks. You can change this by P2P automation that makes the process fast, cost-efficient, and a source of value. One such way is incorporating Control Hub procurement software into your process. will automate small repetitive tasks like purchase order generation and management. You'll be able to track every penny coming in and going out, eliminate paperwork, match orders and pay your vendors, all before you finish your first cup of tea. ControlHub
Learnings
Procurement is an essential part of every organization, but for startups that are hardware-centric and have a significant focus on procurement, it can be a time-consuming process that diverts attention away from value-adding tasks. In this post, we discuss how to optimize the procure-to-pay process to make it more efficient and cost-effective, leading to increased productivity and a source of value for hardware-centric startups.We first define procure-to-pay as a sub-branch of the procurement process that covers the buying process from purchase requisition to payment of the supplier. We then explain how the process works, which includes purchase requisition creation, approval, purchase order creation, delivery of the order, receiving and reconciling the invoice, and payment of goods or services.
We also discuss some of the challenges to procurement optimization, such as unlinked procurement and account payable, and cultural challenges.We then outline the advantages of procurement optimization, including a short and accurate procurement process, reduced costs, cost control and cost avoidance, and avoiding disruption costs. We also provide steps on how to implement procure-to-pay optimization, such as conducting a P2P audit, working on areas that need improvement, automating the process, and monitoring and improving the changes.The impact of this post is significant for hardware-centric startups that have a heavy focus on procurement.
By optimizing the procure-to-pay process, startups can save time and costs related to buying, reduce errors, and focus on value-adding tasks like customer and supplier relationship management. Procurement optimization can also lead to reduced costs, better cost control, and avoidance of disruption costs, which can contribute to the overall success of the startup.
