Procure-to-Pay Process Optimization

Procurement is an integral part of every organization. It is how you get goods and services like stationery, raw materials, and office supplies that your company needs to operate. However, it can be a long, tedious process that could divert your attention from value addition.

As the director of engineering, you need to make the procure-to-pay process faster and more cost-efficient. It will improve your productivity and make procurement a source of value. As such, you should audit your practices and deploy the right tools like ControlHub- purchasing software to improve the process.

In this article, we dive into what P2P is, the benefits of optimizing it, and how to successfully implement it for business growth.  

What is Procure-to-Pay?

Procure to pay is a sub branch of the procurement process that covers the buying process from purchase requisition to payment of the supplier. Procure to pay or P2P connects the procurement department to the finance department and offers visibility over the entire process.

How Does Procure-to-pay Work

The main function of the P2P process as a procurement solution is to help you acquire what you need at the right time and right cost. While the routine may differ from company to company, it promotes best practices and saves you time and costs related to buying.

Here is a general outline of the process:

1. Purchase Requisition Creation

The buying process starts with the report of a need. It is usually from a specific department or the general office. Next, the involved people create specifications of the item or service needed and make a formal request for the goods. 

2. Purchase Requisition Approval

After making a request, the management and procurement team go over it to check if it meets company requirements. They then can authorize, reject or send it back to the requestor for adjustments.

3. Purchase Order Creation

Once the requisition has been approved, the procurement office will formulate an order and send it to the preferred supplier or suppliers. Once the vendor accepts the purchase order, it becomes legally binding.

4. Delivery of the Order

The vendor will deliver the order following supply chain best practices within the stipulated time and place, where the buyer inspects the goods or service for quality.

5. Receiving and Reconciling the Invoice

Once the goods have been received, the seller sends an invoice for payment. At this time, you are required to ensure it matches the purchase order and the receipt. If the invoice is correct, it is forwarded to the account payable for payment, and if there are differences, it is sent back to the vendor with an explanation.

6. Payment of Goods or Services

Undoubtedly, the next step is paying the vendor. It is done within the time and with the installments stipulated in the purchase order.

Challenges to Procure to Pay Optimization

While the P2P process is integral to the success of your engineering company, it shouldn't take much time and resources. Thus, you need to use procure to pay best practices.

One of procure-to-pay best practices is going digital. Many organizations will deem it unnecessary, expensive, or against their traditions and norms.

However, if you decide to go digital, you have to formulate ways to deal with the obstacles that could hinder implementation.

Here are the challenges you should expect to face. 

Unlinked Procurement and Account Payable

The account payable and procurement departments are in charge of the P2P process: the former initiates the purchase while the latter finishes it by paying. It, therefore, means that the two share a lot of data and information.

However, despite the relationship, many organizations keep the two functions separate in different departments. The separation means that the two need to share data and keep each other updated continuously. 

This creates a ground for delays, bottlenecks, and maverick spending that can divert your attention from value addition.

Cultural Challenges

Most organizations and their leaders are centered on profit-making and will avoid anything that makes them spend money. As such, getting them on board to invest in the procurement process and account is vital to optimizing P2P.

Some organization leaders still avoid the digital world due to either ignorance or fear of developments. They prefer things to be left as they are provided they’re still working. Such a culture could prevent the implementation of P2P optimization processes. 

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 using the benefits of P2P optimization. It will get the staff dedicated to the process and the support of the executive. 

Here are some benefits of procurement optimization. 

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. 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. 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.

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 your invoice processing cost by eliminating the need to print and scan an invoice before sending it to the seller. 

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 like Control Hub that will help with P2P automation and carry out the tasks and review them to see if they work well. You'll gain a lot and harvest data to mine for actionable insights.

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

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. 

ControlHub 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.