The procure to pay cycle (P2P) is an inclusive term that refers to all the processes undertaken to obtain and manage the raw materials needed to manufacture a product or provide a service. The Chartered Institute of Purchasing and Supply (CIPS) describes it as the process that underpins the subprocesses from the sourcing, negotiation of terms, ordering, receiving and paying for the procured items. Within the P2P cycle, there are opportunities to realize cost savings through automation and effective spend management software.
CIPS emphasizes that the process should be seamless from beginning to end. The procure to pay cycle has become the standard for procurement practitioners and service providers. ProcurePort’s P2P software leverages cloud-hosted technology to automate the process. ProcurePort is an international leader in providing e-procurement solutions and services which are delivered via the cloud on demand.
Optimizing the Procure to Pay Cycle
The American Productivity & Quality Center (APQC) has done research into the procurement to pay cycle of organizations that have excelled. These organizations have improved internal and external procurement functions by shortening the cycle.
APQC has an Open Standards Benchmarking in procurement. It drew data from it to filter organizations and find those that were highly efficient in several major performance factors, including:
- Cost efficiency
- Process efficiency
- Cycle time
- Worker productivity
Based on this, APQC then narrowed down a list of 514 eligible organizations to 51 top performers. They considered how this group performed against other organizations by looking at the cycle time measures of:
- The time that is taken to make a purchase order in hours
- The average supplier lead time for purchasing materials
- The procure to pay cycle in days
APQC determined that the top performing organizations took less time to place purchase orders and waited fewer days to receive their orders from suppliers. These highly efficient organizations took time to improve their P2P cycles and eliminated activities that were unnecessary. Technology also played a factor in their success as many of the top performing organizations had implemented e-procurement software to automate the procurement process and reduce cycle time.
Aligning Procurement and Finance for Business Impact
Top enterprises are aligning procurement with financial decisions to help businesses to see an impact that goes beyond cost reductions. Genpact outlines four levers that can help an organization to see the value of a procure to pay cycle that is fully integrated. According to Genpact, organizations separate procurement and finance which exposes them to inefficiencies that can cost them in several areas.
Procurement focuses on getting more for less from suppliers while finance is concerned about taking procured materials and turning them into profit. Aligning the two makes it possible to realize savings and generate business value.
Failing to integrate the two impacts an organization negatively in several ways including:
- Compromising cost control due to a lack of accurate records of what has been spent thus making cost analysis, management and control difficult.
- Compromising tail-end spending which can make up 20% of a business’ spend but 80% of all that is spent on suppliers.
- Comprehensive data analysis is often not done when procurement and finance are not aligned.
- Hampering effective supplier negotiation and reducing visibility when decisions such as purchase and finance decisions are uncoordinated.
- Ambiguity and inconsistencies when those in finance and those in purchasing manage functions separately. It can also negatively impact relationships with suppliers who may be taking conflicting orders.
The ProcurePort Approach to the Procure to Pay Cycle
Organizations that have used ProcurePort’s solutions have reaped the benefits of:
- Cost savings
- Reduced risks when buying materials, whether directly or indirectly
- Increasing compliance with procurement guidelines and financial ones as well
- Curbing unnecessary or unauthorized spending
ProcurePort’s P2P is part of our Spend Management Software (SMS). It integrates the buying process from start to finish thus automating your P2P cycle completely. You’ll be able to manage all the documents such as digital RFIs and RFQs as well as invoices and payments via a user-friendly web interface.
You will also be able to collaborate with suppliers on every transaction because they will also be able to see the documents detailing the different transactions. This makes for smooth flow of data without having to send paperwork back and forth. A digital system also keeps data secure because access is granted only to those who should have it. Security is ensured with usernames and passwords, triple redundancy, 128-bit encryption and internal and external back up among other features.
With the ProcurePort SMS, you can easily digitize your procurement and financial processes to manage all direct and indirect spending and boost your bottom line. Apart from cost-saving opportunities, you will also be securing your supply chain for the long run.
You’ll get 25 user-specific controls that ensure adherence to set spend levels, give or deny authorization to purchase and determine which information is available to which user among other controls. Organizations can also get 23 level controls that have budget amounts and codes for the same, rules of receiving goods, inventory management and more.