Executive Briefings

Should You Optimize Your Purchase-to-Pay Workflows by Spend Category?

Many organizations define sourcing and supplier management processes by spend category as the basis for understanding how to best source and manage their suppliers. However, they often do not specify how to buy from and pay those suppliers based on the nature of the spend category and the needs of stakeholders (spend owners, requisitioners, suppliers, etc.). While companies usually have some type of "n-step" sourcing methodology, they may have tens if not hundreds of different ways to buy and pay for goods and services. This can reduce efficiency and customer satisfaction and lead to higher noncompliance rates and greater risk.

The Hackett Group's latest research data indicates that 63 percent of world-class organizations studied have addressed this problem by defining the purchase-to-pay (P2P) transactional channels which they feel are optimal, compared to just over half of the peer group. These percentages may seem low, especially those of world-class organizations. But, based on our experience helping companies optimize their channel strategy, these values would probably drop to below 10 percent if procurement organizations were to formally define and implement a truly optimized transactional strategy.

Different companies have different P2P channel requirements. Manufacturers may be biased toward a three-way match process or evaluated receipts settlement for managing direct materials procurement. Services organizations might have a higher mix of P-cards, assumed receipts, invoice-only transactions, etc. Regardless, if procurement organizations want to improve their overall source-to-settle performance, they must: possess a unified spend category taxonomy; define a rationalized set of transactional purchasing and payment processes (less than five is a good target) that are then explicitly mapped to spend categories and/or associated suppliers; ensure that individual P2P transactional channels balance cash, cost and stakeholder satisfaction; and integrate a channel strategy selection and implementation plan into the category management process.

To date, only a very small percentage of organizations have implemented truly optimal "P2P transaction flow lines" in their P2P transaction factories across the majority of their spend and transactions.

A full copy of the research is available at:   www.thehackettgroup.com/hpn/

Source: The Hackett Group

Many organizations define sourcing and supplier management processes by spend category as the basis for understanding how to best source and manage their suppliers. However, they often do not specify how to buy from and pay those suppliers based on the nature of the spend category and the needs of stakeholders (spend owners, requisitioners, suppliers, etc.). While companies usually have some type of "n-step" sourcing methodology, they may have tens if not hundreds of different ways to buy and pay for goods and services. This can reduce efficiency and customer satisfaction and lead to higher noncompliance rates and greater risk.

The Hackett Group's latest research data indicates that 63 percent of world-class organizations studied have addressed this problem by defining the purchase-to-pay (P2P) transactional channels which they feel are optimal, compared to just over half of the peer group. These percentages may seem low, especially those of world-class organizations. But, based on our experience helping companies optimize their channel strategy, these values would probably drop to below 10 percent if procurement organizations were to formally define and implement a truly optimized transactional strategy.

Different companies have different P2P channel requirements. Manufacturers may be biased toward a three-way match process or evaluated receipts settlement for managing direct materials procurement. Services organizations might have a higher mix of P-cards, assumed receipts, invoice-only transactions, etc. Regardless, if procurement organizations want to improve their overall source-to-settle performance, they must: possess a unified spend category taxonomy; define a rationalized set of transactional purchasing and payment processes (less than five is a good target) that are then explicitly mapped to spend categories and/or associated suppliers; ensure that individual P2P transactional channels balance cash, cost and stakeholder satisfaction; and integrate a channel strategy selection and implementation plan into the category management process.

To date, only a very small percentage of organizations have implemented truly optimal "P2P transaction flow lines" in their P2P transaction factories across the majority of their spend and transactions.

A full copy of the research is available at:   www.thehackettgroup.com/hpn/

Source: The Hackett Group