• Advertise
  • Contact Us
  • About Us
  • Supplier Directory
  • Login
  • Subscribe
  • Logout
  • My Profile

  • CORONAVIRUS
  • LOGISTICS
    • Air Cargo
    • All Logistics
    • Express/Small Shipments
    • Facility Location Planning
    • Freight Forwarding/Customs Brokerage
    • Global Gateways
    • Global Logistics
    • Last Mile Delivery
    • Logistics Outsourcing
    • LTL/Truckload Services
    • Ocean Transportation
    • Rail & Intermodal
    • Reverse Logistics
    • Service Parts Management
    • Transportation & Distribution
  • TECHNOLOGY
    • All Technology
    • Artificial Intelligence
    • Cloud & On-Demand Systems
    • Data Management (Big Data/IoT/Blockchain)
    • ERP & Enterprise Systems
    • Forecasting & Demand Planning
    • Global Trade Management
    • Inventory Planning/ Optimization
    • Product Lifecycle Management
    • Sales & Operations Planning
    • SC Finance & Revenue Management
    • SC Planning & Optimization
    • Sourcing/Procurement/SRM
    • Supply Chain Visibility
    • Transportation Management
  • GENERAL SCM
    • Business Strategy Alignment
    • Education & Professional Development
    • Global Supply Chain Management
    • Global Trade & Economics
    • HR & Labor Management
    • Quality & Metrics
    • Regulation & Compliance
    • SC Security & Risk Mgmt
    • Sustainability & Corporate Social Responsibility
  • WAREHOUSING
    • All Warehouse Services
    • Conveyors & Sortation
    • Lift Trucks & AGVs
    • Order Fulfillment
    • Packaging
    • RFID, Barcode, Mobility & Voice
    • Robotics
    • Warehouse Management Systems
  • INDUSTRIES
    • Aerospace & Defense
    • Apparel
    • Automotive
    • Chemicals & Energy
    • Consumer Packaged Goods
    • E-Commerce/Omni-Channel
    • Food & Beverage
    • Healthcare
    • High-Tech/Electronics
    • Industrial Manufacturing
    • Pharmaceutical/Biotech
    • Retail
  • REGIONS
    • Asia Pacific
    • Canada
    • China
    • Europe
    • Latin America
    • Middle East/Africa
    • North America
  • THINK TANK
  • WEBINARS
  • PODCASTS
  • VIDEOS
  • WHITEPAPERS
Home » Procurement's Role in Maximizing Value via Supplier Payments

Procurement's Role in Maximizing Value via Supplier Payments

October 12, 2015
David Hill, Director, American Express Global Business Consulting

In the past, procurement placed greater emphasis on the sourcing and purchasing processes - increasing efficiency through initiatives like category management and procurement technology solutions. Beyond negotiating a payment term, payments were often viewed as a cost of doing business.

The more streamlined procurement processes and widely adopted ERP and e-procurement systems now allow organizations to strategically address payments by quickly recognizing untapped value from the back end.

As procurement looks for ways to generate increased savings, suppliers are often the first call they make. Supply chains have paved the way for value chains, and supplier relationships are now being looked at end-to-end and in parallel with a B2B payments strategy to extract full financial value. As this strategy continues to be beneficial, many organizations are readily adopting payment strategies as the next big wave of innovation. And senior leadership’s buy-in plays a critical role in ensuring proper signaling of these new practices both internally, and externally to suppliers.

It's Not Just Ordering Widgets and Squeezing Suppliers on Price

Although procurement's traditional role has historically been to negotiate commercial terms and mitigate risk, at the end of the day they are the guardians of supplier relationships and responsible for total cost of ownership.

If payments are to provide bottom-line savings, procurement is in an ideal position to lead this charge because their role has visibility over much of the payments process and transactional data. Therefore procurement leaders can more easily see the total payments savings opportunity. Procurement is now benchmarking “best-in-class" payment strategies by creating a payments optimization view into the company’s supplier relationships.

While procurement owns the supplier relationship, collaboration across numerous stakeholders is essential to maximizing value from payments. This includes procurement aligning with suppliers but also with accounts payable, finance, treasury and IT. Additionally, senior leadership’s buy-in can effectively mandate new strategies as the preferred method of payment. Leadership’s targets for procurement can signal that the company is serious about ensuring that new contracts will utilize payment methodology or discounts as a major determinant of successful vendor bids.

For instance, if procurement is engaging in a contract negotiation, why not consult with internal business partners from AP to uncover options for accelerated payment? Perhaps the supplier is willing to offer a discount on the invoice. At the very least, improving the supplier days sales outstanding (DSO) could lead to future negotiating leverage via an improved supplier experience.

Payment strategies aren’t limited to negotiations with suppliers. By incorporating payment strategy as part of the sourcing process, organizations are better positioned to maximize cost savings from the onset. And through senior leadership’s commitment to these new strategies and procurement’s dedication to that vision, suppliers can effectively understand that the company is serious about sourcing from vendors who offer shorter payment terms, or favorable payment methods.

Same Strategy, Different Day

The core pillars of a payments strategy haven’t changed much over the last decade, but procurement’s role as an owner certainly has. These pillars include rebates/incentives, process efficiencies, and working capital management.

In addition to negotiated discounts, the primary source for procurement to generate rebates from payments comes from their corporate card provider (T&E, B2B). In most organizations, procurement is the owner of this strategic relationship and is in a position to identify which suppliers should be paid via these products. Purchasing cards have evolved into strategic B2B payments programs and procurement should not only stay abreast of how best-in-class organizations are reaping the rewards, but also why these programs are increasingly more appealing to suppliers.

Process efficiencies can deliver tangible cost savings, for example from improved invoice handling/processing, automated approvals and arguably the most lucrative, payment efficiencies, i.e., moving from checks to electronic methods. While these are often AP-led initiatives, it is imperative that procurement understand the value being delivered and, when applicable, manage the supplier impact.

Historically, liquidity can be generated and working capital freed by procurement negotiating extended payment terms. With the increased adoption of traditional card-based and electronic B2B payment solutions, there are now several strategies procurement can utilize to contribute cash to the balance sheet, i.e., buyer initiated payments, supply chain financing, dynamic discounting and liquidity exchanges, to name a few. These relatively new strategies are important to procurement because maximum value is generated when a mutually beneficial value proposition is reached between the buyer and supplier, as opposed to extended terms, which are essentially a days payable outstanding (DPO) extension at the expense of the supplier.

While many stakeholders are involved, procurement should lead the charge in gathering all the facts associated with implementing a B2B payments strategy.

Five Steps for Procurement to Create a B2B Payments Strategy

1. Create a current state assessment of the organization’s procure to pay function, benchmarking against best-in-class organizations and highlighting opportunities for improvement

2. Perform a comprehensive spend analysis to define the opportunity and segment your company’s suppliers by product/B2B strategy

3. Measure potential savings opportunity from associated rebates, process efficiencies and working capital benefits

4. Secure buy-in from senior leaders and key business stakeholders.  Ensure that the importance of new initiatives is widely understood and use leadership mandates to ensure that the importance of preferred payments methods is understood.

5. Define and own the supplier communication strategy, endorsing the B2B payments program as a strategic initiative

Supplier Benefits from Evolving Payment Strategies

A well-designed payment strategy doesn’t just benefit the buyer, it also benefits the supplier. Supplier benefits can range from: cash acceleration, reduced DSO, enhanced visibility and cash forecasting, process efficiencies from automation and in some cases contract extensions by participating in the payment program.

While each procurement organization will ultimately assess individual risk within the buyer/supplier relationship, best-in-class organizations are using contract negotiations and supplier reviews to drive volume towards their B2B payments strategies.

Procurement should focus on the following three key areas to continuously maximize supplier value:

1. Highlight supplier benefits from receiving accelerated payment, process efficiencies and improved visibility, and even leverage this benefit to push vendors for better pricing

2. Petition for better prices in exchange for including vendors who accept B2B payments on their preferred supplier list

3. Offer a commitment for incremental business tied to B2B payment enrollment

Leading organizations consider procurement to be an influential stakeholder for defining and rolling out a best-in-class B2B payments program.  As the owner of the supplier relationship, procurement plays a pivotal role in continued collaboration with AP and finance to create a true procure-to-pay function with the ability to deliver maximum value from supplier relationships.

Source: American Express Global Business Consulting

RELATED CONTENT

RELATED VIDEOS

Technology ERP & Enterprise Systems SC Finance & Revenue Management Sourcing/Procurement/SRM Business Strategy Alignment Global Supply Chain Management Pharmaceutical/Biotech
KEYWORDS American Express Global Business Consulting Business Strategy Alignment David Hill Director ERP ERP & Enterprise Systems Global Supply Chain Management Pharmaceutical/Biotech Revenue Management SC Finance & Revenue Management sourcing professionals Sourcing/Procurement/SCM Supplier Relationship Management Supply Chain Analysis & Consulting Supply Chain Management supply chain management: sourcing and procurement solutions Technology
  • Related Articles

    Procurement's Guide to Extending Supplier Payments Terms

    Supplier Category Management Study Details Best Practices for Driving Value in Procurement

    Create Differentiating Value in the Supply Network Through Supplier Segmentation

David Hill, Director, American Express Global Business Consulting

Procurement's Role in Maximizing Value via Supplier Payments

More from this author

Wake up to Coronavirus Updates and the latest Supply Chain News!

Subscribe to our Daily Newsletter

Timely, incisive articles delivered directly to your inbox.

Popular Stories

  • Coronavirus-watch-Armada

    Virus Update: J&J Pause Could Last Several Weeks; Global Vaccine Production Nears 2 Billion

    Coronavirus
  • Shipping Costs

    Higher Shipping Costs Are Here to Stay, Sparking Price Increases

    Coronavirus
  • Ocado

    Kroger Is Amassing a Robot Army to Battle Amazon, Walmart

    Logistics
  • Indoor Farm

    Vertical Farming: A Solution to Waste and Inefficiency in the Food Supply Chain?

    Sustainability & Corporate Social Responsibility
  • Why Is There a Global Semiconductor Shortage?

    Watch: Why Is There a Global Semiconductor Shortage?

    Coronavirus

Digital Edition

Scb feb 2021 lg

2021 Supply Chain Management Resource Guide

VIEW THE LATEST ISSUE

Case Studies

  • Remote Implementation: A Dose of the Right Medicine for B2B Pharmacy

  • LSP Saves Customer $1.5 Million a Year With MPO Global Inbound Management

  • Auto Supplier Wows Key Client Using riskmethods Supply Chain Savvy

  • Integrating Shipping and Compliance Saves Conglomerate Millions

  • How a Consumer Goods Giant Upped Its On-Time Delivery Performance

Visit Our Sponsors

Yang Ming 6 River Systems ArcBest
Armada aThingz BluJay
Burris Logistics DSC Logistics DCSA (Digital Container Shipping Association)
DHL Resilience360 Flash Global Genpact
Geodis GEP GreyOrange
Honeywell Corporate Honeywell Intelligrated Infor
Inmar Kibo Commerce Kinaxis
Logility Magnitude Software MPO
Old Dominion Oliver Wight OpenSky
Paccurate Ports America Purolator
QAD Precision Red Classic Riskmethods
S&H Systems Snapfulfil TGW Systems
Tradepoint Atlantic Transportation Insights Watson Land Company
Westfalia Technologies Workjam
  • More From SCB
    • Featured Content
    • Video Library
    • Think Tank Blog
    • SupplyChainBrain Podcast
    • Whitepapers
    • Webinars
  • Digital Offerings
    • Digital Issue
    • Subscribe
    • Manage Your Subscription
    • Newsletters
  • Resources
    • Events Calendar
    • SCB's Great Supply Chain Partners
    • Supplier Directory
    • Case Study Showcase
    • Supply Chain Innovation Awards
    • 100 Great Partners Form
  • SCB Corporate
    • Advertise on SCB.COM
    • About Us
    • Privacy Policy
    • Contact Us
    • Data Sharing Opt-Out

All content copyright ©2021 Keller International Publishing Corp All rights reserved. No reproduction, transmission or display is permitted without the written permissions of Keller International Publishing Corp

Design, CMS, Hosting & Web Development :: ePublishing