What is the role of the purchasing organisation in the Purchase-to-Pay (P2P) process? How to find reserves in the area of purchasing handling and settlement? What KPIs to use for the monitoring of the P2P process efficiency in an organisation?
The Purchase-to-Pay process optimisation requires the involvement of an entire organisation. However, these efforts will have their impact on the growth of efficiency of the whole company.
Roles and objectives in the P2P process
When we try to identify participants of the Purchase-to-Pay (P2P) process, we naturally think of accounting and finance departments. However, in modern organisations the responsibility for individual phases of the P2P process is assigned to different organisational units. First of all, internal clients define and initiate the purchasing needs. Next, the process is joined by controlling and financial departments that deal with budget planning, and purchasing departments that conduct sourcing activities and manage supplier relations. Finally, the accounting department handles invoicing and payments.
Optimisation of the P2P process requires involvement of the entire organisation. Improved P2P performance depends on an efficient operation and meeting the objectives of the participants of every stage of the process.
What are the most common challenges for participants of the P2P process? First of all, it is generating savings – both in terms of finances and processes. Setting towards global objectives, modern organisation expect, among others:
- A prompt response to their own and the market’s business needs,
- Optimisation of the processes of document verification and approval,
- Elimination of logistics and circulation of paper documents,
- Automation of the verification process of documents which “activate” payments,
- Providing a high quality executive data – needed for the company to monitor and plan its processes.
The purchasing organisation becomes an essential element of the procedure – optimisation of strategic and operational functions of purchasing translates into a higher performance of the entire P2P process. A high quality of data provided during the purchasing process and a developed data management model on the subsequent stages of the P2P process allow for advantages in the area of managing invoices and settlements. Optimisation activities should be based on the application of IT tools – introduction of a solution that will automate both internal processes of an organisation (e.g. placing orders, supplier base management or acceptance process) and contractors cooperation (e.g. communication or exchange of documents).
Performance indicators of the P2P process
In order to efficiently manage the process, it is necessary to monitor its course, in particular, to assess the optimisation activities. For this reason, it is advisable to define key indicators (co called KPI – Key Performance Indicators) which, if regularly reviewed, will allow for verification of the actual performance growth in individual areas of the process.
The choice of appropriate indicators is determined by business conditions in which the organisation operates and by the stage of its maturity. Susie West, an initiator of the sharedserviceslink.com website, collected 10 Key Performance Indicators for the P2P process. They relate to the area of invoicing and payment settlement. When defining indicators for the P2P process, it is also recommended to consider the efficiency of related areas and such elements of the process as: circulation of documents in a company, orders verification and acceptance or suppliers base and contract management. Exemplary indicators included:
- The quantity of transactions made outside of the purchasing system,
- An average time of acceptance cycle for a document,
- The range of achieved savings,
- The percentage of orders made without reference to contracts,
- The proportion of documents processed in paper and in an electronic form.
- The modelling and implementation of the P2P process – good practices
Sharing their experiences in optimisation of business processes, during the Marketplanet OnePlace Conference, the representatives of Orange Polska, Grzegorz Ligęza, Bulk Purchasing Director and Henryk Morski, Products and User Systems Purchasing Director, presented 10 good practices that are important to keep in mind when starting the P2P area optimisation and introducing IT tools to support the process:
- Purchasing inventory checking in an organisation – the organisation should, first of all, identify product ranges it purchases and internal clients that submit their needs.
- Defining areas that require improvement and prioritising – another step is to identify processes that should be optimised first.
- Defining the organisation’s commitment to the optimisation initiatives – prior to any further activities, it is advisable to identify the areas of organisation that take part or should take part in the P2P process modelling.
- Determining the objectives and scope of responsibility of the P2P process participants – it is essential to determine the course of the process and its indicators, which will support the organisation in achieving the common objective of optimising the P2P area.
- Defining the strategy for selection of supply sources in individual groups of products – the purchasing organisation should identify strategic product ranges, ensure sources of supply and, in cooperation with other participants of the process, develop the principles of payments and settlement with key suppliers.
- Selecting IT tools to support the P2P processes – identifying solutions (both already in place and new) that could automate individual stages of the process, e.g. electronic catalogues or electronic for of cooperation with suppliers.
- Selecting advisory and implementation partners for optimisation activities in the P2P area – in order to implement IT tools and to model the process, it is recommended to initiate cooperation with partners who have experience in optimisation of similar business areas and in implementation on a similar scale.
- Assessing the suppliers’ potential commitment to the P2P enhancement activities and a plan of initiating electronic cooperation with selected suppliers – to automate the process, it is necessary to have suppliers’ commitment. Therefore, it is very important to identify entities that could cooperate with the company in terms of electronic exchange of documents.
- Defining the performance indicators and monitoring the course of the process – the organisation should regularly review the P2P process regarding the optimisation activities.