Many businesses are well aware how necessary maintaining proper supply chain logistics is. One such process to consider is procure-to-pay, a simplification of a complex process involving several steps.
Supply chains have evolved into an extremely complex interplay of vendors and buyers, with orders, confirmations, delivery of goods, and invoice processing making up the core of the system. The more complex a system becomes, the more prone it becomes to failure. Procure-to-pay increases the efficiency of this system by reducing the chance of an error creeping into the system.
In each of the procure-to-pay stages, there exists a chance for errors to propagate. Some of the more common stumbling blocks that the procurement process may face include:
- Maverick purchasing
- Lack of discounts for paying on time
- Ineffectual liquidity planning
- Overworked employees
- No transparency in the process
- Manual data entry creating human input errors in the purchase order or invoice generation
- Massive turnaround times for orders
How should a business deal with these problems, since they can lead to a significant impact on the efficiency of the company's processes? To structure a company's procure-to-pay process optimally, we first need to define where the problems exist.
Analyzing the Situation
While engineers don't design systems to fail, if the design is weak, it will be prone to failure. The first place to start is by questioning any processes that haven't changed for some time. If a process isn't updated because it's "always been done that way," it's a sure sign of inefficiency creeping into the system.
Typical culprits include the procurement process itself (especially if it's not an electronic system) and any procurement guidelines that haven't been updated in years. The field of procurement is fluid, but sadly its processes are anything but.
A Potential Solution: Digital Procurement with SAP
After going through the analysis phase and revealing the vulnerabilities of a procurement system, there will be a list of issues to address. However, there's no roadmap for efficiency or ideas on how one can improve a particular system.
One of the most effective solutions that businesses have employed over the years is SAP. With its solutions, companies can engage in digital procurement. This includes several steps, similar to the traditional process. These are:
- Develop a purchase requisition
- Place the purchase order
- Inspect the incoming goods
- Check and approve the invoices
- Get payment to the supplier
The first two steps can be further broken down into components:
- Determine the company's needs
- Create a purchase requisition to meet those needs
- Personnel goes through the application and approves the purchase
- Complete the acquisition
- The department places the purchase order
Overcoming Problems in Verification and Approval Process
One of the significant bottlenecks that businesses encounter in procure-to-pay is that their verification process is undocumented or doesn't have a defined chain of command. The result is that, in an offline system at least, the person that needs to verify the requisition and approve it may differ, leading to complications and slowing down the process.
SAP solutions like SAP S/4HANA and SAP Ariba overcome this by automatically seeking approvals from the correct personnel immediately, saving the business time in processing. Implementation of a simple digital system for procurement also limits the chance of maverick buying. If approvals are easier to come by, it's less likely that procurement personnel will feel the need to reach outside of the system to acquire inventory.
Digital Updating of Purchase Orders and Receipts
SAP is unique in how it approaches the storage of purchase orders. If a supplier is using a PunchOut Catalog, the system can generate and send purchase orders automatically to the buyer's system for requisition approvals. Additionally, it allows businesses to track their ordered products digitally.
This digital method is less prone to human error than a paper-based one. When the company receives the goods, they can generate a digital receipt that is not only environmentally friendly by reducing paper waste, but also more efficient in how fast it gets to the vendor.
Invoice Verification through SAP
One of the most apparent shortfalls of the current procure-to-pay system is how long it takes for a buyer to verify an invoice. Most invoice terms require processing within 14 days, but the cost to the business is more than just time. Industry Week approximates that manually processed invoices can cost a company up to $30 per invoice (providing there are no errors), compared with $3.90 for each digital invoice.
SAP's digital invoice verification system allows for automation of the process, speeding up the time it takes to verify the invoice, and updates the details of the invoice within the SAP system.
Once again, the bottleneck in this process stems from determining where invoices need to go for verification. With an interlinked SAP system, the invoices are automatically sent to the correct department, and it only takes a single button to verify the acquisition. Upon verification, the accounts payable team receives details on the invoice and then starts working on the processing of payments.
This interconnected system not only creates a digital "paper trail" that the business can use to trace the transaction, it also ensures that invoice verification doesn't take weeks to complete. Instead, the entire process may finish in a matter of hours without the threat of misplaced paperwork.
Procure-to-pay naturally has tons of documents involved throughout the process. From requisitions to purchase orders to invoices, each of these documents is a crucial part of the transparency of the system.
In a paper-based system, one of the worst statements that a department can hear is that an audit is coming. Reviews usually mean that all departments associated with procurement have to dredge up paper documents from months past to verify particulars following tax legislation.
A digital system such as SAP eases this worry by providing digital storage for all documents involved in the procure-to-pay process. SAP's audit-compliant archiving ensures that the company's records are always on-hand for easy verification in the case of an audit.