Last week I participated in an Ariba Commerce Summit in Boston, this one day event (that is taking place in other locations – see here) brought together procurement professionals from the New England area to network and learn from each other as well as other industry experts. A key theme for this event was collaboration and the networked economy. In fact, one of the speakers was Zach Tumin co-author of the book – Collaborate or Perish! Reaching Across Boundaries in a Networked World (just started reading it). I participated on a panel as well which was moderated by Drew Hofler who is the Senior Financial Solution Manager at Ariba and below is part of our discussion, Part II will follow shortly.
Value AP brings to the organization
We are beginning to see is a shift from highly tactical activities to more strategic ones within AP. Most AP groups have a very real opportunity create value for the enterprise. However, to get to that point, AP must go through a similar transformation that changes the way they think and transforms their processes and systems. There is a lot of value that AP can add if operating in an automated environment, in manual environments its difficult and time-consuming to extract the valuable invoice and payment data and utilize that to analyze spend or forecast cash flows. Automation allows AP to focus on more strategic activities, improves supplier relationships, provides better visibility into invoice detail to manage contract compliance. The detailed, accurate and aggregated invoice data also allows for better spend analysis, helping procurement to understand buying behaviors in a much better way. For example, if there is a rash of maverick spend, procurement can analyze invoices and understand why items were bought off contract.
When we look at some of the top business pressures facing AP today, as expected the biggest driver for AP is to improve processing efficiency and that hasn’t changed much over the last several years, but what has changed is number two and three on the list of business drivers (1) the need to improve the management of cash and working capital and (2) the need to improve DPO. A few years ago we would not have seen these aspects so high up on the list of priorities for AP.
Impact that AP automation has on working capital optimization and supplier relationships
Automation in AP certainly has an impact on supplier relationships; there is not only more efficiency introduced but also better collaboration and access to information. For example, for suppliers that consistently have invoices exceptions, automation allows AP to put in place the appropriate checks to ensure that going forward tat invoices from that supplier are processed more efficiently. With automation suppliers also have access to the status of their invoices and payments relieving AP staff of having to constantly respond to inquiries. Taking a different perspective, automation in AP allows procurement to better monitor and measure invoice performance and accuracy and helping them to understand the total cost of working with a particular supplier.
As far as helping to optimize working capital, as AP groups begin automating their processes and gaining (and sharing) real-time access to invoice and payment data, they are in a better position to influence and support the cash management strategies that treasury and finance wish to implement. In manual environments, the inefficiency and lack of visibility make it all but impossible to leverage any of the valuable data that lies within AP. Data that can be utilized to support financing programs such as supply chain financing as well as activities that can have a more immediate impact such as capturing early payment discounts.
How does a reduction in invoice/payment errors and discrepancies impact procurement?
With technology comes business rules, automated matching and validation, and a whole lot more control and accuracy leaving less room for errors and discrepancies, but when they do show up, automation also help to resolves them quicker because the buyer and supplier are connected on one network. Fewer errors will also help to improve the invoice cycle time, which has an impact on the ability to capture early payment discounts. In some cases finding errors are good, for example, errors in pricing that does not match a contracted rate will help to reduce savings leakage, but again, for that to happen there has to be that linkage between AP and procurement processes and systems.
