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[Editor’s Note: With the publication of our AP Metrics that Matter in 2020 eBook (click to get download) we thought we would look back at some of our previous articles covering the key operational and performance metrics for AP and finance professionals.]
The tsunami of big data has broken over the enterprise for 15 years, drowning the average business operation in a deluge of financial and operational information. In terms of the procure-to-pay (“P2P”) process, this includes data like inventory amounts, purchase orders, supplier performance against contract, and amount of early payment discounts captured. This trend toward “Big Data” shows no signs of abating in the near future, and, in fact, has resulted in a new push for internal departments to develop a more analytical mindset in order to interpret the collected information and drive additional value from their functions
For example, the accounts payable (“AP”) team gathering extensive financial and operational data through the course of normal operations. In an earlier age, simply storing all of this data was enough—there was little expectation for action except to have it on hand in the event of internal or external (e.g., supplier) inquiries. With the rise of data-driven decision-making, however, the expectations have evolved, as both financial and operational leaders now expect all business functions to derive useful intelligence from the data they assemble.
The historical skill-set of the average AP professional does not lend itself to this task. Many AP and P2P team members have highly developed skills in data entry and managing the invoice approval and payment scheduling workflows. These are critical tasks, but in an age when many of AP’s transaction-level duties can be outsourced or automated, there is little need for a full-time staff member to manually process invoices or supplier payments.
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Instead, the modern AP/P2P professional needs to develop the analytical capabilities required to examine the large amount of data the AP team collects and transform it into true, actionable intelligence. The ability to think analytically about this data, and derive intelligence from it, is how AP must prove its ultimate value to the greater enterprise. AP’s data can make teams like treasury and procurement more effective at achieving their goals—such as improved working capital management for treasury and better supplier rationalization on the procurement side—and, by extension, drive enterprise value. Unfortunately, much of the current data-driven activities in organizations focus on data management instead of true analysis, so there is significant opportunity still ahead for AP to find or train the right people that can transform their data.
Regardless of how the skills are acquired, through hiring or training, the fact remains that analytical thinking and associated skills are critically important to AP and the wider enterprise. This is particularly true in the modern business world, where financial and operational analysis skills can be leveraged to make AP’s data useful to a wide variety of stakeholders.
The Benefits to Other Internal Stakeholders
Ardent Partners analysts have written extensively about the unique position that AP occupies in the enterprise. In the case of the data that AP collects—on invoices and supplier payments—this takes on new importance for internal stakeholders such as treasury and procurement. In order to understand precisely how AP’s data can benefit these two business functions, it is first important to know that AP is fundamentally a cash-distribution function. Given its control over supplier payments, AP frequently controls the largest non-payroll source of cash outflows in the enterprise. Access to this data, especially when it is analyzed properly, can offer a tremendous boost to treasury’s cash management operations; insight into upcoming payments can further allow treasury to create richer financial forecasts and offer deeper intelligence into the enterprise’s future short-term cash position.
On the procurement side of the house, injecting AP’s data on invoices can help with supplier rationalization as well as with spend analytics. In terms of supplier rationalization, AP’s operational data can help procurement determine how many vendors they have providing a particular material, product, or service and reduce the number of vendors providing the same items—e.g., it is much more cost-effective to have one supplier providing 1,000 pencils instead of four suppliers providing 250 pencils each. Procurement also gains access to financial data that can help them track spend and understand who the enterprise is spending money with, when they are spending money, and on what. This can be hugely important for increasing the percentage of spend under management and stopping any savings leakage.
Final Thoughts
Enterprises of all sizes can ill afford to focus solely on managing the data that internal departments have collected and stored for years in lieu of transforming it into real business intelligence. In a world that is increasingly focused on data-driven decision-making, emphasizing management over analysis is a recipe for being left behind by the competition. Gaining the skills to analyze the data AP collects, transforming it, and presenting it in a usable, actionable form to internal stakeholders and executive leadership, is a valuable skill to have. If the AP/P2P team does not already have the capability to do this, it is incumbent on business leadership to either hire for that skill or train staff who show an aptitude for analysis. Should AP/P2P leaders not do this, they could miss out on showing that AP is a strategically valuable team and thus worthy of investment to update the technologies currently in place.
This article originally published on 03/29/2016.
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