As the world settles into an altered routine due to COVID-19 disruptions, small- and medium-sized businesses react to struggles they never imagined they would endure. Each business is rushing to fortify its spend management as its supply chains’ weaknesses become more apparent. Changing consumer behaviors means businesses of all sizes will need to adapt their business processes and embrace innovative, more responsive ways to scale their procure-to-pay process to maintain a competitive edge.
Reporting financial results and ensuring the accuracy of financial statements are now a minimum requirement. These duties are to be regarded, at best, as a baseline for a finance team. Now is the time to seriously up your game and shed the myopic frame of mind. Therefore, CFOs that adopt a forward-thinking decision-making process by reducing inefficiencies will successfully lead their companies through this turmoil. That forward-thinking mindset should be heavily focused on making your company’s procure-to-pay strategy more responsive in the field of change management.
In this article, we’ll expand on:
- The grueling procurement process lessons learned in 2020
- Why knee-jerk reactions to incidents threaten your resilience
- Scaling procurement on demand with an automated procure-to-pay process
- Why you can’t afford to wait and react
Procurement Process Epiphanies in 2020
A study reported by Cottrill Research for Q2 2020 showed that the number of purchase orders going out to suppliers increased by 60%. At the same time, the average time to approve purchase requisitions and purchase orders decreased by 38%. Typically, this data could indicate strong confidence in the economy. However, due to the impact of the COVID-19 pandemic, the results are interpreted differently. This data suggests the increase in purchase orders shows that businesses are hard-pressed to find the supplies they need. The decrease in approval time also indicates that approvers are moving as quickly as possible to ensure their purchase orders are fulfilled first.
Taking a closer look, it is safe to assume that far too many businesses were and still are ill-prepared to be nimble and responsive in their spend management. Because of this, they are likely leaking money as they scramble around to find suppliers that can fulfill their requests. This is a key insight that explains why it is imperative to shock-proof your business with strategic and resilient supply chain management techniques.
Looking ahead, developing a risk-mitigation contingency plan should be the bedrock foundation of building your supply chain resilience. Top-notch procurement departments leverage their supplier portal to magnify visibility, giving suppliers insight into the purchase orders and their payment status. In turn, this goes a long way in nurturing supplier relationships and creating a win-win scenario for both sides.
Reactive vs. Responsive Procure-to-Pay Processes
Part of creating a dynamic, agile procure-to-pay process is understanding the difference between utilizing responsive or reactive business processes in your workflow. When something is reactive, it will produce a positive or negative result based on outside influences; you have little or no control over the situation. However, when something is responsive, it is designed to create the desired result. Reacting is often based on emotion, whereas responding is emotional intelligence. The difference is in the level of control in how your business responds to outside influences.
When your procure-to-pay process is mostly reactive, it means that your procurement team members have lost most of the control over spend management. When an issue arises, they react to address it. But knee-jerk emotions often guide the reaction. Failure to handle unruly business processes quickly leads to constant fighting to put out fires and scattered accountability among team members. As we have seen this year with many businesses, they are all muddled up, trying to react quickly to devise new processes for change management.
On the other hand, responsive procure-to-pay processes — like those with automated systems — help your team anticipate and transition smoothly when change management procedures are activated. When an issue arises, your team already has a contingency plan in place because you thought ahead. Your team has already considered all the options for a given event. You’re able to deal better with the cause of the problem, not just the symptoms.
SoulCycle understands quite well the difference in procurement processes that are reactive as opposed to responsive. As the company grew, managers at each location managed multiple supplier portals, each with its own rules and limitations. The multiple logins required for each one meant security practices often fell through the cracks. Additionally, their pieced-together ERP system complicated new hire training and account closures when employees left the business.
The accounting team had to react to the scattered procurement processes, and this chipped away at the time needed to focus on other areas of the business. By implementing Order, SoulCycle began to realize the benefits of having a responsive procure-to-pay process. It became much easier to hold the teams accountable for compliance with procurement processes. Sourcing, invoicing, and cash flow also became streamlined in real-time across multiple departments. As a result, supply chain management was much more responsive as SoulCycle scaled its business.
Automate Your Procure-to-Pay (P2P) Processes to Scale on Demand
People say that hindsight is 20/20. Well, 2020 has been the year that has made clear to the business world the importance of having business processes in place that make scaling their P2P process on demand a top priority. It’s simple to say that an automated procure-to-pay process will save time and money. But what does that translate to in terms of cold, hard cash flow?
Let’s start by understanding the cost per invoice for your team. According to CFO, the cost per invoice can vary by industry. However, most invoice processing workflows have the same time-intensive steps. These tasks include:
- Receiving, scanning, and entering the invoice into your accounting system
- Matching the invoice with the purchase order, and
- Sending the file for approval
For this example, let’s say it costs your business $5.22 to process a single invoice. If your business is processing 500 invoices per month, that translates into $31,320 per year spent on this one task. Automation of tasks such as invoice matching, data entry, approval, and electronic payments can cut this cost by half. That’s a cost savings of $15,660 per year. It also frees up employee time to focus on other tasks.
To make your scaling efforts more agile, you will need the right data forms to inform your decision-making. Reinforcing your procure-to-pay automation strategy with clean and accurate data on contract management and controlling the cost per task is pivotal in recognizing where to focus sourcing efforts and create a responsive procurement solutions roadmap that delivers the best results. Order can help you achieve this by giving you 100% visibility into your spend down to the GL line level with innovative solutions like our Spend Tagging feature.
Automation of tasks such as invoice matching, data entry, approval, and electronic payments can cut processing costs by 50%.
The Bottom Line
From this point forward, there is no room for complacency in your procure-to-pay process. CFOs will need to consistently review cash flow and cost-saving strategies with their teams on a daily or weekly basis. The added weight of condensing these duties into shortened timeframes means your procurement team will need to find innovative ways to streamline their accounting system. When business processes need to move this quickly, there is no room for human error with manual processes. You need the right procurement software to achieve the spend visibility and functionality you need.
In conclusion, through times of uncertainty, businesses strive to consolidate spend in all manners possible. Areas of spend analysis previously disregarded as a priority should now be examined with greater scrutiny. Your finance team may seek out ways to cut back or put capital spend on hold. But you can lessen the impact of cost-cutting measures by streamlining your processes sooner rather than later.
To ensure continuity in the expected capacity, your procurement team needs visibility into all types of spending. We invite you to speak with one of our knowledgeable specialists to discuss your current procure-to-pay process and see how Order can help. Schedule your free demo today!