The 7 Habits of Highly Effective Source-to-Pay: Habit No. 7

A source-to-pay platform may be the heartland of procurement and purchasing operations today, but there is one must-have capability required for its effective functioning.

Convergence of direct and indirect procurement.

Today, organizations demand that other parts (or types) of procurement operations that have traditionally been siloed or seen as different disciplines need to converge around one way of working. This essentially means that different functions and teams within an organization need to work in close cooperation to realize the true benefits of a source-to-pay platform.

Let us understand this with an example. Organizations that do a lot of direct materials purchasing, such as manufacturers and food companies, have traditionally managed direct materials purchasing via their ERP systems.

Many such organizations continue to rely on the ERP system because it is intrinsically bound to the MRP system. It is bound to how the company operates and does its core business. As a result, different teams cannot work effectively together, thereby creating operational silos.

Cross-functional convergence is the key

The general notion today is that direct and indirect procurement are different disciplines. These two domains of procurement have different requirements and different complexities. Although these may be different disciplines, the distinction between them is not justified.

In fact, direct and indirect procurement have become separate disciplines (and are treated differently) because the system has kept them apart.

Convergence can happen only when direct materials procurement is done along with other parts of the business in the same digital environment.

So, how can convergence be achieved?

How can you extend the existing model to incorporate other functions including inventory management, direct materials procurement, demand planning and supply chain collaboration? This is the vision of the future.

To do this, you should:

• Use the same contract management system for all types of contracts, irrespective of whether they are procurement, sales, or supply chain contracts
• Use the same sourcing tools to manage requests for information, quotes, or proposals, even if they are not related to procurement
• Use the same purchasing system to procure direct and indirect materials as well as complex services

The bottom line

A unified digital source-to-pay platform allows people to break down the barriers between different disciplines and work together more effectively. Enterprises should leverage this platform to carry out all functions from one place. This will ensure end-to-end visibility, provide a single source of truth across the business and drive more savings.

Read the first, second, third, fourth, fifth and sixth installments of the series.