July 21, 2023 | Procurement Software
Procure-to-pay, or P2P, is a vital process that helps businesses procure the products and services they need from external vendors. Done right, this process can impact profitability and realize bottom-line savings.
However, continued dependence on manual processes has made this process inefficient, time-consuming and costly. As a result, procurement teams fail to fulfil their commitments and struggle to maintain healthy working relationships with suppliers and internal stakeholders.
Additionally, there is a high possibility of procurement getting into a conflict with accounts payable, especially when suppliers chase them for unpaid invoices.
Here are the most common mistakes committed in the procure-to-pay process:
Negotiating with suppliers is not an optional exercise; it is a must-do for procurement. Suppliers anticipate that procurement will negotiate and therefore often quote high prices for their products and services. Procurement should understand that the catalog prices are not set in stone. If they do not negotiate, they end up buying the products at higher prices. They should also discuss shipping costs and other additional charges.
Many a time, businesses spend too much at the start of a budget year. As a result, procurement often goes beyond the budget set by the business. To make amends here, businesses should augment the traditional source-to-pay (S2P) process with budget-to-pay (B2P). This arrangement will allow procurement and finance to check budget availability for every requisition before committing spend to external suppliers.
There is a lot at stake if procurement continues to work with manual, paper-based processes. These can result in errors, delays and increased administrative costs. Procurement technology can automate all these tasks, leaving human resources free for strategic work. Technology can enhance accuracy as well as productivity. It can replace paper invoices with digital invoices that can be approved and processed quickly.
At times, procurement makes a snap decision and engages in impulse buying. A buying decision may seem right at the time but end up affecting the budget. Another example of impulse buying is when procurement focuses merely on costs and ignores quality. To fix these issues, procurement must look at the bigger picture and follow established procedures and processes.
While businesses have a ‘No PO, No Pay’ policy, many purchases are made outside the contract. As a result, there can be many invoices that cannot be matched to a corresponding purchase order. Such purchases can lead to misuse of funds and compliance risks. To deal with this issue, procurement must work closely with accounts payable to ensure that all corporate spend is routed through proper channels. The objective here is to restrict maverick spending and minimize exceptions.
Procurement must build healthy working relationships with suppliers by communicating regularly and evaluating their performance periodically. Regular communication with suppliers can help learn about new products, programs or special deals. Also, with thorough knowledge of their products and services, suppliers can offer new ideas to drive efficiency and lower costs. They can also create opportunities for product innovation.
Procurement cannot afford to be rigid in a fast-changing, disruption-prone business environment. Being flexible can help procurement respond quickly to unforeseen events. For example, if a supplier runs out of a critical item, procurement should have a backup supplier to source the item.
Typically, procurement is not expected to play a role in organizational sustainability goals. However, regular dealing with suppliers means that procurement is in a far better position than other functions to drive sustainability and ESG performance. While looking at costs is critical, it is now equally important for procurement to source ‘green’ products that do not harm the environment.
Procurement technology can help businesses automate processes, enhance data accuracy and minimize human intervention. Supplier selection and onboarding, contract management, spend management, invoice approvals and processing – technology can streamline the end-to-end P2P cycle.
Additionally, technology helps analyze data and provides actionable insights to improve procurement processes. It fosters a culture of continuous improvement and aligns procurement with strategic goals and objectives.