Good Practices in Source to Pay
“If you do not change direction, you may end up where you are heading”, goes a famous quote. Source-to-pay when standardized, automated, and transformed can enable reduced source-to-pay cycle times, decreased process costs, enhanced spend management control and improved supply chain health. However, achieving source-to-pay excellence requires a concoction of superior procurement talent, efficient processes and the right technologies. Key performance indicators such as cost per invoice, first time match rate, impact on cash and spend under management may define the source to pay function, but the function is really characterized by the good practices it employs to fulfil the performance objectives and create value for the enterprise. Let us dive deep into a set of good practices for driving proper, consistent execution within the enterprise and across the supply chain.
Leading source-to-pay teams have efficient processes in place to optimize the day-to-day operations. Enterprises should first build a foundation for growth by process transformation before working towards the most holistic and advanced technologies. Let us take a look at some of the tried and tested approaches to running a tight source-to-pay operation.
Process standardization includes valuable lessons learned from prior transactions that helps enterprises build modus operandi of executing spend analysis, sourcing, contracting, procurement, supplier management as well as invoice processing. Best source-to-pay teams report significantly higher levels of process standardization across their strategic sourcing and supply management activities.
Creating a Closed Loop Data Cycle
According to a recent global report, 53% of best-in-class source-to-pay organizations have their processes entirely linked as opposed to 24%. Building a linked ecosystem is to create a closed loop cycle from sourcing to procurement to accounts payable by linking them via process workflows and automation. This system facilitates data of supply market, suppliers and historical spend to flow into the sourcing process, and then to the contracting function which helps enterprises evaluate internal and external compliance, supplier performance and risk, and ensure timely payments.
Process Workflow Optimization
The best source-to-pay organizations have processes that work seamlessly with business technologies, simplifies tasks and eases the business users’ burden. Processes that are complex or make it difficult to adopt technology can lead to infrequent usage that can lead to off contract spend.
Organizations that are serious about driving source-to-pay transformation logically must incorporate business technology adoption and deployment as part of their larger strategy. According to a recent global research, fully automated procurement function could save up to $86 billion for the Global 5000 annually led by procurement headcount savings, reduction in cycle time to process, early payment discounts, risk reduction, and better visibility. Digital enablement today is easy to acquire, implement, access and is more cost-effective than ever before. But source-to-pay leaders must carefully evaluate a host of technologies that can take business transformation well beyond mere process automation toward the greater goal of digital transformation. According to a recent global research, fully automated procurement function could save up to $86 billion for the Global 5000 annually led by procurement headcount savings, reduction in cycle time to process, early payment discounts, risk reduction, and better visibility. Let us look at some of the good practices in source-to-pay automation.
Diminishing Role of OCR in Invoice Processing
Optical Character Recognition (OCR) is the industry standard for invoice processing. Invoice processing is an immensely important and, at times, complex component of the supply chain that requires high volumes of transactional data between buyers and suppliers to be captured, stored and visualized. The majority of manual invoices created by OCR are imported into an accounting system and emailed. Fortunately, many of these systems also produce a readable PDF option, which is a complete game changer. Readable PDFs, as opposed to normal PDFs, which are simply images of the document, have a structured text file embedded into the document. These structured text files can be read, processed and validated into true e-invoices. A supplier can still send the same invoice and file type they currently send to buyers. The readable PDF output for manual OCR invoices serves as the link necessary for organizations to move to complete e-invoicing solutions without alienating suppliers who still rely on older processes.
Robotic Process Automation Speeding Up Source to Pay
RPA speeds up process cycle times by automating repetitive tasks and freeing up source-to-pay professionals to engage in other value-added tasks. RPA has the capability to help enterprises integrate their existing systems, eliminating manual interventions at the interfaces between systems and process steps. Automation interventions include Purchase requisitions creation and approvals, Purchase Order creation, supplier statement reconciliation, invoice processing and payment cycles.
ML & NLP Simplifying Complex Processes
Unlike RPA, Machine Learning can automate tasks that involve complex rules and require some form of pattern recognition. Machine learning can be used for tasks that traditionally require some level of human judgment, such as the assignment of transactions to formal spend categories. With machine learning, enterprises can match vendor capabilities to meet demand, recommend the most favourable terms, track efficiencies and highlight aspects of non-compliance. Machine learning can also classify vendors by performance and throw out the most suited vendor based on specific requirements.
Natural Language Processing (NLP) technologies process textual data and provide a convenient way for purchasers to document requirements without resorting to structured lists or drop-downs. In procurement, NLP may assist in organizing many types of unstructured information. As the source-to-pay function moves from a transactional function to more tactical and strategic in nature, it becomes essential to forego the existing siloed approach ﬁlled with redundancies. Source to Pay automation involves efficient management of processes from analysing spend to strategic sourcing and contract management.
Procurement and Industry 4.0
Digitization is a crucial first step, but what comes after that digitization will truly define your future procurement workflows. This is where Industry 4.0 technologies like the cloud, advanced analytics, and the internet of things come in. In an integrated IT environment that centralizes data from your operation and your suppliers, you can both boost visibility and increase flexibility in sourcing workflows. By using advanced analytics to analyse all of your previous orders, plus your suppliers’ shared data, in order to come up with predictions for future price levels, delivery timelines, and product demand. If, for instance, you were considering whether to diversify your sources for a particular raw material, an Industry 4.0-equipped IT environment might give you the tools to analyse the likelihood of a supply chain disruption, the potential cost savings associated with finding a new supplier, and other relevant factors to help you make the right decision.
Effective source-to-pay transformation can empower procurement teams with actionable insights and maximize compliance while reducing the process cycle time; enabling enterprises to meet their procurement objectives, thereby significantly impacting organization’s bottom-line performance. It is recommended to reconsider the source to pay strategy in the light of the current crises to quickly determine actions to be taken to reduce risks, costs and create a more predictable supply chain.