Is 50% spend visibility ok with you? If not, read on…
I want to be clear from the beginning – controlling spend through the use of requisitions and purchase orders (POs) is ideal and the goal should always be to funnel as much spend as possible through POs. POs provide visibility into spending before it is committed:
Budgets can be reviewed
Approvals can be obtained
Proper vendors can be used, and
The vendor on-boarding processes can be enforced.
And, invoice processing becomes a simple 3-way match process, instead of trying to track down the proper employee(s) for approvals.
Yes; POs simplify processes and bring greater visibility into budgets and spend analytics. But trying to enforce a 100% PO process is like trying to double in growth over night – it’s unlikely to happen. Why? Because gaining control and optimising spend is an iterative process that requires strategic consideration across all of the ways money is being spent. The fatal flaw of a ‘no-PO, no-Pay’ policy is that it’s not a realistic first step to spend control.
Spend control takes time and a phased approach that requires you to:
Get visibility: The first thing you must do as a procurement professional is get 100% visibility into all of your enterprise spending. This enables you to see how money is being used and where there are opportunities to save money and move more spending to a purchase order process. You don’t know where to focus time and effort until you get that critical spend visibility.
Gain control: Once you have visibility, you can initiate efforts to increase compliance across your organisation and make it easier for end users to order goods and supplies on-contract using POs.
Get savings: Armed with 100% spend visibility and increased compliance, you can initiate procurement efforts that drive bottom-line savings like moving more spend to contracts, consolidating the supply base, leveraging volume discounts, negotiating better prices and strategic sourcing.
Forcing a purchase order policy often means that your employees are actually creating POs after the invoice has arrived – especially in the beginning when they are unsure of the process but want to make sure suppliers get paid. I know that this is counter intuitive, but it happens every day. For various reasons, something is purchased off-PO – it could be a time sensitive need where approvals would take too long; sometimes it is a remote employee or location that does not have the ability to create a PO at the time; pure laziness – any number of excuses. An intuitive experience within your e-procurement tool helps with this, but it does not irradiate it.
What happens in reality is a PO mandate creates additional work, where a user or Accounts Payable (AP) employee has to create a PO from the invoice. This is a zero-value-add process because the spend is already committed, and the vendor has already been used, without proper vetting.
Other spend types are very difficult or do not make sense to capture using a PO process (but can be captured using other tools). For example, utilities, subscriptions, rents, and leases. In these cases, even if you create a PO, it will not be referenced on the invoice. In the case of rents or leases, you may not even receive an invoice. When you institute a ‘no-PO, no-pay’ policy, these invoices have to be excluded from the automation efforts, or additional manual processes have to be developed to force the transaction through the process. Instead, these types of spending should be automated and controlled through use of other tools like payment plans.
So, PO usage is great, and brings tremendous value to an organisation, but the idea that this tool can work for all spending is unrealistic. POs should be one tool in your toolbox – not the go-to option (you wouldn’t use hammer to drill a hole in the wall). The answer is that you need a holistic purchase-to-pay solution that delivers advanced e-procurement capabilities and a best-in-class AP solution, working together to accommodate all of your spend.
Your e-procurement solution should enable workflows and purchasing options that make buying the right way the easiest action to take, making 100% user adoption a reality. Then, your AP automation solution should be able to capture 100% of your invoices, regardless of type, format, or supplier capabilities. The solution should allow for PO matching against all POs (ERP, procurement, other solutions) and should have the ability to manage recurring, non-PO spend through workflow rules and advanced logic. Finally, it should be able to code and route non-PO invoices for review, approval, and processing.
The combination of functionality above ultimately means all of your spend is flowing through your purchase-to-pay solution – not 30% or 50% or even 90% – all of it. This means you get 100% spend visibility and the maximum ROI on your investment, while streamlining transactions and eliminating additional manual activities for your organisation.