Business Resiliency and Future Proofing Your Procurement Operations for the 2nd Covid Wave
- Posted by: David Watters
- Category: Best Practices, Business Case
Key questions you need to ask yourself before embarking on your business’s journey to spend and payments automation
Now, more than ever, businesses find themselves operating in an increasingly volatile, uncertain, complex, and ambiguous (VUCA) environment. The key question is how can businesses position themselves to not just survive in this environment, but thrive? How well could your business deal with future disruptions?
Effective procurement can have a major impact on the revenue and profitability of a business. Better management of procurement operations not only drives down costs; but can lead to increased cost savings by enabling a business to rationalize suppliers, negotiate better deals, and reduce negotiable spend.
Reducing negotiable spend through cost savings can have a huge impact on a business’s bottom line. In the following example, which is based on an anonymous case study’s spend data, a 7% cost saving in addressable spend results in a 16% increase in profit.
Surprisingly, many businesses still fail to see the connection between saving money and increased profit. Increasing profit through sales during a global pandemic can be incredibly hard, but putting spend and procurement processes in place, which offered this business a 7% cost saving and therefore had 16% impact on its profit levels, is a lot easier. To achieve the same increase in profits through sales activities, this business would have to increase their revenue by $122.5m.
Once we understand the connection between spend optimisation and organisational performance, it becomes obvious that in a VUCA environment, thriving in business is all about business spend optimisation and delivering more revenue with less cost.
Using data to drive business insights
A resilient, future proof business has complete and on demand visibility over its committed spend and outgoing liabilities. Here are some questions to help you assess the resilience of your spend management and procurement operations:
- Can you run a report detailing purchase order vs non purchase order spend?
- Do you have the tools to run real-time reports on different spend categories (IT, marketing, operations) pre and post payment?
- Are you able to run on-demand spend analysis reports to negotiate better deals with your suppliers?
- Do you have and track KPIs for invoice approvals
- Do you have and track KPIs for purchase order approvals?
- Are you able to benchmark your source to pay processes against industry standards and best practice on demand?
Business Resiliency and Future Proofing Your Operations
Here is an outline of the key questions you need to ask yourself before embarking on your business’s journey to spend and payments automation. Helping you to understand how future-proofed your procurement and accounts payable operations are, and more importantly, helping you to identify the most appropriate pathway to improve your business resiliency, improve operational efficiency and ultimately your profitability.
The first step is to understand what stage your business is at? And what you may be looking to automate. Assessing whether it is worth the investment? Whether you are already there, or whether the volumes are too low or complex to start? Start by:
- Estimating the number of suppliers that you buy from
- Estimating your total spend per year
- Estimating the total number of invoices your business receives per year
Next, assess to what extent the following scenarios best describes your business?
- We actively use data to drive stronger relationships with our suppliers
- All sourcing is conducted by a single unified platform used across the entire business
- We have a centralised procurement team that has complete visibility over all spend with our suppliers
- We have clear policies and guidelines to define strategic and tactical sourcing
If none of the above statements apply, your business may be lacking the accurate, detailed spend data that helps drive leverage in contract negotiations. Which, in turn, impacts on your ability to drive cost savings across your key spend categories.
Procure to Pay and Invoicing
Effective procurement is all about increasing the value of your business by sourcing innovative suppliers and increasing compliance with these suppliers. So, next it is time to assess your Procure to Pay and Invoicing processes:
- Does your business have a unified and single platform to manage all corporate spend?
- What percentage of your spend is pre-approved ie. approved before an invoice arrives?
- Are your invoice approvals managed in a digital platform, not including email?
- Are your new suppliers created before the first invoice arrives?
- How do you currently receive your invoices?
- All via direct supplier connection
- Mostly via direct supplier connection (EDI) and via a supplier portal
- Mostly via email, some direct supplier connection (EDI)
- Some paper invoices via post, mostly email
- Mostly paper invoices via post
If, for example, most of your invoices are received by email, or you do not have a system in place to manage corporate spend or process those invoices. Your business is likely to see high cost associated with processing each invoice. That could be up to $60 per invoice. Industry best practice is closer to $20 per invoice – immediate cost savings your business could be realising.
Source to Pay transformation can deliver cost saving opportunities through leveraging two main areas: Reducing the cost of processing invoices that you receive; and providing greater control and insights across spend. There are three main areas that you can leverage through a source to pay transformation that will drive the cost of processing invoices down:
- Reducing time spent on processing invoices through automation – with the right technology and processes you can cut a lot of unnecessary manual work operations and button pushing through e-invoicing, purchase order matching and fraud detection.
- Digitise and automate approval workflows – through pre-approval of spend with implementing purchase orders makes the approval of invoices largely automated and where exceptions required, the approval workflow is automatically identified and routed.
- Drive focus into process accountability and efficiency – providing key efficiency insights into the whole invoice processing workflow you can baseline performance and improve over time reducing processing and handling time.
Companies that have already embarked on digital transformation programmes, including spend and payments automation, are now reaping the rewards and successfully navigating the disruption caused by the COVID-19 pandemic. While the last few months have been a test for many, all businesses will be able to take valuable lessons from the crisis that will enable them to future-proof their organisations through investment in effective and relevant digital transformation.
For some, the last quarter has been a chance to review priorities and accelerate parts of their digital transformation programmes related to spend and cost optimisation, for example, which is set to be critical for many companies, as they adapt to the new reality and look to build the resiliency required to deal with another crisis in future, or even to help manage the risks of a potential second wave of COVID-19.
This article also appeared on FinExtra on 27th July 2020