Procure-to-pay—also called purchase-to-pay or source-to-settle—refers to the entire process of procuring goods and services from start to finish. The process begins with identification of need and continues through final settlement. To maximize effectiveness and efficiency, organizations must take a holistic view of the entire process.
The end-to-end process cuts across organizations’ departmental structures. Traditionally the various departments that had responsibility for a phase of the process considered their phase only in context of their particular operation. Together with other drivers such as internal controls, this has resulted in an incoherence in the whole process.
A Holistic Approach to P2P
The need for a holistic approach has been recognized for a couple decades. More recently leading organizations have begun redesigning their processes into a more coherent sequence. P2P includes authorization, sourcing, procurement, receiving and payables. Process rationalization can but does not necessarily involve organizational restructuring. For example, an organization might bring procurement and payables into one department or keep them separate but reporting to the same head. There are important control reasons behind certain traditionally established departments that must be accounted.
What it does mean is looking critically at the complete process as a whole and re-designing it, integrating its multiple tasks and steps more coherently. It requires a leadership-backed commitment to collaboration and coordination between departments.
Vendor Onboarding in P2P
Vendor onboarding offers a prime example of the need for process sequence change. For many organizations, vendor onboarding is fragmented rather than optimized. For example, procurement or buyers throughout a company initiate a relationship with a vendor. They gather the information they need to purchase what they need. But while they know what they need, they often don’t understand what others need, specifically what accounts payable will need when the invoice shows up. Procurement has some idea, but it may not be a priority. Other purchasers in the organization have very little idea and less follow-through!
An invoice for payment might arrive before the vendor is even entered into the vendor master file at all. Consequently someone, usually in accounts payable, scrambles to contact the vendor in an attempt to get the remaining requisite information. Various pressures may lead the company to pay the vendor before the vendor record is complete.
Or a new vendor record is introduced into the VMF when the vendor is in fact already in the master file under a different spelling or format than the one AP looked for, creating new problems.
In such disconnected and hurried actions, the company overlooks a review the vendor for blocks or sanctions. And when the end of the year rolls around there is no tax ID, never mind number verification.
Best practice is to fully onboard vendors prior to the first order, certainly before the first delivery.
Moving to P2P
This is a much larger topic than addressed here, but broadly speaking, if whomever is charged with making the change must begin from where the company is. Rationalizing a procure-to-pay process starts with mapping your processes as they are currently done, including all aspects. There are different flows for direct and indirect spend, and such things as utilities or freight. Map the flow for each purchase type. But pick one to start. Note, map the process not as it is supposed to be according to the policy & procedures manual, but how it is actually done. Get input from everyone that touches a process.
Analyze the map. Identify the breakdowns and loopbacks. What needs to be done earlier rather than later? What needs to be done by someone else? How will you change and manage the hand-offs? How will you build in communication and cooperation?
For vendor management in particular, look at supplier selection, relationship management, information requirements, internal controls, master file ownership, and customer service. Who does what? Why? What works best?
It’s a big undertaking. If it is beyond what you can currently do, then consider just your vendor onboarding process and what can be done to rationalize it. Automation is an important part of the solution.