Adding intelligence to your Source-to-Pay process

Step 1
Maarten de Ru: “In recent years, procurement processes have been digitized on a large scale. That digitization has made it possible to automate many of the repetitive and time-consuming tasks in the procurement process. Organizations can now use software solutions that generate purchase orders, manage suppliers, process invoices automatically and make payments. Only when deviations occur is manual work then required.” This has led to all kinds of cost savings - direct (lower prices) and indirect (fewer operations, fewer errors, fewer delays, lower inventories). “Moreover, this is also a lot more sustainable than when everything had to be done with paper - just by being able to process incoming invoices in PDF or XML format.” A side benefit of digitization is the release of all kinds of data.

Step 2 
This step is to structure this “bin of data,” De Ru says, and present it via dashboards and KPIs such as purchase order turnaround time or payment terms. Consider all the information captured in contracts: operational information from the purchasing department - for example, from electronic purchase orders with data on quantities of items ordered, suppliers and prices, and financial information from purchase invoices and payments.

Step 3
Time to take data-driven actions to further improve the Source-to-Pay process. Trying to reduce the turnaround time of a purchase order, for example, so that your own customers can also be served faster, even if you don't have the products they order in stock.

The word “data driven,” by the way, doesn't quite do justice to what's involved in this step. “To know what action to take, it is first necessary to look behind the numbers. Why is it that a particular supplier is delivering so slowly? Is it because a purchasing manager always approves incoming invoices so late? If so, he needs to improve his practices. Or is it because the supplier was given a raw deal during contract negotiations? Then maybe that needs to be rectified. Although: is it really such an objection that he delivers slowly? If he can easily be replaced by another supplier perhaps not. If it is a 'strategic supplier' who delivers strategic products, a velvet glove approach might be wise.

In short: there is no “one size fits all. Which measures are right varies; it depends entirely on the exact circumstances. “And to determine those, it is necessary to have detailed understanding. So going back again to original contract, that purchase invoice and that purchase order,” says De Ru.

As mentioned, ISPnext makes it well possible to take all three steps towards a controlled Source-to-Pay process. Not only does the platform allow sourcing activities to be highly automated, up to and including the automatic processing of incoming invoices and their payment.   

The platform also offers plenty of opportunities for spend analytics thanks to the accessible dashboards, with KPIs that can differ per user. For example, the finance department is primarily interested in things like total spend, outstanding contractual obligations and perhaps the number of invoices paid on time (and for which payment discounts have been obtained). The purchasing department is more likely to want to see KPIs on contract compliance (“what percentage of purchase orders take place with contracted suppliers,” for example). Or purchase amounts and number of invoices from key suppliers.

The third step is also easy for organizations to take thanks to ISPnext. Ever easier even, because the company is adding more and more intelligence, in the form of automatically generated customized advice. Think of an alert that a contract is expiring, with or without an offer to request quotes within a linked supplier network and - once those quotes are in - do calculations to see how much an organization can save. In the near future, the platform will be further expanded in this direction.

Already it provides all kinds of benchmarks, which organizations can use as guidelines to know when to take action. For example, one benchmark is “80 percent contract compliance. The thinking behind this is that an organization that is below that 80 percent will miss out on too many contract discounts, relationships with trusted suppliers may deteriorate, and all sorts of uncertainties will be brought into the house (greater exposure to price fluctuations, for example, uncertainty as to whether that new supplier is complying with all sorts of laws and regulations).   

The platform also offers various standard advice on how to still meet a benchmark. In this case, for example: implement a 'No Contract - No Pay' procedure - and always reject invoices from suppliers without a contract. Another piece of advice is “communicate contracted suppliers within the organization through Contract Management and Procurement.  

This brings up another important advantage of ISPnext's platform: internal communication. This does not always run smoothly when it comes to the Source-to-Pay process, especially since different departments are involved - at least the finance department and the procurement department. These are often separate worlds. The finance department, for example, is far from always having at its fingertips the contract to which a buyer adheres. That makes the “matching” of incoming invoices and outgoing payments difficult. 
 
With ISPnext's platform, the two are brought together: finance and procurement departments have access to the same data and can perform the same “spend analytics. They get more insight into each other's activities, making it easier to come up with good measures together - measures to get an even better grip on the procurement process.