The increasing range of commodities that can be supported by Supplier Relationship Management (SRM) tools, together with the increased functionality of the various SRM tools, makes the selection of SRM tools a complex decision. Selecting the most effective sourcing and procurement processes (or channels) for the various commodities represents a formidable challenge.
In particular, the lack of understanding of how to organize the entire Purchase-to-Pay P2P process turns out to be a bottleneck for many organizations during the implementation of a SRM tool. The Channel Selector© provides a framework that supports the decision making process of all possible variants in the P2P options from requisitioning to payment including approval of requisition, receiving goods or services, invoice settlement and communication.
P2P channel defined
A channel is a defined combination of processes and tools with common characteristics to support the (sourcing or the) P2P processes. A traditional Purchase-to-Pay process will go through the steps portrayed in the Procurement Order Cycle (right side of figure 1) as soon as the source to contract process is finalized and the contract is implemented.
Figure 1 SRM process model – Procurement order cycle
Channels are grouped according to their level of buyer involvement in the requisition-order process. See the possible channel combinations in figure 2.
Figure 2 Channel combinations
These channel combinations are characterized by different dynamics. It is these characteristics that determine the channel’s suitability for a particular commodity. These include:
- Control: Provide more control for the business and procurement to ensure compliance to suppliers, contracts and specifications. High levels of compliance will result in better use of volume discounts,
- Visibility: Provide a high level of visibility for spend. High visibility will result in leveraging data with suppliers, which supports the sourcing process and provides savings improvement,
- Efficiency: Generate transaction savings through the reduction of process time, particularly invoicing processes.
Commodities have different requirements, in terms of how much control, visibility and efficiency is appropriate to apply to its associated P2P channel.
By selecting P2P channels on a commodity basis, companies can optimize: Contract and supplier compliance, insight into commodity and process performance and efficient operational support. If the balance between control, visibility and efficiency is not correct, the gains can be absent. For instance, by only maximizing control and visibility of all commodities, unnecessary resources could to be allocated to some of the commodities where there is no need for control or visibility. This could happen in the commodity office supplies, which account for a low percentage of total spend and has a low risk profile. On the other hand, if effort is put only into maximizing efficiency for all commodities, over time the risk of insufficient compliance with the supplier contracts will increase.
The Capgemini Consulting P2P Channel Selector© provides a framework that supports the decision-making process of what commodity should be acquired through which P2P Channel. By running the commodity characteristics through a questionnaire, the different channel options are ranked automatically.
The Channel Selector© includes all the variants of the P2P process, including the largest bottleneck in the implementation of a procurement system, namely how to arrange the P2P process as a whole (requisition – approval – order – receive – payment). The Channel Selector+ includes:
- Requisition channels (for example: catalogue, free text order),
- Purchase channels (for example: planned order, blanket order),
- Payment channels (for example: p-card, expenses, direct invoice),
- Approval of requisition
- Receiving goods/services
- Invoice settlement
Using the Channel Selector©, commodities can be characterized according to the following P2P process steps:
- Specify (Product profile): complexity, standardization, configurability, service or product, service/product variations, volatility of price, eReadiness of the supplier
- Place requisition: purchasing frequency, number of people requisitioning, absolute spend, inventory-driven
- Approve requisition: necessity of approval by procurement or expert or management (budget)
- Place order: Number of orders, necessity of matching invoice with purchase order.
- Receive goods/services: necessity of goods receipt (standard, qualitative)
- Verify process and invoice: purchase order based, self billing, specification.
Figure 3 shows the P2P process steps and all possible outcomes of the Channel Selector© and includes an example of a standard commodity:
Figure 3 P2P process steps
Example: Explanation of the purchase order process in the figure for the standard commodity channel: the requisition will most likely be placed by means of a standard catalogue. Because of the standard specification, there is no need for an expert or Procurement to be involved in the approval of the requisition, instead the approval will be transactional. After approval, the requisition automatically turns into a standard purchase order that is send to the supplier. The goods/services received from the supplier will be checked and recorded based on quantity but not quality. Invoice settlement will probably be based on the purchase order and the preferred way to exchange messages in the P2P process will be electronic.
In order to apply Channel Selector©, at the outset, it is important to involve all stakeholders from the organization in the decision making process. Different commodities are likely to require different channels, therefore a series of multidisciplinary workshops is recommended when selecting channels. Based on the outcome of the questionnaire and a valuation of the benefits and the total cost of ownership, the organization can choose the most appropriate channel for each commodity. Future state channels must be detailed and validated on a commodity basis, to ensure that channel processes fully support additional anticipated future changes. This interaction through workshops is also critical to achieve high levels of user acceptance, few operational exceptions, and not least, robust functional requirements.
As the implementation of all channels and commodities cannot be achieved at once, an approach is needed to phase this over time. A preferred approach is to implement the most value adding and easily implementable channels and commodities in the first phase. The second group of channels and commodities is then selected in terms of value and ease-of-implementation, and so on. When assessing ease of implementation, it is important to consider factors like supplier contractual status and eReadiness, required processes changes, availability of system support, organizational impact, change readiness, and resource availability.
When organizations undertake the decision to tackle the P2P challenge, they should not underestimate the challenges they will face. Nor, however should they shy away from these challenges, or underestimate the strength of the tangible and non-tangible benefits that are expected to arise.
Organizations taking on this challenge must follow a structured approach in order to realize the benefits. Firstly, the organization needs to have a vision of the P2P objectives it wants to achieve. It must then use a process-focused, business-driven approach to establish the P2P channels by means of the Channel Selector©, and P2P process support it wants to deploy. This, in turn, will define the business and technical requirements for the desired P2P solution.
The critical success factor lies within the organization: None of the above can be achieved without the appropriate level of sponsorship from senior managers and buy-in from the key stakeholders which can be achieved by multidisciplinary workshops.