Done well, sourcing and procurement can drive value and competitive advantage for an organization. Those that optimize their sourcing and procurement departments through well-defined procure-to-pay processes and strategic automation can focus their employees on supplier relationship management, creating long-term, mutually beneficial partnerships.
Constraints in the current business environment make it tempting for organizations to take drastic steps to reduce costs, but they shouldn’t sacrifice relationships and collaboration with key suppliers. Successful organizations, rather than using their position with suppliers to push for the lowest cost, focus on supplier relationship management (SRM), collaborating with suppliers to identify weaknesses, create solutions and develop objectives that are mutually beneficial.
By streamlining processes that impact suppliers, procure-to-pay (P2P) is an ideal approach to freeing up procurement professionals to build better relationships and make more strategic decisions. P2P refers to the end-to-end integration of processes, ranging from purchasing to accounts payable. Organizations with successful P2P processes centralize the system, placing governance of P2P into the hands of a global process owner, with procurement and accounts payable reporting to the same C-suite executive. The process owner ensures that all components of P2P are aligned with the organization’s strategy, and brings the full P2P perspective into strategic conversations with suppliers.
Centralized P2P models are becoming more common. Nearly 72% of organizations in a recent APQC P2P study stated that their procurement and accounts payable teams report to the same executive.
Successful organizations are also leaning into automation to enable more capacity for building deeper supplier relationships. Based on data from about 2,300 companies, APQC found that the majority of procurement’s labor allocation (55% of full-time-equivalent employees, or FTEs) is spent ordering materials and services, one of the most repetitive processes that procurement carries out. Clearly, there is opportunity for automation in these tasks.
Like any tool, automation is only as effective as its inputs, and there’s no magic one-size-fits-all solution. Organizations must approach automation strategically and with care, to ensure that gains are substantive and that the tools solve problems rather than creating them. Sophisticated automation requires ongoing adjustment, and procurement roles may need to be restructured to fully realize productivity gains. Organizations can implement technologies such as e-procurement, which enables the processing of more purchase orders. In fact, a recent APQC study found that, due to automation, leading organizations process 1,429 purchase orders for each procurement FTE, while bottom-performing organizations process only 219. Those low-volume organizations could benefit from significant reallocations of time through automation, making it possible for staff to focus on supplier relationships.
Creating and maintaining strong supplier relationships requires that procurement staff no longer view suppliers as a risk to be mitigated, or as the source of a purely transactional relationship. Suppliers can provide valuable support during periods of uncertainty. Successful organizations will work with their procurement employees to build the softer skills needed for developing and maintaining strategic supplier relationships — skills in communications as well as business ethics, stakeholder management, relationship building and leadership.
Outlook:
In coming years, the most successful organizations will be those that consider how better relationships with their suppliers and enhanced talent development for procurement staff can help them move forward. Organizations that systemize P2P, incorporate appropriate automation and focus on SRM will remain relevant and better able to keep up with the changing supply chain landscape.
Marisa Brown is senior principal research lead, Supply Chain, with APQC.
