Using governance to improve procure-to-pay

This is an excerpt of the original article. It was written for the May-June 2022 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2022

I recently returned from three days in Atlanta at the Modex trade show. Although advertised as a supply chain event, it’s really a materials handling automation show with a handful of logistics providers thrown in for good measure. Heading out the door to the airport, I had no idea what to expect. The two-year absence from the trade show and conference scene had me, and many of the individuals I spoke to before the show opened, wondering what’s next—not just for the show but for operations in general. If the turnout and the enthusiasm is any indication, I think supply chain is in pretty good shape these days, despite the disruptions we’ve…

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The procure-to-pay process is essential to businesses because it encompasses the processes of purchasing goods and services, receiving them and then paying for them so that an organization can in turn deliver a solution to customers. The process is also complex due to its many moving parts and the fact that it spans both the procurement and finance functions.

The challenge to many organizations is that these functions operate in silos rather than working as one seamless process. This situation presents an opportunity for organizations to streamline activities to ensure increased interaction and alignment between procurement and accounts payable.

The solution is to adopt an end-to-end process for procure-to-pay. This is a radical shift in thinking for many organizations, which still focus on function without considering procure-to-pay as one process that happens to span different business units.

We can see organizations’ current thinking about procure-to-pay in how they set up governance for the business units involved in the process. As shown in Figure 1, only 30% of organizations have structured their procurement and accounts payable units into one team that reports to the same executive, and 28% of organizations have these functions as separate teams reporting to separate executives.

APQC’s research into procure-to-pay has shown that moving to an end-to-end model enables a holistic view that helps communication and collaboration between the procurement and accounts payable groups. Additionally, it can support organizations in their supply chain areas of focus, as many have made procure-to-pay a top area of focus for 2022. Yet adopting a new model is not an undertaking that organizations should enter without first considering how to lead the change and ensuring that internal communications are maintained throughout the effort.

Figure 1: Procure-to-pay process governance

Source: APQC

Procure-to-pay as a priority

Factors related to procure-to-pay are priorities for supply chain organizations this year. Among organizations participating in APQC research, process standardization was one of the top five trends anticipated to impact supply chains over the next three years. This shows a willingness among organizations to update processes such as procure-to-pay to better align and define activities.

When it comes to implementing improvements to supply chain processes, a lack of collaboration across functions and externally is the primary obstacle hindering organizations’ improvement (Figure 2). Limited workforce engagement and communication challenges are also among the top five obstacles.

Internal collaboration is key to ensuring business units are aligned in their procure-to-pay activities. Further, collaboration with external groups, namely strategic suppliers, is essential to ensuring that an organization’s supplier relationship management efforts are working toward mutual goals.

Communication helps ensure that efforts remain aligned across business units and that any challenges are addressed. Adequate communication is also key to conveying the importance of the procure-to-pay process internally so that purchases are made, and vendors are paid, in a timely manner.

Collaboration, communication and workforce engagement are closely related: Collaboration not only supports work across groups but also increases workforce engagement and helps organizations to overcome communication challenges. Organizations must work on all three factors to support improvement of the end-to-end procure-to-pay process.

Overall, supply chain professionals are focused on improving their procurement functions in 2022. In its annual survey of supply chain professionals, APQC found that supplier relationship management (SRM) is the top focus area in sourcing and procurement for 2022 (Figure 3). Procure-to-pay is among the top three focus areas.

Figure 2: Top obstacles to improving supply chain processes

Source: APQC

SRM is closely linked to the procure-to-pay process. How well an organization conducts SRM can make an impact on its ability to order and receive materials in a timely manner. This partly relies on the organization’s collaboration and communication capabilities; without the ability to develop closer external relationships, the organization’s procure-to-pay activities
will suffer.

Start improvement with governance

Many of the challenges arising within an organization’s procure-to-pay activities stem from a lack of clarity about roles and responsibilities. Especially if the procurement and accounts payable units have a separate reporting structure, there may not have been an explicit division of tasks between units. As a result, staff members may see the process as too complex and shift their focus to day-to-day tasks rather than strategic work.

APQC member organization ScottMadden has identified and shared three symptoms that indicate an organizations procure-to-pay process needs improvement. They are as follows.

1. Unclear roles. Employees in roles intended to focus on transactional activities are asked to take on strategic work, or vice versa.
2. Activity without achievement. Business units or vendors see the organization’s procurement activities as inhibiting what they need to accomplish. Figure 3: Top five 2022 sourcing and procurement focus areas Source: APQC

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3. Uncertain service areas. Procurement has centralized activities and other business units are uncertain of how to access procurement, which may lead other units to try to work around the procurement process.

The solution to these problems is an overhaul of the end-to-end procure-to-pay process to one that includes the following:

• clear role definitions;
• effective processes and systems; and
• business unit access to procurement through multiple channels.

Benefits of a single owner

A key component of improving procure-to-pay, and an essential way of ensuring a successful update of the procure-to-pay process, is to give the end-to-end process a single owner. This helps to avoid some of the common issues that arise when business units operate independently of each other.

One such issue is the inability to consider the impacts procurement and accounts payable have on each other and the organization’s external relationships. For example, a decision to hold off on paying a particular supplier can affect the relationship between procurement and the supplier.

The effects can extend to the vendor’s ability to continue providing goods and services to the organization. Identifying one process owner supports a balanced approach to refining an organization’s procurement and accounts payable capabilities, ensuring that process improvements do not negatively affect the activities of either business unit.

The individual filling the process owner role must have skills beyond those related to procurement or finance. Relevant expertise enables the individual to take a holistic view of the end-to-end process, but soft skills enable the process owner to bring units together that have not necessarily interacted before and to lead staff who may be hesitant to change.

Build on improvement

Many organizations have prioritized the improvement of their procurement processes this year and procure-to-pay is among the top areas in which organizations plan to dedicate their efforts. Adopting central governance of procure-to-pay offers organizations the chance to streamline efforts that will lead to greater communication and collaboration both with internal business units and external vendors. It also sets the stage for an update of an organization’s procurement model to optimize performance. Design and implementation of a new procurement model involves a deliberate process of gathering information on current performance, designing the model and then implementing the model.

When assessing current procurement performance, an organization may conduct site visits and interviews to understand the customer (and stakeholder) experience; assess current work activities and performance metrics; gauge satisfaction among customers (and stakeholders); and evaluate leading practices among peers and competitors. The results of these assessment efforts then inform the design of the model.

Implementation of a new model requires multiple workstreams that include planning and project management throughout. The organization will need to consider policies and procedures, organization and staffing, communication and change management, necessary technology and facilities changes that can result from a new model. The organization should ensure that stakeholders for the procure-to-pay process are involved early and often throughout the process.

It is also important that responsibilities and accountabilities are made clear early on so that staff members can understand any changes to their work.

The effort of revamping procure-to-pay takes time, but there are indicators that show whether the efforts are successful. When done properly, positive results from the model can be seen soon after launch. Stakeholders clearly understand the process and system changes that come with the new model and procurement and accounts payable staff members are clear on their roles and responsibilities. Organizations’ reporting and analytics provide transparency into purchasing and payables status and spend. Additionally, the organization’s suppliers are aware of the change and begin to see benefits from improved efficiency and reduced transaction costs.

Organizations are poised to make positive changes to their procure-to-pay process. To streamline efforts and increase the collaboration and communication between procurement and accounts payable, organizations should adopt centralized governance of the end-to-end process. They can build on this by revising their procurement and payables models to ensure the greatest alignment that leads to results seen soon after launch.

About APQC

APQC helps organizations work smarter, faster and with greater confidence. It is the world’s foremost authority in benchmarking, best practices, process and performance improvement, and knowledge management. APQC’s unique structure as a member-based nonprofit makes it a differentiator in the marketplace. APQC partners with more than 500 member organizations worldwide in all industries. With more than 40 years of experience, APQC remains the world’s leader in transforming organizations. Visit us at apqc.org and learn how you can make best practices your practices.

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