Procurement automation digitalizes the complex P2P process and streamlines it end-to-end using procure-to-pay software solutions. Cloud-based procurement improves the efficiency of the procure-to-pay cycle by automating manual tasks and eliminating inconsistencies and delays. P2P automation allows for an efficient and organized system that drives value beyond cost savings. It also provides 100% AP automation by leveraging 3-way matching and OCR-based invoice reconciliation.
Why It Is Unwise for Managers to Be Indecisive about their
Procurement Automation
The global pandemic has brought around a new normal of remote work in the business world. With workforces scattered and supply chains broken, the manual handling of the P2P cycle is no longer feasible.
The P2P process depends upon collaboration between departments and suppliers, and the pandemic has rendered this desk-to-desk collaboration impossible. Procurement teams now must turn towards procurement automation techniques and other digital leverages to ensure business continuity by managing compliance, better handling working capital, optimal budgeting, cash flows, and supplier risk and performance management via the internet.
Research indicates that most businesses still use manual or fragmented procurement tools to manage their P2P process. Fragmented procurement software complicates the downstream visibility and techno-functional integration. Furthermore, siloed solutions aren’t flexible enough to ensure business continuity in the new normal. The fragmented software is incapable of managing suppliers and distributed inventory effectively. Hence, the business outcomes based on inconsistent and unreliable data produced by the siloed work areas eventually lead to maverick spending and other compliance-related inefficiencies.
According to research by Deloitte, 60% of CPOs identify poor quality and standardization of data as the most frustrating challenge for them. That is why procurement leaders must replace fragmented procurement processes with P2P process automation that standardizes and streamlines procurement data.
Road to an Automated P2P: Choosing the Right Vehicle
The evaluation of the software is a very subjective task. It categorizes manual tasks into broad classes such as procurement, processing invoice, supplier management, spend reporting, and payments. Let’s talk about a few of the factors to consider while evaluating your procurement software. I recommend evaluation based on task requirements as well as resource commitment.
If the business suffers from high-cost issues, it necessitates whether the software highlights cost-saving opportunities.
The procurement software’s ease for various suppliers and vendors working on it is another factor that shapes the purchase decision. If the business needs enormous amounts of ease as demanded by its less reliant employees, it needs to invest in a simple purchase order management software.
The streamlined procedure makes the software more appealing to businesses by minimizing time wastage. However, all desired indicators come with a monetary cost. That leaves us with another crucial factor which is the cost-benefit analysis. People should only select the software whose benefits outweigh the associated costs.
Which P2P Processes Need Automation?
The procure-to-pay process consists of numerous repetitive tasks that can be easily automated to save valuable time for the procurement team. Here are the top five procure-to-pay processes that can be optimized using automation.
1. Purchase Requisition
Conventional procurement expects the procurement team to review each purchase requisition for accuracy and compliance manually. This repetitive, time-consuming task can easily be automated using procurement software. P2P software will automatically scan and validate purchase requisitions by cross-checking them with predefined rules and reject those that do not adhere to the authorities.
2. Purchase Order
Manually processing purchase orders results in errors and inconsistent data that may lead to audit flags. P2P automation removes this room for error and automates all the steps of processing purchase orders, such as generating purchase orders, collaborating with stakeholders, receiving goods, and processing payments.
3. Purchase Invoice Approval
Manual purchase invoice management results in misplaced purchase receipts, off-contract spending, late submissions, error-prone spreadsheets, and poor spend data visibility. Procure-to-pay automation digitalizes invoice management, resulting in automated approvals after comparing invoices with purchase orders and pre-defined rules.
4. Vendor Management
Evaluating vendors to create a shortlist of preferred vendors manually can easily take weeks, if not months. With procurement automation, all you need to do is make the desired vendor profile by defining some rules. The P2P automation software automatically gathers and verifies requests for quotations (RFQs) and compares them to the preferred vendor profile.
5. Contract Management
Conventional P2P function expects the procurement team to manually manage contracts, ensure compliance with terms, and derive maximum value from all contracts. This complex process is challenging even for small businesses, let alone large corporations operating from multiple locations.
Procure-to-pay automation creates consistent purchasing contracts automatically based on the requirements and creates a predefined contract management loop.
How Processes look after Automation
Here’s how critical procure-to-pay processes will look after procurement automation.
1. Efficient Purchase Requisition Processes
P2P automation software streamlines workflows for the generation and approval of the purchase requisition. So the approver of purchase requisitions will receive a notification in the software once a purchase requisition has been made. The software will automatically cross-check the requisition with predefined rules, and the approver will simply review it to accept or deny the requisition.
2. Automated Purchase Orders
The duplicate entries required and the chance of errors in converting supplier quotations into purchase orders are reduced significantly with P2P automation. Once marked as “Awarded,” a supplier quotation is automatically converted to a purchase order and linked with the underlying quotation for future reference.
You can simply route the PO through the system for internal approvals and your suppliers through auto-populating emails. Suppliers can immediately acknowledge the PO and start working on it.
3. Streamlined Invoice management
Procurement automation software enables the automated three-way matching of purchase orders (PO), goods receipt notes (GRN), and the supplier’s invoice. Three-way matching helps you eliminate fraud, save money, and ensure a proper paper trail for audit purposes.
The essence of invoice automation is that it enables you to define tolerances and thresholds for invoices. You can set tolerance levels in amount or quantity, and if invoices go beyond the threshold, the invoice would be automatically moved for manual approval.
Automated invoicing cuts out hours of manual data entry; as it is integrated with the accounting system, the invoices are processed and automatically fed into the accounting system.
4. Vendor Selection Awareness
Following the adoption of P2P automation, you’ll have a centralized database of all products along with the vendors who supply them. This database will be actively updated with real-time information of suppliers, including orders, delivery, pricing, and performance of vendors and will be visible to everyone involved in the process. This real-time information will mitigate accounts payable risk and allow informed vendor selections.
5. Payment Processing
Once the approver has approved the invoice, the P2P software automatically pushes the invoice for payment. You can predefine the payment method, and the software will automatically follow that method to release payment according to the approved invoice.
About the Author
Mohammed Kafli
Mohammed Kafil is a certified procurement consultant who has been coaching companies to establish resilient digital procurement operating models for over a decade now. With Kissflow Procurement Cloud, a flexible procurement software that streamlines end-to-end procure-to-pay, and also eventually the vendor management process, Kafil helps medium and large enterprises with their digital transformation projects.
