Visa Procure-To-Pay Best Practices

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Visa Procure-To-Pay

Best Practices

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SECTION I: Executive Summary

Introduction

3 Study Overview

4 Summary of Key Findings

9 SECTION II: Best Practices

Procure-To-Pay Foundation

19 Commercial Card Program

37 Procure-To-Pay Process

63 Travel and Entertainment (T&E)

85

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INTRODUCTION

The Visa Procure-To-Pay Best Practices study indicates

that leading companies have adopted best practices that

incorporate six key findings:

1

Proactive, ongoing senior management sponsorship for Procure-To-Pay initiatives

2

Collaboration to ensure communication and enforcement of Procure-To-Pay _{policies and procedures}

3

Progressive migration to automating the entire Procure-To-Pay Information _{Technology platform}

4

Aggressive Strategic Sourcing focus to enhance vendor relations

5

Comprehensive data aggregation and reporting to support management and enable_{continuous improvement of the Procure-To-Pay process}

6

Commercial Card objectives alignment with a company’s overall Procure-To-Pay strategy

Visa, Deloitte & Touche, and Deloitte Consulting developed 54 best practices in keeping with these findings to help large and mid-size companies attain greater work efficiencies and cost savings in their Procure-To-Pay processes.

The average study participant who has adopted all of these best practices saves an average $1.76 million to $8.3 million in annual, indirect transaction processing costs (does not include potential cost savings associated with vendor discounts or front-end processing efficiencies).

These findings represent a continuation in the evolution and sophistication of Procure-To-Pay Best Practices that were identified in the 1998 Visa Corporate and Purchasing Card Best Practices Study.

Executive Summary

SECTION I

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Study

Overview

Study Overview

As part of an ongoing effort to understand and improve the processes of business, Visa Commercial Solutions commissioned Deloitte & Touche and Deloitte Consulting to conduct a comprehensive study of procurement and payment best practices for companies nationwide.

Scope

Visa’s Procure-To-Pay Best Practices encompass the entire Procure-To-Pay process (including Procure-To-Pay Foundation, Commercial Card Management, and the end-to-end Procure-To-Pay Process from sourcing, purchasing, payment, allocation, controls, and auditing to back-end reporting), focusing on best practices of large corporate and mid-size companies – their associated benefits, implementation steps, and any experience gathered from actual implementation successes. Travel and Entertainment is included in this study as a separate section and falls under the overall Procure-To-Pay process section.

- Strategy PROCURE-TO-PAY FOUNDATION - Organization

- Technology

- Purchasing Card

COMMERCIAL CARD MANAGEMENT - Travel & Entertainment Corporate Card - Fleet Card

PROCURE-TO-PAY PROCESS* - Purchasing

- Travel & Entertainment (T&E) *Includes sourcing, order placement, payment & settlement, reconciliation,

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Study

Overview

Approach

Deloitte & Touche and Deloitte Consulting identified 52 large corporate and mid-size companies considered to have leading Procure-To-Pay practices. The selection criteria ensured distribution among revenue size, geography, industry, card Issuer, and company culture.

43% Visa

Type of T&E Cards Used

by Studied Companies

Type of Purchasing Cards Used

by Studied Companies 24% Amex 33% MC Total Revenues by Studied Companies 50% Greater than $1 billion 30% Less than $500 million 20% $500 million to $1 billion 29% Visa 67% Amex 4% MC

The number of study participants and their corresponding industry affiliation are summarized as follows:

Company Large Middle Industry Market Market

Communications 1 1 Consumer Business 6 7 Energy 2 0 Financial Services 4 3 Health Care 1 4 Manufacturing 6 11 Professional Services 2 4

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Study

Overview

Identification of Best Practices

A detailed questionnaire was distributed to all companies and 20 on-site interviews were conducted with select participants. The questionnaire was designed to gather quantitative and qualitative information including:

• Qualitative: Understanding best practices, key drivers, enablers, challenges, anecdotal information, user satisfaction ratings, service level quality

• Quantitative: Macro-level statistics – dollar spend, average transaction on card, average dollar size of transaction, vendor-negotiated discount rates; micro-level statistics – indirect activity cost and time (excluding overhead); IT/data requirements

On-site interviews were conducted with Procurement, Accounts Payable (A/P), Travel managers, buyers, commercial card administrators, and representative users to gain greater insight into companies’ specific Procure-To-Pay functions and best practices.

This data gathering effort led to the identification of 54 leading-edge practices across four categories: Foundation, Commercial Card Management, Travel & Entertainment, and Process. Best practices for each category follow:

PROCURE-TO-PAY FOUNDATION

Best Practices

1. Articulate a Procure-To-Pay strategy with a short- and long-term vision 2. Proactively obtain ongoing senior management and business unit support

by sharing information

3. Conduct benchmarking to gain additional perspectives and strategic focus 4. Strategically position Procurement and Accounts Payable in the organization 5. Ensure center-led management and control of critical Procure-To-Pay functions 6. Develop enterprise-wide Procurement policies and procedures

7. Develop an internal communication plan to convey Procurement policies, procedures, and successes

8. Develop a comprehensive Change Management discipline 9. Develop an overall Procure-To-Pay technology strategy

10. Establish a business case for each technology investment and track your performance relative to your business case objectives

11. Maximize automation of an end-to-end technology solution 12. Implement and leverage an e-Procurement solution

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Study

Overview

COMMERCIAL CARD MANAGEMENT

Best Practices

1. Align commercial card program objectives with company’s overall Procure-To-Pay strategy

2. Determine commercial card products(s) based on ability to achieve program objective

3. Establish center-led management and administration of the commercial card program

4. Develop and disseminate enterprise-wide commercial card policies and procedures

5. Incorporate a comprehensive commercial card training program 6. Incorporate commercial cards into business continuity planning 7. Source, select, and implement a purchasing card program

8. Establish parameters for eligible purchasing card transactions leveraging appropriate controls

9. Establish purchasing card issuance criteria for optimal distribution to employees 10. Mandate and enforce use of purchasing card for all eligible purchases 11. Investigate purchasing card program expansion to additional spend

categories to maximize benefits achieved

12. Maximize use of virtual accounts i.e., ghost accounts and department cards 13. Source, select, and implement a fleet card program

14. Use fleet cards to track expenditures through both external and internal sources

TRAVEL & ENTERTAINMENT PROCESS

Best Practices

1. Institute a centralized Travel Management function 2. Develop and distribute company-wide travel policy

3. Coordinate event planning through Travel Management function 4. Source, select, and implement a T&E card program

5. Establish T&E card issuance criteria for optimal distribution to business travelers 6. Mandate and enforce use of the T&E card

7. Optimize number of suppliers by selecting and monitoring vendors through a formal Vendor Management program

8. Implement in-house, Web-based booking tool

9. Establish well-defined expense report audit parameters 10. Standardize and pre-populate expense reporting

11. Standardize and automate data interfaces between expense management and accounting applications

12. Capture, report, and analyze comprehensive, company-wide travel data 13. Implement post-trip exception reporting and distribute lost savings report

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Study

Overview

PROCURE-TO-PAY PROCESS

Best Practices

1. Optimize number of suppliers by selecting and monitoring vendors through a formal Vendor Management program

2. Incorporate purchasing card/ghost (virtual) account acceptance into preferred vendor contract terms

3. Utilize e-Sourcing tools such as e-RFX and e-Auctions to source suppliers and gain savings on one-off items

4. Limit the number of approvals required to place an order

5. Minimize the use of paper purchase orders for all eligible purchasing card purchases

6. When commercial cards are not used, employ three-way matching to reduce the number of approvals required prior to payment 7. Replace manual check payments with electronic payments 8. Understand tax liabilities

9. Use Card Issuer feed to automate delivery of card statements 10. If using electronic statements, predefine valid general ledger account

codes and cost centers to facilitate end-user reconciliation 11. Outsource high-volume, specialized payment processes 12. Determine control strategy

13. Monitor Procurement performance via a scorecard that includes cost, quality, and time components

14. Gain a comprehensive view of spend by integrating data from multiple sources e.g., e-Procurement, travel, ERP, purchasing cards

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Summary

of Key

Findings

Summary of Key Findings

Market and Industry Applicability

The study findings indicate that the best practices outlined here are equally applicable for large corporate and mid-size companies. Large and mid-size companies have similar goals and challenges in obtaining a leading Procure-To-Pay function, and differences among companies exist only in scale of implementation, ability to dedicate resources, and level of technology implementation. How companies handle the implementation activities depends on size, organizational structure, and company culture.

Companies in the manufacturing industry have been leaders in the adoption and use of innovative Procure-To-Pay best practices. The necessary disciplines of supply chain management, sourcing, and efficient procurement of goods and services are fundamental to their existence. Financial services and consumer business companies are “fast-followers” in the adoption of best practices, integrating manufacturing disciplines into their internal culture. Mid-size companies can be viewed as followers of large corporate companies in the adoption of best practices.

Six Key Areas

The 54 best practices detailed in this study provide practical ways for companies to achieve an optimized Procure-To-Pay function by addressing six key areas:

1. Proactive, ongoing senior management sponsorship

for Procure-To-Pay initiatives

A consistent critical success factor from the 1998 study to the 2002 study continues to be the need to obtain senior executive sponsorship for Procure-To-Pay initiatives. For large corporate sponsorship this could include business unit leaders and executive management, and for mid-size companies sponsorship could be a direct line to a CEO/CFO.

Achieving senior management sponsorship is necessary for receiving endorsement of existing initiatives, encouraging compliance to policies, and increasing awareness of Procurement initiatives throughout the organization. Leading-edge companies have become more innovative in achieving sponsorship by using relevant and realistic ROI measures, sharing information, and actively communicating goals and successes.

Senior management interest in the Procure-To-Pay process has increased significantly due to economic conditions, an increased focus on cost containment, and a recent attention to employee security (in regards to travel).

2. Collaboration to ensure communication and enforcement

of Procure-To-Pay policies and procedures

In recent years, Procurement and A/P managers have come to view business units as internal customers. This is a progression from the siloed and often adversarial approach of the past, which yielded sporadic compliance to policies and procedures.

Although compliance continues to be a challenge, leading companies are addressing this issue by encouraging business unit partnership. Shared objectives and performance measures have led to more formalized ties between business units, resulting in increased compliance to policies and a reduced overall cost structure.

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Summary

of Key

Findings

3. Progressive migration to automating the entire Procure-To-Pay

Information Technology platform

While survey participants in previous studies conceptually understood and strived for an automated Procure-To-Pay process, they traditionally made isolated technology decisions instead of focusing on a plan to implement an entire solution. Leading companies have now taken a more pragmatic approach to automation, attending to the implications to the entire end-to-end platform. To support Information Technology initiatives, they set realistic and achievable ROI objectives. Leading companies are recognizing that the benefits to automation can only be achieved by incorporating process changes as part of the solution, and they are employing Change Management techniques to achieve user support and consequently optimize benefits.

Mid-size companies are no longer excluded from receiving the benefits of increased automation, as IT solution providers are increasingly offering more cost-effective, packaged solutions or innovative hosting models.

4. Aggressive Strategic Sourcing focus to enhance vendor relations

This is an increasingly important strategic priority for leading companies and a powerful tool in cost reduction efforts. While companies have traditionally attempted to achieve discounts with vendors, they are learning that a Strategic Sourcing discipline is the most value-added Procurement activity. A 2002 Deloitte Research study on Strategic Cost Reduction indicates a potential cost savings of 15 percent-25 percent through a focused Strategic Sourcing initiative. Strategic Sourcing offers the following benefits:

• Rationalizing the vendor base

• Maintaining stronger oversight of relationships with vendors • Using the data to understand market share

• Pushing vendors towards deeper discounts and better service

Companies have used different approaches to Strategic Sourcing and vendor management. Some companies are collaborative in their approach, while others stipulate implementation of their standards. In either case, results clearly show that focused supplier sourcing and management lead to significant bottom-line savings.

Leading companies continue to dedicate resources to this discipline, with a noticeable change in strategy towards cross-functional negotiating teams e.g., Procurement, A/P, IT, and other key stakeholders, that focus on a corporate-wide view of spend. Formal tools have been developed to assess vendor and commodity spend, establish achievable sourcing targets, and support and monitor sourcing initiatives.

5. Comprehensive data aggregation and reporting to support management

and enable continuous improvement of their Procure-To-Pay function

Leading companies understand that data aggregation and reporting is critical to accomplishing any key activity. They also understand that reporting is not a function of the quantity of reports, but a function of the ability to integrate and analyze their data. These companies accurately define required reports and use them to share information across the business and track performance to goals.

The sophistication of in-house systems e.g., ERP, e-Procurement, reporting tools offered by Card Issuers, has improved to allow companies to obtain greater spend detail from internal systems. Integrating data from multiple sources has provided leading companies with a clearer understanding of the reports needed to support Procurement goals. However, large corporate and mid-size companies still rely on a significant amount of customization to reporting systems and make extensive use of ad-hoc reporting to provide necessary information.

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Summary

of Key

Findings

6. Commercial Card objective alignment with company’s

overall Procure-To-Pay strategy

The study found that commercial card program success factors include: • Integration of the commercial card as a payment vehicle into the overall

Procure-To-Pay strategy

• Comprehensive training programs that help employees understand the benefits realized by the corporation through use of the commercial card

• Enforcement, consistent with the corporate culture, of the commercial card for eligible commodities and purchases

• Development of issuance criteria that target employees who have reason to use the commercial card rather than employing a broad distribution process that would include employees who do not have a need for the card

Emerging Procure-To-Pay Trends

The study also identified organizationally focused Procure-To-Pay strategic trends. Today, corporations are working to coordinate Accounts Payable, Procurement, and Strategic Sourcing activities, and are modifying their processes to improve information sharing. Center-led management of these disciplines supports optimal vendor selection, negotiation, and management.

The 50 companies that participated in this study provided detailed insights into their current and future Procure-To-Pay goals. Study responses highlighted three emerging Procure-To-Pay trends.

e-Auctions

e-Auction applications, if not already in use, will soon be deployed by a larger percentage of this study’s survey participants. Seventeen percent of study participants have already implemented an e-Auction solution. An additional 22 percent of participants indicated that they plan to implement e-Auctions in the next two years.

While e-Auctions will continue to play a role in procuring indirect and direct commodities, companies have not developed Procure-To-Pay strategies that optimize use of the commercial card as an e-Auction settlement option.

Benchmarking

Leading companies have created a group of “benchmarking partners.” This group often includes companies outside of their industry as well as companies with which they may have a complementary relationship i.e., suppliers or vendors. Some companies will use third-party companies to conduct “blind” benchmarking studies against their immediate competitors. Additionally, leading companies participate in external benchmarking studies e.g., Forrester, IDC, Gartner, or ISM, on a periodic basis.

Internet Applications for Booking and Reporting Travel and Entertainment

Use of the Internet for booking travel and generating expense reports continues to increase. Companies report anticipated process savings of 80 percent as well as a significant reduction in data entry errors. Study statistics indicate:

• 40 percent of companies surveyed have already implemented Web-based booking; another 10 percent plan to in the next two years

• 26 percent of companies surveyed have implemented automated expense reporting • 36 percent of companies plan to implement an automated expense reporting

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Summary

of Key

Findings

Benefits from Implementation

Study participants that have adopted the best practices outlined in Visa’s Procure-To-Pay Best Practices have achieved significant quantitative and qualitative benefits. Select companies have individually achieved the following:

• 80 percent of suppliers are under contract • 90 percent of all spend with preferred vendors

• 75 percent of office supplies purchased through e-Procurement • 75 percent of e-Procurement orders paid using the purchasing card • 71 percent of payments are automated

• 98 percent compliance with audit criteria

• 90 percent of all trips booked through an in-house Web tool • 29 percent discount on negotiated airline rates

The table below reflects the performance, challenges, and benefits of companies based on their incorporation of the six key findings:

Leading Company

Key Practices

Level of Incorporation

Proactive,

Ongoing Senior

Sponsorship

Low-Adopter

Little or no senior sponsorship

No clear line of communication between Procurement, A/P, and senior management

Inability to advance Procure-To-Pay initiatives Common

Some senior sponsorship of key Procurement initiatives

Infrequent communication e.g., annually, with senior management Limited advancement of Procure-To-Pay initiatives

Leading

Senior sponsorship of many Procurement initiatives Periodic upward reporting to senior management

Frequent communication between Procurement, A/P, and business units Advanced

Visible senior sponsorship of the overall Procure-To-Pay strategy and all related initiatives

Procurement and A/P department heads report directly to senior management

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Summary

of Key

Findings

Leading Company

Key Practices

Level of Incorporation

Collaboration,

Communication,

and Enforcement

of Policies

and Procedures

Low-Adopter

No policies and procedures and/or outdated or inactive policies and procedures

Procurement and A/P are siloed and do not cooperate Departments are viewed as cost centers vs. business partners Poor compliance with policies and procedures

Common

Policies and procedures exist with little executive support and visibility Infrequent communication of changes to policy

Compliance is not actively monitored or enforced Leading

Effective policies and procedures developed Readily accessible by users

Annual review, modification, and communication of changes Consistent feedback loop

Reports produced to track compliance

Some collaboration between Procurement and A/P Advanced

Senior sponsorship of policy and procedure development Frequent communication across functions

Procurement and A/P work collaboratively with business units Sharing of lost opportunity and cost avoidance information with business units

Alignment of performance objectives

Potential alignment of compensation and bonus to achievement of goals and objectives

Progressive

Migration to

IT Automation

Low-Adopter

Manual data entry, few or no interfaces exist between legacy systems Highly paper-intensive process

Common

Use of commercial cards to eliminate paper

Some adoption of integrated Accounts Receivable, General Ledger, and A/P Mixed success in achieving automation

Little process reengineering and Change Management to support initiatives Leading

ERP adoption with integrated financials and e-Procurement Business case to support new business automation initiatives Value of Change Management is recognized and used Increased automation of invoice payment

Advanced

End-to-end Procure-To-Pay automation including e-Auctions, e-RFX, EIPP Detailed and achievable ROI measures used to prioritize future initiatives Integration of virtual accounts to support e-Procurement

Outsourcing of platform and maintenance explored as viable option Dedicated Change Management resources to support all initiatives

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Summary

of Key

Findings

Leading Company

Key Practices

Level of Incorporation

Aggressive

Strategic

Sourcing Focus

Comprehensive

Data Aggregation

and Reporting

Low-Adopter

Difficulty capturing appropriate data from legacy systems Data only captured from internal system

Use of rudimentary reporting templates Use of vendor data is minimal or non-existent Common

Some use of reporting system

Manual aggregation of data from multiple internal and external data sources

Inconsistent ability to capture and interpret relevant data for reporting purposes

Leading

Significant use of packaged or in-house reporting system Significant leverage of data from integrated application suite Well-defined, central data repository for aggregation of data from internal and external sources

Ability to define and create reports needed to support the Procure-To-Pay function

Advanced

Central, desktop, self-service reporting

Ability to integrate and analyze data from multiple sources Information is current and accurate and provides executive and managerial level reporting

Low-Adopter

No Strategic Sourcing effort Buyers focus on processing Purchase orders instead of sourcing

Procurement does not formally manage spend through preferred vendor lists, vendor scorecards, or department metrics

Multiple discounts negotiated for one vendor Common

Decentralized and informal sourcing policies

Negotiation with some key vendors without centrally supported effort Negotiated discounts poorly communicated to buyers

Frequent occurrences of multiple discounts per vendor Leading

Focused Strategic Sourcing effort

Initial attempts to rationalize and reduce supplier base Central, commodity-based approach to sourcing Achievement and communication of significant discounts for key commodities

Advanced

Dedicated Strategic Sourcing function with integrated team Significant reduction in rationalization of vendor base Significant discounts negotiated enterprise-wide

Annual review and scorecard measurement of vendor performance and communication of findings with vendor and business unit sponsor

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Summary

of Key

Findings

Leading Company

Key Practices

Level of Incorporation

Commercial

Card Objectives

Alignment with a

Company’s Overall

Procure-To-Pay

Strategy

Low-Adopter

Nominal Procure-To-Pay Strategy Indiscriminate distribution of cards

No periodic assessment of card use or spend limits Lack of corporate guidance directing expansion of card use Common

Laissez-faire management of card program; management is aware of card program and periodically assesses card use, but management does not directly encourage use of the commercial card as a payment vehicle Management may encourage use of card for MRO purchases only There is no effort to make the card program a primary payment vehicle Leading

Procurement, Sourcing, and Accounts Payable acknowledge the commercial card as a primary payment vehicle

Suppliers are either mandated to accept the commercial card or are given a preferential weighting on vendor scorecards

All commodities are reviewed for inclusion in the commercial card program Advanced

User goals are established based on spend limit, commodities purchased, and cost savings

Reports provide periodic snapshot of goal-to-date performance i.e., cost savings reports

Procurement organization stipulates use of card as payment vehicle for specific suppliers

Buyers are evaluated on their movement of suppliers and commodities to the commercial card program

Integration of commercial card in automated Procurement and sourcing tools

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The 54 best practices that follow are practical ways for companies to gain real-world benefits from optimizing their Procure-To-Pay functions. They are broken down into three main categories: Procure-To-Pay Foundation, Commercial Card Programs, and Procure-To-Pay Process. Travel and Entertainment is included as a separate section and falls under the overall Procure-To-Pay process section.

Each entry outlines the market applicability and implementation steps for each best practice. It also details specific success stories and trends regarding its incorporation into company policy.

Best Practices

SECTION II

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SUMMARY

Procure-To-Pay Foundation describes the strategy, organization, and technology components of the Procure-To-Pay process. The best practices described in this section form the building blocks and essential requirements for companies to have advanced or leading-edge performance. Regardless of size or sophistication, companies will not be able to achieve best practice performance without a successful foundation.

Best practice companies have defined a near- and long-term vision for their Procure-To-Pay process. Their Procurement and A/P functions are aligned to execute this vision, and they use technology as a key enabler to meet their goals.

Procure-To-Pay Foundation

The best practices described in this section form the building blocks and essential requirements for companies to have advanced or leading-edge performance.

STRATEGY

BEST PRACTICE 1 Articulate a Procure-To-Pay strategy with a short- and long-term vision BEST PRACTICE 2 Proactively obtain ongoing senior management and business _{unit support by sharing information}

BEST PRACTICE 3 Conduct benchmarking to gain additional perspectives and strategic focus

ORGANIZATION

BEST PRACTICE 4 Strategically position Procurement and Accounts Payable in the organization BEST PRACTICE 5 Ensure center-led management and control of critical Procure-To-Pay functions BEST PRACTICE 6 Develop enterprise-wide Procurement policies and procedures

BEST PRACTICE 7 Develop an internal communication plan to convey Procurement policies,_{procedures, and successes} BEST PRACTICE 8 Develop a comprehensive Change Management discipline

TECHNOLOGY

BEST PRACTICE 9 Develop an overall Procure-To-Pay technology strategy

BEST PRACTICE 10 Establish a business case for each technology investment and track your_{performance relative to your business case objectives} BEST PRACTICE 11 Maximize automation of an end-to-end technology solution

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MARKET APPLICABILITY: All Companies

Benefit: User Satisfaction Amount of Benefit: Medium

Communication of strategy, encourages support from key Procure-To-Pay stakeholders

ACTION STEPS: 1.Define a team of key

stakeholders, including senior management involvement, to develop the overall strategic planning process

2.Review previous strategies and year-end spend analyses to set meaningful goals

3.Communicate strategy with Procurement and Accounts Payable to achieve buy-in

SUCCESS STORIES and TRENDS

• One study participant publicly displays the company’s key Procure-To-Pay initiatives for the year and the company’s progress to date in completing them. This has helped it to achieve its initial goals for the quarter.

• Another participant created a plan by business unit to detail how it would meet customer service requirements, increased control objectives, and reduced costs targets. This helped identify the appropriate goals for the company’s purchasing card implementation.

Benefit: Vendor Management

Amount of Benefit: Medium Sets goals for supplier rationalization initiatives Benefit: Control

Amount of Benefit: Medium Sets guidelines for overall control strategy

Procure-To-Pay

Foundation

Companies should develop an overall strategy that defines their goals for the Procure-To-Pay process, forming the blueprint for the company’s process as a component of the overall company strategy.

A successful strategy contains goals for overall spend, projected breakdown of spend by commodity, spend by order mechanism, spend by payment type, cost savings (either through activity-based costing or full time equivalent [FTE] savings), and supplier sourcing goals. It should also list the tactical initiatives (both operational and technological) that will enable these goals, including implementation and evaluation of existing control mechanisms, new projects, and technology.

Goals are developed for the short-term (one to two years) as well as long-term (three to five years). The advantage of developing the dual focus is that it enables companies to prioritize their initiatives and helps provide direction for creating business cases.

The Procure-To-Pay strategy needs to be shared throughout the organization, specifically with Procurement, A/P, IT, and key business units. This will help secure the support of key stakeholders in those functions and ensure that the organization works toward common goals.

Strategy

Articulate a Procure-To-Pay strategy with

a short- and long-term vision

Best

Practice

1

Benefit: Cost Savings/Process Efficiencies Amount of Benefit: High

Enables company to identify achievable cost savings goals and define a “target” goal for achievement

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Procure-To-Pay

Foundation

Leading companies have recognized that obtaining ongoing senior management support e.g., business unit lead, senior or executive vice president, for the processes and technologies that the Procurement function has designed enables Procurement to add significant value to the organization.

Companies have successfully maintained senior management support by developing an ongoing communication of the activity and successes of their organization through an executive-level report which could contain the following:

• Process metrics: Purchase order volume and trend, invoice volume and trend, travel and entertainment volume and trend, purchasing card usage and trend

• Savings metrics: Dollars saved through use of preferred vendors and negotiated rates, dollars saved through Procure-To-Pay process changes e.g., expanded use of purchasing card, implementation of automated expense reporting

• Lost savings: Dollars lost through non-compliance to Procurement policies and procedures e.g., “maverick” spend, use of non-preferred vendors

• Current initiatives underway: High-level descriptions of efforts and expected benefits to generate awareness and gain ongoing support

Companies have used innovative methods to share this information with senior management including creating unique presentations, assigning business unit liaisons, and actively communicating successes through internal newsletters.

In addition to simply communicating Procurement successes, Procurement organizations have actually shared their savings with their internal business customers to encourage further compliance with policies and procedures.

continued on next page

Strategy

Proactively obtain ongoing senior management

and business unit support by sharing information

Best

Practice

2

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Procure-To-Pay

Foundation

Proactively obtain ongoing senior management

and business unit support by sharing information

continued

Best

Practice

2

Frequent communication of Procurement successes and opportunities for improvement provides senior management with the incentive to continue support of cost-saving Procurement activities

Benefit: Control Amount of Benefit: High

Frequent communication of savings from compliance and lost savings from non-compliance to Procurement policies and procedures encourages Senior management to promote compliance to Procurement policies and procedures

ACTION STEPS: 1.Develop cross-functional

team to form senior management communication initiative

2.Proactively identify compelling and relevant Procurement metrics and review them with senior managers to determine appropriateness

3.Develop communication initiative with related tools e.g., Web casts, report layouts

4.Adjust initiative to reflect feedback as received

5.Schedule periodic review meetings with senior management to share

information and ensure active participation

• One organization tied management’s bonus objectives to achievement of Procurement-related goals. Because of this, the Procurement department regularly reported its progress in meeting goals and successes to the other business units in the organization.

• Another survey participant shared Procurement performance numbers, such as cost avoidance and cost savings, quarterly with its peers to obtain ongoing support of initiatives.

• One large corporate company’s Head of Procurement is a member of the company’s senior management team and thus provides Procurement performance information at weekly planning and status meetings with the company’s President.

• One-third of the study participants indicated lack of senior management support as a significant barrier to card expansion.

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Procure-To-Pay

Foundation

Best practice companies conduct benchmarking on a regular basis (at least annually) to assess the performance of their companies and gain additional insight into innovative practices and opportunities for improvement.

Benchmarking should assess quantitative items such as direct cost to place an order, cost to produce a check payment, supplier base metrics, and qualitative findings e.g., implementation and control best practices.

Leading companies have created their own group of “benchmarking partners.” This includes companies outside of their industry as well as ones with which they have a complementary relationship e.g., suppliers or vendors. Third-party companies are also used to conduct “blind” benchmarking studies against their immediate competitors. Additionally, best practice companies participate in external benchmarking studies on a periodic basis – including commercial card-provider studies as well as U.S. Government figures, Forrester, IDC, and NAPM studies.

Strategy

Conduct benchmarking to gain additional

perspectives and strategic focus

Best

Practice

3

Benchmarking studies can be useful tools in promoting the success of the Procure-To-Pay function to senior management and providing information to develop business cases for key initiatives.

Benefit: Cost Savings/Process Efficiencies

Amount of Benefit: High Helps set achievable cost savings goals

Enables user participation and ability to benchmark user satisfaction

ACTION STEPS:

1.Identify benchmarking studies to participate in as part of annual strategy and allocate resources e.g., time and budget for participation

2.Solicit companies by contacting peers, using internal networks, or going through trade groups

3.Allocate time to review results of benchmarking study, incorporate findings into strategic initiatives, and communicate results to senior management

4.Attend conferences and read industry publications on a regular basis

• One best practice company has a list of benchmarking partners to use in conducting periodic studies. The partners are companies with leading Procure-To-Pay reputations and have helped raise the expectations and goals for the company. For instance, after learning that one company saved $11.6 million through e-Auctions, the company began a partnership with an e-Auction company.

• Another study participant increased the airline discounts the company receives from 15 percent to 20 percent by reviewing trade publications and T&E benchmarking studies to understand market conditions and negotiation best practices.

• One study participant uses internal benchmarking that enables employees to enter time activity data on a monthly basis. This is used to calculate Procurement and Accounts Payable productivity and helps to identify areas for improvement.

• Two mid-size study participants participated in extensive benchmarking studies including the Hackett Study.

Benefit: Vendor Management Amount of Benefit: Medium

Provides potential negotiation and sourcing goals for company

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Procure-To-Pay

Foundation

Leading companies have strategically changed their positioning of Procurement and A/P functions over the last two to three years. Traditionally, these two functions have performed as separate silos within the organization. Best practice companies now encourage a more collaborative relationship between the two departments in order to optimize their Procure-To-Pay process.

One key driver behind the change is the new view of Procurement and A/P as internal service organizations. This resulted from inclusion in a shared services organization as well as the realization of interdependency during Procure-To-Pay reengineering initiatives such as purchasing card implementations, ERP implementations, and Strategic Sourcing. These initiatives have helped Procurement and A/P demonstrate how they jointly enable the business units to achieve their goals.

In leading companies, Procurement and A/P now often refer to other business units within the organization as “clients” or internal customers and conduct internal surveys or reviews with business unit leaders to review service quality.

Procurement and A/P representation on cross-functional teams is essential for the success of most technology and strategic initiatives. Successful companies have been able to use a combination of Procurement, A/P, and business unit personnel to focus on Strategic Sourcing and drive deeper negotiated discounts. Some Procurement organizations have assigned liaisons to work with individual business units to help set goals, provide training, and evaluate new opportunities, enhancing the service reputation of their functions.

Organization

Strategically position Procurement and Accounts

Payable in the organization

Best

Practice

4

Procurement and A/P representation on cross-functional teams is essential for the success of most technology and strategic initiatives.

Benefit: User Satisfaction Amount of Benefit: High

Users benefit from service-oriented approach and will have greater adoption of new tools

Benefit: Vendor Management Amount of Benefit: High

Collaboration on sourcing will drive deeper discounts; Procurement brings negotiation and industry expertise and A/P can provide detailed analyses of spend data

ACTION STEPS: 1.Ensure participation of

Procurement and Accounts Payable on cross-functional teams

2.Ensure business unit liaisons exist in Procurement and A/P functions

3.Align success of Procurement and A/P functions with meeting overall business goals

4.Conduct internal surveys with business units to measure their level of satisfaction and effectiveness

• One study participant helped transform his company’s Procure-To-Pay function by assigning Procurement business unit liaisons. These liaisons worked with the business units to identify opportunities for vendor reduction, negotiate deeper discounts, and improve use of the e-Procurement system.

• Another participant has his company’s sourcing initiative jointly lead by Procurement and Accounts Payable. Combining Procurement’s negotiating acumen with A/P’s ability to produce accurate spend information has helped his company to reduce the time necessary to issue a request for proposal (RFP) by over 50 percent.

Benefit: Control

Amount of Benefit: Medium

Enables central coordination and monitoring of Procure-To-Pay function and compliance with policies

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Procure-To-Pay

Foundation

Successful companies assign dedicated roles and responsibilities for their most critical Procure-To-Pay functions: contract administration, expense management, administration of designated commercial cards and development of policies and procedures. As new initiatives are introduced, other activities such as requisitioning and buying have become more decentralized and dispersed throughout the organization. This enables the Procurement and A/P functions to focus on their most critical value-added activities.

Another advantage of the center-led approach is that it allows for centralized monitoring and control over the Procure-To-Pay function. Companies have an easier ability to create centralized reports tracking company spending and compliance, and enabling uniform distribution and enforcement of policies and procedures.

Organization

Ensure center-led management and control

of critical Procure-To-Pay functions

Best

Practice

5

Enables central distribution and management of policies and procedures

Benefit: Cost Savings/Process Efficiencies Amount of Benefit: Medium

Reduces duplication of functional roles in the organization

MARKET APPLICABILITY:

All companies. A single point-of-contact should be assigned where a dedicated role may not be possible.

Reduces confusion within the organization by providing single points-of-contact

ACTION STEPS: 1.Identify dedicated roles

and assignments in the organization chart

2.Link employee bonus and performance ratings with ability to meet organization goals

3.Communicate name of central points-of-contact throughout the organization

4.Obtain senior management sponsorship of company-wide policies and procedures

5.Validate reporting hierarchy to ensure center-led visibility of key reports

• 67 percent of study participants believe they have central management and administration of their Procurement function.

• One study participant reports that it has been unable to maximize the benefits of the company’s commercial card program because one of its business units uses different policies and procedures to manage the card.

Use of central management enables central negotiations with suppliers

(27)

Procure-To-Pay

Foundation

Leading companies document Procurement policies and procedures to communicate to their internal customers their recommended Procure-To-Pay processes.

A Procurement policy should contain the following content: • Mission statement and objectives of Procurement function

(including alignment with company’s mission statement) • Procurement organization chart with contact information • Sourcing and Procurement guidelines

- Sourcing strategy

- Requisition of expense items - Requisition of capital items - Requisition of services - Preferred vendors • Approval rules

• Receipt and return process • AP process

• Procurement control and audit • Use of commercial card

- Commercial card manager contact information - Issuance criteria and process

- Cardholder agreement - Usage guidelines - Reconciliation process - Payment process

On an annual basis, best practice companies review their policies and procedures and modify as needed. Changes are then communicated to users and incorporated into existing training.

Organization

Develop enterprise-wide Procurement

policies and procedures

Best

Practice

6

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Procurement policies and procedures detail standard practices designed to make a Procurement organization operate more efficiently; users who learn about and follow these practices take actions that enable Procurement savings such as use of preferred vendors

Designing and documenting Procurement policies and procedures that fit a company’s desired level of control enables communication of requirements to ensure compliance

ACTION STEPS: 1.Develop comprehensive

outline that covers all relevant aspects of Procure-To-Pay process

2.For each Policy section, research current practices and third-party research regarding best practices; determine preferred processes based upon company culture and capabilities

3.Document the policies and procedures

4.Continually reexamine policies and procedures and update as needed

• 85 percent of our survey respondents have documented Procurement policies and procedures. 74 percent of those respondents had less than 5 percent of all purchases fail a formal audit process. • All of the study participants that do not have formally documented policies and procedures stated user

inability to comply with procedures or failure to follow the approval process as the reasons why they failed audit. These items are the most common components of any policy and procedure document.

Procure-To-Pay

Foundation

Develop enterprise-wide Procurement

policies and procedures

continued

Best

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Procure-To-Pay

Foundation

To enable understanding and compliance with Procurement policies and procedures, all guidelines not only must be documented, but widely disseminated as well.

Most companies have a policies and procedures manual available on their Procurement department’s intranet site, but best practice companies have developed more creative ways to disseminate their policy information.

New users and new employees often receive Procurement training during their new hire orientation. This training can be delivered in person or via documentation with contact numbers for follow-up. The documentation is often laminated or brightly colored so that it is immediately recognizable to employees. Best practice companies also streamline all documentation to ensure that only pertinent information is included.

Recognizing that ongoing communication is necessary for providing information on updates as well as refreshing users’ memories, some Procurement functions provide an e-mail Procurement newsletter or submit articles to a company newsletter. An article submitted at one company included a quiz regarding Procurement policies. Prizes were then given to employees who submitted correct answers.

Procurement organizations have found that promoting the hard savings received from complying with policies encourages both communication and further compliance. By communicating the benefits obtained by preferred supplier compliance as well as the savings lost through non-compliance, senior management is more willing to encourage their departments to follow procedures.

Organization

Develop an internal communication plan to convey

Procurement policies, procedures, and successes

Best

Practice

7

Procurement policies and procedures detail standard practices designed to make a Procurement organization operate more efficiently; users who learn about and follow these practices take actions that enable Procurement savings, such as use of preferred vendors

Designing and documenting Procurement policies and procedures that fit a company’s desired level of control enables communication of requirements to ensure compliance

ACTION STEPS: 1.Initiate cross-functional

team of business units, e.g., Human Resources, Procurement, Travel, and Accounts Payable, to develop a policies and procedures communication plan

2.Track communication success and implement well-received methods

3.Develop process to ensure that updates to policies and procedures are communicated and

distributed in a timely basis SUCCESS STORIES and TRENDS

• 82 percent of survey participants have widely disseminated Procurement policies and procedures. • One survey respondent developed his company’s Procurement policies and procedures via a

multi-disciplinary team. This team regularly meets to revise policies as needed.

Procurement organizations have found that promoting the hard savings received from complying with policies encourages both communication and further compliance.

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Procure-To-Pay

Foundation

One of the biggest lessons that leading companies have learned from previous initiatives is the importance of Change Management. The ability to help educate, train, and communicate new messages to users is essential for any new initiative to succeed.

Companies should develop a dedicated discipline to handle these activities – usually as an expansion of existing training departments. Change management activities should be tailored to specific initiatives, staffed by people with training, marketing, and/or public relations experience, and included in all cross-functional initiative teams.

Change management responsibilities include:

• Development of internal training manuals and courses • Development of self-service and internal customer support • Creation of internal marketing campaigns and key messages • Assistance in determining the impact of an initiative on employees

• Identification of “super-users” or business unit champions for each initiative Change management teams can also help develop comprehensive and ongoing Procure-To-Pay training and education programs e.g., classes and self-service support, to help employees understand and use new Procure-To-Pay tools.

Organization

Develop a comprehensive Change

Management discipline

Best

Practice

8

Enables greater adoption of new tools and technologies and therefore helps meet cost savings projections in business cases

A formal Change Management function would be more likely to be formed by a large corporate company. Mid-size companies should consider assignment of Change Management responsibilities to a designated person for each important initiative.

Increases likelihood of adoption through training and support

ACTION STEPS: 1.Mid-size Companies:

Allocate resources for Change Management in strategic initiatives

2.Large Companies:

Identify Change Management role in organization chart

3.Both Companies: Identify and assign Change Management roles

• Two large corporate companies employed different Change Management strategies in support of the rollout of their e-Procurement system. One study participant employed limited Change Management activities e.g., individual tutorials as needed, to support their deployment. As a result, they estimate only $310,000 of spend has been placed through the system. The other participant provided enterprise-wide training via computer-based training (CBT) and classroom training combined with strong internal marketing. They project $1 billion in spend through the e-Procurement system by the end of the year.

• One study participant cited lack of Change Management as the biggest reason why they were not satisfied with their automated expense reporting implementation. The system has been in place for over three years and is still not adopted enterprise-wide.

Benefit: Control

Helps enable enhanced technologies with systemic controls

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Benefit: Control

Amount of Benefit: Medium Provides greater alignment of control

Procure-To-Pay

Foundation

Best practice companies have a focused technology strategy to complement their overall Procure-To-Pay strategy describing how technology implementations and enhancements can enable the achievement of the overall company goals.

Key components of the strategy should include the following:

• Key short- and long-term Procure-To-Pay technology initiatives with alignment to specific Procure-To-Pay goals

• Vision for the current and future Procure-To-Pay platform, including integration with new technologies and potential outsourcing opportunities

• Identification of benefits to be gained through the technology initiatives • Framework for selection of technology partners and vendors

• Framework for development of Service Level Agreements • Proposed allocation of budget and resources

Using this strategy as a blueprint, companies can then prioritize their initiatives and ensure maximum alignment with their goals. Necessary IT and outside integration resources can be budgeted appropriately and Procure-To-Pay technology initiatives can be executed effectively. This strategy can also provide additional direction for the creation of technology business cases.

As with the overall strategy, the technology strategy must be presented and supported by key stakeholders in senior management, IT, Procurement, and A/P.

Technology

Develop an overall Procure-To-Pay

technology strategy

Best

Practice

9

Provides company with baseline information to build business cases

Ensures buy-in of user community on technology initiatives

ACTION STEPS:

1.Leverage overall company strategy, Procure-To-Pay strategy, and existing IT resources to formulate technology component

2.Review previous year’s strategy to determine progress, identify gaps, and ensure consistency

3.Create and review strategy with key business stakeholders to obtain consensus and prioritize

technology initiatives SUCCESS STORIES and TRENDS

• One leading-edge company had IT representatives assigned to their Procurement organization. This ensured that their e-Procurement and ERP implementations were aligned to meet the company goals. • After reviewing their technology strategy with business users, one mid-size company identified the

need to have an ERP system. Creatively, they used an Application Service Provider (ASP) to house the system. This enabled them to have a cost-effective enterprise system to enable their back-office initiatives, while not demanding extensive use of internal IT resources.

• One mid-size company used its IT strategy to help map its Procure-To-Pay technology investments. Following this blueprint, the company chose to hold off on immediate implementation of an e-Procurement system, as it would not have properly integrated with its existing platform and ongoing initiatives. Benefit: Vendor Management

Helps provide guidelines for selection of IT vendors, including capabilities and service level expectations

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Procure-To-Pay

Foundation

Leading companies develop business cases for each of their technology investments. The creation of a business case serves several purposes: helping align all participants with the objectives of the investment, necessitating detailed understanding of investment costs, and providing a communication mechanism to gain senior management buy-in.

A business case will contain the following components: • Investment description

• Cost of the investment: the timing of the payments should be detailed if not all payments are required up-front. Investment costs will likely include third-party costs as well as internal project management costs. If known, any investment capitalization should be indicated

• Expected benefits from the investment: can be both qualitative and quantitative. Qualitative benefits include increased end-user satisfaction and increased productivity. Quantitative benefits include either anticipated cost reductions or cost avoidances. Cost reductions are savings off of current costs, such as an increased supplier discount or reduced staffing requirements. Cost avoidances are future costs that can be avoided as a result of the new investment, such as future maintenance costs on existing technology

• Cost/benefit cash flow analysis: a detailing by time period of the cash outflows and inflows based upon the expected investment cost and benefits. This information is typically analyzed to create financial risk measures. Financial metrics utilized to analyze investments include: net present value, return on investment (ROI), and investment payback period

Once a business case has been established and the investment made, companies should track their actual performance relative to the planned measures indicated in the business case. These performance comparisons should be communicated and analyzed to help improve current investment performance and develop lessons learned for future investments.

Technology

Establish a business case for each technology

investment and track your performance relative

to your business case objectives

Best

Practice

10

The creation of a business case helps align all participants with the objectives of the investment, necessitating detailed understanding of investment costs, and providing a communication mechanism to gain senior management buy-in.

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The development of a business case necessitates an understanding of investment costs and benefits; that understanding combined with performance tracking facilitates benefit achievement as expectations and progress against the expectations are clearly defined

Benefit: Control

Providing users with an understanding of the benefits of new process or technology investments usually results in higher compliance

team of business and technology employees to analyze an investment consideration

2.Detail investment description and anticipated costs

3.Calculate quantitative and qualitative benefits that the investment will enable

4.Analyze financial costs, benefits, and risks where appropriate

5.Monitor the actual investment costs and benefits and compare actual performance to projected performance

6.Analyze performance to improve current and future investment results

• 50 percent of our survey respondents set an ROI goal for their technology investments; 80 percent of those who set an ROI tracked their performance relative to their goal.

• One survey respondent developed a business case for e-Procurement that was approved based upon a clear description of the investment’s costs and benefits. Benefits detailed included reduced Procurement FTEs and improved end-user productivity.

Procure-To-Pay

Foundation

Establish a business case for each technology

investment and track your performance relative

to your business case objectives

continued

Best

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Procure-To-Pay

Foundation

Best practice companies are moving in the direction of an entirely “paperless” Procure-To-Pay process. This follows a trend that began with ERP, Commercial Card, and e-Procurement implementations. Companies see that an increase in automation provides significant cost savings through reduction of handoffs, decreased time to perform activities, and increased control and user satisfaction.

A complete end-to-end technology solution would be comprised of the following components: • Use of electronic auctions and vendor requests for sourcing

• Use of e-Procurement and ERP solutions for requisition and order placement • Implementation of ghost account program in e-Procurement and ERP systems

for automated payment

• Internal Web-based booking system

• Electronic receiving via EDI, bar coding, or XML

• Automated interface between Procurement and A/P and General Ledger (G/L) systems • Electronic feed of card-provided data

• Automated pre-populated expense reporting system • Electronic Invoice Presentment and Payment (EIPP) • Electronic payment of suppliers, including card provider • Electronic desktop reporting

The ability to implement this solution in its entirety requires significant time and resources. Companies should adopt this vision as part of their technology strategy and then prioritize the initiatives needed to progress to this vision.

Technology

Maximize automation of an end-to-end

technology solution

Best

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Procure-To-Pay

Foundation

Maximize automation of an end-to-end

technology solution

continued

Best

Practice

11

ACTION STEPS: 1.Develop an end-to-end Procure-To-Pay platform vision as part of the Procure-To-Pay technology strategy

2.Identify and prioritize initiatives that will achieve vision using ROI analysis

3.Incorporate initiatives into overall technology strategy

4.Evaluate appropriate options for implementing initiatives and create business cases

5.Validate presence of processes to support technology initiatives

• One company has been able to reduce per transaction costs from $9.00 to $0.89 through usage of an e-Procurement system.

• One study participant used an ASP to provide an e-Procurement solution that otherwise could not have been implemented within its internal IT department. The solution has been so successful that 90 percent of all spend is placed through the e-Procurement application.

All companies should have an automated end-to-end vision. However, some technologies, such as EIPP, may only be applicable to large corporate companies.

Removes possibility of manual, “human error” from the function

Companies could reduce transaction costs significantly by eliminating paper

Removes non-value-added activities such as data entry

Provides greater data capture and ability to manage vendor spend

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Procure-To-Pay

Foundation

Best practice companies have successfully implemented e-Procurement software to streamline and automate their Procurement activities. e-Procurement software applications and services are employee self-service solutions that support requisition, approval routing, and order placement.

Several well-established software vendors offer complete e-Procurement packages including Ariba, Commerce One, Oracle, SAP, Clarus, PeopleSoft, and Works.

e-Procurement software implementations share three common success factors: • Focus on Return on Investment (ROI) – best practice companies not only develop

a clear business case but focus on tracking and meeting the goals established in their analysis

• Phased Rollout Strategy – best practice companies utilize a phased rollout strategy. For example, some companies align deliverables by end date so a number of major project milestones are met every 100 days. This phased approach helps clients obtain quick wins, build momentum, and achieve flexibility to respond to changes in business climate

• Incorporate Change Management – best practice companies make Change Management-related items a priority. Successful implementations have involved project sponsors and well-defined communication programs, as well as job-role redefinition and training

Successful implementers of e-Procurement software are able to achieve significant

Procurement-related savings. Adopters of e-Procurement have been able to renegotiate contracted rates down by 5 percent to 10 percent through improved contract compliance, reduce average order requisition costs from $114 per order to $31, shorten purchase and fulfillment cycles from eight days to two days, and in some cases, reduce maverick purchasing by 50 percent.1

Strategy

Implement and leverage an e-Procurement solution

Best

(37)

Benefit: Control

Amount of Benefit: High Reduces “maverick” spend and human error Benefit: Cost Savings/Process Efficiencies

Amount of Benefit: High

Significantly reduces Procurement costs and transaction times

Simplifies Procurement process and eliminates paperwork

team of business and technology employees to analyze e-Procurement investment consideration

2.Detail investment description and anticipated costs

3.Develop quantitative and qualitative benefits the e-Procurement software will enable

4.Conduct financial analysis of costs and benefits where appropriate

5.Present information to gain senior management approval for e-Procurement implementation

6.Develop mechanism to track the actual investment costs and benefits and compare actual performance to projected performance

7.Develop Change Management process including a well-defined communication plan

8.Select and implement e-Procurement software

9.Analyze performance to improve current and future e-Procurement results

• 85 percent of survey respondents who have implemented an e-Procurement system have been satisfied with the results.

• 60 percent of survey respondents who have implemented an e-Procurement system have been able to dramatically reduce the amount of time required to place an order.

Benefit: Vendor Management Amount of Benefit: High

Eases vendor selection process and increases data capture

Procure-To-Pay

Foundation

Implement and leverage an e-Procurement solution

continued