How to Evaluate Your Indirect Procurement Process
Published on: 16 May 2019
All business processes should be assessed and evaluated regularly to check that they’re as beneficial to the business as possible, and a purchase to pay (P2P), evaluation might be the last thing on your mind. But having best practices and the right technology for indirect procurement can make a difference.
First, assess and evaluate your P2P to ensure processes are optimized and delivering against key indirect purchasing objectives. Let’s take a look at five assessments that help you see if your indirect procurement processes are in good health.
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Indirect procurement is critical to your business and supporting the organization is crucial for success. You support the organization by searching for services, finding suppliers, negotiating contracts, comparing prices etc. You also have to comply with purchase policies.
This consumes too much of your indirect purchasing team’s time. The purchasing team focuses on strategic targets and supplier relations. How much time are they spending on supporting the organization with practical matters concerning indirect purchasing? If the feedback isn’t good it’s a warning sign that the prerequisites for effective indirect procurement are not established.
A P2P solution simplifies and automates the indirect procurement process, meaning people find what they need and procure things without the daily involvement of the purchasing department.
It’s not uncommon for organizations to have many suppliers and for global organizations this is often the norm. Poor visibility in indirect purchasing leads to inefficiency – as an example the same company could have hundreds of cleaning contractors with high turnover.
Instead of appointing a smaller number of trusted agencies who can serve multiple locations, an organization could spend time and money searching for individuals to contract in every office – repeating the process when they move on. With P2P automation, you minimize the workload with a full view of suppliers, the services performed and associated costs. This allows you to consolidate your suppliers and make multiple time and cost savings across the organization.
All PO’s need approval at various levels of the business. This is a vital step in the purchase process that prevents rogue spending and fraud, but all too often the burden for securing approval falls to the accounts team.
Chasing, enforcing and rectifying spending limits, duplicate POs, and PO-invoice matching all puts pressure on the accounting team. Policies around PO’s are recorded in Word or PDF documents, leaving the company to depend on approvers, the accounting team, and the CFO to manually enforce purchasing policies. The end result is that POs often end up in a holding pattern while awaiting approval.
To see if this is happening in your accounts payable department, assess the average length of time and the number of people each PO goes through for approval. If this takes days or weeks, it’s a symptom of ineffective processes.
The CFO ensures all purchases are within given budgetary constraints. When processes are well defined this should be a straightforward task but if the indirect procurement process isn’t providing the CFO with enough information such as which department’s budget the purchase should be allocated to, the procedure becomes more complex and time consuming. So if a CFO bottleneck is all too familiar in your organization the chances are your processes are not efficient.
Another sign of inefficient indirect procurement is when your vendors and suppliers are regularly being paid late. This is a sign the accounts team is struggling to implement what is needed to make payments on time and creating financial consequences such as late penalties.
The process can be improved with better visibility throughout the entire P2P cycle. Monitoring payment progress from the initial order will ensure you always know what you are supposed to pay and alerts are issued when there is a risk of a late payment.
If discrepancies like these are prevalent within your accounts payable department it is an indicator that there’s room for improvement. An automated P2P solution automatically matches purchase order numbers to invoices in a range of file formats, improving accuracy and freeing up resources to focus on higher value work.
If your assessments of your P2P processes show they are underperforming and your existing solution doesn’t have the capability or functionality to help you improve them, Rillion’s flexible, next generation P2P automation solution will give you control.