Source-to-Pay is becoming business critical in these challenging times
Source-to-Pay, Sourcing, E-procurement, Invoice Process Automation
It’s hard not to sound alarmist but the headline is true and you only have to read the news briefly to see what I mean. As both public and private organizations scramble to source personal protective equipment, as suppliers go bankrupt, as orders turn out to be scams, as service providers fail to provide, the process breaks down. And as it does, it exposes all kinds of critical, high risk elements to business continuity which I want to open your mind to in this blog.
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Let’s start with an example that is close to home. OpusCapita used to be in the digitizing business but sold off that part of the business a couple of years ago. However, we still hold those contracts with our customers and have effectively outsourced the scan & capture to the part of our organization we sold off. So basically, we are still involved and we understand the service intimately. Scan & Capture is a labor intensive business and currently, not something which can be done from home. As people are asked to stay home, as people become sick, as people are forced to stay home to take care of kids, the process slows, can stall and in some cases, fail. What happens when a hospital can’t pay the invoice from a supplier for PPE? Sure, it can all be worked out with some extra effort but an extra effort and delays can literally be the difference between life and death.
You may have learned about a case in the last few days of a situation in California where the Service Employees International Union-United Healthcare Workers West (known as SEIU) had secured a shipment of 39 million surgical masks - much to their relief I’m sure - only to find out it was a scam involving a broker in Australia and a fake supplier in Kuwait. A similar case happened in Germany only a few days ago and early last week it was the Finnish Government desperate to buy face masks for their hospitals who relaxed normal procurement processes and ended up being taken advantage of. It’s my understanding that in most cases, the money was recovered but you can see what happens when the source-to-pay process is put under pressure. Money and time are both lost and the real-world impact to the people who depend on the product is much too high.
Procurement’s ultimate role in the organization is to ensure the business has the materials and services it needs to function. What happens when suppliers either can’t deliver due to manpower shortages or are unable to deliver because they’ve gone out of business? This is a real problem and something category managers are surely pulling their hair out over. We know that minimizing supply chain risk includes considering source of supply, expectation of financial stability, planning for multiple suppliers to ensure no single point of failure, etc. One wonders which organizations had scenarios in place to handle the pandemic we are faced with and the fall out which will surely impact us for months if not years.
Businesses are not built to do well in times where critical failure is on many fronts. Lean processes are pretty much the norm and profitability the goal (which means a low cost base, hence a procurement department focused on cost reduction). I say that to make a point that this 20/20 hindsight is not suggesting something else could have been possible if only companies had been smarter. No, I tend to think what is happening now could not really have been mitigated entirely but I also feel there are things we could do going forward.
Two things come to mind as potentially important to consider when thinking about the new normal, ie: life after coronavirus. First, every step in your source-to-pay process (including all supplier/customer interactions) must become digital. Any non-digital element in your process will expose you to multiple critical risk elements. Second, procurement (as a function) needs to re-evaluate their key performance metric of cost savings as the end all, be all. In the fall of 2019 we produced research together with IDC (find the white paper here) which showed cost savings as the number 1 KPI with 'delivering business value' and 'risk mitigation' as the next two focus areas. My contention is that risk mitigation needs to take a front seat for the next 12-18 months and simultaneously 'business value' may need to be re-evaluated to reflect something like 'enabling a digital business culture' or 'enabling digital transformation with our suppliers and customers’'
I don’t know how this whole thing turns out but obviously I hope for the best. Stay safe.
Rowan has more than 10 years of experience in the purchase-to-pay arena. During this time, he has managed the go-to-market for a diverse set of portfolios including Accounts Payable Automation, B2B Networks, Financing Services, eProcurement and Product Information Management.
Read more blog posts about Source-to-Pay
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Procurement - A useful excuse for failure?
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Do you know how much effort and money your company is leaking when procurement processes are not properly digitized?
The Future of Source-to-Pay
21 - 02 - 2020
What is the future of source-to-pay? Rowan Lemley offers his opinion in this recent blog.