Procurement and accounts payable departments are in the midst a digital transformation. Time-consuming and manual processes are being automated. Levvel Research found that 85% of POs (Purchase Orders) are now sent online or via email. With digitalization becoming commonplace, it’s important to ensure that your supplier relationships are managed effectively. Technologies are enabling organizations to establish and maintain a strong supplier base from the initial request through to activation. This post outlines five steps that will help you to engage with your suppliers more efficiently which leads to cost and time savings.
1. Identify and work with preferred suppliers
Supplier databases should be split into Preferred Vs. Non-Preferred suppliers. While organizations communicate with a wide variety of suppliers, it’s important to identify your preferred suppliers. These more strategically important, preferred suppliers, can be chosen using criteria such as quality or frequency and value of transactions.
Based on our experience of working with procurement and accounts payable teams, we found that non-preferred suppliers typically account for 80% of supplier costs even though they only account for 20% of total spend. Non-preferred suppliers are suppliers that your organization may not deal with on such a regular basis. Typically, this segment will cost you more time and resources than the preferred suppliers even though you spend less with them financially.
Focusing on preferred suppliers allows organizations to unlock a number of benefits including enhanced integration opportunities from integrated, up to date catalogs to Electric Data Interchange (EDI)/ ordering and invoicing to tighter interaction via an online supplier portal. Efficiencies can be gained by having to interact with fewer suppliers and preferential pricing/bulk discounts can be obtained. These benefits quickly highlight the downsides of dealing with non-preferred suppliers such as slower procurement processes and more costly invoice processing.
2. Streamline the supplier onboarding process
Supplier onboarding is the process of finding, qualifying, approving and adopting new suppliers.
In many organizations this is a manual process with paper applications forms to be filled out and laboriously routed through the organization. This leads to frustration for the supplier, the business user and the AP team who are often left chasing the paperwork in order to process an invoice. The length of time taken often leads to delays and missed opportunities.
Best-in-class organizations are now implementing an automated ‘supplier self-management’ process whereby new suppliers actually log in and input their own company information during the onboarding process. These organizations leverage online forms to capture supplier data directly from the supplier and leverage workflows to validate the supplier request internally. These checks can include internal validations and critical compliance checks such as Anti Money Laundering (AML) and Anti Bribery and Corruption (ABC) checks. This allows the procurement and AP teams to validate information and more quickly engage with the supplier.
3. Maintain supplier data security
Once a supplier is onboarded their information needs to be continuously maintained and updated. Imagine processing, approving and paying an invoice only to find out that the check that was mailed was returned because the supplier has moved address. Or if your bank transfer fails because the supplier has changed their bank details without notifying you. Even worse, some organizations have been victims of fraudulent activity as the result of not having proper change controls for supplier data in place.
Unfortunately, incidents like this occur on a regular basis and as a result, are costing organizations on a financial and resource-allocation level. Outdated and inaccurate supplier data is one of the major causes of payment errors which leads to deteriorating supplier relationships and organizations missing out on early payment discounts.
Preferred suppliers should be encouraged to update their own profiles and content if needed, which means that accounts payable staff can re-allocate their time. Automated alerts can be set up and sent to suppliers when time-sensitive documents, including compliance certifications and supplier contracts, need to be renewed. Critically, all changes to supplier data then passes through a set of internal checks to validate the data changes, thereby minimising the risk of fraud or error.
4. Simplify Buyer-Supplier Interactions
Organizations should look to extend the work that they have done on building supplier relationships and obtaining and maintaining supplier data to different areas of the P2P process.
Organizations can make financial savings when deciding to buy preferred products from preferred suppliers where prices have been negotiated. Best-in-class organizations are creating a single portal that hosts all of these pre-determined products and suppliers within one view. This allows staff to create requisitions with pre-chosen products from preferred suppliers.
Here are two examples of manual and time-consuming tasks that have been accelerated through the use of technology:
Supplier Catalog integration
Automatically integrating your suppliers’ product catalogs into your procurement process allows your users to instantly access the latest offerings from your key suppliers at the preferential prices agreed. This integration can take a number of forms e.g nightly updates of catalog data into your internal procurement system or using industry standard catalog data formats to real-time ‘Punch out’ to the supplier’s website. ‘Punch out’ allows users to directly access products on the supplier’s website and download these items into an internal requisition which can then pass through the appropriate approval process.
This process saves time, removes data inaccuracies and ensures that users have access to the most up-to-date product information and pricing.
Technologies like ‘PO-Invoice Flip’ allow suppliers to take the required information from a PO and automatically create an invoice with it. Product information, quantity, and company details can all be leveraged to create a compliant invoice which can then pass through the requisite matching and approval process. This process significantly decreases the internal AP effort required, significantly increases first-time match rates and give the supplier confidence and visibility of the processing of their invoices.
5. Supplier Visibility
Accounts payable staff spend a lot of their time dealing with queries from suppliers via email and phone. In a paper-based environment, it can take hours for AP staff to find the status of an invoice or PO. However, in a digital accounts payable process all invoices and POs will be tracked and accounted for within your chosen financial or ERP system.
Furthermore, many organizations are offering a portal for suppliers to log in to a controlled environment and find out exactly where in the approval process their invoice is. These environments also allow suppliers to confirm orders and resolve queries around orders or invoices.
The digital age within procurement and accounts payable has arrived and the organizations that have adapted are making significant time and cost savings, where their less agile competitors simply are not. Supplier relationship management is just one of the many areas within P2P that are being digitally transformed. What has worked for organizations over the past 50 years will not work a decade from now. It’s imperative to digitalize business processes sooner rather than later to reap the benefits.