Path to Profit, This WAY
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Automating Spend Management To Drive Visibility And Control
Spend Management / AP Automation Synergies Improves Cash + Spend Visibility
Organizational Response to Spend Management Challenges
{ objectives . best-in-class performance . roadmap }
Controlling spend and managing it effectively is a goal for all companies. In an ideal world, all spend would be under some form of management and maverick spend would not exist.
Traditionally, procurement / sourcing organizations have been tasked with the responsibility of spend control.
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With improving technology, accounting / finance organizations have joined forces with sourcing / procurement to support + enhance spend visibility / control
{ procurement objectives }
This smartpaper examines where and how technology has improved the capabilities and efforts for both groups, resulting in greater synergies for better spend management results.
REDUCE COST
41% have corporate mandate to reduce cost / increase savings
REDUCE COMPLEXITY
31% need to reduce the complexity and process time of the source-to-settle processes
IMPROVE VISIBILITY
26% need to improve visibility to enterprise spend across the organization
{ best-in-class performance }
BEST-IN-CLASS
Top 20%
ALL OTHERS
Bottom 80%
* COMPARISON
ON-TIME DELIVERY
(to required date, to commit date, to established lead time) from suppliers for direct material orders / releases
78%*
60%
30% >
DELIVERY
Percentage of your direct material orders / releases from suppliers are accepted on delivery based on quality with no intervention
73%*
58%
25% >
SPEND MANAGEMENT
Percent of total spend under management of your procurement organization
71%*
43%
65% >
YEARLY SAVINGS
Estimated average yearly savings REALIZED by sourcing team
18%*
7%
2.6x >
{ spend management path }
To acheive their corporate goals Best-in-Class companies have taken a comprehensive approach compared to their competitors as shown below. With these capabilities in place, Best-in-Class companies have 71% of their spend under management which is 64% higher than All Others (43%). However, it’s not 100% of the spend.
1
Getting control of the organizational spend involves collecting spend data from multiple sources across the organization.
2
Cleansing the data, enriching it and categorizing it are the next steps to getting a true picture of the actual spend.
3
Once categorized, having a standardized formal sourcing plan for direct and indirect spend is necessary.
more likely
MULTIPLE SOURCES
Ability to collect spend data from multiple sources across the organization
14%
more likely
SPEND DATA
Ability to classify and cleanse spend data
more likely
ENRICH DATA
Ability to enrich spend and supplier data
more likely
DIRECT SPEND
Standardized formal sourcing process for key categories in indirect spend
↓
Having sourcing processes is the catalyst to 64% greater spend data
more likely
INDIRECT SPEND
Standardized formal sourcing process for key categories in indirect spend
SPEND CONTROL CAPABILITIES
In addition to having an individualized formal sourcing strategy and plan by categories, spend management and control is also about managing execution.
CONTRACT
Formal contract or supply agreement
BEST-IN-CLASS: 75%* | ALL OTHERS: 61%
*23% more likely
Having a formal contract or supply agreement in place to govern the supplier relationship is a basic step that most companies adopt, but the Best-in-Class are 23% more likely to have it in place.
PERFORMANCE
Supplier performance measurements in sourcing activities
BEST-IN-CLASS: 65%* | ALL OTHERS: 42%
*54% more likely
Having authority in the agreement to enforce the terms and conditions is also important — the Best-in-Class are 54% more likely to have performance measurements involved in sourcing activities.
PROCUREMENT
Procure-to-Pay solution
BEST-IN-CLASS: 54%* | ALL OTHERS: 27%
*2x more likely
Managing the relationship on a formal basis also requires an application on the buying side to track, monitor, and control the workflows within a supplier / customer relationship. The Best-in-Class are 2x as likely to have a procure-to-pay (P2P) solution in place to manage and track the flow and timing of information, as well as the execution of a formal contract or supply agreement.
ANALYTICS
Analytics for contract management by product, supplier and / or customer across the organization, across all suppliers / customers
BEST-IN-CLASS: 40% | ALL OTHERS: 31%
*29% more likely
A P2P solution is also where procurement and the financial team have joined forces to improve spend management. A further point of control and refinement is the ability to mine actual results against contract information across the organization by supplier, customer, products, or locations to see performance against contracts for all categories.
DIGITAL TRANSFORMATION IN PAYMENT AUTOMATION
Procurement and accounting are jointly engaged in the P2P process from buying through settlement. A large part of the P2P process is the invoice and payment process, which has historically been a highly manual and paper intensive operation. Although there is some automation that occurs in all organizations, there are stark differences between the Best-in-Class and their competitors. Best-in-Class spend under management is 64% higher and their year-over-year realized savings are 166% higher than the competition.
{ digital ap automation capabilities }
AP/Invoice process automation
Data extraction from printed/typed documents
Converted documents delivered to financial system (XML, EDI, etc.)
Robotic process automation (RPA)
Intelligent Invoice Management
Best-in-Class companies are 2.5x as likely to have AP invoice processing automation in place. Automation streamlines the entire P2P process, converting paper into digital documents, saving time and providing the visibility to capture discounts, while providing tighter spend management through intelligent data access.
Digital transformation begins with the extraction of data from printed / typed documents — an ability that the Best-in-Class are 2.2x as likely to have in place. Extracting data from a form enables intelligent invoice management; and once the data is captured, it can be moved digitally and the need for paper is eliminated for the rest of the process.
The Best-in-Class are over 4x as likely to convert documents into preferred formats for the financial system.
Robotic process automation (RPA), has also been adopted by 42% of the Best-in-Class — more than twice that of All Others — and has been applied in making repetitive decisions when processing invoices. It’s an automation accelerator.
For procurement and financial organizations, the value of the digital automation is all the about improving the speed of information on spend visibility, categorization and enhancement of spend data. It also frees up resources that are often pulled into paper-based problem resolution issues.
Synergies of AP Automation + Spend Management
{ AP / Procurement Workflows for cash and Spend Visibility }
The chart below identifies the joint procurement and invoice automation workflows and processes that enhance spend management, visibility and cash flow projections.
2.3x
2.1x
2.1x
2.4x
73%
2.6x
89%
39%
more
73%
35%
more
81%
38%
more
31%
more
62%
23%
more
WORKFLOWS
best-in-class:
2.3x more
Electronic approval of workflow.
Although electronic workflows are not new, the Best-in-Class are 2.3x as likely to have the ability in place.
EXCEPTIONS
best-in-class:
2.1x more
Notification of errors, exceptions, or anything requiring management attention.
Best-in-Class are also 2.1x as likely to have a management by exception alert process in place to flag anything requiring management attention.
Once digitized, using electronic workflows to handle only exceptions results is a significant time savings for management in procurement / sourcing and accounting / finance organizations.
FORECASTING
best-in-class:
2.1x more
Forecast of cash flows.
With RPA involved, repetitive decisions can be handled automatically — freeing up the time of procurement a management by exception alert process in place to flag anything requiring management attention.
REAL TIME VISIBILITY
best-in-class:
2.4x more
Real time visibility into cash positions.
In addition to the efficiency improvement, the speed of information flow gives the Best-in-Class a significant edge in their ability to forecast their cash flows. They are 2.4x as likely to have real-time visibility into cash positions. Improved process efficiency, counters the delay caused by using manual and paper processes, including electronic copies that must be rekeyed for digitization.
Analytics
best-in-class:
2.6x more
Spend analytics / Business Intelligence for invoices.
Visibility also supports spend analytics, and business intelligence for invoices supports sourcing objectives to properly identify the spend and categorize it to drive more spend under management.
Summary
The three main objectives identified that all procurement and financial teams must contend with are:
SAVINGS
Addressing the mandate for more savings
Sourcing / procurement teams need all the help they can get. But help is on the way, in the form of P2P solutions and the synergies created with the accounting / financial teams using invoice automation and the digital workflows it enables. P2P automation is the basis for a cohesive partnership between procurement and the financial team, focused on spend management and visibility.
COMPLEXITY
Reducing the complexity of the source-to-settle process
AP automation along with RPA means faster visibility into spend data, which enables improved cash-flow forecasting and real-views into cash positions. Working in unison and in support of the end objectives is the unifying cause. The results speak for themselves with 64% higher spend under management 2.7x the savings for Best-in-Class companies.
VISIBILITY
Improving the visibility to spend across the organization
Aberdeen recommends following the lead of the Best-in-Class companies who have invested in P2P technology and invoice automation processes to improve spend visibility, cash flow, and greater savings opportunities, with increased spend under management and greatly reduced maverick spending.