Integrating Purchasing and Payables

Exploring the Value of a Synchronized Back-Office Process

Written by: Levvel Research

Underwritten in part by: Paramount WorkPlace

Q3 2017 | Featuring insights on:

  • Current Integration Trends Among North American Procurement and Accounts Payable Departments
  • Risks and Benefits of Integrating Purchasing and Payables Processes
  • P2P Automation Designed to Support Purchasing and Payables Integration
  • Integration Project Best Practices

Introduction

In most organizations, Procurement and Accounts Payable (AP) departments operate independently from one another for most of their respective process lifecycles. The departments’ teams conduct their business under different policies and have separate strategies for functioning efficiently. This siloed environment is partly due to their differing goals: Procurement tends to have more of an operational focus, while AP’s focus is financial. However, the two departments have more in common than is often acknowledged, as they both ultimately work to improve the health and strength of their organization’s cash flow and bottom line.

In any Procure-to-Pay (P2P) process, there comes a point when the Procurement department must pass on the purchase order (PO) and related documents to Accounts Payable, creating a point of natural synchronization. Although it is not necessarily the status quo, a more efficient way to run the back office is by expanding that synchronization to the entire P2P lifecycle, creating a place for AP in Procurement and a place for Procurement in AP. This can be accomplished by combining the two departments through a holistic and carefully planned integration initiative. By treating the teams as two unique but complementary parts of one whole, organizations can increase their control over spend, lower their costs, and improve their competitive advantage.

One of the best ways to begin this integration process is by implementing a holistic Procure-to-Pay software platform that automates purchasing and AP functions. Automating the two departments helps to ensure a more streamlined, efficient, and controlled integration than a manual initiative alone. P2P software platforms have built-in controls and advanced technical integration capabilities that make it simple for companies with many different internal teams, locations, and strategies to consolidate processes into one digital environment.

In order for organizations to successfully unite purchasing and payables, they should educate themselves on the risks and benefits of an integration project, as well as the support tools available to them to lower risk and increase efficiency. This report includes integration trends among North American purchasing and payables departments, a set of best practices that will help organizations build an integration initiative plan, and a high-level overview of P2P software.

Why Integrate?

There are several incentives for companies to integrate their
Procurement and Accounting departments—and there are several
reasons not to. The risk-benefit ratio will typically help determine if
an organization should or should not integrate. Some of the benefits
of integration include lower costs and higher savings. These are
mostly associated with workflow—by shortening the time and steps
necessary for purchasing, invoice management, and payment lifecycles,
organizations reduce their processing costs. Faster cycles can also lead
to increased discount capture through early-payment discounts. In
some instances, companies can also save on labor costs, as they can
consolidate certain roles within one department.

Another benefit of integration is increased visibility into spend
and employee activity, which allows organizations to pinpoint
maverick spend, fraudulent activity, or inefficient purchasing from
noncompetitive or outdated vendor contracts. Bringing spend
previously managed by two different teams under one umbrella allows
companies much more control over that spend, and enables them to
use their resources more strategically.

The risks of integration are mostly built upon the fear of change,
and doubts of whether or not change can be implemented without
disrupting the status quo and harming the company. Integration
can create burdens on different teams and processes, including
the IT department. Consolidating internal systems is a complex and
time-consuming process, as Procurement and Finance teams are
often using several different technologies even within their own
departments. Consolidation creates a short-term stretch on IT, as it
often warrants hiring additional labor to help with the process, such
as IT consultants or integration specialists. Integrating can also be
disruptive on Procurement, as many Procurement teams are used to
having a certain degree of autonomy when it comes to their purchasing
decisions.

Another risk of integration is the time it takes overall, and the effect this
can have on supplier relationships and supply chain efficiency. Even
a fairly simple and brief integration project can disrupt supplier and
payment processes to some degree. The possibility that the project
will hit unexpected difficulties that will draw it out is also a concern.
A change in roles and activities could also disrupt long-standing
routines and equilibriums, as differing management policies and ideologies can create some tension between departments forced to
integrate. For example, a Procurement professional could be wary of
involving new Finance contacts in an established, but sensitive, supplier
relationship; while Accounting professionals could be resistant to
giving Procurement members the power to weigh in on finance reports
without years’ worth of context.

Despite these concerns, many organizations are heading toward a
more integrated back-office environment for the cost savings, control
over spend, and higher productivity integration brings. According to
Levvel Research’s research, today’s organizations are typically not
fully integrated, although the majority of organizations have some
degree of integration or are headed in that direction. When asked to
describe their current state, 33 percent of companies reported that
they have common leadership but most of their functions are separate,
while 31 percent reported they are completely separate, see Figure 1.

Figure 1: Most Organizations’ P2P Processes Are Not Fully Integrated

“How would you describe the process flow between Procurement, AP, and Payments?”

Levvel Research has found that the size of a company has a great effect
on whether or not their purchasing and payables departments are
integrated, see Figure 2. The revenue segment that is most likely to
have completely integrated Procurement and Accounting departments
includes those in the upper middle market ($500 million-$2 billion),
followed by smaller organizations (less than $100 million). Levvel Research
believes this is partly because both revenue segments hit something
of a sweet spot. Smaller companies tend to operate under more
consolidated processes naturally; some only have a handful of
employees operating their back-office departments. Therefore,
consolidation in simpler and less of a strain on their resources.
Organizations in the upper middle market, on the other hand, are
just large enough to have the resources for integration projects and
just small enough that these projects do not cause great internal
disruption. Companies in the upper middle market are also more
likely to be using P2P automation software, which helps to streamline
integration.

Figure 2: Organizations in the Upper Middle Market Are Most Likely to Have Full Integration

“How would you describe the process flow between Procurement, AP, and Payments?”

&

“What is your organization’s annual revenue in the most recent 12-month reporting period?”

Organizations with more than $2 billion in revenue are least likely
to have integrated departments. This can be attributed to the great
deal of effort such projects would require, including restructuring
processes across multiple divisions and locations, and consolidating
the numerous technical systems on which large organizations typically
operate.

Industry also plays a role in an organization’s purchasing and payables
integration, see Figure 3. Manufacturing and healthcare organizations
report the highest rates of completely segregated departments, which
can be attributed to the widespread nature of their operations, the
complicated supply chain environments in which they operate, and
the higher amount of direct spend—particularly for manufacturing. In
addition, both industries have been historically slow to adopt finance
technology and are more likely to have completely manual back-office
departments, which slows integration initiatives. On the other hand,
education and professional services are both leading industries when
it comes to technology adoption, as they both tend to have more
straightforward P2P processes with lower amounts of direct spend.

Figure 3: Organizations in Professional Services Are Most Likely to Have Full Integration

“How would you describe the process flow between Procurement, AP, and Payments?”

&

“Please select the standard industry description that best fits your organization.”

An additional major benefit of integrating Procurement and AP is the
increased efficiency it brings. For example, Figure 4 shows that the
amount of integration organizations have between their Procurement
and Payables departments has a direct effect on how quickly they
are able to approve purchase requisitions. In this survey, there
were no companies with completely integrated departments that
reported requisition approval times as more than one week. These
short approval times help to condense the entire invoice-to-payment
lifecycle, and can lead to millions of dollars in annual savings in both
lower processing costs and early-payment discount capture.

Figure 4: Integrated Purchasing and Payables Leads to Shorter Requisition Approval Times

“How would you describe the process flow between Procurement, AP, and Payments?”

&

“What is your organization’s average requisition approval time?”

Companies can also improve efficiency by automating their
Procurement and AP departments. P2P software creates a wide
range of process improvements, including lower processing costs and
increased control and visibility into spend, see Figures 5 and 6.

Figure 5 & 6: Organizations Achieve Improvements in Control, Visibility, and Efficiency with P2P Automation

“Which of the following improvements have you seen in your procurement process since implementing a solution?”

&

“Which of the following improvements have you seen in your invoice management process”

When companies leverage P2P software and integrate their P2P
processes simultaneously, they are better able to achieve scalable,
streamlined, and low-risk integration. The following section further
explores the role P2P automation plays in Procurement and Payables
consolidation.

Integrating with Procure-to-Pay Automation

A P2P software suite typically includes automation for the entire
back-office lifecycle of requisitioning, purchasing, receiving, invoice
management, and payments. Today’s P2P solutions create an open
and collaborative environment in back-office departments, allowing
Procurement and AP managers to maintain consistent communication
with staff, suppliers, and the company’s stakeholders in real time. They
improve employees’ productivity, reduce time spent on non-valueadded
tasks, and enable executive members of an organization to
strategically manage spend. P2P software also unites different teams
and visions, giving all parties visibility into spend management activity
without sacrificing different members’ control. A P2P solution is one
of the best ways to build enthusiasm for an integration initiative and
ensure its success.

The following items showcase some of the features of P2P solutions, as
well as how an organization can use P2P software to help streamline
integration. P2P software:

Connects multiple systems, teams, and locations. Integrating purchasing
and payables processes across existing processes and systems can be
challenging, especially for older and/or larger companies with multiple
locations using many different systems. However, today’s P2P software
is built on cloud-based technology that allows companies to connect
to the same platform across many teams and locations. The platform
leverages the same data across all instances of the solution and
provides real-time access to that data.

The solution’s integration tools make it easy to plug the system into
even the most complicated IT infrastructure. Many software providers
also have teams of integration specialists to help IT configuration
during implementation, as well as process reengineering consultants to
help structure current operations around more efficient, technologybased
processes. In all, P2P software allows companies to combine
their departments much more easily across their complex current
state.

Builds control and safeguards between the two departments. P2P software
has built-in, roles-based controls that enable the departments to
collaborate on different P2P documents and activities without risking
the integrity of the process—or sensitive customer and financial
data. These controls cover a wide range of spend activities and P2P
documents. For example, the solution can ensure certain users do
not purchase an item above a certain spend threshold, or it can alert
users to missing fields before they submit a PO. P2P software can also
confirm that invoices have POs and automatically check invoice data
against those POs for inaccuracies. Access-based controls ensure that
even though multiple parties are using the same system, only those
with the proper authority and role will be able to perform certain
functions (e.g., only an AP manager can approve invoices). All of these
controls reduce maverick spend, document errors, and process delays,
as well as the need for AP to remonstrate or report purchasers, or
track down the correct information or documents in order to approve a
payment.

Enables communication. P2P software includes built-in messaging
capabilities that enable the two departments to easily and quickly
resolve purchasing, invoice, and payment issues. For example, if an AP
manager needs clarification on the initial purchase before approving
an invoice, they can immediately reach out to the original requestor
and/or procurement manager through a chat box. Sometimes users
can gain answers in minutes, without even having to leave their desk.
Automation also gives Procurement more visibility into the order
lifecycle than they would have under a manual system. They can
monitor the order in real time from requisition to receiving, correcting
issues as they arise and reducing or eliminating discrepancies that the
AP department would have had to sort out afterward.

Consolidates overlapping information.

Because P2P software leverages
the same spend data across all P2P processes, the solutions give
departments an opportunity to consolidate, clean up, and optimize that
data. For example, teams can improve their supplier management by
streamlining vendor master lists, standardizing onboarding strategies,
and consolidating supplier-related documents. They can also merge
supplier dispute management into one system under one team via the
supplier self-service portal and help desk.

P2P software’s consolidation benefits also improve data sharing
across different roles. Under a separate system, Procurement and
AP professionals must track each other down for certain information housed in separate places, such as an original purchase requisition for
an invoice or a history of past supplier payments. With a P2P solution,
access to information can be made available to anyone with the proper
authority, and a request for information beyond their access is as
simple as a direct message.

Brings more spend under management. Integrating purchasing
and payables departments with a P2P automation solution helps
organizations not only consolidate spend, but also allows them to
get more spend under management than they would with a manual,
segregated processes. This change is especially valuable for CFOs, as it
gives them a chance to restructure spend categories and optimize their
company’s cash flow. It also allows organizations to identify inefficient
purchasing strategies or supplier contracts and catch fraudulent
spending.

Kicking Off an Integration Initiative

The list below contains a few best practices for professionals pushing for purchasing and payables integration in their organization.

Gather All Stakeholders.

As previously stated, fear of change can create a lot of resistance to an
integration initiative and undermine its success. To prevent potential
problems, a Procurement and AP department integration should be
acknowledged and openly discussed whenever possible. Those pushing
for integration should bring all stakeholders to the table, even those
in lower positions in the company. While employees in a procurement
requestor or AP clerk role may not necessarily have a final say in the
decision to integrate, their enthusiasm for an initiative can add strength
to a push for integration.

Get Executive Buy-In.

Even though all voices are important, it is still ultimately up to the
C-suite to agree to and begin an integration initiative. Those pushing
for integration can gain their enthusiasm and support in several
ways. The first is to build a business case that includes a current state
assessment and an estimate of improvements and savings possible
with integration. Practitioners presenting the business case should also
highlight the value of integration as it benefits the C-suite directly. One
major benefit is the increased visibility into spend data the C-suite will
achieve with integrated departments, which will enable them to make
more strategic financial decisions. Practitioners should also present
improvements possible with P2P software adoption. They can do so
with return on investment (ROI) assessment tools, such as those found
in Levvel Research’s recent Pitching ROI for Accounts Payable report.

Get Ideas from Everyone and at All Levels.

It is important to gather feedback from all parties on how the initiative
would affect them; this feedback can be used to build out and adjust
the integration plan. It is often the case that the C-suite has little insight
into the day-to-day challenges experienced by P2P professionals,
and all parties and voices should be considered and valued in order for an integration initiative to be successful. Organizations should
also encourage new attitudes among employees in regard to how
they perceive and approach integration. They can do this by properly
educating their workforce on how integrated processes will make their
jobs more enjoyable.

Try to Find Other Problems that Can Be Solved at the Same Time.

This involves readjusting a variety of processes and strategies,
including workflows, management approaches, and communication
techniques. It also entails adjusting staff behavior by changing current
methodologies that are not as efficient as possible and adjusting how
employees interact with each other, especially considering the different
mindsets typically found across the two departments. Practitioners
should try to identify any current state problems early on, during their
initial interviews with different parties. This way, they can turn the
problems into goals and pitch them along with the initial integration
project.

It is especially important to identify current state issues if an
organization plans to implement P2P software during their integration
project. A P2P solution is only as effective as the processes it integrates;
when an organization’s Procurement and Payables departments are
dysfunctional, they will not be able to get the most out of their solution.

Consider Hiring External Help.

Organizations do not have to begin a complicated integration
initiative alone—they can seek help from the experts. Levvel Research offers several consulting services that benefit back-office
integration, including current state assessments, recommendations for
improvement, process reengineering, and software selection. For more
information, visit Levvel Research’s consulting webpage.

Consider the P2P Software Provider’s Experience.

Organizations hoping to leverage P2P automation in their integration
initiative should consider the solution provider’s experience. This
means finding a provider that has previously worked with companies
to integrate their back-office departments and has support options
in place to help clients streamline this process. For example, during
implementation some providers offer special integration experts
dedicated to helping clients reengineer their current P2P process flows.
The provider should also be able to help realign existing processes according to the client’s unique business requirements, including
across different systems and locations.

The following profile highlights the features of a leading Procure-to-Pay provider. This provider has a track record of helping clients create a
more integrated and streamlined P2P process in their back office.

About Levvel Research

Levvel Research, formerly PayStream Advisors, is a research and advisory firm that operates within the IT consulting company, Levvel. Levvel Research is focused on many areas of innovative technology, including business process automation, DevOps, emerging payment technologies, full-stack software development, mobile application development, cloud infrastructure, and content publishing automation. Levvel Research’s team of experts provide targeted research content to address the changing technology and business process needs of competitive organizations across a range of verticals. In short, Levvel Research is dedicated to maximizing returns and minimizing risks associated with technology investment. Levvel Research’s reports, white papers, webinars, and tools are available free of charge at www.levvel.io.

About Paramount WorkPlace

Paramount WorkPlace develops, sells, and supports advanced web-based and native mobile requisitioning, procurement, accounts payable, and expense solutions for mid-market organizations across a range of industries, worldwide. The user interface offers flexible Procure-To-Pay automation and robust expense reporting that is easy for employees, effective for management, and powerful for accounting.


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