Procurement cost is the single largest cost item in most organizations’ P&L statements. Given its place at the convergence of finance and procurement, the AP function is perfectly positioned to have significant impact across the entire procure-to-pay (P2P) value chain, but few organizations are organized to take advantage of the opportunity.
Organizations are challenged by any number of issues that prevent AP from reaching its full potential, chief among them are non-standardized processes, fractured and disjointed systems, and non-optimized delivery models. These issues create a bloated and inefficient AP organization, but also inhibit AP from maximizing its contribution due to duplicate payments, pricing errors, missed discounts, and dissatisfied vendors. Further, leaving these issues unaddressed limits AP’s ability to provide added value by offering strategic insights into company spending and optimizing working capital.
A lean AP function, on the other hand, offers significant benefits in cost savings, efficiency, productivity improvement, and effectiveness. While a number of factors can be attributed to a lean AP function, Everest Group’s study of the procurement/finance functions of 15 large global organizations indicates that lean AP functions share the following characteristics:
- Harmonized/standardized/simplified processes
- End-to-end delivery of AP processes
- A high degree of automation
AP functions can use several levers to help create a leaner AP organization to achieve those characteristics.
Process standardization
The use of standard Invoice-to-Pay (I2P) processes across all business units or geographies increases process efficiency, visibility, and claims to early payment discounts, and reduces late fees, duplicate payments, and invoice processing errors, all of which result in cost savings.
Technology integration and automation
Fragmented technology and labor-intensive processes are two significant drivers of inefficiency within many large organizations. As a result, integrating and/or accessing technology is vital to creating lean AP.
Integration: While most organizations use ERP systems to support F&A, often they manage multiple different ERPs across business unites and/or geographies. Organization-wide implementation of the underlying technology landscape can significantly boost efficiency and support the automation transition as well.
Automation: Automation tools, whether they are function or process enablers, vendor portals, robotic process automation, or mobility/analytics tools, also have significant impact on efficiency, particularly when integrated rather than operating on a stand-alone basis.
Centralization and shared services
Large organizations with operations in multiple locations often create business unit- or country-specific AP functions, resulting in duplication of efforts. Centralization of these functions can lead to significant time and cost savings due to increased productivity and efficiency, reduced redundancy and process variation, and improved internal controls. Furthermore, the choice of shared services location can result in reduced cost over source locations. Finally, a centralized AP function is better positioned to implement process improvements and training programs.
Streamlined governance
Because organizations treat their AP functions as cost centers focused on day-to-day operations, they often neglect governance issues. As a result, there is reduced visibility into AP operations and limited accountability for formulating and driving future strategy. Organizations that understand the strategic value of a lean AP function and adopt an end-to-end process-driven approach feel the need for streamlined governance even more keenly, as an effective governance structure can drive efficiency and alignment across the enterprise. A Global Process Ownership (GPO) model is quickly evolving among AP functions at large organizations, further driving accountability for managing end-to-end AP processes.
There are several issues to consider in creating a lean AP organization based on the levers discussed above. Among them are decisions including:
- A planned versus end-to-end approach
- Which to implement first: automation or standardization/centralization
- Legacy ERP technology versus platform-based technology
- Internal shared services center versus third-party provider
Despite significant upside potential, many organizations find it difficult to transform their AP function due to challenges in managing vendors, multiple internal departments, and divergent objectives, among others. However, by adopting industry best practices organizations can minimize the challenges while maximizing the benefits of slimming down their AP.
From: Everest Group, at http://www.ssonetwork.com/transformation-innovation/articles/get-fit-creating-a-lean-accounts-payable-ap-organi/?utm_source=1-5990877975&utm_medium=email&utm_campaign=SSON+IQ+-+Newsletter+-+March+3+2015+Americas&utm_term=Middle&utm_content=News&mac=SSON1-391T2TR&disc=