How do you know if you’re getting enough value from your P2P system?

One of the Best Practice KPI’s that helps answer this question is the amount of Spend going through your system. Using a KPI Dashboard, companies can easily track the dollars being managed by spend category. Best Practice companies typically run over 90% of their “P.O. Spend” through their system.

Unfortunately, many companies have a weak or non-existent P.O. process. As a result they typically have difficulty gaining contract compliance, and are unable to successfully automate the invoice matching process.

Other companies have a decent P.O. process but have difficulty getting receipts processed on a timely basis (if at all). Eventually people stop using the system in this environment. This results in “Under-Managed Spend.”

Good P2P systems can combat these problems by providing automated email reminders to people to process receipts, by enabling two-way matching (vs. three-way matching), or by comparing Non-PO Invoices to existing contracts. These three techniques help increase the usage of P2P systems.

Of course there is no substitute for good management and documented processes. At the end of the day, this is how Best Practice companies increase “Spend Under Management.”

A mid-sized company recently told me that most of the application software they had evaluated lately did not make it easy for end-users to “get at the data,” much less write their own reports!

This is a common complaint.

Fortunately, there is renewed focus on new Business Intelligence (BI) Tools in the marketplace, and how they can be integrated with ERP, P2P, Budgets, etc.

A software platform needs to first provide meaningful standard reports and inquiries. As it relates to P2P, this means making reports available that help Buyers analyze Dollar Commitments, evaluate price trends, check on open order status, etc.

But that’s not enough. End-users are forever being asked by management for special one-time analysis of Purchases, Payments, etc. A tool is needed to perform these important analyses.

Providing a Data Dictionary is not enough. It must be easy to manipulate data and perform calculations that accurately portray spend data within a system. An enhanced capability would allow data residing in other systems to be incorporated in the analysis. This might include data from Accounting, Budgeting, ERP, etc.

At the end of the day, BI needs to provide Actionable Business Intelligence. This means the data is timely, meaningful, and accurate … not just accounting-oriented stale data from 6 weeks after Month- or Quarter-end.

Ultimately, Key Performance Indicators (KPI’s) must be determined and actual data compared to Best Practice Benchmarks. This will be the next phase of BI in the P2P world.

I’ll start by saying everyone implementing a P2P system should start the project using “The Carrot” approach described in the previous post.

This means at some point in the implementation (after the education and training has been completed and the system is live), you may need to turn up the heat and let people know you expect them to use the system.

Here are some tips:

• Remove other alternatives for end-users
  • Don’t allow end-users to call or visit the Purchasing Department to place orders.
• Don’t accept emails or paper Requisitions
  • Make sure you give end-users adequate warning (one month) and repeat the warning several times.
• Continue to help “technologically challenged” end-users until they grasp the system
• Integrate the use of P-Cards in your P2P system so the P-Card number becomes part of the order and can be used by the supplier for billing purposes
• Set lower limits on the use of P-Cards
  • Perhaps a $500 maximum would be appropriate.
• Let suppliers know that in order for them to get paid, they will need to have an authorized, valid PO Number on their invoice
  • One company went so far as to say to all suppliers that if they don’t see a PO Number on an invoice, “The next shipment is free.”

Another approach is to tell end-users if they don’t receive proper authorization before placing an order, their personal credit card will be charged when the invoice comes in.

All of these tactics are a bit heavy-handed, but can be necessary to get people’s attention.

Possibly the most effective method in “The Stick” is to have a Manager / Director / VP pay a personal visit to the worst offenders and ask them why they aren’t using the system. This has been used effectively by a number of our clients over the years, and provides a great motivation for the typical end-user.

So consider “The Carrot” first, followed by “The Stick,” after the system has been live for three to six months.

A great KPI (Key Performance Indicator) that many of our customers use is the number of “After-the-Fact PO’s” for each department. This highlights the number of invoices that are received where the Purchase Order is generated after the invoice is received. Many companies target and achieve less than 2% for this KPI. Since you “cannot control what you do not measure,” this type of measurement is essential to guarantee compliance and maximum spend under management.