Whilst standard procurement activity attempts to match the needs for materials and services against success criteria such as cost, quality and lead time, businesses are finding increasing pressure from internal and external stakeholders to incorporate sustainability or green buying requirements into their decision making. Sustainability encompasses, in addition to standard QCD criteria, benefits that not only meet the needs of the organization but broader society by reducing the short and long term impacts to the organizations environmental footprint.
Increased awareness surrounding issues such as climate change, energy usage and ethics has meant that many companies have implemented corporate responsibility strategies that encourage green purchasing and a strategic move towards sustainability. Typically this will result in organizations reviewing commodities (for example paper, furniture, office equipment) and implementing structured processes ensuring procurement practices reflect corporate targets and that sourcing and products meet sustainable selection criteria. Importantly organizations are discovering that implementing sustainability projects does not just achieve environmental objectives but can have cost saving consequences too.
For example, Indiana state university launched a project that targeted reducing CO2 emissions from poor energy usage. Through utilizing energy management software within computer operating systems PC’s were put into deep sleep mode when not in use. This can dramatically reduce power consumption (and resultant CO2) and save energy costs for each machine that’s in use. So for example of you can save upto $25 dollars per year, and you have 1000 computers – that’s $25,000 in savings
Change can be difficult – companies need to set targets and change mindsets and processes. With clear and understandable objectives procurement teams can ably support the activity and can help make green purchasing become a habit within the organization.
This can be achieved in a variety of ways for example:
• Providing information
• Establishing rules and policies
• Promoting through life costs rather than just initial acquisition costs
• Spotlighting suitable products (eg recyclable paper)
• Sourcing alternatives
• Working closely with the end users to review requirements in line with sustainability criteria
• Benefit measurement
In order to promote sustainability especially if your organization is decentralized communication is key in both establishing and setting the message and in following it up to ensure that there is little or no maverick activity – consider instruction leaflets, briefings, and policies and regular reviews on progress against targets.
Understanding the financial impact can be a significant barrier –changes must come in that products must not be purely viewed by their initial acquisition cost but in their total cost of ownership (e.g. procurement, storage and disposal.)
Summary
Sustainability and green buying has shown garnered increasing importance within the supply chain community – it is rare to find corporate responsibility targets that do not include some form of sustainable procurement criteria. Supply Chain must be ready to support these in the form of communication, policies and in execution. Organizations should not forget that cost savings and sustainability can go hand in hand. Finally sustainability is about change and as in all change communication about the strategy and its impact is key.
What Is The Role Of The Purchase To Pay Process?
Filed Under Blog
Purchase to Pay, which usually goes by the abbreviation of P2P is a set of business processes relating to the tasks of requisitioning, Purchasing and Payment. As with many business processes they may vary from company to company but do contain some key common steps. For an appropriate example see here
The process can be significant, without both control and visibility of the purchase to payment process organizations will fail to optimize company funds – without efficiency employees will be faced with a bureaucratic process that fails to meet business need.
Whilst not explicitly referring to the use of technology P2P in today’s world is often used in relation to software tools such as e-procurement, e-invoicing etc. P2P concepts will typically be applied in improvement or streamlining activities.
Existing purchase to pay processes can be inhibited through poor regulation and visibility. Where companies are lacking proper controls and disciplines this can lead to:
• Spend occurring without appropriate authorization
• Loose budget controls and codification
• Failure to optimize use of company funds
• Failure to capitalize on agreed supplier contracts
• Lack of visibility on committed spend resulting in poor cash planning
• Lack of appropriate management information
These issues can be substantial as can the impacts on both productivity and the cost of process. Significantly the less robust the process, the greater impact.
Improving the purchase to pay process
These days many companies look towards software solutions to help automate and improve controls in their purchase to pay process. These software solutions can manage the whole end to end process within one system (while integrating with existing ERP and Finance solutions) and can manage:
• Requisitions and Ordering
• Authorization and coding
• Invoice matching and payment authorization
Such automation can help in a number of ways
Efficiency – the process can be simplified and standardized for all users throughout the activity. Configurable workflow can be established to ensure compliancy with company policy whilst reducing administration (and overhead cost) through the removal of paper reduced errors.
Efficiencies are not just seen in the buying function either – automated 2 or 3 way matching coupled with auto-coding can greatly reduce the load on bought ledger functions – allowing time to be better spent on value add activities such as cash management.
Ensuring compliancy – Enforced authorization and sourcing compliancy can help organizations control cost and increase savings by reducing spend that is either inappropriate or off-contract.
Visibility – As processes become transparent a key benefit is management information. Detailed spend analysis data can be readily available and access to key performance indicators simplified. Increased visibility on spend can help facilitate improved budgeting and cash forecasting resulting in better cash utilization and mitigating the typically reactive “ we only see cost when the invoice turns up” style of cost management.
Summary
Purchase to pay is not without its challenges – however there are an increasing numbers of vendors and consultants in the market and with effectiveness and ROI demonstrable more and more private companies and public sector organizations are deploying P2P improvement projects.