Visa Procure-To-Pay Best Practices

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1 Visa Procure-To-Pay Practices Study conducted by Deloitte & Touche and Deloitte Consulting PDF FINAL Summary Overview 8.5 x 11 #16486

2 Table of Contents SECTION I: Executive Summary Introduction 3 Study Overview 4 Summary of Key Findings 9 SECTION II: Practices Procure-To-Pay Foundation 19 Commercial Card Program 37 Procure-To-Pay Process 63 Travel and Entertainment (T&E) 85 1

3 Section I Executive Summary 2

4 SECTION I Executive Summary INTRODUCTION The Visa Procure-To-Pay Practices study indicates that leading companies have adopted best practices that incorporate six key findings: 1 Proactive, ongoing senior management sponsorship for Procure-To-Pay initiatives 2 3 Collaboration to ensure communication and enforcement of Procure-To-Pay policies and procedures Progressive migration to automating the entire Procure-To-Pay Information Technology platform 4 Aggressive Strategic Sourcing focus to enhance vendor relations 5 Comprehensive data aggregation and reporting to support management and enable continuous improvement of the Procure-To-Pay process 6 Commercial Card objectives alignment with a company s overall Procure-To-Pay strategy Visa, Deloitte & Touche, and Deloitte Consulting developed 54 best practices in keeping with these findings to help large and mid-size companies attain greater work efficiencies and cost savings in their Procure-To-Pay processes. The average study participant who has adopted all of these best practices saves an average $1.76 million to $8.3 million in annual, indirect transaction processing costs (does not include potential cost savings associated with vendor discounts or front-end processing efficiencies). These findings represent a continuation in the evolution and sophistication of Procure-To-Pay Practices that were identified in the 1998 Visa Corporate and Purchasing Card Practices Study. 3

5 Study Overview Study Overview As part of an ongoing effort to understand and improve the processes of business, Visa Commercial Solutions commissioned Deloitte & Touche and Deloitte Consulting to conduct a comprehensive study of procurement and payment best practices for companies nationwide. Scope Visa s Procure-To-Pay Practices encompass the entire Procure-To-Pay process (including Procure-To-Pay Foundation, Commercial Card Management, and the end-to-end Procure-To-Pay Process from sourcing, purchasing, payment, allocation, controls, and auditing to back-end reporting), focusing on best practices of large corporate and mid-size companies their associated benefits, implementation steps, and any experience gathered from actual implementation successes. Travel and Entertainment is included in this study as a separate section and falls under the overall Procure-To-Pay process section. PROCURE-TO-PAY FOUNDATION - Strategy - Organization - Technology COMMERCIAL CARD MANAGEMENT - Purchasing Card - Travel & Entertainment Corporate Card - Fleet Card PROCURE-TO-PAY PROCESS * - Purchasing - Travel & Entertainment (T&E) *Includes sourcing, order placement, payment & settlement, reconciliation, control & audit, reporting. Section I Executive Summary 4

6 Study Overview Approach Deloitte & Touche and Deloitte Consulting identified 52 large corporate and mid-size companies considered to have leading Procure-To-Pay practices. The selection criteria ensured distribution among revenue size, geography, industry, card Issuer, and company culture. Total Revenues by Studied Companies Type of T&E Cards Used by Studied Companies Type of Purchasing Cards Used by Studied Companies 50% Greater than $1 billion 30% Less than $500 million 67% Amex 29% Visa 24% Amex 33% MC 43% Visa 4% MC 20% $500 million to $1 billion The number of study participants and their corresponding industry affiliation are summarized as follows: Company Large Middle Industry Market Market Communications 1 1 Consumer Business 6 7 Energy 2 0 Financial Services 4 3 Health Care 1 4 Manufacturing 6 11 Professional Services 2 4 5

7 Study Overview Identification of Practices A detailed questionnaire was distributed to all companies and 20 on-site interviews were conducted with select participants. The questionnaire was designed to gather quantitative and qualitative information including: Qualitative: Understanding best practices, key drivers, enablers, challenges, anecdotal information, user satisfaction ratings, service level quality Quantitative: Macro-level statistics dollar spend, average transaction on card, average dollar size of transaction, vendor-negotiated discount rates; micro-level statistics indirect activity cost and time (excluding overhead); IT/data requirements On-site interviews were conducted with Procurement, Accounts Payable (A/P), Travel managers, buyers, commercial card administrators, and representative users to gain greater insight into companies specific Procure-To-Pay functions and best practices. This data gathering effort led to the identification of 54 leading-edge practices across four categories: Foundation, Commercial Card Management, Travel & Entertainment, and Process. practices for each category follow: PROCURE-TO-PAY FOUNDATION Practices 1. Articulate a Procure-To-Pay strategy with a short- and long-term vision 2. Proactively obtain ongoing senior management and business unit support by sharing information 3. Conduct benchmarking to gain additional perspectives and strategic focus 4. Strategically position Procurement and Accounts Payable in the organization 5. Ensure center-led management and control of critical Procure-To-Pay functions 6. Develop enterprise-wide Procurement policies and procedures 7. Develop an internal communication plan to convey Procurement policies, procedures, and successes 8. Develop a comprehensive Change Management discipline 9. Develop an overall Procure-To-Pay technology strategy 10. Establish a business case for each technology investment and track your performance relative to your business case objectives 11. Maximize automation of an end-to-end technology solution 12. Implement and leverage an e-procurement solution Section I Executive Summary 6

8 Study Overview COMMERCIAL CARD MANAGEMENT Practices 1. Align commercial card program objectives with company s overall Procure-To-Pay strategy 2. Determine commercial card products(s) based on ability to achieve program objective 3. Establish center-led management and administration of the commercial card program 4. Develop and disseminate enterprise-wide commercial card policies and procedures 5. Incorporate a comprehensive commercial card training program 6. Incorporate commercial cards into business continuity planning 7. Source, select, and implement a purchasing card program 8. Establish parameters for eligible purchasing card transactions leveraging appropriate controls 9. Establish purchasing card issuance criteria for optimal distribution to employees 10. Mandate and enforce use of purchasing card for all eligible purchases 11. Investigate purchasing card program expansion to additional spend categories to maximize benefits achieved 12. Maximize use of virtual accounts i.e., ghost accounts and department cards 13. Source, select, and implement a fleet card program 14. Use fleet cards to track expenditures through both external and internal sources TRAVEL & ENTERTAINMENT PROCESS Practices 1. Institute a centralized Travel Management function 2. Develop and distribute company-wide travel policy 3. Coordinate event planning through Travel Management function 4. Source, select, and implement a T&E card program 5. Establish T&E card issuance criteria for optimal distribution to business travelers 6. Mandate and enforce use of the T&E card 7. Optimize number of suppliers by selecting and monitoring vendors through a formal Vendor Management program 8. Implement in-house, Web-based booking tool 9. Establish well-defined expense report audit parameters 10. Standardize and pre-populate expense reporting 11. Standardize and automate data interfaces between expense management and accounting applications 12. Capture, report, and analyze comprehensive, company-wide travel data 13. Implement post-trip exception reporting and distribute lost savings report 7

9 Study Overview PROCURE-TO-PAY PROCESS Practices 1. Optimize number of suppliers by selecting and monitoring vendors through a formal Vendor Management program 2. Incorporate purchasing card/ghost (virtual) account acceptance into preferred vendor contract terms 3. Utilize e-sourcing tools such as e-rfx and e-auctions to source suppliers and gain savings on one-off items 4. Limit the number of approvals required to place an order 5. Minimize the use of paper purchase orders for all eligible purchasing card purchases 6. When commercial cards are not used, employ three-way matching to reduce the number of approvals required prior to payment 7. Replace manual check payments with electronic payments 8. Understand tax liabilities 9. Use Card Issuer feed to automate delivery of card statements 10. If using electronic statements, predefine valid general ledger account codes and cost centers to facilitate end-user reconciliation 11. Outsource high-volume, specialized payment processes 12. Determine control strategy 13. Monitor Procurement performance via a scorecard that includes cost, quality, and time components 14. Gain a comprehensive view of spend by integrating data from multiple sources e.g., e-procurement, travel, ERP, purchasing cards 15. Leverage SIC and MCC codes for categorization of spend and purchasing data Section I Executive Summary 8

10 Summary of Key Findings Summary of Key Findings Market and Industry Applicability The study findings indicate that the best practices outlined here are equally applicable for large corporate and mid-size companies. Large and mid-size companies have similar goals and challenges in obtaining a leading Procure-To-Pay function, and differences among companies exist only in scale of implementation, ability to dedicate resources, and level of technology implementation. How companies handle the implementation activities depends on size, organizational structure, and company culture. Companies in the manufacturing industry have been leaders in the adoption and use of innovative Procure-To-Pay best practices. The necessary disciplines of supply chain management, sourcing, and efficient procurement of goods and services are fundamental to their existence. Financial services and consumer business companies are fast-followers in the adoption of best practices, integrating manufacturing disciplines into their internal culture. Mid-size companies can be viewed as followers of large corporate companies in the adoption of best practices. Six Key Areas The 54 best practices detailed in this study provide practical ways for companies to achieve an optimized Procure-To-Pay function by addressing six key areas: 1. Proactive, ongoing senior management sponsorship for Procure-To-Pay initiatives A consistent critical success factor from the 1998 study to the 2002 study continues to be the need to obtain senior executive sponsorship for Procure-To-Pay initiatives. For large corporate sponsorship this could include business unit leaders and executive management, and for mid-size companies sponsorship could be a direct line to a CEO/CFO. Achieving senior management sponsorship is necessary for receiving endorsement of existing initiatives, encouraging compliance to policies, and increasing awareness of Procurement initiatives throughout the organization. Leading-edge companies have become more innovative in achieving sponsorship by using relevant and realistic ROI measures, sharing information, and actively communicating goals and successes. Senior management interest in the Procure-To-Pay process has increased significantly due to economic conditions, an increased focus on cost containment, and a recent attention to employee security (in regards to travel). 2. Collaboration to ensure communication and enforcement of Procure-To-Pay policies and procedures In recent years, Procurement and A/P managers have come to view business units as internal customers. This is a progression from the siloed and often adversarial approach of the past, which yielded sporadic compliance to policies and procedures. Although compliance continues to be a challenge, leading companies are addressing this issue by encouraging business unit partnership. Shared objectives and performance measures have led to more formalized ties between business units, resulting in increased compliance to policies and a reduced overall cost structure. 9

11 Summary of Key Findings 3. Progressive migration to automating the entire Procure-To-Pay Information Technology platform While survey participants in previous studies conceptually understood and strived for an automated Procure-To-Pay process, they traditionally made isolated technology decisions instead of focusing on a plan to implement an entire solution. Leading companies have now taken a more pragmatic approach to automation, attending to the implications to the entire end-to-end platform. To support Information Technology initiatives, they set realistic and achievable ROI objectives. Leading companies are recognizing that the benefits to automation can only be achieved by incorporating process changes as part of the solution, and they are employing Change Management techniques to achieve user support and consequently optimize benefits. Mid-size companies are no longer excluded from receiving the benefits of increased automation, as IT solution providers are increasingly offering more cost-effective, packaged solutions or innovative hosting models. 4. Aggressive Strategic Sourcing focus to enhance vendor relations This is an increasingly important strategic priority for leading companies and a powerful tool in cost reduction efforts. While companies have traditionally attempted to achieve discounts with vendors, they are learning that a Strategic Sourcing discipline is the most value-added Procurement activity. A 2002 Deloitte Research study on Strategic Cost Reduction indicates a potential cost savings of 15 percent-25 percent through a focused Strategic Sourcing initiative. Strategic Sourcing offers the following benefits: Rationalizing the vendor base Maintaining stronger oversight of relationships with vendors Using the data to understand market share Pushing vendors towards deeper discounts and better service Companies have used different approaches to Strategic Sourcing and vendor management. Some companies are collaborative in their approach, while others stipulate implementation of their standards. In either case, results clearly show that focused supplier sourcing and management lead to significant bottom-line savings. Leading companies continue to dedicate resources to this discipline, with a noticeable change in strategy towards cross-functional negotiating teams e.g., Procurement, A/P, IT, and other key stakeholders, that focus on a corporate-wide view of spend. Formal tools have been developed to assess vendor and commodity spend, establish achievable sourcing targets, and support and monitor sourcing initiatives. 5. Comprehensive data aggregation and reporting to support management and enable continuous improvement of their Procure-To-Pay function Leading companies understand that data aggregation and reporting is critical to accomplishing any key activity. They also understand that reporting is not a function of the quantity of reports, but a function of the ability to integrate and analyze their data. These companies accurately define required reports and use them to share information across the business and track performance to goals. The sophistication of in-house systems e.g., ERP, e-procurement, reporting tools offered by Card Issuers, has improved to allow companies to obtain greater spend detail from internal systems. Integrating data from multiple sources has provided leading companies with a clearer understanding of the reports needed to support Procurement goals. However, large corporate and mid-size companies still rely on a significant amount of customization to reporting systems and make extensive use of ad-hoc reporting to provide necessary information. Section I Executive Summary 10

12 Summary of Key Findings 6. Commercial Card objective alignment with company s overall Procure-To-Pay strategy The study found that commercial card program success factors include: Integration of the commercial card as a payment vehicle into the overall Procure-To-Pay strategy Comprehensive training programs that help employees understand the benefits realized by the corporation through use of the commercial card Enforcement, consistent with the corporate culture, of the commercial card for eligible commodities and purchases Development of issuance criteria that target employees who have reason to use the commercial card rather than employing a broad distribution process that would include employees who do not have a need for the card Emerging Procure-To-Pay Trends The study also identified organizationally focused Procure-To-Pay strategic trends. Today, corporations are working to coordinate Accounts Payable, Procurement, and Strategic Sourcing activities, and are modifying their processes to improve information sharing. Center-led management of these disciplines supports optimal vendor selection, negotiation, and management. The 50 companies that participated in this study provided detailed insights into their current and future Procure-To-Pay goals. Study responses highlighted three emerging Procure-To-Pay trends. e-auctions e-auction applications, if not already in use, will soon be deployed by a larger percentage of this study s survey participants. Seventeen percent of study participants have already implemented an e-auction solution. An additional 22 percent of participants indicated that they plan to implement e-auctions in the next two years. While e-auctions will continue to play a role in procuring indirect and direct commodities, companies have not developed Procure-To-Pay strategies that optimize use of the commercial card as an e-auction settlement option. Benchmarking Leading companies have created a group of benchmarking partners. This group often includes companies outside of their industry as well as companies with which they may have a complementary relationship i.e., suppliers or vendors. Some companies will use third-party companies to conduct blind benchmarking studies against their immediate competitors. Additionally, leading companies participate in external benchmarking studies e.g., Forrester, IDC, Gartner, or ISM, on a periodic basis. Internet Applications for Booking and Reporting Travel and Entertainment Use of the Internet for booking travel and generating expense reports continues to increase. Companies report anticipated process savings of 80 percent as well as a significant reduction in data entry errors. Study statistics indicate: 40 percent of companies surveyed have already implemented Web-based booking; another 10 percent plan to in the next two years 26 percent of companies surveyed have implemented automated expense reporting 36 percent of companies plan to implement an automated expense reporting application in the next two years 11

13 Summary of Key Findings Benefits from Implementation Study participants that have adopted the best practices outlined in Visa s Procure-To-Pay Practices have achieved significant quantitative and qualitative benefits. Select companies have individually achieved the following: 80 percent of suppliers are under contract 90 percent of all spend with preferred vendors 75 percent of office supplies purchased through e-procurement 75 percent of e-procurement orders paid using the purchasing card 71 percent of payments are automated 98 percent compliance with audit criteria 90 percent of all trips booked through an in-house Web tool 29 percent discount on negotiated airline rates The table below reflects the performance, challenges, and benefits of companies based on their incorporation of the six key findings: Leading Company Key Practices Proactive, Ongoing Senior Sponsorship Level of Incorporation Low-Adopter Little or no senior sponsorship No clear line of communication between Procurement, A/P, and senior management Inability to advance Procure-To-Pay initiatives Common Some senior sponsorship of key Procurement initiatives Infrequent communication e.g., annually, with senior management Limited advancement of Procure-To-Pay initiatives Leading Senior sponsorship of many Procurement initiatives Periodic upward reporting to senior management Frequent communication between Procurement, A/P, and business units Advanced Visible senior sponsorship of the overall Procure-To-Pay strategy and all related initiatives Procurement and A/P department heads report directly to senior management Quarterly progress review of goals and objectives Section I Executive Summary 12

14 Summary of Key Findings Leading Company Key Practices Collaboration, Communication, and Enforcement of Policies and Procedures Progressive Migration to IT Automation Level of Incorporation Low-Adopter No policies and procedures and/or outdated or inactive policies and procedures Procurement and A/P are siloed and do not cooperate Departments are viewed as cost centers vs. business partners Poor compliance with policies and procedures Common Policies and procedures exist with little executive support and visibility Infrequent communication of changes to policy Compliance is not actively monitored or enforced Leading Effective policies and procedures developed Readily accessible by users Annual review, modification, and communication of changes Consistent feedback loop Reports produced to track compliance Some collaboration between Procurement and A/P Advanced Senior sponsorship of policy and procedure development Frequent communication across functions Procurement and A/P work collaboratively with business units Sharing of lost opportunity and cost avoidance information with business units Alignment of performance objectives Potential alignment of compensation and bonus to achievement of goals and objectives Low-Adopter Manual data entry, few or no interfaces exist between legacy systems Highly paper-intensive process Common Use of commercial cards to eliminate paper Some adoption of integrated Accounts Receivable, General Ledger, and A/P Mixed success in achieving automation Little process reengineering and Change Management to support initiatives Leading ERP adoption with integrated financials and e-procurement Business case to support new business automation initiatives Value of Change Management is recognized and used Increased automation of invoice payment Advanced End-to-end Procure-To-Pay automation including e-auctions, e-rfx, EIPP Detailed and achievable ROI measures used to prioritize future initiatives Integration of virtual accounts to support e-procurement Outsourcing of platform and maintenance explored as viable option Dedicated Change Management resources to support all initiatives 13

15 Section I Executive Summary 14 Summary of Key Findings Leading Company Key Practices Aggressive Strategic Sourcing Focus Comprehensive Data Aggregation and Reporting Level of Incorporation Low-Adopter No Strategic Sourcing effort Buyers focus on processing Purchase orders instead of sourcing Procurement does not formally manage spend through preferred vendor lists, vendor scorecards, or department metrics Multiple discounts negotiated for one vendor Common Decentralized and informal sourcing policies Negotiation with some key vendors without centrally supported effort Negotiated discounts poorly communicated to buyers Frequent occurrences of multiple discounts per vendor Leading Focused Strategic Sourcing effort Initial attempts to rationalize and reduce supplier base Central, commodity-based approach to sourcing Achievement and communication of significant discounts for key commodities Advanced Dedicated Strategic Sourcing function with integrated team Significant reduction in rationalization of vendor base Significant discounts negotiated enterprise-wide Annual review and scorecard measurement of vendor performance and communication of findings with vendor and business unit sponsor Low-Adopter Difficulty capturing appropriate data from legacy systems Data only captured from internal system Use of rudimentary reporting templates Use of vendor data is minimal or non-existent Common Some use of reporting system Manual aggregation of data from multiple internal and external data sources Inconsistent ability to capture and interpret relevant data for reporting purposes Leading Significant use of packaged or in-house reporting system Significant leverage of data from integrated application suite Well-defined, central data repository for aggregation of data from internal and external sources Ability to define and create reports needed to support the Procure-To-Pay function Advanced Central, desktop, self-service reporting Ability to integrate and analyze data from multiple sources Information is current and accurate and provides executive and managerial level reporting Ability to integrate data from new sources as they are implemented e.g., e-auction, EIPP

16 Summary of Key Findings Leading Company Key Practices Commercial Card Objectives Alignment with a Company s Overall Procure-To-Pay Strategy Level of Incorporation Low-Adopter Nominal Procure-To-Pay Strategy Indiscriminate distribution of cards No periodic assessment of card use or spend limits Lack of corporate guidance directing expansion of card use Common Laissez-faire management of card program; management is aware of card program and periodically assesses card use, but management does not directly encourage use of the commercial card as a payment vehicle Management may encourage use of card for MRO purchases only There is no effort to make the card program a primary payment vehicle Leading Procurement, Sourcing, and Accounts Payable acknowledge the commercial card as a primary payment vehicle Suppliers are either mandated to accept the commercial card or are given a preferential weighting on vendor scorecards All commodities are reviewed for inclusion in the commercial card program Advanced User goals are established based on spend limit, commodities purchased, and cost savings Reports provide periodic snapshot of goal-to-date performance i.e., cost savings reports Procurement organization stipulates use of card as payment vehicle for specific suppliers Buyers are evaluated on their movement of suppliers and commodities to the commercial card program Integration of commercial card in automated Procurement and sourcing tools 15

17

18 SECTION II Practices The 54 best practices that follow are practical ways for companies to gain real-world benefits from optimizing their Procure-To-Pay functions. They are broken down into three main categories: Procure-To-Pay Foundation, Commercial Card Programs, and Procure-To-Pay Process. Travel and Entertainment is included as a separate section and falls under the overall Procure-To-Pay process section. Each entry outlines the market applicability and implementation steps for each best practice. It also details specific success stories and trends regarding its incorporation into company policy. 17

19 Section II Practices 18

20 Procure-To-Pay Foundation SUMMARY Procure-To-Pay Foundation describes the strategy, organization, and technology components of the Procure-To-Pay process. The best practices described in this section form the building blocks and essential requirements for companies to have advanced or leading-edge performance. Regardless of size or sophistication, companies will not be able to achieve best practice performance without a successful foundation. practice companies have defined a near- and long-term vision for their Procure-To-Pay process. Their Procurement and A/P functions are aligned to execute this vision, and they use technology as a key enabler to meet their goals. The best practices described in this section form the building blocks and essential requirements for companies to have advanced or leading-edge performance. STRATEGY BEST PRACTICE 1 BEST PRACTICE 2 BEST PRACTICE 3 Articulate a Procure-To-Pay strategy with a short- and long-term vision Proactively obtain ongoing senior management and business unit support by sharing information Conduct benchmarking to gain additional perspectives and strategic focus ORGANIZATION BEST PRACTICE 4 BEST PRACTICE 5 BEST PRACTICE 6 BEST PRACTICE 7 BEST PRACTICE 8 Strategically position Procurement and Accounts Payable in the organization Ensure center-led management and control of critical Procure-To-Pay functions Develop enterprise-wide Procurement policies and procedures Develop an internal communication plan to convey Procurement policies, procedures, and successes Develop a comprehensive Change Management discipline TECHNOLOGY BEST PRACTICE 9 BEST PRACTICE 10 BEST PRACTICE 11 BEST PRACTICE 12 Develop an overall Procure-To-Pay technology strategy Establish a business case for each technology investment and track your performance relative to your business case objectives Maximize automation of an end-to-end technology solution Implement and leverage an e-procurement solution 19

21 Procure-To-Pay Foundation Practice1 Strategy Articulate a Procure-To-Pay strategy with a short- and long-term vision Companies should develop an overall strategy that defines their goals for the Procure-To-Pay process, forming the blueprint for the company s process as a component of the overall company strategy. A successful strategy contains goals for overall spend, projected breakdown of spend by commodity, spend by order mechanism, spend by payment type, cost savings (either through activity-based costing or full time equivalent [FTE] savings), and supplier sourcing goals. It should also list the tactical initiatives (both operational and technological) that will enable these goals, including implementation and evaluation of existing control mechanisms, new projects, and technology. Goals are developed for the short-term (one to two years) as well as long-term (three to five years). The advantage of developing the dual focus is that it enables companies to prioritize their initiatives and helps provide direction for creating business cases. The Procure-To-Pay strategy needs to be shared throughout the organization, specifically with Procurement, A/P, IT, and key business units. This will help secure the support of key stakeholders in those functions and ensure that the organization works toward common goals. ACTION STEPS: MARKET APPLICABILITY: All Companies 1. Define a team of key stakeholders, including senior management involvement, to develop the overall strategic planning process 2. Review previous strategies and year-end spend analyses to set meaningful goals 3. Communicate strategy with Procurement and Accounts Payable to achieve buy-in Benefit: Cost Savings/Process Efficiencies Benefit: User Satisfaction Benefit: Vendor Management Benefit: Control Enables company to identify achievable cost savings goals and define a target goal for achievement Communication of strategy, encourages support from key Procure-To-Pay stakeholders Sets goals for supplier rationalization initiatives Sets guidelines for overall control strategy SUCCESS STORIES and TRENDS One study participant publicly displays the company s key Procure-To-Pay initiatives for the year and the company s progress to date in completing them. This has helped it to achieve its initial goals for the quarter. Another participant created a plan by business unit to detail how it would meet customer service requirements, increased control objectives, and reduced costs targets. This helped identify the appropriate goals for the company s purchasing card implementation. Section II Practices 20

22 Procure-To-Pay Foundation Practice2 Strategy Proactively obtain ongoing senior management and business unit support by sharing information Leading companies have recognized that obtaining ongoing senior management support e.g., business unit lead, senior or executive vice president, for the processes and technologies that the Procurement function has designed enables Procurement to add significant value to the organization. Companies have successfully maintained senior management support by developing an ongoing communication of the activity and successes of their organization through an executive-level report which could contain the following: Process metrics: Purchase order volume and trend, invoice volume and trend, travel and entertainment volume and trend, purchasing card usage and trend Savings metrics: Dollars saved through use of preferred vendors and negotiated rates, dollars saved through Procure-To-Pay process changes e.g., expanded use of purchasing card, implementation of automated expense reporting Lost savings: Dollars lost through non-compliance to Procurement policies and procedures e.g., maverick spend, use of non-preferred vendors Current initiatives underway: High-level descriptions of efforts and expected benefits to generate awareness and gain ongoing support Companies have used innovative methods to share this information with senior management including creating unique presentations, assigning business unit liaisons, and actively communicating successes through internal newsletters. In addition to simply communicating Procurement successes, Procurement organizations have actually shared their savings with their internal business customers to encourage further compliance with policies and procedures. continued on next page 21

23 Procure-To-Pay Foundation Practice2 Proactively obtain ongoing senior management and business unit support by sharing information continued MARKET APPLICABILITY: All Companies Benefit: Cost Savings/Process Efficiencies Benefit: Control Frequent communication of Procurement successes and opportunities for improvement provides senior management with the incentive to continue support of cost-saving Procurement activities Frequent communication of savings from compliance and lost savings from non-compliance to Procurement policies and procedures encourages Senior management to promote compliance to Procurement policies and procedures ACTION STEPS: 1. Develop cross-functional team to form senior management communication initiative 2. Proactively identify compelling and relevant Procurement metrics and review them with senior managers to determine appropriateness 3. Develop communication initiative with related tools e.g., Web casts, report layouts 4. Adjust initiative to reflect feedback as received 5. Schedule periodic review meetings with senior management to share information and ensure active participation SUCCESS STORIES and TRENDS One organization tied management s bonus objectives to achievement of Procurement-related goals. Because of this, the Procurement department regularly reported its progress in meeting goals and successes to the other business units in the organization. Another survey participant shared Procurement performance numbers, such as cost avoidance and cost savings, quarterly with its peers to obtain ongoing support of initiatives. One large corporate company s Head of Procurement is a member of the company s senior management team and thus provides Procurement performance information at weekly planning and status meetings with the company s President. One-third of the study participants indicated lack of senior management support as a significant barrier to card expansion. Section II Practices 22

24 Procure-To-Pay Foundation Practice3 Strategy Conduct benchmarking to gain additional perspectives and strategic focus practice companies conduct benchmarking on a regular basis (at least annually) to assess the performance of their companies and gain additional insight into innovative practices and opportunities for improvement. Benchmarking should assess quantitative items such as direct cost to place an order, cost to produce a check payment, supplier base metrics, and qualitative findings e.g., implementation and control best practices. Leading companies have created their own group of benchmarking partners. This includes companies outside of their industry as well as ones with which they have a complementary relationship e.g., suppliers or vendors. Third-party companies are also used to conduct blind benchmarking studies against their immediate competitors. Additionally, best practice companies participate in external benchmarking studies on a periodic basis including commercial cardprovider studies as well as U.S. Government figures, Forrester, IDC, and NAPM studies. Benchmarking studies can be useful tools in promoting the success of the Procure-To-Pay function to senior management and providing information to develop business cases for key initiatives. ACTION STEPS: 1. Identify benchmarking studies to participate in as part of annual strategy and allocate resources e.g., time and budget for participation 2. Solicit companies by contacting peers, using internal networks, or going through trade groups 3. Allocate time to review results of benchmarking study, incorporate findings into strategic initiatives, and communicate results to senior management 4. Attend conferences and read industry publications on a regular basis MARKET APPLICABILITY: All Companies Benefit: Cost Savings/Process Efficiencies Benefit: User Satisfaction Benefit: Vendor Management SUCCESS STORIES and TRENDS Helps set achievable cost savings goals Enables user participation and ability to benchmark user satisfaction Provides potential negotiation and sourcing goals for company One best practice company has a list of benchmarking partners to use in conducting periodic studies. The partners are companies with leading Procure-To-Pay reputations and have helped raise the expectations and goals for the company. For instance, after learning that one company saved $11.6 million through e-auctions, the company began a partnership with an e-auction company. Another study participant increased the airline discounts the company receives from 15 percent to 20 percent by reviewing trade publications and T&E benchmarking studies to understand market conditions and negotiation best practices. One study participant uses internal benchmarking that enables employees to enter time activity data on a monthly basis. This is used to calculate Procurement and Accounts Payable productivity and helps to identify areas for improvement. Two mid-size study participants participated in extensive benchmarking studies including the Hackett Study. 23

25 Procure-To-Pay Foundation Practice4 Organization Strategically position Procurement and Accounts Payable in the organization Leading companies have strategically changed their positioning of Procurement and A/P functions over the last two to three years. Traditionally, these two functions have performed as separate silos within the organization. practice companies now encourage a more collaborative relationship between the two departments in order to optimize their Procure-To-Pay process. One key driver behind the change is the new view of Procurement and A/P as internal service organizations. This resulted from inclusion in a shared services organization as well as the realization of interdependency during Procure-To-Pay reengineering initiatives such as purchasing card implementations, ERP implementations, and Strategic Sourcing. These initiatives have helped Procurement and A/P demonstrate how they jointly enable the business units to achieve their goals. In leading companies, Procurement and A/P now often refer to other business units within the organization as clients or internal customers and conduct internal surveys or reviews with business unit leaders to review service quality. Procurement and A/P representation on cross-functional teams is essential for the success of most technology and strategic initiatives. Successful companies have been able to use a combination of Procurement, A/P, and business unit personnel to focus on Strategic Sourcing and drive deeper negotiated discounts. Some Procurement organizations have assigned liaisons to work with individual business units to help set goals, provide training, and evaluate new opportunities, enhancing the service reputation of their functions. Procurement and A/P representation on cross-functional teams is essential for the success of most technology and strategic initiatives. ACTION STEPS: 1. Ensure participation of Procurement and Accounts Payable on cross-functional teams 2. Ensure business unit liaisons exist in Procurement and A/P functions 3. Align success of Procurement and A/P functions with meeting overall business goals 4. Conduct internal surveys with business units to measure their level of satisfaction and effectiveness MARKET APPLICABILITY: All Companies Benefit: User Satisfaction Benefit: Vendor Management Benefit: Control SUCCESS STORIES and TRENDS Users benefit from service-oriented approach and will have greater adoption of new tools Collaboration on sourcing will drive deeper discounts; Procurement brings negotiation and industry expertise and A/P can provide detailed analyses of spend data Enables central coordination and monitoring of Procure-To-Pay function and compliance with policies One study participant helped transform his company s Procure-To-Pay function by assigning Procurement business unit liaisons. These liaisons worked with the business units to identify opportunities for vendor reduction, negotiate deeper discounts, and improve use of the e-procurement system. Another participant has his company s sourcing initiative jointly lead by Procurement and Accounts Payable. Combining Procurement s negotiating acumen with A/P s ability to produce accurate spend information has helped his company to reduce the time necessary to issue a request for proposal (RFP) by over 50 percent. Section II Practices 24

26 Procure-To-Pay Foundation Practice5 Organization Ensure center-led management and control of critical Procure-To-Pay functions Successful companies assign dedicated roles and responsibilities for their most critical Procure-To-Pay functions: contract administration, expense management, administration of designated commercial cards and development of policies and procedures. As new initiatives are introduced, other activities such as requisitioning and buying have become more decentralized and dispersed throughout the organization. This enables the Procurement and A/P functions to focus on their most critical value-added activities. Another advantage of the center-led approach is that it allows for centralized monitoring and control over the Procure-To-Pay function. Companies have an easier ability to create centralized reports tracking company spending and compliance, and enabling uniform distribution and enforcement of policies and procedures. ACTION STEPS: 1. Identify dedicated roles and assignments in the organization chart 2. Link employee bonus and performance ratings with ability to meet organization goals 3. Communicate name of central points-of-contact throughout the organization 4. Obtain senior management sponsorship of companywide policies and procedures 5. Validate reporting hierarchy to ensure center-led visibility of key reports MARKET APPLICABILITY: All companies. A single point-of-contact should be assigned where a dedicated role may not be possible. Benefit: Cost Savings/Process Efficiencies Benefit: User Satisfaction Benefit: Vendor Management Benefit: Control SUCCESS STORIES and TRENDS Reduces duplication of functional roles in the organization Reduces confusion within the organization by providing single points-of-contact Use of central management enables central negotiations with suppliers Enables central distribution and management of policies and procedures 67 percent of study participants believe they have central management and administration of their Procurement function. One study participant reports that it has been unable to maximize the benefits of the company s commercial card program because one of its business units uses different policies and procedures to manage the card. 25

27 Procure-To-Pay Foundation Practice6 Organization Develop enterprise-wide Procurement policies and procedures Leading companies document Procurement policies and procedures to communicate to their internal customers their recommended Procure-To-Pay processes. A Procurement policy should contain the following content: Mission statement and objectives of Procurement function (including alignment with company s mission statement) Procurement organization chart with contact information Sourcing and Procurement guidelines - Sourcing strategy - Requisition of expense items - Requisition of capital items - Requisition of services - Preferred vendors Approval rules Receipt and return process AP process Procurement control and audit Use of commercial card - Commercial card manager contact information - Issuance criteria and process - Cardholder agreement - Usage guidelines - Reconciliation process - Payment process On an annual basis, best practice companies review their policies and procedures and modify as needed. Changes are then communicated to users and incorporated into existing training. continued on next page Section II Practices 26

28 Procure-To-Pay Foundation Practice6 Develop enterprise-wide Procurement policies and procedures continued MARKET APPLICABILITY: All Companies Benefit: Cost Savings/Process Efficiencies Benefit: Control Procurement policies and procedures detail standard practices designed to make a Procurement organization operate more efficiently; users who learn about and follow these practices take actions that enable Procurement savings such as use of preferred vendors Designing and documenting Procurement policies and procedures that fit a company s desired level of control enables communication of requirements to ensure compliance ACTION STEPS: 1. Develop comprehensive outline that covers all relevant aspects of Procure-To-Pay process 2. For each Policy section, research current practices and third-party research regarding best practices; determine preferred processes based upon company culture and capabilities 3. Document the policies and procedures 4. Continually reexamine policies and procedures and update as needed SUCCESS STORIES and TRENDS 85 percent of our survey respondents have documented Procurement policies and procedures. 74 percent of those respondents had less than 5 percent of all purchases fail a formal audit process. All of the study participants that do not have formally documented policies and procedures stated user inability to comply with procedures or failure to follow the approval process as the reasons why they failed audit. These items are the most common components of any policy and procedure document. 27

29 Procure-To-Pay Foundation Practice7 Organization Develop an internal communication plan to convey Procurement policies, procedures, and successes To enable understanding and compliance with Procurement policies and procedures, all guidelines not only must be documented, but widely disseminated as well. Most companies have a policies and procedures manual available on their Procurement department s intranet site, but best practice companies have developed more creative ways to disseminate their policy information. New users and new employees often receive Procurement training during their new hire orientation. This training can be delivered in person or via documentation with contact numbers for follow-up. The documentation is often laminated or brightly colored so that it is immediately recognizable to employees. practice companies also streamline all documentation to ensure that only pertinent information is included. Recognizing that ongoing communication is necessary for providing information on updates as well as refreshing users memories, some Procurement functions provide an Procurement newsletter or submit articles to a company newsletter. An article submitted at one company included a quiz regarding Procurement policies. Prizes were then given to employees who submitted correct answers. Procurement organizations have found that promoting the hard savings received from complying with policies encourages both communication and further compliance. By communicating the benefits obtained by preferred supplier compliance as well as the savings lost through non-compliance, senior management is more willing to encourage their departments to follow procedures. Procurement organizations have found that promoting the hard savings received from complying with policies encourages both communication and further compliance. ACTION STEPS: 1. Initiate cross-functional team of business units, e.g., Human Resources, Procurement, Travel, and Accounts Payable, to develop a policies and procedures communication plan 2. Track communication success and implement well-received methods 3. Develop process to ensure that updates to policies and procedures are communicated and distributed in a timely basis MARKET APPLICABILITY: All Companies Benefit: Cost Savings/Process Efficiencies Benefit: Control SUCCESS STORIES and TRENDS Procurement policies and procedures detail standard practices designed to make a Procurement organization operate more efficiently; users who learn about and follow these practices take actions that enable Procurement savings, such as use of preferred vendors Designing and documenting Procurement policies and procedures that fit a company s desired level of control enables communication of requirements to ensure compliance 82 percent of survey participants have widely disseminated Procurement policies and procedures. One survey respondent developed his company s Procurement policies and procedures via a multi-disciplinary team. This team regularly meets to revise policies as needed. Section II Practices 28

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