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1 Visa Procure-to-Pay Practices

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3 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: Proactive, ongoing senior management sponsorship for Procure-to-Pay initiatives 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 Aggressive Strategic Sourcing focus to continuously enhance vendor relations Comprehensive data aggregation and reporting to support management and enable continuous improvement of their Procure-to-Pay function Commercial card objectives alignment with a company s overall Procure-to-Pay strategy Visa and Deloitte developed 60 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 that 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 Card and Purchasing Card Practices Study. 1

4 Study Overview Study Overview As part of an ongoing effort to understand and improve the processes of business, Visa Commercial Solutions commissioned Deloitte 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 function, including Procure-to-Pay foundation, commercial card management, and the end-to-end Procure-to-Pay process, from sourcing to back-end reporting. 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 Study Scope Practices Foundation Commercial Card Strategy Organization Technology Purchasing Card Travel and Entertainment (T&E) Card Fleet Card Process Purchasing T&E Sourcing Order Placement Payment & Settlement Reconciliation Control and Audit Reporting 2 Section I Executive Summary

5 Study Overview Approach Deloitte identified 52 large corporate and mid-size companies with Procure-to-Pay practices. The selection criteria ensured distribution among revenue size, geography, industry, Issuer, and company culture. Total Revenues of Surveyed Companies Type of T&E Cards Used by Surveyed Companies Type of Purchasing Cards Used by Surveyed Companies 50% Greater than $1 billion 30% Less than $500 million 67% American Express 29% Visa 24% American Express 33% MasterCard 43% Visa 20% $500 million to $1 billion 4% MasterCard The number of study participants and their corresponding industry affiliations are summarized as follows: INDUSTRY COMPANY Large Market Middle 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 3

6 Study Overview Identification of Practices Deloitte identified 52 large corporate and mid-size companies considered to have leading Procure-to-Pay practices. After distributing a detailed questionnaire to all companies, they conducted 20 on-site interviews with select participants. The questionnaire gathered quantitative and qualitative information, including: Understanding best practices, key drivers, enablers, challenges, anecdotal information, user satisfaction ratings, service-level quality Macro-level statistics dollar spend, average transaction on card, average dollar size of transaction, vendor-negotiated discount rates Micro-level statistic indirect activity cost and time (excluding overhead) IT/data requirements Participants included 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 60 leading-edge practices across four categories: Foundation, Commercial Card Management, Procure-to-Pay Process, and Travel and Entertainment. practices for each category follow: Foundation Practices Foundation Strategy Organization Technology 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 4 Section I Executive Summary

7 Study Overview Commercial Card Practices Commercial Card Purchasing Card Travel and Entertainment (T&E) Card Fleet Card 1. Determine commercial card product(s) based on needs of the organization 2. Source, select, and implement a Visa Purchasing card program 3. Source, select, and implement a Visa Commercial One card program 4. Align commercial card program objectives with your overall Procure-to-Pay strategy 5. Source, select, and implement a Visa Fleet card program 6. Obtain active senior management promotion of and involvement in the commercial card program 7. Establish center-led management and administration of the commercial card program 8. Develop and disseminate enterprise-wide commercial card policies and procedures 9. Incorporate a comprehensive commercial card training program 10. Establish Visa Purchasing/Visa Commercial One card issuance criteria for optimal distribution to employees 11. Mandate and enforce use of Visa Purchasing/Visa Commercial One card for all eligible purchases 12. Maximize use of Visa Purchasing/Visa Commercial One card virtual accounts 13. Incorporate commercial cards into business continuity planning 14. Establish parameters for eligible Visa Purchasing/Visa Commercial One card transactions leveraging appropriate controls 15. Investigate Visa Purchasing/Visa Commercial One card expansion to non-typical spend categories to maximize benefits achieved 16. Share Visa Commercial One card performance and savings reports with senior management to promote appropriate use of the card 17. Use Issuer or card provider analytical tools to review and improve your commercial card program performance 18. Use Visa Fleet cards to track expenditures through both external and internal sources 5

8 Study Overview Procure-to-Pay Process Practices Process Purchasing T&E Sourcing Order Placement Payment & Settlement Reconciliation Control and Audit Reporting 1. Optimize number of suppliers by selecting and monitoring vendors through a formal vendor management program 2. Incorporate Visa Purchasing/Visa Commercial One card 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 Visa Purchasing card-eligible purchases 6. Integrate the Visa Purchasing/Visa Commercial One card into the e-procurement system as a method of payment 7. When commercial cards are not used, employ three-way matching to reduce the number of approvals required prior to payment 8. Replace manual check payments with electronic payments 9. Use the Visa Purchasing/Visa Commercial One card to pay invoices received in Accounts Payable 10. Develop solutions that support the reporting and payment of sales and use taxes 11. Work with your Issuer to receive commercial card statements electronically with cost centers and G/L codes pre-defined to facilitate end-user reconciliation 12. Outsource high-volume, specialized payment processes 13. Determine control strategy 14. Monitor procurement performance via a scorecard that includes cost, quality, and time components 15. Gain a comprehensive view of spend by integrating data from multiple sources e.g., e-procurement, travel, ERP, Visa Purchasing cards 16. Leverage SIC and MCC codes for categorization of spend and purchasing data 6 Section I Executive Summary

9 Study Overview Travel and Entertainment Card Practices Process Purchasing T&E Sourcing Order Placement Payment & Settlement Reconciliation Control and Audit Reporting 1. Institute a centralized travel management function 2. Develop and distribute company-wide travel policies 3. Coordinate event planning through travel management function 4. Source, select, and implement a T&E card program 5. Establish T&E/Visa Commercial One card issuance criteria for optimal distribution to business travelers 6. Mandate and enforce use of the T&E/Visa Commercial One card for all eligible purchases 7. Maximize use of T&E/Visa Commercial One card virtual accounts 8. Optimize the number of suppliers by selecting and monitoring vendors through a formal vendor management program 9. Implement in-house Web-based booking tool 10. Establish well-defined expense report audit parameters 11. Standardize and pre-populate T&E/Visa Commercial One card expense reporting 12. Standardize and automate data interfaces between expense management and accounting applications 13. Capture, report, and analyze comprehensive, company-wide travel data 14. Implement post-trip exception reporting and distribute lost savings report 7

10 Summary of Key Findings Summary of Key Findings Market and Industry Applicability The study findings indicate that the best practices are equally applicable for large corporate and mid-size companies. Both large and mid-size companies have similar goals and challenges in obtaining a leading Procure-to-Pay function. Differences among companies exist in scale of implementation, ability to dedicate resources, and level of technology implementation. How companies handle the implementation activities depends on their size, organizational structure, and company culture. The study further indicates that 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, as they integrate manufacturing disciplines into their internal culture. Mid-size companies can be viewed as followers of large corporate companies in the adoption of best practices as solutions are proven to succeed and are scaled and priced appropriately. Six Key Areas The 60 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 at mid-size companies, sponsorship could be a direct line to the CEO/CFO. Achieving senior management sponsorship is necessary for receiving endorsement of existing initiatives, encouraging compliance with policies, and increasing awareness of procurement initiatives throughout the organization. In recent years, 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 to senior sponsors and throughout the company. 8 Section I Executive Summary

11 Summary of Key Findings Senior management interest in the Procure-to-Pay process has increased significantly due to economic conditions and an increased focus on cost containment, as well as recent focus on 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 from the business units due to a lack of understanding of the benefits resulting from a uniform approach and consistent compliance. Although compliance with policies and procedures continues to be a challenge, leading companies are addressing the challenge by encouraging business unit partnership. Shared objectives and performances measures have led to more formalized ties between business units, resulting in increased compliance with policies and a reduced overall cost structure. 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, companies traditionally made one-off decisions rather than focusing on a plan to implement an entire solution. In recent years, e-procurement technologies were implemented without the support of a realistic business case and a plan for achievable return on investment (ROI). More recently, leading companies have taken a more pragmatic approach to automation, focusing on the implications to the entire end-to-end platform. To support information technology (IT) initiatives, they set realistic and achievable ROI objectives. In addition, leading companies recognize that the benefits to automation can only be achieved by incorporating process changes as part of the solution. These companies employ change management techniques to achieve user support and consequently optimize the benefits associated with improved processes. Mid-size companies are no longer excluded from receiving the benefits of increased automation as IT solution providers are increasingly targeting mid-size companies by offering cost-effective, focused, packaged solutions or innovative hosting models. 9

12 Summary of Key Findings 4. Aggressive Strategic Sourcing focus to continuously 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 to 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 have clearly shown 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 multi-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. 10 Section I Executive Summary

13 Summary of Key Findings 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 to track performance to goals. The sophistication of in-house systems (e.g., ERP, e-procurement, reporting tools offered by 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 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. 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 11

14 Summary of Key Findings Emerging Procure-to-Pay Trends The study also identified organizationally focused Procure-to-Pay strategic trends. Today, corporations are working to coordinate A/P, 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 52 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 the study s survey participants. Seventeen percent of study participants will implement an e-auction solution 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, e.g., 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. 12 Section I Executive Summary

15 Summary of Key Findings 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 Benefits from Implementation Study participants that have adopted these key practices have achieved significant quantitative and qualitative benefits, including the following: 80 percent of suppliers are under contract 90 percent of all spend with preferred vendors 75 percent of office supplies are purchased through e-procurement 75 percent of e-procurement orders are paid using the Visa 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 adoption of the six key best practices: 13

16 Summary of 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 14 Section I Executive Summary

17 Summary of Key Findings Leading Company Key Practices Collaboration, Communication, and Enforcement of Policies & Procedures 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 15

18 Summary of Key Findings Leading Company Key Practices Progressive Migration to IT Automation Level of Incorporation 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 16 Section I Executive Summary

19 Summary of Key Findings Leading Company Key Practices Aggressive Strategic Sourcing Focus 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 17

20 Summary of Key Findings Leading Company Key Practices Comprehensive Data Aggregation and Reporting Level of Incorporation 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 executiveand managerial-level reporting Ability to integrate data from new sources as they are implemented (e.g., e-auction, EIPP) 18 Section I Executive Summary

21 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 A/P 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 Strategic Sourcing tools 19

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23 SECTION II Practices The 60 best practices that follow are practical ways for companies to gain real-world benefits from optimizing their Procure-to-Pay function. 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. 21

24 Section II Practices 22

25 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 Procureto-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. Strategy Practice 1 Practice 2 Practice 3 Organization Practice 4 Practice 5 Practice 6 Practice 7 Practice 8 Technology Practice 9 Practice 10 Practice 11 Practice 12 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 Strategically position procurement and A/P 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 Develop an overall Procure-to-Pay technology strategy Establish a business case for each technology investment and track performance relative to business case objectives Maximize automation of an end-to-end technology solution Implement and leverage an e-procurement solution 23

26 Procure-to-Pay Foundation 1 Practice Strategy Articulate a Procure-to-Pay strategy with a short- and long-term vision Companies should develop an overall strategy that defines the goals for the Procure-to-Pay process. This strategy forms the overall blueprint for the company s process and is 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. The strategy also lists the tactical initiatives (both operational and technological) that will enable these goals. This includes 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. IMPLEMENTATION ACTION STEPS: 1. Define a team of key stakeholders, including senior management, 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 A/P to achieve buy-in MARKET APPLICABILITY: All Companies Benefit Obtained: Cost Savings/ Process Efficiencies Benefit Obtained: User Satisfaction Benefit Obtained: Vendor Management Benefit Obtained: Control IMPLEMENTATION SUCCESSES and TRENDS Rationale: Enables organization to identify achievable cost savings goals and define a target goal for achievement Rationale: Communication of strategy encourages support from key Procure-to-Pay stakeholders Rationale: Sets goals for supplier rationalization initiatives Rationale: Sets guidelines for overall control strategy One study participant publicly displays his company s key Procure-to-Pay initiatives for the year and his company s progress to date in completing them. This has helped enable the company to achieve its initial goals for the quarter. One best practice 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. 24 Section II Practices

27 Procure-to-Pay Foundation 2 Practice 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 can contain the following: Process metrics: Purchase order volume and trend, invoice volume and trend, travel and entertainment volume and trend, Visa 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 Visa Purchasing card, implementation of automated expense reporting) Lost savings: Dollars lost through non-compliance with 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. This includes 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. For example, rebates from achieving volume discounts with vendors are shared with the business units that used those vendors. continued on next page 25

28 Procure-to-Pay Foundation 2 Practice Proactively obtain ongoing senior management and business unit support by sharing information continued MARKET APPLICABILITY: All Companies Benefit Obtained: Cost Savings/ Process Efficiencies Benefit Obtained: Control Rationale: Frequent communication of procurement successes and opportunities for improvement provides senior management with the incentive to continue support of cost-saving procurement activities Rationale: Frequent communication of savings from compliance and lost savings from non-compliance with procurement policies and procedures encourages senior management to promote compliance with procurement policies and procedures IMPLEMENTATION ACTION STEPS: 1. Develop cross-functional team to form senior management communication initiative 2. Proactively identify compelling and relevant procurement metrics and review with senior managers to determine appropriateness 3. Develop communication initiative with relatedtools (e.g., webcasts, 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 IMPLEMENTATION SUCCESSES 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 his peers to obtain ongoing support of initiatives. One large corporate company s head of procurement is a member of the 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. 26 Section II Practices

29 Procure-to-Pay Foundation 3 Practice 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). Some companies will use thirdparty companies to conduct blind benchmarking studies against their immediate competitors. Additionally, best practice companies participate in external benchmarking studies on a periodic basis these include commercial card-provider studies as well as U.S. Government figures, Forrester, IDC, and NAPM studies. In addition to the benefits gained by learning from other companies, benchmarking studies can also be useful tools in promoting the success of the Procure-to-Pay function to senior management or, potentially, in providing information to develop business cases for key initiatives. continued on next page 27

30 Procure-to-Pay Foundation 3 Practice Conduct benchmarking to gain additional perspectives and strategic focus continued MARKET APPLICABILITY: All Companies Benefit Obtained: Cost Savings/ Process Efficiencies Benefit Obtained: User Satisfaction Benefit Obtained: Vendor Management Rationale: Helps set achievable cost savings goals Rationale: Enables user participation and ability to benchmark user satisfaction Rationale: Provides potential negotiation and sourcing goals for company IMPLEMENTATION 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 through contacting peers, internal networks, or 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 IMPLEMENTATION SUCCESSES and TRENDS 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 A/P productivity and helps him identify areas for improvement. Two mid-size study participants participated in extensive benchmarking studies, including the Hackett Study. 28 Section II Practices

31 Procure-to-Pay Foundation 4 Practice 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 processes. One key driver behind the change in this relationship is the new view of procurement and A/P as internal service organizations. This has resulted from inclusion in a shared services organization as well as the realization of their interdependency during Procureto-Pay reengineering initiatives such as Visa 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. Procurement and A/P often refer to other business units within the organization as clients or internal customers. Conducting internal surveys or reviews with business unit leaders to review service quality has now become common. Procurement and A/P representation on cross-functional teams is now essential for the success of most technology and strategic initiatives. Additionally, 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. To enhance the service reputation of their functions, some procurement organizations have assigned liaisons to work with individual business units to help set goals, provide training, and evaluate new opportunities. continued on next page 29

32 Procure-to-Pay Foundation 4 Practice Strategically position procurement and Accounts Payable in the organization continued MARKET APPLICABILITY: All Companies Benefit Obtained: User Satisfaction Benefit Obtained: Vendor Management Benefit Obtained: Control Rationale: Users benefit from service-oriented approach and will have greater adoption of new tools Rationale: Collaboration on sourcing will drive deeper discounts; procurement brings negotiation and industry expertise, and A/P can provide detailed analyses of spend data Rationale: Enables central coordination and monitoring of Procure-to-Pay function and compliance with policies IMPLEMENTATION 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 IMPLEMENTATION SUCCESSES and TRENDS One study participant helped transform his company s Procure-to-Pay function to leading 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. One study participant has his company s sourcing initiative jointly led by procurement and A/P. 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. 30 Section II Practices

33 Procure-to-Pay Foundation 5 Practice 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. Other activities, such as requisitioning and buying, have become more decentralized and dispersed throughout the organization as new initiatives are introduced. 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 that can track company spending and compliance. It also enables a uniform distribution and enforcement of policies and procedures. IMPLEMENTATION ACTION STEPS: 1. Identify dedicated roles and assignments in the organization chart 2. Link employee bonuses 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, where a dedicated role may not be possible, a single point-of-contact should be assigned Benefit Obtained: Cost Savings/ Process Efficiencies Benefit Obtained: User Satisfaction Benefit Obtained: Vendor Management Benefit Obtained: Control Rationale: Reduces duplication of functional roles in the organization Rationale: Reduces confusion within the organization by providing single points-of-contact Rationale: Use of central management enables unified negotiations with suppliers Rationale: Enables central distribution and management of policies and procedures IMPLEMENTATION SUCCESSES and TRENDS 67 percent of study participants believe they have central management and administration of their procurement function. One study participant reports that he has been unable to maximize the benefits of his company s commercial card program because one of his company s business units uses different policies and procedures to manage the card. 31

34 Procure-to-Pay Foundation 6 Practice 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 A/P 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 32 Section II Practices

35 Procure-to-Pay Foundation 6 Practice Develop enterprise-wide procurement policies and procedures continued MARKET APPLICABILITY: All Companies Benefit Obtained: Cost Savings/ Process Efficiencies Benefit Obtained: Control Rationale: 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 Rationale: Designing and documenting procurement policies and procedures that fit a company s desired level of control enables communication of requirements to ensure compliance IMPLEMENTATION ACTION STEPS: 1. Develop comprehensive outline that covers all relevant aspects of Procure-to-Pay process 2. For each Policy section, analyze 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 procedure and update as needed IMPLEMENTATION SUCCESSES and TRENDS 85 percent of 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 who 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 component of any policy and procedure document. 33

36 Procure-to-Pay Foundation 7 Practice Organization Develop an internal communication plan to convey procurement policies, procedures, and successes To enable understanding and compliance with procurement policies and procedures, the guidelines must not only be documented, but widely disseminated as well. Most companies have their policies and procedures manual available on their procurement department s intranet site. practice companies have additionally 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 can be laminated or brightly colored to ensure that it is recognizable to the employees. practice companies also streamline the documentation to ensure that only pertinent information is included in the training to the employee. Recognizing that ongoing communication is necessary to provide information on updates as well as to refresh users memories, some procurement functions provide an procurement newsletter or submit articles to a company newsletter. For example, an article submitted at one company was a quiz regarding procurement policies. Prizes were given to a small number of employees who submitted correct answers. Finally, procurement organizations have found that promoting the hard savings received from complying with policies encourages communication and further compliance with policies and procedures. For example, by communicating not only the benefits obtained by preferred supplier compliance but also the savings lost through non-compliance, senior management is more willing to encourage their departments to follow procedures. continued on next page 34 Section II Practices