The Procure-to-Pay Process Overlooked and Underappreciated!

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1 WHITE PAPER The Procure-to-Pay Process Overlooked and Underappreciated! Sponsored by: GT Nexus Simon Ellis January 2014 Leslie Hand IN THIS WHITE PAPER In this white paper, IDC Retail Insights and IDC Manufacturing Insights discuss the often overlooked benefits of procure-to-pay (P2P) applications. The document explores how P2P is no longer just enabling automated procure-to-pay processes. P2P is increasingly filling a void in retail and manufacturer programs to achieve supply chain transparency, collaboration, and risk management. Opinion Efficiency, effectiveness, agility, and resiliency are watchwords for current supply chains as companies seek to maximize growth and profit in an increasingly complex global environment. In an effort to enable improved supply chain performance, retailers and manufacturers alike are prioritizing efforts to achieve higher levels of transparency, collaboration, and vendor management, but there are nuances, as follows: Retailers. Retailers, always striving for cost savings, value supply chain transparency, compliance, visibility, and automation most. In today's retail environment, P2P also supports efforts to collaborate with suppliers and do more at the source, such as customization of goods and direct shipments. Shipments are frequently being allocated and split for direct shipments to stores or to customers before they leave the manufacturer's shore. Retailers are also interested in forward visibility to landed cost changes so that the business can act in accordance to ensure profit targets are met. Manufacturers. Manufacturers are less interested in automation and cost savings justification and more focused on supplier viability and mitigating supplier risk. P2P for manufacturers isn't about deploying capabilities to automate invoices. P2P for these companies targets finding new ways to reduce risk by partnering with suppliers to ensure health. As manufacturers seek to partner with suppliers to ensure their health and strong performance, P2P is a way to enable better planning and access to capital for suppliers. Timely access to payments and early payment programs are two examples of good levers for mutual success. P2P is no longer just enabling automated procure-to-payment processes. P2P is increasingly filling a void in retail and manufacturer programs to achieve supply chain transparency, collaboration, and risk management. January 2014, IDC Retail Insights #RI245584

2 Situation Overview At IDC Retail Insights and IDC Manufacturing Insights, we have written extensively on the challenges inherent to global commerce, but it is useful to highlight a few of them here. Indeed, global supply chains continue to experience significant change, both internally and externally, and as we move into 2014, IDC Retail Insights and IDC Manufacturing Insights see a number of major industry trends that we expect to impact both the behavior of the supply chain and the resulting IT investment priorities: Volatile demand continues to be the new norm as consumers are less brand loyal, and far more selective, than ever before. Volatility means that business is more difficult to forecast and fulfillment needs are more "informed" and more agile. Complex and extended global supply networks are a consequence of globalization and the chase for "low cost" manufacturing and sourcing. The reality is that many product companies (both branded manufacturer and retail private label) now experience significantly longer product lead times than ever before, driving a level of complexity in the supply chain that can prove problematic if agility and responsiveness are required. Supply chain risk increases with supply chain diversification and global reach. Visibility and resiliency must be built into supply networks to ensure suppliers can be managed and held accountable and that "plan Bs" can be put into action quickly. In many cases, companies ensure supplier viability by investing in P2P as a way to enable better planning and access to capital for suppliers. The accelerating pace of business is putting pressure on manufacturers and retailers to be more agile and run the clock speed of their supply chains more quickly. Many manufacturers are facing sub-48-hour order lead times, often with poor supporting capabilities, putting enormous pressure on supply chain execution capabilities and the importance of having the right information at the right time. These business challenges manifest themselves in different ways and across different segments of the business, but they are most apparent in the interaction both downstream with customers and upstream with suppliers. Therefore, both the order-to-cash process and the procure-to-pay process come "under fire." Implications for the Procure-to-Pay Process Manufacturers and retailers operate in a world of almost endless information Big Data, if you will. The expectation, indeed the opportunity, is that companies will leverage this information to be more informed and effective. Yet business processes must catch up. Otherwise, all of this data, the "extreme granularity" available to the business, will be essentially useless. Analytics play a role, certainly, but it is also necessary to "modernize" the processes so that more granular information can be shared and a collaborative environment fostered. For many companies, efforts have been made to operate processes more transparently, but often these efforts are incomplete because they try to modify existing approaches rather than fundamentally rethink the process IDC Retail Insights #RI

3 For most companies, the P2P process sits in this middle ground: not fully taking advantage of all the information available to the business and suffering from inefficiencies as a consequence. As we noted previously, the P2P process is often not the first place businesses look when process modernization is on the docket yet significant time and effort can be spent by these companies on managing the invoicing and deductions process, for example. Timely access to payments and early payment programs are just two examples of capabilities enabled by automated P2P. An automated and modernized P2P process does not mean that companies cannot still make strategic decisions about how to manage working capital; they can just do it in a more informed and transparent way. Just as sales and operations planning has allowed companies to operate against a common set of targets, automating and modernizing the P2P process can provide a single view to both the manufacturer and the retailer and to their suppliers. In fact, as manufacturers and retailers seek to partner with suppliers to ensure their health and strong performance, P2P is a way to enable better planning and access to capital for suppliers. The Central Role of Visibility Visibility remains one of the most critical "underachieved" supply chain capabilities, yet it is central to many of the data-driven new capabilities that can transform the manufacturing and retail supply chain. As we have noted in the past: As manufacturers and retailers seek to partner with suppliers to ensure their health and strong performance, P2P is a way to enable better planning and access to capital for suppliers. Visibility must encompass the "extended" supply chain to include suppliers, customers, and third-party logistics providers; the extension into external partners may vary, depending upon the nature of the customer relationship (i.e., Is there a VMI relationship?) or the criticality of a particular supplier (not necessarily tier 1). Visibility should provide access to a comprehensive, unified "system" view by understanding the interrelationship between business objects and representing them appropriately to the business when needed. Visibility must be timely, but not necessarily in real time. Some elements of visibility, such as product movement, will be required in real time; however, other elements, such as inventory positions, likely will not require the same level of granularity. Some visibility will be provided in either near real time or periodically. Last, the notion of visibility, particularly in the modern supply chain, is contextual. Just as the sales and operations planning process provides significant business benefits by providing a single, consensus plan, so must visibility be provided and consumed against a common view. In other words, all partners in the extended supply chain must see the same visibility information, at the same time. For the procure-to-pay process, this view of visibility is particularly important. To the degree that manufacturers and retailers struggle with intracompany visibility, they struggle with intercompany visibility even more. As suppliers proliferate, and supply lines extend, maintaining the necessary visibility to have a common, collaborative view of the upstream supply chain is enormously beneficial IDC Retail Insights #RI

4 Future Outlook The procure-to-pay process is an area that is garnering increased attention from manufacturers and retailers as data grows in both volume and velocity, further complicating efforts to maintain data quality and the efficacy of the process. The procure-to-pay process is far too often considered a "back office" function and therefore a supporting capability, but the reality is that poor information flow between manufacturers, retailers, and suppliers is creating unnecessary inefficiencies and slowing the rate of "commerce." And perhaps more importantly, at least from a business performance perspective, at the same time, the opportunity to better collaborate and work through issues with suppliers on processes commonly is hampered by the lack of a common view of transactions and disconnected series of events. Companies need visibility and, in some cases, control over events that will have ripple effects on commerce and customer relationships downstream. There is interest among retailers and suppliers to diversify sources of supply (including nearshore and onshore) to minimize risk and improve agility, but at the same time, companies want to rationalize the number of vendor partners. Going a level deeper, collaboration and visibility make it possible to manage to joint metrics for quality assurance and to hold vendors accountable for compliance. Trustworthy, efficient, and effective supply chains of the future will be transparent, flexible, responsive, and resilient all attributes that are supported by implementations of P2P. From Point to Point to Networked Procure to Pay It is pretty clear that new approaches to "edge" capabilities such as logistics and supplier interactions are moving to the cloud. Where interactions with large groups of external companies either direct or indirect suppliers are high, cloud applications have inherent advantages over their on-premise counterparts. The notion of moving to a "collaborative" or "networked" cloud model has been championed by a few supply chain vendors in the marketplace, and the evolution from resource-intensive point-topoint relationships to a network where many current and potential commerce partners are "already there" can drive significant economies and facilitate speed! Indeed, in a forthcoming IDC Manufacturing Insights document on the evolution of commerce networks, the notion of moving away from point-to-point relationships and toward collaborative commerce networks is central to the maturity progression and the procure-to-pay process is central to this premise. The procure-topay process is an area that is garnering increased attention from manufacturers and retailers as data grows in both volume and velocity, further complicating efforts to maintain data quality and the efficacy of the process. The pay-to-procure process is far too often considered a "back office" function and therefore a supporting capability, but the reality is that poor information flow between manufacturers, retailers, and suppliers is creating unnecessary inefficiencies and slowing the rate of "commerce." 2014 IDC Retail Insights #RI

5 What Does This Mean for P2P Specifically? Modernization of procure to pay is principally about moving four key processes into a more collaborative, shared environment. For each of these processes, which are detailed in the following list, we see developments as follows: Order/purchase order management. Not only moving to a fully automated process but also providing more transparency for vendor-managed inventory-type relationships and having the ability to manage trading terms across a broader view of the business (rather than just an individual PO) Invoice generation and management. Aligning and automating the invoice-generating process across all fulfillment documents and electronic transmissions to ensure the highest levels of invoice accuracy (a key component of the "perfect order") and a common understanding of payment terms and various discount opportunities Payment and remittance management. Not only the automation of both funds transfer and remittance advice but also the ability to more broadly see multiple orders by vendor and measure both timely and accurate payment Deductions and chargeback management. As the most time consuming of all the process steps, the ability to see all information pertaining to a potential invoice deduction or chargeback recovery problem, and the full level of prior interaction with a supplier, to ensure accuracy and full disclosure to avoid discrepancies and audits Notable Vendor Capability: GT Nexus While the procure-to-pay space has been addressed to varying degrees of effectiveness by traditional on-premise applications, recently we have seen the beginnings of cloud-based approaches from vendors such as GT Nexus. GT Nexus' procure-to-pay offering automates the supply chain transaction process on a multitenant, multienterprise platform in the cloud. It allows companies to negotiate and confirm orders with suppliers and trading partners, create electronic fulfillment documents, and track inventory and payments in real time. Procure-to-pay ensures that all parties are looking at the same instance of the data, thus reducing the chances for error. GT Nexus has aligned its offering with the traditional approach to P2P, with a focus on collaboration. Specifically: Order collaboration a single view of order data between companies and their suppliers; confirm or negotiate order terms across multiple orders and items simultaneously Invoice management automatic creation of electronic invoices, packing lists, and other fulfillment documents from order and shipping data; create a single format and data source to create both commercial and customs invoices and deliver documentation to brokers Payment management rapid payment approval and notice of discrepancies, with a clear picture of cash flows and expected payment dates to suppliers; automatically compare orders, invoices, packing lists, proof of delivery, inspection certificates, and goods receipts and ensure timely payment to suppliers 2014 IDC Retail Insights #RI

6 Deductions management electronically managed deductions with support for image and document attachments; configure to company deduction rules and automatically take deductions on future invoice payments, expediting recovery First sale automation automated creation of first sale documentation; validate documents for accuracy and completeness and electronically provide data directly to the broker From the perspective of IDC Retail Insights and IDC Manufacturing Insights, the key features of the GT Nexus approach are automation, configuration, and, most importantly, collaboration. Certainly, companies looking at this application should expect to see lower processing costs (particularly in deductions management), more efficient exchange of information, and a common basis on which to interact with suppliers; but less obvious benefits such as reducing customer service errors because of better supplier performance and more transparent cash management are being experienced by GT Nexus customers. Conclusions P2P is no longer just enabling automated procure-to-pay processes. P2P is increasingly filling a void in retail and manufacturer programs to achieve supply chain transparency, collaboration, and risk management. Global supply chains are complex, and with complexity comes higher levels of risk. Retailers and manufacturers are achieving better supply chain performance by focusing on being efficient, effective, agile, and resilient. They are not only automating mundane processes, including procure to pay, but also leveraging the visibility and transparency that collaborative networks create to build win-win relationships. Such platforms enable organizations to jointly resolve issues as seemingly insignificant as the minute details of an order to the complexities of enabling better planning and access to capital for suppliers. Retailers value supply chain transparency, compliance, visibility, and automation most in an effort to drive costs out of the supply chain. But P2P also supports efforts to collaborate with suppliers and do more at the source, such as customization of goods and direct shipments. Retailers are also interested in forward visibility to landed cost changes so that the business can act in accordance to ensure that profit targets are met. P2P is no longer just enabling automated procure-to-pay processes. P2P is increasingly filling a void in retail and manufacturer programs to achieve supply chain transparency, collaboration, and risk management. Cost is always a major concern for manufacturers as well, but looming much larger as a risk to business is supplier viability. Manufacturers are finding that P2P can be used as a tool to mitigate supplier risk related to financial viability. P2P is a way to enable better planning and access to capital for suppliers. Timely access to payments and early payment programs are two examples of good levers for mutual success IDC Retail Insights #RI

7 About IDC International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make factbased decisions on technology purchases and business strategy. More than 1000 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For more than 48 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. Global Headquarters 5 Speen Street Framingham, MA USA idc-insights-community.com Copyright Notice Copyright 2014 IDC Retail Insights. Reproduction without written permission is completely forbidden. External Publication of IDC Retail Insights Information and Data: Any IDC Retail Insights information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Retail Insights Vice President. A draft of the proposed document should accompany any such request. IDC Retail Insights reserves the right to deny approval of external usage for any reason.