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What should you consider when embarking on a purchasing automation journey?

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What should you consider when embarking on a purchasing automation journey?

Today, for most of us, our time has become very precious.

The pandemic has added a considerable additional load on every business, but, for many CFOs, it is particularly difficult time.

The uncertainty of predicable revenue streams, the increased pressure on cash flow, and the additional workload on financial staff to address remote working that has disrupted the well-trodden processes have combined to create a “Perfect Storm.”

As one CFO (let’s call him John) recently explained to me: “Everyone is already working flat out just to stand still. My greatest concern has become what will happen as things improve and volumes increase. We have to find a better way of working.”

Automating manual processes

Our conversation started when he reached out to find out how we could help automate their manual purchasing and accounts payable processes with the specific objectives of:

  • Increasing productivity for everyone involved both inside and outside the finance department and address remote working.
  • Increasing his control over purchasing to before the order is placed.
  • Reducing vendor costs by consolidating the ever-growing number of similar vendors to negotiate better pricing.

John had already done all the basics. They had adjusted headcount, tried to cut supplier costs, frozen all capital expenditure, leveraged State funding support, stretched creditor payments, and even reduced office space in the expectation of increased remote working.

The business will survive, but what are the next steps the company’s CFO can take that would make a strategic difference to help the business prosper and grow as the good times return?

What follows are the key steps along a purchasing automation journey that every business should consider. And questions for the prospective vendors, to truly understand what is being offered.

  1. Explain the current processes in detail.
  2. Automating established manual processes will limit the benefits you can achieve.
  3. Deliver a rapid win to ease the immediate time pressures.
  4. Reducing time on the high volume of low value spend that just clogs up the works.
  5. Improve the management information available to finance and the senior staff responsible for the purchases.
  6. Collectively work together to reduce costs.

 Explain the current processes in detail

This seems obvious, begin at the beginning — what do you do now? Yet, it is so often overlooked.

The single biggest mistake in every automation project is to try to replicate a current manual process, especially one with as many checks and balances as finance.

The objective is to deliver an increased level of visibility and control over the process, automating as many of the checks and balances as possible. Thereby reducing the workload to enable more time to focus on the exceptions.

If a potential vendor is more interested in telling you what their software does than understanding what you currently do, you are heading for problems.

The goal? To understand the way that you could work. To understand how a potential application improves and even removes multiple steps in the current process, yet still delivers a far more productive and robust outcome.

If you are not prepared to spend the time explaining how you currently work AND be prepared to change for something better — you may as well stop here.

Delivering a very quick win!

Like many organizations today, John needed some immediate quick wins to free up time.

Looking at their profile of spend, some 70% of their purchases (by volume) only represented 20% of their purchasing spend by value.

However, it was taking just as long to process a $100k purchase as a $10 one and at least 30% of their time was dealing with 100+ vendors phone calls. Calls that were chasing for small value payments. And then dealing with the exceptions and the associated returns and credit notes.

The solution? Simply buy more online from major vendors such as Amazon Business, Staples, Office Depot and others — but as an integrated part of their automation strategy.

For John, around 90% of the small purchases could be purchased from Amazon Business (and several other vendors) and addressed several the key objectives for everyone involved.

For the person buying:

  • A simple convenient and familiar process.
  • Delivering what they need, where they need it and when they need it. Usually tomorrow.
  • An equally convenient invoice approval process to confirm receipt, undertaken from any device in a matter of seconds.
  • Real-time visibility of the status of their order on demand.

For finance:

  • By placing thresholds on purchasing limits, 100% control over every order before the order is placed.
  • A simple self-approval, or more senior approval when required, automatically delivers the digital order direct to the vendor.
  • Amazon does their pick, ship, and bill magic — the digital invoice being automatically captured, matched to the order, and sent for receipt confirmation. That is a perfect three-way match of order / receipt and invoice.
  • Automated GL coding can be applied at order creation but can also be reviewed by finance as a second step in the supplier-invoice approval process, for those invoices over a given value.
  • Based on the profile of this spend — about 50% of all purchases would be self-approved, auto-coded and receipted, then posted to accounts with ZERO touch by finance — with a 100% audit trail over every step of the way.
  • It would also remove about 70% of the existing suppliers, all the associated interruptions and subsequent payments.
  • Buying from Amazon Business is also a usually a lot cheaper, simply because it involves dozens of potential suppliers competing for your business.
  • Time to a live solution — literally just a few days.

Everyone outside finance loved it — because they also have more important things to do with their time.

For finance, it saved so much time that they could take the next step in their purchasing automation journey.

All the staff are familiar with the buying process, and it is a small step from there to automating every request to buy.

John now has total control over all corporate spend before it takes place and has increased his available staff resources by between 60% — 90%.

Improving the management information to finance and buyers — to reduce costs

We all know that we make a better decision when we have better information. But in today’s crazy world, unless that information is immediately available, the opportunity of a smarter buying decision is lost.

So, in the interest of smarter buying decisions by the people who actually buy stuff, consider what becomes possible if a Spend Category (e.g., Facilities Management, Office Supplies, ICT etc.) is applied to every vendor? This one step delivers the immediate consolidation of all suppliers (and associate spend) within each category and that is the first step to saving money.

From our perspective, we do this once when we on-board a new supplier to digitally process their invoices and thereafter every one of our customer benefits.

But we also digitally capture every line of every invoice we process and that not only includes the category code, but also the full general ledger analysis codes applied.

This is the foundation stone of Digital Procurement, and it totally transforms the capabilities of your existing general ledger with the specific purpose of both finding and reducing costs.

For general areas of spend, it delivers to finance the ability to instantly report on overall corporate spend by general ledger code. (e.g., company / location / department / expense code) then drill down and review that spend by category and then supplier within category.

It also enables a further dimension of units. For hotels, it would be beds, restaurants it is usually covers, gyms it is memberships, you get the idea.

All this information is generated in real time for every order raised / invoice processed and being made available to the buyers.

Whatever they need to know, instantly at their fingertips.

For John, whilst he understood the value of this digital procurement information, as he did not have any dedicated procurement staff, how could he take advantage of it?

The answer is Savings as a Service.

As every procurement professional will confirm, the first step of any savings investigation project starts with Category Management to consolidate spend from multiple similar suppliers to negotiate better prices for increased spend.

Once an area of spend is selected to reduce costs, the second step is to try to capture all the line-item detail from every supplier and every line item processed, including the cost per item, to be able to tender.

This information is available “out of the box” and then maintained in real time.

Savings as a Service is where we provide the relevant category procurement specialist to undertake the detailed spend review. We then aggregate the relevant spend to generate a tender that suppliers are happy to respond to. Finally, we present our findings, in this case to John.

John then makes the decision on the preferred supplier (cheapest is not the same as best value) and having made the decision, we use the “supplier lockdown” capability to ensure that everyone then uses the preferred supplier, at the lower costs to deliver those savings and track them.

So, how confident are we in the savings available?

We do all the work to find and deliver savings at no cost. Our fee is a % of the agreed savings we deliver based on the spend through the preferred supplier. Paid quarterly in arrears to ensure John’s savings and associated cashflow are a positive contribution to the business.

Results

Girls Day School Trust is a group of 25 schools and using our services have recently delivered $1.2m of savings PER ANNUM on their first 3 projects.

The White Horse Foundation is a group of 35 schools, and they took all their purchasing online for 220 staff in a single day.

How easy is it to buy online? Meet Charlotte and listen to her experience here.

Is it cheaper to buy from Amazon Business? We used our Procure technology to compare over $200k of existing customers spend and compared it to Amazon Business pricing — the results really surprised us too!

 

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