What purchase-to-pay trends should CFOs know about in 2020? And how can companies respond to these trends? In this blog series we will discuss the 5 major trends in Purchase to Pay in 2020.
When it comes to procurement most people think about direct procurement such as raw materials, software and other supplies that are built into the purchasing process.
Indirect purchases on the other hand, such as office supplies, essential services, or equipment maintenance help companies run day-to-day operations. Managing these indirect purchases can be costly for organizations as the total cost of indirect purchases are constantly underestimated.
The Purchase to Pay process refers managing the indirect purchase process from start to finish. The process begins with the purchase decision and ends with the payment of the order. Purchase to pay software automates the indirect purchasing process.
There are many differences between Purchase to Pay solutions and technology is constantly changing. It’s increasingly challenging for company management to remain aware of new developments and emerging trends. What should companies focus on NOW to get the best ROI?
Purchase to Pay Top 5 Trends
Trend 1: Increasing Importance of Supplier Relations
The importance of supplier relations will continue to grow in 2020. We’ve seen a lot of changes in supplier relationships over the last decade. Formerly cooperation was limited to price agreements and terms. Today the focus is on the maintenance of supplier networks. Suppliers are considered to be partners rather than suppliers.
Building new vendor relationships takes considerably more time and resources than maintaining existing relationships. As they say, cooperation is a two-way street. A transparent Purchase to Pay process will enable a deeper analysis of all supplier relationships, helping to make the partnership better for both parties. The most important areas to consider:
1. Ability to evaluate and identify significant suppliers
If indirect procurement data is distributed in numerous Excel spreadsheets with email it is hard for the organization to know which suppliers are important. That could mean missed opportunities for a fruitful partnership with key suppliers.
The largest dollar volume does not necessarily define major suppliers, so it’s worth analyzing the total number of orders and the time spent on processing invoices.
2. Evaluating the profitability of cooperation
Once major vendors are identified and data is available from a single source, the analysis of those supplier relationships is easier to achieve. For example, does the company have surprisingly large purchases that could be procured in a single order, or should existing contracts be renegotiated due to a changed situation? If significant changes occur in the supplier network, e.g. in terms of security of supply or price, it’s important to react to these changes as quickly as possible in a way that maintains the relationship.
3. Importance of Spend Data
With a unified purchase-to-pay solution your entire organization is committed to purchasing selected products and services from specific vendors, at a specified price and agreed upon terms. This gives the organization defined rules and compliance control for indirect procurement.
Without full transparency it’s hard to prevent maverick buying, procuring the same products or services from a wide variety of vendors at different price points and terms. With insight into order volumes and other data it’s easier to bid for new contracts.
4. Enabling time for supplier relations
Maintaining supplier relationships requires time and commitment from the organization. This can be difficult to find if time is spent on less strategic tasks. A good Purchase to Pay solution frees up the procurement organization’s time to focus on higher value work.
In our next article, we will discuss another top trend: the importance of data – and the possibility to analyze huge amounts of data.