In times of recession, it is widely accepted that companies need to tighten belts and closely control expenditure. However, no organisation can function without steady and efficient supplies of the goods, raw materials and services which are necessary for value creation. A possible solution for improved company performance therefore lies in an optimised ‘procure to pay’ (P2P) process which eliminates waste, reduces administrative overload, rules out the potential for fraud and provides for the efficient sourcing of necessary inputs at optimal cost.
This is a hypothesis which was put to test in the master’s thesis of UNISA Graduate School of Business Leadership student Shakira Gandhi, under the tutelage of SmartProcurement editorial board member Dr. Douglas Boateng.
“In this study, I sought to examine the effectiveness of enterprise resource planning and P2P solutions within a major South African paper producer as measured against recognised best practice guidelines,” explains Gandhi.
Her thesis found that while some best practices are indeed being applied, many others are not.
“The upshot of this is that there is additional opportunity to streamline, improve and optimise procurement within the studied organisation. The benefits of doing so include achieving cost savings, improving turnaround times and accelerating the procurement process, all of which can contribute to a more competitive organisation,” she notes.
The P2P process is a lengthy and complex one; with upwards of 20 activities and inputs required by operators at various points in the cycle and some 28 best practice guidelines applicable. As a consequence, Gandhi observes that considerable expertise and discipline is required to effectively optimise the P2P process for any enterprise.
Therefore, before an organisation undertakes the implementation of best practice guidelines, the necessary people and processes need to be in place. Interviews held as part of this study revealed that organisational changes had impacted on people and processes. As a consequence of this, the organisation undertook a ‘back to basics’ methodology with respect to its procurement practices, including systems. As the organisation has developed its processes and has started ensuring that it has the necessary skills and resources, it has also implemented certain best practice guidelines.
In the case at hand, she specifically points to deficiencies relating to the use of supplier catalogues, the entry of ‘free form’ data to procure goods and services, the limited use of pre-set templates and poor processes around pre-approved suppliers and urgent requisitions, among others which still need consideration for implementation. Currently, only 11 of the 28 best practice guidelines are being applied within the company.
What became clear in the course of Gandhi’s study is that procurement must receive the level of attention required in terms of organisational optimisation if it is to be fully effective. Most exercises aimed at optimisation tend to be focused on increasing productivity, reducing overheads and growing the top line and should also include the important processes of sourcing suppliers, managing catalogues of approved suppliers and buying from them effectively tends to be largely ignored.
While her study focused only on one division of a large multinational organisation, she believes there may well be congruencies in the findings in other divisions of the specific company and in many other businesses.
“It is apparent from this exercise that management attention to and control of the procurement process is critical and that the organisation has to invest in the right skill needed to ensure that the ERP and e-procurement solutions are effectively utilised. The organisation can possibly enjoy substantial benefits by implementing best practice guidelines that ensure it is effectively utilising its ERP and e-procurement solutions to best effect across its P2P cycle,” notes Gandhi.
Furthermore, she advocates standardising as far as possible the processes relating to P2P. “This would ensure that all divisions are strategically aligned with the same information and system architecture that better supports the global procurement strategy of the organisation.”
“In these times of global recession, this study draws attention to the need for organisations to ensure that goods and services are being procured in the most effective way and at the lowest costs. By comparing procurement practices to existing best practices, companies can optimising practices to make a significant contribution to achieving and maintaining competitiveness,” she concludes.
For more information contact Douglas Boateng at firstname.lastname@example.org