Executive Summary Purchase-to-pay (P2P) technology is not new. It became commonplace with the growth of ERP (enterprise resource planning) systems in the 1980s and ‘90s, as a means of handling the transactions related to buying goods and services. That includes requisitioning, ordering, receiving, invoicing and payment, and the recording of these transactions for corporate accounting and control purposes.

But many mid-market firms – defined here as those with a turnover of around £200 million to £1 billion annually - still have not taken the plunge into investing in such systems. In this briefing paper, we look at why that is, and discuss the reasons why the time is now right for such organisations to look seriously at the “new wave” of P2P technology options. The paper is presented as a series of questions drawn from discussions with firms that are considering this sort of investment, and from our own experience of the technology and as procurement practitioners.

The overall conclusion is that P2P can address direct cost savings, help create a better control environment, and help deliver wider value for the organisation from its third-party spend. And that is true for mid-market firms as well as the giants. In fact, developments such as the “software-as-a-service” approach to delivering technology have made this much more practical and cost-effective for all but the very smallest firms.

Introduction It is more than 20 years now since electronic systems to handle purchasing transactions started becoming commonplace in large organisations. Initially, they were often modules of a wider ERP system, such as SAP or Oracle. As time went on, more specialist providers and solutions appeared, offering what became known as “purchase-to-pay” technology.

Such solutions are now provided by many different firms, all looking to automate, simplify and control the end-to-end transactions that support the acquisition of physical goods or services. Typically, we look at the P2P process as addressing the transactional cycle shown in Fig. 1 - from requisitioning through ordering to delivery and payment.

However, the adoption of P2P technology has been in the main focused on larger users, both private sector and large public sector bodies. Most organisations in what we might call the mid-tier from a size perspective (defined here as firms with a turnover of around £200 million to £1 billion a year, or their public sector equivalents) still work on manual systems, home-made or locally developed MS Excel-based or similar fairly basic solutions and systems of some type. Others may have ERP systems but with limited purchase-to-pay functionality, or they may simply not use the available functionality, perhaps because it is perceived as overly complex or bureaucratic for their users. Yet recent developments have made fully featured purchase-to-pay technology solutions a realistic option for this size of organisation. In this paper, we answer the typical questions that the Chief Executive, Chief Finance Officer or Procurement Head of such an organisation tends to ask with regard to their P2P technology options.

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SHOULD MID-MARKET ORGANISATIONS INVEST IN ePROCUREMENT SYSTEMS?THE KEY QUESTIONS ANSWERED BYPeter Smith, Managing Editor, Spend Matters Europe

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Figure 1 - The Basic P2P Transactional Cycle

INVOICE ORDER

PAYMENT REQUISITION

DELIVERY

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Investing in eProcurement – The Key Questions (and Answers)In the following section, the questions are those most commonly asked by mid-market firms that are considering an investment in purchase-to-pay technology.

So why should we be looking at this now - what makes this the right time?It is easier than ever to implement procurement technology generally and purchase-to-pay systems specifically. The software solutions are more cost-effective than ever, and used properly, they will deliver greater benefits than have previously been likely. Even if you looked at P2P just three or four years ago, recent developments mean that this is a more attractive proposition now – you would be surprised at the pace of change.

OK, let’s go through those three points. Why is it easier to implement now?Whilst the “cloud” has become a bit of a cliché, it has changed the whole way that organisations can access and use software. “Software as a service” means that you don’t have to install the software on your premises, which makes it quicker and easier to deploy new solutions. We are often talking about weeks rather than months or even years for implementations! The provider is responsible for service, and the levels of availability for instance are usually higher than firms achieve when running software in-house. The provider also takes care of upgrades and improvements, which are automatically applied to “your” software so you can benefit from that immediately. Cloud solutions also draw on the combined best practice of multiple organisations, which means best practices can be used as the benchmark for the basis of the design. Standard solutions allow you to configure to meet your needs, but avoid expensive and time-consuming “customisation” exercises that were once needed in most implementations.

Finally, systems are now easier to implement particularly from the user perspective - the best solutions are highly intuitive, with a consumer website feel to them. This means that the change management and training effort, cost and time required is far less than it used to be.

And how about cost effectiveness?Again, the software-as-a-service model means you avoid a huge initial payment for the software. Many firms charge on a number-of-users basis, so you can even try the product on a small scale before you decide whether to roll it out. And providers tend to work on an annual subscription basis, so you aren’t locked into long-term service or maintenance contracts. Mid-tier firms are often surprised to find out how reasonable the cost can be.

The other side of the cost picture is the internal angle. As we have said, these are much simpler projects to deliver now. Gone are the days when a large project team was required to implement a P2P solution, probably using both consultants and internal staff who were taken away for their normal duties. That means less disruption to the organisation, and also lower external costs in terms of paying third-party consultants to reconfigure, install, train the users, and so on.

Over time, costs are also lower particularly given that upgrades to latest software versions are included in the subscription fee. So there is no need to pay for customisations and further implementation-type costs every time a new release comes along.

What makes you say the benefits are potentially greater than ever?Simply that the benefits arise from the functionality and power of the solution. As those solutions have got faster, easier to use and more powerful, so too have the potential procurement benefits increased in magnitude. And you can release them faster, with the right system. The business case is therefore better than ever because of this change in the balance between the cost of implementing the solution and the benefits you can realise. Another way of looking at it is that the numerator and the denominator on the return on investment calculation have both moved in the right direction!

So let’s stick with the benefits question. What will we get out of it?Let’s talk about three big areas - control, savings and value for money.

In terms of control, it all depends on from where you are starting. Some organisations have good spend controls in place already, even with just manual processes. However, in general, it is harder to know who is spending what, with which suppliers, when you are relying on orders being placed verbally, or by email. Keeping track of that, and making sure the right people authorise expenditure, is not easy in such situations.

If you are relying on a manual or even home-made purchasing system, it is also intrinsically more difficult to keep track of budgets and monitor spend against budgets, and feed the right spend data into the management accounts, compared to a systemised approach. In addition, commitment accounting is very difficult to do with any accuracy under a manual buying system in our experience.

And, although it is a sensitive subject, fraud is much easier when systems aren’t robust and well organised. The process is key, so it is not just a matter of technology, and it is easier to implement the process when it is automated and systemised. Just a simple example

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in terms of fraud: it is easier to forge a signature on an order or invoice than it is to get access to a designated computer, get hold of the password of the authorised approver and sign-off an order or invoice on-line. Fraud can also come from external sources. Fake suppliers submitting invoices are not unusual, but again, good systems can protect organisations against that type of scam.

So we can control expenditure better - but how does that generate real savings?The first point is that some expenditure just disappears altogether once good controls are in place. The experience of Coupa, a leading provider of spend management technology, is that firms generally save 2% to 3% of their total third-party costs, purely in terms of this spend avoidance once the right processes and systems are in place, and spend is visible, understood and properly approved. Staff do question their own spend more critically when they know the process is being managed.

The next wave of savings comes from understanding just what it is that you are spending. Once orders flow through the system, you can start analysing spend, in terms of what is being bought, who is buying it, and which suppliers are being used. Then you can target key spend areas and look for savings and other value benefits.

That might come from combining requirements so you can buy more from a smaller number of suppliers and negotiate discounts. Or it may be that you can harmonise and standardise specifications - stop buying so many different types of laptop, or having different service levels for cleaning in every different office, for instance. Eventually, the most sophisticated firms will use full “strategic sourcing” - looking at all aspects around how the supply market can best meet their needs in an optimal manner.

This process of getting spend properly “under management” (as we say) can bring major cost savings. We will often see savings of between 5% and 10% in a spend area just from the initial stages of aggregating and consolidating requirements, and much more in some cases when issues such as specifications are also considered.

The other area of savings comes from reduced process costs. In our experience, not many organisations understand quite how much they spend in the buying process. They might have a grip on the cost of accounts payable, but how much time is spent by users finding suppliers and placing orders? Or the time wasted chasing around the organisation when an invoice arrives and no-one is quite sure who ordered the goods it refers to! These hidden costs can be significant.

But we don’t have a professional procurement function. Does that mean that sort of savings won’t happen for us?Of course, you have a choice when you put in a system as to whether you also take the opportunity to invest in professional procurement staff. But investing in technology first or in parallel can make a lot of sense. We’ve seen cases when an organisation recruits their first professional procurement executive, but he or she then spend two years or more just trying to get basic spend information and processes in place. Installing a system will help to give you the ammunition that a new procurement executive needs, such as a defined process, spend data, knowledge of who the key internal budget holders and spenders are and so on.

On the other hand, if the procurement tasks will be performed by general “non-professionals,” people for whom procurement is not their full-time job, then again, a good system helps. It can assist you to put some basic discipline into the process, collect data, look for “quick wins” in key areas and provide some governance and control on higher-spend items.

You mentioned value as the third benefit? Isn’t that the same as savings?Savings and cost reduction (or just stopping inefficient spend) obviously all contribute to value. But there are times when value might come from spending the same amount – or even more – but getting more value from that spending. For instance, that applies to marketing expenditure, or investing in more equipment as the organisation expands. If you can spend a million more on marketing and get ten million more profit from the increased sales that result, then of course you should do that. But the same principles apply. You need to know where the money is going. You need to control budgets, to know who your suppliers are. And then you need to manage the contracts and the performance of the suppliers – that’s another topic really, but the basics of information and control give you the platform to do that.

P2PINVESTMENT

SPENDCONTROL

STRATEGICSOURCING

AGGREGATE /CONSOLIDATE

SUPPLIERS

HARMONISE /MANAGE

SPECIFICATIONS

2-3%Cost avoidance /“disappearance”

5-10%Negotiated cost

reduction

5-50%+Optimise what

is bought

10%- ?Full market

management

Figure 2 – Phases in Spend Management

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Finally, in terms of value, there are benefits in terms of the efficiency that comes from making your employees’ lives easier. A good system allows them to get hold of what they need to do their job, in a controlled manner, without wasting the time that they should be dedicating to their “day jobs.” You pay your marketing managers to do marketing, not to be part-time buyers!

Is the mix of benefits similar for everyone? No, it really will be different for every organisation, depending on what they want and their current situation. Some really focus on cost savings, others, perhaps those going through a rapid growth phase, are really keen to get spend under control first of all. In other cases, organisations struggling with an ineffective and time-wasting current buying process will see the ease of use as the major benefit.

We have a fairly basic and mainly manual process and I recognise what your product could do for us. But I’m worried about how all our users, not just the specialists in procurement, will find it. Will they push back against what they perceive to be unnecessary bureaucracy?Many mid-market firms have this concern. Anyone who historically went through an eProcurement implementation in the old days, usually with ERP providers, will tell stories of confusion for users, onerous procedures, long training courses and so on. Today, the best systems are very different. From a user point of view, they look and feel much more like consumer websites (Amazon, eBay etc.) They require virtually no training for the general user - you can literally pull up the screen and see intuitively how you can start ordering for instance. Many are mobile-friendly and have features that make life easier for the internal user, budget holder and administrator.

The perceived “bureaucracy” can still come from the way the firm defines the authorisation routes and so on, which are important to get right. But generally, with the ability to use the best systems in a mobile environment (so a manager can authorise requisitions from the train or the garden at the weekend) and the option of introducing alerts and reminders, it is likely that the workload for users and the time to process transactions will be very much less than under manual systems.

But if you make it so easy to use, won’t we find that staff are tempted to spend more on stuff they don’t need?The ease of use of the best systems does not mean that controls can’t be included in the process. Even if the ordering process is simple for a user, the order can go through an approval route for electronic sign-off. You can also take other measures such as restricting electronic catalogues to the products you want people to buy. Guided buying processes can take the user through the entire process, perhaps suggesting the most appropriate item as they go - “most of your colleagues choose this laptop” for instance. As we said previously, the evidence is that overall spend declines slightly on the introduction of good spend management systems.

That sounds good – what else does the user get out of this? As well as help and guidance through the buying process, systems can link orders and spend back to the budget situation – so you can see, for example, how a proposed purchase will impact your budget position instantly. We have found that users very much appreciate that.

Some users and budget holders seem to like the “conventional” shopping experience though!Well, sometimes you have to point out that “shopping” is not what the organisation is paying them to do! I remember, as a procurement director, having a secretary tell me that her boss had found a printer that he could buy for £10 less than our corporate agreement price. How had he done that, I asked? Simple - he had spent half a day wandering up and down London’s centre for consumer IT, Tottenham Court Road, looking for the lowest price. Not how the organisation wanted him to spend his days as a senior line manager with operational responsibilities, I felt like saying!

It is also very common to find that the buyer in this situation does not take account of other costs that may be incurred compared to a properly considered “corporate” purchase, maintenance, warranties, disposal and so on. But in any case, we do find that the vast majority of executives are more than happy to use a system once they are given something that works well.

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We already have an e-Invoicing solution that we use to some extent in Accounts Payable – how would an eProcurement solution fit with that? A fully integrated Purchase to Pay solution, encompassing the whole process through procurement and e-Invoicing, will always deliver results over and above solutions that address only one part of the process. These benefits – as we’ve discussed - include greater cost reduction, streamlined processes, increased visibility and an improved experience for both employees and suppliers. e-Invoicing is certainly a worthwhile initiative, but on its own, benefits tend to be limited to relatively small process savings. Many companies have successfully integrated or moved AP e-Invoicing projects to a full P2P solution to maximise those benefits.

What about future developments, both in terms of costs and what we are likely to get?Good solution providers will look to update their product very regularly, making improvements in usability, introducing new capabilities, improving security and other key factors. Popular platforms like the Coupa product are also adding in totally new functionality, such as the ability to run sourcing exercises (tendering, choosing suppliers and contracting).

In general, the cost of enhancements gets rolled into the annual subscription, so you are not locked into long-term committed costs. Indeed, software as a service has made it easier to switch technology providers; you should look at issues such as data ownership when you negotiate the contract, to facilitate switching if you so desire.

But perhaps I shouldn’t buy now - if I wait another year or two, won’t the technology get even better?If you follow that logic, you would never buy any technology product – in fact, we would still be writing on slates! The key point is to remember the business case. Assuming that is positive now, then you are throwing away money every month you don’t take the plunge. And if you choose sensibly, your system provider will ensure you get the benefits of system improvements automatically as soon as they are implemented.

ConclusionsWe hope this paper has answered some of the questions that may occur to anyone reading who is contemplating investment in a purchase-to-pay solution. For mid-market firms, and indeed others that have not taken that route as yet, this is a good time to invest. Systems are better than ever, the benefits are clear, and with organisations spending anything from 40% to 80%+ of their revenues on third-party suppliers, managing that spend professionally and proactively is more important than ever.

At Spend Matters, we are happy to answer other questions you may have – send an email to psmith@spendmatters.com and we will be happy to talk.

About Coupa Coupa Software is the leading provider of cloud-based financial applications. More than 500 customers in over 40 countries, including Sanofi, Salesforce.com, BNP Paribas North America, NEC, Royal Bank of Canada, Swiss Re, and Highmark Health use the Coupa suite of financial applications to support business agility and reduce costs. Coupa provides a suite of true cloud applications for finance, including accounts payable, sourcing, procurement and expense management that allows customers to realise a return on their investment within a few months and savings that continually impact the bottom line. Learn more at www.coupa.com. Read more on the Coupa Blog or follow @Coupa on Twitter.

About Peter Smith (Managing Director, Spend Matters UK / Europe) Peter has 25 years’ experience in procurement and supply chain as a manager, procurement director, consultant, analyst and writer. He edits Spend Matters UK / Europe, and with Jason Busch, the founder of Spend Matters in the US, has developed it into a leading web-based resource for procurement and industry professionals. Peter has an MA in Mathematics from Cambridge University, is a Fellow and was 2003 President of the Chartered Institute of Purchasing and Supply, and his first (co-authored) book, “Buying Professional Services,” was published by the Economist Books in June 2010. Before moving into consultancy, he was Procurement Director for the NatWest Group, the Department of Social Security (the DSS), and the Dun & Bradstreet Corporation Europe, and held senior positions in the Mars Group.

Spend Matters is grateful for the support of Coupa, our sponsor for this paper. Sponsors have no additional opportunity to influence the content or research of Spend Matters material or products relative to other software or services providers.

Further information on this topic and others can be found at www.spendmatters.co.uk. Reproduction of this publication in any form without prior written permission is forbidden.