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Benefits from Optimizing the Purchase-to-Pay Channel Strategy Go Well Beyond Process Cost Reduction

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The Hackett Group will discuss an approach and related best practices around optimizing the Purchase-to-Pay transactional strategy. Hackett data suggests that most companies have significantly too …

The Hackett Group will discuss an approach and related best practices around optimizing the Purchase-to-Pay transactional strategy. Hackett data suggests that most companies have significantly too many ways in which goods and services are bought and paid for and that there is little strategic thought put into the processes that are used relative to the risk profile of a particular product or service. Ultimately this leads to increased risk to the business in many instances and inefficiencies and cycle time delays in others. In fact, Hackett data suggests that for a typical $5 billion in revenue company these inefficiencies are over $4 million of process cost.

The additional impact of risk on the business while harder to quantify in its entirety is a minimum 14 times the opportunity related to process efficiency. Join this session to understand how top Performing companies optimize their Purchase-to-Pay channel strategy and resulting benefits. The session will include Hackett’s latest Purchase-to-Pay metrics as we quantify the business case for change and share best practices for delivering on the opportunity.

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    • 1. The Hackett Group Procurement Advisory Program| 1© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. OPTIMIZING THE PURCHASE- TO-PAY CHANNEL STRATEGY Associate Principal, Procurement Advisory March18, 2014 Kurt Albertson
    • 2. The Hackett Group Procurement Advisory Program| 2© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Statement of Confidentiality and Usage Restrictions This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the prior written consent of The Hackett Group. Copyright © 2014 The Hackett Group, Inc. All rights reserved. World-Class Defined and Enabled.
    • 3. The Hackett Group Procurement Advisory Program| 3© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.  I really like this and think it’s super close. Just a few minor thoughts:  Should we be clear around how Services and other highly collaborative spend falls within this (I love slide 31, but I’m not clear where this spend falls).  Should the concept of collaboration be incorporated a bit more around some spend types?  Maybe we can start off at the very beginning with a concept statement such as: By optimizing spend to the process and risk elements, rather than what the product is used for, companies can generate greater levels of synergy and cost savings… or something like that?  I’m not sure your sound track on this. I think it’s a great, deep piece, but we may need to give a “simple” sound track for an audience who has been in Vegas and may have had a few drinks the night before. What do you think?
    • 4. The Hackett Group Procurement Advisory Program| 4© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Agenda  Introduction  Defining P2P Channel Strategy  Benefits of Optimizing the P2P Channel Strategy  P2P Channel Strategy Program Approach  Conclusion
    • 5. The Hackett Group Procurement Advisory Program| 5© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Kurt Albertson Associate Principal, Procurement Advisory Phone: + 1 770.225.7570 kalbertson@thehackettgroup.com Kurt Albertson has responsibility for The Hackett Group’s North American Procurement Advisory program focusing on client relationships, business development, research and program delivery. Mr. Albertson works with over a hundred Global 1000 companies leveraging research and thought leadership to provide strategic direction and best practice business advice within Procurement and Finance. Prior to joining the Hackett Group Mr. Albertson spent six years as a management consultant in Sourcing and Procurement during which he worked with executives from dozens of large corporations on sourcing, business and technical strategies, organizational and business process design, and cultural change. Mr. Albertson also has five years of automotive experience working in manufacturing, quality, and operations. In this role he designed and implemented global manufacturing processes and supervised production operations. Mr. Albertson has been quoted in the Wall Street Journal and other major publications, has been the key note speaker at many national events, and travels globally to support client objectives.
    • 6. The Hackett Group Procurement Advisory Program | 6© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Hackett Group A leader in organizational effectiveness and best practice insight Mission  Hackett is an IP-based Global Advisory and Consulting firm helping clients implement and sustain world-class business performance across General and Administrative Services Hackett’s Value:  We formulate strategies based on our proprietary repository of Certified Hackett best practices and competitive insights  We design and implement sustainable performance improvement solutions Results  Our efforts have delivered 20%-40% in sustainable cost savings and over $25 billion of improved cash flow for clients across the globe Hackett Group Solutions:  Finance  Enterprise Performance Management  Human Resources  IT  Procurement & Sourcing  Supply Chain  Operations, Strategy, and Marketing Performance  Working Capital  Global Business Services/ Outsourcing  Workforce Solutions  Technology Implementation Oracle, SAP, Hyperion, Kronos, and Business Objects 97% of the Dow Jones Industrials 73% of the Fortune 100 88% of the Dow Jones Global Titans 73% of the DAX 30 45% of the FTSE 100 35% of the CAC 40
    • 7. The Hackett Group Procurement Advisory Program| 7© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. And Benchmarks Organizations across P2P including Plotting on the Hackett Value GridTM against Top Performers  Each organization is evaluated on overall efficiency and effectiveness and compared against others performance based on percentile rank  A formula combining these efficiency and effectiveness rankings is then used to calculate an overall ranking for each individual organization  Organizations that are high performers for both efficiency and effectiveness are identified as Top Performers  Median Top Performer and Non-Top Performer (Peer) comparisons are made throughout this presentation  Quartiles are shared on metrics where usage is strategy-dependent  Some metrics leverage data from related Hackett studies and benchmarks for greater sample size Hackett Purchase to Pay Value Grid™ Example of Effectiveness Drivers • First Pass Match Rate • On Time Payment Rate • Level of Spend Visibility • Streamlined Transaction Strategy • Level of Centralization • Training Investment • Compliance to Preferred Suppliers • Guided Buying Effectiveness • Supply Base Consolidation Example of Efficiency Drivers • Cost per Transaction • Transactions per FTE • Span of Control • Order Cycle Time • Invoice Processing Cycle Time • Percent of Electronic Transactions • Level of Automation
    • 8. The Hackett Group Procurement Advisory Program | 8© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Agenda  Introduction  Defining P2P Channel Strategy  Benefits of Optimizing the P2P Channel Strategy  P2P Channel Strategy Program Approach  Conclusion
    • 9. The Hackett Group Procurement Advisory Program| 9© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. By considering how spend is committed with respect to process and risk elements organizations can generate greater levels of overall value Some of the problems addressed by Optimizing the P2P Channel Strategy  Alignment of Strategic Spend Management and Transactional Management  Lack of standardization and commonality of buy/pay processes  Overly complicated spend control requirements (or lack thereof)  Management of transactional and supply risks  End to end process integrity and data quality  Failing to leverage enabling technologies/tools  Realized total cost savings through compliance and spend visibility  Optimization of working capital including discounts/rebates
    • 10. The Hackett Group Procurement Advisory Program| 10© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Source-to-Pay Channel Strategy Defined  The Channel Strategy defines an end to end approach for executing sourcing and buying activities with an emphasis on: – Integrating strategic buying activities with tactical/transaction processes – Reducing the variation in how we buy and pay for needed goods and services – Matching the right process with the right technology tools to manage spend and execute sourcing and buying processes – Balancing risk mitigation with process efficiency and ease of use Channel Strategy will… Auto-PO E-catalogue Goods Receipt E-invoice Wire Transfer PayRequisitioning Buy Receipt Invoice Leverage Enabling Technologies ...to realize scale and global footprint Standardize end-to-end processes and globalize best practices Eliminate complexity and inefficient processes Option 1 Requisition Buy Receive Invoice PayTransmit Option ## Option 1 Option ## Option 1 Option ## Option 1 Option ## Option 1 Option ## Option 1 Option ## Manage Supplier Risk
    • 11. The Hackett Group Procurement Advisory Program| 11© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Optimization of the P2P Channel Strategy Follows a Level of Maturity 1 - Lagging 2 - Achieving 3 - Exceeding 4 - Leading No clearly defined approach for balancing P2P transactional requirements with the degree of risk across different spend categories. No controls across enterprise on the number of ways purchases can be transacted. Beginning to align/balance predefined spend categories with Pcard, Non PO, 2-Way and 3-Way matching transactional strategies. Leveraging eProcurement system to manage compliance Preferred transactional channels (Pcard, Non PO, Assumed Receipt, ERS, 3-Way Match, etc) are assigned for each of the major spend/commodity categories to manage associated control requirements. Preferred channels are clearly communicated and compliance monitoring programs are in place. Formalized end-to-end channel strategy with nearly all spend covered by contract or PO. Automated 3-way matching when required for highly controlled and risky commodities. Aggressive use of assumed receipt, evaluated receipt settlement, and the automation of recurring payments for certain commodities. Thresholds for “no” and “negative” verification/approval are optimized. P-Card program is fully implemented.
    • 12. The Hackett Group Procurement Advisory Program| 12© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Optimizing the P2P Channel Strategy is about Aligning Category Spend to its Optimal Channel through an Analysis of Risk and Control 2 1 3 4
    • 13. The Hackett Group Procurement Advisory Program| 13© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Risk Factors are Many and Need to be Considered in the Context of the Category being Purchased Let’s not over control our buys • Assurance of Delivery • Expenditure Approval • Item or Service Pricing • Item Tracking • Granularity and/or Allocation of Expenditure • Budget Management CONTROL Factors RISK Factors • No Spend Detail • Limited Account Detail • Inappropriate Allocations • Stock Out • Price Variance • “Unearned” Payment • Unapproved Commitments • Liability
    • 14. The Hackett Group Procurement Advisory Program| 14© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Channel Strategy Must be Aligned with the Strategic Sourcing Process to Insure Alignment with Supplier Selection and Requirements Buy Pay (AP) Receive Strategic Sourcing, Business Procurement & Contracting Requisition to Pay • Sourcing & Business Procurement Strategies • Supplier Negotiation • Supplier Selection (Supply Strategy & Sourcing – Strategic Procurement) (Buy/Pay Process – Transactional Procurement) Key Inputs to Buy/Pay Process • Contract Development and Management • Supplier Relationship Management Supplier Master File • Procurement Policy • Preferred Supply Base • Accurate Pricing • Catalogs • Channel Design & Management • Self Managed Buy • Automated Buy • Professionally Facilitated Buy • Match Processing • Supplier Payments • Delivery Verification • Inventory Updates Spend Data Improved Financial Controls, Buying Compliance, Savings Realization
    • 15. The Hackett Group Procurement Advisory Program| 15© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Agenda  Introduction  Defining P2P Channel Strategy  Benefits of Optimizing the P2P Channel Strategy  P2P Channel Strategy Program Approach  Conclusion
    • 16. The Hackett Group Procurement Advisory Program| 16© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 42% 47% 47% 51% 51% 53% 57% 62% 70% 71% 74% 89% Redesigning global supply chain Creating a more variable cost structure Entering new regional markets Establishing end-to-end process ownership Seeking strategic mergers and acquisitions Reducing cost of goods sold Changing organizational structure Optimizing vendor base Upgrading talent Reducing SG&A cost Enhancing data management, BI and analytics Investing in technology/automation Examining Areas of Focus at the Enterprise Level We See that the Purchase-to-Pay Process is Impacted by Multiple Themes Enterprise areas of focus to achieve business strategy (Percent of companies stating as Critical/Moderate)
    • 17. The Hackett Group Procurement Advisory Program| 17© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. For 2014 Procurement Executives Identify P2P as one of their Top Priorities and it’s a Key Enabler of Many Others Source: 2014 Enterprise Key Issues Study 10% 18% 34% 41% 45% 48% 50% 52% 59% 69% 76% Preparing for a return to recession via scenario planning Growth enablement beyond innovation Environmental sustainability Obtain more value from purchase-to-pay process Reduce cost of Procurement Reduce supply risk Free up cash Reduce and avoid purchased costs Drive value beyond sourcing for complex indrect categories Innovation and product/service support Expand influence across categories and new value drivers Procurement’s Top Priorities (Percent of companies stating as Critical/High)
    • 18. The Hackett Group Procurement Advisory Program| 18© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Process Cost Reduction • Transactional Purchasing Process Cost Reductions • Accounts Payable Process Cost Reductions An Optimized P2P Channel Strategy Drives Many of the Key P2P Value Elements and Opportunities beyond Process Efficiency Value Elements Opportunity CPG Example Opportunity $4.4M Opportunity $52.2M Total*: $56.6 million Current process baseline cost ~$26 million 14x difference! Strategic Business Enablement • Improved/protected customer service, revenue, profit • Brand protection: compliance risk; supply/supplier risk • Opportunity cost of management time Service Level Excellence • Maverick Spending Reduction • Supplier Non-Compliance to contract • Demand Mgmt (Consumption Reduction) • Demand Mgmt (Spend Influence) • Sourcing Savings via better spend viz from P2P • Cost of Capital from DPO improvement • Early Payment Discounts • Rebates from Purchasing Cards • Reduced Cost of P2P Errors for Purchased Finished Goods and Raw Materials • Reduced Supplier Late Payments Penalties Hackett has developed a model which supports development of the P2P Value Opportunity based on specific inputs
    • 19. The Hackett Group Procurement Advisory Program| 19© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Top Performers have been bringing down Purchasing costs while Peers have stayed flat over time Source: 2013 Hackett Procurement Benchmark $16.71 $10.04 $15.98 $6.45 $18.00 $4.80 Process Cost ($) per Order Peer Top Performer 2009 2011 2013
    • 20. The Hackett Group Procurement Advisory Program| 20© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. However in Accounts Payable Costs have flattened all companies with a substantial gap between Top Performers and Peers $3.90 $1.14 $3.68 $1.29 $3.85 $1.46 Total Cost ($) per Invoice 2009 2011 2013 Peer Top Performer Peer Top Performer Peer Top Performer
    • 21. The Hackett Group Procurement Advisory Program| 21© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The Greatest Benefit from a Monetary Perspective is the Driving the Requestors to Preferred Suppliers and Contracts 1% 1% 1% 6% 3% 7% 7% 7% 6% 7% 4% 2% 6% 6% 5% 10% 8% 16% 6% 16% Purchased Finished… Raw… Direct Services Capital… IT & Telecommunications Sales & Marketing Support General Equipment &… Travel & Entertainment Human Resource Services Administrative &… Percent of targeted / negotiated cost reductions lost due to maverick buying and contract / blanket order non-compliance Non-WC World Class Hackett Group Procurement Benchmark, 2011 Category level analysis identifies the areas of greatest opportunity for trusted sources and established contracts to be further leveraged
    • 22. The Hackett Group Procurement Advisory Program| 22© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Benefits Specific to each of the Key Stakeholder Groups Benefits Strategic Sourcing Manager PR Manager and Buyer Requestor/ Business Unit Budget Owner and Finance Quality data for supplier intelligence and spend analytics X X Compliance to buying policies and use of the right suppliers X Realization of targeted sourcing strategy savings goals X Less intervention in requester initiated purch. transactions X Improved methods and tools to support operations needs X Free up time to focus on more value add strategic activities X Standardized buy methods/processes to support requestors X More item via Catalogs and system Contracts X Self manage purchasing of needed goods and services X Improved business review/approval capabilities X Risk management through appropriate transactional controls X Reductions in operating costs X Data integrity to reduce backend payment processing errors X
    • 23. The Hackett Group Procurement Advisory Program| 23© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Agenda  Introduction  Defining P2P Channel Strategy  Benefits of Optimizing the P2P Channel Strategy  P2P Channel Strategy Program Approach  Conclusion
    • 24. The Hackett Group Procurement Advisory Program| 24© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. There Are Six Key P2P Process Steps That Are Evaluated When Developing A Channel Strategy Requisition Creation Order Creation Receive Invoice Pay Transmit Order Purchase-to-Pay Process Payments to suppliers for all validated and approved payment requests Conversion of approved requisitions to a supplier specific order for goods or services and related concurrence processes Identification, communication, and approval to buy needed goods or services Communication to the supplier identifying and authorizing purchase of goods or services Validation of goods delivery or service fulfillment Processing of supplier or external 3rd party requests for payment The process of communicating requirements, managing buy/pay controls, and processing payment requests. Process Step OPTIONS Defined Process Step 1 Option 1 Option 2 Option 4 Option 3 Options represent the unique methods available to execute a defined Process Step. Option characteristics include: • System, eTool, or manual enablement • Having a identifiable cost factor that encumbers or benefits the process step
    • 25. The Hackett Group Procurement Advisory Program| 25© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. The P2P Channel Strategy Technology Roadmap Should Ensure That These Basic Capabilities Are Enabled Requisition Request and approve the purchase of goods & services Buy Purchase goods & services from third-party suppliers Receive Acknowledge & record receipt of goods & services Invoice Receive and process third-party invoices for payment Pay Schedule and issue payments to third-party suppliers Self Managed Requisitioning toolset Contract Compliance tools (P2P) Payables toolsetCatalog & Materialized Items Internal & Supplier Self-Service Portals eInvoicing Electronic Pay Automated Requisitioning/Buying Master Data: Supplier, Item, Catalog Review/Approval Workflow Purchasing Cards
    • 26. The Hackett Group Procurement Advisory Program| 26© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. How Do You Begin To Identify The Preferred P2P Channel Options and Permutations (5 high level steps)? 1. Identify all current state “options” for each Channel Process Step 2. Conduct high level analysis of spend and transaction volume running through each current state requisitioning option and payment matching permutation (estimate execution costs as required) 3. Based on strategic and process efficiency objectives, eliminate non value add process step options and identify option improvements 4. Rationalize permutations to reduce variability (reduce the number of supported permutations and payment matching requirements) 5. Define with spend categories move through which Requisitioning channel and supporting control and payment matching requirement. Option 1 Requisition Buy Receive Invoice PayTransmit Option ## Option 1 Option ## Option 1 Option ## Option 1 Option ## Option 1 Option ## Option 1 Option ##
    • 27. The Hackett Group Procurement Advisory Program| 27© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. How Do You Begin To Identify The Preferred P2P Channel Options and Permutations? 1. Identify all current state “options” for each Channel Process Step 2. Conduct high level analysis of spend and transaction volume running through each current state requisitioning option and payment matching permutation (estimate execution costs as required) 3. Based on strategic and process efficiency objectives, eliminate non value add process step options and identify option improvements 4. Rationalize permutations to reduce variability (reduce the number of supported permutations and payment matching requirements) 5. Define with spend categories move through which Requisitioning channel and supporting control and payment matching requirement. Matching Analysis MRP – Direct Materials Spend Reqs. Total $ 2.84B 201K MRP – IndirectMaterials Spend Reqs. Total $ 278.59M 379K Shopping Cart Services Spend Reqs. Total $ 2.89B 75K Shopping CartCatalog Spend Reqs. Total $ 3.42M 8K T&E Card Spend Reqs. Total $ 94.57M - P-Card Spend Reqs. Total $ 20.61M - Requisitioning Analysis
    • 28. The Hackett Group Procurement Advisory Program| 28© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Lets Not Forget The Impact That Supplier Volumes Have On Channel Strategy Development 3% (250 suppliers) of supply base accounts for 80% of spend 80% of Suppliers Submit 12 Invoices or Less Per Year
    • 29. The Hackett Group Procurement Advisory Program| 29© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. How Do You Begin To Identify The Preferred P2P Channel Options and Permutations? 1. Identify all current state “options” for each Channel Process Step 2. Conduct high level analysis of spend and transaction volume running through each current state requisitioning option and payment matching permutation (estimate execution costs as required) 3. Based on strategic and process efficiency objectives, eliminate non value add process step options and identify option improvements 4. Rationalize permutations to reduce variability (reduce the number of supported permutations and payment matching requirements) 5. Define with spend categories move through which Requisitioning channel and supporting control and payment matching requirement. Option 1 Requisition Buy Receive Invoice PayTransmit Option ## Option 1 Option ## Option 1 Option ## Option 1 Option ## Option 1 Option ## Option 1 Option ##
    • 30. The Hackett Group Procurement Advisory Program| 30© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. How Do You Begin To Identify The Preferred P2P Channel Options and Permutations? 1. Identify all current state “options” for each Channel Process Step 2. Conduct high level analysis of spend and transaction volume running through each current state requisitioning option and payment matching permutation (estimate execution costs as required) 3. Based on strategic and process efficiency objectives, eliminate non value add process step options and identify option improvements 4. Rationalize permutations to reduce variability (reduce the number of supported permutations and payment matching requirements) 5. Define with spend categories move through which Requisitioning channel and supporting control and payment matching requirement. Option 1 Requisition Buy Receive Invoice PayTransmit Option 1 Option 1 Option 1 Option 1 Option 1 10 to 25 ChannelOption Permutations,not100 to 1,000 Purchase Order Invoice Only Invoice No PO Pcard Buy Purchase Order System Receipt Purchase Order InvoiceSystem Receipt Pcard Pay Payment Buy Verify Bill/Verify Pay No Match Invoice Only 2-Way Match ERS 3-Way Match 10 to 25 Channel Option Permutations, not 100 to 1,000
    • 31. The Hackett Group Procurement Advisory Program| 31© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. A Well Developed Channel Strategy Will Simplify Execution Options System Receipt Entry Automated Inventory/ MRP Pcard or Travel Card Requisition Requisition to Transmit No System Req Invoice Approval (Workflow) Order Transmit Order Receive No PO (Invoice Only) Receive Invoice Invoice to Pay Charge Card eInvoice Pay 1 2 3 4 5 Catalog (Internal and External) Non Catalog (Text Based) Charge Card Non PO Automated Requisition (Inventory) Channel Automated (no touch) Automated (no touch) Shop Cart (text based) Electronic Payment No System Receipt Work Order System SRM Sourcing Cockpit 7 Manual ERS (no invoice) Maintenance & Repair Non- System Ordering Shopping Cart Auto Ordering SAP ME21N Requisition Process Pull From Stock On Hand Goods Done Shop Cart (Catalog) 6 Recurring Payments Supplier Managed Third Party Managed 8
    • 32. The Hackett Group Procurement Advisory Program| 32© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Staff Augmentation Example System Receipt Entry Automated Inventory/ MRP Pcard or Travel Card Requisition Requisition to Transmit No System Req Invoice Approval (Workflow) Order Transmit Order Receive No PO (Invoice Only) Receive Invoice Invoice to Pay Charge Card eInvoice Pay 1 2 3 4 5 Catalog (Internal and External) Non Catalog (Text Based) Charge Card Non PO Automated Requisition (Inventory) Channel Automated (no touch) Automated (no touch) Shop Cart (text based) Electronic Payment No System Receipt Work Order System SRM Sourcing Cockpit 7 Manual ERS (no invoice) Maintenance & Repair Non- System Ordering Shopping Cart Auto Ordering SAP ME21N Requisition Process Pull From Stock On Hand Goods Done Shop Cart (Catalog) 6 Recurring Payments Supplier Managed Third Party Managed 8
    • 33. The Hackett Group Procurement Advisory Program| 33© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Professional Services Example System Receipt Entry Automated Inventory/ MRP Pcard or Travel Card Requisition Requisition to Transmit No System Req Invoice Approval (Workflow) Order Transmit Order Receive No PO (Invoice Only) Receive Invoice Invoice to Pay Charge Card eInvoice Pay 1 2 3 4 5 Catalog (Internal and External) Non Catalog (Text Based) Charge Card Non PO Automated Requisition (Inventory) Channel Automated (no touch) Automated (no touch) Shop Cart (text based) Electronic Payment No System Receipt Work Order System SRM Sourcing Cockpit 7 Manual ERS (no invoice) Maintenance & Repair Non- System Ordering Shopping Cart Auto Ordering SAP ME21N Requisition Process Pull From Stock On Hand Goods Done Shop Cart (Catalog) 6 Recurring Payments Supplier Managed Third Party Managed 8
    • 34. The Hackett Group Procurement Advisory Program| 34© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. How Do You Begin To Identify The Preferred P2P Channel Options and Permutations? 1. Identify all current state “options” for each Channel Process Step 2. Conduct high level analysis of spend and transaction volume running through each current state requisitioning option and payment matching permutation (estimate execution costs as required) 3. Based on strategic and process efficiency objectives, eliminate non value add process step options and identify option improvements 4. Rationalize permutations to reduce variability (reduce the number of supported permutations and payment matching requirements) 5. Define which spend categories move through which Requisitioning channel and supporting control and payment matching requirement. Overlaying commodity categories and P2P channels provides an optimal transactionalstrategy Compliance Risk Factors  Inadequate spend detail  Limited account detail due to granularity of accounting  Inappropriate allocations  Price variances  “Unearned” payments to suppliers  Occurrence of liability  Lost supplier performance information  Unapproved commitments  Loss of item tracking (e.g., capital)  Inadequate budget management  Nonstandard payment terms  Lost demand aggregation opportunity  Loss of product standardization P = Preferred A = Alternate N = Not Allowed 1st Node: Category 2nd Node: Group C o 3rd node: SubGroup Pcard Travel Card Fleet Card Catalog or M aster Item Text Based Order Work Order Non System Request (manual) Pull From Strock 1: Manufacturing Materials 2. Supplies 3: Equipment & Spare parts 6: Services 1: industrial services P A P 2: Financial/Legal Services P P A 3: Business Support Services P A P 4: Marketing Services P A A A P Supplier M anaged ACH Settlement Pcard, Travel or Fleet Card Invoice Only (non PO) PO & Invoice PO & Receipt (ERS) PO Receipt Invoice (3-Way) Recurring Payment C o mmercial C ards SR M (Shopping Cart)/ SA P B ased R equest M anual R equest Automate d M RP Self Managed Buy Automated Buy Supporting RTP Transaction Options 8 Preferred BUYINGChannel Options and Tools (Making buys with approved suppliers) P2P Transactions (Preferred transactions to support the buy)
    • 35. The Hackett Group Procurement Advisory Program| 35© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Top Performers Establish a Source to Settle Channel Strategy then Take Action to Guide Requisitioners to Preferred Suppliers 28% 8% 56% 67% 8% 33% Non Top performer Top Performer No standard buy/pay channels established Not Effective Mostly Effective with gaps Very Effective Effectiveness at driving requisitioners to preferred buy/pay channels P = Preferred A = Alternate N = Not Allowed 1st Node: Category 2nd Node: Group C o 3rd node: SubGroup Pcard Travel Card Fleet Card Catalog or M aster Item Text Based Order Work Order Non System Request (manual) Pull From Strock 1: Manufacturing Materials 2. Supplies 3: Equipment & Spare parts 6: Services 1: industrial services P A P 2: Financial/Legal Services P P A 3: Business Support Services P A P 4: Marketing Services P A A A P Supplier M anaged ACH Settlement Pcard, Travel or Fleet Card Invoice Only (non PO) PO & Invoice PO & Receipt (ERS) PO Receipt Invoice (3-Way) Recurring Payment C o mmercial C ards SR M (Shopping Cart)/ SA P B ased R equest M anual R equest Automate d M RP Self Managed Buy Automated Buy Supporting RTP Transaction Options 8 Preferred BUYINGChannel Options and Tools (Making buys with approved suppliers) P2P Transactions (Preferred transactions to support the buy)
    • 36. The Hackett Group Procurement Advisory Program| 36© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 49% 3% 9% 2% 11% 26% 55% 12% 11% 0% 3% 20% 3-Way Match Evaluated Receipt Settlement Assumed Receipt Recurring Invoice P-Card (and other) Non-PO 44% 5% 9% 0.4% 11% 31% 48% 11% 17% 0.2% 8% 15% 3-Way Match Evaluated Receipt Settlement Assumed Receipt Recurring Invoice P-Card (and other) Non-PO Peer Top Performer And We that P2P Top Performers Have a Higher Percentage of Transactions through Optimal Channels with More Spend through PO/Contract-based Channels Transactional Strategy (Percent of Transactions) Transactional Strategy (Percent of Spend) TP = 37% on Optimal Channels Non-TP = 25% on Optimal Channels TP = 78% on PO/Contract Non-TP = 63% on PO/Contract
    • 37. The Hackett Group Procurement Advisory Program| 37© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. There are a wide variety of risks that can be incurred during the purchasing of a category Risk Element Overall Impact (1-5) Weight Limited Spend Detail Captured Limited Account Detail Captured Inappropriate Allocations to Budget, etc. Stock Out of Critical Component Price Variance versus Contracted Price “Unearned” Payment by Supplier Unapproved Commitments Liability Assumed by Company Risk associated with Unapproved Suppliers IP Protection Regulatory Non-Compliance Sales & Use Tax Non-Conformity to Standards Product Health and Safety Concerns Warranty Issues Total Weighted Score = What is the impact of this risk for this commodity based on probability, transactional volume, spend, etc.? Should attempt to quantify. Does the organization weight various risks higher than others? Low Risk: <2.4; Medium Risk: 2.4 to 3.6; High Risk: >3.6
    • 38. The Hackett Group Procurement Advisory Program| 38© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Sample Commodity Category & Buy Method Optimized Process Mappings Default Commodity Category Assignments To Optimized Transaction Strategy Flow Paths Procurement Card Invoice Only 2 – Way Match Recurring Invoice Supplier Submitted Invoice PO + Invoice (Assumed Receipt) PO + Receipt (ERS) Non-Catalog Indirect goods/services under $500/$1000. For example: Non-Catalog Office & Special Lab Supplies Emergency Repairs Short Term Rentals Package Carriers (UPS, FedX) Leased Equipment Long Term Rentals Fixed Rate Services Legal Telecom (voice) Utilities (Energy) Insurance Transportation Professional Services Business Services IT Maintenance Contracts Engineering Services All “inventoried” items Supply Chain Materials (Direct & Packaging) Telecom Equipment IT Hardware/Software MRO Inventory Catalog Items (Office, MRO, Lab) Direct Materials Non Inventory Professional/Temporary Services Capital Projects Description Based Buy X X X External Catalog (Hosted or Direct Connect X X Store Room or Office Supply Cabinet X X Specialty Services X X Internal Profiled Items (Manual or Auto Ordered X X Buy Method Commodity Category Optimized Process
    • 39. The Hackett Group Procurement Advisory Program| 39© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 4 Stages of Channel Training & Deployment Prepare for Source to Pay Channel Deployment and Training Sessions Division/Location Training Delivery Preparations Conduct Source to Pay Channel Location Training Go Live, monitor, and support deployed locations • Channel launch review with Ops Management • Confirm Training Dates & send invites • Introduce Channel Strategy during Procurement Division Kaizen event • Identify training participants • Validate/setup spend level & approval flow • Validate/setup SRM user access • Conduct Division Procurement Staff training • Conduct SRM Requester training • Conduct SRM Approval training • Provide post training support • Provide access to training materials and “Uperform” tutorials • Monitor and collect metrics on channel usage • Communicate progress • Make improvements based on deployment learning's Repeat for each Division/Location training event
    • 40. The Hackett Group Procurement Advisory Program| 40© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Agenda  Introduction  Defining P2P Channel Strategy  Benefits of Optimizing the P2P Channel Strategy  P2P Channel Strategy Program Approach  Conclusion
    • 41. The Hackett Group Procurement Advisory Program| 41© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Top Keys to Optimizing Your Transactional Channel Strategy Decide on scope…Do we pilot the approach within a regions or facility or rollout globally? Engage stakeholders…Do we decide on a template channel strategy and get buy-in or go directly to stakeholders to develop? Decide on approach…Do we start with one channel strategy or optimize the entire approach? Global vs. regional…Do we need to have a global channel template or do we customize by region? Business Case…What are the advantages of developing a business case versus just rolling it out?
    • 42. The Hackett Group Procurement Advisory Program| 42© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Contact Information The Hackett Group Suite N500 1117 Perimeter Center West Atlanta, GA 30338 Phone: +1 770 225 3600 Martin House 5 Martin Lane London EC4R 0DP Phone: +44 207 398 9100 Torhaus Westhafen Speicherstrasse 59 60327 Frankfurt am Main, Germany Phone: +49 69 900217 0 8, rue de Port Mahon 75002 Paris, France Phone: +33 1 53 43 0400 Strawinskylaan 3051G, 1077 ZX Amsterdam, The Netherlands Phone: +31 20 301 2210 Kurt Albertson Associate Principal, Procurement Advisory Phone: + 770.225.7570 kalbertson@thehackettgroup.com 1-888-8HACKETT advisor@thehackettgroup.com www.thehackettgroup.com
    • 43. The Hackett Group Procurement Advisory Program| 43© 2014 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. Please Complete Session Survey Locate Session 43 Click Surveys Button Select Breakout Survey Rate Session Thank you for joining us