The Supply Chain of the Future – Tomorrow's Vision or Today's Reality?
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Procurement: It's time to automate!
With so much in business being automated these days, it is hard to believe that some companies still use checks to pay for goods and services.
A recent Association for Financial Professionals survey finds businesses pay about half their bills by check. They say they like the familiarity of the process, and they know the system works.
The statistics are surprising given that using checks is costly and inefficient. Processing checks manually takes time and errors can occur. Automating the purchase-to-pay process can streamline operations and save money by reducing those errors. Procurement and payables would have more time to spend on activities that directly contribute to company success, such as developing sourcing strategies for critical purchases and managing performance of key suppliers.
Automated purchase-to-pay systems, which allow buyers to order goods and services and companies to pay suppliers using computers, were introduced in the 1990s, and many companies have since implemented them. According to the 2016 Gartner "Magic Quadrant for Procure-to-Pay Suites," 50 percent of North American and 35 percent of Western European companies with more than $2 billion in annual revenue have invested in at least one of the following purchase-to-pay system modules: e-requisitions, catalog management, and accounts payable invoice automation.
With automated purchase-to-pay systems, employees use online catalogs to buy goods and services from suppliers with whom procurement has negotiated price and other contract terms, and the systems pay the suppliers. Now providers of these systems are adding more functionality to their products. For example, some are offering buyers and suppliers networks or marketplaces where they can transact business with one another.
Some technology providers are also offering financing services that extend payment terms while ensuring that suppliers are paid on time. For example, dynamic discounting allows companies to maximize early payment discounts, which save them money.
These companies and some others in the financial services industries (those that offer purchasing credit cards are one example) are called financial technology, or "fintech," companies. According to a recent Harvard Business Review article, "The Rise of Fintech in Supply Chains," financial technology companies "act as intermediaries in facilitating transactions between a company and its suppliers."
What does this mean for procurement? With these new technologies, "procurement can achieve its long-term goal, which has always been to be strategic," says Eric Wilson, vice president of Purchase to Pay at Basware, a fintech company based in Espoo, Finland. "It is not high value for procurement professionals to be making decisions on things that a machine could make by studying the data and observing patterns of what happens with the data. Now, procurement has the tools to achieve that big-picture goal it has had for a long time."
Let's use marketplaces as an example. The transactions that run through the network generate data. Fintech tools can then use artificial intelligence (AI) and machine learning—two technologies procurement should be hearing more about—to help identify recurring errors on invoices. They can also help detect fraud by pointing out a nuance in a remit-to address. Both of these tasks are nearly impossible for a human to accomplish.
And then there are services offered by fintech companies. These services enable both the buyer and supplier to improve their working capital by making it possible for the buyer to extend its payables and at the same time accelerate payment to the supplier, notes the HBR article. This provides both sides with benefits, including greater liquidity and less variability in the timing of payments.
To take advantage of the financial benefits these new services offer, businesses need to let go of paper checks. Procurement leaders and their colleagues in finance should work together to research the market and evaluate suppliers, assessing the opportunities and the risks. They need to automate the purchase-to-pay process. Then they will have fewer administrative tasks, like correcting invoice errors, to manage and more tools they can use to contribute real value to the company's financial success.
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