Monday, December 21, 2015


Change Management and Foundational Alignment for Finance and Procurement

See the previous posts in this series here, here, here and here.
Beyond process and systems integration, the real need is in aligned goals between procurement and finance. If procurement sees the key to success as getting as much spend as can be identified under management as soon as possible, it will prioritize the identification of savings options (strategic sourcing, inventory reduction, vendor managed inventory, etc.) and implementing new contracts as quickly as possible. Under this scenario, activities like invoice verification and supplier scorecard monitoring will not be a priority.
Source: Pierre Mitchell, Sheena Smith/Spend Matters
With this mindset, procurement may be tempted to just approve any invoice with a broader tolerance threshold (e.g., 5%). Depending on the root cause of the discrepancy, how much the approval is really costing the organization and, most importantly, if the supplier is repeatedly sending erroneous invoices, there is likely a systemic issue of cascading problems that needs to be corrected. Negotiating a 10% savings is worthless if 5% overcharges are repeatedly being accepted. This raises the question: Is the goal of e-invoicing manual effort reduction or savings capture? (Hint: Ideally, it shouldn’t be a choice!)
While several requirements might be necessary depending upon the effort in question — be it e-invoicing, increased analytics visibility or the identification of non-value added activities that could be outsourced to a business process outsourcer (BPO) — one requirement is constant: goal-based alignment between procurement and accounts payable. Investing in change management throughout the process to make sure all parties are collaborating is central to realizing success.
While this may appear difficult with one department focused on payment accuracy and management and the other on savings identification, the benefits are worth it. When done right, the organization captures the vast majority of savings identified in a contract, instead of losing 30 to 40 cents of every dollar negotiated, a figure that was identified in AMR Research’s classic series “Reaching Sourcing Excellence.” (We miss the pre-Gartner days!) But it can also prevent the average 1.5% of overpayments, based on total payment volume, that typically occurs because of duplicate payments and fraud — and paying any additional fees to recovery firms that typically recover two-thirds of this loss while pocketing the rest.
Technology, again, can be the great equalizer and enabler. Coca-Cola Refreshments was able to increase e-invoicing throughput to 84% (from 10%), reduce invoicing processing costs by 70% and drive 74% portal adoption through a dedicated program that put finance-procurement alignment and an underlying platform at the core of driving change. (Source: Coca-Cola Refreshments and Taulia.)  

Yet alignment is key. Data from REL, as analyzed by Spend Matters, show that:
  • Only 22% of procurement groups get hard credit for cash-related (balance sheet) improvements
  • Only 11% of procurement groups get credit for reducing spend via demand reduction
Further, according to my colleague Pierre Mitchell, a blind DPO stretch correlates with reduced shareholder value.
So what’s the  solution? Focusing on alignment, shared goals, metrics and change management can help finance and procurement magnify the results of their individual efforts to get more value from suppliers, the supply chain and working capital.