How to Digitize the Source to Pay Function - A Materials Supplier Example.

It is well understood that the need for organizations to digitize their source to pay function is shifting from a pressing priority to an essential one in order to remain competitive in the marketplace. In this article, I will outline the steps that will help CFOs and their Boards transform their source to payment (S2P) function - using the example of a materials supplier.

Think of it this way: You want a brand-new, freshly Zambonied ice surface to play hockey on (a digitized S2P function). But your crew has never skated (never worked in this type of digitized environment). 

What to do? 

Although the winning end goal of any digital transformation has to be to reduce costs, there are a number of other plays that need consideration. For example, to enhance transparency and provide real time insights for decision making via collaborative cross-functional engagement and adoption. And although these will help ensure  the success of this mission critical business requirement - it’s not what has to come first.

It takes more than a deep knowledge of finance, technology and organizational transformation initiatives to drive this change in multinational corporations (MNCs). You have to be able to persuade and influence. 

This requires a comprehension of commercial judgement as well as the sales acumen to overcome internal resistance and barriers to change. Organizations must be able to challenge conventional thinking from within, achieve alignment across broad geographical territories, and build engagement with entrenched operational and financial functions in order to achieve success.

For any organization, but particularly in our example (due to the extreme sensitivity of the supply chain), supplier sourcing and management is where the bulk of cost savings are and where the analytics begin - so do sort this out before playing with your procure to pay process. 

Before we get into the weeds of this, let’s look at an overall  example of a common S2P process flow (provided publicly by RazorpayX). They’re an Indian startup that was acquired by MasterCard. This diagram lays out the end-to-end process very intuitively:

So for a materials supplier, who in turn, has hundreds of suppliers, often globally, cost and consistency is paramount. Here, digital transformation often takes a back seat to long standing partnerships and a fear of operational disruption. Yet, digital transformation is required in order to retain a competitive leadership position in the market, drive down costs, increase transparency and cross functional engagement.

Remember that cost is not the number one priority, although it may be the end goal. For a market leading materials supplier, quality and service always come first. 

STEP ONE - SORT OUT YOUR SUPPLIERS:

Ensure the robustness of key supplier requirements, such as:

·         Quality material

·         Supplier service & reliability

·         Just-in-time delivery

·         Materials & services meet the highest regulatory compliance standards

·         Suppliers adhere to the highest standards of R&D

STEP TWO - CATALOGUE YOUR SUPPLIERS:

Ensure that suppliers are appropriately catalogued between preferred suppliers, secondary, and tertiary supplier bases - evaluated on the factors above (more can be added and then ranked and weighted to appropriate organizational priorities). Non-performance is noted in existing rosters and information systems for future reference.

STEP THREE - CAPTURE REAL-TIME DATA:

Real time data must then be incorporated into this digital infrastructure to ensure - not just seamless process and substantive analytics - but user-friendly software for later internal adoption. To do this, you need to capture as much non-critically sensitive and high value data as possible. The broader the scope the better too, as you want to bring as much of the organization with you as possible. 

Examples can include:

·        Departmental budgets

·        Department codes

·        Ledgers

·        High level employee data, titles, departments etc.

·       Contract management

·       RFX materials

Having built supplier management programs manually myself, I know how to design and structure these processes properly for MNCs balancing value, insights, technology adoption and change management. A good Digital Transformation Leader (DTL) can achieve this regardless of industry, since the fundamental principles and architectural design remain constant.

Moving along the RazorpayX diagram, the procurement to pay (P2P) cycle begins at “purchase” and continues along till “ payment reconciliation”.  And a lot of organizations (erroneously) just focus here.  According to Paystream 2022, 80% of organizations still use manual or semi-digital tools to manage their P2P cycle. They use the procurement module integrated with their ERP or accounting software. By 2025, more than 50% of organizations around the world will have a cloud-based procure-to-pay suite in place.

Let’s phrase this a different way: 50% of organizations still don’t have an automated or cloud-based P2P suite in place - which is shocking, given the pace of technological advancement. Organizations just can’t keep up with the level of technological progress. With all this fear about AI making people redundant, organizations can’t even automate their P2P functions. It took less time for organizations to go paperless once the PC came out.

There’s a huge market for organizations to do this - and a huge need for them to get there.

STEP FOUR - INSTILL THE RIGHT BEHAVIOURS:

Now that the data is properly organized and mapped, the next step is to ensure alignment on execution. With so much money on the table and tight deadlines, instilling the right behaviours in the organization is crucial. This means laser-focused, user-friendly process optimization as well as astute political acumen to promote user adoption. Thoughtful communications that help sell the future state are foundational to the engagement of cross-functional collaboration. Don’t move too fast! You can change the technology quickly, but in doing so you may well find that the people required to make it happen haven’t come along with you. 

STEP FIVE - CREATE INCREMENTAL SUCCESSES:

In order to maintain momentum in parallel to a digital overhaul, regular predictable successes through the automatization of current activities while building toward larger longer-term outcomes is required.  Nothing should be done in silos. A close relationship with IT, with responsibility for systems and solutions architecture (integration, data, analytics, infrastructure, and investments), is essential. This way, the company can now prioritize and sell the user journey, which once developed, can be managed in sprints (see below):

STEP SIX - FIND A SOFTWARE SUPPLIER:

It’s not about who is best in the market, it’s about who’s going to give the best service (Think: bespoke configurations and ongoing post-purchase training and consultation). The procure to pay process works on a relatively simple system of: Requisition – Approval – Purchase Order – Goods Received Note (GRN) – Invoice Approval – Vendor Payment. The following  diagram details the essence of this flow :

Choose a software supplier that has the most customization, integration and service levels to see through the implementation.

STEP SEVEN - GOVERNANCE AND LEADERSHIP SUPPORT:

If a digital transformation is going to fail, it’s usually at this step. All organizations can get to Step Six. 

We’ve demonstrated that merely lumping a S2P software into a fragmented S2P process will not solve the companies’ problems. The stumbling blocks are: data consolidation, segregation of duties, bureaucracy, management apathy, adoption and change management. Not so easy. 

To get through step seven, look at organizational design, governance and development. Clear remit under strategic priorities, access and oversight of resources and stakeholder engagement communication structures are essential. Don’t shy away from engaging external support communications, psychology and coaching support.

STEP EIGHT - LEARNING AND DEVELOPMENT:

Finally, there needs to be a robust learning and training program to manage adoption and change. It's critical to see the digitization process out in its entirety. Psychological safety will have to have been built into the process throughout  - and critically and particularly at the level of middle management, who bear the brunt of keeping things going on one hand, while acting as a champion for change on the other; while fielding questions, problems and bottlenecks on the other. Oh wait … that’s three hands …

STEP NINE - CONTINUOUS IMPROVEMENT:

But let’s be clear: Continuous refinement and iteration is the hallmark of a transformation that works. It’s never a one and done - at least projects that are successful in the long-term aren’t.

STEP TEN - CELEBRATE SUCCESS:

It's important to celebrate those incremental successes. Yet it’s also important psychologically for the organization to acknowledge the finish line. The end goal is to make digital transformation a key cornerstone of organizational strategy in the minds of the leadership teams. Think back to our analogy of  hockey and the ice rink. I can explain to you the mechanics, the equipment, what movements, and how to pass to teammates. But unless you’ve actually played hockey (you have the talent and experience) you’ll likely fall flat on the ice. In choosing your DTL, make sure they not only have the ability to execute - but give them the resources and support they need to succeed. 

At the end of the process for our theoretical material supplier, they will have a mature supplier management system that retains operational excellence, with a common system linking purchases, payments, processing and reconciliations. With integration of real time data there is also a systematic process for cost management, analytics, major administrative oversight and governance - not to mention a heavy duty corporate cost lever to optimize capital for future growth.

Thanks for reading.

About the Authors

Padraig transforms organizations by diversifying revenue lines, and connecting financial strategy to human creativity. He loves to connect with like-minded finance and organizational development and strategy nerds. Anna is an organizational psychologist and executive coach, with a special interest in all things technology. We’re part of the team at Garleff Coaching and Consulting Group. If this article has struck a chord, please let us know.
Pádraig Kehoe Cell: +1 236 867 6126 / padraig.kehoe@gmail.com
Anna Garleff Cell: +1 587 224 3793 / anna@garleffcoaching.com
www.garleffcoaching.com