Automating P2P to Enhance Performance
by Michael Friede, VP Procurement & Trading, Bayer MaterialScience, LLC and Head of Global Procurement Intelligence, Bayer MaterialScience
Many companies, including Bayer MaterialScience (BMS), have invested significant human and financial resources in optimising their cash management and banking activities so that payments are transacted securely, efficiently and cost-effectively. To achieve a truly efficient payment process, however, companies also need to focus on the activities that take place before the release of the payment file to the bank, and ensure that every step in a payment cycle is optimised. At BMS, the procurement department owns the entire purchase-to-pay (P2P) lifecycle, so we had the opportunity to identify where surplus costs or inefficiencies existed, with a view to streamlining and optimising the entire process.
Challenges and opportunities
In 2010, we undertook a review of the costs inherent in our P2P cycle. We had over 15,000 external vendors, with around 1,000 new vendors each year. These were distributed globally with different requirements in each country and varying degrees of risk associated with each supplier. Internally, we had several shared service centres (SSCs) in Spain, Germany, South America and Asia, with rising personnel costs. Although we maintained a single ERP (enterprise resource planning), we had three separate instances, resulting in different processes in each SSC, with a large number of manual tasks. These manual processes relied on a high level of resourcing and were prone to error, which in turn resulted in additional cost. With over 3,000 FTEs [full-time employees) approving invoices across the business, approval processes were also fragmented and diverse. Technology was also an issue, as we needed to ensure that this was maintained effectively with new innovations introduced as necessary to ensure that we were able to demonstrate best practices in security, efficiency and compliance.
As a result of this analysis, we found that our purchase-to-pay costs were increasing year on year due to the growth of our supplier base, rising resourcing costs, and a lack of capacity in our systems and processes to absorb higher volumes. In addition, we were not leveraging economies of scale or opportunities for innovation in our technology infrastructure.
Automation and standardisation
We therefore made the decision that the less that individuals had to interact with payment-related information, and the more standardisation that we could achieve in both data and processes, the more efficient and cost-effective we could become. In particular, we identified that the original initiation of a payment, through raising a purchase order, needed to be more automated and standardised, which would then facilitate further automation further along the payment cycle, through invoicing, approval, payment and releasing the payment file.