For every business, accounts payable (AP) is a costly and time-consuming expense. Every organization, no matter how small, has expenses. Processing can be inefficient, costly in terms of hours spent, open to fraud and prone to error.
What if there’s already a better way? And what if that better way is poised to become better? As the CEO of a procurement management software company, that’s where I believe we are today — in the early stages of a technological revolution that will change business as we know it. According to a survey from SAP Ariba (via Supply Chain Dive), only 5% of procurement leaders say their organizations’ processes are highly automated.
The Role Of Automation
How does automation relate to cost savings? Unlike humans, computers are tireless, work 24/7, and (ideally) never make mistakes. How does all this stack up? According to Accenture research, automation in procurement can lead to:
• Up to 60% productivity gain.
• 83% reduction in purchase order processing time.
• Up to 65% reduction in operating costs.
• Zero human error.
However, the robotic process automation (RPA) procurement tools we have today are only the precursor to intelligent, AI-driven solutions. They flag unexpected data for humans to deal with, and even when AI is developed, I believe that is unlikely to change. AI has no capacity for imaginative thought, so human oversight will likely remain necessary, at least for the foreseeable future.
In accounts payable, there are many tools offering solutions that look to automate invoice document management, and in most cases, these include machine learning and other elements of AI. Basecone and Stampli are examples of these. Solutions such as Coupa and my own software look to cover the full procure-to-pay process.
Preventing Fraud And Reducing Risk
The major procurement failure scandals U.S. and U.K. government organizations have each been embroiled in should serve as cautionary tales for any business.
The news recently broke that FEMA officials had been arrested for taking bribes when they were supposed to be repairing Puerto Rico’s power grid after Hurricane Maria. Questions about the shady deal surfaced practically before the contract ink was dry. It may be the most public example of procurement fraud in recent history, but it’s not the only example. In January of 2018, U.K. construction company Carillion went under, reportedly due to contracting and outsourcing flaws.
What do these events have in common? Each suggests issues with poor sourcing, noncompliance and corruption. And each of these likely could be avoided with the right technology strategy and proper oversight.
In any organization, your risk assessment should consider several factors:
• How could your supply chain break down due to disaster, weather, political intervention, worker protests or supplier insolvency?
• What sudden, unexpected loss increases can you prepare for?
• How could the product be stolen or lost during transit?
• How will you prepare for supplier policy changes that challenge legal or company compliance rules (such as child labor or human rights violations and ethical sourcing)?
In my experience, procurement programs can and should flag issues like the fact that the Puerto Rico Electric Power Authority awarded an emergency contract to a two-person company, Whitefish Energy.
At the time, nothing may have seemed wrong. But bad deals like these can cost taxpayers money and delay critical projects.
How To Build Your Healthy Bottom Line
Procurement doesn’t have to be a leaky cash bucket that’s open to costly process inefficiencies, supply chain risk, waste and good old-fashioned fraud. Technology solutions can help provide the data and transparency to plug the leaks and maximize the bottom line, even if your contracts are not in the public eye. But your implementation strategy is also crucial. Here’s how to get started improving your procurement strategy, either manually or with automated tools.
1. Create a scalable program that offers the features to match your needs and automate repetitive tasks. Start by identifying time-consuming, repeatable tasks. For example, match your purchase orders, packing slips and invoices to ensure timely, accurate payments. Streamline your process for approving purchasing, within limits. And improve your process for tracking shipments.
2. Go paperless to save additional costs. It’s hard to imagine why so much mail is still delivered today. For example, consider creating a customer portal for conveying information and documentation. You can also build an online ordering, invoicing, payment and tracking system. Finally, look for email marketing tools to automate communications for outreach and with your existing customers.
3. Use data analysis to help evaluate, choose and track supplier performance. Track item-level accuracy, on-time delivery and compliance with your company’s codes of practice on an ongoing basis to gauge performance. You should also consider risk factors related to your suppliers and check their pricing against competitors.
4. Be ready with documentation for contract disputes, delivery errors and surprise audits. Keep everything organized so you don’t wait to chase down related POs, packing slips and invoices. If you are not using automation, you could instead create a checklist to ensure you account for all relevant documents during the process and store them electronically for easy retrieval.
5. Know what your people are doing, even those who are supposed to be running things or auditing the books. I recommend setting up an approved vendor database to avoid bad contracts, putting spending rules and protocols in place to control spending (either using technology or manual documentation), and checking current vendor pricing to optimize deals.
If you’re interested in saving money, boosting efficiency, reducing risk and fraud, and maintaining compliance, it’s time to improve your procurement strategy.