P2P process costs account for an average of 60% of turnover for most companies. There are two ways to explain this figure. On one hand, it highlights the considerable extent of savings that can be derived by optimizing this function. On the other hand, it underlines the overriding influence of SRM (supplier relationship management) on business performance, largely setting the conditions for companies’ ability to face exacerbated levels of competition and restrictive standards, while continuing to meet the ever-growing demands of their own clients. Yooz digs into it right now !
Supplier relationship management: a critical issue for companies
Many companies tend to focus on the first point without always measuring the full impact of their policy on managing relationships with suppliers. One trend is for companies to extend supplier payment periods to better cover their working capital requirements. Of course, it is essential to have an appropriate level of cash and, in some respects, it seems logical to favour inflows over disbursements. But when that reflex is generalised and actually becomes a management method, imbalance or even abuse may not be far behind. It is estimated that “in the UK alone, around £13bn is owed to small businesses in overdue refunds and up to 50,000 businesses are at risk of insolvency every year because they lack the reserves of larger organisations to cover such delays”.3 Many companies do not always measure the full impact of their policy on managing relationships with suppliers. One trend is for companies to extend supplier refunds periods to better cover their own working capital requirements. Of course, it is essential to have an appropriate level of cash and, in some respects, it seems logical to favour inflows over disbursements. But when that reflex is generalised and actually becomes a management method, imbalance or even abuse may be putting the organisations in danger.
In July 2019, Prompt Payment Code signatory British American Tobacco was one of 18 businesses removed from the list after failing to pay vendors on time. The Chartered Institute of Credit Management (CICM), which administers the Code on behalf of the UK government’s Department for Business, Energy & Industrial Strategy, also suspended BT Plc, Centrica, Screwfix, Prudential and various businesses of BAE Systems, among others, for failing to honour their commitment to the Code. Another threat related to late returns is quite simply destabilizing suppliers and making links more complicated. It is important to remember that suppliers are also confronted with their own needs for liquidity. If they have trouble collecting on invoices, they may find themselves in a very difficult situation. It is estimated that one quarter of all bankruptcies are the direct result of returns not being received on time. For client companies, paying suppliers poorly is like sawing off the branch they are sitting on. In many cases, the client itself would have much to lose if one or more of its suppliers were to disappear, potentially even putting the client in a position where it must think more about basic survival than properly carrying out its activity. As an example, the world’s biggest auto maker, Toyota, «has developed longterm, collaborative and close partnerships with its key Japanese suppliers over a period of several decades. In its European operations, like those of North America, supplier relationship management (SRM) is also a major focus area, albeit one with a shorter history. » Managing the supplier relationship skillfully is therefore an important issue in controlling threats for the business, but it also represents an opportunity. Smoothing out potential disputes and tensions as much as possible by eliminating delays is one way for a business to create healthier links and contracts, while reinforcing and creating new points for collaboration with suppliers. The fresh climate based on trust resulting from this approach encourages suppliers’ commitments and enables the organization to fully benefit from their expertise and innovation capacity. It is also a first step towards responsible policy as presented in the Charter for Responsible Supplier Relations elaborated by France’s Business Mediation public service and National Procurement Council. With its commitments, this voluntary approach invites companies to recognize that their destiny is now inseparable from that of their suppliers – even if only on the increasing number of topics for which their joint responsibility is engaged – and by optimizing management of that relationship beyond a uniquely dimension, the supplier ecosystem becomes an essential and undeniable lever that supports the company’s competitiveness.
Supplier relationships: who is responsible?
To mitigate these threats, it is critical to set up close collaboration between Procurement and Finance functions. The purchase function, a cornerstone in supplier relations, is now positioned as a major lever for efficiency and productivity. KPMG points out the importance for these functions to develop their expertise. Indeed, while the Purchase function is often seen as the gateway for outside innovation, namely as provided by suppliers, it must also be able to leverage key indicators that will enable it to speed up and simplify the production of analyses and dashboards that help with decision-making.
How to optimise this relationship?
Since AP solutions create an absolute and accurate association of the various documents constituting the supplier process, including orders, reception, delivery, invoicing, it is possible to access each of them in just a few clicks anytime, anywhere, and on any device. It is therefore easy to find, for example, a delivery note corresponding to an PO, and to transmit that information to a customer, supplier or tax authorities, as all elements relating to a given file or transaction are present.
AP automation technologies represent a compelling solution for optimising the supplier relationship and making it an additional lever for supporting business performance. Beyond immediate time savings, supplier process automation drastically reduces duplicates and data entry errors, with the goal of reducing costs and enabling better management and increased value for people reassigned to more strategic tasks. A digitalised Purchase-to-Pay process, from PO to invoice, archive and storage, enables all involved stakeholders – both suppliers and business teams – to increase their visibility, quality and efficiency.
To learn more about this topic, discover the main phases of a purchase request processing cycle, all the way from order creation up to supplier-order-receipt invoice reconciliation.
Communicated by Yooz
Publié le 25 novembre 2020