Why source-to-pay technology needs to support the ‘plan to pay’ process

Adobe Inventory

Given the present enterprise atmosphere, good planning has by no means been extra necessary, and this actually consists of finance, operations and procurement. We’ll discover the “plan to pay” matter on this submit and, later right this moment, in a Spend Issues PRO submit for subscribers.

Finance ought to interact the enterprise to translate enterprise planning into monetary planning, whereas operations teams make sure that worth chains are working easily — and procurement helps these stakeholders to assist them plan with suppliers to assist make sure that threat is minimized whereas worth is maximized (and money preserved).

Sadly, planning processes are disconnected throughout the domains of:

• Strategic planning and “built-in enterprise planning” (IBP)
• Monetary planning (P&L forecasting, CapEx planning, value middle budgeting, money forecasting)
• Program/venture planning: venture portfolio administration, venture planning
• Product/service planning: product portfolio planning, expertise roadmapping, product improvement
• Provide chain planning that interprets broad IBP to gross sales & operations planning (S&OP), which then drives provide planning for provider necessities and sources (and likewise to produce threat mitigation planning to maintain provide traces flowing and suppliers wholesome)
• Useful planning, together with procurement planning that in flip interprets to:
  • Procurement’s personal budgeting and planning
  • Financial savings planning that justifies the investments (i.e., finances) in procurement
  • Spend planning by class, provider and contract (e.g., upcoming renewals)

Disconnects in ‘plan to pay’ course of

The issue, nonetheless, is that there are dozens of disconnects throughout these processes, particularly for oblique spend.

For direct spend within the provide chain, planning processes are slightly bit higher outlined. For instance, within the SCOR provide chain reference mannequin, the procurement course of is baked into the SOURCE course of that, together with MAKE and DELIVER processes, comprise the execution processes that fulfill demand, which is a part of the overarching PLAN course of that threads via the entire plan-source-make-deliver mannequin. The provision-chain-planning processes drive the volumes whereas provider prices are tied into COGS and product profitability with good old school product-cost accounting, variance evaluation and so forth.

Oblique spend nonetheless is a a lot messier animal.

Oblique “spend administration” additionally requires “spend planning,” however these spending plans (and financial savings plans) are exhausting to seek out and formulate. Simply ask any procurement skilled who toils merely to generate an in depth spend dice (aka, forensic “spent” evaluation) by provider, class and value middle. Now ask that skilled not simply how a lot was spent, however how a lot will be spent at that very same stage of granularity, together with the procurement-driven financial savings/enchancment targets that needs to be baked into that provider spend forecast. A forensic spend dice is not going to inform you that.

The underlying drawback right here is that there is no such thing as a singular system of document for spend that explicitly plans and tracks spending in all its kinds all through the broader spend administration processes of budgeting, financial savings planning, class administration, contract administration, after which spend execution and financial savings execution. This drawback isn’t new. I began speaking concerning the problem of spend planning over 15 years in the past, and guided buying too, as my colleague Jason Busch pointed out back in 2006. The difficult half, and probably the most impactful half (from earlier/higher spend affect), is within the spend planning. Guided shopping for helps an worker discover authorised provide that already exists, however “guided spending” helps the marketing strategy it’s spending a lot additional upstream earlier than a requisition is created (and with a finances that hopefully exists).

It’s this upstream affect the place procurement should be in lockstep with the enterprise to enhance the standard of early-stage stakeholder affect moderately than simply the amount of late-stage sourcing affect. Procurement should assist the enterprise optimize the spending towards broader technique and outcomes by serving to the enterprise carry out higher spend planning (which clearly offers procurement extra levers for demand administration, make-vs-buy evaluation, spec administration, early provider involvement, and so forth.). Procurement can’t simply sit again and passively anticipate requisitions and necessities flowing in from “sourcing consumption” processes.

Aligning finance, operations, procurement

However how will this occur?

It’s a fragmented and problematic puzzle.

There’s some visibility into blanket POs, SOWs, recurring invoices, leases, and so forth. There’s additionally data locked in contracts (and the related contingent liabilities), with contracts renewals particularly. And naturally there are numerous budgets, however they’re oriented round value facilities and the way the broader spend (not simply provider spend) will finally hit G/L accounts.

The underside line is that if procurement organizations need to really do spend administration, particularly on oblique spend, they’ll want to enhance how they work with the enterprise to plan that spend, monitor the spend (via the full lifecycle), and enhance the spend (i.e., cut back it and/or enhance enterprise outcomes from it). Earlier analysis that we carried out confirmed a spend financial savings potential of 15% just by eradicating the dysfunctional “use it or lose it” budgeting course of.

That is greater than a expertise drawback, however expertise does play a important position, and I used to be excited to lastly kick the tires on an answer that’s about to be launched formally to the market.

That story remains to be to return, so keep tuned.