Successful P2P optimization is a true business transformation undertaking, requiring coordinated effort in change management, supplier enablement and technology implementation. It must recognise that there are fundamentally distinct differences between the different categories and sub-categories of goods and services that the organisation buys and that increasing maturity is a necessary pre-requisite for optimal efficiency.
The primary consideration is the category of spend. Different organisations use different terminology, and the characteristics of each category can differ between industry segments but spend can typically be defined at a high level in three broad classes:
Direct Spend: the goods, materials and services that go directly into creating the organization’s ‘products’, e.g., raw materials, components, operations services.
Due to the fact that this type of spend is core to what the organisation does, maturity and automation is typically high when compared to other spend classes and will often be tightly controlled and scheduled by specialised systems and processes. However, the interface with suppliers remains largely manual and analogue which introduces risk and inefficiency into this critical area of spend.
The application of a Digital Supplier Network can deliver huge benefits to organisations in this category, from simply bringing transparency into the purchasing process (what has been ordered, how much can the supplier ship and when will it arrive?) through to extending demand forecasting and quality management processes, and enabling vendor managed inventory.
Indirect Spend: the goods, materials and services that are incidental to the organization’s core purpose, e.g., IT equipment and facilities management.
Maturity and automation is typically at a much lower level of maturity than Direct Spend, with common challenges around low compliance and control leading to increased unit price and processing costs as well as an increased risk of fraud.
The introduction of a Guided Buying platform that systemizes procurement policies and drives ad-hoc purchasing through negotiated contracts can deliver huge benefits to organisations in this category by driving up the adoption of Purchase Orders, enabling timely receipting through prompts and mobile access and enabling the efficient electronic capture and matching of invoices to facilitate rapid free for payment, which can then unlock further benefits in optimizing working capital and strategic payables through early settlement discounting, supply chain financing and payment terms extension.
Maintenance, Repair and Operations: the goods, materials and services that go indirectly into creating the organisation’s “products” (e.g., spare parts, safety equipment and secondary packaging).
Since this category of spend shares characteristics of both Direct and Indirect spend, particularly when considering the difference between planned and unplanned maintenance, maturity and automation varies.
The benefits realised for both Direct and Indirect spend can be applied to MRO, contributing to the core goal of maintaining production levels and keeping staff safe. A Guided Buying platform can help identify the right spare part or to find the right safety equipment to complete an urgent job, returning broken plant machinery to full capacity quickly.
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