Our guest blog post today comes from Abhinav Parameshwaran, a Solutions Consultant for Zycus Inc.
Procurement is as ancient as trade and has evolved at a startling pace from a mere “Sourcing” Practice to an actual science, with cost and time-saving implications. The advent of ERP and ERP 2.0 systems has enabled procurement professionals around the globe to make sound financial and strategic decisions. These systems run on operational best practices which ensure that there is sound operational logic, using a minimum number of steps, and standardization of procedures. Such systems ensure global best practices in the field of operations as they are rolled out for everyone who chooses to use a system.
The global procure-to-pay system space has really evolved from being “transaction only” solutions to now offering advanced analytical capabilities. They allow users to cut down on cycle times, identify bottlenecks in the entire procure-to-pay process, collaborate with suppliers and also allow suppliers to participate and contribute to the entire supply chain of the organization.
This robust movement from a transaction-only medium to what I call the “Operationally Efficient System” has proven itself so well because it incorporates various operational best practices, as well as a deeper understanding by P2P solution providers. Some of the operational concepts that have driven this movement are:
- Kanban: Toyota’s operational concept of tagging shelf inventory with cards in order to identify replenishment levels, and to ensure that there is constant collaboration on the entire shop floor, is an excellent method of minimizing waste and ensuring that the right materials are ordered at the right time.
The concept of Kanban can be extended from a mere inventory replenishment mechanism to ensuring that constant status updates are available throughout the entire purchase process, from requisition to PO to invoice processing. This allows users to view the status at each stage, and it also alerts and triggers the supervisor as well.
The concept of electronic Kanban has to be thoroughly understood when considering a procure-to-pay solution. This ensures that needed inventory is always on hand, but excess inventory and its associated expense, is avoided.
In a highly structured Procure-to-Pay environment, where a solution with status visibility is used, all members of the team are alerted to the status of each step and can monitor the process for maximum operational efficiency.
- Lean: Just like Kanban, the Lean concept also originated in Japan. Migration to Pull, minimizing waste and developing a flexible, responsive supply are some of the key concepts of Lean.
From a Procure-to-Pay Solution perspective, the concept of Lean works by greatly increasing the efficiency of unstructured environments, ensuring that late adopters of technology can reduce waste with effective collaboration. The resulting cost savings actually become visible at every stage of the procurement cycle. Such systems also ensure flexibility and adaptability to market changes (by tracking market costs and demands within the organization as well).
In a structured environment Lean means streamlining the entire system, and moving it from Push to Pull. Alerts created by the system result in better communication with suppliers, making the system proactive rather than reactive.
- Poka-yoke: The concept of mistake-proofing a particular process or equipment to prevent damage or bottlenecks and to maintain process integrity has been one of the core operational principles incorporated by Procure-to-Pay solutions. For example, this concept typically involves the ability to:
- Business Process Mapping: The key to improving processes within an organization is the ability to identify the key business stakeholders, create processes and eventually use various statistical methodologies in order to identify and constantly improve these processes (Kaizen). A good procure-to-pay solution should at least be able to enforce policies and define business processes. This would help highly unstructured organizations to develop processes, and identify key supplier relationships via the solution.
- Auto-populate information, thereby reducing the effort involved in manual entry of information.
- Providing role-based access (allowing only the right set of stakeholders to view the right set of information). For instance, allowing workers on the shop floor to order hydraulic pumps etc., and the Chief Procurement Office to view the PO details and the order queues.
- Additionally, systems have gone on to replicate Poka-Yoke by automatically re-enforcing category specific policies and governance details as well
In a highly structured environment, technology solutions must remain flexible enough to map the existing business processes via configurable workflows, via creating forms that mirror the existing ecosystem, and to enhance the entire procurement function via advanced functionalities.
A good procure-to-pay system must be able to address the fallacies of human error and process operations. In addition, it should be sufficiently easy to use so that there is not barrier to large-scale adoption by the staff.