Author: Vesa Tykkyläinen, CEO, Basware
24 Jul 2017
Data is changing the face of business. There may be no greater advantage for the modern enterprise than visibility, and the source-to-pay (S2P) process is no exception. Good, clean data can drastically improve an organisation’s return on purchasing goods and services by generating a more strategic view of procurement, and supporting informed decision-making earlier in the procurement lifecycle.
Spend visibility means having timely, accurate and complete data to provide insight into spending patterns, compliance and performance. So, if the CPO is only able to view the organisation’s total spend in silos, they will never gain a true picture of the scale of the cost-saving opportunities up for grabs, through price variance, consolidation, contract terms or payment discounts. And how can CPOs accurately advise the board on the financial and strategic implications of purchasing decisions if they’re flying blind?
The core driver behind spend analysis – the process of collecting, cleansing, classifying and analysing expenditure data – is profitability. It helps companies identify untapped areas of savings, as well as hold onto areas of savings they have already negotiated through past sourcing efforts. Spend analysis provides the CPO with a reliable indication of which levers to pull to increase profitability.
Identifying savings is one of these levers. Most CPOs are tasked to do more with less, which means finding savings from somewhere while still providing the same goods and services. There’s only so much an organisation can haggle with suppliers to get the best deal. Spend visibility helps identify savings opportunities, drive compliance and develop crucial sourcing and purchasing strategies which reduce cost. Fact-based spend data can also arm CPOs with the information required to both secure budgets and transform supplier performance. In the process, they may also uncover erroneous transactions, allowing their team to substantiate and recover overpayments and duplicate payments, or even detect fraudulent activity.
Clamping down on maverick spend is the second lever. In too many enterprises, once a contract is signed, it tends to get relegated to a physical or virtual filing cabinet, and may not see the light of day until a problem crops up or the contract is about to renew. Rogue spending can go beyond fiscal costs to operational inefficiencies, due to unfocused, non-strategic purchasing, which circumvents much of the original value negotiated. Visibility into non-PO spend can help CPOs spot various forms of non-contracted and non-compliant spend within the organisation.
Better negotiations are the third lever. If pushed, many CPOs will admit that their suppliers know more about how much they spend, and on what, than their own procurement team. Yet studies indicate enterprises that are prepared for contract negotiations can walk away from the table 15-25 percent better off than those that aren’t. Spend visibility can help put procurement on the front foot and considerably improve the organisation’s negotiating position at contract renewal time, armed with a complete picture of enterprise-wide spend with a given vendor, as well as with their competitors within the same spend category.
In too many enterprises, once a contract is signed, it tends to get relegated to a physical or virtual filing cabinet
Finally, the last lever involves streamlining S2P processes. Spend visibility allows the CPO to make informed decisions about how an organisation’s processes can be improved by removing bottlenecks. These findings can also provide valuable direction when implementing a new system, both in terms of configuring the software to specific business requirements, and identifying the people and departments within the organisation whose adoption and use of the system will generate ROI from the deployment.
S2P automation is not just a solution for the overworked and overwhelmed – it creates a strategic foundation for visibility across the enterprise. That’s why 100 percent spend visibility starts with capturing 100 percent of invoices and feeding them into an accounts-payable (AP) automation solution. In recognition of this, we uniquely designed the Basware solution to capture 100 percent of all purchase invoice data from incoming invoices – even paper ones. Whether purchase orders for direct purchases from ERP systems or indirect purchases through the S2P platform, or even service subscriptions and other contracts, the AP automation solution can apply touchless processing rules and get invoices paid on time. Providing visibility into the remaining invoices without matching purchase orders or contracts will complete the picture, and allow procurement teams to easily address the last mile of spend that is not yet managed.
Insight to intelligence
To create strategic value, CPOs and their teams need to go beyond analysing transaction data and dig deeper into the realms of sourcing, supplier performance and supply risk information. The path to procurement performance enhancement will no doubt be illuminated by technologies such as AI, machine learning and cognitive computing.
Spend analysis is no longer confined to gaining historical insights to justify past decisions. Instead, predictive analytics are increasingly being applied to data to help make informed assumptions about the future and better, more confident buying decisions. That requires procurement teams to step out of their organisational comfort zone and mash up enterprise data with a variety of external information sources – market trends, supplier performance, warranties, risk data and more – before applying machine learning to create insights, guidance and proactive recommendations.
Robotic process automation (RPA) has existed for some time in S2P solutions to streamline workflows. At Basware, we are looking to expand AI and machine learning functionality to help businesses incorporate smart capabilities into financial processes. This would allow for intelligent use of the data on buyers and suppliers generated from the millions of transactions conducted on the Basware network. This intelligence could take the form of an early warning system, with profit-driving guidance such as, for example: a potentially cheaper supplier has been found in category X; fraud risk has been identified with supplier X; or supplier X had 20 percent more late deliveries compared to last month.
Cognitive procurement builds on this premise a step further, using data mining, pattern recognition and natural language processing to mimic human activity and automate repetitive tasks. Within the next few years, we will start to see numerous processes targeted for the adoption of RPA, such as identifying relevant suppliers, maintaining and approving catalogues, evaluating supplier performance, and even setting up and conducting requests for proposals.
First steps to change
CPOs who have picked most of the low-hanging cost reduction fruit in recent years are now being urged to reach for additional savings and benefits. As such, spend visibility will no longer be limited to improving the organisation’s internal spend and supplier management and sourcing capabilities, but will incorporate a range of new internal and external data sources to inform decisions.
As procurement organisations evolve from spend analysis into the extended realm of procurement analytics, they will no longer be focused on a single opportunity or set of capabilities, but instead must approach data with curiosity, exploring linkages between spend analysis and accounts payable automation within their end-to-end S2P suite.
However, as long as organisations have yet to master 100 percent spend visibility, CPOs must learn to walk before they run in pursuit of cognitive procurement. It’s vital to invest time in achieving basic visibility into as close to 100 percent of spend as possible before evaluating advanced capabilities, techniques and integration approaches.