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What is Procure to Pay process and why you should care?
What is procure to pay process?
To put it simply, procure to pay process is what happens when you or someone within your organization buys something.
Procure to pay consists of requisitioning, purchasing, receiving, paying for, and accounting for goods and services. It gets its name from the ordered sequence of procurement and financial processes, starting with the first steps of procuring a goods or service to the final steps involved in paying for it.
To explain with an example, you can imagine an office manager who needs more toner for her printer. She sends a request for more toner to her purchasing department and waits for to goods to be delivered. At the same time, your company receives the invoice and the goods, pays for the goods, and finally sends the invoice to accounting.
Not much can go wrong in the purchasing process.
Or can it?
Procure to pay in Celonis
As you can see in the following picture, the standard process path or so-called happy path of a procure to pay process is similar to what has been described in the previous example. So far so good.
The process starts with a purchase requisition. After that, the purchase order is sent, both goods and invoice are received, and the invoice is then cleared.
Unfortunately, many deviations can occur for a number of different reasons.
Next, let us take a look at the same process when some more activities are included.
Not so nice anymore, is it?
Some additional and often unnecessary activities impacted the length of the purchase order journey. You can see that thousands purchase orders have been for example:
- Blocked and then released
- Changed
- Refused
- Delayed thus resulting in dunning activity
What can be improved in procure to pay process?
It is more than obvious that there is a potential to a lot of bottlenecks in your purchase to pay process. Finding them is vital for your overall process transparency and Celonis can help you with just that.
Frequent use cases that deserve a lot of your attention are:
- Rate of automations of various parts of the process
- Throughput times between distinct activities
- Changes and their impact on the costs the process
- Over/under-shipment
- Purchase requisitions without release approvals
- Purchase orders without goods and/or invoice receipts
- Timely usage of payment terms
- Mismatches between purchase order, goods delivered and invoice
Imagine how much time your company loses when the price of the purchase order is unexpectedly changed couple of days after it has been created. Sure, if you are waiting for a toner delivery, you and your colleagues can sure wait a bit longer, but if your production is missing a vital piece in the assembly process, your company can get into trouble.
And there is so much more. We have only just scratched the surface.
If you are in doubt and would like to optimize your purchase to pay process, do not hesitate to contact us! We are the market leaders in process mining implementations and P2P process belongs to one of the processes that we have mastered with many of our customers over the years.
How to implement procure to pay process?
In the Process Mining implementation, there are always three prerequisites:
- Unique identification needs to be determined. In this case, it is the purchase order and the purchase order item number.
- Definition of the activities must be clear and must always directly or indirectly relate to the purchase order.
- Date and time of the activity needs to be available.
When all the above criteria are met, nothing can stop us from the implementation of the end to end procure to pay process.
Activities to consider
There are many activities that can be tracked in the procure to pay process. These are naturally project-dependent and certain customers might face different issues than others. Therefore, it is always a good practice to adjust the process to the needs of the individual customer.
Some of the activities that are very common and that are usually implemented in the procure to pay process are:
- Contract creation
- Purchase requisition
- PO creation
- PO changes (price, quantity, release indicators etc.)
- Service sheet entries
- Goods movements
- Invoice handling
- Payments
Jakub Dvořák
Data Science Team Lead
Lean purchase to pay process is the key
Procure to pay systems are designed to provide companies with control and visibility over the entire life cycle of a transaction, providing full insight into cash-flow and financial commitments.
If you want your company to work as a well-oiled machine, the operations need to be lean and ideally touchless. This can be achieved with Celonis Process Mining technology and well-defined goal-oriented use cases.
At Processand we have a great record of successfully implemented procure to pay processes. Companies such as R+V, Deutsche Bahn, Maquet-Getinge or V-Line belong to our satisfied customers.
Need some extra help with your purchase to pay implementation? And what about your order to cash process? Do not hesitate and get in touch with us today!
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