P2P Special Focus - Optimizing P2P on a Budget (Part 2)

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At a time of reduced spending optimizing any process - let alone one as complex and large-scale as procure-to-pay - can be a significant challenge. Yet in times of economic difficulty it's all the more important to make those processes as efficient and effective as possible. In some areas – including, obviously, P2P – investment even during all but the most terminal of cash crises can result in savings that can make the difference between success and a very final failure.

As part of the Shared Services & Outsourcing Network’s P2P Special Focus series, we asked a range of players from the world of procure-to-pay for their tips on what steps practitioners can take to optimize their P2P processes. In the second of a two-part series, we look at what P2P practitioners can learn from methodologies such as Six Sigma; what tools practitioners can use to transform the P2P process from a cost-saving initiative to a value-adding opportunity; and, finally, what major challenges our contributors have faced during their own careers - and how they overcame them.

(To read the first part of this feature, click here.)

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What can P2P practitioners learn from methodologies such as Six Sigma and Lean without fully implementing such methodologies (with the cost implications that such implementation entails)?

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Antonella Schiavone
Regional Process Leader P2P, Eli Lilly

Six Sigma and Lean production methodologies have proven their efficacy not only outside the manufacturing environment but also outside the private sector: on one side, both methodologies have been extended from the shop floor to areas such as marketing and finance; on the other, governments are increasingly interested at lean techniques to deliver better health care, better transportation systems etc.

As a result, there is a lot that P2P practitioners can learn from these methodologies. First, both methodologies assign great importance to metrics and baseline performance. For P2P practitioners, it is very important to manage the process mastering a few key metrics around the speed, quality, volume and compliance to the company’s financial policies.

Many times, the exercise of measuring the process performance is perceived as a resources misallocation and as such avoided.  In reality, the one-off time investment in i) selecting the right things to be measured and ii) designing the best measurement system will pay off for many years.

Second, methodologies are customer- centric, that is any process measurements and improvements are targeted at satisfying (and possibly delighting) the customer’s critical requirements. Moreover, in both Lean and Six Sigma there is a lot of emphasis on exploring the process with the help of those working within it: it is the "go to the gemba" principle, i.e. when a problem arises, managers should go to the shop floor or equivalent and look for the root cause of the problem

As I commented above, the P2P function has a large number of stakeholders – both inside and outside the company. P2P practitioners can effectively turn to Lean and Six Sigma when it comes to learning how to identify customers, discern their requirements and designing the process which will meet them. In this way they can avoid the risk of designing a process or an IT solution without factoring real life and real customer’s needs.

Third, these methodologies are quite rigorous in assessing implementation risks; once the project team has identified a solution/ process improvement, they test them thoroughly for unintended consequences.

There are much more "nuggets" that can be imported from both methodologies but I would like to stop here to comment on the "smart" way to implement them. Certainly, the investment in training an entire P2P department in Lean and Six Sigma looks daunting from both a cost and time prospective. There are some "short cuts", such as training only a couple of individual at the green belt level and/or running short training sessions on selected tools (root cause analysis, voice of the customers, risk analysis tools such as the Failure Mode and Effects Analysis, FMEA).

While doing this, however, there is a "soft" aspect which should not be under-estimated. Imposing these tools from above will lead to little results, no matter how powerful they are per se. In importing Lean and Six Sigma tools in a P2P department, managers should recognize that they are embarking on a change adventure. They will have to manage the change wisely, ensuring their teams’ and customers’ buy in at all time. There are no short cuts here; the ability and tenacity in communicating and explaining the rationale for continuous improvement is necessary to achieve lasting results.

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Robert Bendl
Director, Lockheed Martin

Practitioners should apply the overall principles of Lean in order to develop lean P2P processes by eliminating/wasted processes steps.

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Carlos Di Brico
President & CAO, Emerson Argentina

These are very useful methodologies oriented toward achieving the shortest possible cycle time by eliminating waste. They teach us how to work at lower costs, higher quality and shorter lead times. But the question here is how to turn actions into cash flow. And this is the area in which many organizations lose an opportunity.

I have gained some experience in Lean and based on that, these are the tips I recommend to be considered to get the results we expect:

• Keep these initiatives short and focused
• Set priorities
• Involve people from Finance for measurement
• Do recurrent reviews of every project
• Communicate objectives and results recurrently

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What tools can practitioners use to transform the P2P process from a cost-saving initiative to a value-adding tool?

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Carlos Di Brico
President & CAO, Emerson Argentina

Based on my experience, tools such as Lean Manufacturing, KanBan, Cellular Structure, SRM, are value-added initiatives. In addition, Service Level Agreements represent a powerful tool towards continuous improvement. This is key when we are turning P2P from a cost-saving to a value-added area.

Finally what all of these mean is a change in the culture. For getting success in this we need at least three key elements: leadership to plan, leadership to execute, leadership to control.

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Antonella Schiavone
Regional Process Leader P2P, Eli Lilly

P2P can add value to the company by providing easy and immediate access to information on expenses, thus promoting speedier and more informed decision making. Virtually all departments could benefit from this circumstance – e.g. treasury could achieve better cash flow forecasting, marketing could gain insights on the use of their budget. Needless to say, benefits would be sizeable for the P2P function, too as sometimes the request of gathering data arrives with short notice and tight deadlines.

Nowadays, technology offers to P2P the tools to obtain more granularity around the expenses invoiced to the company and this possibility should definitely be explored. However, as noted above, the company (not the P2P function alone) needs to thoroughly assess which information it needs before embarking in setting up expensive tracking systems.

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What have been the biggest challenges you personally have faced during your time in P2P and how did you overcome them?

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Bertrand Maltaverne
Global Purchasing Application Manager, Schneider Electric

The biggest challenges related to P2P process and implementation of related technologies are around user-adoption, internal and external users. To quote David Bush (http://www.esourcingforum.com): "[the] Top Three Issues facing the sourcing world today - Adoption, Adoption, Adoption". In the eProcurement area we find similar issues: "[a] survey polled 110 UK public and private sector organisations and found that only three per cent run fully automated procurement processes" says a recent study quoted by computing.co.uk in an article titled "E-procurement adoption stalls". The reason behind this low penetration: "failure to involve staff in all relevant business areas".

To overcome this issue, the recipe is well known, on paper at least… It starts with selecting the proper solution, it also includes supporting users making the transition, … but I believe the two most important parameters are:

• Building a strong business plan and continuously measuring delivered performance against expect benefits: expected benefits are too often not expressed in a SMART way (Specific, Measurable, Achievable, Realistic, and Timely). Therefore it becomes very difficult or almost impossible to build a case supporting the change or to create urgency, a driver of change as highlighted by John Kotter in his various books on change management.
• Executive support required to drive the change and enforce compliance to make sure that everybody in the organization follows the new processes and procedures. This is even more critical when users can easily by-pass the new tools/processes like in the eSourcing field where people can still send RFQs by emails (and not via the required eSourcing tool)…

Obviously, the broader the scope of the project the more difficult it becomes… so a good way to minimize "leakage" is to build the initiative around a reduced number of impacted users by, for example, creating shared services. Their primary role will be to roll-out the new processes making things easier to manage and control since the perimeter is clear and defined.

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Antonella Schiavone
Regional Process Leader P2P, Eli Lilly

As already noted, out of the three financial processes (P2P, general accounting and order to cash), P2P is the process which has the largest number of internal stakeholders. Managing internal customers is one of P2P's biggest challenges; more specifically the challenge is to keep internal customers consistently trained and informed on the process and to gain their insights and requirement to continuously improve the service provided. At the same time, the P2P function must continue to deliver on a day-to-day basis a reliable service for the business units’ suppliers.

With pressure on resources, a P2P manager must be able to allocate his/ her resources to these different tasks at the same time. I have seen that taking the time to establish a baseline of the service level provided (e.g. no of payments made on time) and maintaining an open, regular communication on process performance with stakeholders (e.g. a regularly issued scorecard) have proven to be good tools to successfully face this type of challenge. In fact, they draw on Lean and Six Sigma methodologies!

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Robert Bendl
Director, Lockheed Martin

Large-scaled project management challenges with a number of opinions/objectives.  Keys to overcome the challenges include: open timing and candid communications; clear roles and responsibilities amongst the team members; common goal setting; and detailed day-to-day processes which ensure active engagement/participation amongst the team.

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Carlos Di Brico
President & CAO, Emerson Argentina

Service Level: We set internal client expectations through the implementation of Service Level Agreements. We set goals and the related KPIs to measure them. The main benefits we got from that tool are:

• Better service levels (internal and external customer)
• Improved customer relationship
• A framework for continuous improvement

Outsourced Warehousing & Distribution: The main target here was to select and to develop a logistics vendor with enough capacity to provide services to several divisions. They were focused on different markets and customers. It basically means different needs. The outcome was good in terms of productivity and costs.

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(To read the first part of this feature, click here.)

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