Capturing the Rewards of Digitalization Across the Buyer and Supplier Ecosystem
– interview with Stephan Albers, OpusCapita
Requisition-to-pay is one area within Finance services that is getting a lot of attention lately, because it offers so many opportunities for driving improvement. The combination of a better understanding of end-to-end process management and new solutions that leverage digitalization for improved performance, promises a step change in procurement as we know it.
SSON’s editor interviewed Stephan Albers of procurement specialists OpusCapita, to discuss the most significant opportunities.
SSON: What are the trends or challenges right now, for indirect procurement?
A simple answer – perhaps less a trend than a clear realization of the facts – is that purchasing and accounts receivable are tightly related, but that in order to successfully control and manage these activities, you need to start with the purchase order. Meaning: start by getting that step in order.
Direct procurement and indirect procurement have many similarities, but on the whole we find that direct procurement is already more digitized. The biggest challenge in indirect procurement right now is getting the requisitioning process right, which is where everything starts. Given the enormous variety of products or services ordered, ranging from pencils to maintenance, repair and operation [MRO], it's important to minimize the number of different applications in the process. Trying to balance four or five different applications for this kind of activity is obviously inefficient, but still far too common.
Another key challenge is around supplier onboarding and integration. It's a complex and traditionally manual process that creates a lot of bottlenecks. The trend now is towards digitizing this through a supplier network.
A third key challenge is around user acceptance. If the solution you are working with is not easy to use, you will find that, rather than leveraging it, users will find it more convenient to go directly to the shared services or procurement department. That means you don't get the benefits of a digitalized environment. Whichever solution you apply, it's key that it's comfortable to use, easy to understand, and that it helps you control spend and compliance.
I would also say that, generally, indirect purchasing is still highly decentralized and its spend not well-managed. Modern tech solutions offer a means of standardizing this, which more and more enterprises are recognizing.
SSON: How do you support not just the supplier but also the buyer part of the equation to improve collaboration and engagement?
We recognize the importance of supporting both sides through our Business Network. As the name implies, it's not just about supporting suppliers but also about supporting the buyer. Ideally, for the buyer a business network should be close to invisible. All the buyer wants, is to order from a central location.
We recognize both sides as customers. Within a network such as this, invoices don't require manual intervention anymore because they are automatically aligned with the purchase order. The ability to close the loop and offer complete facilitation and support from order requisitions through to payments is a crucial step in driving the best performance out of P2P.
SSON: Where do you see the biggest wins for the Procurement process?
Obviously this depends on spending category and a number of other things, but one approach is to look at where you have your biggest spend today, and to focus on the area. Routing as much activity as possible through one application, as a one-stop shop, is certainly going to drive enormous improvement across procurement. Also, taking a more end-to-end approach and constantly driving continuous improvement across all processes is key. To get positive results, however, solutions need to be easy to use and performance easy to measure.
SSON: To what extent are early payment opportunities being overlooked and what can be done to turn this around?
Early payments are certainly something that could be better leveraged but this, of course, depends on transparency and access to relevant supplier data, which does not really reflect the reality of most of today’s enterprises. Across the world, payment terms vary enormously, however, so the potential benefits that could be reaped depend on the region. In the Nordics, for example, relatively short payment cycles of 2 to 3 weeks are typical, so there is not much to be gained. In the USA, however, anywhere from four weeks to even two months and more is fairly common, so in that situation early payment discounts can be significant to support working capital.
In addition, if the underlying documents are electronic, it's entirely possible to support supply-chain financing through a program such as OpusCapita’s reverse factoring or dynamic discounting options.
SSON: The number one ‘enabler’ across processes today is undoubtedly Digitalization. How does that apply to what we are discussing here?
Most organizations are still at the very early stages of digitalization across the requisition-to-pay or procure-to-pay spectrum, certainly if you consider the full process chain. Many have taken a step in the right direction by digitizing the invoicing part of the process but if matching is still being done manually, electronic invoicing can only drive improved performance so far. I would say that for most organizations, they are 25% of the way there, so there is still plenty of opportunity ahead. A significant part of our service revolves around helping organizations digitize their processes and thereby optimize them, so that is something we are absolutely supporting.
SSON: How has OpusCapita’s acquisition of jCatalog Software impacted customers?
The acquisition of jCatalog by OpusCapita is having a strong positive impact for both companies’ customers. OpusCapita’s core work has always been around invoicing, cash management, and digitalization. jCatalog’s focus has been on the ‘other’ part of the process: from requisitioning up to the invoicing stage. Now both halves of the equation are brought together for the benefit of our global customers. In addition, jCatalog’s headquarters is in Germany with its main business distributed across DACH countries, as well as Western Europe and the US. OpusCapita is the market leader in the Nordics, therefore, this acquisition presents a great opportunity to expand OpusCapita’s reach into jCatalog’s market, and vice versa. In additional, OpusCapita’s digitalization solutions will provide an added value to jCatalog’s customers, as this did not form part of jCatalog’s services in the past.
SSON: How is the role of the CPO changing and how are new challenges faced by this role being supported by technology?
Certainly, the Chief Procurement Officer's role has not become easier. Amongst the multiple challenges he or she faces, controlling price, ensuring the right product is entered at the right price, and adhering to compliance requirements, are key. None of this is becoming easier in the current environment – certainly, post Enron, compliance regulations have been tightened enormously. The chief challenges for CPOs today are to ensure they cover all the spend processes holistically, while at the same time ensure they meet employee expectations in the modern age. More specifically, this means that employees now in their 20s and 30s, who have grown up on mobile apps, are used to mobile solutions and expect corporate solutions to mirror the same easy experience that consumer websites like Amazon offer. Providing that environment for a more discerning employee base is an enormous challenge for CPOs, but it's also one that our digital solutions go a long way towards supporting.
SSON: Can you shed some light on new technologies on the horizon and how these might influence procurement processing? I am thinking on Blockchain and Machine Learning, for instance.
Technology innovations are constantly changing the landscape for us and for our work. Blockchain is one example and, again, it's fairly early days so there are few case studies to point out, but it may potentially have a huge impact on enabling the exchange of documents safely within an open environment. In today's processes we generally have two documents for a given activity: purchase order out/confirmation of purchase order in; shipping notice out/goods receipt confirmation in; etc. Blockchain appears to promise an aggregation effect or a summing up of this kind of activity. If we get to the stage where we can exchange documents in the open safely, without sharing their content, between buyers and suppliers, this would shift our landscape significantly.
Other emerging tools are Machine Learning and Artificial Intelligence. Both of these have significant and potentially dramatic impacts on the approval process for invoices. In the case of Machine Learning, the learnings are limited to data flowing through applications, for example by automated matching against PO's. Another area that can potentially benefit is fraud detection, for example in cash management software. Mistakes here are enormously expensive and the money paid out erroneously is hardly ever returned. Machine Learning seems to offer a better way to manage this.
Artificial Intelligence takes Machine Learning a step further by integrating information from outside the business domain, and taking that into account for better decision-making. Again we are very much at the beginning of this evolution but are certainly keeping an eye on its developments.