Procurement professionals are served by understanding the benefits of an effective procure-to-pay and category management process, as these are two of the building blocks of effective procurement, as it relates to operational finance.
Let’s start by defining our terms.
An effective procure-to-pay system provides organizations with full transparency throughout the procurement life cycle. Insight is 360-degree with P2P, allowing for visibility and control of financial obligations and cash flow.
The promise of P2P is to eliminate the considerable paperwork associated with the financial aspects of procurement at the accounts payable level and reduce the inefficiencies commonly associated with this function.
Originating in the retail space, category management is the practice of grouping products in categories, including related products.
This allows procurement to “bundle” purchase items, eliminating the need for separate contracts with vendors and consolidating these under one central agreement. Once this has been achieved, procurement can access material savings for purchases.
This practice creates economies of scale, which allow for volume discounts.
Best practices for procurement
By implementing PSP and category management, procurement creates a less cumbersome process which is centralized and eliminates bottlenecks at the AP level. PRP, when married to category management creates a smoother purchasing environment which ultimately results on savings on required purchases.
P2P, by nature, usually works from its own categories. Instead of creating individual processes per supplier, P2P applies one process to all vendors, creating a model which is clearly defined as the overarching purchasing methodology.
When P2P is effectively synergized with category management, the result is that opportunities present themselves more readily. These opportunities are in the realm of product consolidation.
By reducing required processes and standardizing them into one simplified process, paperwork and inefficiencies are reduced. Adding category management readily lends itself to P2P, creating further opportunities for savings based on volume buys.
These are clearly best practices which benefit procurement in terms of enhanced efficiency, seamless processing of purchases and reduced costs.
Effective implementation of P2P and category management is dependent on a strategy to manage change in your specific environment. Understanding the nature of the environment you’re attempting to change is key.
Is it a traditional environment, set in its ways, or is it a vital, “living tree” environment, ripe and ready for whatever change comes its way?
Changing hearts and minds to embrace new ways of doing things is largely dependent on your knowledge of the people and departments involved and their disposition in confrontation of systemic changes like this.
CenterPoint Group can help
CenterPoint Group is more than a trusted procurement advisor. We offer companies like yours the added value of expert consultation, reporting and data analysis to ensure you’re getting the most from your spend for everyday business needs.
Because we leverage $850 million of indirect, collective spend, your membership enjoys the heft provided by the power of numbers.
Our procurement practices are informed by 15 years of market data and experience, which have served 20% of the Fortune 500 over the past decade.