3 steps to enhance control and compliance in your procurement

Enhancing control and compliance in the source to payment process

Ensuring control and compliance within procurement is not an easy task. In term of compliance, there are two key areas of concern for the procurement officer - supplier compliance with contracts and how your Company complies with regulations and standards. The stakes are high. With non-compliance comes audits or lawsuits.

Lack of spend control can see costs spiral and companies failing to secure value for money. Control over what is spent is the most important job for the procurement officer. But procurement also needs a strong voice in an organisation to have greater say over spending at executive level.

"To increase your purchasing power, you need a consolidated view of demand, better control of spend, and improved contract compliance," says SAP in its Maximize Purchasing Power and Increase Compliance in Regulated Organizations report.

For tackling the compliance and control parts of this triumvirate of purchasing power, a "seamless" source to payment (S2P) process is essential, argues Capgemini in its Seven Strategies for Future Procurement report.

S2P is essential to organisations, as it governs how it meets its day to day needs from suppliers, supported by requisition/ordering systems, approval workflows and reimbursement systems. "It closes the procurement loop, as it enhances compliance to procurement contracts and is the key enabler of spend control and transparency," says Capgemini.

Seamless S2P means supplier invoices can be approved for payment automatically when they match against the order quantity and price. "This enables an efficient process with maximum spend transparency for the organization," the Seven Strategies for Future Procurement report reads.

However, it seems many Companies struggle with getting the S2P process right. Capgemini sets out three root causes for this:

The first relates to the alignment between sourcing and operational procurement. Category managers have to extend the scope of sourcing strategies beyond the supplier selection phase.

What they must also do is seek out the appropriate requisition and ordering channel for their categories that maximizes contract compliance. For example, this can be achieved by ordering through an electronic catalogue or via a procurement card.

The second S2P process challenge comes from the coordination between procurement and finance. Take invoice processing. While a key part of the S2P process, it is usually the responsibility of an Accounts Payable team within the Finance department. "Conflicting goals between Accounts Payable and Operational Procurement can lead to process disconnects," says Capgemini, which points to potential problems relating to operational responsibilities, policy adherence and master data management.

Finally, companies may struggle to drive compliance on an agreed upon S2P process across operational functions. Using predefined requisition and ordering channels maximises purchasing agreements, but getting everyone across an organisation using the same approach may require behavioural change.

But since many people dealing with suppliers develop their own way of working, the transformation to using approved ordering channels requires behavioral change in many disciplines. From experience, we have learned that there are four key principles to maximising process compliance:

Based on these challenges, there are three steps companies can take to enhance control and compliance.

First, organisations should endeavour to make processes and systems as simple as possible and provide support to employees adapting to the changes. "Sometimes this requires a trade-off between control and ease-of-use, for example by running low value purchases through a P-card process with approval after the fact," suggests Capgemini. Communication is essential and everyone should be informed when new contracts or catalogues are available

Secondly, targets must be set by the company. "Not procurement, but business managers are responsible for their teams' compliance to agreed procurement policies and processes," says Capgemini.

Finally, there should be very clear consequences for compliance failure. "It must be clear for all users what non-compliance will mean for them, but also how good performance will be rewarded," concludes Seven Strategies for Future Procurement, Strategy 1: Closed Loop Procurement.