Technology plays an increasingly essential role in the supply chain, as we have shown earlier on this blog: we have already addressed the role of technology in changing global trade, supply chain 4.0, and trends that are revolutionizing supply chains around the world.
The aim of today’s article is to clarify what Purchase-to-Pay (P2P) is, in addition to showing its benefits, by taking a more self-centered approach regarding the role of technology in the daily lives of purchasing professionals.
What is Purchase-to-Pay?
It is the whole process involved in the relationship between customers and suppliers. All stages of this relationship – buying, paying and receiving goods and services – are included in this concept.
In a more practical way, electronic payments, issuing invoices and even exchanging documents electronically represent Purchase-to-Pay elements.
P2P also includes purchase-to-pay (basically, how an organization acquires goods and services necessary for its production) and sourcing-to-pay (which controls the accounts payable and perceives the entire operation more strategically from the point of view of expenses).
To understand a little better what this means, see below what are each of the stages of P2P and how they bring more effectiveness to the daily lives of supply chain professionals.
The process begins with the purchasing department being requested by other teams within the company – maintenance, for example – to find parts or services from a particular supplier. From there, you can start sending an RFQ or the activation of suppliers already known by the company.
3. Purchase Orders
After the contracted is closed, purchase orders begin to be issued, often electronically.
4. Receipt of items
The requested products are checked by the supplier and sent to the customer, preventing defective items (or in wrong quantities) from being received.
From the moment the items are received and checked, the billing (again, electronic) can begin, but it depends on the payment terms agreed in contract.
6. Spending analysis
As part of the process, companies must have strict control over spending on suppliers. Rational spending is the best way to guarantee the sustainability of the area within any company.
As this is an action that involves multiple agents at different points of contact, it is necessary to coordinate the entire relationship very well so that the final objective is achieved without presenting major losses of increased complexity within the supply chain.
Having a partner capable of understanding all the needs of your purchasing department and achieving the best prices in the global market is essential. For this reason, Soluparts is actively dedicated to building the best possible environment so that its customers can find the parts they need, with all the guarantees and the best prices.
This way, purchasing professionals can save time and have, in addition to technological support, a true partner to carry out their purchases as quickly and efficiently as possible.
The role of technology
All the steps above can count on the support of digital solutions to be conducted quickly and with the less amount of errors as possible. The so-called “electronic purchasing systems” are of great value in this context – if employed correctly, they can bring savings of up to 80% for the purchasing sector.
Experts point out that the payback for this type of solution should happen very quickly within different companies. The most delicate part of this operation is precisely the beginning: ensuring that the area’s culture adapts to these new stages and that it fully and effectively understands the functioning of the new softwares that will be part of your daily life.
According to Fernando Motta, leader of the Process Intelligence area at gA, a global technology company that uses digital platforms to empower large companies, some of the points that can be improved by using software such as this are:
- Significant reduction in rework in purchasing;
- Elimination of order approval delay, since the software directs documents straight to those responsible and does the subsequent follow up automatically;
- Reduction of divergences between orders and invoices;
- Elimination of payment delays.
Finally, as these procedures involve a significant amount of data, it is possible to carry out a complete analytics analysis to understand where it is possible to generate more efficiency and understand more about the products purchased and their demand, therefore becoming a true aid as well as collaborating in all sectors of the company.
In addition to the efficiency gains already described, other benefits can be linked to procurement-to-pay. The main one would be the visibility that the supply chain area has within the company, with easier communication among itself and the other business areas, making it possible to more effectively manage points such as prices and inventory.
Another feature that deserves attention is the more assertive decision-making based on data analysis that the process is capable of building. In this way, supply chain professionals can be agents who actively contribute to the financial health of not only their areas, but the entire company.
Finally, the optimization of operational performance is a result of this entire process. From the agility achieved with new methodologies and the insertion of softwares capable of assisting them, professionals now have more time to dedicate themselves to strategic tasks and can contribute more significantly to the advancement of the companies in which they operate.
Continue reading our blog to be updated on the latest market trends for the supply chain:
Those who work in the purchasing and supply chain area have probably heard about cryptocurrency, bitcoin and blockchain.
With the rise of digital currency (bitcoin being the best known) in global trade, many companies begin to apply this technology in their operations in order to modernize, streamline and optimize processes. This ultimately brings new concepts and services to be replicated as demand requires.
The blockchain concept is relatively new and, in a simplified way, can be defined as a series of immutable data records, managed by a decentralized computer system that does not belong to any entity, this block of information is protected and linked to each other, using encryption.
Since this is a service that still generates many doubts and uncertainties, we have created this article to unveil this concept and its application in the purchasing department and supply chain.
What is Blockchain after all?
Before conceptualizing this technology, we need to talk briefly about bitcoin.
Decentralized cryptography – or electronic money – has been in use since 2008, when it was presented in The Cryptography Mailing discussion group by a programmer or group of programmers under the pseudonym Satoshi Nakamoto.
Bitcoin is considered the world’s first digital-decentralized currency, creating an alternative economic system. The currency does not need third parties to function, i.e. it does not depend on banks, large corporations or governments for the money to be moved.
Financial transactions with bitcoin are recorded in a distributed database – an extremely secure, decentralized network without a central management entity structure called a blockchain.
To illustrate, we can compare the blockchain to a public ledger (or accounting book) that records virtual currency transactions in a reliable and unchanging manner. It records information such as: the amount of currency traded, who sent it, who received it, when this transaction was made, and where in the book it is registered.
The service stores transaction information in blocks, stamping each block with a time and date record, thus being a chain of blocks. And what makes it so special is that it is not subject to a specific authority, but is a system in which the information is open to everyone who is part of it – everyone involved is responsible for their actions.
The main advantage of the service is that, with it, transactions are transparent, blocked and protected through encryption, making any attempt at fraud extremely difficult – but it’s good to point out that this does not make the system completely secure.
And since any modernization that brings agility and greater security to the purchasing process is beneficial, blockchain technology is increasingly seen as a potential market disrupter in purchasing and the supply chain.
Applying Blockchain in the purchasing department
According to MarketsAndMarkets consultancy, the blockchain market is expected to grow a lot in the coming years – the sector’s turnover will rise from $1.2 billion to $23.3 billion globally and the annual growth rate is 80.2%. Gartner has positioned the blockchain with great growth viability in the next five to ten years.
As we can see, innovations based on this technology are promising, with several ways and reasons for it to be applied in purchasing processes and supply chain. Let’s look at some of them:
A) Intelligent Contracts
Blockchain in purchasing allows the creation of intelligent contracts that are tamper-proof and automate actions to meet predetermined conditions. For example, payment terms incorporated into the contract automatically generate incoming and outgoing payment invoice notifications based on the approved data stored in the blockchain, eliminating the need for the supplier to issue the invoice and for the purchaser to validate it.
B) Information Reliability
The blockchain, as the name suggests, is a chain of blocks that stores digital information. For a new information to be incorporated into your database, you need to go through 3 steps:
- A transaction: an individual transaction is incorporated into a block that joins others to form a secure network of chained blocks, all of which carry a unique content. The big difference is that the later block adds its own content to the previous block’s fingerprint, generating its own fingerprint – and so on;
- Transaction verification: a computer network verifies each transaction to make sure it occurred as informed by the person responsible for the transaction. Only then is the process confirmed, joining thousands of other similar processes;
- Transaction identification with a code: finally the transaction receives an identification code, called a hash, and the block is added to the blockchain. The hash works as a kind of seal, if the block is changed, the hash changes, which invalidates that block.
After all these steps, the information is recorded in the ledger, from where it cannot be deleted.
In addition, each blockchain network has “nodes” that bring together participants for the same purpose – for example, bitcoin “nodes” are used to transfer money. And every time a person can validate a block or identify an error in the network, they receive a reward. These blockchain sentinels are called miners.
With all these precautions, the risks associated to traditional databases no longer exist, which offers security in the information exchanged via the blockchain and also making data tracking easier.
C) More transparency
Blockchain technology in purchasing also increases transparency throughout the process, since the record of all transactions cannot be changed by anyone without identifying the change. And if a transaction is malicious, it can be identified and treated before it becomes a damage to the business. Inspecting the network’s actions and pointing out suspicious modifications is another of the miners’ competencies.
Examples of blockchain in use in the supply chain
The use of blockchain in the supply chain is already a reality and has been creating benefits for many companies.
In the food and beverage industry, for example, Walmart’s supermarket chain has joined with IBM to track pork from China. Unilever, Nestlé and Dole have also used IBM’s experience and adopted IBM’s Blockchain to improve the traceability of foods such as bananas, chocolate and chicken – the blockchain records the origin of each item, where it is stored and its expiration date.
It has also been helping to track all stages of the global coffee trade, from farmer to consumer, collaborating to ensure the origin of the product and to reach a fairer price to the final consumer. Ireland’s Moyee Coffee was one of the first companies to innovate and use the technology.
It is clear that blockchain in purchasing and the supply chain will enable advances ranging from fraud protection to speed in the purchasing process. And even if innovation does not happen overnight, it is worth thinking about how to incorporate this technology into your company so that it will come out ahead.
Also, take the opportunity to optimize the purchasing process with Soluparts‘ experience. Present in five countries and negotiating with the world’s largest suppliers, our experts will guarantee you the best business conditions.
You can probably agree that boredom does not exist within the purchasing department. With responsibilities ranging from complex negotiations to supplier management, the industry has a strategic role within a business and a stressful routine.
When well planned and executed, the purchasing process becomes an important ally for the success of the organization, contributing to greater productivity and also reducing costs.
However, due to its importance, certain precautions are essential in order to avoid the main problems related to this area. Check out, below, the main ones, with their respective solutions.
1) Purchase orders with unclear requirements
Purchase orders usually come from the industry that will be the end user of the ordered material, and not always do these areas send the necessary (or correct) information for price research, negotiation and procurement.
However, the purchasing department needs the order to contain precise information: part number, manufacturer, quantity, minimum and maximum delivery time, and the cost center where the value of the acquisition will be directed – to name a few items.
This clarity in the issuance of the order, which will make all the difference so that the best possible work occurs in the selection and delivery of requests, can be guaranteed with the use of specific software for issuing the order – which, also, will allow additional benefits such as:
- overview of all the company’s purchase orders;
- time optimization;
- real-time monitoring of processes.
The choice of the ideal tool should be part of a broad process, where digital security is also considered – no company wants to see its data leaked, leading to financial and image losses.
Regarding the use of technological tools, check our Top 10 software for the purchasing department.
2) Difficulty in Negotiation
The purchasing process requires good negotiation strategies, and it is up to the professional of this department to know how to negotiate values, deadlines and other payment conditions in order to reach an agreement that offers the best possible conditions for your company.
Negotiation skills can be learned – or improved – with experience and with an attention always focused on market trends, following the movement of the economy and the reality of each supplier.
Due to the importance of the subject, we have created several articles on the subject – among them:
3) Untrained staff
To work well, any team, from any industry, needs regular training and capacity building – and with the purchasing department it’s no different. It is about improving employees’ skills and knowledge, as well as keeping them updated about new systems and ways of operating in a certain segment of the company, or even keeping them aligned with the goals and objectives of the organization.
A training program, which can be conducted through virtual channels, is an excellent way to ensure better team performance.
It is also essential for the team to be up to date with the novalties and news in the sector, by getting to know new methodologies such as Strategic Sourcing, which greatly improves the acquisition process, and is focused on generating results and reducing costs for the company.
4) Lack of transparency in the purchasing process
Among several aspects, the purchasing process involves the judgment of the best proposals for the supply of materials and services; the selection and contracting of suppliers; and the work with bids, whenever appropriate.
The best option to avoid problems such as fraud in the purchasing process is the implementation of an efficient compliance program in the company – we talk specifically about this subject in another of our articles, check it out: Benefits of Compliance in the Purchasing Department.
Another important factor is to make use of Business Intelligence indicators and software, as we show in the article on this subject.
5) Inadequate evaluation of suppliers
Among the several variables within the purchasing process, it is essential to consider the cost-benefit ratio in terms of suppliers. Remember that the quality of your suppliers’ products or services affects your company’s product or services – in other words, it impacts the progress and evolution of the business. This is also why the process of selecting these partners requires a great deal of attention and dedication.
In this sense, when choosing suppliers for your company, search for references, seek the opinion of other companies that are already customers of the supplier in question, and check whether it is aligned with the goals and values of the venture in which you are inserted.
After acquiring the products, give feedback to the selected partners, observe if they will take this into consideration and if they will try to adapt to your notes (if any); also evaluate if the partner is flexible in terms of negotiation, if there is room for this; analyze, also, the general progress of this partner; and implement improvement policies for this whole part of the purchasing process.
Also, remember that to avoid or minimize the negative effects caused by adversities such as those mentioned above, especially regarding the relationship with suppliers, you can also count on the help of a company specialized in indirect material procurement, which offers numerous benefits to your purchasing process!
Soluparts is a global company – with offices in Brazil, Germany, Portugal, Hong Kong and the United States – that is able to connect your company to the most relevant manufacturers in the world. We specialize in purchasing all types of industrial materials and have access to thousands of products and suppliers worldwide. Learn more about our value proposition!
To better understand how Soluparts can facilitate your company’s purchasing process, please contact our team!
Have you ever heard of Strategic Sourcing? This concept has become very widespread among professionals in the purchasing area and in the business environment.
Basically, this methodology intends to analyze the total cost for the aquisition of products or services through observation, mapping and analysis of the specifications of materials, service levels and suppliers.
Read down below so you can understand a little more about Strategic Sourcing and how it helps you to have a more strategic purchasing process.
What is Strategic Sourcing after all?
Issues such as political and economic volatility, technological transformation, among other factors, make the market increasingly competitive. For this reason, it is essential to adopt effective sourcing processes to maximize business performance and efficiency, which helps you stand out from the competition.
Directly linked to the financial health of a business, this strategy is based on evaluating all angles of the acquisition of a material or product, by identifying the impact generated on the organization’s finances. This method starts from the premise that even if the purchase is made to meet the needs of an industry, it is part of the overall strategy of the business.
The use of Strategic Sourcing allows a thorough analysis of all external and internal costs that influence the value of the end products – among them: logistics, storage and procurement. In this way, it is possible to obtain, among other advantages:
- Cost reduction in purchased products and services;
- Improvement in the delivery time of suppliers;
- Improvement of the negotiation capacity with suppliers and speeding up the acquisition flow.
- Standardization of processes according to the formalization of routines, which are now documented;
- Greater knowledge of the supplier market;
- Rationalization of the supplier base;
- Improvement in the internal and external relationship of the organizations’ purchasing department.
In a practical way, with Strategic Sourcing, purchasing organizations can stop focusing only on transactional aspects of purchasing, incorporating greater intelligence into the process as a whole, including the choice of suppliers.
This avoids problems such as buying the same category of materials/products from different suppliers, paying different amounts – which is not good for organizational costs.
How to incorporate Strategic Sourcing
Given the importance of strategy, the consulting firm AT Kearney developed and popularized seven steps in the Sourcing process:
1. Analysis of the product categories used by the business, spending patterns and processes and departments involved
Identifying areas of spending by categorizing them because of their criticality – this categorization will help prioritize the purchasing process. If necessary, other categorization criteria can be created (direct or indirect, international or domestic expenditures, for example).
2. Development of a strategy based on business objectives
The strategy must be based on the objectives of the company, establishing a communication flow in which all those interested in procurement have visibility into the purchasing process as a whole.
3. Market evaluation and creation of a supplier portfolio
In-depth analysis of current and future suppliers, checking their market position and assessing the risks and opportunities they offer.
4. Preparation and formalization of documents for proposal request
Inform suppliers, of expected performance expectations, in addition to the desired material data, allowing them to have a clear understanding of what the organization needs. After these arrangements, which must be repeated with each of the suppliers, the only thing left for you to do is wait for their offer and only then select the ideal supplier.
In fact, this process can be optimized by hiring a company specialized in spare parts, which is responsible for the quotation with the main suppliers in the world and which, among other advantages, still offers the manufacturer’s warranty- see the article and discover the practicality of this type of service.
5. Negotiation with selected suppliers based on careful analysis
It aims to get the best possible deal for the company. This is a very important and detailed step, so we suggest reading the article: Advanced Negotiation: prepare yourself for great results
6. Choice of suppliers and agreements signed
This is the bureaucratic step in which documents and contracts are written, that is, it represents the end of the purchasing process. But be aware: Strategic Sourcing does not end here, since the relationship with suppliers is constant, especially when they are responsible for delivering strategic resource to the organization.
7. Performance monitoring and supply plan optimization when needed
Effectively measuring supplier performance against the organization’s requirements and objectives is an ongoing job that will help you understand risks and plan strategies to minimize possible supply chain disruptions.
Among the forms of monitoring, it is possible to adopt the QBR (Quartely Business Review) technique, which, as the name says, consists of talking quarterly with the main suppliers of the company and discuss topics such as cost reduction and improvement of service.
Doing a satisfaction and quality control survey with the departments that requested the services of the purchasing sector is a good way to collect other data and evaluate the performance of suppliers, as well as identify whether the contract is being fulfilled. This data will be very useful for the QBR meeting and also for directing improvements and seeking the best solutions to anticipate and/or solve problems.
Making a detailed analysis of your suppliers using the Strategic Sourcing Kraljic Matrix (below) is another way to track supplier performance.
Strategic Sourcing Kraljic Matrix
After the 7 steps of Strategic Sourcing we recommend the formation of the so-called Kraljic Matrix – download here our spreadsheet that will help you design your Kraljic Matrix!
It is basically a chart divided internally into 4 quadrants – see the model below:
We have prepared a Kraljic Matrix model to help you map your suppliers! To download the material click here!
Analyzing the Criticality/Business Impact axis, we will see at the top the items of greater financial weight for the company, representing greater strategic importance for the business. At the bottom, we have the items with less financial weight and less relevance to the company.
Difficulty in Obtaining/Complexity of Market is the axis where, on the right, we have the materials inserted in a more complex market (few suppliers, influenced prices, monopolies, cartels, etc). On the left side, we see the products or services that are in a more competitive market, with several suppliers fighting for supply contracts.
Positioning each product on a chart like this helps purchasing professionals to have a broader view of the company’s needs and their respective financial impacts on the business.
Don’t forget to access here the material we prepared to help you with supplier mapping!
Therefore, the implementation of Strategic Sourcing in an organization requires collaboration and awareness of the importance of data collection. In addition to technology management, operational intelligence is required – see the article Essential skills for the 4.0 purchasing manager – and the use of platforms and systems, such as Business Intelligence, for example.
Take the opportunity to try Soluparts’ services, a specialist in indirect material procurement, that counts on the world’s leading suppliers. We negotiate the best prices and payment conditions to optimize your company’s purchasing process: request a quote with Soluparts!
How does the purchasing process work in your business?
In general, purchases occur very similarly in most small, medium or large businesses. This is because the procedure is quite similar, and what changes is mainly the size and volume of orders, depending on the performance of each company. Check below the steps of the purchasing cycle that are often repeated out there, and how each should work – in theory.
The purchasing process in theory
1. Purchase requisition analysis
This is the first moment of the cycle. Here, the purchasing department receives a requisition, a document that expresses the need that another department or employee has for a product. Upon receiving it, the purchasing manager must review the actual need for that purchase, as well as the specifications, quantities and delivery date required. With this information in hand, the purchasing department moves on to the next step.
2. Selection of suppliers
At this stage, an extensive search is conducted to raise possible suppliers for the required purchase. Here, the purchasing department must check all the suppliers already approved, that is, that already have active service contracts. In case of a first purchase, it is necessary to search for new suppliers and to check prices and conditions of payment, delivery and support. It is the role of the purchasing department to find the supplier that offers the best conditions, and that does not necessarily mean the lowest price. After the choice of supplier, the purchase order is issued.
3. Issue of the purchase order
The purchase order is issued, sent to the supplier and to the accounting department, in addition to the ordering department and also the one that will receive the shipment. From now on, it is necessary that the purchasing department accompany the process, ensuring that delivery is made within the given time. If any problems occur, by following the process closely the purchasing department can get around the situation more easily and quickly.
4. Delivery of the order
When receiving the goods, it is necessary to inspect and verify that the requested specifications are in order, as well as the right quantity and the conditions of delivery – if there are no defects or damages caused by transport. If everything is in order, the good is forwarded to the requesting department or to the company stock, and the purchase order and a receipt report should be forwarded for billing to the accounting department.
Purchasing process in practice
By following these steps, everything should work in order, right?
Wrong. Remember that at the beginning we said that these steps are the way things should work? Yeah. Each of these steps has its risks, and however closely the procedures are followed, the entire operation can be compromised by a slight oversight or slip. And, in the business’ daily flow, problems in the process are more common than we would like, especially in large companies dealing with many requisitions and deliveries simultaneously.
There are simpler and safer ways to perform each of these steps, to ensure that they occur correctly, and to make your purchasing process really effective. Check them out:
1. Purchase requisition analysis
By establishing protocols and properly training employees, the chances of errors in completing and submitting a purchase requisition are noticeably reduced. Requisition data are critical to the supplier search procedure and purchase decision, and mis-filed or erroneous information can undermine the entire process. It is interesting to invest in ways to automate this step of the purchasing cycle, reducing paperwork and making the activity of submitting a request more optimized and simplified.
2. Selection of suppliers and Issue of purchase order
Here’s a golden hint! A purchasing department in a large company handles hundreds of purchase requisitions per week, which ask for the most different types of goods, which will come from several different suppliers. The person responsible for the requisitions should analyze each of them individually, categorize them, search for specific suppliers for each of the reported needs, search for the best prices in the national and even international market… It is already tiring to read, isn’t it? That’s where the danger is!
To facilitate this part of the process, there are companies that specialize in the purchase of materials for maintenance and replacement parts, that go after the best suppliers around the world and find the best prices and conditions to meet your needs. So you can focus multiple orders in one place, reducing the number of different purchase orders, making the process more organized.
Closing partnerships with this type of company is very valuable to your business, since it reduces the workload of the purchasing department, streamlines the routines and allows the process to be conducted in a more coordinated manner. It’s a typical example of a win-win situation!
And by optimizing routines, purchasing managers are given more time to deal with other procedures, such as better organization of the purchasing documentation, which has a direct impact on the control of each supplier’s deliveries and deadlines.
3. Delivery of the product
With less paperwork to handle, it’s easier for the purchasing manager to track supplier deadlines and deliveries, paying more attention to this step of the process. As a result, the risk of problems going unnoticed decreases, closing the purchasing cycle with a golden key!
It’s also important to say that most of those companies we cited in the last topic manage to also take care of the transportation, making everything easier for you and your business!
How to purchase effectively
In this article we showed you how the purchase cycle should work in every company, the problems usually found in each step and how one can ensure that the process runs without many disturbance. Here, you’ve learnt that the primary concern must be to easy the parts than can be eased, by optimizing routines and getting rid of unnecessary paperwork.
Companies that participate in the purchasing process with you, searching for new suppliers worldwide and ensuring the best conditions for your business’ needs are the best way to turn the purchasing cycle into a well handled and guided process. By doing that, you leave the purchasing department free, to worry about other steps that are as essential to your company’s success as the purchases are.
How do you manage the purchases at your company? Do you think your process runs effectively? Tell us in the comments below!
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