I was at the Olympics in Rio and saw one of my favorite events, the 4x100m sprint relay. Above is my view of the third baton change, with Usain Bolt. There’s something special about the skill and drama of exchanging the baton at top speed, and in Rio the Brits, like many top sprint teams before them, crashed out by failing to execute a successful baton exchange.
But relay races are not the only place where a poor handover can lead to failure. In the world of procurement, we are running the second leg of a four-lap relay. Procurement must optimize its handover from sourcing and, without breaking stride, hand the baton over to finance for invoice reconciliation, with payment running the anchor leg. Just like both of the U.S. relay squads at the Olympics in Beijing, one misplaced handover, and disaster ensues. In the world of business processes, this inability to execute a smooth handover is indicative of siloed thinking.
A smooth handover is critical in any value chain, but this is particularly important in the source-to-settle process of procurement. Let’s look at the three crucial baton changeovers needed in this four-lap process.
Handover 1 : Sourcing to buying
It’s surprising how many organizations see missteps here because their sourcing and buying processes don’t use the same system. Look at that gap between source and buy. There are two ways this handover can go awry: you are either sourcing but not buying from your nice new contracts (which is a waste of time), or you have automated the buying of items that haven’t been sourced properly (which is a waste of money).
Handover 2 : Buying to invoicing
To make sure this exchange goes well, you need to make sure that all invoices have something to reconcile against. This may be a purchase order, so some companies attempt to implement a “no PO, no pay” policy. But this has limited effect for types of spend where the requester doesn’t know all of the information up front, and invoices need to be created that can be reconciled against a scheduling agreement, a service sheet, a milestone, or a travel authorization.
Handover 3 : Invoicing to pay
We sometimes call this “buy right, pay right.” This handover can go wrong if the payment terms on the invoice are wrong or the banking information from the supplier is incorrect. A poor process here may lead to a supplier not getting remitted funds correctly, which could put them in financial difficulties. Also, depending on the size of the supplier, different payment strategies might be needed: supply chain financing for your largest trading partners, a dynamic discounting capability for midsize companies, and a purchasing card for one-off purchases.
So how can you make sure you can move the baton successfully round the track, all the way from source to pay, to get that medal? The unlikely Rio Olympic silver medalists, Japan, contained no top-class sprinters, but focused purely on optimal handovers. Procurement professionals need to choose not just the optimal cloud solution for each of their processes, but also a technology that allows information to flow cleanly from one to the other.
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