Procure-to-pay (P2P) refers to the process that starts with procuring a good and finishes with payment for the good. P2P integrates purchasing and accounts payable systems and is mostly handled by software.
The procure-to-pay process includes steps as follows:
- Purchase Requisition: The procurement system creates a request to make a purchase and get the approvals.
- Purchase Order (PO): The system creates a line item for the goods to purchase.
- Goods receipt: The warehouse management system generates a ticket to inform that goods have arrived at the physical storage.
- Invoice receipt: The invoice created by the vendor for the goods.
- Invoice approved: Once the quality of the goods is verified, the invoice is approved and sent to the accounts payable.
- Invoice payment: The P2P ends once the invoice is paid.
Managing the procure-to-pay processes efficiently can increase productivity by 75% and reduce quality defects by 70%, as process improvement case studies have shown. Yet, managing and improving P2P can be challenging since P2P workflows are way more complicated than these steps summarize.
Process mining can tackle this challenge by analyzing and visualizing the P2P process, locating inefficiencies and discovering areas for improvement and automation.
This article expands on six ways process mining can help improve and manage P2P processes.
1. Automate P2P steps
In pricing or contracting issues, P2P can require manual interventions. Such manual work leads to execution gaps, potential mistakes, delays and loss of time for employees, which can be easily prevented with the help of P2P automation.
With process mining, analysts can locate such manual activities to automate them and monitor automation initiatives. Some process mining tools can generate a digital twin of an organization (DTO), which can measure the ROI for automation. By predicting the impact of the automation, users can decide if the intended project is worth pursuing. Sometimes, tasks planned to automate may not increase efficiency or reduce cost as expected.
Therefore, with process mining, P2P teams can automate the right activities and reduce cycle time and additional costs to maximize productivity.
In a case study, a manufacturing firm leveraged a process mining software to bring more visibility to its P2P process. The company drove insights on automation, deviations, maverick buying, discount losses, working capital, and measurements of return on investment (ROI) in each area.
The firm made changes based on the actionable insights, leading to optimization and cost reduction (See Figure 1). Some of the outcomes include:
- Automating from purchase order to invoicing,
- Reducing rework and deviations for the delivery activities by 75%,
- Making a 47% reduction in average invoice registration time,
- 6% reduction in the average purchase order.
2. Reduce maverick buying
Maverick buying is the type of purchase that ignores procedures, price comparisons, negotiations and contract agreements. Such behavior can occur in complex P2P processes.
Maverick buying can lead to purchasing a product at a higher price or lower quality. Thus, investigating reasons behind non-compliant invoices can create time loss and cost money to the organization.
Process mining can help locate and prevent maverick buying. Several process mining vendors offer customized dashboards for users to develop process KPIs. P2P process analysts can leverage such dashboards to constantly monitor to intervene in time for non-compliant activities, such as maverick buying.
3. Assess supplier performance
Regardless of the firm size, every P2P process requires a purchasing partnership. These partners can be local, state and government departments, small-scaled temporary suppliers or global permanent ones.
Managing the suppliers’ network is crucial for process efficiency and customer satisfaction.
Process mining can help manage supplier relations by analyzing Supplier Relationship Management (SRM) Systems data. With process mining, P2P teams and business analysts can assess underperforming suppliers by utilizing delivery time, service quality and cost metrics. This way, they can address issues resulting from suppliers or replace underperforming suppliers.
For instance, Azkonobel, a chemicals firm, improved the SRM system from 40% to 70% in one year while reducing costs with process mining.
4. Locate inefficiencies
An error in invoicing or longer processing in the purchase order creation may lead to devastating scenarios with high costs for the organizations.
Process mining can help understand processes as they are, enabling analysts to detect long process durations. Automated root cause analysis allows users to locate the issue and its triggering reason. By predicting inefficiencies, analysts can prevent costly scenarios.
For example, in process mining case studies we gathered, Alliander, a utility firm from the Netherlands, deployed process mining in their P2P processes and eliminated inefficiencies, such as unnecessary steps, and trained their P2P team.
5. Manage cash discounts better
Companies fail to take advantage of cash discounts because such discounts require various contracts to create and track different details on payment terms.
With process mining, P2P teams can track cash discount flow. They can detect when these discounts are missing and rearrange their invoice management accordingly. They can also measure if the cash discount is profitable or not. This way, P2P teams can increase the number of negotiations without an additional cost.
For example, Deutsche Telekom AG utilized process mining to gain transparency over their P2P processes. According to the case study, the company saved over EUR 66 million by:
- Identifying and reducing duplicate payments
- Maximizing cash discounts
- Increasing perfect purchase orders from 73% to 85%
- Enforcing timely payments by 20%.
6. Prevent free-text requisition
Free-text requisitions are the demands which are not mentioned by catalogues, procedures or process documents. Such requisitions can create extra work for the P2P teams and lead to gaps in each workflow step.
Teams must reduce the number of free-text requisitions. Yet, they fail to locate the source of these requisitions.
Process mining can identify the parties that generate the free texts with the additional cost they cause. With such insight, P2P teams can redesign and plan their processes and catalogues to ensure that parties deliver anything that the process requires.
Explore other process mining use cases by reading:
- 44 Use Cases and Applications of Process Mining
- 6 Ways to Enhance Sales & Marketing with Process Mining
If you believe your business can benefit from process mining, check out our data-driven and comprehensive process mining vendor list to compare different tools in the market.
Check out comprehensive and constantly updated list of process mining case studies to find out more process mining P2P real-life examples.
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