The procure-to-pay process can be like a game of dominoes stacked up and ready to fall into place. The first domino in the set is the purchase order, and unless that PO is correct, everything else, including invoice and payment, can quickly fall into disarray.
Often, this issue is no more than a nuisance: if an organization procures a dozen desk chairs for the office, for example, an incorrect PO may lead to too few chairs being delivered, or payment being delayed, but the company can continue running generally without disruption.
That’s the difference between indirect and direct procurement. While indirect procurement involves the buying of goods, like office supplies or enterprise software, that allow the back-office to continue operating, direct procurement involves the purchasing of supplies and services, like raw materials, necessary for a company to make its actual product. When the direct-procurement dominoes don’t fall into place, a company’s entire operation can be thrown in jeopardy.
This is especially true for the manufacturing space, on which direct-spend procurement company SourceDay focuses. Today, according to the firm’s CEO Tom Kieley, the nature of manufacturing means purchase orders are frequently changing, which unfortunately forces vendors to fulfill orders based on outdated, inaccurate information.
“A purchase order will get cut out of the ERP system, which creates POs based off of demand — sales orders, minimum stock requirements and current inventory,” he explained to PYMNTS in a recent interview. But if a manufacturer’s own customer cancels an order, for example, the POs coming out of an ERP system will change in real time.
“The supplier needs to get the most current, accurate purchase order in real time as the demand is changing,” said Kieley. “The supplier needs visibility into that.”
Other issues that arise can stem from the supply side, if a vendor is unable to meet demand at a point in time and short-ships as a result, misses a shipment, over-ships or changes the price of a raw material. Any of this means the invoice a vendor sends to a manufacturer will be misaligned to the original purchase order.
“Date, price, quality and quantity — these are things that happen in our ecosystem that drive inaccurate PO, shipment or invoicing,” Kieley added.
When this happens in direct procurement, as is the case when a manufacturer is purchasing raw materials from a vendor, these PO inaccuracies become a catalyst to breakdowns further along the supply chain and, ultimately, in a manufacturer’s ability to fulfill its own orders to customers.
These issues occur quite frequently, too, according to the 2018 Procurement Officer Report by Avionos. The firm surveyed 160 procurement officers in the U.S., most of whom work in firms with at least $10 million in direct procurement spend per year. More than three-quarters of respondents said that they experience some kind of pain point in the procurement process.
The majority of those pain points can be traced back to a lack of communication between buyer and supplier, with procurement executives citing a lack of accurate product information or inventory data.
According to Kieley, buyers and suppliers in the manufacturing space continue to rely on siloed, inefficient ways to communicate, with phone, email and even fax still common communication channels. Companies often operate without a platform that can facilitate real-time collaboration between two parties, leaving significant room for those PO mistakes that create more errors and points of friction down the procure-to-pay process.
Not least of all, he said, is payments.
“In the industry we serve, if payments are late or wrong or slow, it’s because the POs are generally wrong,” said Kieley, adding that an internal poll of SourceDay customers conducted about a year ago revealed three-way-matching and accounts-payable automation to be a top demand for clients.
While SourceDay does not currently enable B2B payments to be made directly within its platform, Kieley noted that this functionality is part of its 2019 product roadmap. Earlier this month the company announced $6.5 million in Series A funding led by Silverton Partners, Draper Associates and ATX Seed Ventures — financing that will help the firm fuel that product roadmap.
In addition to adding payment capabilities, Kieley said that the firm will focus on helping customers shift away from manual processes in the accounts payable space.
“Most of our customers are still sending checks to their suppliers,” he noted, adding that offering electronic B2B payments capabilities not only means companies can send and receive payments on the same platform through which they are already collaborating and communicating, but will support this effort to land both buyer and supplier on the same page of up-to-date information.
“Buyers and suppliers are already collaborating on our platform, so the relationships in the data integrations are already there,” said Kieley. “Adding the additional functionality [of payments] can eliminate risk and pain points within a single platform, and provide that three-way-match against the invoice, the PO and the receipt.”