Journey towards P2P performance management (minus the bumps)

This is the final installment of my posts on the Functional Fast Track session that I conducted at the 21st Annual North American Shared Services and Outsourcing Week entitled Digitizing the P2P Process to Create Process Intelligence and Better Customer Experience

March 8, 2017, Lowes Royal Pacific, Orlando, Florida

Defining Your P2P Process for Automation

We will now look into the design of KPIs and the overarching process performance measurement system (PPMS).

P2P process tracking

An 8-step project implementation methodology

While I present a typical eight-step project methodology here, there are different but equally suitable ways of setting up.  I’m sure that many of us have been involved in process transformation projects before and will be familiar with these alternatives.

Also while I have some detailed diagrams here, I will not expound too much on the methodology. Instead, I will comment on those steps that are often overlooked but are important digitization goal posts.

Process mapping

The most logical starting point is process mapping. The process map is a consensus between the process owner and his stakeholders about the current state of the P2P process. Using this common understanding, the manual process may then be mirrored in the proposed automated workflow.  Remember also that processes are rarely static and are almost never organized neatly. Process mapping is a preparatory step that ensures that we do not miss shifting process conditions as well as important but less obvious process tasks. A good illustration might be how an organization manages internally when orders are split apart by a supplier due to delivery bottlenecks. In this example, the original process may not have been designed for such split deliveries but the contingency happens often enough for internal practices to have evolved just to accommodate these.

P2P process mapping

Step 1: Process mapping

Process mapping can uncover instances of execution failure that hold back overall process performance. For instance, different processors may not handle invoices in the prescribed and standard manner increasing the likelihood of duplicate payments happening.  Once these potentially troublesome process failures are known, we can then institute regular monitoring and define the events to trigger remedial action.

As we mirror the original manual process in the automated workflow, we should safeguard that no control point is overlooked. This is not so straightforward when process steps are compressed, re-arranged or (in the course of enabling system options for various users) the original simple linear process now becomes layered.  A case in point is where the technology allows different invoicing and payment channels to be accessible to vendors, which leads to a risk of duplicate payments that did not exist in the original manual process.

Agree Priorities

The next step involves objective-setting and prioritization.  The diagram below  gives a few examples of possible priorities.

P2P prioritization

Step 2: Objective-setting and prioritization

Setting the baseline

The diagram below lists down some questions to help set the performance tracking baseline. As part of our stock-taking, we need to diagnose our current performance measurement.

Baseline PPMS

Step 3: Establishing the baseline performance measurements

We need to be aware of the different types of performance measurement issues that may exist currently under one of five categories:

  1. We can have issues that relate to data collection and calculation;
  2. A second issue type involves prescribing the right measuring stick, meaning to say proper definition.For instance, we can be measuring % spend with key suppliers/ total spend – in this measure, are key suppliers the ones with long-term supply contracts, are they the suppliers of a predetermined set strategic commodities and services, or are they those with at least US$ 50 thousand spend over the last six months?

    Performance Fails

    Common types of issues in performance measurment

  3. The third item relates to unclear targets or standards.
  4. The fourth issue type is the lack of corrective action when the standards are not met.
  5. The last category pertains to creeping accumulation in the number of scorecard metrics with the passage of time. Compounding this, it is not uncommon to fail to drop the measures that have become irrelevant over time. Lastly as processes and roles evolve, a metric can somehow end up being reported to the wrong person. Given these, it is not hard to lose sight of what the whole body of measurements is supposed to signify.

In searching for the best internal benchmarks, we need to be mindful of the different dimensions to observe for performance variations. The diagram below presents an example where commodity clusters, locations and business and functional units are relevant dimensions.

dimensions-of-performance1-e1498136604308.png

Sample definition of performance dimensions for a P2P process where activities are performed by a procurement team, a finance team and an outsourced service provider

 

Develop performance indicators

Develop PIs

Step 4: Develop performance indicators

Knowing our performance measurement issues and which performance indicators need to be modified, improved or changed, we can now look at identifying alternative metrics that would better capture P2P process performance status.

KPI types

The 3 categories of performance indicators

Each distinct measurement will typically fall under one of three categories of efficiency effectiveness and compliance measures. Taken together the mix of should paint a picture not only of how well procurement execution is working, but also how well the component businesses are being satisfied and how well the sourcing strategy is being achieved.

KPI selection

After the list of possible performance indicators are identified, the attributes of those indicators need to be defined (e.g., purpose of metric, method of calculation, frequency of measurement, etc.). Next, we need to agree the KPI selection criteria, and trim down the performance indicators into the preferred list of organizational KPIs.

  Define data collection and processing

The next step is essentially translating the process design and process measurement plan into a set of business requirements:  In this phase we define things like:

  • the channels or portals by which transaction data can be received; and
  • the volume, velocity, timing and variety of data expected to pass through each channel.

As we consider switching on application functionalities, we may need to add detail to the business requirements. This can be simple things like defining units of measurement – like choosing between pounds or kilograms, for instance – as part of setting data input quality standards for a user channel.

Design Reporting and Visualization

Design reporting

Step 6: Designing the reports and visualization tools

After we have spelled out the application routines, we next design our reports. Our toolkit to create visibility will include dashboards, mashups, alerting, and predictions. For today, we will just lightly touch on the KPI dashboard.

The purpose of a dashboard is to provide all the relevant information quickly and concisely presented in a clear and intuitive view.

Dashboard

This is how a dashboard might be designed to look

If you are using an ERP system with a built in dashboard like Oracle’s WorkCenter, make the most of it. Built in dashboards offer attractive graphics designed to give a snapshot of the operations – but this functionality is often either switched off or scaled back. Do not reinvent the wheel by straightaway developing your own dashboard.

This completes a very quick walkthrough of the performance tracking design process. As a final note on this, allow me to highlight that performance tracking design is often drawn out and complex and, as such, always requires attention to structure and methodology.

Some things to remember

I will end with some practical tips that can smooth the progress of your digitization journey.

Concerns

Remember these tips!

People need training

The P2P staff and perhaps even the key suppliers will need training. Without this, the program is doomed to under-deliver: Processors will fail to take advantage of the full functionalities of the tool. Formal training is best augmented by the formation of communities of practice across the implementation locations in order that forum participants can share best practices as these practices begin to emerge.

 Another reason the digitization project may under-deliver is when staff are unable to respond to the alerts and absorb the information surge in the new reports. With greater procurement and accounts payable efficiency, the mix of skills required for P2P roles changes with more time being spent on dispute resolution and other analytical tasks. To the extent that the automation results in the elimination of transactional jobs, the residual organization will need training to improve the ability to tackle diverse tasks in a wider job scope.

Process intelligence allows us to discern evolving customer demand patterns, change course accordingly and reduce unwanted inventory. Our P2P staff and our key suppliers will need to be proficient within a supply chain model that leans more towards a “pull” rather than a “push” strategy. Preparatory learning is again necessary.

New process, new controls

Segregation of duties is a focus area when the automation initiative results in a much leaner organization. One issue that’s easy to overlook is how the intended segregation is bypassed through password sharing when staff go on leave. On the plus side, process supervision improves tremendously with greater visibility, allowing such capabilities as capacity planning and productivity benchmarking as part of regular operations management.

Productivity j-curve

Time and again, we have seen the post-implementation disappointment, if not panic, when realized productivity gains from an automation project undershoot committed efficiency targets.  A common enough response is to attempt to wring out the original FTE saves from the project by whatever means. By force fitting the project results to the original targets, however, we may be compromising process controls.

My view is that the agile or scrum framework for these projects only guarantees the early completion of the automation project but does not necessarily translate to the early realization of productivity targets. Productivity follows a j-curve. It is not reasonable to expect staff to immediately move up the learning curve in their transformed and enriched roles. Even managers need time to get used to drawing upon the enhanced process visibility to better orchestrate the activities of their teams.

One final note on undershooting project targets: One common experience we have in the smaller Asian locations of multinational companies is that the global or regional system implementation fails to incorporate requirements peculiar to the local businesses, say, the capture of GST or VAT information required by the tax authorities. Fortunately, the shared services centers in India and the Philippines offer the capability to perform the residual manual work, allowing the smaller locations to achieve some of the benefits of accessing digitized information.

Conclusion

Let me conclude my presentation with a few takeaways.

A well implemented digitization project always yields solid efficiency. But more important than this, digitization enables many reporting and analytics tools. This, in turn, leads to empowerment of P2P process owners with their ability for timely interpretation of information and prompt fine-tuning of operations.

Process Intelligence derives directly from how well you select and define your KPIs: You can analyze, compare, trend, correlate information, and draw conclusions based on what you intended to observe and highlight in the first place. You know that your process intelligence is effective when performance indicators track in real-time how well the P2P process contributes to the organization’s objectives.

Armed with process intelligence, it is now up to our P2P process owners to not just manage capacity, exercise control, and achieve process stability and sustainability but also to progress towards an agile, flexible and customer demand driven procurement model.

Summary

Credits and thanks to Ms. Iris Celeste Brem whose Master Thesis entitled KEEPING  TRACK OF THE PERFORMANCE OF THE PURCHASE-TO-PAY PROCESS OF PHILIPS LIGHTING (December 2015) described in great detail the 8-step project methodology used for this presentation and a couple of fantastic insights shared here as well.

Digitizing the P2P Process to Create Process Intelligence and Better Customer Experience (Part 1)

This is the first of three posts on the Functional Fast Track session that I conducted at the 21st Annual North American Shared Services and Outsourcing Week.

March 8, 2017, Lowes Royal Pacific, Orlando, Florida

Introduction

I have been involved in many transformation projects and have found a niche as a Business Process Management (BPM) professional. Wearing this hat, I have viewed P2P as an area that’s ripe for the introduction of some BPM practices. In the past, the BPM principles were applied almost exclusively to core business processes. The global trend towards digitization brings with it an excellent opportunity for the application of BPM techniques to P2P.

Many procurement or finance professionals are either planning or may have already started a digitization program for their P2P process. Having seen how the digital revolution is disrupting the way business is done across many industries, executives want to be on the front foot as the changes filter into the procurement world. Some may have lingering doubts about rushing with the digitization herd. After all, process improvement fads seem to bring their own set of problems as the “war stories” of many of our managers can attest.

In this post, we will tackle how to look inward at our P2P process, choose the internal information to track for greater process efficiency and, hopefully, bring us closer to the holy grail of customer centricity.

What digitization entails

The best opportunity to digitize data happens with the roll-out of a new P2P system. However, a full ERP implementation that covers the entire P2P cycle takes years of planning and execution and is not a commonplace project. Further for many Asian organizations, the reality is that manual processes endure either because of more pressing budget priorities or a lack of time and people to tackle a full automation project.

Happily, digitization is not the same as business process automation. You can achieve meaningful digitization, say, by the creation of electronic forms to receive transaction data without significantly affecting the pre-existing manual workflow.  After all, the idea is merely to convert process and transaction details – whether originally in text, pictures, or sound – into a digital form that can subsequently be processed by a computer for further analysis.

I also use the term digitization to refer to a new ability to tap into previously inaccessible information, perhaps, in some obscure legacy database. I use the term in this liberal sense because we are essentially drawing upon the same principle of enabling data analytics.

There are many other initiatives where digitization may occur:

  1. Earlier, I mentioned the creation of electronic forms to replace physical documents as an example of a pure digitization play. E-forms will typically be dialog boxes in a web-based user interface although we are seeing more and more mobile-phone based interfaces.
  2. Expanding on the concept of e-forms, Vendor Management Portals digitize transactions and other information about the vendor relationship. Vendor Portals also allow self-service for tasks that normally require interaction between a vendor and the company.
  3. In recent times, there’s been a lot of discussion on Robotic Process Automation (or RPA) which together with other desktop productivity tools (like Open Span) provide the ability for screen scraping, copying and pasting, or sometimes even tracking cycle times and volumes;
  4. Reporting software can now combine and connect information from multiple data sources. This will include business intelligence visualization tools such as Tableau or SAP Crystal Reports;
  5. There is an impressive selection of interim options for affordable, off-the-shelf procurement software while we wait for the full implementation of that big ERP project. Many of these applications are now offered as a cloud-based service, and on pay as you go terms, thus avoiding the need for any capital expenditure.
  6. Lastly, electronic invoicing services. This has not reached the Philippine market but I understand that in the USA there are already over 30 service providers.

What can digitization offer?

As you embark on that digitization initiative, the project team should agree on what needs to be achieved. The low-hanging fruit is obvious – to be able to ditch the paper clutter and to simplify documents archiving and retrieval. Beyond this, what else can digitization offer?

Digitization 3.jpg

  1. Creating insight. Digitization offers a chance to create a “single source” of information reflecting an end-to-end view for all the process users. This is powerful because process owners can then easily identify who is performing a particular task, how often, and with whom, as well as delve into the corresponding response and throughput times. A process owner signs up for a prospective digitization project looking for answers to his most pressing questions such as “How can process logjams be prevented?”
  2. Target more effective compliance and control. Digitization also offers an opportunity to optimize controls available in a new system. Discover how to switch these controls on – ranging from validation checks to computer-assisted filters to dashboard warning lights. One easy example of automation-assisted control is using digitized invoice information to identify duplicate invoices or duplicate reimbursement submissions, replacing otherwise tedious and error-prone manual tasks.

Many systems now allow conditional controls including flexible approval processes that enhance process compliance without extending cycle times. By this we eliminate the restrictions that limit the purchasing team’s ability to secure the best price on products and services.

Thirdly, the digitization of information is increasingly crucial for regulatory compliance.  For instance, the US Department of Treasury’s Office of Asset Control requires that all payments be checked against its Specially Designated Nationals list. This is especially burdensome if not chancy if performed manually.

  1. Attaining efficiency. Digitized information offers opportunities for automated routines. With process map on hand, we can configure our applications to enable auto-create and auto-populate functions.  This will apply to tasks like PO creation which can be based on either the PRs or some pre-specified Purchase Order preferences.  Another example is enabling automated accruals for items received but not invoiced.

Automatic warning signals can also be used to avoid lost cash discounts. With suppliers getting increasingly meticulous about rejecting discount claims after the discount date, a fail-safe, automatic flag before the last day can spell a big difference.

Manual tasks often mean processing the same information multiple times. We can avoid a lot of that rework by digitized data capture at the outset. For instance, vendor portals present an opportunity to update vendor contact information otherwise received via a letter or an email. With a trouble-free process, vendors will strive to update their information because they want to get paid promptly – saving the effort to capture the data ourselves. The risk of errors due to transactions mapped against outdated information is also greatly reduced.

The best value from digitization, though, is creating a single, consistent thread of P2P process data emerging from the previously unruly mass of Excel spreadsheets, reporting tools and non-integrated applications that held unusable, untapped or to a large extent duplicative, unreconciled data. This consistency enables cross-referencing, comparing, aggregation, trending, correlation and analysis. The resulting process visibility allows us to figure out conditions or situations that lead to errors and interruptions, where operational gaps and barriers can be removed so that actions and decisions can be made in real time.

  1. Achieving agility. Process awareness enables us to monitor the process trends, gain insight into evolving organizational relationships and uncover avenues for better cooperation. Regular adjustment or modifications in the process activities become the new normal, leading to a permanent optimization loop. An opportunity like dynamic discounting is almost impossible to optimize without the agility that digitized information engenders.

In short, process visibility brings about insight to engage people in the process in the right way for the right tasks at the right time. This is what we mean with the term process intelligence.

Process intelligence

In the next blog post, we will focus on leveraging digitized process performance information in order to harness process intelligence.