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Blog - Kofax (formerly 170 Systems) Perspectives on AP

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A plague o' both your houses!
The Ancient Feud of AP vs. Procurement

Posted by Rakesh Shukla on Wed, Apr 16, 2008 @ 11:36 AM
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What, talk of peace? I hate the word,
As I hate hell, all  Montagues, and thee

Tybalt (to Romeo)
Romeo & Juliet, I, i

Watching a Grade 5 production of Romeo and Juliet is endearing to the say the least.  As far as I can tell, my son's classmates still have very little interest in the opposite sex.  Unlike the girls who all want the role of Juliet, the love scenes make all the boys cringe. 

"Poor Luke," laments my son about his best friend, "he has to play Romeo and act out ... (he is having trouble finishing the sentence) ... act out .. (he finally blurts out the "L" word) ... love.  Blech!  It's sooo embarrassing."

It is almost cruel to make 10 and 11 year old boys perform this Shakespeare classic.  On the other hand, the feuding scenes between the Montagues and Capulets, are right up the boys' alley!

You are a saucy boy!

Capulet (to Tybalt)
Romeo & Juliet, I, v

My son played Tybalt Capulet, Juliet's hot-headed cousin who is always looking to fight a cursed Montague - especially that Romeo rogue!  He thrived in this saucy-boy role of shoving, fighting, blood and death duels.

The ancient grudge of the Montagues vs. the Capulets reminds me of another ancient grudge: Accounts Payable vs. Procurement.

When invoices don't get paid on time, procurement points the finger at AP.  AP, in turn, points the finger at procurement blaming them for taking too long to resolve price holds in the first place!

When suppliers complain about payment errors, procurement gets infuriated at AP for jeopardizing supplier relationships that have been formed over many years and negotiations.   AP, in turn, is enraged that the supplier Invoice, the PO generated by Purchasing and the contract terms Purchasing negotiated are not even close to being in sync.  How is AP supposed to make a "correct" payment when the PO, Invoice and Contract Terms are all different!

Romeo, the love I bear for thee can afford no better term than this... thou art a villain.

Tybalt
Romeo & Juliet

I have seen very few organizations where AP loves Purchasing or Purchasing loves AP.  More typically, they despise each other.

So what is the solution?  Some argue that since Purchasing is more "strategic," AP should report to Purchasing.  The Hackett Group, in fact, considers an end-to-end purchase-to-pay (P2P) function under common management as an accepted best practice. 

Although management and reporting structures may solve some of the feuding issues, I think enabling real-time visibility into the AP process stops the unproductive finger-pointing in its tracks.  For example, if you have an AP imaging and workflow automation solution that can audit who, when, how and where for each invoice at each step of the process and then report on those metrics, it increases accountability rather dramatically ... and thus virtually eliminates the bickering and unproductive fighting.

BENVOLIO: What, art thou hurt?

MERCUTIO: Ay, ay, a scratch, a scratch; marry, 'tis enough.

ROMEO: Courage, man; the hurt cannot be much.

MERCUTIO: No, 'tis not so deep as a well, nor so wide as a church-door; but 'tis enough, 'twill serve: ask for me to-morrow, and you shall find me a grave man.

MERCUTIO: A plague o' both your houses,
They have made worms' meat of me.

Romeo & Juliet, III, i

-Rakesh

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Comments

Purchasing and Accounts Payable have historically been in separate organizations with Purchasing reporting up through the Chief Operating Officer (COO) and Accounts Payable reporting up through the Chief Financial Officer (CFO). The COO and CFO typically then report to the President. The rationale for keeping this reporting structure has been separation and segregation of duties. Unfortunately, Purchasing and Accounts Payable need frequent interactions and these sometimes involve disputes that need to be addressed. Most should not have to go up to the President. If mechanisms are not provided for the two organizations to work together, successfully, issues do not get resolved or do not get resolved in a timely fashion.

To improve coordination and problem resolution, some companies have combined Purchasing and Accounts Payable into a Procure-to-Pay organization, When this is not possible or practical, it is still critical for both organizations to better understand each others responsibilities and needs. One way that can work very effectively is to have people within Purchasing spend a day doing a "walk through" of the accounts payable organization with a focus on the steps that Accounts Payable goes through in handling purchase orders and invoices as well as inquiries and investigations. Purchasing staff may be able to suggest changes to AP processes and procedures or their own processes and procedures to eliminate inefficiencies and improve effectiveness. Similarly, Accounts Payable staff can spend a day doing a "walk though" of Purchasing resulting in enhancement that might benefit one or both organizations. In any event, each organization will gain a greater appreciation of what's done by the other and, hopefully, better understand the impact that each has on the other.

An excellent example of this is a company where Accounts Payable and Purchasing put in place a weekly meeting to review each of the exceptions so that they could better understand and fix the underlying cause of the problem. It was estimated that 50% or the time spent by Accounts Payable staff was on dealing with the 10% of the transactions that were exceptions. Within several months, solutions were put in place for many of these exceptions. As a result, the number of exceptions was cut in half from 10% of all transactions to under 5%. As a result, Accounts Payable was able to reduce its total effort by nearly 25%. While the savings in Purchasing were not nearly as dramatic, they did have a positive impact. Accounts Payable and Purchasing each have a much better appreciation of the other's needs and they now communicate with a single voice to their suppliers and business units.
Posted @ Wednesday, May 14, 2008 4:44 PM by Jon Casher
I recently did a webcast with Penny Weller from The Hackett Group titled “Demystifying Shared Services” and this very topic of AP vs. Procurement came up. Here is a quote from the webcast:

"Getting the right organizational structure in place is critical. From a process perspective, we always encourage an end-to-end procure-to-pay process that reports up the same organization. If purchasing and accounts payable report to two different leaderships, it is not as effective as if they report to the same organization. Otherwise, for disputes, you will get “a company handshake” with a lot of finger pointing where you point up and they point down. There is always someone else upstream or downstream that is causing you problems. But if you report up together, that’s phenomenal. If you can’t get that organization structure set up so that you are in the same organizational structure, at least make sure that you are linked clearly with these groups that affect your process and try to have focus on the same goal."

For those of you interested in the entire Shared Services webcast which received overwhelmingly positive feedback, here is the link:

http://www.170systems.com/learn_more/webcasts_archive_grouping.cfm?ID=86
Posted @ Friday, May 16, 2008 11:15 AM by
I think the problem is that P2P means so much more than just having procurement and AP in the same organization. Although this will help, it will not solve a single process problem or drive a single improvement. Both P's need to work together on value stream mapping, idea generation, and process improvement. They need to consider combining the teams that work on exception handling from their respective organizations. It is this type of thinking and action that will give you a true P2P process, not just reporting relationships.
Posted @ Wednesday, December 17, 2008 10:24 AM by Alex Kralles
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