If It Is Costing Suppliers, It Is Costing You – The Buyer!

May 31, 2011 Sparky the Shark

pointing_youLowering costs, improving productivity, you name it, are not only achieved through transformation within an organization. Long ago executives already learned that optimizing external business processes and relationships is as important as looking within the organization itself.

So it comes as no surprise that initiatives that are supposed to drive additional value from outside the organization may be more favorable to this very organization than they are to the business partners. Case in point, this post published on SpendMatters.com.

So what’s the story? As a way of lowering operating costs and increasing productivity, finance departments of larger organizations have long been targeting the procure-to-pay (P2P) process and in particular the invoice management part of it. Initiatives often start out with automating Accounts Paybale (AP) by utilizing scanning and imaging solutions, then OCR and PDF, and eventually e-invoicing. The trend towards e-invoicing has accelerated in recent years, for many good reasons. Unfortunately, the design and execution often fail to take into consideration how suppliers are really affected by this technology and what is truly in it for them.

Oftentimes, e-invoicing is implemented as part of a network. This network delivers the actual invoice data as electronic data to the buying organization, regardless of whether the supplier submitted the invoice electronically or not. The problem with this is that many suppliers will have to jump through hoops in order to comply with the buying organization’s goal of now receiving invoices electronically. To make matters worse, suppliers may even be charged for the “privilege” of participating in this new process.

Therefore, what starts out as an initiative that looked good on paper – offering to lower costs in AP and to increase productivity – instead creates many challenges for the supply chain and imposes additional costs on suppliers without delivering additional value for them. Because there’s no real value add for the suppliers, organizations will get nowhere near where they’d like to be with their initiative. Even if organizations manage to increase adoption rates, the fees and higher costs they are imposing on their suppliers would eventually be returned to them in the form of price increases.

At the same time, e-invoicing could be an enabler for much more strategic objectives that drive value beyond just efficiency gains and shortening approval cycles.

To be continued…

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