The term “digital divide” is often used to describe the gap between the level of sophistication in IT and e-business adoption and usage in rural compared with urban areas and small and medium enterprises (SMEs) compared with large companies. The ‘divide’ appears for a number of fundamental reasons ranging from resistance to change through lack of understanding to simply believing what they believe is required is unaffordable.
In the world of public sector procurement there has been a great deal of attention paid by the buyers (the public sector bodies) to front end e-tender portals to ensure compliance with demanding public sector procurement regulations and to introduce efficiencies, as well as to ‘back office’ e-invoice payment systems frequently offered as modules of bigger, more complex finance systems or as part of an ERP. However there does appear to be a lack of attention to the whole process in the middle – the purchasing process if you like that takes place from after a contract has been awarded and the first order needs to be placed, to when the invoice is approved for payment. Rather than a “digital divide” this is more of a “digital gap” as it can apply equally to rural and urban areas and to large and small organisations. Various stages of the purchasing process have been addressed by different systems, so the finance system often enables a PO to be raised and, when Goods Receipting has taken place, enables the invoice sent by the supplier to be paid. But there are a myriad of processes and activities that can occur during the order/payment life cycle that are simply left to manual intervention, and equally importantly, the ease of access to and granularity of critical information is often very lacking.
At a time when budgets are being pinched and efficiency is one of the biggest issues, you do have to question why organisations fail to recognise just how much impact this key section of the supply chain can have. There have of course been significant inroads made at the macro level with the introduction of ‘Lean’ processes, JIT and Kan-Ban etc, but there never seems to be much ‘noise’ about streamlining the placement of orders and managing the process electronically from the moment the need to order is identified to the time when whatever has been ordered is brought into use. This process covers a specific element of the supply chain interaction and can have a very heavy impact on costs, resources, efficiency and overall performance and yet organisations seem to settle for using a module of their main finance system (either a specific module or an adapted routine) to handle purchase order (PO) raising and invoice payment, coupled with a ‘fire and forget’ attitude to orders until something goes wrong and there’s an issue to be resolved. And yet if they were to recognise the opportunity the purchasing process offers them for efficiencies they could save themselves significant money and effort, as well as enhancing their relationship with their supply chain.
Purchase to Pay or P2P as it is often known, implies all activities between those two start and end points are covered, but are they really? And where they are covered how much control and visibility of what’s really going on is there?
Let’s break this basic process down and look at what activities are involved and how technology could/should be used to introduce efficiency, generate savings, and improve performance. This is particularly relevant in market segments where the order process is not a simple ‘see, buy, get’ scenario, market segments such as construction and housing where maintenance projects and refurbishment schemes exist for example.
So let’s take a Housing Association as an example where a Scheme may be put in place to refurbish fifty mixed dwelling types, and within the Scheme there may be various Projects for kitchens, bathrooms, heating systems refurbishment etc.. A budget may be put in place for the Scheme and an estimate of cost for each project drawn up for each type of archetype e.g. standard small kitchen (for a 1-2 bed dwelling) = £x, a standard medium kitchen (for a 2-3 bed dwelling) = £y etc. For the purposes of this example let’s also assume tenders have been conducted and an appropriate number of suitable suppliers have been contracted. So, with all that preparation the process should be relatively straightforward, shouldn’t it? Raise a Purchase Order (PO), have the goods delivered, pay for the goods, move on. Except in reality it’s not quite a simple as that.
The first requirement will be to select the appropriate items required for each project The purchasing clerk should be able to select the items listed in the specification by the QS (either generic from a planning template possibly, or possibly from a designated supplier’s catalogue) for each project and archetype. Ideally they should only have to do this once to create a standard ‘kit list or ‘favourites list’ which should be able to be saved for re-use time and time again.
If there are deals in place with more than one supplier, then ideally you should be able to compare the price of the ‘kit list’ on a like for like basis to ensure you get the best value for money at the time. It is likely that as this is a refurbishment example there will be a legitimate requirement to utilise a single manufacturer to match existing fixtures and fittings, but there may be different distributors/suppliers on the framework that would offer that element of competition.
The kit list should then be converted automatically into an order. Ideally the order should be a single ‘standard order’ applied to each dwelling of the same archetype i.e. of the 50 dwellings 20 are two bedroom semi-detached houses, so each of those should receive for example a standard two bedroom semi-detached standard kitchen, with each kitchen pack being delivered to the correct address of each dwelling, on a designated delivery date to match the fitters work programme, all from one single order. This removes the need to raise 20 separate orders, process 20 separate GRNs and 20 separate invoices.
The supplier should be able to send a goods despatch note electronically when the goods are on the way, and each team of fitters should be able to log on to a tablet to goods receipt ‘their’ kitchen pack as a sub-order of the original overall order. If they’re authorised they should also be able to initiate any corrective action if required i.e. ask for a replacement if anything is damaged or missing (take a picture of damaged goods and send with replacement order), or a credit note if that is preferred. If they’re not authorised then the Project Manager should be able to logon and undertake the follow-up action. Either way work should be able to continue ensuring the project keeps moving in the right direction, and the Supplier knows immediately about any rectification action required. Clearly rapid Goods Receipting is therefore essential, and the ability to swiftly rectify issues through either re-delivery or credit note would help to ensure work continues smoothly and there are no disputes with suppliers down the line, or the contractors or labour force engaged to do the work. Plus how often has there been a situation where a contractor has failed to perform a service then blamed the non-delivery of the right goods had prevented them from doing the work required?
For a project manager knowing when your orders have been despatched and when they have arrived would enable you to both plan your workflow more accurately and to form an evidence-based opinion on how well your framework suppliers are actually performing – who is meeting delivery deadlines, who is providing a quality service etc.
If you’re a supplier looking at this from your end of the process, receiving clear, electronic orders based on goods drawn from an up to date and accurate catalogue (that you can manage to ensure it remains up-to-date) makes life much simpler. Flipping the order into a Goods Despatched Note electronically once the order has been fulfilled is a real asset, and having the same system raise the invoice on your behalf having automatically matched the PO with the GRN to ensure the invoice generated is accurate, ensures invoices aren’t rejected or delayed and essential cash flow isn’t held up. It also means that if all your business was conducted this way you’d never have to raise an invoice again! We know that’s not going to happen, but we can dream!
So, looking at the processes involved, every one of them lends itself to utilising today’s modern technology and connectivity. All it requires is for the Buyers not to settle for ‘we’ve always done it that way’ and demand of their system providers to come up with systems that do what the end users want rather than dictating to them what they have to settle for (because that’s what the current system does). IT is supposed to be here as a tool to help the operational side of the business to deliver more efficiently; it’s supposed to look at the operational end objectives and evolve to help them be achieved, not constrain them to have to settle for a compromise of what the system is capable of (don’t get me started on the ‘tail wagging dog’ syndrome of IT!). The complete purchasing, order and catalogue management, and invoice/payment processes can and should be completely paper free. If they’re not you need to ask why not? Then you need to go and find yourself a thoroughbred system designed to do what you’re looking for and not settle for an adaptation or an add-on module of a hybrid that almost does what you want…but not quite.