The purchase-to-pay process of corporate organizations consists of several strategic processes (sourcing, contract management) and operational processes (purchasing process, goods receipt and invoice processing). This process can be more efficient if it is automated. But before getting started with this, it is wise to first map the processes to see where there are areas for improvement - otherwise automation will not produce the desired results. The Lean Six Sigma method lends itself perfectly to this.
Reduce waste and optimize the process
Commonly used and proven methods are Lean and Six Sigma. The Lean method looks at wasted time in a process, where the waste is and how it can be reduced. It is all about identifying steps or actions in a process that do not provide value to the end user. Then you can streamline and standardize them.
In the Six Sigma method, you measure variations and deviations and then try to reduce variation and optimize the process. Think about lead times, for example.
Although these methods can be applied separately, the combination of both leads to better results for process optimizations. Take the invoice processing process, for example. With Lean, you can identify that an invoice is lying around too long, for example, because the supplier is not recognized by the invoice processing software. Six Sigma then helps to pinpoint how long an invoice is lying around - it's like refining the problem using data analysis. This allows you to then start optimizing the process.
From problem to causes to solutions
The Lean Six Sigma method consists of five steps to optimize processes in a structured way and to continuously improve them.
Step 1: Define
Through a complaint or failure to meet KPIs, an organization finds out there is a problem, but often this is not the real problem. That is often a few steps before in the process. Therefore, it starts with properly defining the problem and describing how the process should ideally proceed. Here it is important to keep asking questions in order to understand the current process.
In addition, the Lean Six Sigma consultant and your departments should use the same definitions, so there is no misunderstanding there. Take the purchase to pay examplefrom above; invoice processing.
Suppliers complain, for example, that invoices remain outstanding for too long and are structurally paid late. However, this is not the real problem, but the result of something that has taken place in the purchase-to-pay process. Step 1, then, is to define the problem and outline the ideal situation, namely that an invoice is paid within the specified time.
Step 2: Measure
The next step is to use data to determine how the process is running now (what steps are being taken, how much time is taken, where is the waste). For this, you collect information and data belonging to the defined problem so that a reliable analysis can be done in the next step. Cooperation between consultant and your organization is crucial here - and in all 5 steps.
Data allows you to see what happened, but not why. Involving your various departments creates a complete picture of the current process. In the example of invoice processing, the organization maps out how the process is currently running, in order to find out, for example, how often it happens that an invoice is overdue. The organization can also examine the turnaround times from receipt to disbursement and what the variation is: do invoices remain on average 5 days or 2 weeks?
Step 3: Analysis
In this phase, you are going to analyze what emerged in the measure phase, or in other words, how the process is doing now. Suppose we call the process the Y (dependent variable) and the influences on it the X (the independent variables).
Then here we look for the Xs that affect the Y from the define phase. In the example of why invoices remain outstanding: What actions were performed and by whom, what do you see in the data? What cause-and-effect relationships are behind this? And what mediating and moderating factors play a role in this?
For example, is manual work involved in processing the invoice slowing down the process? Are invoices left in the conversion from pdf to data file? Are employees involved who have nothing to do with it? Is there data missing that prevents the invoice from moving forward in the process? Do you see this across the board or only with certain vendors who send a lot of invoices each year?
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Step 4: Improve
Then solutions to the problem are devised and a trade-off is made to decide which solution is the best. Then it can be implemented, optimizing the process.
For example, in the invoice processing example, when automatically validating incoming invoices, supplier data may not be recognized. Perhaps the data in the proprietary ERP system is not up to date, or a company is listed as many as four times. The solution to this then is to address the data quality of the ERP system. Software provides insight into the problem, which then allows solutions to be proposed and implemented.
Step 5: Control
Implementation is not yet the end point. For processes to perform optimally, continuous improvement is important, with continuous measurement of what can be further improved. After all, there are continuous changes and deviations, so the perfect process does not exist.
Continuous improvement ensures that these deviations are constantly reduced. All the previous steps are repeated again.
Knowledge partner for purchase-to-pay process optimization
By scrutinizing and continuously optimizing the purchase to pay process, you work more efficiently, your organization gains insights and reduces manual work. It makes sense to engage a knowledge partner who speaks the language of Lean Six Sigma and knows how to continuously improve the purchase to pay processes at corporate organizations.
Would you like to optimize your purchase to pay processes together with us as a knowledge partner? Feel free to contact us.
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Christian Willemsen |
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