CEO Brain Trust » best practices http://www.ceobraintrust.com Just another WordPress weblog Fri, 21 May 2010 05:42:20 +0000 en hourly 1 http://wordpress.org/?v=3.0.4 Six Best Practices for Procure-to-pay in a Recession http://www.ceobraintrust.com/765/six-best-practices-for-procure-to-pay-in-a-recession/ http://www.ceobraintrust.com/765/six-best-practices-for-procure-to-pay-in-a-recession/#comments Fri, 03 Jul 2009 01:57:02 +0000 Daniel http://ceobraintrust.com/?p=765 Twitter It!
Gaining visibility into, and control over, your organization’s procure-to-pay process can help you weather the current economy and emerge stronger

By Ari Salonen

During the current recession, the strategic game plan of most companies is to cut costs, streamline operations and work more efficiently. Nowhere are these strategies more important than in the procure-to-pay arena. Achieving visibility and control over purchasing goods and services, as well as paying for them, is critical to effectively managing your organization’s finances, especially in the current economic climate.

Together, Procurement and Accounts Payable provide an important profile of an organization’s spend, cash flow and economic health. In Procurement, spending plans are developed and financial commitments are made, while the Accounts Payable department contains actual information on how an organization’s spending plan has been implemented and how, where and with whom its money has been spent. Achieving visibility in these areas helps organizations understand their spending patterns, and this visibility is the first step to achieving control of expenses and making smarter purchasing decisions.

While procure-to-pay may not have been a key area for technology investment in the past, in this economic climate it is becoming more essential as organizations realize that they need to find efficient and effective ways to monitor and control their expenses. As many organizations have seen, merely implementing corporate purchasing policies is not enough to control spend. The combination of policies backed by automation enables them to effectively enforce the rules they have established. Additionally, companies are using automated systems to gain key insights that help them manage their spend, cash flow and working capital. They can see, for example, where they are spending money, which vendors they are using, and where opportunities lie for volume discounts and other savings.

Following are best practices for achieving cost savings and efficiencies in procure-to-pay. These practices, based on the experiences of world-class organizations, are particularly beneficial now as organizations look for ways to positively impact the bottom line and cut expenses.

1. Win over the maverick buyers. Maverick buyers circumnavigate established processes by conducting indirect purchases outside of the system. Maverick buyers pose a financial problem because you don’t have visibility into, or control over, how they are spending your organization’s money. While this is an issue in all economic climates, it is even more important at a time when organizations can’t afford to waste money or lose savings opportunities.

To tackle this problem, organizations need a purchasing system that is so effortless and easy to use that it encourages widespread adoption. Many automated systems offer “punch out” catalogs connecting users to catalogs using standard Web interfaces, as well as “in house” catalogs. This makes it easy for employees to order supplies and allows approvals and receipts to be tracked and managed through electronic catalog management.

The city of Helsinki, for example, uses an e-procurement system that enables more than 7,000 users and 50 professional buyers from 30 different divisions to handle hundreds of thousands of purchase-related transactions annually. The system makes it easy for users to select contract-based products from electronic catalogs, or type in the items for which they are looking. Using this technology, the city has achieved a very high degree of automation and a matching rate of more than 80 percent. Also the system automates complex bookkeeping standards and general ledger rules, as well as organizational business rules and policies that simplify purchasing, and it offers drill-down menus that make it easy to view and track financial data.

2. Run reports to analyze where you can save money. Finding ways to cut costs has become even more critical in a recession, when companies need to tighten their belts without undermining their ability to compete. Savvy companies are relying on spend analytics to achieve significant savings by realizing volume and early-pay discounts, ensuring they are benefiting from the terms of their contracts, and eliminating duplicate payments and costly late payment fees.

3. Take a hard look at strategic purchases. For commodity or non-strategic purchases, companies typically select suppliers based on cost. However, this approach won’t work for strategic purchases. Companies can’t afford to jeopardize critical areas that can make or break their businesses, particularly in an economic climate that doesn’t leave room for error. In strategic areas, consider the overall value that suppliers provide, including quality, reliability and service. In some key areas, such as research and development, you may want to invest even more during a recession to position your company well for the inevitable economic rebound.

4. Gain efficiencies and improve processes. A large European brewer, for example, has achieved “no-touch” straight-through processing for more than 90 percent of its purchase order-based invoices. Look for ways to streamline operations and gain process improvements as a painless way to cut costs during tough economic times. Many forward-thinking companies are using key performance indicators (KPIs) to gain process improvement through ongoing measurement and monitoring. They are measuring current performance against goals and benchmarks to identify their strengths as well as opportunities for improving processes and saving money.

5. Take a holistic approach to procure-to-pay. In times like these, companies can’t afford to have half a view of their financial operations, waste time through inefficiencies or work at cross-purposes. For example, relationships with valued suppliers could be damaged if Accounts Payable consistently delays processing their invoices. By implementing a holistic procure-to-pay system that automates the entire process from identification of a need, through planning and budgeting, to procurement and payment, companies will gain efficiency, visibility and value throughout the financial supply chain. They will be able to know where their money is going and how to find opportunities for cost savings, and they can ultimately make informed decisions about how and where to most strategically spend.

6. Find a solution that provides immediate cost savings and benefits. Today more than ever, companies need to find ways to achieve savings and efficiency in a very short timeframe. Investing in long-term re-engineering projects that promise future savings is no longer an option. Many are implementing technology that provides ROI within a matter of months.

When times are tight, knowing where you are spending your money and identifying effective ways to cut costs are very important. At the same time, savvy companies are looking at longer-term opportunities. They are using automated procure-to-pay systems to strategically focus on key purchasing areas, benefit from process improvements and more effectively manage their cash flow and working capital throughout the supply chain. By using technology for short-term as well as strategic, long-term gains, they are achieving key competitive advantages that will position them well when the good times return.

About the Author: Ari Salonen is general manager, North America for Basware, a provider of software solutions that automate the procure-to-pay process for enterprises around the world. You can contact the company at info.us@basware.com or call 203-487-7900.

]]> http://www.ceobraintrust.com/765/six-best-practices-for-procure-to-pay-in-a-recession/feed/ 0 Communicating Changing Business Dynamics To Your Board And Investors http://www.ceobraintrust.com/414/communicating-changing-business-dynamics-to-your-board-and-investors/ http://www.ceobraintrust.com/414/communicating-changing-business-dynamics-to-your-board-and-investors/#comments Tue, 14 Apr 2009 16:28:06 +0000 Daniel http://ceobraintrust.com/?p=414 Twitter It!

By A VC

We did a call today with our investors and one of the questions was about how the macroeconomic environment is impacting our portfolio companies. We explained that for most of our companies, there has not been much of an impact, but we are seeing several companies bring down aggressive numbers for 2009 to more realistic growth projections. It got me thinking about how those changes are communicated from the CEO to the board and investors.

Our portfolio companies experience both positive and negative changes to expectations on a regular basis. There’s not a lot of art in communicating positive changes to expectations. Everyone loves good news and most people are happy to share it the first chance they get.

But there is an art to communicating negative news. Investors and board members can be spooked by negative changes to expectations if they are not handled correctly.

My first piece of advice is to share the news as soon as you have it. There is never a good reason to have information about your business that your board and major investors would want to know and not share it. You could argue that it’s time consuming to communicate with investors and that it’s more efficient to wait for the regular board meetings to do that. But whatever you gain in efficiency with that approach, you lose in trust and confidence building with an important group of stakeholders in the business. It’s not worth it. There are efficient ways to communicate with the board and major investors. A quick email will normally do the trick.

My second piece of advice is to communicate frequently enough that you can gradually lower expectations. Let’s say that you are now three and half months into the year and you now know that you aren’t going to make your plan for 2009. Well that’s not going to be a huge surprise to anyone given that we are in a very difficult economic environment. But if you ended the March board meeting on a high note and you start the April board meeting with “we have to take down our numbers”, then you are giving your investors the feeling of being on a roller coaster and that’s not what investors want to feel.

The better approach in this situation is to say in the February board meeting something like “it’s too early to know how things are going in the first quarter but given the economy, we are on full alert for any negative surprises.” Then in the March board meeting say something like “we are starting to see signals that we may not be able to grow as much as we’d like this year, we’ll have a recommendation in the April board meeting”. Then when you show up with the recommendation in April to take down the numbers, everyone will be expecting it.

My third and final suggestion is when you make a substantial change to expectations, make sure to get that change right. There’s nothing that is more of a confidence killer than “death by a thousand cuts.” There are some companies where you don’t have much visibility. I don’t like investing in those kinds of companies and I imagine that most CEOs don’t like running them. The truth is most companies have a decent degree of visibility and by the time you are into the second quarter of a year, you should be able to figure out where the year is headed. So if you choose to take down your numbers between now and June, take them down to where you know you can meet them. To do otherwise is just asking for problems.

Most of this is common sense actually. The hardest part for many CEOs is executing on it. Managing a board and investor group doesn’t add value to the business on a daily basis. It doesn’t make the product better. It doesn’t generate more revenues. It doesn’t recruit an amazing team. And so on and so forth. So many CEOs blow this off in favor of the things that do move the business forward. A good board will remind the CEO that he or she has to do these things and why.

One final thought. Taking down numbers this year is not likely to get many people fired. It’s expected at some level. But mismanaging the process might. In a tough year, set reasonable expectations from the start, do your best to meet them, and be proactive in managing and changing expectations and you’ll be better off and so will your team and your company.

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