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BusinessWhitePaper

Using a Procure-to-Pay Process Framework toStreamline Government Agencies Operations

Cci Gacia

Maag, Gvm Sagy, Swa AG

Fay 2008


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BUSINESS WHITE PAPER | NPI PROCESS FRAMEWORK

ContentS

Introduction to Government Procurement 4

The Procure-to-Pay Process Overview 5

Procure-to-Pay Challenges 6

Procure-to-Pay Process Framework Components 7

Beneits o Streamlined PP Operations 9

Procure-to-Pay Use Case 10

Next Steps or your PP Process 11


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AbStrACt

Increasing budgetary pressures are placing

strains on government agencies worldwide,

prompting many to draw on private sector

practices to implement new procurement

strategies that will improve service peror-

mance levels and reduce costs. Using a

Procure-to-Pay process ramework or model

based on public sector standards, best

practices and peer experience can dramati-

cally assist a government agency in

improving its procurement processes.

This white paper describes Sotware AGs

Procure-to-Pay (P2P) process ramework and

showcases the results that can be achieved

rom implementing the ramework to

optimize procurement processes. Discover

how your agency can reduce operating costs

while at the same time achieving end-to-

end process visibility and control.


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4BUSINESS WHITE PAPER | NPI PROCESS FRAMEWORK

Introduction to Government Procurement

The procurement o goods and services by govern-

ments or their own purposes is a core element o

the operation o governments because it secures the

inputs that enable governments to deliver public

services and ulll their tasks. Government procure-

ment is o considerable economic signicance at

both the domestic and international levels, account-ing or a signicant proportion o national GDP (oten

10-15 percent).

Government agencies ace many o the same

challenges as private-sector companies when it

comes to buying goods and services and both are

similarly driven to save costs and maximize service

delivery. But there are some key dierences

between the way governments and businesses do

procurement. First, all government procurement

must be done within a strict code o laws and rules.

Second, governments typically need to purchase

items and services in larger quantity than business-

es, so they oten demand more rom vendors and

suppliers. And while corporate purchasing has

become supplier management and driven by

business partnerships, government procurement

remains dedicated to leveling the playing eld

between competitors by use o the sealed competi-

tive bidding and awarding bids to the lowest bidder

meeting specication. Government records are openand the prices revealed in the public arena. Thus,

under public scrutiny, public purchasers must

attempt to conserve the taxpayers money in an

open arena.

Procurement has a signicant impact on the

eciency o the use o scarce public unds and,

more generally, on public condence in government

and on good governance. The eciency o govern-

ment procurement processes, the attainment o

value or money, public access to inormation on

government contracts, and air opportunities or

suppliers to compete or government contracts are

all essential requirements o an ecient govern-

ment procurement system.

One o the main trends in government procurement

is heavy use o e-Procurement1 or electronic

procurement. e-Procurement generally involves

three main steps: the selection o a group o

suppliers, the consolidation o purchases and the

automation o procurement processes. By using only

a ew suppliers and leveraging purchasing power,

better deals can be obtained on goods and services.

And process automation allows or the completion o

a procurement process in a matter o minutes

instead o hours or days. Electronic procurement

systems are eective because they involve a

number o eatures that make purchasing simpler or

governments. These systems usually support the

creation o online catalogs containing goods rom

multiple suppliers, so that only one place must be

consulted to nd an item and place an order, instead

o dozens. Many o the programs also oer several

ways o communicating with selected suppliers

(email, Electronic Data Interchange (EDI) and

automated ax are the preerred options). And

nally, e-Procurement automates most o the

purchasing process, including approval and even

payments. Systems can literally send purchase

orders directly and automatically to all individuals

who need to approve them, then once approved,

they can be automatically sent to the vendor or

ulllment.

Many government agencies have been able to

purchase goods and services much more quickly and

cost eectively using e-Procurement. Once a

government switches to an electronic and automat-

ed procurement system, they can begin seeing

benets immediately. The administrative costs per

purchase are signicantly reduced because most o

the paperwork is handled by the programs running

the system and not by public servant themselves.

Also, since purchases are consolidated, it makes it

easier or governments to keep track o their

purchasing budgets and to track incoming deliveries

since there are ewer transactions and suppliers to

ollow.

1 e-Procurement is the business-to-business or business-to-consumer purchase and sale o supplies and servicesthrough the Internet as well as other inormation andnetworking systems, such as Electronic Data Interchangeand Enterprise Resource Planning.


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The Procure-to-Pay Process Overview

Procurement goes beyond purchasing; it is the

acquisition o goods and/or services at the best

possible total cost o ownership2, in the right

quantity and quality, at the right time, in the right

place or the direct benet or use o governments or

businesses.

Direct procurement occurs in manuacturing settings.

It encompasses all items that are part o nished

products, such as raw material, components and

parts and it is the ocus in supply chain manage-

ment. In contrast, indirect procurement activities

concern operating resources that a government or

business purchases to enable its operations and

comprise a wide variety o goods and services (rom

oce supplies through hardware to consulting

services).

The Procure-to-Pay process (P2P) spans rom the

point where a purchase order, or other demand

signal, is submitted to a supplier or ulllment, to

the eventual receipt, verication and put away (o

the product) to payment or goods or services

received. SCOR reers to this process as the source

process within ulll demand (Figure 1).

2 Total cost o ownership includes costs associated withordering/ purchasing, delivery, repair, maintenance anddisposal.

SCOR (Supply-Chain Operations Reerence-model) is aprocess reerence model that has been developed andendorsed by the Supply-Chain Council as the cross-industry standard diagnostic tool or supply-chainmanagement. SCOR enables users to address, improve,and communicate supply-chain management practiceswithin and between all interested parties. www.supply-chain.org

Sotware AG has created the Government Procure-

to-Pay process ramework to assist our government

customers in their eorts to eliminate paper driven

processes, streamline and monitor purchasing,

automate approvals and last but not least - cut

costs. By leveraging our technology, public sector

best practices and domain expertise, we have

helped government organizations, like the U.S.

Department o Deense, achieve maximum benets

rom a holistic end-to-end process approach or

managing procure-to-pay activities:

Project: EMALL, in the U.S. Department o Deense, is

a big consumer o o-the-shel nished goods

(computer hardware and sotware, oce supplies,

ood supplies, etc.) and uses the webMethods

product suite as an integration platorm to connect

0,000 vendors. This agency was able to reduce the

cost per transaction rom about $140 to just $11.And beyond the cost savings, EMALL makes

available a broader selection o products and more

alternatives.

Fulfill Demand

ReturnDeliverSource MakePlan

Procure to Pay

Figure 1. Procure-to-Pay within the Supply Chain


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Figure 2. Procure-to-Pay Document Flow

Procure-to-Pay Challenges

Fragmented government organizations, legacy tools

and technologynot to mention non-uniorm

processesprevent government agencies rom

optimizing spend leverage and procurement

processes.

For the purposes o this white paper we have

dened a simplied P2P fowchart (see Figures 2

and ).

Figure 2 shows the fow o documents between the

buyer (in this case, the government agency) and the

supplier.

Figure highlights the main paint points a govern-

ment organization is conronted with in the Procure-

to-Pay process:

Figure . Procure-to-Pay Typical Pain Points


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1- Ifci, -p pcasig pcss:

How easy is the entire process to track? Users

lack real-time, or Just in Time, visibility o the

end-to-end P2P process, including visibility into

spend vs. budget and jeopardy o late receipt o

key goods.

Is the overall procurement cycle time too long?

Are the costs o PO (purchase orders) ordering

too high?

Are orders consistently placed with authorized

vendors?

Are purchase orders oten out o compliance

with other internal or external policies? P2P is

one o the key processes subjected to compli-

ance requirements.

2- Miimal visiiliy Po sas:

Do suppliers provide quick, accurate acknowl-

edgement o orders at various stages o

ulllment?

Do you spend a signicant amount o time

manually monitoring the status o purchase

orders via phone calls, emails, etc.?

3 - Spplis d dliv pc d

What percentage o orders arrives when

originally promised?

What percentage o orders is received in ull?

Suppliers dont ship what was ordered /

conrmed via substitutions, obsolescence or

new product changes.

What percentage o orders is returned or

various reasons?

Is all shipping documentation in order?

4 - Dlays i paym pcssig.

Is the timing o payments such that the agency

can maximize cash fow, capture o volume

discounts, etc.?

Does the agency have excessive adjustments to

account payables? There are errors in the

transactional process, such as goods being

received but or which no invoice has been

generated, or vice versa.

5 - Iciv SLA maagm wi adig

pas:

Do you have sucient visibility to outsourced

manuacturing or other contract-based activities

and do you have the means to monitor Service

Level Agreements (SLAs)? There is insucient

control o SLAs with suppliers, with peror-

mance management happening well ater the

act.

Do you understand how agency behavior

aects suppliers ability to meet SLAs and vice

versa?

While many enterprise systems claim that these

elements are simply dened within their structural

logic, the truth is that there are many opportunities

or error and that without state-o-the-art tools or

streamlining, managing and monitoring the Procure-

to-Pay cycle, a government organization may bebearing signicant costs due to non-compliance to

system or process requirements.

In order to improve their Process-to-Pay processes,

government organizations need to address the

above mentioned challenges and transorm their

P2P processes to reduce transactional costs and

shorten cycle times, enabling ull visibility, as well as

ull monitoring and process automation.

Procure-to-Pay Process FrameworkComponents

An eective P2P process ramework is all about inte-

gration, standardization, process streamlining and

visibility, because these allow a government agency

to improve and increase transparency and account-

ability, achieve cost savings and simpliy procedures.

As with any large-scale IT project , a well-developed

business case is critical to the success o P2P.

Investment costs can usually be justied by a

reduction in transaction costs and related adminis-

trative costs. Improvements in the ollowing areas

can also be persuasive: transparency and account-

ability, eciencies in work practice, value through

strategic sourcing and contract compliance. The key

is to match the justication with your agencys

priorities and reorm initiatives.


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The Sotware AG Government P2P Process Frame-

work includes:

bsiss Pcss Maagm capailiis

One o the biggest challenges or government

agencies struggling with process improvement

initiatives is that they do not know where to begin.

Lack o visibility into business processes and lack oknowledge o their operations causes this uncer-

tainty. To begin improving processes, you need to

start by understanding the agencys as-is processes.

A Business Process Management Suite (BPMS)

allows a government organization to get clear

insight into areas needing dramatic improvement,

and rich, interactive interaces quickly reveal the root

cause o process problems. Beore making any

changes to current processes and systems, you can

model and visualize the way new processes, process

improvements and new resource allocations will

operate when deployed, using rich, graphical

simulation.

Process requirements usually do not t neatly into

pre-dened categories o system-centric, human-

centric or document-centric. Since processes rely on

both systems and people or handling transactions,

human-centric workfows must seamlessly integrate

with system-centric processes and support the role

played by people in processes. Greater operational

eciency can be achieved with automated system

steps and guided human interactions throughout the

process ramework. Intuitive end-user interaces

provide all inormation needed or process partici-

pants to collaborate and perorm the associated

human tasks. Sotware AGs webMethods BPM Suite

delivers truly seamless, end-to-end management o

human tasks, automated system-based processes

and rapid process application development within

the same environment.

Built-in document management capabilities support

the processing o purchase orders and ully inte-

grated rules within the process allow or the

automation o steps (i.e. dening the purchaseallowance per user). And our technology delivers

global P2P visibility, allowing your agency to track a

purchase order rom submission to a supplier, to the

receipt o goods and services and the eventual

payment.

Figure 4. Basic P2P Process Model in the webMethods Suite


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bsiss Aciviy Miig (bAM) Capailiis

Once implemented, new P2P processes must be

monitored on an ongoing basis to optimize

perormance, guarantee observance o agencys

policies and compliance with SLAs. Business issues

and opportunities can be discovered quickly by

automatically identiying problems in real time,

instead o ater-the-act analysis. And by monitoring

end-to-end processes, your agency can identiy

deviances rom the designed process in early

process steps that on their own have no impact, but

are likely to contribute to uture process break-

downs. Based on this knowledge, our tool can

predict and notiy o process errors beore they

occur.

Benefts o Streamlined PP Operations

bsiss Pcss Maagm

Streamlined processes and cost savings:

Reduced overall P2P processing time: the

overall processing time or purchase, reconcilia-

tion, and payment can decrease signicantly as

each step in the P2P process is made more

ecient

Automated reconciliation process: process

automation is the key driver or an improved

reconciliation process

Reduced costs o processing invoices (accounts

payables and buyer): as the number o paper

invoices decreases, the number o resources

needed to receive/sort mail, manually enter

invoice inormation and produce/mail checks is

lower, providing an opportunity to reduce or

reallocate sta

Increase purchasing eciency by measuring,

monitoring and tracking cycle times

bsiss Aciviy Miig (bAM)

Enhanced data management and increased controls:

Availability o detailed data or spend analysis

and decision-making:

- The integration provides the ability to

access all agency-wide spend data in one

place.

- A comprehensive view o ull spend

activity by supplier enables improved

vendor negotiations

- Access to total agency spend provides

senior ocials the ability to drill down to

total spending by business unit and

unction. This can enhance decision-

making and budgeting

Enhanced compliance with buying policies and

procedures:

- Ensure regulatory compliance when your

workfow process enorces procedures,

approvals and segregation o duties

- Reduce spend when you establish

business rules that monitor and control

maverick purchasing

- Integration makes it easier to review

payment activities, such as payment

methods, and use o preerred suppliers

and ensure they are in compliance with

policies and procedures

- Dene specic SLAs with classes o

suppliers or with individual suppliers

- Provide alerts when SLAs are in jeopardy

o being violated or when they have in

act been violated

Streamlined reporting and data aggregation

process:

- A key driver o process improvement is

the reduction o manual inputs

- As systems integrate seamlessly, the

improved inormation fow enhances the

overall reporting system

- As manual processes are eliminated, the

time to accurately report data decreases,

resulting in increased productivity,

reporting fexibility and visibility


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Procure-to-Pay Use Case

Following is one example o how the Sotware AG

Process Framework can been applied to improve

P2P processes in a government environment.

Consider Agency XYZ, a large government agency at

the national level and a signicant consumer o o-

the-sel goods (hardware, sotware, business

supplies, etc.). With most o its procurement

processes handled manually and with many vendors

already operating online marketplaces, the agency

does not have the means to connect into these

marketplaces rom its manual processes. The manual

workfows make it also a very dicult task to ensure

compliance with the agencys purchasing regulations

and to reduce misuse and potential raud. Agency

XYZ decides to embark on a P2P initiative to create

an electronic ordering system or its sta.

Ater an analysis o the current situation and the

existing processes, the rst step in this initiative is to

replace the manual processes by improved,

automated processes and procedures to reduce

workfow ineciencies. The implementation o

intelligent technologies like a BPM suite can

eliminate labor-intensive activities and ensure the

high quality o operations. Less manual interaction

and a lower number o errors and discrepancies

translate into reduced costs o operations. And theuse o standards-based technology permits connect-

ing to the online marketplaces.

Once automated processes are in place, Agency XYZ

can use the new technology to provide tracking and

analysis o key control objectives at executive,

management and technical levels within the agency.

Business Activity Monitoring capabilities identiy,

monitor, reduce and / or eliminate transactional

errors, misuse and potential raud in the P2P

process. And the integrated dashboard and audit

capabilities vouch or procurement processes being

compliant with agencys policies and spending

limits.

On the IT side, applications spanning multiple

business units can be integrated thanks to the use o

web services. The IT department is also able to

implement roles-based security to cater to a large

multi-role organization (dening i.e. spending limits

and approval rights on a user by user basis).

What are the benets Agency XYZ can expect rom

this ramework?

Reduced operating costs

Ability to track, research and drill down into

potential problem areas without disrupting

daily operations

Ongoing process optimization

Updated, real-time data o overall agency

perormance

Compliance and alignment with Agency XYZspolitical mandates


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About the Author

Conchi Garcia is Manager o Government Strategy

or Sotware AG, where she is responsible or

dening solution and go-to-market strategies or the

government sector worldwide. Ms. Garcia has more

than 8 years o experience in industry marketing and

business consulting, with working experience at the

international level and in several countries. Ms.

Garcia holds a double degree in International

Business and in Marketing & Sales rom the

University o Caliornia Los Angeles (UCLA).

About SoFtWAre AG ProCeSS FrAMeWorKS

Sotware AG Process Frameworks are solution

reerence models designed to guide requirementsdiscovery and denition, and enable users to build

quickly and condently upon Sotware AGs

knowledge and experience base in key process

areas such as order-to-cash. Built upon Sotware AG

technology and practices, and inormed by our

collective customer experiences, the rameworks

refect a deep understanding o the subject process

and the challenges companies ace in improving the

process.

The Process Framework artiacts use industry

standards as a baseline and leverage Sotware AGs

unique domain expertise to help accelerate the

requirements discovery and denition process or

our customers. For key process areas, Sotware AG

Process Frameworks can assist with selection and

modeling o critical process fows, denition o Key

Process Indicators and metrics that allow measure-

ment o progress on key success actors, and

guidance or activity and task management, root

cause analysis and exception handling.

The goal o the rameworks is to maximize our

customers eorts in addressing their process

improvement strategies and to help them gain

control over their perormance in the challenge

areas most critical to their business.

Next Steps or your P2P Process

Every element o the use case shared here illustrates

the advantages o working with Sotware AG to make

supply chain improvements. By leveraging the knowl-

edge learned rom experience, the Procure-to-Pay

Process Framework can help guide and accelerate the

solution, rom selection and modeling o critical process

fows, to guidance or root cause analysis and exceptionhandling, and transactional activity management across

multiple systems.

To learn how your organization can take the next steps

with the Procure-to-Pay Process Framework and

Sotware AGs business inrastructure sotware and

services, contact Sotware AG and ask about our

CustomerFirst Program.

F m imai CsmFis Pgam,

mail [email protected]


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