web3 - Source to Pay (S2P) – a new paradigm in the mid-market

10th October 2010

The internet has been a liberating medium for all kinds of reasons, but the growth of ‘on-demand’ applications is especially notable because it puts sophisticated applications within the reach of mid-market companies.  It’s a great ‘leveller’, allowing mid-sized organisations and their larger cousins to compete on an equal footing.  Nowhere is this more evident than in the field of purchasing.  And it’s not simply a matter of automating existing approaches and methods – the internet has re-defined purchasing.  The result, for those that wish to grasp the opportunity, is both game-changing and rewarding, says Gary Simon, FSN’s managing editor in a new FSN product review of Wax Digital’s and Sapphire System’s web 3.0 Source to Pay application.

CONTENTS

 

 

 

Introduction

 

How do Sourcing and Purchase to Pay (P2P) fit together? 

 

The challenges of purchasing in the mid-market

 

Source to Pay – a better way

 

On-demand processing

Catalogues

Workflow

Integration

Contracts, tendering and auctioning

Reporting and dashboards

 

How Web 3.0 automates the Source to Pay / Procure to Pay Process – key aspects

 

User interface

Roles-based dashboards

Catalogues

Business rules and workflow

Supplier portal

The mini tender

The reverse auction

 

What are the organisational implications?

 

Why Sapphire Systems and Wax Digital are bringing the concept to market

 

What about Return on Investment (ROI)?

 

Summary

 

 

 

  

Introduction 

The internet has been a liberating medium for all kinds of reasons, but the growth of ‘on-demand’ applications is especially notable because it puts sophisticated applications within the reach of mid-market companies.  It’s a great ‘leveller’, allowing mid-sized organisations and their larger cousins to compete on an equal footing.  Nowhere is this more evident than in the field of purchasing.  And it’s not simply a matter of automating existing approaches and methods – the internet has re-defined purchasing.  The result, for those that wish to grasp the opportunity, is both game-changing and rewarding. 

Purchasing can be something of a backwater in mid-sized enterprises.  It is often mistakenly assumed that purchasing ‘muscle’ and influence is the sole preserve of large organisations that can use multi-million pound budgets to strike bargains and drive down supplier costs. Added to which few mid-sized businesses employ dedicated purchasing professionals.  As a result the purchasing process is often neglected and its potential for streamlining operations, improving productivity, enhancing supplier relationships and reducing costs lies largely untapped - especially when it comes to indirect costs which, if left unchecked, can quickly mount up. 

A more testing economy has however encouraged companies to review their costs.  Indirect costs have come under particular scrutiny – a supposedly easy target for cost reduction.  But even after two years of cost-cutting and containment there is evidence to suggest that there is still some way to go before all unnecessary costs are taken out .  So where exactly is the opportunity in purchasing? 

Traditional ‘purchase-to-pay’ (P2P) governs the automation of purchase requisitioning, approvals, purchase order management, goods or service receipting, supplier invoice processing through to authorisation of payments.  In the best cases the cycle is fully integrated to a financial management system and perhaps document imaging systems as well. 

But continuing innovation has taken purchase automation well beyond the limited confines of traditional P2P.  ‘On demand’ applications provide round the clock access to superior functionality presenting users with on line-catalogues, custom pricing and paperless orders on suppliers.  For their part suppliers can leverage the same systems to better control their end of the supply chain, improve service and reduce paper and bottlenecks and in some cases be paid quicker. 

Now mid-market companies can also benefit from innovative and powerful  capabilities  such as automatic tendering, and supplier auctions, putting them in the driving seat when it comes to controlling costs.

 This combination of greatly enhanced P2P together with newer possibilities in tendering, supplier auctions and collaboration, has re-defined the market and spawned a new purchasing paradigm – ‘Source to Pay’ or S2P.  Now, through the accessibility and affordability of the ‘on-demand’ model, mid-market companies can also enjoy the benefits of the S2P revolution. 

How do Sourcing and Purchase to Pay (P2P) fit together? 

The terminology used in this rapidly developing field can be confusing.  In broad terms, P2P covers the core purchasing processes, such as the maintenance of supplier details and product catalogues, the raising of purchase requisitions, purchase approvals, goods receipting and invoice matching, normally through the financial management solution (FMS). 

S2P embraces all of the above but also provides capability around contract management, electronic tendering and supplier auctions through a collaborative platform or Supplier portal. 

In the best integrated environments, a modular design allows organisations to pick and choose the elements that are best suited to their needs, ‘mixing and matching’ P2P and S2P functionality as desired without sacrificing integration or process efficiency. 

In this product review we examine Wax Digital’s appropriately named “web3” solution delivered by Sapphire Systems – a groundbreaking S2P / P2P solution designed specifically for the mid-market. 

The challenges of purchasing in the mid-market 

The priority for enterprise resource planning (ERP) and financial management systems is efficient transaction processing.  But many ERP systems in use today were designed more than a decade ago for an era in which the web and e-commerce was not prevalent, and in which the design emphasis was on serving business functions rather than supporting business processes which transcend functional boundaries.  The P2P cycle for example spans the purchase ordering function, purchase ledger, financial management (budgets), goods inwards and accounts payable; but these elements are usually confined to operational ‘silos’ with little recognition that the way business is transacted reaches across these artificial divides.  P2P can be largely out of scope, only a limited number of users typically have system access and there is no link to the collaborative possibilities and vast resources of the internet and World Wide Web. 

Purchase ordering, especially for indirect purchases, is often a manual process – if any process exists at all - which resides outside of the financial management system. In these circumstances purchase order processing can easily become an informal and uncontrolled process, often referred to as “maverick spend", in which purchase orders can be raised without adequate supervision, on unauthorised suppliers and without being recorded in the accounts until the goods have arrived and the costs have been incurred. 

Such lack of any real controls in the procurement cycle can pose significant business risks.  The total level of outstanding commitments is unknown, the organisation is susceptible to overcharging, inefficient or unauthorised suppliers go unchecked and staff can unwittingly or deliberately make unauthorised purchasing decisions that exceed the organisation’s purchasing policy.  The financial consequences are that management reports may not reflect all costs - particularly in the area of accruals, cash flow forecasts are inaccurate, liquidity/working capital is subject to unexpected fluctuations and stocks of consumables are unmanageable.  These problems are exacerbated in a multi-site organisation where inconsistencies and lack of control can quickly drive up average transaction costs. 

Apart from the financial risks, high transaction costs and error rates associated with manually intensive or spreadsheet-bound processes, the organisation is severely disadvantaged in its supplier relationships.  Effective bulk purchasing arrangements are not negotiated, suppliers are not kept on their toes, weak suppliers are not weeded out and more competitive and agile suppliers are not identified.  Perversely, a failure to leverage technology can also discourage the supplier community.  Slender margins and highly automated e-commerce mean the most keenly priced suppliers may offer less favourable terms to customers that do not have the processes in place to manage transactions efficiently. 

Source to Pay – a better way 

A modern S2P system sweeps away the limitations of traditional ERP and financial management solutions, yet provides a complementary platform so that organisations can leverage the benefits of both worlds - without adding significantly to the cost base or causing business disruption. 

On-demand processing

The benefits of an on-demand solution hosted in the ‘cloud’ are ideally suited to organisations with more than 50 users authorised to make indirect purchases.  Distributed, multi-site organisations are particularly appreciative of hosted solutions that require no local software or special investment in IT infrastructure and skills.  Furthermore, the immediate accessibility of the application at any time via a web browser provides a familiar, easy to use environment that emulates most users’ private experience of purchasing items on the web. 

Catalogues

On-line catalogues broadly define the permitted ‘universe’ of vendors approved by the organisation and the goods that are available to buy.  As will be seen later, web3 provides additional flexibility for defining what purchasing decisions are permitted for each class of user. 

Workflow

Purchases can be recorded, monitored and approved within pre-defined limits with automated email notification allowing that tasks such as raising a requisition to be handled across a multi-site organisation without delay or error.  Similarly, requisitioning, recording goods received and matching invoices can be managed in a single smooth process enabled by workflow.  In this way ‘non-value added’ tasks such as transferring information between one person and another are automated, leaving time for the more important process of approving requisitions, investigating variances and negotiating supplier terms.

 Integration

Integration with financial management and ERP systems reduces the overhead of data entry, keying errors and duplication of say, standing data about suppliers.  Transactions can be posted completely and accurately from P2P front end to ERP without interruption.  In fact, modern hosted P2P provides the opportunity for the complete coalescence of e-commerce capability and traditional ERP. But the advantages work both ways.  Supplier portals allow vendors to view the status of their transactions and derive benefit from the process as well. 

Reporting and dashboards

The availability of insightful reporting deeply embedded as part of an overall S2P solution, i.e. without having to step outside of the S2P environment, provides a ready-made platform for measuring individual supplier performance, as well as how successfully the organisation is meeting its purchasing goals. 

Contracts, tendering and auctioning

But it is the innovative concept of Source-to-Pay that represents a step-change in the way that mid-market companies can manage their supplier relationships.  Contracts (short or long-term) can be managed in one repository with the ability to review contract performance. 

Tendering can carve days or even weeks out of the procurement process by automating the process of seeking bids from the market and by engaging with suppliers over the web.  The ability to easily create and run forward and reverse auctions provides unique opportunities to harness competitive bidding and contain costs.

 How web3 automates the Source to Pay process – key aspects 

web3 from Wax Digital is at the leading edge of S2P innovation – delivered as an on-demand solution.  At the core of the solution is the ability for anyone to be able to use the application without training.  But how is this achieved? 

User Interface

The user interface (UI) is often a greatly under-valued and unappreciated piece of software engineering. But in a high impact environment, i.e. one in which there are many connected users, the UI is critical to success.  It is a fact not lost on Wax Digital, which as an organisation has developed the web3 solution from the ground up as an application that is capable of being used by standard requisitioners, without training, over the web.  After all, despite complexity, people manage to book airline tickets, purchase books and effect bank transactions over the web without a single day’s training. 

Underpinning the approach is clever design, making the application intuitive, by emulating the catalogue type experience that users experience in say, Amazon.com or eBay, hiding complexity through the setting of business rules behind the scenes.  Furthermore, web3 provides completely configurable presentation of the interface or ‘mash-ups’ to suit a particular class of user or function – un-cluttering the interface by restricting the functionality or information on view to exactly what is required by the role. 

Role-based dashboards

Role-based dashboards are important in terms of user productivity and organisational effectiveness.  Infoparts (discrete windows of information), can be called from different parts of the application and displayed on screen to suit the individuals concerned.  In Fig 1.0 below, the screen has been configured to display selected P2P process steps across the top and key performance indicators in the main body of the screen giving an immediate sense of the work outstanding together with a real-time perspective of spending history.  It has been personalised with user generated ‘reminders’ (tasks outstanding) and even the local weather!

Fig 1.0 Key performance indicators in the main body of the screen give an immediate sense of the work outstanding together with a real-time perspective of spending history

Dashboard.JPG

 

Fig 2.0 The web3 user interface is completely configurable allowing access to the application to be completely tailored to the role.

Simplified Interface.JPG

This attention to configurability or personalisation provides for a more fulfilling user-experience, the ability to reach across all relevant parts of the work flow and to initiate actions that accelerate the process. 

Catalogues and non-catalogues

Catalogues are an important element of the P2P process in web3 allowing an organisation to prescribe purchasing policy, limit purchases to authorised suppliers and adapt the items on offer  to different classes of user.  Supplier catalogues are imported to the application, along with the pricing and terms agreed with the vendor organisation.  Users are then able to select the items they require in a familiar Amazon-style way, completing their basket and checking out.  But not all purchases have to be made via catalogues and web3 allows non-catalogue items to be purchased with equal ease.

Fig 3.0 Intuitive e-commerce style interface makes search and selection of goods and service simple, ensuring compliance

Ecommerce.JPG

Business rules set by the user organisation determine the precise workflow for budget checking, approvals, rejections and amendments (depending on factors such as value and type of purchase and financial coding), utilising email to deliver both approval requests and the approvals themselves.  Once approved, the order can be placed on the supplier – who can view the status of outstanding orders on the Supplier portal.  In this way the end-to-end supply chain is highly automated, allowing items that comply with purchasing policy to flow though unimpeded and with the minimum of business disruption.  Even greater automation can be achieved by saving repeat orders as ‘favourites’ or templates for re-use at a later date.  The system also allows users to “punch-out” via the internet to supplier web sites and select goods and services that are then brought back into  web3, subjecting such orders to the same rigorous purchasing controls.

 Business rules and workflow

Whilst P2P processes tend to follow a similar workflow from one organisation to another the precise capabilities and rules for purchasing can be as tight or as loose as required with different user groups, for example, being restricted to different catalogues, parts of catalogues and spending limits.  web3 can also handle multipart requisitions destined for different suppliers.  The approval workflow can be similarly tailored to reflect the authorisations and compliance needed. 

With this level of automation available it is possible to connect many users without compromising control. 

Once items have been purchased the order lines are retained on the system for automatic matching against goods received notes and purchase invoices.  Variances, subject to allowable tolerances, can be subjected to further workflow for resolution or rejection.  Paper based invoices can be scanned and matched manually.  Accounting systems, inventory and fixed asset registers outside of web3 can be integrated with through the use of the web3 Enterprise Service Bus (ESB), this powerful tool allows integration between using industry standard xml. 

The workflow and availability of the application over the web becomes especially valuable in a multi-site organisation.  Internal post and lost communications between buildings, separate locations and departments become a thing of the past with manual intervention being kept to a minimum. 

Supplier portal

web3 also provides a unique opportunity for organisations to develop more rewarding relationships with suppliers.  Capturing and displaying trading history and outstanding transactions provides an intimate understanding of the value of the relationship for both organisations, for example, how well the supplier is delivering on its promises.  Sharing returns history, under and over delivery habits, damages and late deliveries allows room for discussion and improvement.  At the same time suppliers have better visibility of invoices held up by dispute and when other non-contested invoices will be paid.  The Supplier portal completes the P2P cycle providing increased visibility of the process for everyone concerned with it, eliminating paper flows and delay. 

The mini tender

The generation of a mini-tender (a reduced mid-market version of the full web3 capability) is an example of how the web can be used to extend the purchasing power of mid-sized organisations.  In essence, the system allows an organisation to select a basket of goods or services and to present it simultaneously to multiple suppliers so that they can quote for its supply.  The competitive element can materially drive down the cost of supply.  But there are other auctioning techniques as well. 

The reverse auction

Perhaps not widely used in the mid-market the reverse auction provides a startling alternative to the way that organisations normally source goods and services.  Once again suppliers are invited to bid for a basket of goods and services at a published benchmark price.  The invited suppliers are then encouraged to bid for the contract by beating the advertised price.  Like any other auction the event is competitive and suppliers can submit and resubmit lower prices in order to win the contract for supply.  The way in which the auction is managed, for example, how much information that each supplier is given about the others and their ranking in the auction is user configurable and although great care has to be taken over the arrangements to ensure quality of supply the so called ‘reverse auction’ has been shown to drastically reduce prices. 

What are the organisational implications? 

The implementation of fully automated S2P can have a profound effect on an organisation, allowing it to make a step-change in productivity and user effectiveness.  The technology is empowering since it allows users to purchase all the indirect goods and services they need, safe in the knowledge that by operating within the system they are automatically compliant with purchasing policy, for example, selecting preferred goods and suppliers at the correct price, and managing resources within departmental budgets.  The application reflects their personal experience of buying on the web and the workflow for approvals allows users to feel connected to both the underlying process and their colleagues.  The roles-based functionality greatly improves productivity by focussing only on what is relevant, whilst providing a more fulfilling user experience. 

The web-based approach also provides much greater visibility of the process across the organisation and beyond into suppliers.  For the finance function it means that for the first time  the team can take ownership of the process, see where improvements can be made and ensure that the organisation captures all purchasing transactions that might otherwise have been outside of their sphere of control. In essence it gives them a chance to add real value to the process.  

Why Sapphire Systems is bringing the concept to market 

Until recently even limited P2P capability was the main preserve of large organisations.  Indeed, Wax Digital’s roots are in designing solutions for large enterprises with thousands of users.  But Sapphire Systems, a mid-market specialist, with a long heritage of providing business solutions to medium sized enterprises, quickly realised that an on-demand solution tailored specifically to the needs of mid-market provided an affordable platform that would allow smaller organisations to enjoy the benefits of greater automation, cost saving and productivity.  Using its deep experience of the mid-market (organisations with upwards of £10 million turnover) and leveraging the application expertise of Wax Digital, Sapphire set about working in partnership with them to align web3 to the needs and capabilities of mid-sized organisations.  In this way mid-sized organisations could benefit from Wax Digital’s deep heritage and expertise around P2P and, where relevant, take advantage of the latest innovations developed for the market as a whole. 

S2P functionality, i.e. including e-tendering, auctions and contract management, added an exciting new dimension which would allow users of popular mid-market financial management solutions to integrate their financial platforms and engage in leading edge developments in purchasing, without increasing headcount, or the need for extensive training and additional hardware.  web3 is a complementary application that allows organisations to maximise the use of existing technology assets while sweeping away costly and outdated manual processes.  As such it sits well with Sapphire’s mission of helping mid-market companies to turn technology to competitive advantage. 

What about Return on Investment (ROI)? 

Wax Digital reports that very substantial savings are available to companies that invest in P2P and S2P systems.  In broad terms these arise from improved compliance, visibility and efficiency gains as a result of process automation (traditional P2P), and from better managing supplier relationships and pricing by leveraging S2P functionality such as competitive auctions, e-tenders and contract management. 

Experience shows that the very fact of introducing a system that makes employees across the business visibly accountable for their spend, can reduce total spend by between 3% and 4% as purchases are more carefully considered.  In addition  ‘maverick’ spend on unauthorised suppliers typically  accounts for around 38% of all transactions in a business that does not have its purchasing under effective control.  Every purchase made from an unauthorised supplier sacrifices in the region of 11% in negotiated discounts had the orders been placed with approved suppliers instead. 

Savings from using advanced S2P functionality can be even more dramatic.  Recent auctions run by mid-market users of the web3  saved one legal firm 25% on the cost of its cleaning and security contracts, whilst an auction for the supply of uniforms saved a university 18% per annum. 

Tangible savings such as these mean that it is relatively straightforward to calculate and demonstrate a compelling business case and ROI. 

Summary 

What’s in a name?  Well, Wax Digital Enterprise Business Suite v3.0, or web3 as it is more commonly known, has come to represent what is best about the web.  Indeed, the term web3 is most apposite since it evokes a sense of progression from Web 2.0 which Wikipedia says is “The term commonly associated with web applications that facilitate interactive information sharing, interoperability, user-centered design and collaboration on the World Wide Web.” 

Wax Digital’s near obsession with ease of use, undemanding yet clever user interface, Supplier portal, workflow and integration, all available on-demand appears to fit the bill almost perfectly.  And even though this isn’t social media the collaborative environment, together with a high degree of personalisation, takes the essence of web and places it in the hands of the business user. 

And the business impact can be formidable.  Process automation and workflow cut out rafts of redundant and unproductive tasks.  The ability to manage more closely, ensure compliance with purchasing policy and discourage maverick purchases translates to savings that flow straight through to the bottom line.  Placing advanced auctioning and mini-tendering capability in the hands of mid-market businesses allows them to save and contain costs whilst simultaneously improving supplier relationships. 

But regardless of how easy it is to use the web3 solution, mid-sized organisations need a trusted partner, such as Sapphire Systems, to help shape the application, define the business rules and identify the opportunities for savings in their specific circumstances.  Opportunities rarely arise where there is such a compelling business case for change.  web3 is one of those once in a decade type opportunities.

 

About FSN

FSN Publishing Limited is an independent research, news and publishing organisation catering for the needs of the finance function. The report is written by Gary Simon, Group Publisher of FSN and Managing Editor of FSN Newswire. He is a graduate of London University, a Chartered Accountant and a Fellow of the British Computer Society with more than 23 years experience of implementing management and financial reporting systems. Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector. His bestselling book, “Fast Close to the MAX” was published in 2008.
www.fsn.co.uk

Gary.simon@fsn.co.uk

Whilst every attempt has been made to ensure that the information in this document is accurate and complete some typographical errors or technical inaccuracies may exist. This report is of a general nature and not intended to be specific to a particular set of circumstances. FSN Publishing Limited and the author do not accept responsibility for any kind of loss resulting from the use of information contained in this document.

 

About Sapphire Systems plc

Sapphire is an SAP Gold partner – number one for SAP Business One in EMEA, and is the global leading Infor FMS SunSystems partner. Since 1986, Sapphire has offered customers wide-ranging practical expertise in selecting and implementing advanced financial accounting, business management and procurement solutions and today provides software, services and support for over 650 customers worldwide from their offices in the UK, USA & Asia. Sapphire is a founder member of the British Application Software Developers Association and was one of the first signatories of the BASDA Green Charter.
www.sapphiresystems.com   
www.sapphiresystems.com/uk/wax-digital/

 

info@sapphiresystems.com

 

 

Sapphire Systems plc

Sapphire Systems plc

Sapphire Systems plc

Sapphire Systems plc

 

London, UK              

Manchester, UK

Birmingham, UK

Edinburgh, UK

 

+44 (0)20 7648 2000

+44 (0)16 1227 8177

+44 (0)121 697 4771

+44 (0)131 200 6156

 

Northern & Shell Building,10 Lower Thames Street, London,EC3R 6AF

 

 

Kilburn House,Manchester Science Park, Lloyd Street North Manchester,M15 6SE

 

2nd Floor,3 Brindley Place, Birmingham,B1 2JB

Conference House
152 Morrison Street
Edinburgh EH3 8EB

 

 

Sapphire Systems Inc

Sapphire Systems Inc

Sapphire ERP Systems Private Ltd

New York, USA

Los Angeles, USA

Mumbai, India

 

 

+1 (212) 541 2406

+1 (310) 231 8731

 +91 (0)22 6604 4909

 

 

The Chrysler Building, Floor 26, 405 Lexington Avenue, New York, 10174

 

11601 Wilshire Blvd
Los Angeles, California, 90025

 

809-810, Trade World “B” Wing, Kamala Mills, Lower Parel, Mumbai 400 013

 

 

                 

 

 

 

OTHER NEWS

SECTORS

CATEGORIES