( This article is excerpted from the report: “Spotlight on Direct Materials Procure-to-Pay“ available for download here. )
Selecting a Direct P2P System
How an end user decides which type of direct materials P2P system is best for them is complicated by the fact that many of these types of systems are not selected explicitly, only, or primarily to provide P2P functionality. In the selection of an ERP system, procurement will be just one of many considerations. For a PLM or project management system, P2P might be quite a way down the list in the requirements. Thus the selection process varies dramatically depending on factors such as the existing systems already in place, the total scope of functionality sought, and P2P’s role within that context.
Example Solution Provider
Here we describe ten different P2P solutions. This is by no means intended to be an exhaustive or even somewhat complete list of P2P solution providers, of which there are literally hundreds. It is instead meant to highlight the diversity of solutions out there and give some examples that might be interesting for you. The vendors included here in alphabetical order are:
- Elemica (Network-based, Automation Platform)
- Epicor (ERP-based)
- FinancialForce.com (ERP-based)
- Fullstep (Service + Platform)
- GEP (Service + Platform)
- GT Nexus (Network-based, End-to-end Visibility/Supply Chain Finance)
- Nipendo (Network-based, Automation Platform)
- Plex (ERP-based)
- SAP/Ariba (ERP-based)
- TAKE Supply Chain (TSC) (Automation Platform)
Elemica describes themselves as a “Supply Chain Operating Network” provider. It’s a reasonable description. Originally formed around 2000 as an online e-marketplace for the chemicals industry, Elemica has evolved into a platform which serves both suppliers and buyers almost equally (unlike most P2P platforms which are more buyer-centric). While it has expanded its focus to all process manufacturers, most of its customers are in the chemical industry. They have about 7,000 trading partners on the network, a mix of buyers, sellers, and logistics providers, transacting and managing almost $300B per year through the platform.
Elemica’s network is based on two tightly linked platforms, QuickLink and SmartLink.
QuickLink is their integration platform with connectors to various ERP systems, and inter-company master data mapping functionality which brings all that data into a common, canonical ‘Universal Business Document’ format. This provides cleaner and more complete integration than relying on standard EDI. Customers can simply send and receive data in the format they already use, whether EDI or iDoc or flat file or even email using the data coding they already use internally, such as internal product IDs, their own format of location data, etc. The platform has a built-in workflow for keeping these mappings up-to-date; for example, alerting suppliers when an order arrives for a new product that the supplier hasn’t mapped yet, so that the supplier can set up the cross-reference. The same MDM can be used between divisions of a large company which may have multiple part numbers for the same part across multiple divisions.
SmartLink consists of four major applications — Sourcing Management, Supplier Management (for use by buyers), Customer Management (for use by suppliers), and Logistics Management — as well as analytics capabilities. Suppliers do not have to be Elemica customers. They can use the Supplier Portal for all the back and forth interactions, receive alerts for missed shipments or orders they haven’t responded to. The portal lets them ‘flip’ a PO into a response and ‘flip’ the response into an ASN, avoiding rekeying. The portal can also be used temporarily while the supplier is integrating to the Elemica platform.
Elemica has VMI functionality in both supplier and customer modules, which allows the buyer the ability to set min./max. levels and send consumption information, and for the suppler to look at the buyer’s inventory levels and make replenishment decisions. Their P2P starts with the forecast from the buyer (including DELFOR splitting),1 and forecast commit from supplier, and includes PO/response; delivery slot request, ASN, and Certificate of Analysis (CoA) from Supplier; delivery receipt from buyer; and invoice/payment automation, including Evaluated Receipts Settlement functionality, eSignatures (compliant in 42 countries). The CoA, which is often required by the buyer in the chemicals industry, can be created without having to key it in. Elemica’s Global Supply Management (part of the Supplier Management module) aggregates information from 3PLs, carriers, ports, and plants to provide an end-to-end view of inventory, shipments, container detention and demurrage. The supplier-side functionality, i.e. Customer Management module, includes among other things a planning engine that takes in inventory and forecasts information to schedule shipments.
Epicor is a well-established ERP vendor, offering multiple ERP systems, targeting manufacturers, distributors, retailers, and service organizations.2 It is available in on-premise, hosted, or SaaS delivery models. They have invested in making everything a web-service on an SOA architecture — including Business Process Management, a workflow service called Service Connect, dashboards embedded throughout, and good compliance/document control. They have predefined workflows built in and the user communities have built up libraries of workflows that are available.
Epicor has solid forecasting, APS, and MRP modules, as well as DRP via RockySoft integration/partnership. MRP can create purchase suggestions, based on schedules or time-phased based on job orders, firm orders, contracts, or demand queues from EDI; all feeding into their buyers’ workbench. With their Kanban system, when a particular bin hits a certain level, it can automatically generate and send a purchase request to the supplier. Suppliers can connect through the portal or EDI.
Once the order is on its way, Epicor has a Container Tracking system that provides visibility into containers status (current location, ETA), including containers that may contain multiple POs from multiple suppliers. Their Landed Cost module can allocate the cost, beyond ‘first sale cost,’ to include transportation, duties, tariffs, etc. They have QA and Enhanced QA modules to receive, inspect, accept/reject, track and define frequency of inspections. Inspection plans and results tracking are included. Their AQM module (IQS software integrated via SOA/Service Connect) has a supplier quality portal for resolving issues and includes more sophisticated statistical process control, audit, APQP, PPAP, FMEA, and more.
For change management, an ECO drives workflows that are integrated with PLM and purchasing. Their CADLink synchronizes engineering documents from SolidWorks, Pro/E, AutoCAD, and others. Epicor Social Enterprise, which was recently announced in Epicor ERP version 10, provides familiar social media-like concepts embedded right into the system, for collaborating internally, and with customers and suppliers. This collaborative dialog can occur at each phase in the P2P process, whether negotiating supplier’s delivery commitments, dealing with order changes, or resolving quality issues.
FinancialForce.com, a joint venture of UNIT4 and Salesforce.com, is a Force.com-based ERP system with functionality in finance, HCM,3 PSA,4 and Supply Chain Management. Because it is based on Force.com, it is pre-integrated with Salesforce’s CRM system, as well as the broad and growing array of other native Force.com applications available.
Much of FinancialForce.com’s SCM capability is geared toward fulfilling customer orders, such as order fulfillment, and their tightly integrated CPQ5 and customer contract management functionality. The inventory management functionality is largely geared towards finished goods and can automatically generate supply requisitions using safety stock, reorder points, min/max and acquisition lead times. Information from their sourcing system can be used to generate purchase orders without rekeying. FinancialForce.com supports a variety of PO formats, built-in EDI, workflow, PO change management, 2-, 3-, and 4-way matches for invoice validation, and the ability to offer early discount payment programs to suppliers. They also support dropship fulfillment tied to a customer order.
Founded in 1999, providing strategic sourcing consulting, Fullstep evolved to provide a combination of sourcing and procurement consulting and execution services and a full sourcing and procurement software suite. The suite includes spend analytics, sourcing, contract management, requisition management, PO management, supplier portal, supplier quality, e-invoicing, analytics, and a collaboration network. While they serve a variety of sectors, their founders came out of heavy manufacturing — therefore, in contrast to many other full suite sourcing and procurement vendors that tend to have more indirect-focused P2P,6 Fullstep has from the start included direct materials P2P functionality (as well as indirect/requisition-driven). In fact, about two thirds of their customers are manufacturers.
Fullstep’s sourcing module is perhaps the most functionally rich part of the system. One strength of the platform is the flexible workflow, with a high degree of configurability by end users. It includes a graphical UI for displaying each workflow in a flowchart format.
Another area of strength not often found in P2P systems is quality management. For every purchasing category and business unit, the system can show the types of compliance documents required and the status of that certificate for each order. This can be used for managing things like supplier diversity and insurance certificates as well. Fullstep has a whole subsystem for entering and tracking non-conformities. As with the rest of the system, it is highly configurable to add the specific fields a company uses. There is information about the resolution status and dates. Suppliers use the portal to update status. Quality and non-conformance incidents become part of Fullstep’s supplier scorecard.
GEP is first and foremost a procurement consulting and services organization, helping to develop procurement strategy and providing sourcing, category management, and transaction management services. In addition, they provide an end-to-end suite of procurement software including spend analytics, sourcing, contract management, supplier management, and procure-to-pay software. They use their own software to provide many of these services and hence their consultants help drive the product roadmap and features. As an end-to-end suite, GEP’s solution has the advantage of easily (i.e. out-of-the-box, without integrating multiple systems) being able to import information from the RFQ or contract management system, as well as the supplier management system, when creating the PO. Furthermore, their spend analytics automatically incorporates data from the P2P system, such as on-time delivery and other performance data.
GEP has integrated its procurement platform with the Hubwoo supplier network for connecting suppliers with buyers to exchange transaction documents. Hubwoo’s network connects over a million buyers and suppliers, enabling GEP customers to receive invoices and other associated documents electronically via the network.
GT Nexus is unusual in combining end-to-end visibility throughout the P2P process (from capturing the purchase order all the way through to settling the payment) with TMS7 capabilities, supplier factory management, inventory management, supply chain finance,8 and performance analytics. It was one of the earliest platforms to adopt a many-to-many networked model, connecting all of the players in domestic and international trade transactions, including buyers, sellers, transportation carriers, forwarders and brokers, banks and other lending institutions, inspection companies, customs, and more.
Having all players on a single platform allows all to operate off a core set of data and applications over a shared network. Data from the P.O. is automatically reused in creating packing list, ASNs, and other shipping documents, which in turn are used to automatically create the invoice. At any point in time, all participants see exactly the same data about what was requested, planned, and executed, which reduces disputes about what actually happened as inventory moves from factory origin to final destination. The built-in logistics provides additional independent validation of supplier performance. Further, GT Nexus provides many tools to ensure supplier compliance such as compliant ticket & label printing, scan-based (i.e. using barcode or RFID) picking and packing compliance, tools for tendering loads that comply with the buyer’s routing guides, customs compliance tools, automatic generation of correct ASNs, and so forth.
GT Nexus provides granular visibility into the status of orders at suppliers, such as when raw materials were ordered and arrived, various production milestones, and logistics events across transport modes. All of these milestones (from supplier ordering the raw materials, to shipment occurred, to transportation milestones) can be automatically monitored with rules so that buyers can manage by exception and be alerted the moment an order is running behind schedule. That saves a tremendous amount of manual checking, and provides much earlier warning that something may need attention. It also supports automated reconciliation and straight-through payment processing, which reduces buyer accounts payable costs and supplier credit risk.
Since banks and other lending institutions are integrated directly on the platform, supply chain finance is tightly integrated into the P2P process, which dramatically reduces the friction and effort required for suppliers to obtain financing, including pre-shipment, post-shipment, and early payment. They incorporate a binding legal framework, which reduces the risk for everyone, especially lenders. Reduced risk means lower interest rates, which drives cost out of the supply chain, makes suppliers more financially robust, and allows earlier ordering of raw materials by suppliers (potentially shortening lead times for suppliers).
Nipendo provides a platform for automating the P2P process across all spend categories, with a specific focus on direct spend. Nipendo Supplier Cloud supports a many-to-many network of buyers and suppliers delivered as a pure multi-tenant SaaS solution. The platform allows enterprises to create their own workflows and business rules unique to their processes, allowing different processes by spend type, supplier tier, order amount, and any other variable/data that can be integrated into the system.
One of Nipendo’s important innovations is the ability to automate not just the buyer’s side of the process, but also the supplier’s side. This is critical to reducing errors, since it is the supplier that is doing most of the execution in the P2P process. This includes things like automating PO acknowledgment & confirmation, compliant label printing, pick, pack, ship, and ASN and shipping document generation. Furthermore, if there is a mismatch at the time an invoice is about to be submitted, the supplier is notified so they can potentially correct the issue before submitting the invoice. As a result, Nipendo can make some guarantees about the straight-through processing rates9 their customers will achieve — and they put their money where their mouth is. Their customers pay a per-transaction fee, but only for invoices that are processed straight through to the ERP system, without any error or manual effort.
If you think about it, to succeed with that financial model, it requires Nipendo to bring a majority of their customers’ suppliers onto the system rapidly and automate those suppliers in a short time in a way that actually results in a significant reduction in any error that would cause an invoice to be rejected. To me, that is a bold statement. And the reduction in errors reduces costs on two fronts: A) reduced AP labor, B) reduced operational costs of dealing with those supplier errors (such as incorrect labeling, wrong items or quantity shipped, etc.). It also enables near real-time invoice approval, which opens up a greater window of opportunity for capturing early payment discounts and reduces the risk for third party supply chain financing providers (both options enabled through Nipendo Supplier Cloud).
Nipendo’s platform also has an interoperability layer or abstraction layer that enables them to operate as an open platform that any module or service or product can connect to and combine together to best serve the needs of the customer. This could be an existing EDI or supplier network system (e.g. Ariba), BI system, a vendor qualification function, workflow system, OCR, financial services, factory services, — just about anything else you can think of that fits into the P2P process could be plugged in and participate in the end-to-end P2P process.
Plex is a pure multi-tenant SaaS ERP system targeted specifically at manufacturers. As such, it tightly integrates MRP with purchasing, receiving, payments and financial accounting, all in a single database. They support a rich multi-level PO structure, capturing a lot of detail, and the ability to issue a centralized corporate blanket PO that various individual plants can release against.
Suppliers can be integrated in three different ways: via portal, using EDI (Plex has a native EDI tool built in), or by directly logging in to the Plex system. Direct login enables sub-contractors to be more tightly integrated into the production process, where their operation is defined as simply another step in the production routing. Plex also provides tools for a logged-in subcontractor to print compliant barcode labels and use the Plex system for shipping back to the buyer, enabling them to be an integral part of the production process.
The Plex system has flexible workflow. Almost every field in the system can be passed into the workflow engine as a parameter to determine what triggers an event, who/where the next step is routed to, and other workflow decisions. It does not have a graphical workflow editor, but you can define and reuse workflow templates as well as redirect workflows on the fly.
Plex also has support for ‘project manufacturing,’ such as building a plant with complex machinery. Milestones are managed, guiding overall execution. The project management system doesn’t directly create POs, but it can include a reminder in a checklist for the user to issue the PO. The PO can have drawings and other project related material attached. And emails can be sent from within Plex and associated with a PO, so that it captures a complete trace of all the conversations related to that PO.
SAP is, of course, the world’s largest ERP vendor, with a very strong presence in manufacturing and considerable industry-specific functionality10 and expertise. They have a mature and rich set of direct materials P2P functionality. In 2012, SAP acquired Ariba, the world’s largest best-of-breed sourcing and procurement vendor. Ariba offers on-premise, hosted, and true multi-tenant SaaS delivery, as well as quite a large network of over 1.5 million pre-connected suppliers. Ariba started out as a P2P platform for requisition-based procurement, such as indirect and MRO, but has expanded to a very complete sourcing and procurement platform. Because Ariba’s P2P is more oriented towards indirect (though that is changing),11 most of the direct materials P2P functionality described here is from SAP’s flagship ERP system. As the preeminent ERP system for the world’s largest manufacturers, SAP services enormous volumes of direct materials purchasing through their system.12
POs in SAP can be automatically created by SAP’s MRP or they can be initiated by and integrate information from other MRP systems. The system can generate an alert when an order quantity is just below a volume discount breakpoint, so the buyer could increase the quantity slightly to take advantage of the discount. When there are multiple suppliers, the system can create quotas (rules-based minimums and maximums per supplier) to ensure a balanced source of supply, as well as to gradually ramp up a new supplier as they prove their performance. SAP supports a rich variety of PO types.
In addition to manufacturing firms, SAP supports direct materials P2P for construction firms and projects, include WBS (work breakdown structure) which can drive demand in SAP’s materials management module.
SAP supports PO change management, using ECOs13 that maintains revision numbers for the PO, materials number, and associated drawings. Changes are supported at every stage in the P2P cycle, before or after A) the PO has been sent to the vendor, B) the order has been fulfilled and received, C) the order has been invoiced.
TAKE Supply Chain (TSC)
TAKE Supply Chain provides a highly configurable and ‘integratable’ platform, called OneSCM, for supply chain collaboration. OneSCM automates transactions between buyer, seller, and third parties via configurable workflow for P2P and provides adjacent functions, including forecast sharing and shipment collaboration.
Forecasts that originate from the ERP or MRP system can be automatically shared with suppliers, who respond with commitments. A history of any discussions and changes to the forecast are stored in the system. TAKE’s OneSCM can automatically send the PO to the supplier, and check for the ACK and confirmation, providing an alert to both buyer and supplier for delinquent responses. In fact, OneSCM provides reminders for both sides whenever there are required reviews, acknowledgements, and approvals. When a PO change occurs, an alert is sent to the supplier to confirm the change. This can be done on a per line-item level. The full PO revision history is maintained on the system (an added benefit, as most ERPs store only the most recent revision).
OneSCM provides a single-version-of-the-truth between suppliers and buyers, as well as eliminates redundant data entry. The source PO data is used to create the PO response, ASN, shipping documents, invoice, and do the 3- or 4-way matching. By leveraging these capabilities, some of TAKE’s customers have been able to achieve 99%-100% first pass yields14 — i.e. that is a nearly perfect rate of accuracy of invoices matching both the purchase order and the goods receipt and subsequently being posted to the ERP system, on the first try without errors or anyone having to redo anything.
TAKE’s platform provides some supplier-side P2P automation as well, such as ability to automatically acknowledge and respond to a PO, flip the PO into a PO response (removing rekeying errors), compliant barcode label printing with package tracking numbers, automatic ASN and shipping documentation generation, and invoice creation. The buyer can set up rules to restrict shipping to the approved quantities shipping timeframe. The supplier is not allowed to ship until they correct any issues with the shipment. All of this contributes to reduced errors, faster, more automated receiving, and increased first pass yields. On top of all this, the platform allows rules-based prioritization of payments. Combined with automated payment verification, this helps companies avoid late payment penalties and take advantage of early payment discounts.
As part of the collaboration platform, OneSCM includes live chat, with the ability to send documents back and forth, all associated with the PO being discussed to keep a record of past discussions and how decisions were made. As mentioned, the workflow is highly configurable, using a graphical workflow editor usable by business users. OneSCM comes with pre-integration to the major ERP systems (via all standard formats such as EDI, XML, CSV, etc.) and a solid set of tools for quickly integrating to other ERP and enterprise systems. They also provide supplier onboard automation. Altogether these allow for rapid implementation and time-to-value, in as little as 8 weeks.
The Value of P2P
Transactional activities form the scaffolding upon which direct materials P2P processes are executed. Improvements to transactional P2P execution provide opportunities for reducing errors and cycle times, sometimes dramatically. Faster error-free execution saves money not just by reducing labor costs, but also by reducing the amount of safety stock inventory required. More importantly, this speed can have strategic benefits in enabling faster time-to-market and the agility to change gears as market demands shift. Excellence in performing P2P collaborative activities (such as change management and quality management) helps gain more value out of strategic supplier relationships. In short, doing P2P well can create significant value for enterprises.
1 DELFOR = Delivery Forecast message, which can come directly from an SAP system or via EDI and may include the forecast, soft orders, and hard orders all in a single message. Some suppliers are not equipped to handle that as is, so Elemica will split those up so the supplier can see the individual orders and forecast separately. — Return to article text above
2 Their core ‘Epicor ERP’ system is the one targeted at manufacturers. They have other systems to serve other sectors, such as Prophet 21 and Eclipse for distribution, Epicor Retail Suite for retail, and Epicor Services portfolio of solutions for service businesses. — Return to article text above
3 Human Capital Management — Return to article text above
4 Professional Services Automation — Return to article text above
5 Configure, Price, Quote — Return to article text above
6 Some full suite vendors support direct materials sourcing, but their P2P is still primarily requisition-driven. — Return to article text above
7 TMS = Transportation Management System — Return to article text above
8 Last year, GT Nexus merged with TradeCard, providing the combined company with this broader portfolio of capabilities. — Return to article text above
9 i.e. Also sometimes called the first-pass success rate — the rate at which invoices received go successfully through the 3-way match on the first pass, with no errors and are subsequently automatically processed for payment, ‘untouched by human hands’ – i.e. all done automatically by machine without involving AP personnel. — Return to article text above
10 SAP has industry-specific functionality (extensions to the core) for over 25 different industries. — Return to article text above
11 The Ariba platform does have some P2P functionality applicable to direct procurement, such as the ability to aggregate demand from MRP runs (both SAP and non-SAP) and from other source systems to drive the P2P purchases. Their early payment/dynamic discounting can also be used equally well for direct as for indirect. — Return to article text above
12 In addition to its reputation for deep and rich functionality, SAP has a reputation for complex implementations. Recognizing this, CEO Bill McDermott highlighted their new tagline “Run Simple” in his keynote at SAP’s 2014 conference. While it is easy to create a tagline, there are signs that SAP is serious about investing, trying to make its software easier to implement and use, such as their formation of a new SMB business unit tasked with completely revamping their platform and go-to-market strategy for that sector, with the express goal of making it simpler to consume. — Return to article text above
13 ECO = Engineering Change Order — Return to article text above
14 One of TAKE’s customers, a F500 oilfield services company, previously had first pass yields ranging from about 30%-70%, often below 50%. By using TAKE’s platform, they now are virtually always above 99% and many months achieve 100% first pass yields. — Return to article text above
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