Posts Tagged ‘procurement’

Continuous Controls Monitoring, Three Key Considerations

March 10, 2014

Increasing complexity and challenging new business risks pervade today’s global environments. To address these risks and meet regulatory requirements, organizations must establish effective internal controls, along with processes to make sure these controls remain repeatable, sustainable, and cost-effective. Therefore, as part of their overall governance, risk, and compliance (GRC) strategies, organizations are building continuous controls monitoring (CCM) programmes to improve efficiencies, avoid controls deficiencies and focus resources on managing critical risks. With an effective and sustainable CCM programme that’s designed, managed, and optimized to account for changes such as regulatory shifts, mergers and acquisitions, and system upgrades an organization can meet its compliance objectives, reduce risk exposures, and meet the expectations of key stakeholders. Over time, as their CCM processes mature, companies can transition from manual risk detection efforts to automated prevention measures. Organizations considering CCM must first focus on their control objectives and establish sound processes.

1. Create a Foundation for Your CCM Programme.

A CCM programme should include risk detection, prevention, remediation, and compliance components, all focusing on people, processes, and technology. Using CCM to evaluate and monitor key business processes against predetermined business rules enables an  organization to identify patterns and anomalies to help minimize potential risk exposures.

When a company embarks upon a CCM initiative, the automation or technical aspects often become their primary focus. Although automating the controls can be very beneficial to the organization, it is recommended that companies focus initially on the following control objectives:

1).Application access controls and segregation of duties (SoD) can reduce opportunities for fraud or for material errors by ensuring that financial and operational transactions are properly authorized and approved. A CCM strategy should drive the development and enforcement of effective user and role governance processes, practical SoD rules, and sustainable access controls.

 2).Business process controls help users evaluate system configuration settings to identify events that occur outside of set control limits.

 3).Master and transactional data controls are used to analyse sensitive fields and transactional data against predefined control criteria. The analysis of this data supports the detection of potential controls violations, such as changes to vendor addresses or terms, duplicate payments, timing issues, and other anomalies. Additionally, the transactional data analysis can facilitate business efficiency improvements.

2. Manage the CCM Life Cycle

To create and sustain an effective CCM programme, an organization must understand and manage the entire CCM life cycle, which includes:

Process design. This begins with a clear vision based on operational objectives (i.e., achieve compliance, reduce risk). It is impractical to monitor all of a companies controls, and therefore it’s essential to first identify the controls most in need of monitoring, based on business objectives. It is also recommended to establish a CCM governance body to lead the process design effort and to help ensure that business objectives are met.

Business rule development. A CCM programme is only as effective as the business rules used to evaluate the control data. Business rules for SoD, master and transactional data, and automated application controls are used as filters and applied against data sources to identify potential control anomalies.

Controls optimization. Once significant risks have been identified within business process areas, appropriate controls must be established to mitigate them. A vital step in achieving control optimization is establishing controls that cover multiple risk areas and eliminate redundant or ineffective controls.

Exception validation and rationalization. Organizations often become overwhelmed by the volume of control exceptions. Since some exceptions are legitimate, organizations can manage risks and reduce the number of reported exceptions and therefore the cost of compliance by filtering out legitimate business exceptions.

Resolution reporting. To successfully manage and mitigate business risk, and to ensure timely resolution of compliance violations, it is important to set up a process that allows the company to diligently review and resolve reported violations.

Process optimization. The processes that make up the CCM programme should be flexible and allow the company to dynamically react to change. They also should be continually adjusted to meet business needs and sustain the CCM investment.

 3. Automate CCM with SAP Functionality

Companies running SAP have a significant advantage when enabling and automating CCM because integrated business disciplines such as financial accounting and asset management can be built into a centralized CCM programme. A CCM programme that encompasses well designed controls, appropriate business rules, and the diligent management of the CCM life cycle, allows organizations to focus on their enhancement and automation efforts, reducing time and resources that would otherwise be spent manually monitoring controls.

As companies move toward automation, they should make managing configurable controls through benchmarking a part of their testing strategy, since it is a mechanism that ensures configurable controls remain unchanged. SAP provides this capability through table logging, which can help reduce year-to-year control testing.

SAP also provides a number of tools embedded in its GRC solution suite, which can be used to automate the CCM process. These tools include SAP GRC Access Control, SAP GRC Process Control, and SAP GRC Global Trade Services. An organization can leverage these tools, combined with the functionality already embedded within SAP systems, to gain a clear advantage in creating an effective end-to-end solution for managing risk and compliance.

Make CCM a Priority

Having a GRC strategy and making an effective CCM programme a priority can help Companies drive their compliance efforts, identify potential processing errors, and proactively detect fraud. It also is critical to design practical processes as you develop your GRC strategy and CCM programme. Many companies hold the misconception that an automated controls solution will solve all compliance needs. However, an automated solution is only effective after a successful CCM programme has been established based on well designed controls, appropriate business rules, and ongoing management of the CCM programme.


APA (Accounts Payable Automation)

November 27, 2013

In the current AP world there are four elements necessary for AP success: Automation, Collaboration, Visibility and Control.


Automation is a critical foundation to lowering costs and streamlining each of the four AP sub-processes: invoice receipt, approval and inquiry, validation and reconciliation, and settlements. Technology solutions to manage invoices and workflow, and electronic payment methods reduce the inefficiency of manual and paper-based processes.


Cross-functional coordination among key stakeholders such as accounts payable, procurement, finance, treasury and suppliers creates an environment where key information flows easily between these stakeholders. Without this, treasury can’t make optimal capital decisions; procurement can’t identify negotiation opportunities with key suppliers, and suppliers and internal stakeholders can’t track invoice processing status. It will also be difficult to set up different approval and routing rules based on different types of invoices or supplier arrangements, such as PO-based, non-PO-based, preapproved and supplier maintenance.


Visibility into liabilities and operating expenses is the basic requirement for most major functions within an enterprise. It is used to give an overall view of operations and establish standards on which to base strategies for performance improvement.


Research has shown that best-in-class organizations are 43% more likely to have enterprise-level visibility for AP transactions. The rest suffer from higher transaction costs and longer cycle times. Not seeing material liabilities that are not yet entered impact the timing and accuracy when closing accounting periods.


For a typical AP department, enterprise visibility remains out of reach. A high degree of visibility brings substantial advantages, including:


Low transaction costs;

Shorter processing cycle times;

 Decreased financial risk;

Shorter response times – improved productivity by reducing time wasted in low-value activities;

Improved forecasting and management of near-term cash management requirements;

Greater ability to monitor billing discrepancies and overpayments, recognize unclaimed negotiated discounts, contracted payment terms, early payment discounts, and late penalty fees.




Good audit controls help organizations enforce corporate policies and achieve contract compliance. Audit controls ensure that AP transactions are processed in a way that complies with policies, procedures and regulations. They help reduce late payment fees, capture negotiated discounts and early payment discounts, eliminate duplicate invoice payments, and prevent fraudulent payments. Research2 has found the exception rates in top performing firms are 85% lower than other enterprises.




An automated AP solution streamlines and drastically improves performance by utilizing e-invoicing, scanning and workflow, online tracking and reporting capabilities, electronic invoice dashboards and supplier portals, supplier networks, payment services and spend analytics for all invoices.


Using an automated AP solution, organizations will successfully drive transformation of their accounts payable departments to overcome the challenges of manual and paper-based processes.


What are the “Must Haves”?

Key areas required by organizations to ensure that a solution covers current and future needs as the process matures, include:


Automate your process: From arrival to post and archive, with efficient workflow to streamline verification and exception handling;

Any format, any source: Physical documents, electronic documents, and document images, via mailbox, email, fax and file transfer;

Improve what you have: Integrate with the major ERP/financial system of your choice;

Increase visibility: Improve your cash flow and invoice management;

Better control of received and invoiced goods, automatic purchase order matching, optional automatic posting of invoices, enhanced security, less manual work, shorter total processing time, decreased total cost for supplier handling and early notification of errors;

Improved day-to-day information on financial status (regarding current projects, for example) and basis for business decisions. This saves a substantial amount of valuable time at the end of every month, quarter and year.

Shared service centers: A centralized or shared services approach will help ensure that AP tasks are streamlined and standardized; best practices are documented and shared, and AP technology budgets are consolidated.


And not just for Large Organisations.

AP automation technologies have been limited to larger companies until recently. Now there is evidence that small and medium sized businesses are adopting the technologies for the following reasons:


A competitive business environment means even small and medium-sized businesses need to focus on reducing processing costs and increasing efficiencies for invoices and employee expenses.

Streamlining the AP process has become extremely important in a tough economy where cash flow and greater control over payables is critical.

An increased interest in early payment discounts is driving smaller organizations to investigate tools and technologies that enable them to shorten their invoice receipt-to-approval cycles.

On-demand and Software-as-a-Service (SaaS) delivery models have lowered the initial cost of implementing AP solutions and make them easier to maintain.

The convergence of electronic invoicing and front-end invoice imaging gives organizations a single, comprehensive solution that can manage both paper and electronic invoices through a common process.

Value added-services delivered by solution providers for supplier recruitment tasks mean that buyer organizations can engage suppliers more quickly.


So which Type of Solutions make the most sense?


Electronic invoicing solutions automate the invoice reconciliation and payment process and address most invoice types.


Workflow and imaging solutions manage all aspects of in-house invoice scanning and documentation and provide an effective electronic archival system. They are often part of a cross-functional enterprise solution.


Payment automation platforms specialize in accounts payable and accounts receivable processing. They offer relief in disbursements for payroll, benefits, regulatory and tax issues, as well as intra-company transfers. These solutions range from automated clearing house (ACH) and general payment processing to company-wide AP solutions.


Enterprise financial solutions, which manage the budget and general ledger of an enterprise, consist mainly of Enterprise Resource Planning (ERP) providers. They typically offer functions such as a general ledger, and sometimes more advanced capabilities like supply chain auto-reconciliation and AP workflow.


Purchasing cards (p-cards) are designed to streamline the front (purchasing) and back (payment and reconciliation) ends of the procure-to-pay process. They introduce greater levels of control and visibility for management of low-cost, high-volume categories.


Supply chain finance solutions provide full AP invoice dashboards, so enterprises can manage payables more easily. With ERP integration and supplier portal capabilities, these solutions can help move to an automated AP platform.


Treasury management services offer advanced financial administration by consolidating cash forecasting and handling foreign exchange affairs. These services provide management for deals and trades, and they also provide analytics and risk management.


Managing contracts and service performance

October 25, 2012

Little or nothing is spoken of Contracts management within the Supply chain management process, but it is an integral part of the SCM process and is a result of strategic sourcing or tendering processes. However, do we understand what’s involved?

What is contract management?

Contract management is the process which ensures that both parties to a contract fully meet their respective obligations as efficiently and effectively as possible, in order to deliver the business and operational objectives required from the contract and in particular to provide value for money. Typically, you will require resources for contract management that are equivalent to 2% of the contract value. It is an integral part of the ‘informed customer’ capability.

Who is involved?

Contract managers (Category Managers) representing both the customer and provider have a key role; there will also be input from the ‘informed customer’, providing the interface between customers and providers. Ideally, the people involved in contract negotiation during the procurement process will take on a contract management role.

Critical success factors

A contract is being managed successfully if the following conditions are met:

  • the arrangements for service delivery continue to be satisfactory to both customer and provider
  • expected business benefits and value for money are being realised
  • the provider is co-operative and responsive
  • the customer knows its obligations under the contract
  • absence of dispute
  • no surprises

Foundations for contract management

During the procurement process, the emphasis is likely to be on why the contract is being established and on whether the provider will be able to deliver in service and technical terms. However, you must think very carefully about how the contract will work once it has been awarded.

Management of contracts, especially where there is a partnership, usually requires some flexibility on both sides and a willingness to adapt the terms of the contract to reflect a rapidly changing world. Problems are bound to arise which could not be foreseen when the contract was awarded.

As the customer, you must have clear business objectives, coupled with a clear understanding of why the contract will contribute to them. There must also be a clear understanding of the provider’s objectives. You must be able to recognise and get agreed at senior management level the need for the service provider to achieve their objectives, including making a reasonable margin, perhaps as part of a risk/reward arrangement.

There must be people with the right interpersonal and management skills to manage these relationships on a peer-to-peer basis and at multiple levels in the organisation. Both sides need managers who can manage upwards in their organisation and persuade their boards to make decisions for the benefit of the joint relationship (even though individual decisions may not look attractive in isolation).

Other issues to consider before contract award
Other areas that need to be thought through before the contract is signed include:

  • what are the processes for managing the contract which will give you the level of control you need?
  • how will you retain sufficient expertise to understand the technical direction in which the provider is taking your organisation? You must be able to understand the answers and enter into dialogue with the provider
  • how would the provider ensure that they could always provide you with sufficient skilled resources, given the problems of national skills shortages and the risk that another customer’s account might take priority?
  • what is the real quality of the provider team? Do they have sufficient standing within their organisation to ensure that they will be able to get the resources you require? Can they influence their own board?
  • is there a likelihood of the provider team changing after award of contract, leading to a lack of continuity?
  • if the provider is a consortium, how will the members handle things and ensure that problems are resolved quickly and constructively? For example, do all members of the consortium share the same quality management system and/or escalation procedures?
  • what does the provider know about your business and how will they get up to speed? Can you ensure that enough time is allowed for the provider’s learning curve in understanding the complexity of your business?

Principles of good communication & Collaboration
You have to be aware of new demands when working together – who takes the lead; who is responsible for what; and who pays for what. Will existing management structures help cooperative working? Depending on your organisational structure (for example, centralised or federal units) you will require different reporting arrangements, but the underlying principles of good communication and mutual understanding of responsibilities remain the same.

There must be a clear understanding of what is expected and effective ways of reporting progress. You must have a formal framework defining responsibilities, reporting arrangements and policies. Without this framework there is a risk that you will lose control; your auditors will also need to be assured that formal arrangements are in place, regardless of whether you operate a ‘hands-on’ or ‘hands-off’ management style.


You will usually need performance measures to cover all aspects of a service arrangement:

  • cost and value obtained
  • performance and customer satisfaction
  • delivery improvement and added value
  • delivery capability
  • benefits realised
  • relationship strength and responsiveness.

It is important that the performance measures selected (and ideally specified in the contract) offer clear and demonstrable evidence of the success (or otherwise) of the relationship.

Once chosen, the requirements underpinning the performance measures should be the primary focus for contract management. They should provide the framework around which provider information requirements and flows, contract management teams, skills, processes and activities are developed.

You should have an existing baseline against which to track any performance measures which are related to delivery or capability improvement. Much of this baseline will typically be established in the business case for the deal.

Three likely levels of performance assessment are:

  • the bottom level is concerned with ongoing service delivery using conventional Service Level Agreement (SLA) approaches and related measures
  • the middle level comprises the desired results of individual programmes of change or improvement, implementation of projects or developments and infrastructure roll outs carried out during the period of the deal. Measures at this level are likely to be derived from investment appraisal and benefits management techniques and constructed on a case by case basis
  • at the highest level an organisation is concerned with the overall outcome or impact of the deal what do we want to have achieved by the end of the contract period? These measures will be derived from the objectives identified during project scoping and in the preliminary business analysis activity. They will be rooted in your organisation’s long term business strategy.

Where to Start with Procurement Benchmarking?

October 23, 2012

Whilst researching for a project earlier in 2011/12, I was amazed to discover some 3 million sites referencing procurement Benchmarking  Undertaking even a cursory examination of the content of some of the more prominent sites and you conclude that the procurement function has got plenty to chose from, some of the approaches having more merit than others.
The original term ‘benchmark’ is derived from the chiseled horizontal marks that surveyors used for holding a piece of angle-iron which acted as a bracket, referred as ‘the bench’, for a leveling rod. This ensured that the leveling rod could be re-positioned in exactly the same place in the future. Only one benchmark was typically required as a reference point. Unlike surveying, the application of Benchmarking to commercial activities usually requires multiple reference points, which then need to be compared to a defined group of indicators. The danger with Benchmarking in the commercial domain is to focus on too narrow a group of reference points. This can and does inevitably lead to a misleading view of the world around you.
With so much to chose from, and a striking lack of consistency across the numerous approaches that are on offer, it is probably worthwhile presenting some points to bear in mind when you are considering Benchmarking your procurement function.
Firstly, when selecting your Benchmarking protocol, it is important to choose an approach that covers a broad range of different indicators to include at a bare minimum metrics from the three following groups:
1. Organizational Metrics
Organizational metrics are the data that describe how the procurement activities within the organization are performed e.g.
 The number of full time employees per 1bn spend (whatever currency you work in)
 The purchased spend as a percentage of operating costs
 The fully loaded cost per procurement employee
 The purchased spend per purchasing employee
 The total number of suppliers, by category and legal entity
 The number of suppliers per MR1bn spend
 The number of training hours per FTE, by discipline and level
 The headcount supporting Sourcing and Order Processing
 The number of non-procurement staff involved in Procurement
 The ratio of managers to staff
2. Purchasing Process Metrics
Process metrics are the data that relate to the process of purchase order capture through to payment e.g.
 Average cost to process purchase order through to delivery and payment
 3rd party spend per order
 Average cost to process invoices
 Volume of ‘straight through orders’ (i.e. no human intervention required)
 Level of compliant spend by Category, Supplier and Order Channel
 Average time to process an order
 Average time to pay a supplier
On this, there are only a few examples of surveys that provide any kind of serious insight around the processing of purchase orders. Purchase order processing and trade settlement in securities processing involve exactly the same activities; investment banks drove out significant levels of efficiency and improved levels of control by developing a set of simple and well understood metrics that helped them manage the process. There is no reason why the purchasing function cannot do the same.
3. Category Specific Metrics
Category specific metrics are the data that relate to the specifics of the contracts that have been established with suppliers e.g.
 Price per hour/unit/licence etc. for goods or services delivered by the supplier as compared to sector average, competitor price point etc.
 Payment terms
 Order query response times
 Service levels
 Penalty charges for late delivery
 Guarantee periods
 Late payment charges
It is important that the three areas outlined above are covered in depth because when combined they will give you the most balanced view of overall procurement effectiveness. Knowing that your procurement function is world class in terms of functional capability is of little value unless you know that the contracts that you have in place with your suppliers are actually saving your organization money. Knowing that you have superior price points within your contracts is valueless, unless you know that people are using them. Effective benchmarking is about bringing together multiple sets of data, taken over different points in time, using different methodologies from a mixture of providers and interpreting this data in a balanced way and presenting a clear set of next steps. There is no ‘silver-bullet’ solution and it is the ‘next steps’ that are important.
All of the three areas outlined above can be rolled up into a ‘practices’ benchmarking study which looks at the way the various activities within the procurement function operate, such as Strategic Sourcing or Procurement. These studies capture selected metrics from the different areas and reference them back to world class standards. They also assess subjectively via interviews the activities within the procurement function to validate findings, and develop next steps. These studies are an excellent way to understand ‘what should be done’ as opposed to ‘what we are currently doing’.
Other valuable guidelines to bear in mind when considering benchmarking also include:
 understanding the definitions and constraints used for the applicable benchmarks

  • ensuring that the population of reference data is relevant to your sector, large enough to be of value and covers a time period that is germane to the operational period in question
  • deploying a study protocol that combines both objective and subjective data, ideally in such a way that they reinforce each other
  • being clear about caveats that need to be attached to the metrics; price paid only tells one part of the story – is it the average price paid over time, or does it include the impact of supplier rebates?
  • the inclusion of a broad range of reference points – internal, competitor, non-competitor, regional, best in class and world class
  • make sure that you are comparing apples to apples – it is highly unlikely that your own data will match that of your study; understand the limitations, and the resulting implications.

Remember that Benchmarking is not an exact science; in capturing data, approximations need to be made which may not necessarily work for your organization. Engaging multiple providers and who employ different methodologies will allow a more balanced picture to emerge.

Enterprise Process Inteligence

October 20, 2012

Here we are in the 21st. Century when many things around us are process driven, but unfortunately there are many enterprises that still lack a process driven view of the business. You must have access to process information and make it comprehensible and applicable because the very essence of business performance is based on the effectiveness of business processes. Hundreds or even thousands of processes are active across your business enterprise; how well you understand and manage them defines your success.
To excel in this environment, you have to have more than just an education and some skills. Those are a good start, but you need to be process-smart and process-aware. Even process smarts aren’t quite enough, though! You have to be instantly up-to-the-minute knowledgeable. Even with all this, you’ve got to be able to apply this process savvy with insightful reasoning and goal-directed problem-solving ability.
Putting all this together means you need to have intelligence in a process-driven enterprise. In other words, you have to have Process Intelligence.

So what is Process Intelligence……it’s the ability to understand business processes and knowing how to use them effectively. Having Process Intelligence, will enable you to use your business processes to improve product and service quality, productivity, and profitability by making process information more accessible and comprehensible, and then directly applying it to your business activities. Process Intelligence is a cornerstone of Business Process Excellence (BPE), enabling you to better leverage your investments in management methods, information systems, and technology infrastructure to improve operational performance at every level and more precisely execute on your strategic intent. In short, Process Intelligence helps to adjust and apply your processes to compelling business advantage.

Process Intelligence assists everyone involved in a process to make better decisions every day including process engineers, managers, operations personnel and technical staff. Process intelligence includes technologies that use intelligent software to enable better and faster reasoning about process data. Process intelligence software applies sophisticated tools to tasks such as knowledge acquisition, data analysis, system control, and process optimisation. Process intelligence tools gather process data, provide interpretations, and make both historic and real-time results available across your enterprise and even to your suppliers and customers.

The adoption of Process intelligence across the Enterprise you will be able to…..

Discover opportunities for savings by seeing precisely where waste and loss is occurring in your business.
Know immediately when a business process, activity, or transaction encounters a delay or commits an error.
Uncover weaknesses and areas of exposure in any part of a process or activity.
Understand the connections between high-level strategy and operational activities.
See the how value streams between you, your customers, and your suppliers are working.

Process Intelligence is extremely powerful, you can apply it to any business process or function. People use Process Intelligence for everything from order processing, service management, transaction banking, sales, insurance, health care, energy and utilities, logistics, and more. In a process world, everyone seeks Process Intelligence. Process Intelligence is sought by every corporate manager so they can effectively interpret operational Key Performance Indicators (KPIs) in the context of their real-world business processes. You want process efficiencies and operational performance to be transparent at all times. If your KPIs aren’t where you need them to be, you want to immediately identify and resolve the anomalies. People can’t wait until the end of the quarter, the end of the day, or sometimes even another ten minutes to know whether the factors influencing their targets are on track. With Process Intelligence, you can constantly check how all the pieces of your enterprise are performing. Replace crisis management with the intelligence to correct errors before problems become serious.

Master Data Management…..Fundementals

October 9, 2012

Data accuracy and quality can be a moving target and implementing fixes without understanding the underlying causes can be very time consuming and expensive in the long term. Data can be transient in nature,whereas other business focus areas such as processes, people,compliance and management performance indicators can change the accuracy and relevance of data. In order to get things straight Data Governance should be a priority in any organisation wish to implement any eProcurement based methodology. So what is data governance?

Data governance is a quality control discipline that covers the acquisition, management, storage and usage of information or data within a business, with the objective of maximizing the value of the organisation’s data assets. In layman’s terms, it is getting your
data and related processes in order, so that the business can derive value from it. A most recent example that I have personally come across is a company that allows anyone and all to enter descriptions into a catalogues to assist in the buying process. With no sort of Governance catalogues can very quickly deteriorate into chaos, thus leading to cost over runs and surpluses within the inventories.

The process of Data Governance can be time consuming, but the benefits to the business can be enormous. Without it businesses will continue to fight fire after fire and slowly but surely go under.