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- April 10, 2018
- Pam McClure
- Spend Management
Your internal purchase order process faces tough competition from the phone or internet and a credit card. When an employee needs to buy something to do their job, they usually need it fast, and they’d probably rather run afoul of the procurement or accounting process than their boss, or a customer.
Businesses must balance the need for speed with the desire for control—making sure items being requested are necessary; that employees are getting them for the best price and from an approved vendor, and that data about their purchases is getting to finance and to budget owners in a timely manner.
Therefore, the ability to quickly turn employee requisitions into purchase orders is mission critical for employee satisfaction, business agility, and financial control. That’s why “Requisition to Order Time” is one of the process efficiency metrics we track in the Coupa Benchmark. Our 2018 findings indicate that the top performing quartile of Coupa customers can convert employee requisitions to purchase orders in the system in 11.6 hours.
What does it take to turn around requisitions this quickly? One of the key strategies is to make your approval chains as short as possible. You can do this by leveraging technology and extending trust to your employees.
The illusion of control
This usually requires some change management. Long approval chains are usually the legacy of manual processes where people circulated paper requisitions for approval. The irony is that stringent approval chains were put in place to make sure people weren't spending money they shouldn't spend. But, considering the slow speed and lack of real-time process visibility, spending was often more a question of forgiveness rather than approval.
Technology changes that, but even the illusion of control can be difficult to give up. When all of a sudden people are requisitioning things and buying through electronic P.O.s, it can feel like a loss of authority and control and changing role-based “signature limits” can sometimes become quite political. So, even as they shift to electronic processes, many companies simply try to map the same approval chains and rules over to their new technology system.
Not only is that not leveraging the visibility, flexibility, and real-time capability that technology provides, it often doesn’t work, especially in organizations where electronic purchase orders weren’t used before. The processes simply don’t map over. So, though you have technology that gets rid of the need for “shoe leather” approval processes, you still have to get rid of shoe leather thinking.
Recognizing you’re in control
The first thing to emphasize as you make this change is that approvals cost money and time, probably more than you realize.
Even if people can now use technology to approve a requisition on a mobile app, instead of doing batch processing at their desk, it still takes someone’s time and attention to review things in a thoughtful manner.
Each approver in the chain lengthens the time before the PO is created and sent to the supplier by roughly a day; more if weekends, holidays or vacations are added to the mix. It also costs money for approval resource time, and typically not all approvers are adding value to the approval chain. Usually there are one or two people who are directly responsible for the spending, and the others are often rubber stamping.
Then you have situations where requisitions are sent back for more information, and the process has to start over again.
If delays cause people to go around the process and then expense things, they’re probably paying more because they didn’t buy from the contracted provider, and now they’ve added to the workload for processing expenses. Those are the obvious costs to long approval chains. It’s harder to quantify how much a particular delay costs your company; it depends on what it is that’s being requisitioned.
The second thing to emphasize as you make this shift is that since you actually have a great deal more visibility and control with an electronic system, you don’t need such long approval chains. Here’s how to leverage technology to shorten approval chains so you can speed up req-to-order time and still get the control you need:
- Add secondary and tertiary approvers such as finance and accounting as watchers, rather than approvers. That way they don’t have to hold up the process, and they can jump in if they see a problem.
- Create a custom approval chain for capital expenditures, rather than forcing operating expenses through the same extensive chain.
- Set up automatic routing to alternate approvers in the event an approver is out of the office or fails to respond within a specified time frame.
- Initiate contracts with suppliers for specific items, so they are "pre-approved." Load or approve catalogs and monitor items available through punchouts, instead of letting people create free form requests.
- Set budgets and make them visible so employees can see how the department is doing against budget. That helps them make good purchasing decisions and share the responsibility for the spend.
- Use your reporting capabilities to review spend over time, rather than reviewing every requisition.
- Create commodity-specific approvals for mission-critical items that are already on contract, expediting the approval process as much as possible.
- Default, default, default everything to the lowest possible approval level, including self-approvals, so people can stay focused on their real jobs.
Let’s talk about this last item for a minute, because this can sometimes be the hardest shift to make. The point of providing new, user friendly technology is to push responsibility for purchasing down to the people who actually need whatever it is.
You need to trust them and empower them by giving them a self-approval limit. It doesn’t have to be a lot. What does it cost for one of the more expensive items employees might commonly buy, such a keyboard and mouse? Somewhere between $250 and $1,000 is a good self-approval limit.
If you have managers who have certain budget responsibility, bring their approval limits in line with that. For example, if you trust someone is to manage a multimillion dollar budget, does it really make sense for them to have to get approval for every operating expense over $10,000?
If there is concern about users "gaming" the system, address the issues that could cause this. For example, if lengthy approvals for larger amounts making ordering take too long, users might break those into smaller reqs so they can get what they need faster. Recognize the good intention and consider whether changing the approval chain or spending limits might serve your interests better than using technology to “catch” people.
When you come right down to it, most of your employees are going to do the right thing. The long approval chains of the paper-based world were more a reaction to not having control than actually imparting control.
With Coupa, you’re making it fast and easy for people to make requisitions and ask permission before they spend money. You have the ability to see requisitions coming in in real time before it's too late. You have budget visibility. You have the ability to have watchers. You have real time reports. You can create custom approval chains (but don’t go overboard—someone has to manage these). You have all kinds of superpowers at your disposal to speed up the req-to-order process. Use them!
Pam McClure is a Senior Solutions Architect at Coupa. She has over six years of experience helping companies of all sizes implement Coupa. When she's not doing that, she loves to ride horses. To get all 12 benchmarks for excellence in business spend management, click here.