Why Procure-to-Pay Supply Chain Solutions Can Offer a Competitive Advantage for SME Product Companies Improving your supply chain can help you avoid overpaying and overpaying.
By Bill Hobbs
Opinions expressed by Entrepreneur contributors are their own.
Supply chain management can be a complex and grueling exercise for today's small and medium enterprises. End-to-end insight and actionability are often critically low, which naturally creates waste and inefficiency even among the most attuned executives. For those whose business models require the procurement of raw materials and individual components, or the assembly of those components into a shippable product, scalability and profitability can quickly become more illusion than reality.
Most SMEs today either use a hodge-podge of small-business tools to manage the flow of goods and materials from procurement to delivery and payment, or they outsource the management of their supply chains to third parties, which comes with its own set of limitations.
Many SMEs have the opportunity to take that process one step further by adopting a "procure-to-pay" approach to supply-chain management that integrates procurement with accounts payable. For product companies with an eye on achieving terminal velocity, procure-to-pay tools are often the launch pad.
There are wide-ranging benefits to adopting procure-to-pay solutions: visibility, business connectivity, enhanced demand planning and revenue forecasting. Each of those outcomes can ultimately be reduced to the most basic of supply chain functions: buying and paying for parts and materials.
Related: Why Digitizing the First Mile Is the Next Evolution for a Connected Supply Chain
Avoid overbuying
In a perfect supply chain, you only have to order the exact amount of parts or components you need. All of those parts arrive on time, in full, at the quality you need in the right geographical location.
That, of course, rarely happens. Purchase orders change constantly, components aren't delivered on time or have poor quality. This is a critical first-mile problem that directly affects your ability to meet customer commitments and demand. One component can mean the difference between shipping a customer's order on time or holding onto it for weeks on end, which is why many SMEs often fall into the trap of overbuying to compensate.
In a connected supply chain, buyers are integrated directly with suppliers, allowing both to adapt and collaborate in real time on order adjustments, delivery timelines and other changes. With more visibility for those changes, SMEs can make better procurement decisions that still give them the flexibility to adapt, but not at the expense of profitability.
Related: The Cost of Manual Supply Chains and the Migration to Automation
Avoid overpaying
Your procurement team's ability to adapt to changes — whether on your side or the supplier's — means nothing if your finance team doesn't have insight into those changes.
An integrated accounts payable function negates the risk of overpaying or underpaying your suppliers. Invoice matching, reconciliation, payments and communication between teams and between a business and its supplier network all become automated and consolidated into a single workflow. SMEs can close their months in hours rather than days or weeks, with greater insight into the health of their supply chains, supplier behavior and overall performance.
Great supply-chain performance is as important to scalability as customer acquisition and sales pipelines. When every segment of the supply chain is connected — at the front end with procurement and at the back end with finance — visibility, forecasting and insight aren't just achievable. They're the bare minimum, the ante that gets you into the actual game where victory means more cash on hand to invest back into growing your business.
