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Why manufacturers should make AP digitalization a top priority

May 18, 2020 Tom Davies

The digital transformation wave has been sweeping through the manufacturing industry for some time now. Smart manufacturing initiatives, robotic process automation, IoT, analytics, AI and machine learning have all seen substantial investment.

At the same time, digitalization of many back-office functions has so far been overlooked.

Accounts payable is one of these areas.

A recent survey by IDG Connect, “Make or break - the future and digital transformation in manufacturing”, took a close look at what 50 large and mid-size manufacturing companies across Europe are doing in the accounts payable area, and what their plans for the future are.

Going electronic doesn’t equate to digital transformation

The survey provides strong evidence that manufacturers have focused most of their AP automation efforts on making existing processes more efficient, rather than on transforming them. Almost half of the respondents listed ‘improving process efficiency’ as one of their top three digital transformation objectives, compared to just 26% in the other surveyed industries.

For example, a large number of accounts payable teams have worked to streamline their invoice recording process using tools like OCR and scanning. This, in theory at least, reduces some of the pain associated with receiving large volumes of paper invoices.

However, this brings us to a much bigger issue. According to the survey, there’s a perception that introducing tools such as OCR equates to digital transformation. A response from a French manufacturer illustrates this mindset, “Our department’s digital transformation plan is simple, we automate most of the processes so there is no need for repetitive tasks.”

While these technologies can help bridge the gap between paper and digital, they are unlikely to have a major impact when it comes to digitally empowering users and transforming the role of AP within the business.

Reinventing the role of accounts payable in manufacturing

A fully digitalised accounts payable function is the perfect springboard to reinvent the procure-to-pay (P2P) process and beyond. With the ability to collaborate and transact in real time across a network of suppliers, banks and other financing partners, companies can take maximum advantage of early payment opportunities and optimize their working capital.

These benefits also extend to sellers. This is important, often a lack of seller engagement limits the success of accounts payable transformation projects. But with faster invoice approvals and direct access to multiple financing possibilities, suppliers stand to gain just as much. All of this helps to build trust and strengthens the overall customer-supplier relationship, paving the way for better collaboration and more innovation.

Better decision making

Just imagine if all the data and information that passes through the accounts payable department could be harnessed and made available for analysis. Up-to-date information about every supplier, every contract, every invoice, discounts, legal terms and delivery performance—all in one place.

Now imagine the knowledge you could extract if you could effectively analyse this information. Not to mention the value these insights could bring if shared within the company. What if you could query every supplier in your network in real time, and find the best option for your specific need? What if you had a complete picture of your spending patterns? The potential is huge. However the survey showed that only a small minority of companies – 21% – considered access to data to support better business decision-making to be one of their main digital transformation objectives.

An interviewee representing a Swiss manufacturer summed it up well, “Making AP digital will transform the way different departments interact. There would be a seamless flow of information travelling from AP to manufacturing and to the strategic leadership team. Department heads along with senior management can take the right steps, eliminate risk earlier and make more informed decisions.”

So what’s holding accounts payable digitalization back?

The business benefits are clearly there, and not just from a cost-saving perspective, but also from a more strategic and growth point of view as well. The technology needed to make it happen is already here too, including all the services needed, such as supplier on-boarding.

So why is the digital transformation of accounts payable not progressing at a faster pace? Why are companies still focussing resources on isolated, department-specific projects, instead of on delivering an end-to-end supply chain payment solution?

According to the IDG Connect survey, the vast majority of executives agree that digital transformation will significantly change the role of AP in their company in the next five years. Add to this the unprecedented level of global uncertainty due to the COVID-19 crisis, and there’s now a clear need for this timeline to be accelerated.

However, it is equally clear that the urgent need to transform accounts payable is not yet backed up by investment in truly transformative initiatives. Until senior management is fully on board and understands the strategic value of an integrated AP function, this will remain the case.

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About the Author

Tom Davies

Tom Davies has an interesting background, a Mechanical Engineer with an MBA from Cranfield who has worked in Sales for the last 20 years, figure that out! He has a wealth of Supply Chain experience and is Tradeshift’s Enterprise Accounts Director focusing on Manufacturing for Northern Europe.

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