Having to process hundreds of orders for construction goods and services each month is really piling on the pressure for teams, leaving them precious little time for business improvement. RedSky Senior Consultant Ishbel Wise explains why it makes sense to let an integrated enterprise resource planning (ERP) system take the strain…
I’ve been working with construction companies for many years. Increasingly, I’m meeting teams who are struggling to process high volumes of procure-to-pay (P2P) documentation.
It’s clear that inefficiencies are creeping in, including higher administrative overheads, increased transactional costs, cashflow issues, double payments and non-compliance with contractual agreements.
I’ve seen many manual processes, with some customers typing purchase orders in Word, converting them to PDFs, then manually emailing (or printing and posting) them and manually filing the paper copies for future reference. Some enter the purchase order details in a spreadsheet and some even use carbon copy books to hand-write the orders.
Without clear visibility of the data, many customers simply can’t see the wood for the trees. But there is a solution available.
Using an industry standard integrated ERP system enables teams to regain control of P2P tasks and introduces wide-ranging business efficiencies. Here are some of the many benefits.
REDUCE TIME AND MONEY SPENT ON PROCUREMENT PROCESSES
By digitising your P2P processes within an integrated system, you’ll remove or reduce the internal overheads associated with raising, issuing and authorising orders manually. You’ll also spend far less time searching for information about orders, invoices and payments because it’s all stored securely in a single location, interlinked within the system and ready to access at the touch of a button.
IMPROVE THE QUALITY AND VISIBILITY OF YOUR DATA
Using an integrated ERP system will help boost the quality of your data. You’ll be extracting information that’s already in the system, rather than manually rekeying it many times during the P2P process. That will also reduce the risk of errors creeping in.
The great thing about an integrated system is that it’s available for teams across your company to access and interrogate, provided that they have the correct level of authorisation. All P2P data is stored securely on the system, giving you accurate and early visibility of project costs and other essential Key Performance Indicators (KPI).
Choose a system that flags up or sends automatic notifications of unexpected expenses, or deliveries that don’t match up with their purchase order. And make sure it enables you to run reports or dashboards allowing actual and committed costs to be totalled and compared to budget, with automated updates on receipt of goods and invoices. It’s the only sure-fire way to control and track spending in real time.
Accessing historic data is far easier with an integrated system. All electronic documents are kept in a single location, tagged by project number, supplier and products, so information can be tracked down with a few clicks of a mouse. That’s infinitely preferable to sifting through storage boxes in your archive store.
MANAGE PLANT HIRE EFFICIENTLY
If you’re a construction company with multiple sites running at any given time, keeping track of hired plant can be the stuff of nightmares. That’s particularly the case if you own some items of plant, hire some in and rely on contractors for certain plant items. Managing plant is a complex undertaking: sending a weekly plant list to your sites for checking may not cut the mustard in these modern times.
Be warned: if you take your eye off the ball, your plant hire arrangements can eat into your profits. Those items of hired plant that have been parked up, unused, on a corner of a site for weeks are silently racking up weekly charges. In a matter of months, these can mount up to a shocking total figure.
Ideally, look for a system that provides real-time information highlighting the number of plant items currently on hire and their total weekly hire charge… seeing that figure on screen (and perhaps sending a weekly email report to project managers) will certainly provide an incentive to off-hire non-used items!
If you’re investigating integrated P2P systems and your business hires plant, make sure your chosen system incorporates a specific plant management solution. You need a permanent record of your own plant as well as hired plant across your business, and all its movements. And you need to be able to use the system to match invoices to orders, so that nothing is missed.
Also make sure that the system provides accurate cost commitments as well as cost to contracts from the time of order. Because without an effective order processing system in place, an order placed at the end of the month might not come to light for six weeks!
SEGREGATE DUTIES FOR GOOD GOVERNANCE
Governance best-practice principles require three key company roles to be kept separate: Budget Holder, Purchaser and Finance team. If the waters between these three roles become muddied, things can start to unravel and role responsibilities may become blurred. A good ERP system will segregate these duties yet keep them visible, to drive good governance.
Transparency lies at the heart of good governance. A robust integrated ERP system can assist your business with developing procedures or systems that help set policy. For example, you can use our standard apps to set internal rules that help you meet the requirements of the Prompt Payment Code.
IMPLEMENT DELEGATED LEVELS OF AUTHORITY AND WORKFLOW APPROVALS
Choose a system that will also allow you to set up delegated levels of authority as part of a workflow.
For example, you could set order value limits: £1,000 for any authorised staff member; up to £5,000 for a buyer; and £5,000+ for a senior buyer, project manager or director. The system will automatically queue any orders that need to be actioned – if the person who usually authorises the payment is not in the office, the system will alert a nominated approver.
Invoice approvals can also be simplified using workflows, because the person authorising the payment has all the relevant purchasing records at their fingertips. For example, if invoices match approved orders, let them ‘self-approve’ and go on the next payment run, in line with the agreed terms and conditions.
An integrated system provides a simple yet highly effective way for you to exert control over the P2P process. And you won’t waste your valuable time authorising the purchase of a box of paper clips…
FOCUS ON YOUR STAR PERFORMERS BY APPLYING SUPPLY CHAIN AND MDM PRINCIPLES
Do you know who your best and worst supply chain partners are? If you’re knee-deep in purchase orders and invoices, you may not have time to recognise that certain organisations are not complying with agreements. The signs may be there already, such as late deliveries, poor-quality goods or damaged items, but they may have passed by unnoticed.
But this is not just about weeding out poor performers. It’s also important to focus on great partners – the ones who always deliver for you. Make them the go-to organisations across your business by building procurement master data management (MDM) principles into the system.
Those MDM-driven decisions could result in big financial savings. For example, let’s say you have multiple companies in your business and each of them buys bricks from a different supplier. Some suppliers may actually be delivering to several of your companies and using a different account code for each one. This practice will make it extremely difficult to break down your annual spend on bricks – across the business overall, in each of your companies and with each supplier.
However, if you’ve built procurement MDM principles into the system, things will get a whole lot easier. Effectively, you’ll set up one ‘master company’ that includes ‘master data’ about each of your suppliers. Each supplier will be allocated a single account code, for use when working with any of your companies. Your master data should be accurate and easy to manage, access and maintain. Reporting will become far more straightforward and will give you the clarity you need for informed conversations with your suppliers about yearly rebates for example
The answer lies in setting up and maintaining up-to-date, accurate master data about each supplier. The master data should be easily managed and accessed.
RUN REPORTS TO GAIN INVALUABLE BUSINESS INSIGHTS
A major advantage of an integrated P2P system is the ability to access real-time data that’s already on the system. Make sure you choose a system that allows you to set up those key reports or LIVE dashboards easily providing your business managers and leaders with key metrics to gain invaluable, real-time insights that will guide your strategic planning activities in the short, medium and long term.
About the author:
Senior Consultant Ishbel Wise is one of RedSky’s most experienced consultants. She has a strong understanding of the challenges faced by the UK construction industry, having spent 18 years working for Associated Asphalt, including in Finance.
As Asphalt’s Group IT Manager Ishbel was responsible for managing servers on different software platforms across 13 offices and for sourcing and maintaining a range of business systems, including RedSky’s Estimating, Costing, Core Accounts and Procurement modules. She also managed the transition from the company’s disparate financial systems to RedSky’s MENTOR Enterprise ERP application.
Since joining our consultancy team in 2002, Ishbel has been using her extensive experience of construction business processes and IT systems to advise new and existing customers about how best to implement and get the most out of their RedSky system.