Dynamics 365 Supply Chain Management: Procure to Pay Overview6 min read

In this article, we want to delve into an overview of the Procure to Pay business process, highlighting some of the standout capabilities embedded within Dynamics 365 Supply Chain Management. We will cover what procurement entails, dive into its various types, and unpack its intricate business processes.

Procure to Pay Intro

Procurement is a cornerstone in the business architecture, instrumental in the orchestration of material and service acquisitions, insightful forecasting, and strategic negotiation. Such negotiations reverberate across the breadth of a company, influencing areas from manufacturing to customer engagement.

The Procure to Pay (P2P) process has been designed to bring fluency to this intricate choreography. It meticulously captures every phase, from the spark of recognizing a need to the culmination in the final payment. Far from being a linear trajectory, this comprehensive process requires synchrony amongst myriad personnel within an organization. The goal is singular: to ensure every purchase is not only properly sourced but also receives the green light of approval before payment is executed.

Integral to the realization of this process are several teams: procurement, purchasing accounts, and payable operations, to name a few. And of course, let’s not forget the myriad other teams whose operations hinge on the successful procurement of necessary resources.

Procurement Types

In the realm of procurement, distinctions are made between the nature and purpose of acquisitions. Broadly speaking, we can categorize these into two primary types: Direct and Indirect Procurement.

Direct Procurement

Often termed as goods or production procurement, this refers to the acquisition of materials, components, or goods that find their way directly into the production process or are sold to the end customer.

Key Features of Direct Procurement:

  • Examples: Direct procurement items range from raw materials to machinery, specialized equipment, and even specific tools.
  • Industry Application: Taking the automotive industry as a case in point, direct procurement translates to sourcing essentials like engines, tires, steel, and other pivotal components pivotal for vehicle manufacturing.
  • Noteworthy Mention: At times, direct procurement also encompasses the end product itself. A retailer procuring vehicles to subsequently sell to the consumer exemplifies this scenario.

Indirect Procurement

This can be thought of as non-production procurement. As the name suggests, these acquisitions do not become part of the final product. However, they play a vital role in buttressing the organization’s operations.

Key Features of Indirect Procurement:

  • Distinctiveness: Indirect procurement items are generally not tailored to a specific industry or product.
  • Examples: Common items under this umbrella include office essentials like stationery, IT infrastructure, services like maintenance and repair, marketing, professional consultations, utilities, and even facility management.

Procure to Pay

The Procure to Pay (P2P) process forms the backbone of external sourcing—capturing everything from identifying needs to settling payments. With the goal of enhancing procurement efficiency, transparency, and forging robust vendor relationships, this process integrates numerous steps:

1. Manage Vendor Relationships:

  • This involves discerning and collaborating with qualified vendors, and contract negotiations.
  • Vendor performance monitoring and fostering healthy rapport are crucial.
  • Dynamics 365 facilitates creating vendor records manually or via an external vendor collaboration portal.

2. Develop a Sourcing Strategy:

  • Focuses on expenditure data scrutiny, identifying savings, choosing sourcing methods, and vendor negotiations.
  • With Dynamics 365, determine sourcing for supply forecasts and master planning. Plus, harness the power of trade and purchase agreements for pricing.

3. Define Procurement Catalog:

  • Create a uniform list of purchasable goods/services, ensuring accurate pricing and availability.
  • Dynamics 365 offers both internal cataloging and external catalogs, optimizing the procurement journey.

4. Define Policies & Procedure for Procurement:

  • Establish purchasing guidelines, delineate staff roles, and ensure regulatory and policy adherence.
  • Dynamics 365 empowers with signing limits, workflow configurations, approval processes, and procurement rule policies.

5. Procure Materials and Services:

  • Encompasses purchase requisitions, requests for quotations, purchase orders, and agreements.
  • Dynamics 365 facilitates seamless vendor communication, be it manual, electronic (e.g., EDI), or through dedicated portals.

6. Receive Material & Services:

  • Register and receive the procured items or services. Using shared product information for pre-registration is an advantage.
  • Dynamics 365 updates stock post-item registration at the inbound warehouse dock.

7. Process Vendor Invoice:

  • Validate invoice correctness, match with purchase orders, and execute two or three-way matches.
  • Dynamics 365 allows both manual and automated (e.g., EDI) invoice processing.

8. Manage Vendor Debits and Chargebacks:

  • Reconcile invoice discrepancies, issue debit notes, and oversee chargebacks per agreements.
  • Dynamics 365 streamlines product returns to vendors and charge disputes.

9. Create and Process Promissory Notes:

  • Construct and manage payment plans for credit purchases.

10. Process Vendor Rebates and Incentives:

  • Track vendor-provided rebates and incentives, manage royalty and broker contracts.
  • Dynamics 365 ensures maximal benefit realization.

11. Analyze Vendor Performance:

  • Evaluate vendor KPIs, pinpoint improvement areas, and liaise with vendors for consistent enhancement.

Connection to Other Processes

The Procure to Pay (P2P) process, while central to the procurement landscape, is inherently interconnected with a multitude of other standard business operations. As we delve into business solutions for procurement, it’s essential to adopt a holistic perspective, considering not only the standalone elements of P2P but also how it intersects and synergizes with other processes.

To put it succinctly, the P2P process is not an isolated mechanism; it is an integral cog in the expansive machinery of business operations.

Purchase Requisition

A Purchase Requisition is an internal document that serves as a formal request, signaling the purchasing department’s need to acquire specific items or services. Its creation and approval are shaped by the organizational structure, enabling entities to craft purchase requisitions for commodities essential to their operations.

The progression of a purchase requisition is often dictated by a predefined workflow. This workflow can either treat the entire requisition as a unified document ripe for review or dissect it, examining each line item individually. Upon approval of this requisition, it metamorphoses into a purchase order – an external commitment that the purchasing department presents to vendors.

Within the Dynamics 365 environment, the creation of a “purchase requisition” (occasionally referred to as a purchase acquisition) necessitates a clear listing of desired items or categories. Additionally, this requisition would detail specifications like quantities, desired delivery dates, and more. Following its creation, the requisition then awaits submission.

Subsequent to its submission, the onus shifts to the purchasing agent. Their task? Scrutinize the requisition for accuracy and, if needed, augment it with pertinent details – perhaps a more favorable price or updated vendor information.

This vetted requisition isn’t the end of the journey, though. It dives into a workflow where, depending on certain thresholds (like a total amount surpassing $1000), it might necessitate managerial oversight and approval.

To tether all these moving parts, organizations lean on a “purchasing policy.” Think of it as the rulebook, outlining the dos and don’ts of the requisition process. Crafted meticulously, this policy not only aligns with the organization’s strategic purchasing objectives but also empowers procurement administrators to realize their procurement vision and strategy.