Building Vendor Relationship through Purchase to Payment Policy: A Case Study of FMCG Organization
India Unilever Limited, one of the leading Fast Moving Consumer Goods (FMCG) companies, outsourced most of its payment activities to MNCs like IBM. India Unilever Limited considers its supplier relationship as its most essential activity and focuses on achieving efficiency in its payment process to the suppliers. This led to good rapport with suppliers and helped the company retain its position as the market leader. The company was functioning smoothly and did not realize any problem in its payment activity until the new Account Head, Mr. ABC, joined the company in December 2013. He started using SAP software to keep a track of the payment process to the suppliers. Based on the data gathered from January to May 2014, he found that most of the time payments to the suppliers were delayed. Mr. ABC decided to recruit Miss XYZ as the Consultant to analyze the data and give a recommendation to improve the payment process. Miss. XYZ had to address how the delays were happening and identify the sources of those delays.................
India Unilever Limited: Background
India Unilever Limited is India’s largest FMCG Company with a heritage of over 80 years in India and touches the lives of two out of every three Indians. To achieve this position, maintenance of supplier relationship is very essential. India Unilever has factories all over India and it has set standards for all the factories in India for which each factory earns points based on their payment efficiency. This is carried out by India Unilever to ensure proper standard and to retain their market leader position. In the set standards by India Unilever, P-2-P1 holds important position because IUL considers it to be the base for proper and continued production..........
P-2-P
P-2-P is one the important indicator of operational efficiency of the company. It refers to purchase to payment which describes the process of payment to the suppliers after the invoice is raised by the suppliers. If proper payment is not ensured then the company may be pushed to the condition of losing their suppliers which will in turn affect their production. To ensure efficient production maintenance of suppliers is very essential. For maintenance of suppliers payments should be done promptly.............
Current Situation
On June 1st 2014, Miss XYZ has been provided with the data collected by ABC during January-May 2014.The data given by ABC was classified into various types of delays for the better understanding and have been shown in Exhibit II. The data had been classified into four categories namely late invoice receipt, Payment delay, Processing delay and Short term receipts on the basis of payment policy followed in India Unilever Ltd..........
Late invoice receipt
Late invoice receipt here means those delays which are due to receipt of invoice by the company after the due date is over. Sometimes suppliers generate the invoice as soon as the order is placed by the planning team of India Unilever limited rather than generating at the time of dispatch of goods. Due to this early preparation of invoice, due date gets over before goods get delivered to India Unilever. Calculation of due date follows the agreements made by India Unilever and the supplier based on the type of goods.............
Short term receipts
Short term receipts here mean those delays which are due to delay in the release of payment from within the factory. Few payment terms are generally within three days. For such payments the factory itself releases the payments rather than outsourcing the payment process as in previous case. It was observed that in each month there were many short term receipts but only one person was given the authority for releasing the payments and that person was given authority to release payment from only one bank.............
Payment delay
Payment delays are those delays where the Iron Mountain team does not release the payment on time to the suppliers. The details of some of payment delays are shown in Exhibit V which explains that GRR is run on time but the delay occurs due to late payment release by the Iron Mountain team functioning in Bangalore. It was also observed that payment delay occurs mainly.............
Processing delay
In the previous case the delay was due to late release of payment by Iron Mountain but no delay on the company side. But in this case the delay happens due to late scanning of bills by the P-2-P team of India Unilever............
Decision Points
Based on the data of the various delays and description of these delays, Miss XYZ had to do the analysis and come with the suggested decisions to be recommended to Mr. ABC for implementation to remove the existing delay issue................
Exhibits
Exhibit I: P-2-P at India Unilever Limited
Exhibit II: Summary of Various Types of Delays
Exhibit III: Late Invoice Receipts Details
Exhibit IV: Short Term Payments Details
Exhibit V: Payment Delays
Exhibit VI: Details of Processing Delays