Turn Your P2P Function Into A Strategic Weapon
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Procurement and AP operate in low power mode when paper PO’s and invoicing are the fuel that drives the engine. This session will examine the strategic components and key performance measures for moving beyond productivity to improved compliance, cost savings, and working capital optimization across the P2P function. Attend this session to learn breakthrough strategies to “turn on the power” across your P2P process.
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Turn Your P2P Function Into A Strategic Weapon
- 1. Turn Your P2P function into a Strategic Weapon Key Strategies and Metrics for Achieving World-Class Performance James Tucker, Sr. Director, Network Strategy & Marketing, Ariba © 2013 Ariba, an SAP Company All rights reserved.
- 2. There are people who see the world differently. They see things in new ways. They invent, create, imagine. We make tools for these kinds of people. Because while some might see them as the crazy ones, we see genius.
- 3. #AribaLIVE Think Different • How is Proc/AP/Shared Services perceived by your company today? • What would it take to become a “strategic weapon”? • How should you define and measure success? © 2013 Ariba, an SAP Company All rights reserved.3
- 4. © 2013 Ariba, an SAP Company All rights reserved.
- 5. #AribaLIVE Inquiries & Exceptions Discounts & Payments Matching & Approvals Common Challenges in Invoice-to-Pay © 2013 Ariba, an SAP Company All rights reserved.55 Inquiries & Exceptions Discounts & Payments Matching & Approvals Receipt & Capture Receipt & Capture High cost of Paper Invoices Lack of Compliance Too many Exceptions Lack of Control “Nearly 77% of all incoming invoices are still paper based.” - Aberdeen, 2012 “15% of invoices have exceptions adding 6.6 days to the cycle.” - TAPN, 2010 “50% of prenegotiated discounts are never captured.” - Aberdeen, 2012 “$4.6 million in contract leakage per billion in spend on average.” - The Hackett Group, 2012
- 6. #AribaLIVE © 2013 Ariba, an SAP Company All rights reserved.6 D r. M i c h a e l H a m m e r
- 7. #AribaLIVE Receipt & Capture © 2013 Ariba, an SAP Company All rights reserved.7 67% 25% 7% % Electronic BIC LAGAVG $3.34 $6.29 $16.67 Cost per Invoice BIC LAGAVG Invoice / FTE BIC LAGAVG 33K 11K 7K Discounts & Payments Matching & Approvals Receipt & Capture Receipt & Capture • Paper: Mail, e-Mail, Fax, Scanning, OCR • E-Invoice (Ariba Network for EDI, XML, CSV, Supplier Portal, …) Exceptions & Inquiries The cost of being less than world class is growing. Goeff Colvin Sr. Editor, Forbes ‘Talent is Overrated’ “ ”
- 8. #AribaLIVE Exceptions & Inquiries © 2013 Ariba, an SAP Company All rights reserved.8 Discounts & Payments Matching & Approvals Receipt & Capture • Exceptions caught before posted to ERP • PO and Non-PO (i.e. contracts) • Supplier Portal (self serve) • E-Invoice (EDI, XML, CSV, …) 15% 35% 50% % AP Staff on Inquiries BIC LAGAVG 4% 17% 30% % Exceptions BIC LAGAVG Exceptions & Inquiries Exceptions & Inquiries Invoices BUYERS AP Acct Coding Contract Match Price Compliance Ship to Address Invoice Number Invoice Date Bill-To Address VAT/GST Compliance Qty Threshold Unit Amt Threshold 98%+ Auto Post SUPPLIERS AR Errors Exceptions “Smart Invoicing” There are no exceptions to the rule that everybody likes to be an exception to the rule. Charles Osgood “ ”
- 9. #AribaLIVE Matching & Approval © 2013 Ariba, an SAP Company All rights reserved.9 Discounts & Payments Matching & Approvals Receipt & Capture Matching & Approvals Exceptions & Inquiries 0.2% 0.48% 0.94% % Leakage BIC LAGAVG 85% 70% 50% 1st Pass Match BIC LAGAVG • Invoice to PO (PO-Flip®) • Invoice to Contract • Invoice to Goods Received • Routing & Approval Workflow • Exception handling Workflow Source: Hackett Group 2011 P2P Benchmark Report 4 10 21 Days to Approve BIC LAGAVG 0% 20% 40% 60% 80% 100% PO% Non-PO% Do not look for approval except for the consciousness of doing your best. Andrew Carnegie “ ”
- 10. #AribaLIVE Discounts & Payments © 2013 Ariba, an SAP Company All rights reserved.10 Discounts & Payments Matching & Approvals Receipt & Capture Discounts & Payments Exceptions & Inquiries 1) Capture missed discounts through smart invoicing approach 2) Rapidly enable more suppliers to increase the amount of spend under discount 3) Introduce sliding scale discounts for savings at any point along the invoice payment term 36% 1% 0.25% APR on Short Term Cash BIC LAGAVG 20% 3-5% 1% % Suppliers with Discount Terms BIC LAGAVG 50% 10% % Discounts Captured BIC LAGAVG 95% Price is what you pay. Value is what you get. Warren Buffett “ ”
- 11. #AribaLIVE The Strategic Weapon: Business Network Leading the Networked Economy © 2013 Ariba, an SAP Company All rights reserved.11 “ Networked enterprises are 50% more likely to be a market leader. ”
- 12. #AribaLIVE The Business Case for Success It’s as easy as 1+2+3+4 = $10M Savings / $1B in Spend Ariba, an SAP Company 2013 All rights reserved.12 CHALLENGE SAVINGS OPPORTUNITY SUCCESS 1. Process $1M per $1B in spend for average to large Payables and Procurement organizations - Billentis 2. Discount $2M+ in discount savings for every $1B in discountable spend – Aberdeen,Ariba 3. Working Capital Nearly $3 million in working capital impact for every $1 billion per day of improvement of DPO, DSO, DIO 4. Compliance $4M in contract leakage savings for every $1B in spend under contract – Hackett “4-for-1” “1-for-1” “2-for-1” “3-for-1” Source: Billentis, The Hackett Group 2011 P2P Benchmark Report, Aberdeen, and Ariba results Republic Service
- 13. #AribaLIVE Think Different © 2013 Ariba, an SAP Company All rights reserved.13 (1) Source: http://www.zdnet.com/the-real-sap-sapphire-story-7000015772/ “Going forward businesses will want to tap into vast amounts of internal and externally produced information to create competitive insights never possible with internally focused ERP data.” -- Brian Sommer for Software & Services Safari, May 22, 2013 (1) On-Premise Cloud In-Memory Analytics
- 14. Questions? © 2013 Ariba, an SAP Company All rights reserved. 14 James Tucker Senior Director, Network Strategy & Marketing ARIBA, an SAP Company Email: james.tucker01@sap.com Phone: +1 650 390 1702 Twitter: @jbtucker3
- 15. #AribaLIVE Please Complete Session Survey © 2013 Ariba, Inc. All rights reserved.15 Find Session in Schedule Click Choose one Rate Session Thank you for joining us Click Survey and Select Breakout Session Survey
Editor's Notes
- A couple of weeks ago I had the privilegeof facilitating a shared services conference breakout in Chicago where we explored strategies for making the finance/P2P function a strategic weapon for those organizations. It was very interesting to see the transformation of some of the delegates who came to the session thinking they had it all dialed-in, and were already considered a strategic asset to their organization until we went through the material and reviewed industry benchmarks. At that point, they realized they had to “think differently” about they way in which they set objectives and manage their ap/p2P/shared service function. We’re fortunate to have a fantastic panel of experts today who are in the process of transforming their organizations into strategic weapons for their organizations: James McDonald, Director of Procurement Operations for ING, is a black belt, holds a BS in Management Information Systems and an MBA from Georgia State University's Robinson School of Business. And Art Noe, Director of Corporate Purchasing at Quad Graphics. Art holds a Bachelor of Science degree in Industrial Technology from the University of Wisconsin. In a moment they will share their stories of how they “think differently” in order to drive measurable results.
- A recent survey of finance leaders found that the majority of them believe the AP function could become more strategic and have a positive impact on profitability, but it would require the organization to think and behave differently. This got me thinking about the very effective ad campaign that Apple launched in 2005 to promote it’s new line of products. This campaign played a pivotal role in helping Apple achieve one of the greatest corporate turnarounds in business history.
- So part of my approach for the facilitated session at the Shared Service conference was to first understand what the current thinking was in order to open up new ideas and help the delegates think differently about their opportunities.So I asked them these questions…The key was the last question, which is “How should you define and measure success?” The results were varied, and led to an exploration of the current challenges they faced. The following slide summarizes the key challenges highlighted…
- The challenges that most companies share across the invoice-to-pay process can be boiled down into four major categories:Too much paper – paper invoices are the most expensive to process when compared to e-Invoicing, scanning, and data entry/BPO. Yet, companies across the globe still have almost 80% of their invoices coming in as paper. Too many exceptions – Paper handling is inefficient, and it also introduces additional cost and effort for AP for handling invoice exceptions. According to a recent TAPN survey, about 15% of invoices have errors and exceptions on average. And it costs anywhere between $20 and $200 to address each error. So for 100K invoices that is about $300K in incremental cost. At a conference last year someone told me that have errors and exceptions on 39% of their invoices. 39%!Lack of ComplianceComplying with preferred vendors and pricing can also lead to significantly higher costs. A recent Hackett Group study shows that companies lose over $4 million per billion in spend under contract by paying for invoices that don’t comply with negotiated prices. For poor performing organizations, that leakage figure is many times larger.Lack of control over cash flow - Too many missed discounts and late payments Early payment discount and dynamic discounting is an emerging best practice that can deliver over $2 million per billion in discountable spend. But most companies simply can not approve and pay their invoices on time, and miss over 50% of their discount savings.These were the common challenges. Next we looked at industry benchmarks to assess the opportunities for real impact…===================================================
- Michael Martin Hammer (13 April 1948 – 3 Sept 2008) was an American engineer, management author, and a former professor of computer science at the Massachusetts Institute of Technology (MIT), known as one of the founders of the management theory of Business process reengineering (BPR).[1]Reengineering the Corporation: A manifesto for Business Revolution, the book written by him in 1993 along with James A. Champy was instrumental in capturing the focus of business community towards BPR
- Slide 1 – please emphasize that our primary solution is eInv and ICS being option for those suppliers wanting 100% capture and want us to manage the ~20% that will not be typically captured with our portal/networkSlide 1 – can we summarize the value of solving (i.e. value of getting to the 80% we target is usually a 50-60% reduction in AP staff/costsCaterpillar has achieved 90% electronic globally with 98% in NAMER. With a 75% reduction in AP headcount. In many cases, the AP staff are reassigned to higher value-add roles like working capital impact, discount capture, contract compliance, etc.Percent of electronic invoices (H) 7%; 25% (9% EU); 67%Invoices per FTE (H) 6,797; 11,364 (8463 EU); 32,830Now because AP is required to process invoices regardless of the source of the spend (i.e. indirect, direct, MRO, services), the invoices come into AP in various formats, formats and states of quality – but mostly paper, at a high cost per invoice, with a relatively low volume of invoices processed per full time equivalent (FTE) AP staff per year.Business Drivers = Corporate directives to lower costs. Difficult finding or managing paper-based documents50% of companies plan to invest in invoice receipt processes. SolutionCapture = Scan and e-Invoicing and F&A OutsourcingScan = ICS and Open-ICSE-Invoicing = Integrated (eg. EDI, cXML) or Supplier Portal (eg. PO-Flip™, Data Entry (non-PO), CSV Upload)Streamlines paper invoice handling without supplier disruptionSpeeds data capture with greater detail and accuracyDrives electronic adoptionE-Invoicing for all suppliers, all invoicesTarnsaction volumes (high EDI, cXMLMedium CSV upload; PO-Flip™Low Supplier Portal – key inTechnical capabilitiesGeographic locationsVAT requirementsEliminates errors and exceptions at the point of supplier submissionInquiries per 10,000 Invoices (H); 756 avg(1091 EU)
- % Exceptions Source: PayStream and Ariba% Inquiries Source: 35% of AP staffers' time is spent fielding inquiries -- 15% BIC – Aberdeen 2011Charles Osgood is a US radio commentator with a daily program called “The Osgood File”.Slide 1 – please emphasize that our primary solution is eInv and ICS being option for those suppliers wanting 100% capture and want us to manage the ~20% that will not be typically captured with our portal/networkSlide 1 – can we summarize the value of solving (i.e. value of getting to the 80% we target is usually a 50-60% reduction in AP staff/costsCaterpillar has achieved 90% electronic globally with 98% in NAMER. With a 75% reduction in AP headcount. In many cases, the AP staff are reassigned to higher value-add roles like working capital impact, discount capture, contract compliance, etc.Percent of electronic invoices (H) 7%; 25% (9% EU); 67%Invoices per FTE (H) 6,797; 11,364 (8463 EU); 32,830Now because AP is required to process invoices regardless of the source of the spend (i.e. indirect, direct, MRO, services), the invoices come into AP in various formats, formats and states of quality – but mostly paper, at a high cost per invoice, with a relatively low volume of invoices processed per full time equivalent (FTE) AP staff per year.Business Drivers = Corporate directives to lower costs. Difficult finding or managing paper-based documents50% of companies plan to invest in invoice receipt processes. SolutionCapture = Scan and e-Invoicing and F&A OutsourcingScan = ICS and Open-ICSE-Invoicing = Integrated (eg. EDI, cXML) or Supplier Portal (eg. PO-Flip™, Data Entry (non-PO), CSV Upload)Streamlines paper invoice handling without supplier disruptionSpeeds data capture with greater detail and accuracyDrives electronic adoptionE-Invoicing for all suppliers, all invoicesTarnsaction volumes (high EDI, cXMLMedium CSV upload; PO-Flip™Low Supplier Portal – key inTechnical capabilitiesGeographic locationsVAT requirementsEliminates errors and exceptions at the point of supplier submissionInquiries per 10,000 Invoices (H); 756 avg(1091 EU)
- “Do not look for approval” – valid PO’s and contracts should require no approval and lead to “touchless invoicing”. Avg: 40% Non-PO Invoice volume on avg (Avg PO = 60%)Low: Non-PO: 9-27% in IT, Industrials, Materials, Energy (Hi PO = 90%)High Non-PO: 50-61% in Healthcare, Telecomm, and Fin Svcs (Low PO = 40%)Andrew Carnegie (1835-1919) was a Scottish-American inudstrialist who led the enormous expansion of the American steel industry in the late 19th century.Slide 1 – please emphasize that our primary solution is eInv and ICS being option for those suppliers wanting 100% capture and want us to manage the ~20% that will not be typically captured with our portal/networkSlide 1 – can we summarize the value of solving (i.e. value of getting to the 80% we target is usually a 50-60% reduction in AP staff/costsCaterpillar has achieved 90% electronic globally with 98% in NAMER. With a 75% reduction in AP headcount. In many cases, the AP staff are reassigned to higher value-add roles like working capital impact, discount capture, contract compliance, etc.Percent of electronic invoices (H) 7%; 25% (9% EU); 67%Invoices per FTE (H) 6,797; 11,364 (8463 EU); 32,830Now because AP is required to process invoices regardless of the source of the spend (i.e. indirect, direct, MRO, services), the invoices come into AP in various formats, formats and states of quality – but mostly paper, at a high cost per invoice, with a relatively low volume of invoices processed per full time equivalent (FTE) AP staff per year.Business Drivers = Corporate directives to lower costs. Difficult finding or managing paper-based documents50% of companies plan to invest in invoice receipt processes. SolutionCapture = Scan and e-Invoicing and F&A OutsourcingScan = ICS and Open-ICSE-Invoicing = Integrated (eg. EDI, cXML) or Supplier Portal (eg. PO-Flip™, Data Entry (non-PO), CSV Upload)Streamlines paper invoice handling without supplier disruptionSpeeds data capture with greater detail and accuracyDrives electronic adoptionE-Invoicing for all suppliers, all invoicesTarnsaction volumes (high EDI, cXMLMedium CSV upload; PO-Flip™Low Supplier Portal – key inTechnical capabilitiesGeographic locationsVAT requirementsEliminates errors and exceptions at the point of supplier submissionInquiries per 10,000 Invoices (H); 756 avg(1091 EU)
- Slide 1 – please emphasize that our primary solution is eInv and ICS being option for those suppliers wanting 100% capture and want us to manage the ~20% that will not be typically captured with our portal/networkSlide 1 – can we summarize the value of solving (i.e. value of getting to the 80% we target is usually a 50-60% reduction in AP staff/costsWarren Buffet is an American business magnate, investor, and philanthropist. Caterpillar has achieved 90% electronic globally with 98% in NAMER. With a 75% reduction in AP headcount. In many cases, the AP staff are reassigned to higher value-add roles like working capital impact, discount capture, contract compliance, etc.Percent of electronic invoices (H) 7%; 25% (9% EU); 67%Invoices per FTE (H) 6,797; 11,364 (8463 EU); 32,830Now because AP is required to process invoices regardless of the source of the spend (i.e. indirect, direct, MRO, services), the invoices come into AP in various formats, formats and states of quality – but mostly paper, at a high cost per invoice, with a relatively low volume of invoices processed per full time equivalent (FTE) AP staff per year.Business Drivers = Corporate directives to lower costs. Difficult finding or managing paper-based documents50% of companies plan to invest in invoice receipt processes. SolutionCapture = Scan and e-Invoicing and F&A OutsourcingScan = ICS and Open-ICSE-Invoicing = Integrated (eg. EDI, cXML) or Supplier Portal (eg. PO-Flip™, Data Entry (non-PO), CSV Upload)Streamlines paper invoice handling without supplier disruptionSpeeds data capture with greater detail and accuracyDrives electronic adoptionE-Invoicing for all suppliers, all invoicesTarnsaction volumes (high EDI, cXMLMedium CSV upload; PO-Flip™Low Supplier Portal – key inTechnical capabilitiesGeographic locationsVAT requirementsEliminates errors and exceptions at the point of supplier submissionInquiries per 10,000 Invoices (H); 756 avg(1091 EU)
- Brian Sommer for Software & Services Safari | May 22, 2013http://www.zdnet.com/the-real-sap-sapphire-story-7000015772/