Conference Review: Toning Up Purchase to Pay – Top Take Aways

How is it Done and Who’s Done What Well?

Chair’s Overview – Why Are We All Here?

With just under 100 people in a room for two days, you have to ask yourself, what are we all doing here?  Shared Services Directors, P2P Process Owners, Process Excellence Leaders and Heads of Procurement from Europe and the US came together on June 18th and 19th to try and solve very common problems, without perhaps realising that they were, indeed, commonly experienced.  This opening session run by sharedserviceslink.com Director Susie West, looked at the ‘need’ for an Accounts Payable function, and how, in truth, it is largely a corporate broom sweeping up the mess created as a result of poor process compliancy.  We are all becoming aware that, if Procurement, Suppliers and Receivers were all ‘good’ and doing their bit, and if Suppliers sent complete and accurate invoices electronically, the AP function as we know it would disappear.  Instead of having people and paper, AP would become a data driven organisation responsible for triggering dynamic discounting and working capital decisions.  Supply Chain Finance would become a value add machine.

Key Take Aways:

1. In order to move to electronic invoicing, the P2P process needs to be clean and compliant.  Otherwise you have the same number of touchpoints, they just look different.
2. If all invoices are correct and electronic, and touchless is standard, invoice receipt-to-post takes less than one hour, cost per invoice is less than $1, and Supply Chain Finance can start looking at clean, complete and timely data on which to base cash decisions, and transform itself into a profit centre which impacts margins, and shareholder value.

P2P User Compliancy: The Good, The Bad and The Ugly

Casandra Daubney is the kind of woman who has scars on her back from years of battling with groups of people in large organisations to try and force change.  Her aim is clear: to change behaviour so operations improve.  She looks at behaviour in the P2P process as she would anywhere else.  In short, when changes are made within an environment, the human response is fairly standard – we all follow the J Curve of Denial – Anger – Acceptance.  Some individuals travel up this curve in a day, others take months or years, but once you realise there’s a pattern, you can anticipate people’s responses and plan communication to greater effect.

Key Take Aways:

1. “Urgent” invoices are rarely urgent.  All they are are invoices that require exceptional behaviour – often because someone upstream has not complied with the process rules.  This is a good time to say ‘No’.  These demands require a change in AP’s behaviour, and Casandra says ‘Don’t change AP’s behaviour just to accommodate Procurement’s bad behaviour – by accommodating it, you are making it acceptable’.
2. Outsource utility bills!  At Abbey they chose to outsource these invoices which meant once a month they were sent a single transaction from their outsource provider.  If it consumes too much activity within the organisation, and there doesn’t seem to be an obvious fix for low volume, high activity transactions, one very viable option is to outsource.
3. Communicate the consequence.  Often Users in the Process are unaware of how damaging their ‘bad’ behaviour is.  They have no idea that an invoice without a GRN can cost 5 times the amount of a three way match invoice.  Communication is essentially education, and is the basis for changing behaviour.

Attaining 300% Productivity Without Putting P2P in the Typical Centralised Shared Services Model – Using Systems and Processes to Enhance Performance

Many organisations looking at how to tone up P2P think: standardise, centralise, consolidate.  SCA Hygiene have come up with a model where they have standardised processes across Europe, and applied one set of technology to support them, but decided to keep the activity ‘in country’.  For the organisations in the room that were looking at the typical shared services model, this was a revelation.  Why go through the effort of shifting operations and recruiting staff, when this organisational disturbance isn’t essential to success?

Key Take Aways:

1. As with all these things, the pre-requisite to success is senior management buy in.
2. For virtual shared services to exist, the base process requires standardisation.
3. Teams are working in isolation, and even from home, so they need to be very self motivated for this to work.
4. This model is great in terms of ‘load balancing’ – language issues tend to go away as teams are working locally, and in SCA’s case high productivity is attained (in some cases 150 invoices per day).  Some SSCs following the centralised model can struggle with low productivity because of language – if your SSC in Glasgow processes 7,000 invoices from Spain each year, then your Spanish AP clerk may well be limited to achieving this number alone.  Like all these organisational models, it depends on geographies covered, volume and business complexities.

No User Compliancy, No First Time Match, No Chance of Reaching Touchless.  How HM Prison Service took 26% PO compliancy to 86% in just 12 Months

Everyone in the room at this event was looking at ways in which their three way match might rocket.  HM Prison Service have undergone some dramatic changes over the past couple of years.  In May 2006 their shared services centre went live with a total headcount of 1,200, and they started on a Six Sigma initiative to see where they could drive out the wastage in their 600,000 invoices.  They knew there was wastage as their match rate was only 26%, which meant that 74% needed re-work.  Like all ‘fixing’ jobs, they mapped their processes with the business units to understand what was causing the re-work.  They then spent time with Suppliers understanding why they weren’t quoting POs.  The simple answer was, they didn’t realise they needed to.

Key Take Aways:

1. Customers in the business units need to be doing the things they are hired to do – in HMPS’s case, monitor the prisons.  The P2P process needs to be such that it allows business units to get on with their job.  Educating them that their input will be much less if they comply upstream is key to driving up compliancy.
2. HMPS continue driving up their match rate by using the ‘Paired Comparison’ approach.  They take their top 10% of matched invoices and bottom 10% of bad invoices and compare the ‘lives’ of these transactions to understand where the issues stem from.
3. The improvements in HMPS’s AP have come largely from the mindset that data, not gut feel, drives decisions regarding improvements, and data determines where attention will be focused in order to fix problems. 

The Secrets to Successfully Forcing PO Compliancy Behaviour on Your Buyers

Cargill is the largest Private company globally.  Amongst their 75,000 Suppliers are a lot of farmers, so you can imagine that three way matching could be seen as more of a challenge than in other organisations.  This session looked at how 9 out of 10 invoices coming into the shared services centre required re-work.  This re-work on its own was costing the company EUR 1.9 million.  The largest crimes in the Supplier base, however, seemed to be coming from internal Suppliers – other Cargill businesses who were the worst offenders when it came to quoting POs.  Cargill underwent an initiative where they measured the size of the problem, and then identified that this was largely caused by a lack of understanding.  Cargill struck the individual in trying to instil change, by making POs part of their remuneration plan.  Having PO compliancy as part of employees’ targets and appraisals puts attention on how important this detail is to the cost of finance.

Key Take Aways:

1. Cargill have adopted a P Card programme, which has eliminated 50,000 paper invoices per annum.
2. Previously Cargill was very system driven, but their attention has now turned to being process driven, and this alone has instigated a significant shift.
3. Through this exercise of working with the individuals, they have improved their match rate from 10% to 60% in 12 months.  They still have a way to go, but significant change has been seen through a simple application of individual targets.

Driving Up Three Way Match in a Complex Organisation

Tim Empson worked within BP Retail – a complex organisation made up of petrol stations, which meant local purchases and local deliveries.  Procurement within BP started setting up Supplier arrangements where they would take a 2% discount if the invoice was paid in 5 days.  Finance was horrified – there was no way invoices could be paid in 5 days.  There was a complete disconnect between Procurement and Finance.  BP underwent a number of initiatives where they moved 85% of their 300,000 invoices (14 million lines) to electronic, and increased the first time match to 85%.

Key Take Aways:

1. There needs to be an acceptance that some invoices will need to be paid even if they don’t match or aren’t approved ie electricity bills: regardless of the AP issues, petrol stations still require light and electricity so they can actually serve customers.
2. If users don’t comply with a process, make it really painful.  One organisation in the US (not BP) charges the Supplier if they send a paper invoice.  Whenever you can, include terms like this in the Supplier contract, so it’s very clear from the start.
3. If Procurement is intent on making savings through early payment discounting, they will be forced to work hand-in-hand with Finance to ensure that the organisation can actually support Procurements discounting goals.

Moving P2P To Touchless So Supply Chain Finance Becomes a Profit Centre

We are all striving for moving from paper to data.  However, there’s no point trying to electrify bad data, as the whole thing will fall over, and you’ll be left with the same amount of touch points, which just look different.  However, once there is a level of process maturity, and three way match is a rule rather than an exception, moving to electronic, and then touchless, is a natural, and joyous, development.

Which One Makes More Sense – Owning or Outsourcing Your OCR Process?

John Macklin from Thames Water had a fascinating story to tell.  Pre 2004 there were no targets in AP and zero automation.  The net effect of this was that 80% of Suppliers (not invoices, but Suppliers) were being paid outside terms.  In 2004 they started looking at OCR options, and decided, rather than going for an inhouse solution, that they would outsource the scanning and OCR function for all their PO invoices to a third party provider.  They decided to go for this option because they just didn’t have the massive scale to justify buying, owning and maintaining the technology inhouse.

Key Take Aways:

1. Thames Water went for a big bang approach.  On reflection they would have phased it and absorbed learnings along the way.
2. John stressed the importance of investing in the specification as this is the corner stone of the partnership, from where all aspects are determined – pricing, SLAs, targets, division of responsibilities etc.
3. If you go for the OCR outsourcing option, ensure you have regular reviews (ie every 6 – 8 weeks), so bumpy bits can be resolved before their flare up and become disruptive issues.

Elegantly Moving AP to Central Europe through Establishing a Touchless Process First

This part of DSG International processes 265,000 invoices, of which 80% are electronic, and out of which 88% of these are straight through.  This means that just under 187,000 of their total are touchless.  This has enabled great things – whilst invoice volumes increased by 20%, headcount halved, and AP begun setting itself up for an elegant, seamless move from the UK to the Czech Republic.  During this session, Ian Duffield talked with great energy and clarity about how they achieved these numbers.

Key Take Aways:

1. Spend time on training – the AP team in the Czech Republic have had training on contract law, so they can have detailed and informed discussions with Suppliers when needed
2. Include debit notes within the AP function – if AP owns this it will mean query invoices will be outstanding for less time
3. Having a Supplier portal that answers many of the questions Suppliers would call into ask removes a lot of unnecessary activity.  If it can be self-serviced, then do it.  This is a good way to challenge the necessity of certain activities existing.

The Difference a Global P2P Operation Really Makes

Cheryl Lanzinger joined us from the US to tell us what Microsoft were doing with their global P2P organisation.  Being Microsoft, there is always the debate over build, buy or leverage within SAP.  They identified that some changes needed to be made in P2P when they were being hit with $64,000 in late payment fines, and their cost per invoice in EMEA was $15.43.  Microsoft then: started a move to a global shared services programme; initiated an outsourcing relationship with Accenture; and moved as much as possible over to electronic.  However, like many US companies, they have seen great gains with electronic in the US, but Europe presents a real challenge (see article ‘The Power of Tax: Making Sure That Tax Law in Europe Doesn’t Red Light Your E-Invoicing Plans – sharedserviceslink.com May Newsletter 2008’). 

Key Take Aways:

1. Amongst your Buying community, ensure that your coding isn’t cryptic.  If you have Buyers who can raise any PO, there needs to be a confidence in the organisation that the right code will be applied to the order, otherwise reporting and coding become pretty futile.
2. Microsoft had 2 terms available for Suppliers – 2/10 Net 60 or just Net 60.  Having a sliding scale on the 2% if the Supplier is paid on the 11th day or after can make a real difference to the discount savings washing through.

Be Metric Smart – Intelligently Using The Right Information to Drive Electronic P2P

Allan Maartesen joined us from TeliaSonera to tell us what they were doing with metrics in order to drive P2P improvements.  Their meaningful use of metrics means that they can plan for headcount reduction much earlier than most organisations.  Their cost per invoice before they began the metric programme sat at EUR 10.8, and they’re on their way to hit the EUR 2.8 target.  A startling figure was that for every non PO (‘wild’) invoice, was a cost of EUR 18.4, and for every electronic PO invoice was a saving of EUR 6.7 (ie just over the target of EUR 2.8). 

Key Take Aways:

1. What was striking was how thoroughly TeliaSonera knew their business.  Information really is power, and the P2P team there seem to have such an advantage because of the key metrics they continuously monitor.
2. Any spend under EUR 1000 automatically goes on P Card, which has cleared out a lot of paper and approval queries.
3. They pull together the metrics on a monthly basis and this is still very meaningful.  Some organisations have Business Process Management technology in place to pull off timely reports, but even without this application, TeliaSonera have the ammo to make pretty potent decisions.

Challenging the Need for an Invoice – Paying 8,700 Suppliers through an ERS Process

If you have a PO and a GRN then you actually have all the information you need to tell the Supplier how much you’re going to pay them.  You don’t actually need the Supplier to tell you how much they are owed in the form of an invoice.  This is quite an eye-opening fact.  So, instead of waiting for a Supplier to send you a document with data on it which you then have to match with other data, why not use the data on your own system to tell the Supplier how much payment will be coming their way?  Pretty obvious?  Ford have been doing self invoicing for years and now manage 37% of all invoices (90% of production) this way.

Key Take Aways:

1. In order for self billing to work, there needs to be cohesion between Finance, Procurement and Tax as this process touches all these areas.
2. The creator of the Self Bill Invoice (ie Ford in this case) is responsible for the tax calculation, so if there are any changes in the supply chain, Ford needs to be notified immediately, as this might impact the tax amount, and leave you a little exposed.  For example, the creator needs to know if the goods are shipped domestically or cross border, as this will have an impact on whether VAT is applied.  If you don’t know this, and are sending payments with an additional 17.5%, you could be throwing money away to the delight of the Supplier.
3. Look at for spikes over time.  With Suppliers you should be able to identify trends fairly early on.  If a spike appears in the payment history, it’s worth looking into it, to ensure that someone hasn’t entered a GRN in incorrectly and triggered an overpayment.
4. With self billing, freight can often be over looked and a Supplier underpaid.  Ford have overcome this by picking up the goods from the Supplier themselves, eliminating the freight question completely

Wing to Wing Electronic Processing – Enabling Early Payment Discounting

Unlike many organisations, Sealed Air recognised years ago that in order to make improvements in Supply Chain Finance, they would need to partner with Procurement.  They understood that significant savings could be realised through the application of early payment discounts.  In total they recognised that $7 million worth of discounts were available, yet only $6 million were being taken.  So Sealed Air partnered with a provider to instigate a truly dynamic discounting set up.  Under this set up, Sealed Air takes a 3% discount if they pay a 30 day term Supplier in 5 days.  After day 5 a sliding scale applies so lesser discounts can be taken, but there is still an incentive to pay early.  This is true dynamic discounting, and can only be achieved on a large scale if Procurement and Finance are aligned, and the P2P process is clean.

Key Take Aways:

1. Initiatives like this really begin to take finance into a value add function.  The $1 million additional annual savings gleaned here can eclipse savings realised through small scale e-invoicing initiatives.
2. Any finance function wanting to install a dynamic discounting application has to work with Procurement.  Dangling the carrot of 3% savings can be a great incentive for Procurement to ensure they help clean up the P2P process, clean up the supplier data base, and support Finance in moving to electronic invoicing.

Optimising Working Capital to Maximise the Cash Result for your Shareholders

‘Turn Over is Vanity, Profit is Sanity and Cash is Key’.  Before Cable & Wireless acquired Energis, C&W’s P2P process was very paper and labour rich.  Payment runs were a daily affair and £1 million was leaking off the balance sheet every day, which meant that C&W had to go with their begging bowl to Group if they needed a quick cash injection.  On top of this, the 38 people in AP were processing a mere 50,000 invoices per year.  With Energis on board came a gear change where shared services and off shoring were adopted, PO compliancy went from 40% to 60%, headcount dropped to 28 and the company started to adopt an understanding prevalent in Energis AP, which was the appreciation of Cash.  It was time to turn things around.  The shared services centre was renamed ‘Cash and Working Capital’, daily runs were stopped, sign off was moved further up the organisational tree and as a result £250 million was rescued to significant effect.

Key Take Aways:

1. Identify strategic and non strategic Suppliers and set up runs appropriate for the two groups.
2. Know what your DPO and DSO are and work with AR and Stock Management to work on processes where cash stays with the company longer.
3. Put commission in place for collections – reward credit controllers who get the cash in early or on time.
4. C&W’s cost per invoice has reduced from £11.00 in 2005 to £3.00 in 2008.  The interesting feature is that working capital management is being optimised here, despite the fact that C&W operate a clean but completely paper based invoicing process.

If you are interested in finding out more on this subject, sharedserviceslink.com offers more!

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