Accounts Payable:
     Strategies for Success
Outsourcing, Automating, and Streamlining




               December 2006
A/P Strategies for Success




                            Executive Summary

This report is an All Points Bulletin to A/P...
A/P Strategies for Success



        strictly tactical activities and discover the strategic value a Best in Class operat...
A/P Strategies for Success



    proved process cycle times, stronger financial controls, better compliance
    mechanism...
A/P Strategies for Success




                                   Table of Contents

Executive Summary ......................
A/P Strategies for Success




                                                            Figures

                 Figur...
A/P Strategies for Success




                                                         Chapter One:
                     ...
A/P Strategies for Success




        “We view payables as a huge opportunity to bring cost savings to the bottom line. P...
A/P Strategies for Success



     Other disbursement                                                           31%
     A...
A/P Strategies for Success




                                                 Chapter Two:
                             ...
A/P Strategies for Success




The Check is in the Mail
The odds are that when your customer tells you that the “check is ...
A/P Strategies for Success




         “With no view into many categories of spend and their associated payments, our CFO...
A/P Strategies for Success




Table 5: A/P Outsourcing Challenges
                              Challenges               ...
A/P Strategies for Success




                                                   Chapter Three:
                         ...
A/P Strategies for Success




Table 6: A/P Excellence Competitive Framework
                    Laggards                 ...
A/P Strategies for Success



                                   Laggards                      Industry Average           ...
A/P Strategies for Success



Payment status tracking           25%           Document scanning/imaging for
              ...
A/P Strategies for Success




        KPIs by Company Size
        While there are a wide range of key performance indica...
A/P Strategies for Success




                                      Chapter Four:
                                Recomme...
A/P Strategies for Success




        Industry Average Steps to Success
             1. Define the scope and approach for...
A/P Strategies for Success




                               Author Profiles

Andrew Bartolini,
Research Director
Global ...
A/P Strategies for Success




                                        Appendix A:
                                   Rese...
A/P Strategies for Success



Solution providers recognized as sponsors of this report were solicited after the fact and
h...
The CPO’s Strategic Agenda




                                  Appendix B:
                       Related Aberdeen Resea...
Aberdeen Group, Inc.                             Founded in 1988, Aberdeen Group is the technology-
260 Franklin Street   ...
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Paperless AP Automation

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Paperless AP Automation

  1. 1. Accounts Payable: Strategies for Success Outsourcing, Automating, and Streamlining December 2006
  2. 2. A/P Strategies for Success Executive Summary This report is an All Points Bulletin to A/P Managers and their Finance and Procurement superiors everywhere. 2007 is your year to begin the transformation of this traditional, back-office function. Best in Class enterprises are already employing a series of “Success Strategies” to accelerate the process. These strategies include moving to a shared ser- vices structure, investing in automation and/or moving to outsource some or all of this function. Leading enterprises have already begun this transformation and are extending process efficiencies and strategic focus to this latter part of the source-to-settle process. Key Business Value Findings More then ever, enterprises are seeking new ways to drive savings to their bottom line and process efficiencies across the organization. A/P managers now have an opportunity to accelerate down the path recently blazed by procurement organizations, who have, in large sum, automated their processes and created strategic value, all while elevating the organization’s profile within the enterprise. And, while the vast majority of A/P depart- ments remain mired in a manually-intensive, thoroughly paper-based world, Best in Class enterprises are ready and willing with payables. These leaders are hyper-efficient in processing invoices and have been able to optimize cash flow while building and main- taining strong supplier relationships. Many enterprises indicate that automating all or part of its A/P operations is the key enabler; some see organizational realignment as a first step; others still, are jump-starting the transformation by outsourcing all or part of the function. No matter the strategy, what is clear is that A/P departments that do nothing for another year will continue to lose ground to the competition. Key findings in this bench- mark include: • Outsourcing is a leading strategy o Enterprises that outsource reported cost savings approaching 10% for all invoice processing o 20% of enterprises currently outsource some part of their A/P operations o Another 15% intend to outsource in the near-term • A/P Automation offers compelling returns but is not widely adopted o Paper invoices cost between 68% - 76% more to process (Table 1) o 22.7% of invoices are received electronically o 35.4% of invoices are paid electronically Though leading enterprises have proven the benefits of A/P outsourcing, automation, or some combination of the two, the average A/P group struggles to gain management sup- port for investment in program improvement and fails to move its resources away from All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • i
  3. 3. A/P Strategies for Success strictly tactical activities and discover the strategic value a Best in Class operation can deliver. Table 1: Average Invoice-Processing Cost – Electronic vs. Manual Electronic – Manual – Invoice Type Cost to Process Cost to Process PO $12.79 $22.52 Non-PO $11.92 $20.39 Other $12.78 $21.44 Source: AberdeenGroup, December 2006 Implications & Analysis • Best in Class companies util- “Invoice visibility is actually quite valuable ize automation and outsourc- to strategic sourcing initiatives. Specifically, ing as their primary enablers an invoice review can help identify com- for value creation within the accounts payable function plementary goods & services (that would be missed by a standard category or spend • Best in Class companies re- port improved cash flow analysis) that can be sourced from the visibility, strengthened sup- same supply base. It’s rarely done since so plier relations, among other few companies have a decent handle on strategic benefits as a result their invoices” – Director, Strategic Sourc- of their focus on A/P trans- ing Consultancy formation • Best in Class companies are 100% more likely to have incorporated some level of outsourcing into their A/P Success Strategy, possibly because their cost saving target to outsource was nearly half that of their peers • Best in Class companies are 25% more likely to be working in a shared services center Recommendations for Action Aberdeen recommends the following A/P Strategies for Success: • Clearly define the scope and processes of the A/P function – By better defin- ing the scope and processes of an accounts payable department, managers will improve the operational effectiveness of the group while gaining better visibility into transactions, compliance, and process; Managers must also work aggres- sively to ensure that A/P is fully integrated into the source-to-settle process. • Invest in A/P Automation – While the transactional savings alone can pay for this investment, benefits also include better integration to financial systems, im- All print and electronic rights are the property of Aberdeen Group © 2006. ii • Aberdeen Group
  4. 4. A/P Strategies for Success proved process cycle times, stronger financial controls, better compliance mechanisms, and improved cash flow visibility. • Assess Outsource Opportunities – Best in Class enterprises employ outsourc- ing as a fundamental strategy to enhance current capabilities and affect a broader more rapid transformation. Since most enterprises lack any visibility into A/P transactions and process, Best in Class companies, have, on average, a savings threshold to justify outsourcing that is 83% lower than their peers. All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • iii
  5. 5. A/P Strategies for Success Table of Contents Executive Summary .............................................................................................. i Key Business Value Findings.......................................................................... i Implications & Analysis ...................................................................................ii Recommendations for Action..........................................................................ii Chapter One: Issue at Hand.................................................................................1 Saving the Rainforest, One E-Invoice at a Time ............................................ 2 Chapter Two: Key Business Value Findings ........................................................4 The Check is in the Mail ................................................................................ 5 Best in Class: Ready, Willing, and Payable ................................................... 5 Automating and Outsourcing ......................................................................... 6 Chapter Three: Implications & Analysis...............................................................8 Strategies for Success................................................................................. 10 KPIs by Company Size ................................................................................ 12 Chapter Four: Recommendations for Action ...................................................... 13 Laggard Steps to Success........................................................................... 13 Industry Average Steps to Success ............................................................. 14 Best in Class Next Steps ............................................................................. 14 Author Profiles....................................................................................................15 Appendix A: Research Methodology .................................................................. 16 Appendix B: Related Aberdeen Research & Tools ............................................. 18 All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group
  6. 6. A/P Strategies for Success Figures Figure 1: Main Pressures Driving A/P Outsourcing ..............................................1 Figure 2: The A/P Paradox ...................................................................................3 Figure 3: Invoice-Processing Costs – Best in Class Advantage ........................... 5 Figure 4: KPIs by Enterprise Size ...................................................................... 12 Tables Table 1: Average Invoice-Processing Cost – Electronic vs. Manual ..................... ii Table 2: A/P Automation – Which Processes Are Currently Automated?..............2 Table 3: A/P Performance Metrics – How Do You Compare?...............................4 Table 4: A/P Advantage (Best in Class vs. Others)............................................... 6 Table 5: A/P Outsourcing Challenges ...................................................................7 Table 6: A/P Excellence Competitive Framework .................................................9 Table 7: Plans for Automation and Outsourcing ................................................. 10 Table 8: Competitive framework .........................................................................17 All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group
  7. 7. A/P Strategies for Success Chapter One: Issue at Hand • Accounts Payable departments continue to operate on the fringe of the Source-to-Settle Key Takeaways process, lacking true alignment with either finance or procurement. • Automation is sorely lacking ; “inefficient” and “paper-laden” are the defining characteris- tics of the A/P function within most enterprises. • Resources are non-strategic, trapped at the transaction level, with little or no visibility into the valuable pay and supplier data that is processed by the department. • Collaboration with internal stakeholders and suppliers is reactive at best and almost al- ways very costly and ineffective. L ong trapped in the untended land between procurement and finance, the average accounts payable department lacks automation, executive focus, and general alignment with the enterprise. For most enterprises, the A/P function is not viewed as a vital component of a holistic source-to-settle process, but rather, a necessary and highly tactical “evil” at the end of a supplier transaction. And, with paper accounting for approximately 80% of all transaction ns, A/P department resources buried under an avalanche of paper have limited opportunity and limited ability to make their case for investment in the function and thereby execute a strategy for success. However, hope is not lost, as leading procurement and finance executives who have spent the past half-decade radically improving procurement operations, view A/P as the next field to harvest for process efficiency and the next function to gain strategic alignment with the enterprise. These executives are overhauling the function by redefining the de- partment’s mission, restructuring the organization, investing in automation, and in many cases, outsourcing. Figure 1: Main Pressures Driving A/P Outsourcing Lower transaction costs Reduce headcount A./P is NOT a core competency Reduce IT systems costs Improve source-to-settle process Lack of in-house A/P technology 0% 10% 20% 30% 40% 50% 60% All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • 1
  8. 8. A/P Strategies for Success “We view payables as a huge opportunity to bring cost savings to the bottom line. Phase I is a move to a shared services structure to gain alignment with our business partners. Phase II will be an RFP to outsource most of the function.” – Controller, Financial Services Firm Source: AberdeenGroup, December 2006 Competitive Framework Saving the Rainforest, One E-Invoice at a Time Key The Aberdeen Competitive With thousands, often tens of thousands of invoices received Framework defines enter- each month, it is shocking that nearly 80% of invoice activity prises as falling into one of is paper-based. And while increased adoption rates of elec- the three following levels of practices and performance: tronic payment formats like EDI, p-cards, ACH, and wire transfer have certainly saved a few trees in recent years, a very Laggards (30%) — prac- tices that are significantly deliberate plan is required to effectively transform an anti- behind the average of the quated A/P department into an efficient “21st century” func- industry tion. Technology holds the key for many as 23% of those sur- Industry Average (50%) — veyed intend to begin the transformation by utilizing tech- practices that represent the nologies such e-invoicing, imaging, and p-cards among others average or norm over the next 12 months. An additional 15% of enterprises will Best in Class (20%) — tackle both the paper and staffing challenges head on as they practices that are the best look to outsource all or part of the A/P function in the near currently being employed and significantly superior to term. the industry norm Table 2: A/P Automation – Which Processes Are Currently Automated? Process % Automated Check printing 58% Payment scheduling 46% Purchasing cards 46% T&E management 45% Payment status tracking 41% Receipt of invoices (XML, EDI) - enable electronic invoices 35% Coding, tax, and verification 33% Expense coding accuracy and automated GL policy based 31% coding of invoices All print and electronic rights are the property of Aberdeen Group © 2006. 2 • AberdeenGroup
  9. 9. A/P Strategies for Success Other disbursement 31% Automation of header data validation/duplicate invoice verifi- 30% cation Digital signatures for invoice approvals 27% Contract repository and management system 26% Invoice deduction/chargeback system 21% Online cataloging of header and disbursement info 21% Invoice receipt summary (i.e. amount due, vendor) level Opti- 20% cal Character Recognition (OCR) scanning of paper invoices Source: AberdeenGroup, December 2006 That only a few processes within A/P have been automated by at least 40% of enterprises in this benchmark harkens back to the not too distant past of procurement where brutal inefficiency was the norm and automation was the vanguard. Additionally, a full 28% of enterprises report a complete absence of automation within the A/P department; many of these same enterprises report no plans to automate in the near future. Figure 2: The A/P Paradox A/P Department: Tactical function at key convergence point for Procurement, Finance, and Suppliers Procurement Finance Invoice receipt & handling Contracts Spend under SOX Financial Management Compliance Reporting Source to Settle Cash Flow Reconciliation & approvals Process A/P Visibility Department Key A/P Disbursement scheduling Processes Settlement including confirmation and reporting Suppliers Deliver goods and services Internal & external service Invoice & receive payment support Source: AberdeenGroup, December 2006 All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • 3
  10. 10. A/P Strategies for Success Chapter Two: Key Business Value Findings • A/P Automation delivers compelling transaction cost savings and other strategic benefits, Key Takeaways yet, only one-third of companies have any significant level of automation in place. • Enterprises that outsource the A/P function perform better in several key metrics than those that keep the function in-house; for example, invoice-processing savings ap- proaches 10%. • Best in Class enterprises significantly outpace their peers on all KPIs. M ore then ever, enterprises are seeking new ways to drive savings to their bottom line and process efficiencies across their organization. And while many have realized the strategic value that a Best in Class procurement organization can deliver, most have been slow to identify similar opportunities within Accounts Pay- able. Sitting as it does between, but not with, two mainstay enterprise functions, A/P departments are largely out of sight and out of mind. Though gaining enterprise mindshare and visibility presents steep challenges, Best in Class companies are ris- ing to meet these challenges and overcoming many, as they utilize several basic strategies for success. Table 3: A/P Performance Metrics – How Do You Compare? Performance Area Average Result Invoice processing cost (all invoice types) $21.86 Days Payable Outstanding 39.9 days Exception rate 7.8% Time to process invoice and schedule payment 19.3 days Payments made on-time 69.9% On-time payments that earn discount 51.3% Invoices received electronically 22.7% Payments settled electronically 35.4% Source: AberdeenGroup, December 2006 All print and electronic rights are the property of Aberdeen Group © 2006. 4 • AberdeenGroup
  11. 11. A/P Strategies for Success The Check is in the Mail The odds are that when your customer tells you that the “check is in the mail,” he/she is really telling the truth. Unfortunately the joke, as it were, is on both the customer and the seller since on average, 65% of payments are made manually and the cost to cut and re- ceive live checks is significant when compared to electronic payments. Best in Class: Ready, Willing, and Payable While the vast majority of A/P departments remain mired in a manually-intensive, thor- oughly paper-based world, Best in Class enterprises are ready and willing when it comes to payables management. These leaders are hyper-efficient in processing invoices and have been able to optimize cash flow while building and maintaining strong supplier rela- tionships. Many enterprises indicate that auto- “Supplier enablement is not a big mating all or part of its A/P operations is the challenge for our clients. We offer key enabler; some see organizational realign- to pay each supplier that signs up ment as a first step; others still, are leap- three days earlier than currently frogging the transformation process by out- pay them. Very few decline this of- sourcing all or part of the function. Best in fer.” - CEO, A/P Outsourcing Pro- Class enterprises outperform all by a signifi- cant margin across all KPIs (Table 3), however vider none is more telling than the invoice process- ing advantage shown in Figure 2. Figure 3: Invoice-Processing Costs – Best in Class Advantage $70 $60 Invoice Process Cost $50 Laggard - $64.97 per invoice $40 $30 $20 $10 Average - $11.50 per invoice Best in Class - $2.00 per invoice $- Source: AberdeenGroup, December 2006 All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • 5
  12. 12. A/P Strategies for Success “With no view into many categories of spend and their associated payments, our CFO insti- tuted a p-card program about 18 months ago. The current policy is for every new employee to be given a card. Six months ago, our CFO determined that the card program presented sig- nificant risk from employee fraud and instituted an audit program. The problem is that our card provides only Level 1 information. After three months, the audit had only uncovered one item of questionable origin (an $84 fruit basket). Is invoice detail helpful? Absolutely, but without Level 3 data, there’s not much we can do.” – A/P Manager, Texas-based refinery Table 4: A/P Advantage (Best in Class vs. Others) Performance Area Best in Class All Others Invoice processing cost (all invoice types) $2.00 $27.15 Exception rate 3.6% 8.6% Time to process invoice and schedule 8.3 Days 22.9 Days payment Payments made on-time 74.3% 68.5% On-time payments that earn discount 58.5% 47.2% Invoices received electronically 26.5% 21.2% Payments settled electronically 40.5% 34% Source: AberdeenGroup, December 2006 Automating and Outsourcing Enterprises that automate the function see almost instant savings, while those that out- source their A/P operations see an additional 8% in overall savings from invoice proc- essing alone. While significant benefits await those that outsource the A/P process, A/P managers struggle to make the business case because they: • Lack understanding of the solution provider landscape • Have poorly defined procedures and an inadequate definition of the depart- ment’s scope • Lack visibility into operations that can help “prove” the case and • Lack executive engagement that could sponsor investment in this area. Additionally, the perceived loss of control over cash flow management and key supplier relationships are additional gaps that must be bridged. Yet, a growing number of enter- prises understand that an outsourcing strategy is one that can and should be used to en- hance current capabilities. All print and electronic rights are the property of Aberdeen Group © 2006. 6 • AberdeenGroup
  13. 13. A/P Strategies for Success Table 5: A/P Outsourcing Challenges Challenges % Selected Finding the right solution provider 48% Getting the right structure and procedures in place to manage 48% outsource solution provider(s) Inadequate understanding of current spend and payables 32% Fear of losing control over cash flow management 28% Fear of losing control over supplier relationships 25% Education - benefits and costs are unclear 24% Inability to build support from key stakeholders (e.g., business 24% units, functions or geographies) Source: AberdeenGroup, December 2006 All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • 7
  14. 14. A/P Strategies for Success Chapter Three: Implications & Analysis • Best in Class companies utilize automation and outsourcing as their primary enablers Key Takeaways for value creation within the accounts payable function. • Best in Class companies report improved cash flow visibility, strengthened supplier re- lations, among other strategic benefits as a result of their focus on A/P transformation. • Best in Class companies are 100% more likely to have incorporated some level of out- sourcing into their A/P Success Strategy, possibly because their cost saving target to outsource was nearly half that of their peers. • Best in Class companies are 25% more likely to be working in a shared services center. B ased upon their performance in the key areas described in the previous chapter, research participants are segmented into three general categories: Laggard, Indus- try Average, or Best in Class. Best in Class enterprises are defined by unique traits such as organizational structure and inclination to employ technology. Ta- ble 3 segments A/P Organizations based on the characteristics they have across four categories that are required for effective A/P management: • Process – The level of process and scope the A/P department has defined for their current processes. • Organization - Organizational structure, skills, and alignment with the comple- mentary function within the enterprise. Additionally, the inclination and/or ca- pability to leverage outside support or outsource certain areas within the group • Knowledge – Program visibility into KPI’s - DPO, exception rate, cost of in- voice-processing, and other key measures. • Technology – Level of A/P automation and how well it is integrated to support the broader “Source-to-Settle” framework and all Supplier Management initia- tives. We believe that all readers can use this framework to more specifically assess their own organization’s payables competence and to determine the actions they must take to im- prove their overall performance. All print and electronic rights are the property of Aberdeen Group © 2006. 8 • AberdeenGroup
  15. 15. A/P Strategies for Success Table 6: A/P Excellence Competitive Framework Laggards Industry Average Best in Class Process • Defined by narrow • Some level of proc- • Cohesive part of the invoice handling ess standardization broader source-to- and payment proc- settle process • Some visibility into essing activities process • Process compliance • Enterprise does not is actively managed associate A/P with • Uniform processes financial processes mapped to technol- • Enterprise does not ogy associate A/P with source-to-settle processes Organization • A/P lost in an enter- • Limited oversight by • Shared services prise netherworld finance center • Highly decentralized • Limited communica- • Strong working rela- and silo’d resources tion from procure- tionship with fi- ment nance, procurement • Resources focused and the business on transaction proc- customers essing • Frequent and posi- • Supplier problems tive collaboration are inherited with suppliers Knowledge • No visibility into • Some KPIs are • Visibility into per- process measured formance • No visibility into • Best practices are • Willingness to look payments and cash not widely shared outside the enter- flow nor employed prise to acquire new skill-sets and knowl- • Lack knowledge to edge, via training, make business case outsourcing, or for transformation third-party services All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • 9
  16. 16. A/P Strategies for Success Laggards Industry Average Best in Class Technology • No technology util- • Some A/P automa- • Tight integration to ized within the A/P tion other supply man- Function agement technolo- • Some suppliers gies • May occasionally enabled utilize electronic • High number of • complementary disbursement suppliers enabled technologies in supplier networks • Does not utilize place supplier networks or • Likely to utilize sup- enablement ser- plier enablement vices services or other services as needed • Integration to finan- cial systems Source: AberdeenGroup, December 2006 Strategies for Success Enterprises that outsource, automate or employ some combination of the two stand well ahead of their peers as they have realized greater transactional savings, driven process efficiencies, improved internal and external collaboration, and are in better position to proactively manage their business. A/P managers are increasingly aware that many of the near term opportunities for improvement lie outside the enterprise (Table 7). Table 7: Plans for Automation and Outsourcing A/P Automation A/P Outsourcing Process % Selected Process % Selected Receipt of invoices (XML, EDI) 33% Document archiving (scan- - enable electronic invoices ning/imaging) 20% Digital signatures for invoice 32% Invoice entry approvals 18% Invoice receipt level Optical 31% Invoice routing/workflow manage- Character Recognition (OCR) ment scanning 18% Automation of header data 26% OCR scanning validation/duplicate invoice verification 18% All print and electronic rights are the property of Aberdeen Group © 2006. 10 • AberdeenGroup
  17. 17. A/P Strategies for Success Payment status tracking 25% Document scanning/imaging for data capture and invoice process- ing 17% Detailed (line item capture) 24% Invoice reconciliation through OCR scanning 17% T&E management 23% Invoice receipt and sorting 16% Coding, tax, and verification 23% Outsource by payables type - PO invoices 16% Expense coding accuracy 23% Payment processing/disbursement 16% Contract repository and man- 22% Outsource by payables type: Non- agement system PO Invoices 14% Purchasing Cards 21% P-Card administration 13% Payment scheduling 20% Travel and expense management 12% Cataloging of header and dis- 19% All A/P operations bursement info 10% Source: AberdeenGroup, December 2006 All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • 11
  18. 18. A/P Strategies for Success KPIs by Company Size While there are a wide range of key performance indicators available to measure A/P per- formance, the size and breadth of a department must be considered to enable effective benchmarking (Figure 4). Figure 4: KPIs by Enterprise Size Performance Area Large Mid-market Small Number of FTE’s dedicated to A/P 41.9 7.5 4.7 Total number (#) of monthly invoices 30,668 9,944 658 Total value ($) of monthly invoices $24.7MM $7.5MM $769K Number of payments made monthly 9,033 2,356 575 Number of unique suppliers paid in last 12 22,108 3,099 401 months Average cost to process an invoice $21.36 $30.86 $14.08 Percent of Companies that outsource some 30% 13% 16% part of A/P function Average cost savings threshold to pursue 22.1% 22.3% 16.3% A/P outsourcing Source: AberdeenGroup, December 2006 All print and electronic rights are the property of Aberdeen Group © 2006. 12 • AberdeenGroup
  19. 19. A/P Strategies for Success Chapter Four: Recommendations for Action • Clearly define the scope and processes of the A/P function to improve the operational ef- Key Takeaways fectiveness of the group while gaining better visibility into transactions, compliance, and process. • A/P Managers must also work aggressively to ensure that A/P is fully integrated into the source-to-settle process. • Invest in A/P Automation - the transactional savings alone can justify your investment. • Assess Outsource Opportunities – Best in Class enterprises employ outsourcing as a fun- damental strategy to enhance current capabilities and affect a broader more rapid trans- formation. A ccounts payable is still viewed by many within the enterprise as the team respon- sible for invoice handling and payment processing while the higher-value activi- ties are often overlooked. A/P managers must actively work to promote a strate- gic role for payables as part of the source-to-settle process. Aberdeen recommends the following Success Strategies for the best results: Laggard Steps to Success 1. Redefine your enterprise’s accounts payable process as the latter, but quite integral, part of the source-to-settle process. Move to align the A/P function with current procurement processes to build co- hesion within supply management and awareness across functions. 2. Benchmark the current state of your A/P operations. While this certainly includes the performance metrics utilized in this report, en- terprises should also measure their level of A/P automation and propensity to de- ploy technology in this and complementary functions. 3. Identify outsource opportunities immediately – Dive in Headfirst! In a fully paper-based environment, you could literally be years away from com- plete visibility into process and invoices. Considering the relatively low savings threshold for outsourcing that Best in Class companies have established, look for low risk, more tactical functions that can be readily outsourced like invoice re- ceipt and handling or payment scheduling. All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • 13
  20. 20. A/P Strategies for Success Industry Average Steps to Success 1. Define the scope and approach for the A/P process. By clearly and consistently defining the role of the A/P department within the source-to-settle, a more systematic approach may be applied to the invoice re- ceipt, 2. Automate A/P processes to close the Source-to-Settle loop. Automation will drive process efficiencies, drive savings but understand that automation will not completely eliminate the flow of paper. Imaging, workflow, and e-invoicing are all areas to consider. 3. If you have not done so, convert the department structure to a shared ser- vices center. Centralizing the function will drive a greater control over process standardization and best practice development. Additionally, the new center can provide greater accountability to and visibility for your internal customers 4. Continue to drive A/P resources from tactical to strategic activities. Utilize a six sigma or other quality approach to understand the transaction lifecy- cle and prioritize the strategic value of each activity. Best in Class Next Steps 1. Align with business and suppliers to develop a continuous improvement initia- tive that focuses your resources on working smarter and more closely with the key internal and external stakeholders to better understand and thereby resolve errors, late payments, and disputes. 2. Review department for outsource opportunities. Even within the best run A/P departments, there is opportunity for improvement. Focus on some of the more tactical areas like invoice scanning, document man- agement, and payment processing. 3. Utilize ROI and Cost of Capital calculations to determine optimal payment strategies. Capabilities within certain EIPP and financial system applications can provide the financial analysis required to determine a payment strategy that provides the greatest benefit to the enterprise. 4. Automation with a focus on visibility. While Best in Class enterprises are more likely to have automated more of their A/P processes than their peers, a focus on visibility will help drive value. For ex- ample, strategic sourcing initiatives benefit by the inclusion of an invoice analy- sis. A review of supplier invoices can help identify complementary goods and services that may be sourced from the same supply base. This can improve lever- age in negotiations and drive savings across a greater number of categories All print and electronic rights are the property of Aberdeen Group © 2006. 14 • AberdeenGroup
  21. 21. A/P Strategies for Success Author Profiles Andrew Bartolini, Research Director Global Supply Management AberdeenGroup, Inc. Andrew Bartolini is a Supply Management professional with rich experience in strategic sourcing, business process transformation, and software implementation. As a leader at several solution providers, Bartolini managed the design and implementation of strategic sourcing and procurement processes for companies in the retail, manufacturing, energy, technology, transportation, defense, and finance sectors. He has also managed strategic sourcing projects exceeding $500 million in total value across a broad range of direct and indirect categories. His recent focus has been in identifying and leveraging world-class technologies to achieve operational excellence within the procurement function of For- tune 500 companies. His background also includes extensive transactional and analytical experience while working in management consulting and investment banking. Vance Checketts, Channel Director Global Supply Management AberdeenGroup, Inc. Vance Checketts is a recognized expert in the areas of procurement and supply manage- ment with a deep background in the application of technology and the underlying busi- ness process. Prior to Aberdeen he was at Oracle where he was responsible for the devel- opment and sales support of their procurement applications. Prior to Oracle, he held sen- ior roles managing direct and indirect procurement. He has lectured and published with various industry organizations, including IFPSM, ISM, and Haas School of Business at UC Berkeley. He holds an MBA from Brigham Young University. He oversees and con- tributes across the entire scope of Aberdeen’s Global Supply Management research team. All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • 15
  22. 22. A/P Strategies for Success Appendix A: Research Methodology B etween November and December 2006, AberdeenGroup benchmarked the Ac- counts Payable strategies, experiences, and intentions of more than 150 enter- prises across multiple industries and geographies. This benchmark report utilized Aberdeen’s fact-based research approach to provide a comprehensive framework for Procurement and Finance executives and other stake- holders to benchmark the effectiveness of their current A/P operations, quantify their im- pact, and identify actionable strategies for improvement. Responding supply management executives completed an online survey that included questions designed to determine the following: • The maturity and scope of Accounts Payable Operations and how they fit within broader compliance and supply management initiatives • The performance of different A/P department structures considering whether or not all or a portion of the function is outsourced. • Those A/P processes that best lend themselves to outsourcing while quantifying the potential benefits that can be achieved in doing so. • Emerging best practices to benchmark A/P performance in such areas as the cost to process payments, discount capture percentage, exception management, and Days Payables Outstanding (DPO) Aberdeen supplemented this online survey effort with telephone interviews with select survey respondents, gathering additional information on A/P strategies, experiences, and results. Responding enterprises included the following: • Job function: The research sample included respondents with the following job functions: finance (45%), procurement and supply chain (26%), business process management (10%), and IT (9%). • Job title: The research sample included respondents with the following job ti- tles: CEO or president or other C-level (18%), vice president (8%), director (22%), and manager (31%) • Industry: The research sample included respondents from finance (20%) and high tech (11%) and then broadly distributed across 30 other industries. • Geography: 71% of the research respondents were from North America, 15% were from Europe, Middle East & Africa and 13% were from Asia-Pacific. • Company size: 42% of respondents were from large enterprises (annual revenues above US$1 billion); 32% were from midsize enterprises (annual revenues be- tween $50 million and $1 billion); and 26% of respondents were from small busi- nesses (annual revenues of $50 million or less). All print and electronic rights are the property of Aberdeen Group © 2006. 16 • AberdeenGroup
  23. 23. A/P Strategies for Success Solution providers recognized as sponsors of this report were solicited after the fact and had no substantive influence on the research results. Their sponsorship has made it possi- ble for Aberdeen Group to make these findings available to readers at no charge. Table 8: Competitive Framework Competitive Framework Key The Aberdeen Competitive Framework defines enterprises as falling into one of the three following levels of procurement practices and performance: Laggards (30%) — Procurement practices that are significantly behind the average of the industry, and result in below average performance Industry Average (50%) — Procurement practices that represent the average or norm, and result in aver- age industry performance. Best in Class (20%) — Procurement practices that are the best currently being employed and significantly superior to the industry norm, and result in the top industry performance. All print and electronic rights are the property of Aberdeen Group © 2006. Aberdeen Group • 17
  24. 24. The CPO’s Strategic Agenda Appendix B: Related Aberdeen Research & Tools Related Aberdeen research that forms a companion or reference to this report includes: • The Invoice Reconciliation & Payment Benchmark Report (June 2006) • Source-to-Settle: Compliance Clues for the CFO (October 2006) • CPO’s Strategic Agenda: Managing People Managing Spend (November 2006) • CFO’s View of Procurement: Getting More to the Bottom Line (September 2005) Information on these and any other Aberdeen publications can be found at www.Aberdeen.com. All print and electronic rights are the property of Aberdeen Group © 2006. 18 • AberdeenGroup
  25. 25. Aberdeen Group, Inc. Founded in 1988, Aberdeen Group is the technology- 260 Franklin Street driven research destination of choice for the global Boston, Massachusetts business executive. Aberdeen Group has over 100,000 02110-3112 research members in over 36 countries around the world USA that both participate in and direct the most comprehen- sive technology-driven value chain research in the Telephone: 617 723 7890 market. Through its continued fact-based research, Fax: 617 723 7897 benchmarking, and actionable analysis, Aberdeen Group www.aberdeen.com offers global business and technology executives a unique mix of actionable research, KPIs, tools, © 2006 Aberdeen Group, Inc. and services. All rights reserved The information contained in this publication has been obtained from sources Aberdeen believes to be reliable, but is not guaranteed by Aberdeen. Aberdeen publications reflect the analyst’s judgment at the time and are subject to change without notice. The trademarks and registered trademarks of the corporations mentioned in this publication are the property of their respective holders.

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