The Big Finance Payoff - Top Performance Metrics and How to Achieve Them

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  • This session will examine the business case for automating procure-to-pay functions and explore related hard and soft-dollar savings and process improvements. You will hear about essential benchmarks for purchase order (PO), invoice and payment automation, as well as supplier management, working capital and compliance. Panelists will discuss the next wave of F&A outsourcing for labor cost savings and transformational change. They will also share the latest strategies for setting targets and measuring results against stated objectives. Session participants will walk away with an actionable blueprint for effective performance measurement.
  • Overall, as Europe moves into a period of recovery and revenue growth, the issue at question is whether the changes made are sustainable and whether companies are truly creating a “cash culture.” Although 60 percent of the companies featured in the survey improved their working capital in 2010, based on previous survey results, only 40 percent to 50 percent of these can be expected to sustain this improvement in 2011. Only 5 percent of companies have achieved upper-quartile performance within their industry and have managed to improve in all three working capital elements over a five-year period to 2010. And just five companies within the survey have improved their DWC every year for the past five years and are in the upper 50 percent in all three elements of working capital.So what can companies and CFOs do to ensure ongoing focus and sustainability?
  • Performance MeasurementA process for collecting and reporting information regarding the performance of an individual, group or organizations. It can involve looking at whether outcomes are in line with what was intended or should have been achieved.To Evaluate how well a public agency is performing. To evaluate performance, managers need to determine what an agency is supposed to accomplish. (Kravchuk & Schack 1996). To formulate a clear, coherent mission, strategy, and objective. Then based on this information choose how you will measure those activities. (You first need to find out what are you looking for).Benchmarking is a traditional form of performance measurement which facilitates learning by providing assessment of organisational performance and identifying possible solutions for improvements.To Improve What exactly should who- do differently to improve performance? In order for corporation to measure what it wants to improve it first need to identify what it will improve and develop processes to accomplish that.Also you need to have a feedback loop to assess compliance with plans to achieve improvements and to determine if those processes created forecasted results (improvements).To Motivate Giving people significant goals to achieve and then use performance measures- including interim targets- to focus people’s thinking and work, and to provide periodic sense of accomplishment.To Promote How can public managers convince political superiors, legislators, stakeholders, journalists, and citizens that their agency is doing a good job.Between your strategy and performance measures, you require a set of performance objectives that describe what you must do well in order to execute your strategy. Objective statements are just that - concise statements that describe the specific things you must perform well if you are to successfully implement your strategy. The objectives you create will act as bridge from the high-level strategy to the performance measures that you will use to determine your progress toward overall goals.Strategic performance measures monitor the implementation and effectiveness of an organization's strategies, determine the gap between actual and targeted performance and determine organization effectiveness and operational efficiency.Good Performance MeasuresFocus employees' attention on what matters most to success Allow measurement of actuals to targetProvide a common language for communication Are explicitly defined in terms of owner, unit of measure, collection frequency, data quality, expected value(targets), and thresholds Are valid, to ensure measurement of the right things Are verifiable, to ensure data collection accuracy
  • "What you measure affects what you do. If you don’t measure the right thing, you don’t do the right thing." -- Joseph Stiglitz (1943–), US economist -- Source: Quoted in the New York Times (October 4, 2009) "If you don't know where you are going, you will probably end up somewhere else." -- Laurence J. Peter (1919–1990), Canadian academic and writer -- Source: The Peter Principle: Why Things Always Go Wrong (cowritten with Raymond Hull, 1969)
  • Brain Storming – What are the elements of performance measurement in the procure-to-pay (buy-side) and order-to-cash (sell-side) processes?Example:Process efficiency/effectiveness – on-time, price per document, docs per FTE, discount captureCompliance: Sarbox, PO, Contract, VAT/tax, price, vendor, etc.Working Capital – cycle time (eg. DPO, DSO), Supplier (Customer) Management: e-enabled, quality, on-time delivery,
  • This overall strategy can increase your discount savings 2-5x what you are earning today. Many companies have some level of prenegotiated early pay discounts typically with less than 5% of their supplier base. And due to inefficient, paper-based invoice processing, most companies capture less than half of the discount savings available to them.  By implementing electronic invoicing with approval workflow, companies are able to approve invoices in 5 days or less and therefore able to capture about 2x what they are today with their existing opportunities.  Companies, like Republic Services, are leveraging Ariba’s cloud-technology and best-practice services to increase their savings 3-5x what they previously captured by increasing the number of suppliers participating in their discount programs during the enrollment process, and introducing sliding scale or dynamic discounts to capture discounts on targeted hurdle rates aligning the buyer’s and the seller’s objectives (i.e. bottom line savings / getting paid faster). Ariba Discount Professional provides buyers and suppliers the visibility and control they need to manage cash better with the Ariba Network by connecting you to nearly 1 million trading partners, many of whom you are already doing business with and many of whom are looking for improved cash flow. Ariba also assigns a customer management executive who helps measure your success against the stated objectives for continuous performance measurement and program adjustments.  The result is an increase of 3x-5x in your early payment discount savings, earning you an APR of 10-30% while providing needed liquidity to your suppliers. This is the “treasure” in treasury.
  • We discussed the innovative tools Ariba offers for optimizing working capital; ; another area that can help move the Net Income needle in the right direction is by capturing the savings of spend under contract. This Hackett Group study reveals the potential significant savings that will directly impact profitability by reducing spend by over $9 million per $ billion in spend under contract by increasing compliance rates by just 10%!!
  • NWC DefinitionInventories+ Receivables- PayablesWACC: Weighted Average (Annual) Cost of Capital Focus: We pay supplier for our raw materials until customer pays us for the sold finished goodsAim: We negotiate longer terms with our supplier and shorter terms with our customers to have the shortest cash gap possibleInternally:- Early posting of supplier invoice enlarges payables durance at process start- On time (as actually many early payments => later payments) enlarges payables durance at process end- Early invoicing of sold goods to customer enlarges receivables durance at process start- On time payment from customer (no overdue) enlarges receivables durance at process end=> All four effects combined optimize (shorten) the cash gap
  • With this slide we go into a little more detail about the agreed and the effective payment terms. The agreed term is the average of all negotiated payment terms and the effective is the average term when the payment effectively was released.Agreed and Effective can’t correlate 100% due to external invoice transit time (by mail); acceptance zone of three days hat been set as baselineEffective Payment depends on the payment FrequencyStoryline: What are we focusing on / measuring
  • Gap between agreed and effective term days over five times bigger than defined (equal to 80% optimization potential)Complexity reduction from 786 to 68 payment terms as per 01.01.2012
  • The Smart Enterprise Processes approach involves:It identifies the most important business outcomesComprehensively defining the process in terms of adequate width (enterprise wide) and depth (four levels).We establish the key linkages between outcomes, process metrics & performance drivers.Opportunities are identified and a roadmap developed, with the flexibility to deliver modularly; Business outcomes can be realized irrespective of where you begin in the process value chain.Execution leverages Genpact’s unique strengths in targeted analytics, focused IT solutions and pragmatic reengineering. Ongoing measurement against the key metrics enables us to deliver ongoing improvement. This approach and the related IP (Intellectual Property) is available for a select set of core processes today. Genpact will continue to build out this asset, focusing on those processes where we can have the most impact.
  • Key Messages – There is a relation between all the sub-processes within S2P as well as they are inter-dependentHere you can see specific symptoms between sub process and the business impact that they go to influence. For e.g. an incomplete market assessment that connects Category Strategy and Negotiating & Contracting leads to Wrong negotiation Strategy.
  • The Big Finance Payoff - Top Performance Metrics and How to Achieve Them

    1. 1. MC The Big Finance Payoff: Top Performance Metrics and How to Achieve Them James Tucker, Global Solution Marketing Director Peter Beyeler, Global eProcurement Mgr, Clariant Peter Sowrey, VP, Procurement and Payment, Genpact© 2012 Ariba, Inc. All rights reserved.
    2. 2. Challenges in Europe Source: The Hackett Group/REL, 2011 Europe Working Capital Survey • Shared metrics for purchasing and accounts payable 45% US 55% Western EU2 © 2012 Ariba, Inc. All rights reserved.
    3. 3. Process Automation AND Performance Measurement • Process automation gives top performing organizations a 92% cost savings advantage • However, technology alone is not a silver bullet… “If you do not re-engineer and measure your processes you will fail to gain the full benefits of the technology.” – Pierre Mitchell, The Hackett Group3 Ariba, Inc. 2012 All rights reserved.
    4. 4. Performance Measurement A process for collecting and reporting information and assessing results against target objectives.4 © 2012 Ariba, Inc. All rights reserved.
    5. 5. "What you measure affects what you do. If you don’t measure the right thing, you don’t do the right thing." -- Joseph Stiglitz, US EconomistSource: Quoted in the New York Times (October 4, 2009)
    6. 6. Four Performance Pillars for Finance $15 Million for every $1 Billion in Spend CHALLENGE OPPORTUNITY “ Process “ 1-for-1 60-80% cost take out – or about $1 million for average to large Payables organizations “ Discount “ 2-for-1 $2 Million in discount savings for “ every $1 Billion in discountable spend Compliance “ 9-for-1 $9 Million in contract leakage savings for “ every $1 Billion in spend under contract Working Capital “ 3-for-1 $2.74 Million in working capital impact for 1 days of payables extension (DPO) on every $1 Billion in spend Source: The Hackett Group 2011 P2P Benchmark Report and Ariba Results6 Ariba, Inc. 2012 All rights reserved.
    7. 7. “ Process Benchmarks “ 1-for-1 60-80% cost take out – or about $1 million for PROCESS average to large Payables organizations (B) Key Performance Indicator (KPI) Laggards Average Innovators Invoice cycle time receipt-to-approve (P) 45 days 21 days 5 days (13 days EU) Invoices per FTE (H) 6,797 11,364 32,830 (8463 EU) Percentage of invoices with exceptions (A) 30% 17% 12% First pass match rate (H) 65% 70% 85% (59% EU) Percent of electronic invoices (H) 7% 25% 67% (9% EU) Inquiries per 10,000 Invoices (H) n/a 756 n/a (1091 EU) (P) PayStream Advisors (H) The Hackett Group (A) Aberdeen (B) Billentis7 © 2012 Ariba, Inc. All rights reserved.
    8. 8. 28% Invoice Exception and Error Rates • On average 11% of invoices have errors • On average 17% of invoices have exceptions ~ AND ~ • 37% of AP staff time spent responding to inquiries8 © 2012 Ariba, Inc. All rights reserved.
    9. 9. Best Practice: Ariba Smart Invoicing  The best invoice solution is the one that is TOUCHLESS  Lower AP/AR Costs  Ariba Smart Invoicing drives auto post rates of 98% compared to  Faster Cycles less than 60% with other solutions  Lower Risk Supplier Portal provides real-time Procure-to-Pay access to invoice and payment status eliminating inquiries to AP Invoice Number PO GST/VAT Invoice Acct Compliance Date Coding Commerce Price Qty Compliance Network Threshold Ship to Invoice Contract Address Match Unit Amt Threshold Pay Bill-To Address • 37% of AP staff time spent• 11% of invoices have errors responding to inquiries• 17% of invoices have exceptions Over 70 configurable rules that Order-to-Cash capture errors and exceptions before they reach AP9 © 2012 Ariba, Inc. All rights reserved.
    10. 10. Invoice Cycle Time The average invoice cycle time (from receipt to approval) is 21 days, with best-in-class companies completing this cycle in only 5 days. Paper Invoice Approvals Approvals Reduce e-Invoice http://www.ariba.com/resourcelibrary/views/res Cycle Time ource_library_asset_brief.cfm?asset_id=867 10 30 60 20 Days of Invoice Receipt-to-Approve10 © 2012 Ariba, Inc. All rights reserved.
    11. 11. “ Discount Benchmarks “ 2-for-1 $2 Million in discount savings for DISCOUNTS every $1 Billion in discountable spend Key Performance Indicator (KPI) Laggards Average Innovators Discountable spend 10% 20% 30% Discount Rate (eg. 2% 10 Net 30) 1% 2% 2.5% Annualized Percentage Rate (APR) 36% 36% 36% Percentage of discounts captured (A) 15% 24% 31% (A) Aberdeen11 © 2012 Ariba, Inc. All rights reserved.
    12. 12. Lagging Discount Strategy in Europe Source: The Hackett Group 2011 P2P Metric Comparison of NAMER and EMEA12 © 2012 Ariba, Inc. All rights reserved.
    13. 13. Opportunities to Maximize Discount Capture Success 3% Our goal last year was to achieve Example discount term: “ 60 percent of addressable invoices for early payment discounts with “ 2%10 Net 30 Ariba and we surpassed that. Discount Rate 2% Erin Chumbley ePro Manager Reduce Invoice Approval Process Republic Services Paper Invoice Cycle Time Approvals e-Invoice 1% http://youtu.be/GKXkXYaXNSM 10 30 60 20 Days Source: Dynamic Discount Management: Finding the “Treasure” in Treasury, PayStream Advisors, 201213 © 2012 Ariba, Inc. All rights reserved.
    14. 14. Correlation between Supplier Collaboration with e-Invoicing and Discount Capture $1M 1,000 Vendors Enrolled in Early900 Payment Program Vendors Enrolled in Early Payment 800 Program 700 600 Vendors Participating $0.5M 300 200 Vendors Participating 100 $0M 0 Vendor participation increased by nearly 500% Discount savings reached $1M14 © 2012 Ariba, Inc. All rights reserved.
    15. 15. Best Practice: Increase Discount Capture Capture Missed Discounts & Increase New Discounts 5x Ariba solutions capture 2-5x discount savings Enroll suppliers at enablement Engage right supplier audience Recent Aberdeen study shows 50% of pre-negotiated 3x Introduce sliding scale discount discounts are never captured Include net term invoices 2x15 © 2012 Ariba, Inc. All rights reserved.
    16. 16. “ Compliance Benchmarks “ 9-for-1 Increasing compliance rates can drive COMPLIANCE over $9 million in value per $ billion in spend Regulatory Contracts / PO’s Price VAT/Tax Preferred Vendors16 © 2012 Ariba, Inc. All rights reserved.
    17. 17. Compliance If compliance is defined as buying from the right vendor at the right price, what percentage of your purchases are fully compliant? Over 90% 70% - 90% 50% - 70% Under 50% Don’t knowSource: Defining and expanding the value proposition of P2P survey, ISM, Forrester, Ariba; February2011; relative population sample.
    18. 18. Process Efficiency Drives Contract Compliance Compliance to Indirect Preferred Supplier Lost Savings per $ Billion of Indirect Contract Spend due to Contract Non-Compliance Increasing compliance rates by 16% can drive over $9 million in value per $ billion in spend Source: Hackett Group Contract Management Survey, 200918 © 2012 Ariba, Inc. All rights reserved.
    19. 19. “Working Capital Benchmarks “ 3-for-1 $2.74 Million in working capital impact for each day of WORKING CAPITAL payables extension (DPO) or inventory (DIO) or receivables reduction (DSO) on every $1 Billion of spend Source: The Hackett Group / REL: US Working Capital Survey 201119 © 2012 Ariba, Inc. All rights reserved.
    20. 20. Working Capital Benchmarks - Europe20 © 2012 Ariba, Inc. All rights reserved.
    21. 21. The CFO Focus: Managing Cash % of Firms Citing Strategies as Critical and Major Priorities Improving Working Capital and Manage Cash 67% optimizing cash flow Implementing enabling technologies to Efficiency & Effectiveness 60% improve efficiency and effectivness Improving agility as revenues and costs Agility 57% fluctuate Aligning strategy with that of the Aligning Strategies 54% enterprise Source: The Hackett Group 2010 Key Issues Study21 © 2012 Ariba, Inc. All rights reserved.
    22. 22. E-Invoicing Identified as The Primary Enabler for Working Capital22 © 2012 Ariba, Inc. All rights reserved.
    23. 23. E-Invoicing: THE Business Driver for Strategic Savings E-Invoice considered THE document regarding working capital optimization (3-for-1) E-Invoice considered THE document regarding VAT reclaim (7-for-1) E-Invoice considered THE document regarding contract compliance (9-for-1) E-Invoice considered THE document to maximize discount capture (2-for-1)23 © 2012 Ariba, Inc. All rights reserved.
    24. 24. Peter Beyeler Group Procurement Services 10.05.2012The Big Finance PayoffPeter Beyeler | Global eProcurement and Automation Manager
    25. 25. Clariant – Key Facts ■ Clariant is a world leader in colors, surface effects and performance chemicals ■ Annual sales of CHF 7.4 billion in 2011 ■ HQ in Muttenz near Basel, Switzerland ■ World-wide operations, with more than 100 group companies in over 70 countries ■ Approximately 22,100 employees ■ Products and services of 11 BUs are based on innovative specialty chemicalsPeter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) Slide 25
    26. 26. Procurement Evolution @ Clariant Procurement management for strategy growth  Source of innovation Shareholder Value  Faster introduction of new markets  Manage Cash  Exclusive knowledge capture and leverageImpact to Clariant  Procurement is a strategic key activity  Long term securing of price, volumes, service Traditional “Purchasing Mindset” Supplier consolidation / Global lead buyer  Service to the Company concepts  Fragmented supplier base  Reduce complexity (PRAGMATISM and SIMPLICITY) Cost  Negotiate case by case  Global view and global negotiation  Local view  Supplier consolidation  etc.  Tool Standardization Operational Strategic Scope Peter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) 10.05.2012 Slide 26
    27. 27. P2P Transformation ProjectOrganizational Structure EC EC CFO Operations Cash Performance Team / NWC Finance GPS Services GPS Region Process & Performance AP SSC 11 Business UnitsPeter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) 10.05.2012 Slide 27
    28. 28. P2P Fact Sheet • Globally 18 Countries with eProcurement • 368 Active Relationships on the Ariba Network • Total 698 eProcurement Suppliers (Ariba, OCI, SAP) • 50% of all Indirect Spend PO line items are eProcurement • 50 % or 200`000 PO Line Items are eProcurement within Indirect Spend (no eProc for Direct Materials today) • Worldwide about 1 Mio. Invoices processed. • Direct Spend 100% PO coverage • Indirect Spend 92% PO coverage Target 95%Peter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) 10.05.2012 Slide 28
    29. 29. P2P enablement Targets • Reduction of NWC • Cash Flow Savings • Reduction of Invoice ageing • P2P Process Speed up • AP Process Optimization • Realizing more cash discount • Process compliance • Back Log reduction • Failure Rate ReductionPeter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) 10.05.2012 Slide 29
    30. 30. Net Working Capital EffectsThe Cash GAP You purchase inventories You sell goods (as soon as invoice has been (as soon as invoice has been booked, payables increase) issued, receivables increase) INVENTORY NWC PAYABLES RECEIVABLES Effect Depending on CASH GAP invoice booking date payables period 10 later 20 starts 30 40 50 60 70 80 90 100 110 120 You pay for your purchased You receive payments for inventories your sold goods (CASH OUT) (CASH IN)Peter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) 10.05.2012 Slide 30
    31. 31. Agreed vs. Effective Term Days Purchase Goods Invoice Invoice Payment Order Receipt Receipt posting Term Term invoicing Due date date 60 days 45 days invoicing invoicing date date AGREED Baseline Date EFFECTI VE1. 05.01. 15.01. 20.01. 25.01. 31.01. 05.02. 10.02 05.03. 01.03. agreed effective If posting is done before month end => Payable at end of January If posting is done after month end => No Payable at end of January Stalder Frédéric, Group Procurement Services, Performance and Process Management (Copyright Clariant. All rights reserved.) 10.08.2011 Slide 31
    32. 32. P2P Metrics to be considered Payables Goods Invoice Order Invoice Posting Payment Receipt Receipt Actual, late posting, non aligned terms, 1 early payment 3 2 10.05.2012 NWC Savings Agreed vs. Effective Days If effective < agreed (most likely) Effect 1: Early(er) posting • 1 Posting performance Effect 2: Pay Term alignment Effects (today FI 5 days shorter than MM) • FI is not equal to MM 2 Effect 3: On due date payment pay term, (FI Shorter) • (as today early = later payment) Early Payment 3Peter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) Slide 32
    33. 33. Past P2P Process Enduser is creating his Procurement issues the PO Material request in SAP According the first in first out To send it to the responsible principle. Procurement Person Payables Manual Handling and plausibility check OCR Approval Cockpit Transfer Interpret Verifier ScanningPeter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) 10.05.2012 Slide 33
    34. 34. P2P Process optimization Invoice Cockpit and the approval workflow are the only process steps which are unchanged. The Procurement process for Payables Indirect Materials will be also changed into a eProcurement process if possible. Approvals Approval Cockpit in case of quantity and value mismatch only. End-user accesses one of the over 250 catalogs and selects eInvoice GR the needed Products and orders immediatelyPeter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) 10.05.2012 Slide 34
    35. 35. eInvoice Process design Supplier Invoice StatusInvoiceFailed Invoice PO # Compli ance entity Business Rule Check Digital Signing on Digital Signature Validation behalf of the Supplier on behalf of Clariant Open Text Archive Original Document Sphere segregationPeter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) 18.11.2011 Slide 35
    36. 36. Project Setup and Lessons Learned Schedule and Next Steps Q3 / Q4 2012 Q1 / Q2 2013 Q3 / Q4 2013 Q1 / Q2 2014 CH GER FR, SP, IT, UK, B, AT, Nordics NAFTA LATAM APAC MEA Learning Lessons • Corporate Initiative (Top Management Support) • Procurement is responsible to monitor accounts payable (Purchase to Pay Leverage) • Clear dedicated Responsible within key departments (Cross Functional) • Advanced Guard organizational concept • Process verification Region / Country wise (Tax and Legal Compliance)  Time Consuming • “Slice the Elephant” detail roll out plan necessary including Region / Country specific regulations / requirementsPeter Beyeler, Group Procurement Services (Copyright Clariant. All rights reserved.) 10.05.2012 Slide 36
    37. 37. Source To Pay SEPSM – Ariba Live
    38. 38. SEPSM Is a Unique Scientific Approach that Delivers Impact on 38 Business Outcomes SEPSM: Provides a Holistic, Very Granular Framework for Managing Business Processes 6 Solution implementation Offers solutions to deliver Identifies drivers including business of performance process, Links business outcomes variability and analytics outcomes and through process Maps every core roadmap for reengineering benchmarks to efficiency, business improvement by and focused IT Identifies the key performance transformation key business process at a leveraging projects, Point IT granular level measures and outcomes for key performance ‘insights’ and / analytics the company drivers ‘best practices’ solutions© 2009 Copyright Genpact. All Rights Reserved.
    39. 39. Dependencies within S2P process and value leakages… 39 Business Impact Symptom Failure to link Incomplete market procurement Delayed or inaccurate Inadequate spend assessment to contracts receipt transactions visibility Hindered actionable Wrong negotiation Savings leakages category strategy Manual accruals strategy Spend Category Negotiation & Procurement Payment Management Strategy Contracting Inadequate Contract non- Inadequate negotiation spend compliance leverage visibility Delayed payments Non PO invoices Value leakages and how they can impact Total Cost of Ownership (TCO)© 2009 Copyright Genpact. All Rights Reserved.
    40. 40. 40Sample S2P SEPSM Schema - Procurement Process Framework Indirect Source-to-Pay Business Outcomes Level 1 SEPSM 1. Reduction in TCO 2. Working capital optimization 3. Availability of material Sourcing Procurement Payment Level 2 Negotiation Master Invoice Sub-Process Spend Category Planning Material Invoice Release Filings and & Data Receipt & Analysis Strategy & PO Issue Receipt ProcessingPayments Compliance Contracting Mgmt Capture • % spend • % spend • % reduction • % reduction • Accuracy of forecast • Receiving TAT •Cycle time for • Cycle time • Payment release • On time filing data visible controlled by in price • % spend through • No. of capture (from (3-way match TAT in price • Accuracy of accurately purchasing preferred & contracted stockouts Key • % of suppliers contracted contracted vendors invoice date to to ready-to-pay) • Cost of making filings • % early • % early • % late deliverycapture into • Cost of processing payments • % exceptions Performance for 80% spend payment payment • Req to PO TAT workflow • % invoices ready to• Invoices paid on Drivers • % vendors discount discount • Cost of PO processing • Cost of capture pay on time time replaced YoY contracted contracted • • Accuracy Average days of • % duplicate • Discount capture % • % reduction in • Average • Average inventory of capture (DPU) payments TCO targeted payment days payment days • First call query contracted contracted resolution Divide Procurement Follow up Update • TAT for query Transmit Identify need order Receive Plan: Reqmts, Create for delivery resolution in receipt Return receipt Level 3 from Forecasts & Purchase Approve among and goods system and goods if business requisition suppliers delivery details to Activities Inventory requisition provide 2-way required AP stake-holders and create and inspect Levels information match PO • % spend • % spend with • Req creation • Req • % spend through • % electronic • % critical good • % of receipt • % good • % interface with formalized formalized cycle time approval catalogues and PO acknow- delivered on txns returned errors cross budgeting and • % req created TAT preferred / contracted ledgements time and completed on • % goods • % of invoices functional forecasting online by end supplier (at right price • Turn around accurately time scrapped requiring PO planning process users and specs, right time for query • GRN accuracy • % spend with at no cost to reconciliations sessions • Forecast • Percent req volumes) % increase resolution • % receipt manual vendors Key • % spend accuracy created over budgeted/ • % queries orders with accruals needs • Inventory accurately as per planned volume accurately rejections Performance correctly accuracy policy • PO Issue TAT resolved Drivers identified • % of catalog reqs • % Pos issued • % spend on P- correctly cards • % POs without buyer processing • % POs transmitted electronically • PO amendment TAT© 2009 Copyright Genpact. All Rights Reserved.
    41. 41. Linkages between business outcomes, performance measures 41 and drivers of that outcome … % spend negotiated <5% 20% 25% with e Auctions % Spend under < 5% 40% E-RFx Contract Closure 8 Wk 4 Wk Cycle Time % Spend under 82% 15% 81% contracts % spend under 20 98% management Early Engagement 15% NASourcingEffectiveness 3% % savings achieved 10% 3% YOY 7% % active suppliers 17 3.4% for 80% spend % spend accurately extracted and 90% 100% categorized % Vendors introduced by 5 NA Sourcing Note: Savings achieved YOY is basis Savings realized on Total Sourcing spend Customer Median Best-in-Class
    42. 42. We Partner with our Clients in their Transformation Journey through 42P2P Process Maturity models… Best-in-Class Strategic Proactive Client positioning Reactive • Spend Visibility is low • Spend data is extracted • Spend analytics platform • >90% spend visibility – reports from and cleansed offline in place with periodic with UNSPSC Sourcing & Spend transaction systems feeds from ERP categorization used Analytics • Need to implement e- • E-Procurement system • Req-PO penetration of • >40% by transaction Procurement system with Req-PO – SRM >90% with >20% volume with catalogs with workflows functionality in place transaction volume with and >25% touch-less • PO penetration <50% • PO penetration of >70% catalogs buying • <10% catalog buying • Up to > 10% catalog • 2000-5000 vendors per Requisition and PO • No check on contract buying Bn • Approval matrix and Processing compliance – limited • Preferred suppliers in place • Services procurement in budgets checks online visibility to preferred • ~5000 vendors per Bn place in workflow vendors • > 8000 vendors per Bn • <10 days cycle time • <7 days cycle time • > 60 days cycle time • <30 days cycle time • >50% e-Invoicing • >70% e-Invoicing, • < 25% vendors paid • <25% e-Invoicing, • 60-85% paid on time • >85% paid on time on time • 25-50% paid on time • <90% PO penetration • >25% discounts Accounts Payables • <50% PO penetration • <80% PO penetration • <10% discounts (NA) • >70% FPY • <10% FPY • <5% discounts • 40-70% FPY • 10-30% FPY© 2011 Copyright Genpact. All Rights Reserved.
    43. 43. Source-To-Pay SEPSM Success Stories 43 $5b software company based in bay area, US • $1b spend flowing though non-compliant buying channels – early engagement of sourcing absent • Genpact solution focused on increasing spend under effective management - $30m+ savings opportunity $40b global pharma company • Emerging markets which are rapidly growing does not have sourcing function and spend visibility • Sourcing “SWAT” projects completed in ANZ, Taiwan, India – identified $5m savings opportunity $4.5b pharma company based in Europe • Fragmented processes with lack of integration between upstream and downstream functions in S2P • Structured (currently implementing) 2 year transformation plan - $35m savings, $300m cash flow $5b services company based in Europe • Absence of critical business effectiveness metrics and adequate process visibility across P2P • Identified key initiatives to be implemented in 2011 with programs benefits of $22m cost savings $18b global auto ancillary company • Bottlenecks in AP process, lack of metrics, low effectiveness (payment on time, discount capture) • Cash flow impact of $110m with costs savings of $11m due to process optimization 12 source-to-pay diagnostics project completed with impact of > $100m© 2009 Copyright Genpact. All Rights Reserved.
    44. 44. ~ $38-40 MM TCO reduction through enhanced S2P effectiveness for a global 44Bio-Pharmaceutical major… Solution: Business Context End-to-End SEP diagnostics of Sourcing, Procurement and Payables • Client struggling with declining revenue s and cost pressures because expiry of patents on key drugs Account Sourcing Procurement • Limited buy in from US and Sourcing departments, diverse Payables agenda scope creep pressures • Increasing sourcing • E-Procurement with • Low-value transaction • Diverse and large number of stakeholders- 100+ process effectiveness Catalogs – Preferred spend management stakeholders: leadership, sourcing, finance & business – Increase SUM to Vendors (Spend amount < across 4 countries 80% $1300) • Implement ERP frame • Organization still grappling with integration of an acquisition • Increased penetration schedules and manual • E-Invoicing + OCR with of E-Sourcing -– gate-keeping of a penetration of around • Disparate Systems and Practices. Siloed processes and Increase Early agreements 60% inconsistent behaviors across geographies Engagement from • Policy Review • Automation of catalogs current 20% • Transactional process compliance Contract coverage, Programs to curb ATF & PDF Invoicing – visibility and compliance • Managing tail-end POs and vendor Increase current FPY of spend (10%) with creation (11% ATF 33% • Need for improving budget and spend visibility tactical buying currently) Business Impact Potential • $16-17 Mn - Increasing Spend Under Management, Tactical Buying and deploying E-Sourcing Platforms and E-Auctions • $8-12 Mn - Robust Contract Management Systems and increasing Contract coverage and visibility • $7-8 Mn - Increasing Procurement Transactional efficiencies • $6-7 Mn - Improving Payables Operational Efficiencies, Payment Term rationalization and discount penetration© 2011 Copyright Genpact. All Rights Reserved.
    45. 45. Source to Pay Process Optimization for a Global Hi-tech Major ~$28- 45 40 MM TCO Reduction Solution Business Context Identifying effectiveness and efficiency opportunities in Source-to-Pay process • To establish an Identification of metrics and effective and implementation of To measure “early engagement “ and measurement system & “spend under management” by building efficient source- reporting to drive increased a robust metrics framework to measure to-pay framework Spend under Mgt Client’s program effectiveness • To put in place a robust measurement Streamlining of client’s retained system to drive transformation and Realignment of Client organization, to achieve higher- reduce TCO organization for further cost productivity in operations and savings effectiveness in sourcing • Some of the Client needs and Pain areas which SEP addressed… Roadmap for integration of Review of procurement policies and • High operations cost sourcing & procurement implement contract visibility and gate- • Organization alignment issues processes to drive PO and keeping in procure-to-pay to drive contract compliance contract, vendor and policy compliance • Siloed thinking • Low spend under management Implement ion of Contract-authoring, e- • Low utilization of technology Deployment of technology Sourcing and automation in tools procurement and payables Business Impact through TCO reduction by… • Price benchmarking (Previously contracted savings: • Compliance ($ 5-10 MM) $165MM over 7 years on a base of $1.3BB) • Payables ($ 5-6 MM) • Sourcing Effectiveness ($ 10-14 MM) • Operational efficiency ($ 8-10 MM)© 2010 Copyright Genpact. All Rights Reserved.
    46. 46. 46 ~ £ 16 – 18 MM TCO reduction program for a Global Services Major… Business Impact Business Context Identified • £3-4 MM through Process • Establish an effective procure-to-pay enterprise process management compliance and enforcing framework with metrics and transformational roadmap to improve process business discipline on operating efficiency while optimizing Total cost of ownership procedures • Recommended ways of institutionalizing a host of P2P Metrics • £ 5-6 MM through increased effectiveness metrics and drilldowns to augment Framework and business performance with increased visibility to P2P contract visibility, compliance interlinkages and effective control checks on processes through dashboards price leakages Cross Industrial • Benchmark client business processes with industry benchmarking medians and Best In Class companies coupled with • £ 3-4 MM through Strategic AP and key process detailed root cause analysis of key process gaps initiatives and Working Capital observed Optimization gaps • £ 3.5-4 MM through increasing Transformation • List of transformational initiatives, categorization in Operational Efficiency terms of focus areas, quantification of expected (Automation, Right Shoring and Roadmap reduced process cycle times benefits (RoI) and Risks of non-implementation© 2011 Copyright Genpact. All Rights Reserved.
    47. 47. 47 ~ $135 MM Working Capital Optimization for Global CPG Giant Business Context Solution AP Process health check, identification of working Identifying effectiveness and efficiency opportunities in AP process capital optimization & cost out opportunities Procurement Payables • Freeing up of working capital & Master Planning Invoice Material Invoice Release Filings & reduction of cost to serve of the Data and PO Receipt Receipt Processing Payments Compliance Mgmt Issue &Capture Payables Process Policy Standardization • Low discount capture Payment terms rationalization Due date Optimization • No P-card usage AP & AR Terms Harmonization Process Improvements • Non-deployment of e-invoicing / Vendor Master Reduction in One Destination ERS modes of Invoice receipt Cleanup Post Facto POs Invoice Receipt P Card • Sub optimal usage of SAP workflow/ OCR engine during IT Interventions invoice processing E – invoicing OCR Accuracy improvements Escalation matrix based Work Flow routing workflow for Inv approval to approvers Business Impact Potential: $135 MM • Due Date optimization • AP-AR Harmonization • Payments term rationalization • Payment terms compliance© 2011 Copyright Genpact. All Rights Reserved.
    48. 48. What this new Smart Invoicing Q&A Ariba infographic has to say may surprise you. Take a look. Network http://www.ariba.com/pdf/SmartInvoicing-Ariba.pdf Manage Cash Better Order-to-Cash Procure-to-Pay http://www.ariba.com/solutions/manage-cash.cfmManage CashWednesday, May 30 (14:30-15:45)Mare Nostrum FSmart Invoicing: Move Beyond Scanning to Achieve Paperless InvoiceProcessing James TuckerWednesday, May 30 (16:00-17:15)Mare Nostrum F Global Director Solution MarketingThe Big Finance Payoff: Top Performance Metrics and How to Achieve Ariba Network & Finance ManagementThem +1.650.390.1702Wednesday, May 30 (17:30-18:45) jtucker@ariba.comMare Nostrum Fe-Invoicing VAT Compliance Workshop: A Legislative Framework forElectronic Invoices http://www.linkedin.com/in/jbtucker3Thursday, May 31 (10:00-11:15)LlevantManaging Cash Better in an Era of Limited Growth jbtucker3Thursday, May 31 (11:45-1:00)LlevantStreamlining Your Accounts Receivables with Outbound Invoicing48 © 2012 Ariba, Inc. All rights reserved.
    49. 49. MC APPENDIX© 2012 Ariba, Inc. All rights reserved.
    50. 50. Benchmarking Payables Performance Measures Key Performance Indicator (KPI) Laggards Average Innovators Invoice cycle time receipt-to-approve (P) 45 days 21 days 5 days Invoices per FTE (H) 6,797 11,364 32,830 Percentage of invoices with exceptions (A) 30% 17% 12% First pass match rate (H) 65% 70% 85% Percent of electronic invoices (H) 7% 25% 67% Days Payables Outstanding (REL) 30 33 36 Percent of spend under Discounts (H) 0% 0.018% 0.133% Percentage of discounts captured (A) 15% 24% 31% Number of e-enabled suppliers (AN) 20 400 3000 (P) PayStream Advisors (H) The Hackett Group (A) Aberdeen (REL) The Hackett Group/REL (AN) Ariba Network50
    51. 51. Sources • Paystream Advisors eInvoicing Adoption Benchmarking Report, 2011 Dynamic Discount Management: Finding the “Treasure” in Treasury, 2012 • Aberdeen Invoicing and Workflow: Integrating Process Automation to Enhance Operational Performance, 2011 Understanding Your Cost to Pay: Effective Measurement in Accounts Payable, 2011 Liquidity Management: Leveraging Technology to Improve Cash Forecasting, 2011 • The Hackett Group Build Your Business Case for Procure-to-Pay Automation -- webinar http://www.ariba.com/resourcelibrary/views/resource_library_asset_brief.cfm?asset_id=834 • The Hackett Group/REL REL 2011 Working Capital Survey • Ariba Network Network Insight – aggregate performance measurement from over $300 billion in spend transacted between nearly 1 million trading partners51 © 2012 Ariba, Inc. All rights reserved.

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