Transform 2014: Trends in Procure to Pay


Published on

The future of AP means constant change for you and how invoices will be processed over the next six years. What will the revolutionized AP department look like in 2020? Increasingly companies are not just looking for paperless, but better overall processes brought on by automating invoices, matching, routing and payments. Maybe you have one or two automation efforts going but in the coming years you need to prepare for more, more and more. Henry Ijams, founder of PayStream Advisors, will share his insights into how successful managers are handling this booming change.

You’ll also learn where the AP automation market is heading, the available technologies and how they can work together, the five secrets to planning a successful department of the future, and the key elements in making it a successful revolution.

Published in: Technology, Business

Transform 2014: Trends in Procure to Pay

  1. 1. March 11, 2014 Henry Ijams – Managing Director PayStream Advisors, Inc. 1 Trends in Procure to Pay: The Coming Revolution and You
  2. 2. Session Overview • Current State of AP & P2P • PPT & The Perfect Process • Lessons from the innovators 2 • Networking: Turn to your neighbor and introduce yourself
  3. 3. What’s Wrong with AP? As the majority of invoices received on paper continues to decline the challenges associated with the invoice management process are also declining.
  4. 4. Three Big Opportunities • Getting the data – Good data is “step one” to a flat process • Workflow & bicycles – Routing is easy – Designing business logic is not • Solid foundations are built on well-developed design – Technology & automation is only 1/3 of the story – People & business process are the rest 4
  5. 5. 1 Purchase to Pay Automation Purchase Request
  6. 6. P2P 2013 1. High-Touch Processes 2. Incomplete Purchase Visibility 3. Limited collaboration Frazzled Frank People Process Technology PPT?
  7. 7. 7 Stage 1 Stage 2 Stage 3 Stage 4 P2P Leadership has defined P2P Vision Well defined & controlled Process Centralized Procurement & Payables Defect rates <7% Shared Goals & Metrics Automated Purchases & Online Catalogs > 50% Touchless Transactions Authoring shifted to departments Automated ordering/fulfillmen t 70% electronic transactions Defect rates <4% Highly automated environment >50% of transactions self- managed Local control for most services Defect rates <2% >75% Touchless PayStream P2P Maturity Stages Order Cycle Times Avg. less than 2 days Defect rates <5% PayStream Purchase to Pay Maturity Assessment Metrics Touchless Collaborative Vision Driven PayStream developed a P2P Maturity model to gauge the status of organizations purchase to pay operations.
  8. 8. P2P 2020 is about Perfect Processing 1. Touchless Transactions 2. “First Pass” Processing 3. Stakeholder Collaboration Happy Harry
  9. 9. What is Perfect Processing? Effective vs. Efficient Processes Effective: • What is your invoice exception Rate (%)? • How long is your PO approval release cycle? (Days) • What percent of invoices can be posted on the first pass. • What is your compliance to spend policy? (e.g. how much maverick spend do you have?) Efficient: How much paper? Data entry time/staff? How much does it cost? How long does it take?
  10. 10. Measuring Exception Categories of (excluding receiving errors) 10 First Pass Rate: Between 8-11% of invoices can’t be posted with first try. Why? PO is closed (30%), PO# is missing (19%), and Invalid PO’s (14%) together account for 63% of exceptions. 1 Footnote: UCLA: One Quarter breakdown of invoices on “I” status by category PO IS CLOSED 30% PO NUMBER MISSING 19% NOT VALID PO. 14% INVOICE AMOUNT > PO AMOUNT 10% MULTIPLE ISSUES 9% INVOICE LINES DO NOT MATCH PO 7% PO IS FOR ANOTHER VENDOR 6% INVOICE UNIT PRICE IS > PO UNIT PRICE 5% Invoice Match Exceptions and Problem Invoices, By Type1
  11. 11. Top AP Benchmarking Items Metric Laggards Average processing time from invoice receipt to approval 45 days Average processing costs (combination of paper and electronic) $15.00 Percentage of invoices received electronically 3% Percentage of invoices with discrepancies 25% Percentage of discounts captured 18% Mainstream Innovators 23 days 5 days $6.70 $2.36 9% 32% 16% 4% 40% 75%
  12. 12. Purchase to Pay Change is Accelerating Why? 1. Need for Speed 2. Consumer Tech Pull 3. Labor Challenges
  13. 13. Need for Speed 1. Increasing Value of Big Data 2. Efficiency yields to better purchasing decisions - Saving a dollar per PO vs. - Purchasing
  14. 14. Staffing in 2010 • Pressure was on people Frazzled Frank
  15. 15. Growing Usability Gap 1. Consumer Productivity 2. Business Productivity
  16. 16. Growing Staffing Challenges 1. Increasing Value of Big Data 2. Efficiency yields to better purchasing decisions - Saving a dollar per PO vs. - Purchasing Millennials
  17. 17. P2P Academy Research 1. Long term transformation plan 2. Cohesive coalition 3. Metrics to define success 4. A Leader to drive the vision Four Common Success Factors
  18. 18. Three Themes Dominate P2P Purchase Order Delivery Invoice Receipt Data Extraction Invoice Matching Procurement Management Approval Workflow Payment & Remittance PURCHASE TO PAY Payments & Working Capital Electronic Invoice & Workflow/Matching eProcurement & Supplier Collaboration 19
  19. 19. What are the Innovators doing?
  20. 20. What’s behind the curtain?
  21. 21. Automation Adoption Companies of all sizes are participating Source: PayStream Advisors, 2013 Q. What solutions have you adopted to automate AP?
  22. 22. UPMC Case Study Goal: Lights Out – Touchless Transacting Step 1 - Drive invoice automation for those suppliers that support electronic invoicing Results: Achieved ~65% automation by leveraging those suppliers Step 2 – Drive invoice automation for those suppliers that do not support electronic invoicing Results: Achieve ~95% automation by outsourcing the conversion of the paper to electronic Additional Data Points: - Process efficiency - Staff Reduction - Average cost of an invoice reduction University of Pittsburgh Medical Center • Leading integrated health care system in Pennsylvania; one of the largest and most diverse in the nation • 48,000 employees; second largest employer in Pennsylvania; major force in local economy • Hospital – 20 tertiary, community, and specialty hospitals • Physician – more than 4,000 physicians with privileges at UPMC hospitals including about 2,300 employed
  23. 23. Example: First Time Match Rate: Voucher to PO 71% 64% 66% 67% 69% 70% 72% 73% 65% 71% 72% 73% 77% 24% 30% 28% 27% 25% 23% 22% 21% 21% 23% 23% 23% 17% 6% 5% 6% 6% 6% 7% 6% 6% 14% 6% 5% 4% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% AVG FY12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Recycle ME Matched
  24. 24. Exception Management Q. What’s your plan to reduce exceptions? • What percent of invoices contain an exception? • What is the cost of exceptions? • What is (should be) your exception rate goal? A. Develop a P2P Vision and Plan. • PO based invoices that can’t be posted – i.e. if invoice fails entry (duplicates, missing/Invalid PO) • Fails batch-match process (Receiving, Pricing, Unit of Measure, PO out of funds, etc.) • Non-PO (including Manual and Automated Entry)
  25. 25. • The 5 Why’s • 8 Wastes • Value Stream Analysis 25 P2P Six Sigma Tools Framework & Toolkit • Voice of the customer • Quick hit charter • SIPOC Toolkit •Brainstorm Ideas •Future State Map •RACI •Pilot •Visual Controls •Implementing Change •Celebration of Success •Process Maps • Basic • Cross-functional swim lanes D Define M Measure A Analyze I Improve C Control What is the problem? How bad is the problem? What is the root cause? How was the problem fixed? How will reoccurrence of the problem be prevented? 25
  26. 26. Achieving Perfection
  27. 27. P2P and The Perfect Order A Perfect Order: A purchase order processed electronically (from order to payment) without human intervention, which is delivered to the correct location, on time, undamaged, at the right price, with the desired quantity, on the first attempt. Source: SMI Perfect Order Presentation Steve Gunderson and Dennis Orthman 27
  28. 28. The Perfect Payment? A Perfect Payment: A perfect payment is characterized as being paid on time, using the lowest cost payment method, and which achieves the highest incentive discount. Source: PayStream Advisors 2013 Perfect Payment Index (PPI) % on time X % paid electronically X % of discount potential captured 95% x 95% x 95% = 85.7% The PPI strives to balance the payment efficiency and working capital needs of buyers and suppliers 1 Top Quartile Innovators in industry can achieve PPI’s in the 80 percent range. Payment Discounts/Incentives Company 1 Company 2 Company 4 Company 4 Average % Paid on time (<60 Days) 92% 92% 93% 91% 92% % Paid Electronically (ACH or Card) 55% 52% 39% 68% 53% % of Potential Discounts Captured1 32% 76% 26% 74% 45% Perfect Payment Index 16.0% 36.7% 9.6% 45.8% 27.0%
  29. 29. 29Purchase to Pay Academy Section 1 - General Cost and Full Time Equivalent (FTE) Metrics • Total Cost of the total P2P Function as a Percentage of Revenue • Total Cost of the Procurement Function as a Percentage of Revenue • Total Cost of the Accounts Payable Function as a Percentage of Revenue • Number of FTEs in the total P2P Function • Number of FTEs in the Procurement Functions • Number of FTEs in the Accounts Payable Function Section 2 - Procurement Cost and Process Metrics • Cost Per RFP • Cost Per Contract • Cost Per Purchase Order • Strategic Sourcing Cost Savings • Purchase Order Workflow Defects • Unapproved Items in Purchase Order Workflow • Non-Purchase Order Invoices Section 3 - Accounts Payable Cost and Process Metrics • Cost Per Invoice • Cost Per Invoice Line Item • Days Payable Outstanding (DPO) • Percentage of First Time Payment Matches • Supplier Payment With Errors • Duplicate Payments • Percentage of Payment Recoveries • Percentage of Recoveries by Check • Percentage of Recoveries by Credit Memo • Percentage Use of Electronic Invoicing • Percentage Use of Electronic Payments • Invoices Paid Within Specified Terms • Policies for Taking Supplier Discounts • Number of Manual Checks • Reduction of Number of Payments • Processor Productivity • Percentage of Electronic Invoice Processing 29
  30. 30. Purchase to Pay Academy • A Certified P2P Professional demonstrate a mastery of all aspects of the P2P process. • PayStream Advisors developed a the program to train managers so that they can help transform the Purchase-to- Pay process. • P2P Certification Program delivered via self-study using online educational components and case studies. • Brings together all the components of the P2P process into a single body of knowledge.
  31. 31. Winning Over Your Partners • Engage Your approvers and Suppliers • Influence Change • Collaborative Solutions • Getting to “YES!”
  32. 32. Workflow Adoption Adoption of approval workflow solutions continue to increase, up three percent from 2012 to 54 percent in 2013.
  33. 33. Integration is the Key to Eliminating Exceptions The true value in AP automation lies in how successful a company is at assimilating invoice data into accounting systems and management workflows. The higher percentage of invoices processed straight through, yields the best ROI. eInvoicing Add $ to PO 26% Vendor Invoice Error 18% Other 12% Vendor Wrong PO 38% AP Entry Error 3% Duplicate Invoice 3% Invoice Match Exceptions and Problem Invoices, By Type1 (as a % of total Exceptions and Problems) For 9/28/2012 through 10/31/2012*
  34. 34. Purchase to Pay Academy • A Certified P2P Professional demonstrate a mastery of all aspects of the P2P process. • PayStream Advisors developed a the program to train managers so that they can help transform the Purchase-to- Pay process. • P2P Certification Program delivered via self-study using online educational components and case studies. • Brings together all the components of the P2P process into a single body of knowledge.
  35. 35. Quick Tips to Stay Current In AP & P2P • Stay tuned for PayStream’s White Paper “Electronic Invoice Management” • Take advantage of complementary resources such as PayStream’s Cost Per Invoice Calculator • Utilize PayStream’s Business Case Builder to get your project moving • Get involved! PayStream’s 2014 INNOVATE Conference is September 8-10, 2014 in San Antonio, TX
  36. 36. Henry Ijams, Managing Director PayStream Advisors 36 Questions Henry Ijams Art Sarno
  37. 37. PayStream INNOVATE 2014 The Purchase to Pay Summit September 8-10 San Antonio, Texas Hyatt Regency Riverwalk • Targeted focus on automation and process improvement • 18 case study workshops facilitated by leaders at the most innovative organizations • Network with your peers in AP, Procurement, Finance and Supply Chain • More Information Contact: Brad Josephson 704-926-3921