Buy Right-Pay Right — The Vital Role of Payables in Procure-to-Pay Transformation and Working Capital Excellence

Buy Right-Pay Right — The Vital Role of Payables in
Procure-to-Pay Transformation and Working Capital Excellence
John Eaglin – Accounts Payable Manager – SoCal Gas
Cathy St. Marie – Accounts Payable Manager – SDG&E / March 15, 2016
Public

© 2016 SAP SE or an SAP affiliate company. All rights reserved. 10Public
Sempra Energies corporate overview
17,000 employees
Four principal subsidiaries develop infrastructure, operate
utilities and provide services
32 Million customers worldwide
$1.1 Billion Revenues
$1.16 Billion Earnings
$19 Billion of capital investment planned 2015-2019
Sempra Energy, a Fortune 500 company based in San Diego, was created in 1998 by a merger of parent
companies of two long-established investor-owned utilities with rich histories dating back more than a
century. Sempra Energy was founded to capitalize on new opportunities in competitive energy markets.
The company’s ongoing focus is to enhance shareholder value and meet customer needs by sustaining
the financial strength, operational flexibility and skilled workforce needed to succeed in rapidly changing
market conditions.

Organizational and program structure
Sempra
Energy
Regulated
Utilities
San Diego
Gas & Electric
CAO
(SDG&E and
SCG)
Supply
Management
(SDG&E and
SCG)
So Cal Gas
Controller
(SDG&E and
SCG)
SDG&E
Accounts
Payable
SCG
Accounts
Payable
Sempra
Energy Corp
Center
Non-
Regulated
Companies

Business drivers
Financial Stewardship
• Manage costs to improve affordability
of our service
Smart Investments
• Accelerate safety/reliability
projects
• Advance clean transportation
• Improve affordability of service
Operational Excellence
• Ensure safety/compliance
• Modernize business practices
• Achieve measurable results
Impact of higher costs
Future Focus
• Act Like an owner
• Build strong employee teams
• Develop value-added products/services

Discount program deployment strategy
Program goals
Increase in discounts gained by offering new standard payment terms
Increase DPO by offering extended payment terms
Consolidate payment terms across the board
Original Implementation Setbacks
Confusing messaging - Reaching out to vendors was difficult – vendors do business with either SoCal Gas, SDG&E or Sempra Energies, or
sometimes a combination of these entitles
Relationship managers were negotiating terms at a PO level – this led to vendors not truly knowing their current payment terms
Did not use the technology correctly – After a vendor accepted a discount term, vendors were uploaded to the Ariba Network with an offering, not
a Pre-negotiated term
Did not have a hard compliance
Results
Low adoption rate – 6.7% of vendors accepted a new accelerated payment term
 2.5% of vendors extended their payment term
Missed discounts due to vendors not accepting the new term twice
Vendor terms were updated by relationship manager to a different term that they negotiated that was worse than what was selected

Updated Strategy
Extend one early payment term to vendors based off of an APR%
Offer Ad Hoc discounting to vendors declining standing term to get them on the Ariba Network for invoice visibility and additional discounts
Program changes
Updated messaging to clearly outline program and offerings
 Internal buy in from all entities on consistent messaging
 Internal messaging went out about new payment program
Vendors assigned to Pre-Negotiated terms on the Ariba Network
Added suppliers to the Ariba Network that were on Supplier Quick Pay Program to increase buyer-initiated discounts
Results
10.6% of vendors adopted new accelerated payment term
10.1% of vendors agreed to Ad Hoc discounting (separate from 10.6% of took a new term)
52.2% growth of suppliers uploaded to the Ariba Network holistically

Lessons learned
People
Active involvement is needed by all divisions impacted by change
Knowledge transfer of program needs to take place between all stakeholders and
relationship managers
Process
Internal review of communications
Internal review of call scripts for outreach and participation in call monitoring sessions
Technology
Using Pre-Negotiated terms on the Ariba Network to update terms already agreed on is best practice
Ad Hoc discounting can be an easy win when enabling for all vendors
Payment visibility can cut down on questions to AP

Results
22.4% growth in discount potential in the first quarter following first outreach
2015 discounts earned grew by 70%+
24.3% APR standardization for discount terms

Buy Right-Pay Right – AP’s Vital Role in Procure-to-Pay
Transformation and Working Capital Excellence
Lloyd Briggs, Accounts Payable Manager, Southern California Edison

Southern California Edison highlights
One of the nation’s largest electric utilities:
Nearly 14 million residents in service territory
Approximately 5 million customer accounts
50,000 square-mile service area
Significant infrastructure investments:
1.4 million power poles
700,000 transformers
103,000 miles of distribution and transmission lines
3,200 MW owned generation
Above average annual rate base growth driven by:
Infrastructure reliability investment
California public policy
Grid technology improvements

Business drivers
Decline in Domestic Electricity
Demand; Growth in Distributed
Generation
Benchmarking Highlighting
Continuous Improvement
Opportunities
Aging Infrastructure
Requiring Replacement
Regulatory Requirements for More
Expensive Renewable Energy Cost Pressures Driving Higher
Rate Potential

Accounts Payable response
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov
Transform AP from a cost center to a profit center
Costs Reductions
• Supplier self-service capabilities
• Electronic invoicing
• Electronic payments
Working Capital Improvements
• Payment Terms Extension
• Maximize Discounts
• Maximize Rebates

Goals
Discount / Rebate Increase
 2014 Goal $1M Incr – Actual $1.8M Increase
 2015 Goal $9.1M Disc, V Card, Cash Flow Combo – Actual $8.4 M
Discount Capture Rate Goal of 95% – Actual 98%
Maintain or improve supplier relations
Services Utilized
Ariba Discount Pro / Rapid Ramp
PNC Bank V-Card
Key Components of Execution Plan
Define and execute payment, communication, and supplier outreach strategies
Define and execute internal strategies to maximize discount realization
Define business processes and reporting
Configure and implement SAP Ariba and PNC
Monitor supplier outreach and adjust parameters as necessary

Results - 2015
$2.1M of increased discounts over prior year
$4.3M+ increase since SAP Ariba Implementation
83 new discount suppliers
296 new since SAP Ariba Implementation
68 new vendors wanting Ad Hoc discounting
Improvement of E-payables program
Additional Vendors added to ACH program
12% – 36% APR
Counter offers accepted
(In000s)
0
50
100
150
200
250
300
350
400
450
$-
$2
$4
$6
$8
$10
$12
2011 2012 2013 2014 2015
Millions
Discount / Rebate Growth
Discounts V-Card Supplier Ct

Lessons learned
People
Gain early commitment from all impacted organizations (Finance, Procurement, Treasurer)
Conduct extensive communications and training with Procurement and AP
Talk to peer companies for strategic insights
Process
Carefully weigh your starting position when offering terms
Treat as a program, not just a technology implementation
Don’t underestimate communications. Carefully craft messages and use compelling language.
Immediately offer discounts on outstanding invoices when supplier signs up
Technology
Clearly define activities to onboard suppliers (master data, ERP, PO updates, etc.)
Good contact information goes a long way

Buy Right-Pay Right – AP’s Vital Role in Procure-to-Pay
Transformation and Working Capital Excellence
Alan Cohen, VP Payables, Business Development & Strategy

SAP Ariba Live: working capital management

Agenda
SAP Ariba’s Working Capital Management Solutions
Supply Chain Financing:
 What Problem is Being Solved
 Why it’s Valuable
 How it Works
Examples of Success
Joint Solution & SAP Ariba’s Differentiation

EARN EARLY
PAY DISCOUNTS:
Net Income
$EXTEND PAYMENT TERMS:
Free Cash Flow
SCALABE & SECURE
PAYMENT
Risk Management
FASTER COLLECTIONS
Lower DSO
LOW COST, ON DEMAND FINANCING:
Reduce Costs, No Debt
PAYMENT VISIBILITY & REMITTANCE
Trust & Adoption
FinancialValue
LOW
HIGH
Buyers Suppliers
INVOICE AUTOMATION:
Controls & Automation
INVOICE AUTOMATION:
Ease & Visibility
The Case For Payables: “Invoices as Strategic Assets”
Better for Buyers, Better for Suppliers
BETTER COLLABORATION:
Competitive Advantage

Working Capital Management Advisory & Supplier Services
(Payment Terms Standardization, Rationalization, Extension, Supplier Outreach)
SAP Ariba Working Capital Management Solutions
Buyer Banks & Capital Markets
Procurement &
Invoicing
Automation Supply Chain Finance (Q2 2016)
 Supplier sells approved invoices to
Funder at a discount rate based on
Buyer’s credit worthiness
Suppliers Targeted:
Direct Spend
Large to Mid-size
DiscountPro
 Supplier accepts to be paid by Buyer at
a prorated discount before Due Date
Suppliers Targeted:
Indirect Spend
Small-Medium Size
…Pay RightBuy Right...
AribaPay
 Electronic payments to
suppliers
 Bank account data stored
externally
 Supplier self manages bank
account data
 Rich remittance info to match
invoices with payments
 Track & trace status
Funded by
Operated on & with
SAP Ariba’s working capital management solutions
Support all invoices & funding scenarios, complementing SAP Ariba’s P2P solutions
SCF Platform

The SUPPLIER wants
to get paid earlier
The BUYER
wants to pay later
Payment
Date
Collection
Date
Supplier Buyer
Cash
Accelerate Extend
Supply chain finance:
What Problem is Being Solved & Why is SCF Valuable?
Supplier Benefits:
• Low cost financing
• Choose when paid
• Improve cash flow
without increasing debt
Buyer Benefits:
• Reduce supply chain
costs by providing low
cost financing
• Improve cash flow
• Enhance supplier
relationships

BUYER
Invoice Submitted
to Buyer for
$10,000 with 60
day payment terms
Invoices
approved to be
paid on due date
Supplier seeks early
payment & sells
invoice to funder
Funder buys
receivable & pays
supplier
$9,960 (retains 40 bps)
1 3
2
4
Operated
on
Accessed
from
Integrated
With
& other
ERPs
Pays $10,000
to Funder
5
Receives
$10,000 from
Buyer
6
Day 1 10 15 60
Example: how supply chain finance works
SCF
Platform

Why SAP-Ariba?
+
Global Successes & References:
Buyers, Suppliers, Funders
Banks core competency: lending money
SAP-Ariba’s core competency: facilitating B2B Commerce
Selecting SAP-Ariba is NOT deselecting a client’s bank
+
Ariba (Largest B2B) Network
User Experience
+
1 Experience Across Sourcing, Buying, & Payables:
Accelerates Adoption, Minimizes Risk, Lowers TCO
+
Proven Success & Expertise

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Buy Right-Pay Right — The Vital Role of Payables in Procure-to-Pay Transformation and Working Capital Excellence

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Buy Right-Pay Right — The Vital Role of Payables in Procure-to-Pay Transformation and Working Capital Excellence