ABB sought to significantly increase their purchase order (PO) rates across 34 countries from 65% to 75% through a process improvement initiative between their supply chain management and accounts payable departments. Key actions included analyzing commodity categories with low PO rates, reviewing tools and processes to increase POs for indirect materials like services, establishing a "no PO, no pay" policy, and enforcing strict invoice requirements which reduced rejected invoices from 25% to 7%. Through these actions, the UK was able to increase their PO rate from 60% to 99% within 14 months.

1. Pether Jonsson, ABB Accounting Centers. sharedserviceslink.com conference 8-10th June 2010, London
How to Significantly Increase PO Rates
Across 34 Countries to reach 75%
© ABB Group
June 4, 2010 | Slide 1

2. Agenda
About ABB & P2P related facts
The P2P process improvement initiative
Scoping
Management
Focus areas 2009
Purchase order ratio.
Invoice requirements.
Summary and Next steps
© ABB Group
June 4, 2010 | Slide 2

3. A global leader in power and automation technologies
Leading market positions in main businesses
117,000 employees in about 100
countries
$32 billion in revenue (2009)
Formed in 1988 merger of Swiss and
Swedish engineering companies
Predecessors founded in 1883 and
1891
Publicly owned company with head
office in Switzerland
© ABB Group
June 4, 2010 | Slide 3

4. P2P related facts 2009
34 Accounting Centers spread over all continents
4‘800‘000 supplier invoices processed
550 Accounts Payable employees
Largest center processes 650‘000 invoices / year
Smallest center processes < 50‘000 invoices / year
Some centers are operational since 10 years, others
are 1 year old
Efficiency varies between 5 and 25 invoices per hour
© ABB Group
June 4, 2010 | Slide 4

5. P2P Process improvement
In 2009, the “SCM/SAS cooperation” was launched to drive
Process improvement in the Purchase-to-Pay process
Joint effort by SCM and Accounts Payable
Scope: 34 countries
DK, FI, IE, NO, RU, SE, UK, CA, MX, US, FR, IT, ES, TR, BR,
CN, JP, KR, AT, CZ, DE, BNL, PL, CH, IN, EG, ZA, AE, SA, AU,
MY, NZ, SG, TH
© ABB Group
June 4, 2010 | Slide 5

6. Management of the initiative
Focus areas jointly agreed between SCM and Accounts
Payable on Group level and communicated to countries
Target setting by the Group, actions defined locally in each
country jointly by country SCM and country AP
Quarterly calls arranged by Group, per region, for which
countries submit action sheets and dial in
All actions and progress is made transparent to share
experiences and good ideas
Tracking of progress using “bubble charts” and KPIs
© ABB Group
June 4, 2010 | Slide 6

7. Focus areas 2009
• Purchase Order ratio
Increase PO-ratio to ensure a controlled purchasing
behavior and to enable higher efficiency in invoice
processing
Status early 2009: PO-ratio of app 65%, much lower for
Indirect material (especially Services) compared to Direct
material
Invoice requirements
Improving the quality of supplier invoices to enable more
efficient invoice processing and reduce risk for non-
compliance with laws & regulations
Status early 2009: Several countries had no agreed,
communicated or enforced requirements on supplier
invoices, resulting in significant rework in the AP
department
© ABB Group
June 4, 2010 | Slide 7

8. Invoice volumes & Purchase Order ratio early 2009
Direct material has high PO-ratio and can not be easily
improved
Focus on Indirect material since the PO-ratio is often low
and provides an opportunity for improving overall PO-ratio
Invoice volumes PO-invoices
Indirect Material Potential for improvement
40% PO-ratio
18%
7%
Direct Material Consolidated PO-ratio
PO-ratio 64%
60% 95% 57%
© ABB Group
June 4, 2010 | Slide 8

9. Actions taken to increase PO-ratio for indirect material
Standard SAP functionality used, for some countries SAP SRM
Looked at all possible purchasing scenarios & found different solutions by
commodity type
Training of organization
Identified SAP Super Users in each region who understood Service Orders
Organised and delivered events to train personnel
Units defined who locally would accept services
Assigned appropriate roles within SAP
Thorough system-testing prior to go-live
Implementation of no PO, no-Pay
Implemented by a few “pilot countries”
Small amount of exceptions (utilities, banks, government) will have a
system PO but need not quote on invoice
Warning ABB people and Vendors of forthcoming change 12 months in
advance
Incoming invoices can only be paid against a valid PO
Invoices that do not quote a PO will be rejected back to the vendor
© ABB Group
June 4, 2010 | Slide 9

10. Example: ABB United Kingdom
• Increase from 60% Purchase Orders to 99% Purchase Orders in 14 months
• No-PO, no-Pay policy implemented in Jan 2010
• Primarily increase in PO-ratio for indirect material, especially services
• Rejection of non-PO invoices is key component and started in Jan 2010
• To make reject possible strict Invoice Requirements had to be implemented
% PO Cover - UK
100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Feb-10
Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10
Expect
Invoices with PO 62.3% 62.3% 71.3% 71.0% 80.1% 72.2% 69.9% 71.9% 76.3% 74.18% 76.51% 77.9% 80.2% 98.8% 100.0%
© ABB Group
June 4, 2010 | Slide 10

11. Invoice requirements
5 „maturity levels“ defined
1. Not jointly (between SAS & AP) agreed requirements
2. Jointly agreed
3. Communicated (to suppliers)
4. Included in POs & Contracts
5. Enforced (rejection of invoices)
Low Maturity level High
© ABB Group
June 4, 2010 | Slide 11

12. Invoice Requirements
Progress made in 2009
Each country report their status, both actual and forecast, every quarter
using „bubbles“
Makes progress and ambition visible and creates competition
Actual Q1 2009 Actual Q4 2009
© ABB Group
June 4, 2010 | Slide 12

13. Invoice Requirements
Actions taken by countries
Automatic printing of invoice requirements on Purchase Orders
going out
Letters to suppliers regarding invoice requirements
Communication to ABB purchasers about requirements
Establishment of web-sites with information for vendors about
requirements on invoices
Reject of invoices that do not meet requirements back to suppliers
© ABB Group
June 4, 2010 | Slide 13

14. Results of enforcing invoice requirements
Rejection by outsourced scanning & OCR provider
Number of rejected invoices dropped from 25% in January
(first month) to 7% in March
End-target : 3 % rejected invoices
Reject status for non‐compliant supplier invoices
Example from ABB United Kingdom
30%
25%
20%
Axis Title
15% Estimation
Outcome
10%
5%
0%
NOVEM…
NOVEM…
DECEMB…
SEPTEM…
OCTOBER
MARCH
JULY
APRIL
APRIL
JUNE
MAY
JUNE/JULY
FEB
AUGUST
AUG/SEPT
© ABB Group
June 4, 2010 | Slide 14

15. Consolidated results Purchase Order ratio early 2010
By increasing the PO-ratio for indirect material the consolidated
PO ratio could be increased significantly
• From 60% to 99% in United Kingdom
• From 65% to 75% in the ABB Group as a whole
Invoice volumes PO-invoices
Indirect Material
40% PO-ratio
45% 18%
Consolidated PO-ratio
Increased from 64% to 75%
Direct Material in one year
PO-ratio
60% 95% 57%
© ABB Group
June 4, 2010 | Slide 15

16. Summary and next steps
How to Significantly Increase PO Rates Across 34 Countries to reach 75%
• Main actions were
• Analysis for which commodities POs were normally not placed
• Review of tool support and purchasing process for these commodities
• Review of “exception lists” for POs
• Training of staff on how to place POs in SAP for especially Services
• Establishment of no-PO, no-Pay policy and enforcement through rejection
of invoices (which required clear invoice requirements)
• Next steps
• Continue focus on PO-ratio , increase expected as more countries adapt
“best practice” actions.
• Start up work on 1st time match and Paid within terms, use same
management model but use structured process improvement model (“4Q”)
© ABB Group
June 4, 2010 | Slide 16