Purchase-to-Pay Process Advisory Key Metrics

Purchase-to-Pay Process Advisory Key Metrics

Steady Improvements in Accounts Payable Attributable to Shared Services

For many organizations, the shift from a decentralized finance model to a shared services approach began by moving activities within accounts payable, whose core sub-processes are ideally suited because they are easy to standardize, centralize and automate. Compared to a decentralized model, shared services enables lower costs in labor (especially when offshored); increased productivity through technology; and stronger internal controls. A well-run SSO creates a sum greater than its parts because it adds value to the company by freeing up AP organizations to focus on optimizing end-to-end P2P processes. In other words, companies, through an SSO model, can create organizational and process alignment in addition to saving money and increasing productivity.

Medtronic, Inc. Secures a 50% Reduction in Payment Processing Time and Other AP Benefits by Utilizing Lean and Six Sigma Methodologies

Medtronic, Inc., successfully applied its unique Lean Sigma formula to its global finance organization. This Purchase-to-Pay Process Perspective explains how significant improvements to accounts payable processes have been secured at the company through utilizing Lean and Six Sigma methodologies to identify and eliminate non-value-adding activity. Just a few years ago, most finance professionals would have been skeptical if someone had told them that two process improvement methodologies originating in manufacturing could be applied to core financial processes. Medtronic has dispelled that skepticism by successfully deploying its own unique blend of Lean Sigma principles in several financial transaction scenarios.

Company on Path to Triple Invoice-Handling Productivity Through Process Streamlining and Electronic Invoicing

Because invoice processing typically accounts for more than a third of purchase-to-pay (P2P) process costs, electronic invoicing is an important route to greater efficiencies of the overall P2P function - as Hackett data makes clear. As part of a broad process improvement and centralization initiative, a best practices-based and highly automated P2P environment linking electronic POs and invoice and payment processing, using Internet technologies, was implemented at leading equipment rental company, RNTCO (for purposes of this paper). For RNTCO, the combined solution generated both efficiency and effectiveness gains. It was able to take more early payment discounts and optimize its supplier payment strategy by standardizing terms and it significantly reduced the amount of paper invoices and manual processing.

How €3.6 Billion Global Printing Giant Improved Productivity in Accounts Payable by More Than 200% in Three Years

In 2003 the accounts payable (AP) department of Heidelberger Druckmaschinen AG (Heidelberg) could be described as a heterogeneous, decentralized organization, with no established standard process and a productivity level of approximately 8,700 invoices per full time equivalent (FTE). In total, some 55 FTEs were processing approximately 500,000 invoices per year in six locations. Heidelberg management decided to apply an improvement strategy for the AP process consisting of the following elements: consolidation of activities, standardization of processes and systems, automation of transactions and elimination of unnecessary activities. Following three years of process improvements, the AP process has changed completely. Now, all German invoices are processed in a shared services center with just 33 FTEs. Together with the focus on automating standard transactions, standardizing the processes and systems, eliminating unnecessary activities and using selective outsourcing, this change has moved Heidelberg’s AP function into first-quartile productivity relative to The Hackett Group benchmark.

Purchase-to-Pay Maturity: The Journey to World-Class

At world-class procurement organizations, the purchase-to-pay (P2P) process is no longer viewed as simply transactional in nature, e.g., placing orders for goods and services and paying bills. Today it is expected to make significant contributions to working capital and deliver business value far beyond transactional efficiency. However, world-class performance in P2P is not a quick win; it is achieved over the course of a carefully planned and managed evolutionary process. In this Hackett Perspective, we examine the four stages of maturity toward world-class P2P in the context of several interrelated dimensions: P2P performance strategy, transaction processing optimization, business process sourcing and electronic enablement of transactions.

ConocoPhillips Enhances Vendor Master File Management by Reengineering Supplier Set-Up Processes

Automating P2P processes is a priority for most procurement executives. One area that may have been neglected in the past is vendor master file (VMF). This Hackett Perspective is based on a presentation by ConocoPhillips’ Gary Gondzur, consultant, procurement technology and global processes services, and Cindi Klose, master data integrity supervisor. The presentation, set in the context of ConocoPhillips’ extensive program to achieve higher efficiency and effectiveness in its overall P2P process, gives insights into its new VMF management processes based on a custom software development integrating to its SAP ERP backbone.

Acuity Brands Lighting Improves Cycle Time, Productivity and Auditability of T&E Process through Automation

This Hackett Perspective discusses Acuity Brand Lighting’s adoption of a paperless T&E management process resulting in doubled productivity rates and cost reimbursement cycle time being cut in half. Automation of the entire travel expense process ensures better transparency, higher efficiencies and reduced administrative costs. Automation of controls can help enforce compliance with travel policies and assist with auditing.

Survey Probes Executives' Efforts to Understand, Adopt Globalization Strategies to P2P Services

Executives of Global 2000 companies are under tremendous pressure to reduce costs and administrative headcount while managing compliance risks and enhancing shareholder value. These executives realize that both their core and non-core business processes must be world class in order to compete. However, only a balanced sourcing strategy of optimizing the onshore back-office operations while leveraging the global marketplace to cost-effectively deliver services in the non-core processes can deliver on this objective. To achieve significant and sustainable improvements in both efficiency and effectiveness, Global 2000 companies must make the globalization of the back office a strategic imperative.

Electronic Processing of Invoices Cuts Manual Data Entry by 70%, Cycle Time from Scanning to Booking By 20% At Henkel

This case study describes the implementation approach and benefits achieved from electronic processing of invoicing at Henkel, a member of our Purchase-to-Pay Advisory Program. With its headquarters in Dusseldorf, Germany, and 77% of its employees located in other countries, Henkel has electronically enabled its invoice processing solution via imaging, workflow, and optical character recognition. In the process, the firm has experienced dramatic improvements in cycle time, cost and accuracy.

Should Your Purchasing Policy Enforce Purchase Orders for All Transactions?

Many companies have spent considerable effort on automating and refining their P2P process. Two best practices in this area are mandating consistent purchase order (PO) use and minimizing the number of non-PO transactions processed by accounts payable. This Perspective examines world-class companies and their purchasing policies, as well as how they manage non-PO-based transactions. The analysis is drawn from results of a recent survey conducted jointly with The Accounts Payable Network and other Hackett Group benchmark data. A number of emerging best practices that can positively impact the effectiveness and efficiency of the P2P process are discussed along with the need to apply change management techniques when adopting these.

Balancing Risk and Control in the Invoice Matching Process: The Agilent Approach

This Hackett Perspective discusses the pathway that Agilent Technologies followed to establish a standardized invoice matching policy. The $8 billion company has physical operations in 52 countries, 28,000 employees, and customers in 110 countries. The company uses both Oracle and SAP for manufacturing, manufacturing planning and direct material procurement; Peoplesoft for HR functions; and Oracle for the remaining functions, including indirect procurement. Mr. Ankur Dhingra, Process Lead at Agilent Technologies, describes the structure of the company's two-way matching process for indirect materials and services, the rationale behind the process, building a case internally for change and the implementation approach for establishing a simple, yet cohesive policy for invoice matching controls. It is based on a presentation given at Hackett's 2005 Purchase-to-Pay member forum.

Compressing the Close Cycle at Agilent: Challenges and Key Factors for Success

Historically, "days to close" has been seen as a particularly useful gauge of the effectiveness of finance organizations and their staff. Today, with severe penalties for false disclosures, the accuracy of the books has taken on greater importance, and median days-to-close figures have risen since the passage of the Sarbanes-Oxley Act. Agilent Technologies, as a result of its November 1999 spin-off from Hewlett-Packard, faced the daunting task of improving financial and accounting performance. Its internal financial structure, which it inherited from HP, was built on a diverse and very complex set of over 2,000 legacy systems that increased the inefficiencies and delays in the accounting process. This Hackett Perspective explores the program that Agilent Technologies employed to not only shorten the monthly close cycle by three days, but also reduce costs, eliminate many inefficiencies in the old 12-day schedule, improve the quality of data, allow more time for analysis and forecasting, and ultimately, enabled the company to receive an unqualified audit opinion at the end of FY05. It is based on a 2005 Hackett Finance Shared Services webcast featuring Mr. Mark Hejtmanek, Finance Integrating Manager with Agilent Technologies.

Enabling the Purchase-to-Pay Process through Imaging and Workflow Automation

The promise of substantial cost savings is driving a rush of interest in the implementation of imaging and workflow solutions and the receipt of electronic invoices through supplier portals and electronic invoice providers. As companies evaluate the different solutions that are available to automate their processes, government requirements around invoice retention (particularly in Europe) and a fragmented and often technically immature supply base can make the choice of an imaging and workflow solution more economical and more easily adopted. The Hackett Group contacted two companies that implemented an imaging and workflow solution for accounts payable in order to better understand the benefits achieved. Both of these companies had implemented the 170 MarkView® system from 170 Systems, Inc. Select Medical Corporation implemented an imaging and workflow solution in early 2003 for both invoice processing and travel and expense management. Reuters began implementation of an imaging and workflow solution in 2001 as part of a strategy to move from a decentralized to centralized accounts. This Hackett Perspective describes their experiences and benefits achieved.

Streamlining and Improving the Value of the Item Master Control Process

Companies that have already established a single enterprise item master - an internally maintained catalog of items to be procured - are well on their way to implementing a Hackett-Certified™ Practice. However, they are still missing a control process, which needs to be deployed and adhered to in order to ensure the effective maintenance and integrity of the item master. An item master that is effectively maintained provides the necessary integrity so that a company may make optimal decisions in its strategic sourcing and supplier management initiatives and support its Sarbanes-Oxley compliance efforts. Crucial to the success of these mission-critical initiatives is a well-defined item master review and approval process with proper accountability and alignment within the organization to drive supplier/item rationalization and spend aggregation. This Hackett Perspective examines how leading purchase-to-pay organizations are defining the item master control process by formalizing the approval process and making procurement an integral, well-controlled part of that process.

Creating an Effective Item Master Conversion and Cleansing Strategy

Companies that are working toward adopting an enterprise item master must overcome the challenges of consolidating multiple ERP or legacy systems. In doing so, they have a critical decision to make regarding a strategy of converting existing data from those systems. An item master - an internally maintained catalog of items to be procured - that is converted effectively provides a strong platform from which a company may achieve supplier/item rationalization and spend aggregation objectives. This Hackett Perspective will examine how companies can define an item master conversion and cleansing strategy to meet their strategic sourcing objectives by formalizing their approach and ensuring cross-functional consensus.

Using OCR to Improve Invoice Processing

Invoice processing accounts for a significant share of P2P process costs. Ideally, businesses would receive all invoices electronically, as this allows the invoices to be most cost-effectively processed. However, for a majority of companies, most invoices will still be generated and received on paper for the foreseeable future. The processing of paper-based invoices can be vastly improved through the use of Optical Character Recognition (OCR) technology. This has greatly matured in recent years and no longer suffers difficulties with limited character recognition (for printed texts). Today, what makes the difference between a good and a weak implementation is the ability to correctly interpret the information in the invoice automatically, leading to full automation of invoice verification. This Hackett Perspective provides insight into OCR applications and discusses the main factors influencing successful use of OCR tools.

Accounts Payable senior management, Process Improvement Leader, Purchase-to-Pay process owner

Despite the fact that corporations often spend millions on accounting and ERP systems, many AP organizations still rely on paper and manual data entry. In contrast, T-Mobile developed a strategy to move beyond paper-based invoice processing that leverages imaging and workflow, procurement cards, electronic payments and web invoicing. This strategy focuses not only on process savings, but on overall spend management. The organization has expanded the use of its procurement card program, implemented an imaging and workflow solution, and employed Xign for electronic settlement to help eliminate transactions and streamline invoice and payment processing. This Perspective discusses T-Mobile's evolutionary approach to transforming its AP organization, benefits already realized and future plans for improvement. It is based on a web cast presentation given by T-Mobile AP Senior Manager, Laurie Thomas, to members of Hackett's Purchase-to-Pay Process Advisory Program in June 2005.

A Management Primer for Balancing Risk and Control in P2P

Any business process raises issues of the balance between the perception and reality of risk and the perception and reality of control. But in P2P this tension is particularly evident for several reasons. Most companies have many requestors originating orders and multiple ordering and payment methods, creating significant complexity from the point of view of control. Because this process is about purchasing items using the company’s funds, it is perceived to offer many opportunities for waste, error and fraud. In addition, managers know that a well-controlled P2P process can create real economic benefits for the firm, causing them to incline toward high degrees of control. Sarbanes-Oxley, too, has generated significant angst about whether a firm has adequate levels of control. Users of the process, on the other hand, equally and naturally desire speed and ease of use. This Hackett Perspective offers proven practices and guidelines for: defining risk and control in P2P; measuring the costs of control and risk; balancing risk with control; defining what constitutes acceptable risk and acceptable control; and understanding how risk and control vary with different types of purchases.

2005 Performance Metrics and Practices of World-Class Finance Organizations

Top-of-mind issues are addressed in this report such as managing costs, minimizing risk, making appropriate business process sourcing decisions and capitalizing on the promise of Web technologies. Its charts represent data selected from hundreds of different performance metrics and best practices in use at client organizations worldwide. The metrics and associated text define the most significant differentiators between specific world-class performers (as identified by our empirically based methodology) and their more typical peers. Areas addressed include Finance function cost, days sales outstanding, risk and compliance costs and cycle times.

2005 Performance Metrics and Practices of World-Class IT Organizations

The goal of this volume is to share the profound impact that a commitment to using best practices can have, not just on the IT organization, but on the enterprise as a whole. A quick glance through the abstract's pages will show you this volume of the Book of Numbers series addresses top-of-mind issues, such as managing costs, meeting service-delivery expectations, capitalizing on the promise of Web technologies, minimizing risk and making appropriate business process sourcing decisions. It features nearly 70 charts representing data selected from hundreds of different performance metrics and best practices in use at client organizations worldwide. The metrics and associated text define the most significant differentiators between specific world-class performers (as identified by our empirically based methodology) and their more typical peers. With this information, you can build your improvement strategies on a foundation of proven practices.

Savings of $500 Million in Five Years -- Just One of the Benefits of Procter & Gamble's Global Shared Services and Outsourcing Initiative

A majority of the respondents of a recent Hackett survey of nearly 50 global companies agreed that cost savings was the key motivation behind the decision to take various business processes offshore to lower-cost countries. But they also cited a host of other benefits, including productivity improvements, higher process quality and increased flexibility. As C-level executives openly talk about the benefits of offshoring shared services, early evidence indicates that, at least for some companies, this strategy is allowing global companies, primarily those based in North America, to maintain the lowest cost structures possible while also ensuring that they meet world-class standards for quality. However, many companies are attempting to cut costs by simply moving work offshore, without understanding that the formula for achieving lasting benefits through business process sourcing is much more complex. This Hackett Perspective examines how consumer products giant Procter & Gamble moved a massive number of its business services into shared services offshore, then moved a portion of these services including accounts payable out of house using achieving breakthrough savings of $500 million in n five years.

Achieving Purchase-to-Pay Efficiency Requires Well-Defined Buy and Pay Methods Supported with an Optimized Transaction Strategy

An effective transactional strategy is one that identifies the most efficient ways to procure and pay for goods and services through optimized process scenarios that embrace best practices and leverage an integrated technology environment. As shown by Hackett metrics and field observations of world-class purchase-to-pay processes, well-designed transaction strategies are characterized by standardized and enterprise-wide methods and processes that support the end-to-end P2P cycle. In such a strategy, risks associated with specific commodity buys are mitigated through the use of appropriate transactional controls. Risk is also minimized through steps aimed at improving compliance with buying policies and use of preferred suppliers. As a by-product, any transactional strategy worth its salt should also deliver high-quality data for supplier and spend analytics and, through the effective application of technology, should enable the closest state possible to "hands-free" transaction management.

Best Practices in E-catalog Design

Implementing an e-procurement system is an undertaking that many clients regard with a mix of careful consideration and a little hesitation. According to Hackett Group data 50% of companies have either implemented or are in the process of implementing electronic merchant catalogs. All of the world-class companies provide access to Web-based catalogs for requisitioning and placing purchase orders. Only 50% of the peer group provides such access. The "toe in the water" approach to e-procurement is no longer necessary or beneficial to companies embarking on this type of initiative. Vendors are ready to integrate with customers using e-procurement systems and are willing to work closely with them to make this happen. With this in mind, The Hackett Group advises companies embarking on an e-procurement program to clearly define and communicate their catalog and content management strategy to their vendor population. Defining an e-procurement commodity and catalog strategy early in the program is critical; this will serve as a pinnacle point in driving the successful ongoing use of the system. There are several components to consider when developing the strategy and each is addressed in this issue of Hackett Perspective.

How to Set Up a Best Practice KPI Reporting System for the Purchase-to-Pay Process

A key performance indicator (KPI) model for the purchase-to-pay process focuses on comparability, compliance with end-to-end process strategy and measuring of current projects and initiatives. The main goals that executives link to the purchase-to-pay (P2P) process today are:, High productivity, Low costs, & Sufficient controls.

September 2005 Performance Metrics and Practices of World-Class Companies: Executive Insights in Finance, IT, HR, and Procurement

September 2005 Performance Metrics and Practices of World-Class Companies: Executive Insights in Finance, IT, HR, and Procurement

July 2005: Optimizing a Return on Business Complexity: Performance Metrics, Practices and Strategies of World-Class Companies

July 2005: Optimizing a Return on Business Complexity: Performance Metrics, Practices and Strategies of World-Class Companies

April 2005 World-Class Defined: Realized Performance Based on Proven Best Practices

April 2005 World-Class Defined: Realized Performance Based on Proven Best Practices

March 2005: 2004 Performance Metrics and Practices of World-Class Procurement Organizations

March 2005: 2004 Performance Metrics and Practices of World-Class Procurement Organizations

March 2005: 2004 Performance Metrics and Practices of World-Class Information Technology Organizations

March 2005: 2004 Performance Metrics and Practices of World-Class Information Technology Organizations

December 2004: Performance Metrics and Practices of World-Class Human Resources Organizations

December 2004: Performance Metrics and Practices of World-Class Human Resources Organizations

November 2004: 2004 Performance Metrics and Practices of World-Class Finance Organizations

November 2004: 2004 Performance Metrics and Practices of World-Class Finance Organizations

August 2004: Performance Metrics and Practices of World-Class Companies: Executive Insights in Finance, Information Technology, Human Resources and Procurement

August 2004: Performance Metrics and Practices of World-Class Companies: Executive Insights in Finance, Information Technology, Human Resources and Procurement

Expanding E-invoicing by Working Closely with Suppliers, Internal Stakeholders and Governments

According to Hackett Group data, the average cost to process an electronic invoice line item is about 15% of the cost of a paper-based invoice. For the median company the cost is $0.58 per line item electronically compared to $3.84 per line item for a paper-based invoice. In addition to reducing transactional costs, e-invoicing can improve the overall effectiveness of the purchase-to-pay process. Companies implementing electronic invoicing for greater than 50% of their invoice line item volume spend 3.5 times less per invoice line item on discrepancy resolution activities as compared with companies with less than 50%. Companies implementing electronic invoicing also process invoices more efficiently. Companies with greater than 50% electronic invoice line item volume processed five times the number of invoice line items per full-time equivalent (FTE) than companies with less than 50%.

End-to-end Accountability Delivers Improved Costs and Better Performance in Purchase-to-Pay

Leading companies continuously reevaluate their internal operations for opportunities to unlock hidden value. Nowhere is this value proposition clearer than in the unification of the purchasing and accounts payable (AP) processes. World-class companies have realized how single accountability of the purchase-to-pay (P2P) process serves as a catalyst to performance improvements in today's business environment. Unlike the traditional practice of viewing purchasing and account payables as two independent functions, world-class companies are now viewing them through one single window with common objectives and strategies. By employing single accountability in P2P, it is evident that there is substantial progress in enabling world-class performance through improved cost factors, higher productivity, improved working cooperation, and increased quality.

Honeywell Drives Purchase-To-Pay Process Excellence Through a Five-Stage Transformation Program and Diligent Use of Six Sigma

Research by The Hackett Group finds that few processes offer as many options for improvement at each step as purchase-to-pay. Attempts to substantially enhance performance are often stymied due to large parts of the process being owned by discrete parts of the business. As a result, opportunities for standardization, centralization and the leveraging of technology and sourcing strategies are minimized. Purchase-to-pay process ownership is parceled out at the 110,000 employee-strong Honeywell Corporation which, with $25 billion in revenues, competes within the aerospace, transportation, automation & control solutions and specialty materials markets. Honeywell's structure is such that Global Business Services (its shared services organization) owns Accounts Payable (AP), and each individual business unit owns its own procurement activities.

Vendor Master File Process Delivers Value to Sarbox and Strategic Sourcing Initiatives

For the average company, the process of adding a new vendor or changing business attributes of an existing vendor is a race against the clock to satisfy a pending invoice payment or internal customer request. The Hackett Group recently conducted a vendor master file (VMF) survey to better understand the vendor master file process. The survey was completed by a mix of both manufacturing and service companies, with participants representing a broad range of annual spend. The data collected by Hackett shows that companies have begun to pay closer attention to the vendor master file process in order to support Sarbanes-Oxley and strategic sourcing initiatives. Crucial to the success of these mission-critical initiatives is a well-defined vendor master file approval process with proper accountability and alignment within the organization to reduce fraud, drive supplier rationalization and spend aggregation.

Lucent Innovates Global Sourcing to Deliver Greater Value at Lower Cost

In 2000, the telecommunications industry was riding high. The technology-fueled boom boosted demand for products, and Lucent Technologies was in aggressive growth mode. But when the market collapsed at the end of the year, leading to the worst telecom industry downturn in history, Lucent had to restructure its company-wide operations to stabilize finances and cut costs. While that necessity did not originally focus on the supply chain, the procurement leadership at Lucent sought to be a factor in the company's transformation.

Royal Caribbean Cruises Looked Beyond Its Benchmark Numbers to Target Effectiveness Improvements

Royal Caribbean Cruises is the second largest cruise company in the world. It has grown tenfold in just over a decade, in both revenue and profits. However, the post-9/11 global economic downturn hit profits hard and required substantial cuts in staffing. A Hackett benchmark addressing the entire SG&A operation revealed that Royal Caribbean was generally well-positioned in terms of efficiency (cost and productivity) except for procurement and sales, where costs were higher than average when compared to the rest of Hackett's global database. A major lesson of the benchmarking exercise was that even where costs are within the world-class range, that is not a reason for complacency.

Offshoring Procure-to-Pay Transactions: A major Component in Agilent's Goal to Become World-Class in Finance

While outsourcing is now broadly understood to mean sending work to an outside provider or manufacturer as a strategy for reducing costs, the definition of offshoring is still fluid. Offshoring takes outsourcing to another level, referred to as international outsourcing - that is, sending activities, processes or functions to an international location where labor costs are lower.

One-Card Solutions and Paperless Processing Help Slash Expense-Report Processing Costs by 42%

According to Hackett Group data, the average billion-dollar company processes 14,565 expense reports annually, 10% of which must be manually corrected due to errors. Costly, error-prone and unpopular with business travelers as well as management, traditional paper-based travel and expense reporting is ripe for improvement, made possible through a number of technology-supported best practices, two of which are examined in this report: paperless travel and expense (T&E) reporting and one-card solutions for travel as well as non-travel expenditures. From a process perspective, benefits of successful deployment and management of these solutions include: reduced administrative costs and errors, better information for management decision-making by providing greater visibility into travel- and employee-related expenses, and a simpler, faster, more user-friendly process for corporate travelers.

Transaction Processing -- Cash Disbursements

Transaction Processing -- Cash Disbursements

Emerging Trends in Travel and Expense Best Practices

In the last several years, best practices and performance improvement surrounding T&E have focused primarily on three issues: electronic processing, one-card programs, and paperless processing. Learn in this interesting analysis how these trends in T&E processing can improve your company's performance and reduce costs in this important area.