The Whys and How of AP Transformation

invoicingIn the past, the Accounts Payable (AP) department was viewed as a necessary cost center. Yet, best-in-class companies understand that by refining AP processes and technology they can realize significant cost savings, drive up the number of transactions processed and reduce errors.

The Why of AP Transformation

CFOs, Controllers and accounting department managers need to be able to accurately evaluate how their teams are performing. Companies often look to benchmarking surveys or their process partners to get insights on how their internal finance processes stack up to other organizations in terms of cost-efficiency, transaction speed and error rates.

Recently, APQC, an authority in benchmarking, best practices, process and performance improvement, and knowledge management, released a survey of 997 organizations concerning the costs of AP processes. The member-based organization calculated the metric based on “the annual process cost divided by the total number of invoices processed annually.”

The result makes a strong case for investing in automation. Why? Manual labor is still rampant in the AP process. APQC notes that manual labor accounts for 62% of total AP costs. This need for human intervention is triggered by PO, shipping and receiving data errors, and invoices requiring employee involvement.

When this all shakes out, laggard AP departments spend two and a half times more than top performers spend on invoice processing.

The How of AP Transformation

Today, AP has become a significant strategic component in successful enterprises. By leveraging AP strategically, they can achieve additional savings by utilizing discounts and avoiding penalties.

AP operations can fulfill a more strategic role in the enterprise and realize significant cost reductions while increasing efficiency when you deploy these improvements:

Centralization & Standardization—Key to realizing significant improvements in AP functions is consolidating and creating consistent processes. Unifying multiple geographic locations has a three-pronged effect: 1.) It reduces variations within AP processes; 2.) It eliminates redundant costs; 3.) It provides stronger internal control over the overall AP process.

Digitalize—Invoice data entry and other aspects of the average AP process are both low-valued and labor-intensive. OCR technologies, e-invoices, EDI are some key initial steps to digitalizing the intake process, and avoid drowning in paper. For faster, more efficient and direct AP processing, automated workflow technologies, RPA and more advanced business process management (BPM) technologies can stitch together all the transactions steps and build business (matching, routing) rules around them. This allows for “hands-free” automated purchase order matching.

Optimize—After the initial gains in transaction speed, reduced costs and decreased errors have been realized, it’s important to not get complacent. Once a new benchmark is set in terms of veracity, volume or velocity of AP transactions, ongoing work is needed to not only monitor existing KPIs but to constantly look for new ways to improve the process.

Do your AP processes, benchmarks and KPIs measure up? We’d be happy to offer a free assessment of your current practices.

transformation-roadmap

The Five Levers of Customer Experience

client focusThis article is written by: Hari Srihari, Vice President of Supply Chain Management for Sutherland Global Services

Organizations around the world know that improving the customer experience is essential to ongoing competitiveness. Yet achieving customer visibility through an integrated front-to-back-office 360-degree customer view can be challenging.

As companies continue to expand their organizational footprint via expansion, mergers and acquisitions, their technology infrastructure becomes more complex and disparate. From lead and order management through supply chain order fulfillment, a wealth of customer and operational data resides in various platforms, including legacy on premise, cloud-based, and hybrid systems.

What can be done to unlock the operational insights of these systems to improve both the overall customer experience and deliver business metrics for better financial performance?

There are five key levers that can be employed to create a more predictable experience for your customers and deliver actionable insights for your company.

  1. Customer Demand Management is needed to create positive interactions and create loyalty. This includes creating an Omni-channel experience for your customers to make it easy to do business with you and internally, maintaining a single source, 360-degree view of the customer to optimize the overall process.

Continue reading

A 1-2-3 Approach to Tail Spend Management

600px-shutterstock_157405238To be able to drive down costs as well as reap the additional benefits of a more rigorous tail spend management process, procurement organizations must lead with a best practices approach.

This involves a three-step process of: centralize, analyze and standardize for ongoing transformation.

1. Drive Visibility Through Centralization

Scoping and understanding current contracts at all levels in the organization is critical. Poor data quality is the most common problem across industries and organizations. It’s not unusual to find companies that have procurement agreements issued at various levels and varying business unit entities without a single source of reference to validate agreements, terms and positions. Many times, where a contract application does exist, there is no connection to the procurement system, and once again visibility is thwarted.

Centralizing purchasing activities cuts through the complex and significantly large number of suppliers across procurement categories. Continue reading

Is Tail Spend Worth the Effort?

money-forecastingDefined as small and non-critical spend, typically tail spend is viewed as a necessary evil, as purchases that don’t represent a significant supply risk due to low dollar amount or array of suppliers.

While there may not be significant risk involved, there is no doubt an adverse impact.

As I mentioned in my last post, unchecked tail spend results in higher amounts paid to vendors due to lack of scale and negotiated pricing. There are also hidden costs in the form of processing and administrative expenses, and potential dangers like waste and cost overruns.

However, the question remains for many organizations is it worth the time and effort to pull focus away from the bulk of procurement spend to chase the tail 20 percent?

The latest 2016 Key Procurement Issues Study from the Hackett Group indicates the answer is a firm “Yes.”

The study polled procurement leaders at 180 companies with $1 billion in annual sales worldwide, asking them to list their upcoming priorities. A full 85 percent of the procurement leaders who contributed to the study indicated that reducing and avoiding costs was among their top priorities. The consulting firm went on to recommend targeting tail spend as part of an overall procurement agenda to reduce costs.

Untapped Opportunities

For sourcing organizations the opportunity lies in addressing that elusive 20 percent; there can be significant cost savings—from published reports to our direct experience— anywhere between “10 percent to 15 percent savings across broad portfolios” of spend categories.1

There is also a wide array of other benefits including:

  • Improved purchasing control
  • Reduced risk of fraud
  • Fewer vendors, through potential consolidation
  • The ability to negotiate better pricing/bids
  • Greater visibility into expenditures
  • Increased efficiencies

So Why Isn’t Tail Spend Controlled?

With such clear benefits when managed more effectively why isn’t every organization cracking down on tail spend? It comes down to resources. Typically there simply isn’t the bandwidth to take on the challenge of thousands of line items and suppliers. As well, getting the spend transparency needed to wrap your arms around tail spend can be a onerous, to say the least. The Hackett survey noted, “for 2016, procurement operating budgets are expected to increase by just 1.1 percent, and staffing will only grow by 2.2 percent. So procurement can only afford to fund its highest-priority initiatives.”

Companies around the world are looking for solutions to take on the onerous job of tail spend transformation, without removing focus on their core spend. This is where a partner can deliver value.

Sutherland Global has a solution that includes advanced analytics, effective controls, highly skilled talent and results-oriented outcomes. We have proven solutions to help clients cut costs, manage tail spend more effectively and boost profits. Interested? Get in touch with one of our procurement experts.

1 Disteldorf, Hendrik, Fehre, Tobias, Aase, Guttorm, Piccarreta, Mike, “Unlocking the Value of Tail Spend”, Supply Chain Management Review, March/April 2014

transformation-roadmap

 

 

Tail Spend Problems? Seven Signs of Spend Struggles

rising costsTail spend can comprise tens of thousands of low-value, high-volume purchases across a formidable array of categories—everything from stationery and couriers to equipment costs and professional services. This spend can also include one-time, higher value purchases.

These individually unmanaged transactions may be relatively small in dollars, but cumulatively can add up to be far more than the spending from the largest supplier.

Yet too often, these types of purchases slip below the radar.

Throughout procurement organizations around the world, there are persistent indicators that something is amiss in tail spend management. Signs of spend struggles include:

1.) An Ever-Expanding Supplier List

If the company has thousands of suppliers and that list continues to grow, it indicates maverick spending and a lack of control. Continue reading

Hari Srihari on Supply Chain Management Insights, Trends & Technologies

hariWith increasing globalization, competition flooding the marketplace and shrinking margins, organizations around the globe are looking to improve their supply chains and improve the customer experience. So it is my pleasure to speak to Hari Srihari, Vice President of Supply Chain Management for Sutherland Global Services. Hari is a thought leader, known for his strategic vision and sound execution. At Sutherland, Hari draws from his expertise in manufacturing, supply chain operations and digital transformation using emerging technologies to help focus organizations on improving growth and profitability.

I recently had the opportunity to chat with Hari about the current opportunities for driving deeper insights from supply chain operations, and the overall state of the industry, and am happy to be able to share that conversation with you.

Scott Cutting: Welcome to The Accounting Minute! It’s a pleasure to talk with you today.

Hari Srihari: Thank you for the podium to talk about my favorite topic, Supply Chain Operations.

Scott: Improving customer experience is key to developing repeat business and buyer loyalty. What do you see as the levers companies can use to attract, retain and grow customer relationships?

Hari: In today’s digital world, having excellent insight into buyer behavior, products and services —and their availability— to be able to adapt quickly to shifts in expectations or buying patterns. Along with the past data, it is also necessary to create a shared vision of a better customer experience, with an improved products and services roadmap.

One of the inputs to the Customer Experience Management (CEM) strategy is the information acquired from the CRM system. However, CRM information is unidimensional and reactive. CEM goes beyond the generic by allowing companies to leverage context, segmentation and event triggers to design customer engagement strategies at an individual customer level.

Supply chain visibility, an integral part of the digital supply chain management, is another important factor for repeatable and reliable customer experience—especially when there is volatility in the processes. Thus a CEM model of engagement ensures collaboration and interactions in an omni-channel environment and the next steps (Next Best Actions) are decided on insights at either the segmentation or event-based level and then personalized to the customer being serviced. Continue reading

Tail Spend: Challenges & Costs

From a highly competitive marketplace to volatile commodity pricing and shrinking margins, the procurement organization is under increased pressure to allocate resources efficiently, keep a sharp eye on costs and ensure operational stability.

Unlocking supply chain opportunities through closer tail spend management is an increasingly viable method of delivering new value to an organization.

Tail spend is the small and non-critical spend that doesn’t present a significant supply risk to the business due to low dollar amount and an array of potential suppliers. Typically, there aren’t any complex supply agreements nor are they managed with “spot buys.”

Tail Spend Defined

tailspend-graphicBased on the Pareto Rule, also known as the 80/20 rule, this ranking separates the critical few—the high-value suppliers that account for 80 percent of the spend—from the final 20 percent, or the tail end. Spend is typically considered “tail” from one or all three of the following vantage points:

  1. Non-core categories (e.g. office supplies and equipment for a janitorial supply company);
  2. Low dollar value transactions;
  3. Suppliers below an established annual spend level.

It can also include one-time, higher value purchases. These individually unmanaged transactions may be relatively small in dollars, but cumulatively can add up to be far more than the spending from the largest supplier. However, these diversified purchases are typically not managed as tightly. In short, it’s fertile ground for rogue spending.

Slipping Through the Cracks

The effective management of tail spend continues to be both a great challenge and opportunity for any procurement organization. Most internal efforts are focused on the strategic sourcing programs of high-value categories and tracking big-ticket items, leaving numerous little items “slipping through the cracks.”

Why does this elusive slippage occur? Key reasons include a scarcity of resources that simply don’t have the bandwidth to address the volume of suppliers and ordered line items. Often there is poor visibility into tail spend patterns. Add to this a questionable ROI and the end result is a lack of targeted initiatives aimed at corralling these non-core, often ad hoc purchases.

Perhaps more worryingly, even though the procurement organization recognizes that there are inefficient processes and non-compliant purchases, trying to plug all the holes can be enormously frustrating and exhausting.

Addressing the Not-so-Obvious Costs

When uncontrolled tail spend goes unchecked, the obvious impact is the higher amounts paid to vendors due to lack of scale and negotiated pricing. However, mismanagement of tail spend results in a series of hidden costs.

The high volume of invoices resulting from uncontrolled indirect spend adds considerably to processing and accounts payable administrative costs and time needed to manage suppliers. In a recent study, APQC reports that, “Organizations adopting enterprise-wide standards have an average cost per invoice of $5.00 compared to an average of $7.02 among other organizations. “1

Unmanaged indirect purchases cause procurement waste—from unused stock sitting idly (e.g. as a buyer purchases the same item, without knowledge of the available surplus) to mismatches between supply and demand (e.g. over buying in anticipation of potential need). The lack of management also opens the door to potential increased risks like supplier fraud and cost overruns.

The Sutherland Solution

What if you could leverage a procurement solution that brings together skilled talent, best-in-class processes and leading technology to help wrangle tail spend? With Sutherland, you can benefit from a procurement solution to help fill a gap in many organizations that works on a gain-share model. Our procurement specialists have a deep market understanding and category spend expertise. Sutherland can provide contract validation, contract negotiation and vendor recommendations that improve efficiencies as well as deliver bottom-line results.

Interested? Get in touch with one of our procurement experts.

transformation-roadmap

The Spend Management Challenge

600px-shutterstock_149939726Understanding how much your organization is spending throughout its supply chain on third-party products, services and expenses is critical to any organization. The process of accessing, monitoring and managing spend to drive down costs by securing the best price through negotiation with preferred vendors is key to a company’s present and future livelihood.

Yet as companies grow, the cost of doing business as well as spend volume increases. Subsequently, procurement departments tend to pay more attention and labor hours to the “big fish”—those purchases that are of greater value. The yield on negotiating high-dollar accounts is far higher than chasing down smaller ticket items.

The Impact of Policies on Visibility

As a result of a concentrated effort applied to core or priority spend items, organizations lose focus on indirect spend items that typically range between $1,000-$50,000.

It’s inefficient for procurement personnel to constantly be logging into the ERP to approve each purchase. Instead, automatic approvals are set up for purchases under X amount to ensure that vendors are paid on time and there are no bottlenecks.

From a policy perspective, these existing processes surrounding smaller spend items often reduce visibility, allowing them to fall through the cracks. As transaction volumes grow, those dollars begin to really add up. Continue reading

Awash in Complexity: Hotel Billing

600px-shutterstock_114446479Every day hospitality organizations tread water to try to stay on top of a sea of complex billing. In addition to billing guests, these franchisees or property management groups must also address intercompany billing transactions as well as billing to online travel agencies (OTAs).

Spreadsheets and other manually intensive activities for intercompany and OTA billing open the door to inefficiencies, create room for error and can negatively impact revenue.

One Company, Multiple Entities

Tracking and reconciling intercompany transactions is often very difficult in a non-consolidated environment. These types of billing transactions (which happen between two entities of the same company) can be upstream, downstream or lateral. When key stakeholders want to see the big picture of their brands, the difficulty in adjusting intercompany transactions results in financial statements that do not offer an accurate view of the hospitality group’s financial situation. Continue reading

Hospitality Accounts Payable: Room for Improvement

hospitalityOver the last 10 years, many hotel chains have started to pursue an asset-light strategy, a model that is focused on building its brand presence through franchising and third-party management, rather than acquiring real estate. This approach lowers operating costs and lightens an asset-heavy balance sheet.

It also helps safeguard against profit volatility while allowing hotel chains to rapidly expand into new markets without investing in brick-and-mortar real estate. As a result, capital risk is reduced, and hotels can go to market faster.

However, as hospitality chains hand over the management reigns to franchisees, property management companies and REITs, the already decentralized back-office environment becomes more complex. Fuelling this complexity is a potent mixture of multiple systems, non-standard practices, input variances and low-value, often manual, tasks.

For an industry that is highly committed to growth, a sluggish back office mired with inefficiencies and higher-than-average costs is a recognized pain point among hospitality executives.

In the Accounts Payable (AP) function alone, several issues are all too common: Continue reading