By Andrew K. Reese
Procurement organizations at many companies in recent years have made significant progress in transforming their image from that of an administrative function — a paper-pushing cost of doing business — to that of a partner to the business that adds value by bringing sourcing, risk management, relationship building and other strategic skills to the table.
Now the Accounts Payable (A/P) organizations at some enterprises are going down the same path and moving away from being a tactically oriented, paper-processing function. At Greif, Inc., for example, the A/P organization at the Ohio-based global manufacturer of packaging systems is nearly three years into a transformation initiative that is helping the function become a strategic, value-adding partner to the business. For Greif, A/P is coming to mean "Advanced Payables."
Moving to Lean Payables
Barbara Myers, manager of central processing at Greif, says that the company's initiatives to improve its A/P function started in 2004 with a vision to bring Lean manufacturing concepts from the plant floor into the corporate offices to establish an administrative excellence model. "We were looking for a solution to eliminate the manual and non-value-adding activities that go into processing an invoice," Myers says. To that end, Greif's A/P function implemented a streamlined workflow process that managed how invoices were received and routed through queues before entering the accounts payable system for payment.
"That had a huge impact on the core processing time for invoices," Myers says, "but what was missing was the piece for getting the invoices into the system." Invoice entry was still manual, using an optical character recognition (OCR) process for scanning invoices into the system, which slowed up the whole payment cycle. In fact, it could take anywhere from 10 to 15 days from the time a supplier generated an invoice until the staff at Greif entered the invoice into their A/P system. The manual entry also introduced the risk of erroneous data being keyed into the A/P system, resulting in inaccurate payments or payments to the wrong suppliers.
Greif's Accounts Payable team realized that if they had a way to accelerate and streamline the invoice-entry process, they could both take time out of the invoice-to-pay cycle and increase the accuracy of payments. In fact, if they could take 15 days out of the process and ensure payment of the right amount to the right supplier, they would have greater opportunity to explore different value-added payment options on the back end. This could include early payment discounts that got suppliers paid faster while reducing Greif's costs. Streamlining invoice entry also would help the A/P team realize its vision of becoming a global shared services center working on behalf of Greif's locations around the world. "We wanted to be able to bring more volume through our department without adding headcount," Myers explains.
Taking a Cross-functional Approach
As the scope of work to automate invoice receipt took shape within A/P, the Accounts Payable team worked to involve other internal constituencies in the project. Myers and her colleagues within Payables brought together a cross-functional team that included Greif's information technology department and its supply chain organization. "We wanted to look at all our headaches in the invoice process for direct materials, indirects and services," Myers says, "and we didn't want to come up with a solution that would just eliminate a problem for [A/P]."
The Payables team also worked through the supply chain organization to reach out to key suppliers to understand their perspectives on the invoice issue. "We didn't want to do anything to harm the relationship that Supply Chain had developed with the suppliers, we wanted to enhance [those relationships]," Myers emphasizes. During preliminary conference calls with 10 of Greif's top suppliers, the A/P team explained their own ideas for addressing the challenge, discussed various options for making changes to the invoicing method and gave the suppliers an idea of the benefits that they could see as a result of changes to the current process.
Myers and her colleagues surveyed the solutions landscape and came up with an initial list of four different providers, each of which offered a different approach to addressing the invoice issue. The Payables team had mapped out the company's "as is" state and created a "to be" vision for where they wanted to take their invoice-to-pay process, then compared the different solutions' capabilities against their requirements to determine a "best fit." Greif ultimately elected to go with OB10, an Atlanta-based enabler that operates a global B2B e-invoicing network to capture invoices from suppliers and feed them into companies' financial systems. OB10 allows Greif's suppliers to electronically send invoices either automatically from their billing systems or manually through a Web form, across the OB10 network, and into the manufacturer's financial system. OB10's network does the required data translation that ensures compatibility between the suppliers' systems and those at Greif, and the solution applies digital signatures to invoices in cases where appropriate verification is necessary.
Greif went live with the solution last October, and initially the company rolled it out to its supply base in phases, starting with the larger raw material suppliers with high invoice volumes. Myers' team provided the suppliers with hardcopy and e-mail documentation explaining the new system, and OB10's support team participated with Greif on individual phone calls to ensure that the suppliers were able to register on the e-invoicing network and set up their data feeds to communicate invoices through the system. Greif also released the solution to smaller-dollar-volume suppliers that required more handholding to explain how to use OB10's Web portal to enter invoice data. Subsequent phases targeted the suppliers in between these two extremes, adding new suppliers in groups based on invoice volumes.
Becoming More Strategic
In all, to date, the company has onboarded about 180 suppliers into the system, and as of May the company was receiving 50 percent of its invoices through the network — significantly ahead of the 20 percent target that Greif had set for that point in the rollout. The goal, eventually, is to be at 100 percent — although the company will maintain the flexibility to handle one-off paper invoices in discrete cases.
Myers says that Greif applied both carrot and stick in working with its suppliers to get them onto the system. "We educated the suppliers on the benefits of [invoicing through OB10], not only for us but for them as well. We also showed them that the industry is headed this way, and if they sign up with us then they can do invoicing for other companies, too. But we wanted to take a very firm stance on it, and we were pretty direct. We did a lot of communication via e-mail and calls, letting [the suppliers] know that this is how they will have to invoice Greif in the future if they wish to do business with us. We haven't come to the point where we're not going to use a supplier anymore if they haven't signed up, but we didn't just give them this as an option for invoicing us." Still, Myers says that the company will look at suppliers on a case-by-case basis when necessary. For example, for key suppliers of a critical material, the manufacturer wouldn't stop doing business with them automatically just because they hadn't yet signed up for OB10.
Internal constituencies also received education on the new system. Myers' team sent out e-mails and conducted phone briefings with all the company's affected locations, explaining OB10, the process, how the rollouts were going to be conducted and the benefits. "One thing we didn't want was for a supplier to call Greif and have somebody tell them they had no idea what OB10 is or why we're doing it and that they should just continue invoicing the way they always have done it," Myers explains. "We wanted everybody to be familiar with OB10, understand what it was and the benefits and at least know who to direct calls to if they weren't sure."
With Grief running live on the system since October, for those suppliers on the network, the 10- to 15-day lag between when suppliers generate an invoice until it enters Greif's financial system has been eliminated, while invoice accuracy has increased — a win for suppliers, since they frequently can get paid faster, making Greif an easier and better customer with which to do business.
In addition, the company already has seen a significant reduction in the amount of time staff spends dealing with invoices. In part, this is because of the sheer reduction in the number of paper invoices that A/P must process, but it also stems from the reduction in queries from suppliers about their invoices, since suppliers can use the OB10 system to verify receipt of invoices. As a result, Myers has been able to shift resources previously dedicated to invoice processing to other tasks, including working on preparing key performance indicators (KPIs) for the department as a prelude to finding new ways to improve Payables' efficiency and, especially, its utility to the business.
"That's the whole plan," Myers says. "It wasn't about reducing headcount. The whole idea was to free up resources so we can add other units seamlessly into our current structure without adding headcount, as well as to become more of a service-oriented function, where we can actually work with Supply Chain even closer to identify trends or make sure that we are paying the correct prices. We want to become a more strategic partner instead of just processing invoices."