Invoices that don’t meet our price and quantity tolerances, or fail some other business rule, go into an exception status. Some are returned to suppliers for correction and re-submission, while others are flagged, where approvers can see the reasons for rejection and take quick action to resolve them. The upshot is that our people spend very little time managing exceptions. The business rules in the network that we use to collaborate with our suppliers handle that for us.
Was scanning-OCR ever considered as part of the solution?
McDonald: No. We think of procure-to-pay as a holistic process, and see great value in getting an electronic invoice that has been automatically matched to a PO for touchless processing as a much better option than adapting an imaging system for invoice processing. With scanning and OCR, you still deal with large amounts of paper. When you also factor in all the costs and resources required to manage the system and the significant effort in exception handling, it’s just not attractive. From an efficiency standpoint, it makes more sense to devote the same resources to push suppliers to e-invoicing, while simultaneously engaging sourcing on the front end in the negotiations/contracting process. For that portion of suppliers that will continue to submit paper invoices, we are looking into directing those invoices to an outsourced service that could handle the processing for us.
Onboarding suppliers onto your business network is essential to a successful procure-to-pay initiative. What steps have you taken to drive supplier adoption?
McDonald: The Ariba network is a key asset for collaborating with suppliers, and we’ve taken several approaches to onboarding suppliers to our electronic process. The most effective is to make supplier enablement a heavily weighted objective for the team. It’s not something we ask people to do when they have time. We’ve allocated resources to drive supplier enablement and set measurable targets. We’ve also worked with our business partner, Ariba, to assist with messaging and providing resources when necessary.
Another key to success is getting support from our strategic sourcing partners within ING on the back end of the process, so they fully embrace what we are doing. We educate them on this new way to transact with our suppliers, and have them include clauses about this new process in their contracts.
Discuss the benchmarks and reporting that you rely on to monitor and measure performance.
McDonald: Some of the things we look at include the number of annual invoices processed per full time staff, Days Payable Outstanding, and many things relating to process compliance, such as comparing PO date to invoice date. When the invoice date is before the PO date, we know that a PO has been created after the fact. Today, we are running about 82 percent compliance. In most cases, failure to comply is due to lack of awareness , not resistance to the process. With this data, we can target people who need to be educated on our policy.
We’re also building a corporate warehouse that will greatly expand our reporting and data analysis capabilities by providing daily, automated feeds on critical spend data that has been enriched and rationalized. This will allow us to monitor KPIs from a dashboard, so we can proactively identify spending trends, and savings and cost avoidance opportunities.
At ING, AP reports to procurement. Explain the rationale and why more organizations don’t follow this structure.
McDonald: Traditionally, procurement and accounts payable have operated as silos, where procurement manages the buying process and accounts payable handles the payment process. The lack of synergy between the two organizations can lead to conflicting metrics and incentives; for procurement, around the contract to purchase requisitioning process, and for accounts payable, for just paying the invoice. At ING, we saw great value from having procurement and AP collaborate as partners to establish policies that enforce compliance and help us better manage our spend. A lot of our success is directly related to bringing the two groups together. In my view, the most effective approach is to consolidate procurement and payables into one integrated P2P function, reporting to the CFO. This reporting structure provides visibility to our projects and executive-level support for our policies to ensure broad adoption.
What are some other benefits of aligning procurement and AP and automating the procure-to-pay process?