In working to reduce the 40,000 paper invoices it receives from its supply base every month, Owens Corning has learned that the three most important elements of automating data exchange with suppliers are process, process and process.
When you are a $5 billion company working with about 17,000 different suppliers, you are bound to receive a few hardcopy invoices every month, but that does not make it any easier to swallow the cost of processing that steady flow of paper. In fact, as far as James Hawkins is concerned, the business case for eliminating a large chunk of those paper invoices by automating data exchange with suppliers is pretty straightforward: taking paper out of the transaction helps reduce a company's non-value-added costs.
Hawkins is e-sourcing process leader with Toledo, Ohio-based Owens Corning, and he is quick to point out the costs associated with the traditional accounts payable paper chase, as well as the potential benefit of reducing the number of invoices that a company receives from its suppliers. "We were processing somewhere in the area of 40,000 invoices [per month] at somewhere around $4 a pop," he recalls, using an internal estimate for the cost of processing each paper invoice. "If you cut that in half, then you've wiped out 20,000 invoices at $4 a piece." Assuming that the cost of automating those invoices is less than the $80,000 in savings per month, Hawkins concludes, "this must be a good idea."
Owens Corning, whose 17,000 employees manufacture a variety of composites and building materials, has been something of a pioneer in adopting technologies to streamline its sourcing and procurement. For example, the company, which has an annual spend of about $3 billion, was among the first to use online reverse auctions, running its first event back in April 1999. Over the years, using FreeMarkets, Perfect Commerce and, finally, Ariba's self-service e-sourcing tool, Owens Corning has run more than 500 events and achieved substantial savings. But with the company's margins under continuous pressure, Owens Corning looked beyond reverse auctions for other means of reducing costs. "As we looked in the sourcing arena," Hawkins says, "we found that we were spending a great deal of time, effort and money processing paper invoices for payment. So we saw a great opportunity to lower these costs."
A Multi-pronged Approach
In attacking the paper invoice challenge, Owens Corning has applied several different solutions. The company has instituted a purchasing card program, for example, and is currently doing about $100 million a year in spend through the p-card. That eliminated the need for a formal receiving process for goods bought on the p-card, took the invoice out of the equation for those purchases, and alleviated the requirement to have a shared services group opening mail and entering those invoices into the company's SAP financial backbone.
Elsewhere, Owens Corning has moved to working with a variety of suppliers using evaluated receipt settlement. "With ERS," Hawkins explains, "we essentially say, here's our negotiated price, say, a dollar for every unit, you shipped us 10 units, so we owe you $10." Again, this process eliminates the need for an invoice. To date, Hawkins estimates that Owens Corning has moved about 10,000 invoices into an ERS arrangement with its supply base.
Finally, back in 2002, Owens Corning elected to explore avenues for automating document exchange with a greater portion of its supply base by moving to electronic data interchange (EDI). The company was already doing EDI with some of its larger suppliers, but Owens Corning figured that it had a significant opportunity to reduce its non-value-added expenses by extending EDI to a greater portion of its supply base. In addition, the company wanted to electronically trade not just invoices but also purchase orders, PO acknowledgements and, with production materials suppliers, advanced shipping notices (ASNs). After all, every time the company took another piece of paper out of its processes, it added to the savings.