Automating the Purchase-to-pay Process at BAE Systems

Aerospace leader streamlines and standardizes a complex, resource-intensive process

A Tornado GR4 from RAF Marham's 13 Squadron (Copyright© 2005 BAE Systems. All rights reserved.)
A Tornado GR4 from RAF Marham's 13 Squadron (Copyright© 2005 BAE Systems. All rights reserved.)
By Editorial Staff

BAE Systems has crafted a multi-tier, worldwide network with thousands of suppliers and other partners to support the rapid, cost-effective delivery of its market-leading solutions to the global aerospace and defense (A&D) industry. Collaboration and interactions with these third parties directly affect how well BAE Systems ultimately serves its customers.

The legacy purchase-to-pay process — initiated with the creation of a purchase order (PO) and completed when a supplier is paid for goods or services — typified the multi-enterprise communications hurdles BAE Systems faced. In the company's Military Air Solutions organization, for example, the average time between PO generation and ultimate acceptance by all parties was 50 days, with only 13 percent of supplier PO responses getting registered in the business unit's enterprise resource planning (ERP) system. The invoicing phase of the purchase-to-pay process was similarly challenged. Too many steps required manual intervention, including the validation of incoming invoices and the execution of three-way matching between these invoices and the corresponding POs and receipt of goods (RoG) notices. The result? An inefficient process that took longer than necessary to complete and consumed too many valuable resources.

This situation was unacceptable to BAE Systems because it not only threatened production schedules but also affected valuable partner relationships. A number of very common circumstances found across many companies contributed to the situation. First, basic processes differed from business unit to business unit, limiting consistency and any opportunity for economies of efficiency. Second, the process required access to, and interaction with, a variety of information systems, all with different user interfaces and disparate data, raising process complexity and the likelihood of information mismatches.

As is often the case in the A&D industry, interactions with most suppliers were too reliant on the human factor, which opened the door to the unintentional introduction of errors and delays, deviation from the agreed process, or both. For example, buyers and suppliers entered PO, PO response, and PO change data into their respective back-office systems by hand, printed and faxed/mailed forms to one another, and checked on status via phone or e-mail. Invoice processing also required manually intensive interaction, as did the three-way matching and progression through the remainder of the invoice reconciliation and approval chain.

For BAE Systems, maintaining the status quo for the purchase-to-pay process was a non-starter. In the Military Air Solutions unit alone, upwards of 11,000 POs and PO changes, as well as over 25,000 invoices, from nearly 1,000 suppliers were processed in a one-year period. Across the company, these numbers were on the rise, promising to exacerbate problems for these manual, legacy activities. At the same time, BAE Systems' customers were strong proponents of automation and efficiency, to the point of pushing toward their incorporation as evaluation factors for contract award. In other words, establishing a streamlined, consistent purchase-to-pay process would not only benefit the company's suppliers, but also BAE Systems itself.

Creating a standardized, automated purchase-to-pay process is far from trivial, particularly for a company with a global footprint and complex network of trading partner relationships. That said, BAE Systems was firmly committed to the standardization and automation effort, because they clearly envisioned positive impact on all parties. The potential return on investment was highlighted within a single business unit like Military Air Solutions, where 95 percent of transactions were conducted with only 35 percent of suppliers, and a mere 1 percent of suppliers were responsible for 32 percent of POs/PO changes and 40 percent of all invoices.

Bringing the upgraded purchase-to-pay process to life would require improved processes (both internal and collaborative) and tools to enable those processes. To achieve these objectives, BAE Systems turned to Exostar and its Supply Chain Platform (SCP), powered by E2open software.

Leveraging the Supply Chain Platform

A multi-enterprise supply chain collaboration solution for aerospace and defense companies, SCP operates via a hosted, software-as-a-service model. This provided BAE Systems a ready-to-deploy capability that required limited IT investment to implement and maintain. SCP's service-oriented architecture and multiple integration options substantially eased the burden of introducing the solution into the operating environments of BAE Systems and its partners, encouraging the adoption of the new approach by business units and suppliers alike. SCP's scalability and performance meant BAE Systems could start small and expand the scope of the solution over time, as more business units chose to take advantage of the e-gateway the company had deployed to facilitate internal communications and systems interaction.

The design of the solution was clean and elegant. On the BAE Systems side, SCP integrated directly to the e-gateway, leaving the critical legacy ERP systems and corporate data backbone untouched and allowing buyers to continue to work within their enterprise systems. Suppliers received an easy-to-use, secure Web interface to access SCP, or they had the option to directly engage their back-end systems with SCP. Exostar handled all training and onboarding of suppliers into their secure, federated operating environment, where many of those suppliers already were using SCP for interactions with BAE Systems and other large customers.

Because SCP was created for the A&D industry, capturing and automating BAE Systems' purchase-to-pay process was a relatively straightforward configuration effort. Like many A&D businesses, BAE Systems issues POs that are likely to be modified before they are fulfilled. To support this process requirement, SCP tracks and controls all PO-related activities based on buyer and supplier input, including the automatic creation and electronic exchange of POs, PO responses and PO changes. The solution monitors and presents process status, ensuring the supplier views a PO and subsequent PO changes in the order they were received, while encouraging supplier acceptance of POs or PO changes and automatically updating the corresponding BAE Systems ERP system.

Once BAE Systems has acknowledged shipment arrival with an RoG notice, suppliers can generate an invoice in SCP using the data already in the system, regardless of whether the invoice tracks to a PO/PO change in its entirety or to one or more individual line items within a PO/PO change. SCP creates, validates, archives and forwards the electronic invoice to the appropriate BAE Systems ERP system — with no supplier rekeying of PO-based data necessary. With these process improvements and electronic versions of the mutually agreed POs/PO changes and invoices in place, BAE Systems was well-positioned to invest in additional systems upgrades that bring these documents and RoG notices together to execute an automated three-way match — freeing up resources while paving the way for rapid invoice approval and improved identification and exception handling of any mismatches.

Reaping the Benefits

The impacts of SCP on BAE Systems' purchase-to-pay process have been dramatic. The time and effort to issue and gain supplier confirmation of a PO has been reduced substantially. The invoicing phase of the process now can be executed in fewer steps, thanks to reduced human interaction. Invoices can be generated, transmitted and reconciled with little to no manual intervention, slashing processing time and eliminating errors. And SCP's Invoice Status Reports allow all parties to see precisely where an invoice resides in the process, reducing the volume of status calls and e-mails between BAE Systems and its suppliers.

Capturing and automating the purchase-to-pay process in Exostar's SCP has many benefits for BAE Systems' supply chain community. Suppliers have access to an easy-to-use solution that enforces a well-defined process. With SCP, they can monitor the progression of POs and invoices throughout the purchase-to-pay process, eliminating uncertainty with respect to status and required actions on their part. Perhaps most importantly, automation has streamlined the process, meaning suppliers are receiving payment from BAE Systems with even greater speed and reliability — improving valued relationships.

For BAE Systems, the benefits of the move to SCP are numerous. Encapsulating the purchase-to-pay process in SCP has brought standardization to the process itself, as well as the transactions (POs, PO responses, PO changes, PO change responses and invoices) it oversees. Whenever possible, documents are created automatically, and electronic transmission of documents reduces administrative processing, time and expense, while increasing certainty of delivery and updates to the appropriate BAE Systems ERP platforms. Automation and the ability to track and archive progress minimize inquiries, errors and cycle times, along with the need for human intervention, most notably for the matching and reconciliation of POs, RoG notices and invoices. The Exostar solution not only cuts costs but also minimizes BAE Systems' role with regard to supplier adoption, training and ongoing support activities — allowing personnel to focus exclusively on the highest-priority, most business-critical tasks.

SCP provides BAE Systems with a secure solution that permits them to manage the purchase-to-pay process by exception. The solution's flexibility and performance are enabling BAE Systems to execute a phased conversion of its business units and their suppliers to SCP as business unit owners choose to connect their ERP systems to the e-gateway. Because it has embraced SCP, the company anticipates a significant reduction in operating expenses. As the scale and scope of the solution expand, the magnitude of savings will grow.

With the e-gateway, SCP and the upgraded purchase-to-pay process, BAE Systems is demonstrating its commitment to automation and efficiency to its customers. In fact, BAE Systems is practicing what it preaches by utilizing the solution for its customer-oriented interactions — receiving POs from customers and sending invoices in return — reinforcing the company's stature as an innovator and positioning it for future success.