Invoice Processing Automation

Transcription

1 Driving Purchasing Smarter and Spending Advances in Intelligent P2P Invoice Processing Why Hundreds of Companies are Taking the Plunge Verian is is a a worldwide leader leader in in Purchase-to-Pay purchase-to-pay solutions. Creating visibility visibility and and control control over over clients indirect indirect spending, spending, we we help help organizations achieve achieve dramatic cost cost savings savings and and contract compliance. We We drive drive value value beyond beyond implementation by by helping organizations bring bring every pocket pocket of of spend spend under under management with with our our proven proven See-Manage-Save approach. Learn more more by by visiting visiting our our website at at verian.com. Verian.com info@verian.com

2 Introduction Companies that use Purchase to Pay (P2P), ERP, or other purchasing and invoicing systems can use spend analytics to gain deeper insights into their organizational spend. They can analyze their spend data to find trends, anomalies, and outliers for organizational gains. But sometimes it s hard to know how to slice and dice the data to gain a better understanding for taking action on the information. Companies are looking for answers to: What data should we use and how do we crunch it? What is the data showing us? How do we find actionable items to improve performance, not just at the tactical level, but on a strategic level? This paper explores the mindset of driving smarter spending and examines areas where spend analytics can help bring about strategic transformation. Spend Analytics and the Goal Since spend analytics are essentially part of data warehousing and analytics, some data warehousing principles can guide us. One principle to consider is to determine the goals and questions that you need analytics to support before mining the data. Focusing on the desired goal of the initiative helps decide what data to load and how to analyze it. Tip: Determine What to Analyze before Mining Data Start by identifying The goals you re aiming to achieve The types of questions you need to answer to meet those goals The actions you will take in strategic areas of opportunity to meet the goals. This paper will focus on three goals that present significant opportunity for driving smarter spending within an organization through identifying goals, answering questions, and taking action in strategic areas of opportunity all by leveraging analytics against spend data. The three goals are: Driving Savings Managing Supplier Performance Controlling Buyer Behavior. Driving Savings 2 Companies can drive savings by developing a category strategy to influence strategic sourcing. Typically, this strategy looks at contract consolidation, specification rationalization, and vendor rationalization or consolidation through available spend data. Data is extracted and cleansed, using address matching and other tools to consolidate like-data, and triangulated using multiple sources to further verify information, conforming supplier names, groups, and products.

3 Tip: Cleanse Data before Analysis One team member might enter a vendor as IBM, while another might use Intl Bus Mach. A third team member may spell out the name: International Business Machines. Though each record refers to the same vendor, vendor analysis routines will interpret them as three different vendors. Any insights revealed keeping them separate will be worthless. The transaction data must be clean and consistent to render any useful actionable information. Before analyzing data, consolidate like-information to ensure you re using accurate intelligence. Deeper analysis can then determine who supplies what to the firm and identify spend categories. From there, reports can be run to help uncover savings. Analysis of Vendor Category Spend Let s look at an example of a category strategy and what insights we glean from this report. The chart below shows vendor category spread the number of vendors a company uses in each spend category. This analysis looks for vendor proliferation. Generally, you can look at both the span and the concentration of spend in each category to answer questions like the following: How many vendors does it take to reach 80% of the category s spend? Is the spend balanced, or do we see a bulk spend with few suppliers? What actions can we identify that drive savings? Looking at the left of the chart, we find the company uses nine vendors for the Services category. Nine vendors seems like a lot, but Services is a broad category. A company may use legal services, accounting services, consultants, building management, etc. We expect to see many vendors in this category. The nine vendors shouldn t set off any alarms, and we have similar expectations in regards to the IT & Telecom category. Let s continue working our way right. The Office Supplies category has six vendors, which could be an area for additional review and consolidation to two or three vendors. This depends, of course, on the company. A multi-national firm will likely need a supplier in each region, but a company covering the southeastern United States would need one or at most two suppliers. 3 As we move farther right, nothing really pops up as a red-flag in terms of having too many vendors. So, let s look for the opposite: a category with too few vendors. We see this with the Computer - Software category. The chart shows the firm only has two vendors for computer software, yet we d expect to see many vendors in this category. We d expect to see a mixture of the big name software providers, as well as other niche service providers. Yet we don t see that. We see two vendors in a category that should have many.

4 So, what can we deduce from this spend data? The company likely has an opportunity to consolidate vendors in the category of office supplies, which will enable them to drive savings from volume pricing, opportunistic bulk purchases, and better contract negotiation with just a couple key vendors. The company probably buys its software from a distributor, rather than directly from the manufacturer. The firm ends up paying the distributor s margin on top of the cost of the software. This is money that can be saved. With this information, the company can take corrective action and start buying directly from the software companies. We see that a category strategy not only shows where a company can consolidates vendors, but also where it can remove other companies margins from the purchasing chain. And, that s where significant savings can be made. Manage Supplier KPIs Key Performance Indicators, or KPIs, are another tool companies can leverage against spend data to drive change. By using transaction-level data and spend analytics to put the KPIs in practice, companies can monitor areas like supplier performance to identify trends and outliers. A trend tells us ongoing direction of a supplier s performance, and an outlier is a data point that falls outside of that trend. Tip: Analyze Outliers against Trends An outlier can be good or bad. For example, a delivery company can have a positive trend in its on-time delivery KPI, with one or two instances below the KPI. Conversely, the delivery KPI might trend downward, showing on-time performance is getting worse over time. But they may have some instances where on-time delivery performance was good. Knowing the downward trend lets us see the positive instances as outliers. This knowledge is valuable in pinpointing specific examples when discussing performance with the delivery company. If the vendor gives certain examples when deliveries were on time, outlier information can help the company show the vendor that while that may be the case, overall deliveries were late and harming production. Invoice Exceptions Let s look at an example of using spend analytics to monitor invoice exceptions and discrepancies as a way of evaluating supplier performance. The chart below shows invoice exceptions for a company s suppliers. 4

5 The company has an invoice exception rate KPI of 99%, meaning the goal is that 99% of a vendor s invoices must be correct when received. From the chart we see that not all of the vendors meet the KPI. In this fictitious example, Dell Computers has the worst rate; only 74% of Dell s invoices are correct. Management can drill down to see the particular errors, which they can take to Dell as areas for improvement. The company can also expect to see improvement in productivity. Their employees will not have to research and reconcile the exceptions, saving the company money through better productivity and fewer mistakes. As a result, team members may be freed up for higher value work, which benefits the company s bottom line. Controlling Buyer Behavior Controlling buyer behavior is often tricky, since patterns of rogue spending are not always malicious employees are just trying to get the tools they need quickly and easily to do their job better. (We define rogue spending as that spending on unapproved items when approved items are available for purchase. Think of off-catalog spending versus on-catalog. ) Sometimes companies lack access to transaction-level details, making it difficult to identify these types of behaviors. But consolidating spend data and filtering information can help unlock these details, empowering management to identify clear examples of detrimental behavior that needs to be addressed and shifted. One of the most powerful ways to drive permanent change in buyer behavior is citing examples of non-preferred buying behavior directly with users and approvers, with clear explanations of why the behavior hurts the firm, and how these actions can be shifted to more cost-conscientious, riskadverse types of behavior. Budget Utilization Analysis Let s consider an example using budget utilization analysis and buyer behavior. The chart below shows the most-used budgets for a company: 5 We see that the Services Budget is fully utilized. Actually, it s over-utilized by 11.56%, and we expect services to be used and purchased throughout the remaining budget cycle. What do we think buyers will do? They ll purchase services and put them in other budget categories, preventing the company from getting an accurate picture of how company funds are truly being utilized. This in turn prevents the firm from making appropriate adjustments to the budgets in the future and properly planning funding.

6 So, how can the company fix the problem? Drilling down into the detail of the services budget might show that some spending categorized as Services should actually be in some other budget category and have been miscoded, causing over usage of the Services budget. Then, management can work with the individuals responsible for the coding errors to ensure they begin coding spending properly going forward. Now, let s flip this around at look at the top underused budgets for the company: The IT budget is about 75% utilized. Determining if that s an area of concern depends on where the firm is in the budget cycle. And looking at the software budget, not one cent of spend has been charged against it. So, looking at those two budget phenomena together should initiate additional review. Drilling down into the detail of the IT budget will probably show that software items were coded into the IT budget. We can drill down to the line items, figure out who coded the purchases to the IT budget, and take corrective action. Tip: Use Spend Data to Address Issues Directly with Employees A manager can sit down with the team members responsible for errors and coach them on the correct budget categories for coding software, showing them the specific examples pulled from the spend analysis. This approach is often far more effective than sending out a mass reminding everyone to properly code purchases, when only a few people are responsible for the errors and may not even realize they ve been making mistakes. Conclusion Spend analytics built on your company s transactional data can provide you with strategic insight. We looked at using spend analytics to extract actionable initiatives that can drive savings, manage supplier performance, and control buyer behavior all driving smarter spending. It all starts with harnessing your company s data. Transaction-level data from your eprocurement and accounting systems are the building blocks. Proper data cleansing and analysis will enable greater control and efficiency of your operations. Give some thought to your data and the kinds of questions you want answered. What KPIs can you track with your data? Which are transaction driven? Which systems are best for extracting data? What reports do you need, and what information are you not getting now? What vendor categories do you need, and how many? Does your vendor category spread aid strategic spending? 6