BASWARE WHITEPAPER ELECTRONIC INVOICING IN THE AUTOMOTIVE INDUSTRY WHITEPAPER

BASWARE WHITEPAPER ELECTRONIC INVOICING IN THE AUTOMOTIVE INDUSTRY WHITEPAPER

CONTENTS 1. Automotive s big challenge 2. From bilateral connections to business networks > EDI and the cost of message exchange > Regulatory changes 3. Automotive s big opportunity > Buyers and suppliers benefit in equal measure > Avoiding the manual invoice marathon > Huge predicted growth in invoice volumes 4. Turning complexity into efficiency > Adopting Global Invoice > Tiered supplier complexity 5. Basware: the e-invoice pioneer > Basware Automotive Gateway > E-invoicing services at a glance for buyers and suppliers > Services and technologies in detail > Industry expertise > Independence by roaming > Revolutionizing global payments 6. Future focus > An integrated accounting process 7. Automotive s new golden era > Companywide optimization from consultation to implementation > Crystal ball: Analysts excited by the e-invoice potential 02

1. AUTOMOTIVE S BIG CHALLENGE The automotive industry is unique. Hardly any other industry has such a complex, closely aligned production process with such global reach. Automobile manufacturers follow the market and build cars where their customer base is greatest, and where they lead the original equipment manufacturers (OEMs) and suppliers follow. This agility is one of the industry s great strengths, but global orientation can become a major obstacle to achieving the benefits of an electronic financial supply chain. The automotive supply chain is a dense matrix comprising thousands of organizations. E-invoicing is a key enabler in simplifying connections, improving processes, making significant cost savings and strengthening buyer-supplier relationships. These tangible benefits have proven to play a vital role in augmenting a company s future credit worthiness and liquidity. Basware is the leading network for e-invoicing and e-payment solutions within the automotive industry and is uniquely positioned to recognize the challenges facing automobile manufacturers looking to gain efficiency across their financial operations. To meet these challenges Basware has designed highly-effective, industry-specific technologies and services. Basware has been working with thousands of automotive suppliers and manufacturers, including Audi, BMW, Daimler, MAN and Volkswagen for many years, and our team has a deep knowledge and understanding of this unique industry. We know plenty about the complexities of e-invoicing in the automotive industry and adapted our solutions to accommodate these challenges. Through our Basware Commerce Network we connect over 160 e-invoicing service providers and over 900,000 companies globally, which all benefit from immediate electronic transaction collaboration with all their trading partners. Esa Tihilä, CEO of Basware 03

2. FROM BILATERAL CONNECTIONS TO BUSINESS NETWORKS The origins of e-invoice processing in the business-to-business environment go as far back as the seventies when EDIFACT (Electronic Data Interchange for Administration, Commerce and Transport), a cross-industry and international standard for electronic data transmission was established. Between automotive manufacturers, original equipment manufacturers (OEMs) and their suppliers, these system connections today take care of the exchange of electronic messages, usually in connection with goods or cost accounts. Upstream EDI converters serve as translators for the message transfer between the IT systems of the business partners, providing a uniform protocol and format for the transport of messages from supplier to buyer. A huge amount of effort has been expended on developing standardized EDIFACT messages such as the widely-used Global Invoice. Despite this, 1-to-1 bilateral transaction exchange remains frustratingly complex. The varying needs of companies and changing market conditions increase the time, cost and manpower required for the development and maintenance of the required point-to-point connections. This is why, especially for many small and medium-sized companies, traditional bilateral data exchange is associated with considerable and often prohibitive cost levels. As the number of business partners grows, more and more bilateral connections must be maintained. This is the reason only the largest automotive manufacturers and their major suppliers could afford the cost intensive EDI connections and why they are now looking towards e-invoicing as a cheaper, more flexible alternative. Over the last few years, second and third tier suppliers have been brought into electronic transactional programs too. This is in large part due to the clear benefits of e-invoicing but it has also been helped by a number of regulatory changes in Europe. For example, the amendment to the VAT Directive of 2010A and the simplification of tax laws meant that electronic signatures were no longer required in countries such as Germany, ensuring paper and e-invoices were able to be treated equally, triggering further adoption across smaller businesses. Automation of invoicing is an important goal at Daimler. Through our use of Basware e-invoicing services, we also reach the non-edi-capable suppliers all over the world. Richard Erzberger, Manager Shared Service Centre, Daimler ERP ERP EDI converter EDI converter Point-to-point connections with EDI converters can be used in practice only with high volume business partners. 04

3. AUTOMOTIVE S BIG OPPORTUNITY Buyers and suppliers benefit in equal measure Historically, buyers have had the most to gain from getting their suppliers to send e-invoices and therefore they have usually been the ones to instigate e-invoicing initiatives. Suppliers, often constrained in resource and capital, have often baulked at the need to implement discrete connectivity for each individual customer such effort is perceived as a drain on their time and can appear costly, a perception that ultimately becomes a barrier to getting them on board. Traditionally, some of the biggest costs to the supplier have been involved in ensuring specific invoice content and data requirements are met so the invoices can be automatically accepted into the buyer s accounts payable or ERP systems. However, with modern approaches to transactional connectivity these costs are more than offset by the significant cost savings that e-invoicing unlocks for the supplier. For example, significant realizable cash savings are delivered through the instant removal of postage, printing and paper-handling costs. More importantly, by establishing an electronic business relationship the supplier increases the likelihood of a longterm partnership with their customer and consequently engenders more confidence in the future. The digital value chain is becoming an ever more valued component of buyersupplier relationships. Avoiding the manual invoice marathon A look behind the scenes of a buyer s typical manual invoicing handling process illustrates the potential of e-invoicing. Paper invoices demand a long list of manual processes, including invoice printing, enveloping and postal franking, take time and create significant waste. First invoices are sorted out from other post in the post center. Envelopes are opened, advertising and irrelevant content are removed, the invoice is receipt-stamped and endorsed and sent to the internal mail. This process usually takes several days. Unfortunately however, any errors on the invoice with this approach will not be discovered until the end of the process. For example, if information does not comply with local legislation, the invoice must be rejected because otherwise a tax deduction may not lawful. So the invoice comes back to the supplier and must be cancelled before a new invoice with a new invoice number is issues and restarts the journey. Following these practices, it s easy to see how invoice processing can easily become a marathon. The same is true of the method of sending and receiving invoices in PDF format via e-mail. This type of document still has to be entered into the buyer s system. This is done either by manually typing the invoice data into the accounting system or by scanning using optical character recognition (OCR). In any case, trained personnel will be still be required for the booking and payment process as, regardless of the method, human verification of the invoice contents is still usually needed. According to market research from Billentis, invoice volumes are likely to grow in the coming years by two to three percent. By 2015 analysts expect a volume of 35 billion invoices in Europe. It s clear that buyers and suppliers relying on these subpar processes can expect to see their costs increase in line with these estimates unless they adopt fully automated e-invoicing processes. The higher the number of invoices, the more complex and labor-intensive the postal process. Outsourcing the invoice printing and postage process can reduce this cost, but often only suppliers with very high volumes have seen the benefit. And of course the postal service will always add time to the process, no matter how efficient they claim to be. This is where the advantage of e-invoicing can be clearly felt: print, material, enveloping and postage costs are instantly removed, and delivery can take a matter of seconds, not days. But what does a typical process look like for the receiver of a paper invoice? 05

4. TURNING COMPLEXITY INTO EFFICIENCY With the opportunity represented by e-invoicing now recognized by the industry, it s hardly surprising that the ranks of automotive manufacturers and their suppliers have become increasingly interested in the idea of fully automating the accounts receivable and accounts payable processes. Automation has been proven to enable major cost savings, minimize human error, increase the transparency of business processes, accelerate invoice processing speeds, simplify auditing, provide better cash flow forecasting and ease tax compliancy for both the buyer and supplier. But even though the introduction and adoption of the Global Invoice industry standard has appeared simple for the OEM s, its introduction can prove to be extremely time-consuming across the extended supply chain. This is because the required collaboration between buyers and suppliers can be complex to achieve; because there are huge number of small and micro businesses within the extended value chain; and because relationships between OEMs and suppliers can be so varied, especially within the automotive sector. For example, OEMs such as BMW, MAN and VW conduct extensive relationships with their primary suppliers such as Bosch, ZF Friedrichshafen or Hella. These Tier 1 suppliers are in turn supplied by their own set of suppliers of raw materials or services. In addition to cooperation with their main buyers (Tier 1) these suppliers also often maintain a direct relationship with AUDI, BMW, Daimler, VW and others in part with minor Tier 3 providers, which in turn act as suppliers for certain components. In this environment, the practical implementation of the Global Invoice transaction standard can appear overwhelmingly complicated. This is especially true for small and medium businesses. Specialist solutions, such as those provided by Basware, clearly have a role in turning this complexity into efficiency. OEM Tier 1 Tier 2 Tier 3 Complexity of the cooperation between manufacturers and suppliers complicates the introduction of Global Invoice into the supply chain 06

5. BASWARE: THE E-INVOICE PIONEER Basware has been providing e-invoicing and e-supply chain solutions since 1985 and is largely responsible for the proliferation of e-invoicing across the globe. The Basware Commerce Network enables the exchange of electronic business documents across the entire value chain. An integral component of the network is the Basware Automotive Gateway, an industryspecific technology platform which provides the solutions and services that make these exchanges possible. Basware provides open, secure, cloud-based purchase-to-pay and e-invoicing solutions to organizations of all sizes, resulting in greater efficiencies in procurement, accounts payable and accounts receivable. Companies across all industries, from small businesses to corporate giants use Basware solutions to drive sustainable cost savings, proactive insight to cash flows and improved buyer supplier relationships. The Basware Commerce Network is founded on the principles of openness, where all types of organizations can collaborate and trade, making it the largest in the world. Today we connect millions of business users in 900,000 companies across over 100 countries. buyers requirements an approach that ensures each supplier can quickly and easily exchange e-invoices with any of its buyers. Basware has enjoyed over ten years of success in the automotive industry. More than 12,000 stored format conversion and workflow rules automate and accelerate the exchange of electronic documents between more than 5,000 suppliers and automotive manufacturers. The swift transitioning of suppliers from paper to e-invoicing is vital. To ensure customers achieve this Basware provides a uniquely global Supplier Activation service which works with the buyer to empower all suppliers with instant access to e-invoicing via a series of easy, collaborative approaches and tools. The Basware e-invoicing Services at a glance: Basware for buyers: Complete handling of global supplier activation from conception to implementation Technical solutions to suit all supplier needs Basware for suppliers Easy options to start sending e-invoices without changing current systems or processes Single supplier interfaces for multiple invoice recipients Basware Automotive Gateway The Basware Automotive Gateway substantially simplifies the process of sending and receiving invoices and other transaction documentation underpinning the financial supply chain. Basware first separates the buyer s invoice format requirements from the preferred e-invoice format of the supplier. This separation is performed on both a technical and a process level. This means the submission and the format of the supplier s e-invoice does not need to match the buyer s requirements. Rather, the Basware Automotive Gateway reacts to the needs of suppliers and translates the content of invoices according to Full invoice validation for completeness, legal requirements and accounting accuracy Generation of the invoice data format for the receiver Generation of the invoice image file for archive and workflow Creation of individual tests and interfaces, and support of complex approval scenarios Wide installation basis for suppliers in the automotive industry Deep automotive industry experience Complete software packages for safe and cost-effective invoice delivery Increased transparency and quality of invoicing process Faster and cheaper invoice delivery than with paper documents Digital signature options Processing of invoices with attachments Supports all popular formats and protocols Online portal for invoice key-in and PO flip The Basware Commerce Network for Global Trade 07

Basware technologies and service in detail: BASWARE E-INVOICE - START RECEIVING 100% ELECTRONIC INVOICES FROM DAY ONE: Basware s e-invoice solution means a buyer can expect to receive all purchase invoices electronically in one single format directly to their accounts payable system or ERP. Basware provides a wide range of supplier sending solutions including supplier activation and paper invoice scanning, either by fully outsourced scan-and-capture or through inhouse scanning solutions. There s a tailored connectivity service for all types of supplier, no matter how large or small. SUPPLIER ACTIVATION SERVICES: Basware employs world class activation tools and processes to enable buyers to successfully onboard their suppliers. It s designed to provide all suppliers with immediate access to e-invoicing in order to reach the highest possible level of e-invoice penetration, drive down costs and improve efficiency. BASWARE iseries (AS/400) With Basware iseries (AS/400) spool files can be read and formatted. The spool file is broken down into individual accounts and after validation is converted to the desired format of the recipient. BASWARE EDI Basware EDI includes installation and operation of all interfaces, sending and receiving structured data, conversion to in-house formats, XML, idocs, VDA, EDIFACT, ANSIX12 and creation of an invoice image for the workflow and integration into their ERP system. BASWARE E-INVOICE ARCHIVE: Basware archives the supplier s electronic invoices to enable fast, secure document access via a portal, with simple search and audit trails. Customers also have the option to receive stored invoice data on an optical disc for archive purposes. BASWARE PORTAL FOR SUPPLIERS: Suppliers with low volumes of invoices can take advantage of the easy-to-use web portal for manual invoice entry. The portal can also be used for receiving orders. The order can then be converted into an e-invoice with a single mouse click. BASWARE E-INVOICE VIRTUAL PRINTER Basware e-invoice Virtual Printer is a simple and scalable solution for non EDI-capable senders. Printing is redirected to a virtual printer and transferred to Basware. Here they are converted to e-invoices and sent directly to the buyer s invoice processing systems. BASWARE E-INVOICE EMAIL LITE: Basware e-invoice Email Lite allows buyers to receive genuine electronic invoices from even the smallest suppliers. Suppliers continue to send PDF-based invoices by e-mail and the buyer receives them as e-invoices directly into their accounts payable system. Basware uses existing data from the embedded text in the PDF invoice, so errors are avoided and invoices processed faster. The service is free and all suppliers need to do is register online to create a new email address for sending invoices to each buyer. CONVERSION OF VDA 4906 TO VDA 4938 STANDARDS Basware has developed a process which can integrate new standards quickly with minimal conversion effort. Senders send the invoice in the VDA-4906-format to Basware who take care of verification, testing and forwarding in the VDA 4938 format. Basware Commerce Network is the leading network for electronic invoices. Around 5,000 automotive suppliers from industry, trade, transwport and logistics use the network daily for the exchange of electronic documents. In total Basware processes 50 million electronic documents per year. The largest network users in the automotive industry are Audi, BMW, Daimler, MAN and VW, and the major automotive OEMs are also connected. Basware monitors its hardware, software and telecommunication links to ensure smooth delivery of invoices. In addition, the supplier and buyer have online access to the Basware Commerce Network to view the current invoice status and to respond to error messages. Independence by roaming In order to maximize e-invoicing adoption across its buyer and supplier customers, Basware works to ensure easy invoice data sharing between the largest e-invoicing service providers. To date Basware has over 160 interoperability network partners across the globe, exponentially increasing the supplier reach for buyers. As with mobile telephony, e-invoice roaming enables easy transaction collaboration between buyer and supplier no matters what e-invoicing operator each uses. Interoperability agreements define aspects such as the addressability of service, the transmission format, the contract design and the quality criteria for all parties involved. 08

Revolutionizing global payments The roaming process over the Basware Commerce Network simplifies the connection of our customers and thus significantly extends the reach to other networks. Frank Mueller, IT Manager, Carglass E-invoices are key to reducing payment times which can take up to 120 days, but this isn t the only weapon in the armoury. Basware s new e-payments service in partnership with MasterCard is a global payment solution focused on providing buyers with extended payment terms, whilst ensuring suppliers benefit from early, guaranteed payment. Suppliers also benefit from rich remittance data which helps improve accounts receivable process efficiencies. It s transforming the way companies pay and get paid. 6. FUTURE FOCUS E-invoicing will play an increasingly important role for the creditworthiness and liquidity of companies in the future. This is because the visibility of real-time financial transactions on the Basware Commerce Network can be used for economic analysis faster and more transparently than with paper-based invoices. An integrated accounting process With e-invoicing, monthly balances and quarterly reports can be completed faster, more easily and with more confidence. Whilst paper invoicing sees lead times of weeks (according to Accenture the average DSO is over 50 days), e-invoicing processes reduce lead times to a fraction of this. The Basware Commerce Network can check invoices according to national legal requirements and send them back directly to the supplier if formal errors are detected. If an invoice is rejected the supplier will be informed of the reason for the rejection. The buyer can also define further checks tailored to its own business process. These include invoices for purchase of materials with missing order numbers. There are endless possibilities for checking and validating invoices in line with a particular business need of the receiver. 7. AUTOMOTIVE S NEW GOLDEN ERA For many years bi-directional links between automotive manufacturers and their major suppliers were the basis for the exchange of invoices. New regulations and increasingly global business processes are making paper invoices inefficient and unprofitable. With Global Invoice there is now an international standard, which as well as the technical possibilities also integrates the tax-related provisions of the legislature and is supported by leading industrial nations. Market observers believe that electronic document exchange will play an integral part in the business processes between automotive manufacturers, their suppliers and the suppliers suppliers in the future. Company-wide optimization It is clear that a switch to electronic document exchange in the company need not be understood as an independent project, but as a company-wide process optimization measure. This includes harmonizing business processes based on transactions and trade relations between the partners, and taking into account logistics requirements and staffing conditions. It is not enough merely to define the protocols for the transfer. As in other mature industries, the automotive environment has thousands of suppliers along the supply chain. The suppliers also have countless, historically developed, proprietary IT systems which are perceived as being difficult to link to electronic accounting and transactional systems. E-invoicing service providers such as Basware have stepped into remove this complexity and help take over the transition from consulting to implementation, thus ensuring the transition towards more efficient and cost-saving accounting in the company and, as a byproduct, delivering environmentally conscious commerce through the elimination of paper and logistics from the process. 09

CRYSTAL BALL: ANALYSTS EXCITED BY THE E-INVOICE POTENTIAL Market surveys predict a healthy future for electronic exchange, processing and the archiving of electronic invoices in the B2B environment. Consequently e-invoices are playing an increasingly significant role in the automotive industry by representing the economic basis for an enterprise-wide optimization of procurement and financial processes. A recent study by Billentis concluded that electronic invoicing and automated invoice processing led to savings of 60 to 80 percent when compared with traditional paper processes and the cost of e-invoicing projects can be recovered within a brief 0.5-1.5 years. The future of the financial supply chain is cheaper, simpler, faster and greener. Contact a member of the Basware team now to secure a healthy future for your organization. CONTACT DETAILS Hubert S. Hohenstein Vice President Automotive Basware GmbH hubert.hohenstein@basware.com For more information: Basware GmbH Neumarkter Strasse 28 D-81673 München Tel: +49 89 3750505 0 Fax: +49 89 3750505 30 infode@basware.com http://www.basware.com/solutions/industry-solutions/automotive ABOUT BASWARE Basware provides open, secure, cloud-based purchase-to-pay and e-invoicing solutions to organizations of all sizes, resulting in greater efficiencies in procurement, accounts payable and accounts receivable. Companies across all industries, from small businesses to corporate giants use Basware solutions to drive sustainable cost savings, proactive insight to cash flows and improved buyer supplier relationships. The Basware Commerce Network is founded on the principles of openness, where all types of organization can collaborate and trade, making it the largest in the world. Today we connect millions of business users in 900,000 companies across over 100 countries. Basware is the global leader in providing solutions for better buying, better selling and connected commerce. Find out how Basware boosts financial performance and profitability at www.basware.com. https://twitter.com/basware www.facebook.com/baswarecorporation www.linkedin.com/company/basware www.basware.com I Copyright 2013, Basware Corporation 10