Southwest Airlines was in need of a new flight plan to overhaul their AP invoice process. Long, inefficient processing and duplicate invoices were the catalyst for a new program. Although they encountered some turbulence along the way, the impact on the AP department has been tremendous.
AP supervisors Michelle Price and Cicley Lopez recently presented their experiences at the 2010 PayStream ePayable Summit in Charlotte. They described their old “legacy process” and why it needed to be changed, adjustments that were made along the way, and the lessons they learned throughout the transition.
Southwest’s legacy process consisted of mainframe financials and three separate purchasing systems. Due to their paper-reliant system, they experienced a paper build-up through the creation of multiple copies of invoices by field offices. Invoices were sorted to one of 10 processing systems which slowed the entire process from entrance to AP to 14 days. Michelle Price explains the invoice process HERE >>>
Encouraged by CEO Gary Kelly, the department was challenged to create a world class design to tighten up the invoice approval and management process. The new plan took a three-tier approach and addressed invoice, payment, and cash management strategies.
The New Flight Plan
The invoice strategy was simple – streamline through automation. Cicley Lopez explains the decision to automate HERE >>> Managers sought to transition to paperless, reduce cycle time, move to electronic approvals, increase availability for the auditing department, and create a vendor portal. The payment strategy aimed to increase P-card usage, increase electronic fund transfers, and decrease the number of wires. In terms of cash management, they realized the need to increase their terms after conducting a benchmark study. They are currently implementing the Paylink program, which provides the ability to push a credit card payment to the vendor and extends payment terms.
Henry Ijams, PayStream’s lead architect, noted that Southwest’s world class design effectively cut the entire invoice process in half. Invoices are now prepared, scanned, and placed in to three specific queues (categorized by priority, PO, and preapproved). The pre-payment audit was eliminated and unapproved invoices are now electronically tracked. PayStream’s conference delegates were impressed with Southwest’s quick results.
Flight Changes
Southwest encountered several flight changes as the transition progressed. Some of the new software was not compatible with OCR, which had to be pushed back until summer 2011. Issues arose with response time in regards to automated approvals. Finally, the vendor portals were forced to be pushed back until next year because of commitments to multiple projects.
In order to keep impacted areas of the company in the loop, communications were sent out regularly so they could prepare and plan for changes. This was crucial for employees who had been using the old system for many years.
Once the initiative was cleared for take-off, there was a week of downtime between systems. A complete GL translation was necessary as well as preparation for scanning and reconfiguration of the scan room.
Frustration arose from the expectation that AP supervisors should have answers to all the questions. Fortunately, they had a hypercare team – a corporate level team to support SAP – on hand to offer expertise and answer questions regarding SAP.
Lessons Learned
Leadership learned a few lessons throughout the transition. The “Big Bang” theory – implementing different aspects simultaneously – was not the best option, especially when coupled with the 7,000 invoices that were backlogged from the week of downtime. They also ran into language differences between different vendors (i.e. ACH has different meanings for payments and airplane parts). They acknowledged that they would have provided more extensive training to account for changes and exceptions.
Despite the bumpy take-off, Southwest Airlines has successfully arrived in invoice automation that is now moving towards world class.
