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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.
Southwest Airlines had a long-running legacy process to handle their invoices. Their mainframe, which inconveniently consisted of several departments, dated back to 1986 and was to blame for their 14-day invoice processing system.
AP supervisors Cicely Lopez and Michelle Price will discuss the overhaul that Southwest has recently undergone at the 2010 PayStream Summit on June 15-17 in Charlotte. The new plan took a three-tier approach that affected invoice, payment, and cash management strategies.
The invoicing strategy created a paperless environment, reduced cycle times, established electronic approvals, increased audit availability, and created a vendor portal. The payment strategy increased P-card usage, increased electronic funds transfers, and decreased wires. The cash management strategy increased payment terms and placed an emphasis on discounts.
The impact on the invoice process is tremendous. Invoices are now received by mail, fax and e-mail. Those invoices are then sorted, scanned, and stored for 90 days before they are destroyed. The old 14-day process was cut by more than half to a 4-7 day operation.
The new design also tightened up several facets of the company. Southwest was able to reduce staff by eight processors. Work queues were reduced from ten to three. The mailroom turned its focus to scan preparation and expense reporting was moved to the SAP Employee portal.
Join us at PayStream Summit on June 15-17 to gain further insight into Southwest’s innovative overhaul from the project managers themselves. Participate in this and a broad range of other sessions geared towards broadening your understanding of automation technology. For a full schedule and more information about the 2010 Summit, please visit http://www.paystreamsummit.com.
As the world’s leading soft drink company with 92,800 employees and a presence in 200 nations, Coca-Cola has a lot to monitor. Company card programs are certainly no exception.
At the 2010 PayStream Summit, June 15-17 in Charlotte, Coca-Cola’s Patricia Bishop will discuss continuous transaction monitoring (CTM), a growing trend designed to counter card program issues such as abuse, misuse, errors, and policy violations. The continuous monitoring program at Coca-Cola has been successful in detecting fraud, inappropriate behavior, policy violations, and waste, and as such has had demonstrable impact on the corporate audit department, travel management, expense and card programs, and most importantly, the bottom line.
The need for continuous monitoring programs is illustrated by research which has shown that organizations lose 5% of their revenue as a result of fraud. Research has also shown that 19% of business travelers admitted to exaggerating their expense reports.
When establishing a continuous monitoring program, it is important to clearly define and document program objectives as well as how success will be measured. As part of the selection process, it is critical to ensure that the technology vendor spends time understanding the complexity and the details of the business. To find the right fit, Coca-Cola conducted primary and secondary research in choosing the right technology for implementing their card program, brainstorming and piloting some 55 audit tests, revising audit test objectives, reviewing available solutions, and making reference calls to customers of their current vendor.
It is equally important to manage expectations with stakeholders and the vendor. This includes defining success, quantifying and measuring key metrics, and defining governance and reporting for the program in advance. It is vital to carry the mindset that this is an operational program that encompasses people, processes, and technology. It is also beneficial to meet with others utilizing the tool to understand risks and what was needed to transform their organization and effectively implement the program.
To get the full picture of Coca-Cola’s experience with CTM, join us at PayStream Summit this month. Participate in this and a broad range of other sessions geared towards broadening your understanding of automation technology. For a full schedule and more information about the 2010 Summit, please visit http://www.paystreamsummit.com.
With so many sophisticated invoice and payment management solutions and services available in the marketplace today, why aren’t companies making headway in better managing their AP processes? Why aren’t more companies able to remove paper from their organizations, decrease processing costs and increase discount capture? PayStream Advisors conducted its “eInvoicing Adoption Survey” in the last quarter of 2009 and developed a benchmarking report to highlight the overall trends that are shaping the rapidly evolving AP automation space and to answer these questions.
The answer lies in execution. Our latest research indicates that the difference between a winning AP automation initiative and a dud comes down to the ability to execute such programs. Based on survey results, we have identified the secrets of successful invoice and payment management with a look into the best practices of the innovators. What techniques have they employed to streamline their processes? How do they monitor their programs? In short, what are they doing that you could be doing.
Increasing transactions processed on purchasing cards translates to a reduction in invoice volume - paper or otherwise - and the paperwork that is associated with invoices. Increased p-card volume also results in higher rebates for the buying organization.
Centralization of the receipt invoice process ensures that the AP department and senior management have instant visibility into the company’s outstanding liabilities. A formal policy mandating that all invoices should be sent to the AP department is the first step in streamlining invoice management processes.
Front-end imaging ensures that invoices enter the system quickly and are available to all the parties immediately, irrespective of where they are located. Combining imaging with automated data capture adds further benefits in terms of quicker entry of data and fewer errors.
An electronic invoicing solution goes a step further by applying a set of pre-defined validation rules to ensure that all the required information and only accurate information is submitted on the invoices, ensuring that only clean invoices enter the AP processing queues.
Leveraging an automated workflow solution ensures that once invoices enter the solution, they will be routed to the required approver automatically, based on pre-defined business rules. The business logic is typically configured at the time of solution implementation and can be updated as needed.
Organizations that do not have the in-house resources and capital required to bring a critical mass of suppliers onboard an automation solution are leveraging the expertise and value-added services provided by their technology vendors to achieve this.
Further, not all suppliers have the same technical savvy and propensity to adopt an e-invoicing solution. Providing multiple options for electronic invoicing - EDI integration, PO flip, Web templates etc. - goes a long way in ensuring that there is something for every supplier.
Dynamic discounting and supply chain finance have become hot topics in electronic invoicing circles. Organizations that are on the innovative end of the automation cycle are adopting these sophisticated technologies to increase their potential for discount capture.
Electronic invoicing solutions are finally delivering – at least partially – on the promise of the long-touted, but rarely experienced, paperless office.
For a number of reasons, including data security fears and a lack of technology investment, the accounts payable function has been dragged into the electronic age kicking and screaming. And that has been unfortunate, since it’s an area that can benefit substantially from automating its many time-consuming manual tasks and processes.
With the budget crunch of recent years and the ever-increasing pressure to do more with less, however, AP managers have begun to see the light and realize electronic invoicing and payments can improve productivity, efficiency, and cash flow.
Newer applications that provide virtual venues for exchanges among buyers, suppliers, banks, and other partners can dramatically shorten the invoice-to-pay cycle. Many of these solutions offer online dispute resolution and automatic invoice routing for initial and backup approvals, thus eliminating delays caused when paper invoices are misplaced or signers are out of the office.
The bottom line is that electronic invoicing and payment applications give users the opportunity to manipulate cash flow in a very positive way, especially when they provide discounting capabilities. Sometimes known as Dynamic Payables Discounting (DPD) or Supply Chain Finance (SCF), this electronic payment trend can be a real boon to day-to-day liquidity. Need your money more quickly? Offer your buyers an incentive discount for earlier payment, with a percentage that decreases as the original due date approaches. (Not to be outdone, savvy buying organizations have also begun to take advantage of this capability and proactively propose their own discounts to suppliers.)
Given the benefits, we think it hardly surprising that 48 percent of the 300+ AP and procurement professionals we surveyed late last year identified increasing electronic invoicing as a top priority for 2009.
Lebhar-Friedman, Inc., is the leading information company for the retail, foodservice and healthcare industries with over 350 employees located in the United States, Europe & Asia. Lebhar-Friedman is a media company, made up of business units all dedicated to providing clients with the best B2B information online and in print.
While Lebhar-Friedman is headquartered in New York City, New York, the company’s accounts payable department is located in Tampa, Florida. The AP department is supported by three full time equivalents (FTE), who are responsible for processing 28,000 invoices and expense reports annually. Most of the invoices do not have a purchase order (PO) associated with them and have to be reviewed and approved; only the IT department uses POs, so PO-based invoices are a small component of the total invoice volume.
Struggling with People and Paper
Prior to 2007, when Lebhar-Friedman was not using any automation for invoice processing, suppliers sent invoices directly to the approvers. “Invoices would be sent to field approvers in varied locations, such as New York, Chicago and Los Angeles,” said Chris Bartley, Manager of Corporate Disbursements. Approvers would review the invoices, put the required general ledger (GL) codes and then forward the invoices to the AP department in Tampa. Ms. Bartley mentioned that it was usually a week or two weeks from the time the approver received the invoice to the time the invoice made its way into AP. Not surprisingly, Lebhar-Friedman was facing a number of challenges with invoice processing:
The average invoice receipt-to-approval cycle was long and AP had to deal with missing invoices and calls from vendors inquiring about invoice status.
Manual data entry from the paper invoice into the ERP system added more time to the process.
Check runs were performed once a month and direct deposits were made weekly. If this did not coincide with when invoices were approved, the company had to deal with late payments.
AP also had to deal with a lot of exceptions. Sometimes approvers would request short payments without properly providing a reason. AP had to deal with vendors who questioned this.
Looking for a Solution
Ms. Bartley has been a regular attendee at the International Accounts Payable Professionals (IAPP) annual conferences and at these events, she got introduced to the world of imaging and workflow automation (IWA) and its associated benefits. She has been pushing the concept of invoice imaging at her organization since 1996, but budget constraints and other initiatives led to this taking a back-seat.
In 2002, she considered at least using imaging on the back-end to streamline the archival and retrieval process and started gathering internal information as well as more details on the potential vendor pool. Ms. Bartley’s persistence and her efforts at gathering information and cost justifications to present to senior management finally paid off in 2004, when the company actively explored the idea of automation and solicited requests for proposals (RFPs) from vendors.
Lebhar-Friedman had specific criteria for vendor selection. The first condition was that the solution had to integrate seamlessly with the company’s back-end Lawson and AS400 applications. Other important factors were the cost of the solution, client references and the vendor team that would be working with Lebhar-Friedman. In July 2004, the company invited five vendors to demo their solutions, narrowed it down to two by August and finally chose Perceptive Software’s ImageNow solution. The fact that Perceptive Software is a Lawson partner and tightly integrates with Lawson was a major factor in Perceptive’s favor.
Though Perceptive Software was selected in 2004, the contract was not signed until 2006 when all the stars were aligned – the CFO finally blessed the project and stated that there was availability in the budget. The project was kicked off in July 2006, with a go live date of January 2007. Ms. Bartley mentioned, “we were very impressed with the Perceptive team that worked on our implementation. The entire group was very professional and made sure our requirements were met. Our IT Director mentioned that this was the most professional team he had ever worked with”
New and Improved Process
The first step that Lebhar-Friedman took along the automation route was centralizing invoice receipt. In October 2006, prior to implementation, the company sent letters to all vendors informing that invoices should no longer be sent to the field directly, but must be received at the AP department in Tampa.
Today, the company receives about 70 percent of its invoices via email. These are sent automatically to the ImageNow printer, without having to be printed and scanned. Paper invoices are scanned into the ImageNow system. The company does not use any data extraction technologies like optical character recognition (OCR), but keys the header information into ImageNow. Invoices that have entered into the system are automatically routed to the approvers, who review the invoice, add the appropriate GL coding information and approve the invoice. Approved invoices are then uploaded and posted into the Lawson accounting application.
Reaping the Benefits of Automation
Centralization of invoice receipt, front-end imaging and automated workflow have delivered tangible benefits to Lebhar-Friedman. “A big benefit is that we now have fewer lost and missing invoices. We also have a lot less paper; while we had nine filing cabinets prior to automation, we have none now. All our invoices are stored electronically and are easily accessible. The efficiency of having all the information available at our fingertips, without having to search through multiple file cabinets is a pleasure. Finally we have been able to save a lot on storage and postage costs. Originally, we had large packages that were exchanged between the various field locations and the Tampa office frequently, we don’t have any of that anymore,” stated Ms. Bartley.
Looking Ahead…
Lebhar-Friedman is definitely interested in expanding its relationship with Perceptive Software. The company recently upgraded its Lawson financial system and also upgraded the ImageNow solution. Going forward the company is considering expanding the use of ImageNow into its human resources and payroll department. Lebhar-Friedman is also exploring the idea of leveraging Perceptive Software’s data capture solution to extract data from invoice images automatically without having to go through the manual data entry process.
Overall, the Lebhar-Friedman team is extremely satisfied with its choice and is looking forward to a more satisfying relationship.
AP departments have finally jumped on the automation bandwagon and are using technologies like document imaging, data extraction, electronic invoicing and automated workflow to achieve both tactical benefits – cost containment and productivity enhancements – and strategic objectives – improved spend visibility, better vendor relations and enhanced discount capture.
But our research reveals that merely having the right technology in place is not enough to optimize the AP department performance. Learn from the innovators about best practices that go hand in hand with technological tools.
Centralize Invoice Receipt: If all invoices are sent to the AP department directly as a central location for receipt, organizations can drastically reduce problems such as lost/missing invoices and lack of visibility into invoice liabilities. In the 2008 IAPP Member Benchmarking Survey, members were asked to rank the importance of centralization, on a scale of 1 to 5, where 1 is low and 5 is high. More than two-thirds of the companies (67.4 percent) stated that centralization was of utmost importance to their AP operations, giving it a 5 on the scale.
Move Imaging to the Front-End: Used for front-end document and data capture, imaging solutions provide greater benefits imaging on the back-end for storage and retrieval. Scanning invoices at their point of receipt – either in the field or at a central location – removes paper from the process and ensures that critical transaction-related documents are committed to secure storage immediately. Performing document and data capture at the beginning of the invoice receipt-to-pay cycle also minimizes the time required to enter invoices into queues for processing and payment.
Use Advance Data Extraction Tools: Once invoices have been scanned and their images enhanced to optimize character recognition, AP automation solutions use technologies like optical character recognition (OCR) to locate, extract, and validate the desired information from the invoice image. Front-end OCR represents a leap from front-end imaging alone, because it sets up genuine improvements to the invoice receipt-to-pay cycle. OCR solutions perform the task of translating data from imaged invoices, reducing labor costs and cutting down on data entry errors. OCR solutions analyze the data extracted and convert it into useful information.
Key Performance Indicators: AP automation solutions offer a number of reporting capabilities that put information at the finger tips of savvy managers. Using the reporting engines’ capabilities, managers can analyze numerous key performance indicators, including the average time taken to approve an invoice, number of invoices processed per day, dollar value of discounts captured or missed and number of invoices processed per AP operator per day, to further improve their department performance.
Download PayStream Advisors‘ recent research paper on invoice automation titled Imaging and Workflow Benchmarking Survey ReportHERE >>
After years of lackluster performance, optical character recognition (OCR) for accounting has finally come of age. And it’s happened none too soon for accounts payable professionals, who have long been eager to automate the many time-consuming, labor-intensive tasks associated with their occupation.Original A/P OCR and scanning applications were used primarily for back-end imaging and archiving.. This made retrieval easier and eliminated the cost, space, and effort associated with physical storage. Unfortunately, it didn’t offer much in the way of true productivity improvement, and the invoice receipt-to-pay cycle continued on its meandering (and manual) path.In the next evolution, imaging and data extraction moved to the front of the payment cycle, occurring when invoices were received. While this did offer real time and productivity gains, it also highlighted the need for improved scanning speed, image quality, and recognition capability.Today’s stellar crop of OCR A/P solutions are not only fast and reliable, they also automate functions that were little more than wishful thinking a few years ago. For instance, they can validate data; automate workflow by sorting and routing invoices to specific locations; and highlight exceptions that need review. Most OCR solutions come with standard reporting packages, and nearly all integrate with third-party applications like Business Objects and Crystal Reports for more robust reporting and analytics.Even better, there are definite financial rewards after implementation. Users say they capture more early payment discounts; reduce or eliminate processing backlogs and duplicate payments; and are able to reduce staff or reassign them to more strategic duties.If you haven’t checked out the latest A/P OCR applications, you’ll likely be surprised. They offer true savings in time, cost, and effort – not to mention spectacular gains in productivity.Read more in PayStream’s research on OCR and Imaging HERE >>>
As the dust begins to settle from PayStream’s first annual electronic invoicing summit, The Next Generation of E-Payables: Electronic Invoicing and Supply Chain Finance, and before I go back to work on our Spring Summit 2009, I thought I’d take a few minutes to reflect on the week’s events.
The inspiration for the Summit was PayStream’s consulting, research reports, and one specific study our research division has been conducting for the last several months regarding the state of AP automation in U. S. companies. The findings were unveiled at the Summit and the eInvoicing Adoption Survey Report released this week. LINK
Common themes emerged from the conference delegates. Many admitted that imaging and OCR were great first steps, but they found it was time to take their AP departments to the next level in automation and to begin exploring advanced options like electronic invoicing.
Organizations just getting started on the path to automation expressed relief when they discovered many of the options that technology providers offered could be tailored and implemented a la carte.You don’t have to automate the entire process all at once.
Of course, everyone wants to know how to make the implementation process a success, but making that happen depends on variables, often times out of your control. This was addressed in the morning panel discussions when panelists offered anecdotes for how to be successful.
The moral of the stories was: 1. Executive sponsorship and cross departmental collaboration is key. You need all departments on board and you need your executive leadership to fully understand and support the project to have any chance of automating your accounts payable, and 2. Take time prior to implementation to get an accurate estimate of the current state of your payables, even if this means stretching your timeline an additional 3-6 months.
And the question addressed most often; how do we get our suppliers on board? The answer was a unanimous recommendation to approach your vendor pool with an air of collaboration and be willing to work with individual vendors who may be on separate platforms.Often times, a solution provider will handle supplier on-boarding for you.
Now, getting back to the survey results from the PayStream eInvoicing Adoption Survey Report. Amid all the findings, we see most clearly that paper is on the way out and it’s on the way out fast. By 2010 we anticipate electronic invoices exceeding the number of paper invoices processed by Fortune 500 companies in the U. S.
I received NAPP’s (National Association of Purchasing & Payables) newsletter the other day. There are always one or two articles that catch my interest, but the one in the current issue really jumped out at me. It was titled “Culture Eats Strategy for Lunch” by Mark Trowbridge (and originally appeared in a different publication). What a fantastic headline!
The article was well done and very supply-chain focused, but it struck me that the topic can just as easily be applied to Accounts Payable — particularly with regard to invoice automation. Invoice automation strategies can be designed with the best of intentions, but if you have a culture resistant to change, your investment in invoice automation will not pay off.
But a resistant culture isn’t the end of the world. It just means you’ll need to put some extra thought and energy into ensuring adoption. I believe there are at least 4 main areas that need to be thoroughly covered when considering an invoice automation deployment:
Business strategy and system selection — does the invoice automation strategy support a higher-level corporate strategy (ie. cost containment) and is the chosen invoice automation system the right “fit” without significant customizations?
Change management — is there an internal marketing campaign to get stakeholders on board and a value proposition developed that speaks to the personal and organizational benefits of invoice automation? The campaign should start well before a system implementation even begins.
Policy and policy enforcement — does organizational policy support adoption of invoice automation (ie. are there approval thresholds based on dollar amounts for non-PO invoices?)? And perhaps more importantly, how is the policy enforced — does it have real “teeth” to deal with policy breaches? It should or it won’t be taken seriously.
Leadership — is there active endorsement from an executive who is willing to not only be a project cheerleader but who also can marshal support from other areas of the company, such as IT?Bon appetite, culture!
