Current Best Practices in Accounts PayableSession 4206

Eleodor Sotropa & Dave Linden

Procter & Gamble

Global Accounts Payable Product Group

Information Technology

sotropa.eg@pg.comlinden.dh@pg.com

Welcome

Net Sales FY2002 - $40 billion

Over 300 consumer productssold in 160+ countries

100,000+ employees in 80+countries

Procter & Gamble

Billion $ Brands

Procter & Gamble

Today’s Agenda:

Points, counterpoints and your viewpoints of Current Best Practices in Accounts Payable

We will swap angles during the presentation

Please participate – your vote is important to us!

Raise your Red card – you become a presenter!

The Goal – Provoke Discussions, and Thoughts

Agenda

Some Rules

• The views, opinions and interpretation of the presenters might not be the actual views, opinions and interpretations of the individual presenters, or their organizations

• The presenters are staging debate – it’s a role play – for the purpose of generating discussion, evaluating trends and clarifying opinions on a wide range of industry topics

• Members of the media, customers and suppliers of the Presenters: Quoting the presenters, or making any attestation of remarks by presenters, by any means, without an “on the record” verification by the presenters, is deemed a misquote and a misrepresentation of the presenters. This includes audience members that partcipate.

As we begin…

"It's not going to be a screaming match. We're not going to get a hatchet out and beat each other up. It'll be provocative"

Bob Dole

Hmm, are we crossing the right jungle ?

• “People and their managers are working so hard to be sure things are done right, that they hardly have time to decide if they are doing the right things.”

• Stephen R. Covey

Costs of Running AP• P&G invoice cost per region very different, behind wage differentials

and levels of electronic invoicing/ ERS penetration• NA well in the top quartile (Hackett), LA and Asia in top quartile, WE

slightly more expensive

We are here

P&G AP Operations• Three shared services (Manila, Newcastle, San Jose- Costa

Rica)• 3.7 million invoices, 70% PO based, 30% payment terms of 10

days or less• 75,000 Price blocks, 60,000 Quantity blocks, 100,000 Services

Notification for GR based IV• 80% of paper on workflow & imaging• 0.5 million line items on PCard• Call center + Customer care handling 250,000 calls/ year• 99% invoices posted in 3 days or less from scanning• Vendor stratification

– Top 1,000 vendors produce 50% of invoices– Next 4,200 vendors produce 20% of invoices– Rest of 85,000 vendors produce rest 30% of invoices

Best practices in AP

• Shared Services• Purchasing and AP

working as a Team• Evaluated Receipt

Settlement• EDI/ XML

• Supplier Portal: On-line Queries

• Document Imaging and Workflow

• Procurement Cards• Electronic

Procurement (BBP)

Best Practice # 1 - ERS

• David says – ERS is very cost effectiveERS is very cost effective

• Payment process improvement!Payment process improvement!

• Payment made when receipt entered: Payment made when receipt entered: eliminates 3-way match of eliminates 3-way match of PO/receipt/invoice (no blocks)PO/receipt/invoice (no blocks)

• Eliminates handling, scanning & Eliminates handling, scanning & posting involved with paper invoicesposting involved with paper invoices

• Efficiency impacts POT %Efficiency impacts POT %

Best Practice # 1 - ERS

• Eleodor says – ERS – better be careful!ERS – better be careful!• Purchase Order and Receiving accuracy needed – Purchase Order and Receiving accuracy needed –

Beware the “fat fingers effect”…Beware the “fat fingers effect”…• Try to get that dock receiver to work on this AP Try to get that dock receiver to work on this AP

priority…priority…• Available in North America, very limited in Western Available in North America, very limited in Western

Europe (Self-billing)Europe (Self-billing)• One supplier, two suppliers, what part of a BU One supplier, two suppliers, what part of a BU

supplier?supplier?• Accounts Receivable reconciliation for supplierAccounts Receivable reconciliation for supplier

Cast Your Vote

• David says – ERS is very cost effectiveERS is very cost effective

• Eleodor says – ERS – better be carefulERS – better be careful

ERS at P&G

• Target 20% in NA, 10% WE (self-billing)• Inventory based invoices, some Services• Slow start, requires a lot of “selling” as

perception is of an AP cost-reduction program

• Vendor stratification– 1,000 vendors produce 50% of invoices– 4,200 vendors produce 20% of invoices– 85,000 vendors produce rest 30% of invoices

Best Practice # 2 – EDI/ XML

• David says – EDI / XML is efficientEDI / XML is efficient

• Eliminates handling, scanning & Eliminates handling, scanning & posting involved with paper invoicesposting involved with paper invoices

• 24 x 7 posting possible24 x 7 posting possible

• Reduced headcount - human Reduced headcount - human intervention only if errorsintervention only if errors

• Mature technology – vendor Mature technology – vendor compatibilitycompatibility

Best Practice # 2 – EDI/ XML

• Eleodor says:

• EDI / XML is expensive if you count EDI / XML is expensive if you count implementation costsimplementation costs

• One supplier, two suppliers, what part One supplier, two suppliers, what part of a supplier?of a supplier?

• Not all suppliers have the IT strength to Not all suppliers have the IT strength to support EDIsupport EDI

Cast Your Vote

• David says – EDI / XML is efficientEDI / XML is efficient

• Eleodor says - EDI / XML is expensiveEDI / XML is expensive

EDI/ XML at P&G

• 76 strategic suppliers in North America

• 250,000 invoices on EDI/XML, handled by 2FTEs (cost 20 cents/invoice)

• XML as preferred option (if ERS cannot be executed)

Best Practice # 3 – Procurement Card

• Eleodor says – Procurement Card very Procurement Card very cost effective for indirect low value cost effective for indirect low value itemsitems

• Eliminate paper trail, transactions and Eliminate paper trail, transactions and opportunities for errorsopportunities for errors

• Convenient process for indirect low-Convenient process for indirect low-value spendvalue spend

• Eliminate “one-time” vendor master Eliminate “one-time” vendor master data creationdata creation

Purchasing Card

RequisitionerRequisitioner

BuyerBuyerSupplierSupplier

AccountsPayable AccountsPayable

ReceivingReceiving

RPRP

POPO

InvoiceInvoice

ReceiptReceipt

150 K150 K

150 K150 K75K75K

PaymentPayment

40K

250 K250 K125K125K

250 K250 K125K125K

Product

Product

150K Requests for Purchase yield 1 million additional transactions

Procurement—A/P Transaction Yield

Treasury Treasury

Best Practice # 3 – Procurement Card

• David says – Procurement Card promotes Procurement Card promotes maverick buyingmaverick buying

• Lose ability to track spending by vendor (ie. Lose ability to track spending by vendor (ie. all payments made to AMEX)all payments made to AMEX)

• Internal Control issue: no effective or Internal Control issue: no effective or automated way to identify non-business automated way to identify non-business spending (periodic mgmt. review is not spending (periodic mgmt. review is not adequate) => administrative costs!adequate) => administrative costs!

• Inflexible when need to cross charge to other Inflexible when need to cross charge to other departments – only 1 default GL/Cost Ctr. Is departments – only 1 default GL/Cost Ctr. Is stored on the cardstored on the card

Cast your vote

• Eleodor says – Procurement Card very Procurement Card very cost effectivecost effective

• David says – Procurement Card Procurement Card promotes maverick spendingpromotes maverick spending

Procard at P&G

• 0.5 million line items on P-Card, $100 million spend

• Used only in North America, 6,000 card-holders

• Upgrading to the Web-based reclassification of “pre-wired” cost buckets July 1

• AP touch free operation

Purchasing Card Process

• Eliminates Purchase Order• Consolidates Invoices• Reports vendor usage• Reports policy compliance

Payment

• Eliminates requisition• More convenience & speed• More accuracy

Places order using card

Monthly invoice

Remittance

• 3-Day Pay• No Credit Risk• Fewer Invoices

Receives Goods & Services

Monthly Summary

Data Warehouse

Client Acct LinkprocessesAMEX data

SAPBatch Feed (AP update)

P&G COMMERCIAL

SUPPLIER

Settlement

Best Practice # 4 –Imaging and Workflow

• David says – Imaging and Workflow are greatImaging and Workflow are great• Enabler of centralized processing (ie. in low Enabler of centralized processing (ie. in low

cost region)cost region)• Paper copies can remain in local countryPaper copies can remain in local country• Routing of invoices for approval can be done Routing of invoices for approval can be done

quickly, with automated spending authority / quickly, with automated spending authority / delegation of approval checksdelegation of approval checks

• Increase Payment On Time with faster Increase Payment On Time with faster turnaroundturnaround

• Reduced storage space + real-time retrieval by Reduced storage space + real-time retrieval by ‘anyone/anywhere’ + email dunning ‘anyone/anywhere’ + email dunning

Best Practice # 4 –Imaging and Workflow

• Eleodor says – Imaging and Workflow Imaging and Workflow are expensiveare expensive

• Expensive technology if only for APExpensive technology if only for AP

• Large monitors for Invoice PostersLarge monitors for Invoice Posters

• Easier for Invoice posters to look at the Easier for Invoice posters to look at the piece of paper to type the invoicepiece of paper to type the invoice

• Requires cultural change for Scan-Requires cultural change for Scan-Approve–Post cycleApprove–Post cycle

Cast your vote

• David says – Imaging and Workflow are Imaging and Workflow are great great

• Eleodor says – Imaging and Workflow Imaging and Workflow are expensiveare expensive

Imaging/ Workflow at P&G

• Global implementation on 19 SAP instances

• Linked to the HR database (Decision Authority)

• 80% of paper invoices are on imaging and workflow

• E-mail notification, with image attached (500,000 e-mails per year)

Best Practice # 5 –Vendor Invoice Inquiry

• David says – Vendor Invoice Inquiry is greatVendor Invoice Inquiry is great• Self-service tool for vendors eliminates calls Self-service tool for vendors eliminates calls

to internal help center (approximately 70% of to internal help center (approximately 70% of calls are related to payment timing)calls are related to payment timing)

• Offers efficient communication with vendorsOffers efficient communication with vendors• Easy to enroll vendors due to flexibility and Easy to enroll vendors due to flexibility and

availability of the toolavailability of the tool• Better communication of reports / news & Better communication of reports / news &

info. / contact & help info.info. / contact & help info.

Best Practice # 5 –Vendor Invoice Inquiry

• Eleodor says – Vendor Invoice Inquiry Vendor Invoice Inquiry has security and setup watchoutshas security and setup watchouts

• Need strong security procedures (user Need strong security procedures (user setup, user maintenance)setup, user maintenance)

• Requires “channel management”, Requires “channel management”, especially if excellent call centerespecially if excellent call center

• Supplier capability in LA/ AsiaSupplier capability in LA/ Asia• Along with data, issues are now shared Along with data, issues are now shared

with the supplier, real-timewith the supplier, real-time

Cast your vote

• David says – Vendor Invoice Inquiry is Vendor Invoice Inquiry is greatgreat

• Eleodor says – Vendor Invoice Inquiry Vendor Invoice Inquiry has key watchoutshas key watchouts

P&G –Vendor Invoice Inquiry

• pgsupplier.com – public sitepgsupplier.com – public site• Call center – 250,000 calls/ year, average $10/callCall center – 250,000 calls/ year, average $10/call• Supplier Portal – 2000 registered usersSupplier Portal – 2000 registered users

Best Practice # 6 - BBP

• David says – BBP is greatBBP is great• Automatically records spending by vendor Automatically records spending by vendor

for Purchasing to negotiate better valuefor Purchasing to negotiate better value• Purchasing can control vendor selectionPurchasing can control vendor selection• Permits conformance to a purchasing Permits conformance to a purchasing

process whereby we pay only for what is process whereby we pay only for what is ordered & receivedordered & received

• PO generation = legal protectionPO generation = legal protection• Web tool for purchasingWeb tool for purchasing

BBP

RequisitionerRequisitioner

BuyerBuyerSupplierSupplier

AccountsPayable AccountsPayable

ReceivingReceiving

RPRP

POPO

InvoiceInvoice

ReceiptReceipt

150 K150 K

150 K150 K75K75K

PaymentPayment

40K

250 K250 K125K125K

250 K250 K125K125K

Product

Product

150K Requests for Purchase yield 1 million additional transactions

Procurement—A/P Transaction Yield

Treasury Treasury

Best Practice # 6 - BBP

• Eleodor says – BBP comes at cost, and with BBP comes at cost, and with transactional complexitytransactional complexity

• Need to create vendor in the system, even if Need to create vendor in the system, even if one-time useone-time use

• Effort to setup and maintain catalogs (current Effort to setup and maintain catalogs (current effort to outsource catalog maintenance)effort to outsource catalog maintenance)

• Considerable training/ cultural change for Considerable training/ cultural change for end-users end-users

• People in the field find it hard to usePeople in the field find it hard to use• I just need a stapler…I just need a stapler…

Cast your vote

• David says – BBP is greatBBP is great

• Eleodor says – BBP comes at cost and BBP comes at cost and is complex is complex

BBP at P&G

• SAP BBP solution

• 140,000 shopping baskets per year (first year 72,000)

• $700MM spend (from $375MM last year)

• 10,000 registered users

Best Practice # 7 : P2P – one organization

• Eleodor says – P2P is greatP2P is great• Streamlined approach to problem Streamlined approach to problem

resolution & high motivation to fix root resolution & high motivation to fix root causescauses

• One vision + One Work Process = One vision + One Work Process = Faster delivery of results (ie. POT Faster delivery of results (ie. POT scores, customer satisfaction, etc.)scores, customer satisfaction, etc.)

• Commitment and passion are the Commitment and passion are the byproduct of a unified organizationbyproduct of a unified organization

Best Practice # 7 : P2P – one organization

• David says – Purchase to Payments – hard to Purchase to Payments – hard to executeexecute

• Organizational challenge (AP in Shared Organizational challenge (AP in Shared Services, Purchasing still in BUs);Services, Purchasing still in BUs);

• Different priorities (Sourcing & Relationship Different priorities (Sourcing & Relationship with suppliers, Cost Effective Execution)with suppliers, Cost Effective Execution)

Cast your vote

• Eleodor says – P2P is greatP2P is great• David says – P2P is hard to executeP2P is hard to execute

P2P at P&G

• Global P2P Manager, Regional P2P managers

• Successfully able to balance needs/ wants across Purchasing and AP

Best Practice # 8 – Shared Services

• Eleodor says – Shared Services - greatShared Services - great

• Lower cost through wage differentials, Lower cost through wage differentials, consolidation of operational tasksconsolidation of operational tasks

• Better potential for Six Sigma programsBetter potential for Six Sigma programs

• Eliminate redundancy across the Eliminate redundancy across the organizationorganization

• Drives accountabilityDrives accountability

• Stronger Internal ControlsStronger Internal Controls

Best Practice # 8 – Shared Services

• David says – Shared Services hard to startShared Services hard to start• Purchasing / Receiving/ Accounts Payable no Purchasing / Receiving/ Accounts Payable no

longer co-located (GR/IR issues, Receipt and longer co-located (GR/IR issues, Receipt and Approval issues)Approval issues)

• Time zone, language differences,“us-them”Time zone, language differences,“us-them”• Expensive startup, availability of workforceExpensive startup, availability of workforce• Career management for Shared CenterCareer management for Shared Center

Cast your vote

• Eleodor says – Shared Services - great Shared Services - great David says – Shared Services hard to Shared Services hard to startstart

P&G AP Operations

• Three shared services (Manila, Newcastle - UK, San Jose- Costa Rica)

• 3.7 million invoices, 70% PO based, 30% payment terms of 10 days or less

• 75,000 Price blocks, 60,000 Quantity blocks, 100,000 Services Notification for GR based IV

• 80% of paper on workflow & imaging• 0.5 million line items on PCard• Call center + Customer care handling 250,000 calls/

year• 99% invoices posted in 3 days or less from scanning

Best practices in AP

• Shared Services• Purchasing and AP

working as a Team• Evaluated Receipt

Settlement• EDI/ XML

• Supplier Portal: On-line Queries

• Document Imaging and Workflow

• Procurement Cards• Electronic

Procurement (BBP)

Current Best Approaches: Agincourt

• Best of French nobility will quickly win over weary English, led by Henry V

• French massed formation would overwhelm a loose, mobile force

• Heavily armored cavalry is superior to longbows (despite learnings from the battle of Crecy)

• Rainy weather has no influence on the outcome

Remember Agincourt

• People - Best of French nobility will quickly win over weary English, led by Henry V

• Organization - French massed formation would overwhelm a loose, mobile force

• Technology and systems - Heavily armored cavalry is superior to longbows (despite learnings from the battle of Crecy)

• Environment - Rainy weather has no influence on the outcome

Questions

• ?

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Session Code: 4206