The Accounts Payable & Procure-To-Pay Conference & Expo is produced by:

Developing P2P KPIs

What to Measure and How to

Measure it

Penny Weller, PhD, CMA

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 2 4/4/2016

Developing P2P KPIs Having a metric-centric approach to Purchase-to-Pay offers many

opportunities for performance improvement by taking the emotion out of

decision-making and engaging others without the internal politics that

often limit success.

You will learn how to define world-class performance and its relevance

to your organization, acknowledge the importance of alignment

between Accounts Payable and Purchasing, understand how to get

started in measurement and identify selected metrics to consider for

Purchase-to-Pay efficiency and effectiveness.

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 3

• The Hackett Group – advisory services

and research Global Business Services

and Shared Services

• 30 year Shared Services executive with

Pfizer (formerly Pharmacia)

• Director of Performance Management

• Six Sigma Motorola-certified Black Belt

• Global Director, Institute of Management

Accountants

Penny Weller, PhD, CMA

Global Business Services Advisory,

North America Operations Leader

pweller@thehackettgroup.com

Phone: 269.345.7240

www.thehackettgroup.com

Contents

Hackett Overview

Why Measurement Matters

How and What to Measure

Selected Hackett Metrics You

Can Use to Benchmark Your

Organization

Opportunity to Participate

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 5

86% of the

Fortune 100

93% of the Dow Jones

Global Titans

87% of the

DAX 30

52% of the

FTSE 100

48% of the

CAC 40

93% of the

Dow Jones

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 6

▪ Library of 2,500+ Best Practice Research Perspectives, Books of Numbers, and Hackett

Certified Best Practices through the Best Practice Intelligence Center

▪ Unlimited inquiry access for members to Hackett experts for transformation steering

▪ Peer-to-Leader 1-2-1 Best Practices sharing, and Best Practices networking events

▪ Enterprise, functional and process-based performance studies & value accelerators

▪ “Gold Standard” Benchmark – over 10,000 conducted, the empirical backbone for your

transformation at the SG&A Enterprise, Functional, and Process level.

▪ World-Class, Peer, and Custom Peer comparative metrics and best practices

▪ Ability to provide multiyear World-Class Program view of performance over time

▪ Hackett Performance Exchange (automatic accumulation of performance data from Oracle or SAP)

Finance

Human Resources

Information Technology

Procurement

Supply Chain and Operations

Membership Advisory & Research

(Provides insights into World-Class Performance)

Benchmarking (Defines World-Class

Performance) Hackett Perspective on World-Class Finance – Accelerating GBS | 9

Peer Group World Class

The World-Class Advantage – FinanceWorld-Class organizations always find a way to get there

IT Cost (per end user Equivalent)

Procurement Cost (% of spend)

Peer Group World Class

23%

$1.7K$2.2K

HR Cost (per employee)

Peer Group World Class

19%

0.59%0.73%$6.0K

22%

2014 Cost of Finance by Process Category (as a % of revenue)

Finance Cost (% of revenue)

Peer Group World Class

1.12% 46%

-59%-46%

-23%

0.60%$7.7K

0.39%

0.21% 0.23%

0.16%0.11%

0.17%

Transacting Control & Risk Planning & Strategy

Practice or

Outcome

Process

Taxonomy

Vision

Dimension

SDM

Component

Capability /

Enabler 1 - Lagging 2 - Achieving 3 - Exceeding 4 - Leading

Current

State

Assessment

PriorityFuture State

TargetAverage Gap

Practice

Sourcing and

Supply Base

Strategy

Supply

Assurance

Process

Design

Degree to which a

sourcing strategy

exists

Sourcing strategy is ad hoc or

nonexistent.

Sourcing strategies reflect and are

aligned with overall business

strategy and objectives, including

high level risk requirements.

Historical spend analyses are

regularly and routinely conducted

by market and across markets -

i.e. by specific commodity, service,

location and business.

Commodity management and

sourcing strategies define

appropriate purchasing and

payment processes and tools.

Contract terms, lengths, and

conditions are defined to drive

optimal benefits to the enterprise;

in terms of total life-cycle cost,

service, and quality.

Sourcing strategy is reviewed and

updated annually (or more

frequently) to reflect direct linkage

to the company's strategic growth

plans, market changes and

product innovations, production

plans and business

M&A/ventures.

2 - Achieving 2 - Medium 3 - Exceeding 1.00

Practice

Sourcing and

Supply Base

Strategy

Supply

Assurance

Process

Design

Breadth of supplier

universe

Supplier selection is based on

historical or personal

relationships; suppliers often

selected prior to Procurement’s

involvement in a project.

Projects are initiated to limit the

total number of suppliers and

bundle the spend volume.

Procurement is involved in the

supplier selection process.

Suppliers are often considered on

a regional or compartmentalized

basis.

Supplier universe is considered

by major commodity or service

area rather than in aggregate.

Suppliers are considered for

bundled and/or extended services

that may extend to multiple areas

of competency.

Supply universe is global and not

limited to traditional commodity

suppliers.

1 - Lagging 2 - Medium 2 - Achieving 1.00

Practice

Sourcing and

Supply Base

Strategy

Supply

Assurance

Process

Design

Degree to which

supplier risk is

measured and

managed within the

sourcing process

Risk not considered as part of

sourcing decisions or supplier

management.

Supply risk is considered as part

of category-specific sourcing

efforts and supplier performance

management processes.

Supply base risk is explicitly

factored into broader business

continuity objectives. Supplier

risk is considered beyond the

specific good or service being

sourced.

Procurement works with other risk

management staff, ensuring

alignment between internal

risk/return preferences, business

objectives, and both general and

specific supply market risks.

3 - Exceeding 3 - High 4 - Leading 0.90

Practice

Sourcing and

Supply Base

Strategy

Supply

Assurance

Process

Design

Degree of

contingency

planning performed

to assure supply

No supply contingency planning

exists.

Contingency plan exists in case of

supply shortage; alternate

suppliers and alternate locations

identified.

Alternative supply sources are

developed in conjunction with

current suppliers for key

purchases.

Back-up suppliers are required for

critical or strategic categories and

items, including formalized

contingency plans to ensure

seamless supplier transition and

application of penalties and

liabilities with supplier(s) at fault.

3 - Exceeding 2 - Medium 3 - Exceeding -0.55

Practice

Sourcing and

Supply Base

Strategy

Supply

Assurance

Process

Design

Degree of supplier

qualification in

place

No formal supplier qualification

process.

Simple processes in place to

register suppliers and inspect

supplier qualifications at time of

registration or category review.

Established supplier training

program on enablement

strategies and buyer’s

technologies. Formal program

exists to identify key qualification

metrics with stratification based

on category criticality and supply

alternatives.

Annual review of at risk suppliers

and suppliers of key categories.2 - Achieving 2 - Medium 2 - Achieving 0.37

Practice

Sourcing and

Supply Base

Strategy

Supply

Assurance

Process

Design

Degree of

effectiveness and

efficiency of price

refresh process

Quoting and price refresh process

is undefined and performed

manually and on an ad hoc basis.

Quoting and price refresh process

is defined and audited manually.

Quoting and price refresh

processes are structured to

minimize enterprise financial

impact to all parties.

Quoting and price refresh

processes are automated, nearly

error-proof,, with appropriate

controls in place..

2 - Achieving 2 - Medium 2 - Achieving 0.46

Practice

Sourcing and

Supply Base

Strategy

Purchased

Cost

Reduction

Process

Design

Level of

rationalization of

supply base size

Large number of suppliers due to

short-term, “one-off” relationships.

Organization has identified the

need to rationalize the number of

suppliers in order to create

leverage.

Supply base rationalization is

complete. Few new suppliers are

needed and an added supplier

typically results in a removed

supplier (equilibrium). Strong

relationships developed with

current suppliers focusing on JPI

in critical or large dollar spend

areas.

Structured process is in place that

benchmarks the marketplace and

ensures continual supply base

assessment.

2 - Achieving 2 - Medium 2 - Achieving 0.50

Practice

Sourcing and

Supply Base

Strategy

Purchased

Cost

Reduction

Process

Design

Maturity of use of

supply market

intelligence

Supply market knowledge is ad

hoc and incomplete.

Process, tools, and sources

established to gather and

organize data on most categories.

Supply market intelligence /

knowledge captured to identify

when a supply strategy needs to

be re-visited.

Supply market intelligence /

knowledge captured, modeled,

and utilized for pro-forma

simulations done during strategic

planning, design, sales, etc.

2 - Achieving 2 - Medium 2 - Achieving 0.66

Strategy & Business

Transformation (Transforms Performance

into World-Class)

Service

Delivery

Components

Information

Service

Placement /

Scope

Process

Sourcing /

Location

Strategy

Process

Design

Enabling

Technology

Skills &

Talent

Governance

&Organization

Enterprise Performance Management

Shared Services, Global Business Services & Outsourcing

Merger Integration

Working Capital Management

Oracle EPM (Platinum Partner)

SAP ERP (Gold Partner)

Hyperion

Kronos

Workforce Management

Application Managed Services

– Functional Application Support

– Technical Application Support

– Cloud and Hosting

– Remote Development

Best Practice Technology Enablement

(Implements Technology to enable World-Class)

In

-h

ou

se

Co

mp

le

te

O

utso

urc

in

g

Colo

catio

n

CustomerResponsibility

ProviderResponsibility

Sa

aS

A

pp

lic

atio

ns

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 7

• We are the global leader in operations improvement strategies, implementation know-how, and G&A agility

• We address both efficiency and effectiveness improvements to enable strategic business objectives

• Our insights are fact based, from over 10,000 performance improvement benchmark engagements

Our Best Practices Intelligence Center™ is a significant differentiator and enabler. It contains:

– 20,000+ performance metrics updated annually

– 1,500+ best practices across 95 business processes

– 1,000+ best practice-based process maps, requirements and configuration guides

– 1,000+ case studies, implementation examples and research

• We deliver results through a global team of senior practitioners using a consistent methodology and best practice-based toolset

Hackett Value Grid™

We help companies establish and implement business performance

improvements.

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 8

Hackett Purchase to Pay Value Grid™

Effectiveness Drivers

• First Pass Match Rate

• On Time Payment Rate

• Level of Spend Visibility

• Streamlined Transaction Strategy

• Level of GBS/Shared Services

• Training Investment

• Compliance to Preferred Suppliers

• Guided Buying Effectiveness

• Supply Base Consolidation

Efficiency Drivers

• Cost per Transaction

• Transactions per FTE

• Span of Control

• Order Cycle Time

• Invoice Processing Cycle Time

• Percent of Electronic Transactions

• Level of Automation

What are you measuring? How do you compare? What do you want to improve?

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by:

Requisition and PO Processing

Preferred transactional channels assigned

for all major spend categories

Web-based item catalogs used for self-

service requisitioning

Pcards used for low dollar transactions

POs transacted via electronic transmissions

or supplier portals

Broad use of blanket contracts and

automated Pos

Master Data Management

P2P process captures a level of spend

visibility useful for spend analytics and

compliance

Supplier validation and onboarding process

is formalized and standardized

Formal supplier master file maintenance

program with well defined accountability

One time suppliers are set up using one-

time vendor functionality within the ERP

Single instance of item master with

localization

Contracts are electronically stored and

searchable by key meta-data

Templates for standard terms and conditions

and contract clauses in place Governance and Talent

Single End-to-end P2P process

accountability at an enterprise level

Skill levels of resources are consistently

high

Corporate Procurement policies are clear,

simple, standardized, and available online

Resources and budget more focused on

planning and strategy than transaction

processing

Service Delivery Strategy

Activity is centralized across the enterprise

Appropriate use of Center of Excellence

and Shared Service models

Processes have been segmented ,

transformed, and appropriately outsourced

and offshored

Enabling Technology

Guided buying tools provided to end users

to identify the source and appropriate

buying method for particular products/

services

Automated invoice routing and approval

workflow

Receiving process is automated and

streamlined

Self-service solutions for supplier data

updates, inquiries, and dynamic discounting

Imaging technology for storage and retrieval

of invoices and related documents

Accounts Payable

Invoice receipt is centralized

Optimized supplier payment strategy

Utilize automated technologies for

transmission of supplier invoices

Utilize automated solutions to settle

payments with third party suppliers.

Channel strategy leverages 2 way match

where feasible

The Hackett Group Best Practices Checklist

Contents

Hackett Overview

Why Measurement Matters

How and What to Measure

Selected Hackett Metrics You

Can Use to Benchmark Your

Organization

Opportunity to Participate

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 11

• Quantify performance consistently across enterprise

• “Size the prize”

• Benchmark results • Prioritize & focus • Root cause analysis

• Establish targets for high impact metrics

• Build consensus for change

• Prioritize initiatives • Develop roadmap • Drive change

• Communicate progress to goals

• Measure process stabilization

• Realize benefits

• It is a Journey, keep

going

Establish Baseline

Analyze Results

Set Targets

Execute

Track Improvements Performance

Management Platform

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 12

Drivers Objectives

Assess / Improve Service Delivery Effectiveness

Comprehensively evaluate the Service Delivery Model Establish a baseline for current level of performance Gain insight into how leading functions are organized and staffed Determine gaps to World-Class performance in terms of cost, staffing,

service delivery, and practices Determine the right metrics to use going forward Identify /prioritize short- and long-term improvement opportunities

Board Mandate or

Executive Compulsion to Rationalize Cost

Understand where costs are out of line Understand key cost drivers Provide cost visibility to the business Assess the level of centralization/decentralization

Establish/Validate a

Business Case (e.g., BPO,

Global Business Services, ERP, etc.)

Determine current efficiency and effectiveness of processes Understand opportunities for improvement Establish best practices to be implemented which will determine how to

implement new automation Determine if existing skill sets are adequate

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 13

FTE

Concerns About Benchmarking

Contents

Hackett Overview

Why Measurement Matters

How and What to Measure

Selected Hackett Metrics You

Can Use to Benchmark Your

Organization

Opportunity to Participate

| 15 © 2015 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Scope of Measurement

Finance Executive & Corporate Services

Human Resources Sales

Information Technology Service

Procurement Marketing

G&A or SG&A

Finance

Human Resources

Information Technology

Procurement

Function

Accounts Payable Cash Application

Fixed Assets Intercompany Accounting

Contact Center Time & Attendance

Travel Expense Payroll

Credit Order Management

Processes

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 16

How and What to Measure?

What’s important to your key stakeholders?

How do you know you are doing a good job?

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 17

Senior business leaders Key stakeholders Operations

Source: The Hackett Group

The Audience will impact what you measure… What are you measuring? Who are your key audiences?

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 18

• Start small; ‘what’s stopping you from being effective?’

• Start tall; ‘external benchmark’ -- Pharmacia Example

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 19

$5 million savings opportunity in transaction processing!

Key Financial Processes Total Cost Cost per

Billion Quartile

1st Quartile

Cost/Billion

$ Savings

Opportunity

Transaction Processing $12,955 $ 4,093 3rd $2,431 $ 5,262

Control & Risk Mgt. 5,523 1,745 3rd 959 2,488

Decision Support 3,793 1,198 3rd 607 1,871

Finance Management 1,772 560 3rd 408 481

Systems 7,660 2,420 2nd 1,760 2,090

Overhead 6,561 2,072 2nd 1,275 2,523

Total Finance $38,264 $12,088 3rd $7,440 $14,715

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 20

• AP Cost as a percent of revenue

• FTEs per $1 billion revenue

• Process Cost per Invoice

• Invoices per FTE

• Percent of active suppliers who submit invoices electronically

• Cycle time to process an invoice

• Overall first pass invoice match rate

• Percent of PO invoices

• Percent of self-billed (ERS) invoice transactions

• Percent of Inquires responded via Self Service

• Percent of payments are made on time

• Average days payables outstanding

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 21

• Quality

• Cost

• Delivery

• Customers / Employees

• Best Practices

• Value

• Defect-free processing • First-pass yield;% errors

• Process cost

• Transactions per FTE • Cycle time (days to close) • % automated transactions

• Customer satisfaction • Employee engagement • % suggestions

• Process steps – add value • Organizational alignment

• % of G&A in Shared Services • Speed to add new product or

acquisition

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 22

• Measurement provides a baseline and for improvement,

• An opportunity to establish / improve relationships,

• An opportunity to showcase performance to your leadership,

• A great way to eliminate emotions from implementing changes

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 23

Start Measuring

Contents

Hackett Overview

Why Measurement Matters

How and What to Measure

Selected Hackett Metrics You

Can Use to Benchmark Your

Organization

Opportunity to Participate

| 25 © 2015 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

44%

15%

9%

31%

47%

25%

10%

18%

Three-way Match Two-Way Match P-Card and Other Non-PO (Invoice Only)

Top Performers use a blended channel strategy based on commodity risk, balancing spend control with efficiency

Percent of Transactions by Channel

Percent of Spend by Channel 51%

15%

6%

28%

56%

18%

3%

24%

Three-way Match Two-way Match P-card and Other Non-PO (Invoice Only)

Top Performers process 35% of transactions through Optimal Channels, versus 24% for Peer

Top Performers manage 74% of spend on a Purchase Order / Contract, versus 66% for Peer

Note: 2-way match includes evaluated receipt settlement (PO + receipt match), assumed receipt (PO + invoice match), and recurring invoice (contract + invoice match)

Peer Top Performer

Purchase to Pay 2015 Performance Study

| 26 © 2015 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

3.54

1.74

1.26

0.53

1.20

0.49

0.60

0.29

6.60

3.05

Peer Top Performer

Labor Outsourcing Techonlogy Other

Top Performers process invoices for half the cost and over twice the productivity as Peer organizations

Invoices per FTE

7,126

17,357

Peer Top Performer

Total AP Cost ($) per Invoice

Note: Cost figures represents conservative “total cost median” methodology.

The more aggressive “sum of sub-process medians” methodology results in TP

= $2.46, Peer = $4.97 total cost per invoice

Accounts Payable Accounts Payable

Internal + Outsourced

Purchase to Pay 2015 Performance Study

| 27 © 2015 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Top Performers leverage more PO-invoices, optimizing efficiency gains to maximize opportunities (i.e. discounts)

Cycle time for PO Invoices (elapsed days from receipt to approval)

Cycle time for Non-PO Invoices (elapsed days from receipt to approval)

3.0

5.5

10.8

First QuartileMedianThird Quartile

3.0

7.0

15.8

First QuartileMedianThird Quartile

Top Performers process 72% of transaction volume on Purchase Order-related invoices

(versus 60% for Peer organizations)

Purchase to Pay 2015 Performance Study

| 28 © 2015 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Top Performers have better on-time payments and first pass match rates

Purchase to Pay 2015 Performance Study

On-time Payment Rate

78%

90%

Peer Top Performer

First-Pass Match Rate

73%

90%

Peer Top Performer

| 29 © 2015 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Top Performers drive standardization, a first step in better control over working capital and discount realization

Percent of Spend for Which

Standard Terms are Applied

Percent of Suppliers for Which

Standard Terms are Applied

70%

94%

50%

85%

Peer Top Performer

Purchase to Pay 2015 Performance Study

Contents

Hackett Overview

Why Measurement Matters

How and What to Measure

Selected Hackett Metrics You

Can Use to Benchmark Your

Organization

Opportunity to Participate

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 31

Hackett Performance Studies define and capture how World-class performing organizations are organized, governed, and their savings potential compared to their Peers. The study covers key concepts including service management, governance, performance achievements, technology, and KPIs to assess your performance objectives. Participants in these studies will: • Learn how your organization compares with World-class or Top

Performers • Receive a report with key research findings and an assessment of

your performance • Have a one-on-one session with a Hackett Advisor to review your

performance

• Participate by joining the Hackett Research Community

• http://www.thehackettgroup.com/research/studies/

• www.thehackettgroup.com or contact pweller@thehackettgroup.com

Free

Studies

| 32 © 2015 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Hackett Performance Exchange – Metrics (SAP/Oracle)

ERP

HackettConnector

Internet

browser

Simple connection to the ERP

consolidates data in a consistent

fashion and eliminates manual

data collection

Quickly delivers initial Finance cost and cash performance

assessment

Provides operational

metrics, root cause

analysis, and ongoing

benefits realization

tracking across the O2C,

P2P and A2R end to end

processes

Limited time commitment and no manual data collection required

| 33 © 2015 The Hackett Group, Inc. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited.

Questions or Comments?

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 34

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The Accounts Payable & Procure-To-Pay Conference & Expo is produced by:

Statement of Confidentiality and Usage Restrictions

This document contains trade secrets and other information that is company sensitive, proprietary, and confidential, the disclosure of which would provide a competitive advantage to others. As a result, the reproduction, copying, or redistribution of this document or the contents contained herein, in whole or in part, for any purpose is strictly prohibited without the prior

written consent of The Hackett Group.

www.thehackettgroup.com