Leveraging Managed Services to Achieve Best-in-Class Accounts Payable Performance
by Ken Neal
June 24, 2020
Data from industry analysts such as Ardent Partners1 shows that there is a direct correlation between leveraging accounts payable (AP) automation technology and achieving best-in-class performance in critical areas such as:
- reducing the cost and time to process a single invoice
- increasing the percentage of invoices processed straight through
- improving the percentage of suppliers that submit invoices electronically
Why should an organization consider engaging a managed services provider to help achieve these and other benefits? One important point to make as a background to answering this question is connected with a goal many AP departments, and CFOs, are trying to achieve today.
Advancing AP Operations
Specifically, they are trying to advance their AP operation from being a cost center to more of a financially “net neutral” department. The means to achieving this is increasing productivity while driving down costs. In the process of trying to get there, AP departments in digitally mature companies behave differently compared to their less mature peers. The difference has less to do with technology and more to do with business fundamentals.
What we have learned working with our clients is that in order to implement a successful digital transformation initiative, enterprises need a strategy that encompasses three key components. These are: deploy the right people to run the right processes using the right technology.
Partnering with a managed services provider that offers expertise in all three of these areas can provide a significant advantage for organizations seeking to achieve a best-in-class AP or source-to-pay operation. Leveraging the right partner can enable a company to realize substantial gains that, as I spotlighted earlier, can include: reduction in cycle times; new discounts in addressable spend; enhanced supply chain health; decreased processing costs as highlighted earlier; increased spend under management; and perhaps most importantly, increased stakeholder satisfaction, both internally and externally.
Transforming AP Processes: A Case Study
Let’s look at a practical example of how such a partnership can work. It’s a case in which we were able to act as an extension of a company’s AP operation, using our resources and expertise to identify improvement areas and implement solutions.
A major bio pharmaceutical company faced several challenges that were caused by a highly inefficient AP process. These challenges included a very high cost for processing each invoice; numerous process errors, and excessively long cycle time from invoice receipt to payment including an average of 15 days for processing exception invoices.
The company also was unable to continuously improve the quality of its AP operation due to the lack of comprehensive process monitoring and financial reporting systems. Adding to these problems, many of the company’s internal groups and stakeholders responsible for manufacturing medicines were dissatisfied. They complained that the situation with the AP department paying bills late, and in some case incorrectly, was jeopardizing their ability to deliver medicines to healthcare providers in a timely fashion. The stakeholder dissatisfaction was based on the fact that vendors providing critical components used in the medicines that the pharmaceutical company manufactured were threatening to withhold shipments due to late or outstanding invoices. The scenario had the potential to significantly disrupt the supply chain process supporting the company’s research and manufacturing activities.
Reaching Out for Help
The company, needing to quickly bring it AP operation back to health, considered reaching out for expert help. Executive leaders, however, were hesitant due to their experience with previous service providers that implemented approaches lacking the rigorous process, expertise and controls required to drive significant improvements in the operation. They finally decided to engage Canon because they saw an opportunity to benefit from our business process optimization methodology that included a five-step approach.
First, we assessed and analyzed the current processes within the organization including staffing and the technologies to build a roadmap for the transformation journey. Second, we transitioned the team to a proven methodology that starts with increased productivity and addresses low-risk and low-complexity challenges within their department. Third, we designed a new process utilizing our Six Sigma team. Fourth, we implemented and managed operations, as well as provided reporting and benchmarking goals for the operation. This gave them complete visibility into critical activities. Fifth, we executed an “improve and control” initiative. This included going back and reassessing the operation, including current processes, with our Six Sigma team. The goal was to make recommendations based on uncovering additional opportunities to improve productivity and contain costs.
Leveraging People, Process and Technology
This five-step approach essentially utilized people, process and technology to transform the company’s source-to-pay operation. Highlights of some key results include the following:
- Achieved a 22 percent increase in on-time payment of invoices
- Reduced average non-exception invoice cycle time from five to 1.5 days
- Reduced average exception invoice cycle time from 15 to 7.5 days (50 percent reduction)
- Due to the 50 percent reduction in invoice cycle time for exception invoices, relationships with vendors that support the company’s supply chain significantly improved
- Increased satisfaction of internal groups associated with manufacturing processes
- Implemented the company’s first performance management methodology
- Freed up time and resources that could better focus on improving patient care