Bring on the process revolution

By Steve Howcroft

Scanning invoices in an attempt to reduce procurement effort is like ordering a faster fax machine because your current model is too slow argues Steve Howcroft. So why not just get rid of the fax machine?

An anonymous survey of 25,000 worldwide users of iPOS, an eProcurement solution for the Infor SunSystems ERP, found 70% of respondents answering that they saw invoice scanning as a concrete solution to save effort every month for Accounts Payable. In comparison, the respondents rated the introduction of punch out into the AP function as only 29% effective. (Punch out is the ability for the user of an e-procurement software application to access a supplier's Web site from within the buyer's own procurement application. )

The anonymous survey posed the question "If your organisation had an objective to decrease the AP effort by x days per month, what would you target to achieve this objective?" The highest ranking result was to “analyse the nature of your spend and look for actions to reduce effort.”  At 83% this result makes a lot of sense.  It would seem obvious that an organisation would want to avoid making a decision without the facts, as this may be is the wrong decision. 

However the large number that saw invoice scanning as the solution fascinates me as the organisation will still have a piece of paper-turned-digital.  Why wouldn't organisations look to remove paper instead? In Sydney we now have an extra lane on the M2 expressway. All it appears to have done is move the traffic jam further down the road. So we now get to go faster to a traffic jam!

For me scanning invoices is all about the organisation locking in fixed cost. The better option surely is to reduce, or hopefully remove, paper. By dealing with suppliers electronically you reduce the number of data process errors, you let the machines do the work and your organisation does not lock in digital paper. 

There are research findings that suggest the cost of processing a paper invoice is in the range of $A10 – $24. Just assuming you can convert 100 paper invoices to electronic, at $A15 per invoice that represents a saving of $A18, 000 pa. It’s the gift that keeps on giving.

A few years ago I visited an organisation that was implementing iPOS. As part of change management, each day this organisation placed the percentage first time match of invoices on a pillar just outside the CEO’s office. Everyone now knew what he thought was important.  The day before my visit a major supplier’s CEO had paid a visit. His organisation was not prepared to amend their electronic invoices to record the correct PO number, as it truncated the last 3 digits. This error prevented the organisation achieving its KPI. As it was not able to be addressed at lower levels, the issue was escalated to CEO level.  The buying organisation's point was simple, if the supplier's invoice had the correct PO number the matching process was electronic, when it was an error it cost £10 per invoice. This was their estimated administration overhead to manually allocate a supplier invoice.

The demand was simple, correct your system or we have to change supplier. The supplier changed their system forthwith. The iPOS user locked in a higher level of efficiency; a gift that continues giving.

The discussion about replacing paper invoices tends to be punch out versus invoice scanning, there are other approaches that can be considered. The potential saving of $A18, 000 per 100 paper invoices should be a strong driver to seek other ways of locking in cost reduction and more effective procurement function. If punch out is not possible then there is the option of using EDI gateways, however the feasibility of this depends on the industry. Another option is to present the invoices in XML format. This is a relatively easy option for many suppliers to adopt. In the EU there is a big drive for governments to only receive electronic invoices. This is good news as this becomes a general approach worldwide. In some industries we have seen the adoption of other approaches to remove paper. One such approach is that if you can’t provide it in electronic form, you, the supplier, will need to enter the invoice. The other approach we have seen is where contractors and service providers self-bill. Once the contractor goes onto the organisation’s portal and confirms delivery of the service against the PO, the system auto-generates the ‘invoice’ and the supplier is paid.

Recently I participated in an internal review of a report being prepared for a client of ours.  The reports’ author needed to reduce paperwork plus ensure that moving from paper to scanned invoices did in fact reduce workloads.  This is where a decision to “analyse the nature of your spend and look for actions to reduce effort.” makes so much sense. The analysis of the organisation’s spend did in fact highlight some great insights. 

What the client found was that approximately 40% of the organisation's paper invoices arose from 21 suppliers - 1% of 2,800 suppliers. And of those 21 suppliers the majority would be able to provide the invoice in electronic form.  Also punch out was not an option for the majority of suppliers.  And the other extreme the analysis found that 50% of suppliers had five or less invoices in the past 12 months.  

If this can be turned into reality the client achieves a great outcome.  If 40% of the invoices can be provided electronically then they will arrive at the organisation ready for coding at a zero cost to the business.  If they are not provided electronically the ‘paper’ invoice will incur a scanning cost of X cents per sheet.  

Now the hard work starts moving from the existing processes to deploying the new ideas.  Like other ideas this opportunity to excel is dressed in overalls and will require hard work.  

Steve Howcroft is a founding partner of Australian solution provider Professional Advantage.