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Best Practices Briefing in Purchase-to-Pay Kurt Albertson, The Hackett Group Jim Anthony, The Hackett Group Bryan DeGraw, The Hackett Group Bill Kilmartin,

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Presentation on theme: "Best Practices Briefing in Purchase-to-Pay Kurt Albertson, The Hackett Group Jim Anthony, The Hackett Group Bryan DeGraw, The Hackett Group Bill Kilmartin,"— Presentation transcript:

1 Best Practices Briefing in Purchase-to-Pay Kurt Albertson, The Hackett Group Jim Anthony, The Hackett Group Bryan DeGraw, The Hackett Group Bill Kilmartin, Accenture Pat OConner, NASACT Kinney Poynter, NASACT November 16, 2006

2 Discussion Items Objectives of Briefing Hackett Insights and Metrics in Purchase-to-Pay Emerging Trends

3 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 3 Objectives of this Briefing To introduce the topic and our knowledge of best practices to NASACT members – NASACT Benchmarking experience Based on state benchmarking experience, Accounts Payable and Purchase to Pay have consistently been the top areas of opportunities for improvement – Hackett Finance Executive Advisory (NASACT) Hackett has a focused research and advisory group dedicated to this area, monitoring use of organizational best practices to help achieve world-class performance Accenture has significant state government client experiences on how to incorporate these best practices to improve performance

4 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 4 Finance Operations Executive Advisory Program Was designed to help clients stay connected with the latest best practices, research, client networking - learning, and unmetered Hackett advisory, for the following 5 business process groups: – Finance Shared Services – Invoice to Cash – Purchase to Pay – Payroll – Account to Report Memberships available through NASACT

5 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 5 Hackett Group defines World-Class Enterprise Performance The Hackett Group is a global Business Process Advisory Firm providing: Insight, advice and certified practice recommendations obtained through 13 years and 3,300 benchmark studies to guide executive efforts to materially improve back office operational efficiency and effectiveness levels. Benchmarks, business transformation services and advisory programs that empower executives to achieve world-class enterprise performance. Hacketts continuously updated knowledge repository has been leveraged by over 1,865 of the worlds leading private and public sector organizations, including: 93% of the Dow Jones Industrials 76% of the Fortune 100 and 90% of the Dow Jones Global Titans Index World-Class Defined Objectively Quantify Gap Identify Certified Practices Prioritize and Manage Measure Execute

6 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 6 Hackett uses actual data to identify world-class performers in Finance EFFECTIVENESS Role of finance in strategic planning and decision making Integration of strategic planning with tactical business planning Percent staff is experienced in both finance and company operations Time allocated to Planning and Analysis Use of balanced scorecards, simulation models Working capital - days sales outstanding (DSO) Percent credit sales collected within terms Effective Tax Rate; Cost of Capital Quality metrics (billing, tax, reporting, forecasting) Accuracy of forecasts and analysis Hackett Value Grid EFFICIENCY Total cost of finance as a percentage of revenue Process cost as a percentage of revenue Staffing levels by process grouping Span of control Technology cost per finance FTE Technology cost as a % of revenue Unit cost of transactions Cycle times Utilization of self-service for inquiry Application complexity Automation of transactions Reliance on spreadsheets Days to Close; Days to Report Days to complete the budget ABC Org.Company Comparing your organization to peer group and world-class performers Finance Sample

7 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 7 Purchasing Travel & Expense Purchasing Card Administration Hacketts Purchase-to-Pay advisory and benchmark services are based on this defined taxonomy Accounts Payable Requisition processing Purchase order processing and distribution Supplier master file maintenance Item master file maintenance Receipt processing Purchasing policies and Procedures Supplier set-up Pre-processing Verification and approval Electronic and paper processing Discrepancy resolution Payments Customer inquiry and response File, store and retrieve Reconciliation, accrual & compliance Travel advances Travel expense processing/filing Auditing Payments Reporting and analysis Central bill reconciliation Travel policy Procurement cards Travel cards Combination cards

8 Characteristics of World-Class Purchase-to-Pay Organizations

9 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 9 World-Class Purchase-to-Pay Organizations Process Transactions for Significantly Less than their Peers x The Hackett Group Purchasing Operations and Accounts Payable Benchmark 2005

10 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 10 World-Class Purchase-to-Pay Organizations are Much More Productive than their Peers 3 - 4x The Hackett Group Purchasing Operations and Accounts Payable Benchmark 2005

11 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 11 World-Class Purchase-to-Pay Organizations Utilize Fewer FTEs than their Peers % The Hackett Group Purchasing Operations and Accounts Payable Benchmark 2005

12 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 12 World-Class Accounts Payable Organizations have Flatter Organizational Structures The Hackett Group Accounts Payable Benchmark %

13 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 13 World-Class Purchase-to-Pay Organizations Outperform their Peers across Most Dimensions A third the cost to Process Transactions Three to Four Times as Productive Forty to Fifty Percent Fewer FTEs Greater First-Pass Yield on Invoices

14 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 14 Selected Best Practices Driving World-Class Performance End-to-End Accountability of the P2P Process Automation of the P2P Process Business Process Sourcing Strategy Continuous Process Improvement and Standardization Optimization of the Supplier Payment Strategy

15 End-to-End Accountability with Purchase-to-Pay

16 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 16 World-Class Accounts Payable Organizations are Aligned More Often with Purchasing than their Peers The Hackett Group Accounts Payable Benchmark x

17 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 17 Organizations with P2P process ownership seem to outperform others in transactional process costs…with varying degrees + 22% + 140% + 11% Hackett 2005 Benchmark Data

18 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 18 Similar to costs…it also seems that P2P process ownership is also having a positive enabling effect on productivity. -28% - 55% Invoice Line Items Processed per FTE Orders Processed per FTE Hackett 2005 Benchmark Data

19 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 19 P2P process ownership does seem to enable process improvement across the end-to-end process…but again, its not the only enabler. - 30% - 52% Percent of Organizations Engaging in Selected P2P Process Improvement Efforts

20 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 20 Even though stronger working relationships exist in with P2P process ownership…it isnt a guarantee! 100% 25% 75% 42% 50% 12% - 43% - 75% Percent of Organizations 50%

21 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 21 P2P integration and deployment of technology at various process points is higher, some only slightly, in those with process ownership. 88% 52% 22% 21% 75% 33% 12% 20% - 14% - 50% - 46% - 1% A difference of about 70% between the cost of processing an electronic transaction versus a paper invoice. – Hackett AP Process Benchmark, October % 32% - 51%

22 Automation of the Purchase- to-Pay Process

23 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 23 Electronic focused Organizations have lower process cost and are more productive than their peers + 57% + 54% - 57% - 58%

24 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 24 World-Class Purchasing Operations Organizations Disseminate Purchase Orders Electronically Significantly more than their Peers The Hackett Group Purchasing Operations Benchmark x

25 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 25 World-Class Accounts Payable Organizations Leverage Electronic Invoicing and Payments Significantly more than their Peers The Hackett Group Accounts Payable Benchmark x

26 Continuous Process Improvement and Standardization

27 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 27 World-Class Purchase-to-Pay Organizations have a Standard Set of Procedures Across Businesses More Often than their Peers The Hackett Group Purchasing Operations and Accounts Payable Benchmark 2005

28 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 28 World-Class Accounts Payable Organizations have Reengineered Procedures to Minimize Low-value & Redundant Tasks More Often The Hackett Group Accounts Payable Benchmark x

29 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 29 World-Class Purchase-to-Pay Organizations have also Consolidated Transactions and Spend to a Greater Extent The Hackett Group Accounts Payable Benchmark %

30 Business Process Sourcing Strategy

31 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 31 The Business Process Sourcing Decision is the final consideration on a journey of Process Improvement and Enablement Other steps ideally come first, and yield the greatest results

32 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 32 Proximity to the Business Company Knowledge Driven Low High Low High What factors are considered in sourcing decisions? Advanced Skill Sets Non-Core On-shore Offshore Near-shore Non-Standardized Standardized Strategic Importance Intellectual Property Management Decision Support Risk to Accuracy/ Timeliness/ Quality Centralization

33 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited Decentralized 2.Centralized / shared services – onshore within the country or region being serviced 3.Centralized / shared services – offshore at a lower labor cost location outside the country or region being serviced 4.Outsourced onshore or offshore – to a third party 5.Fully automated On-going Research – Business Process Sourcing Survey

34 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 34 Accounts Payable – Supplier Set Up: General trend away from Decentralized towards Centralization and Fully Automated

35 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 35 Accounts Payable – Pre-Processing: Move away from Decentralized towards Outsourced and Fully Automated

36 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 36 Accounts Payable – Processing: Move away from Decentralized and Centralized towards Outsourced and Fully Automated

37 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 37 Accounts Payable – Payments: Continued migration away from Decentralized with a move towards Centralization and Fully Automated

38 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 38 Accounts Payable – Inquiry Response: Continued migration towards Centralized, Outsourced, and Automated

39 Optimization of Supplier Payment Strategy

40 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 40 Should organizations take early payment discounts or should they push out terms? While it depends, some do both. An organizations payment strategy must be linked to the overall corporate strategy The payment strategy should be a product of collaboration between Procurement, Treasury, and Accounts Payable The organizations cost of capital and cash position are primary factors in driving the payment strategy Organizations should segment supply base based on their propensity to extend discounts (or suppliers need for cash) Technology like Pay me know functionality helps enable the payment strategy

41 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 41 Hackett research shows that the trends for companies has been an attempt to extend payment terms with suppliers In 2004, 53% of organizations said that they expected to have standard payment terms of 45 days or more within three years The median 2004 Days Payable Outstanding (DPO) figure was at 28.0 days (Excluding automotive) 42% of the US sector from 2003 to 2004 showed a deterioration in DPO, however

42 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 42 Based on a recent Hackett Group Survey, however, nearly half of the respondents said they actively pursue supplier discounts

43 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 43 According to our benchmark, however, over 80% of companies are not Tracking Supplier Discounts Taken

44 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 44 Survey Results showed that organizations that actively pursue early payment discounts can reduce the bottom line by as much as $2 million per $ billion in spend Based on study results, a 10% cost of capital, a 25 day reduction in working capital, and a 2% average discount $2 million per $ billion in spend

45 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 45 What is the Prompt Pay Discount Opportunity? Employees Other Governments (grants etc) Recipients (such as Welfare, Unemployment, etc) Beneficiaries (such as Pension, Worker Compensation) Health and human service providers (such as Medicaid and social service provider organizations) Bond holders Customers receiving revenue refunds Vendor Trade Payables Suppliers already agree to contractual terms and already accomplish prompt pay discount Suppliers already agree to contractual terms but not accomplishing prompt pay discount Suppliers do not yet agree to contractual terms, but probably would if requested We believe governments are motivated to seek improvements and efficiencies, especially when significant value can be accomplished. We believe there is a major, unrealized, opportunity to implement accounts payable improvement programs that target certain payee groups and can accomplish prompt pay discounts. Furthermore, we believe a combination of factors, organizational, process, and technology improvements, make this a feasible and realistic undertaking. Major Payee Groups Vendor Trade Payables

46 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 46 The Value Proposition: Hard and Soft Dollar Savings Also, Suppliers benefit from quicker cash flow and easier payment processes. Hard Dollar Savings Net $30M per billion in payment volume Soft Dollar Savings $8-15 per transaction event Accounts Payable Optimization (Prompt Pay Discount Realization) The generally accepted business practice for vendor trade payables is 2% discount if paid in 10 days, and full amount (no discount) if paid in 30 days Most governments strive to make payments in 30 days While this practice avoids late penalty interest, it does not harvest prompt pay discounts Paying a vendor 98% the face amount of an invoice, representing full satisfaction of the amount owed, generates a savings to the government (slightly less than 2% due to interest income foregone) Vendors already pay the equivalent to 2%, or more, to accept your P cards Organizational and Process Reengineering and Automation Decentralized and organizationally distributed processing locations causes higher costs for managing accounts payable and disbursements Manual processing is responsible for a lot of the high costs of managing accounts payable and disbursements. Many government business processes can be streamlined, in a manner consistent with leading practices, to reduce or eliminate the number of processing steps Accenture analysis suggests that automating and streamlining the accounts payable process can save labor and overhead costs $10-15 per transaction. Our hypothesis and business case is based on realizing hard dollar savings derived from actively managing early payment discounts. Additional and significant benefits arise from process efficiencies, and generate soft dollar savings.

47 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 47 The Value Calculator We have developed a top-down model to estimate the magnitude of the opportunity in US State Government

48 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 48 Questions or Comments? ?? ??

49 World-Class Purchase-to-Pay © 2006 The Hackett Group. All rights reserved. Reproduction of this document or any portion thereof without prior written consent is prohibited. 49 For Further Information, Please Contact Pat OConnor NASACT Association Manager Lexington, KY Ph: Jim Anthony Hackett Account Director Chicago, IL Cell: Bill Kilmartin Accenture Account Director Boston, MA Cell:


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