by Ken Neal | 5/11/16
According to a research report we recently issued, advancements in workflow automation coupled with optical character recognition data capture, supplier portals, and more efficient integration with ERP and content management systems enable organizations to leapfrog their accounts payable (AP) operations from a manual to a leading-edge function.1 This is the direction in which we are heading with a leading pharmaceutical firm: leveraging automation as part of a three-pronged strategy in order to optimize the firm’s AP process.
Initially, the company saw an opportunity to solve several challenges that could enhance its AP processing workflow. At the time, the firm’s AP process was predominantly paper-based, manual and clearly not as efficient as executives wanted. They knew the answer was AP automation but at the time that was not a realistic option as, due to acquisitions, the company faced integrating a number of disparate ERP systems. This integration, which would take several years, had to be completed before the company could implement automation in order to enhance AP processing performance. What could be done in the meantime?
Rather than wait, the answer was to implement a strategy for success that comprised three major phases:
- First, centralize and digitize invoice intake, scanning documents to convert invoice processing from a paper-based to digital imaging workflow.
- Second, improve the AP process to improve and maintain high-quality service at a competitive cost.
- Third, once the ERP integration is complete, automate the AP approval and discrepancy resolution process and further automate the intake process with new technologies such as a supplier portal and e-invoice system.
The project team has addressed invoice processing challenges and achieved important business benefits, particularly within the first two phases of the plan.
Centralize and Digitize
Early in the AP optimization initiative, the team worked to transform the existing paper-based, manual approach. These processes were replaced with a centralized system that is now yielding benefits that include a shorter cycle time, elimination of hand-offs and the ability to have a more holistic view of AP processes.
The result has been dramatically streamlined front-end invoice processing activities. The “front-end” of AP processing is sometimes referred to as the “invoice receipt-to-ERP” stage. This stage typically includes centralizing invoice receipt as well as imaging, indexing and data entry; processes that we now manage. After completing these activities, we pass the invoices to an offshore business process outsourcing (BPO) service provider for “back-end” processing that includes invoice discrepancy resolution, approval collection and entry into the biopharmaceutical firm’s ERP system.
Solving a Problem
After the “centralize and digitize” workflow was firmly in place and yielding solid business benefits, the second phase of the plan focused on process improvement. This included solving a problem that was resulting in unexpected fees to the pharmaceutical company from the BPO provider.
Our team scans the incoming paper invoices and passes them to the BPO provider offshore for process completion. The invoice scanning process was designed to yield 99 percent image accuracy. The problem was that the BPO firm’s offshore staff was returning a higher amount of invoices to the pharmaceutical company for re-scanning due to unreadable images. This incurred extra cost from the BPO provider — once for the original receipt and a second fee for the re-submitted invoice. The rescan issue also prolonged invoice processing cycle time.
Regarding the cycle time, a service-level agreement (SLA) with the BPO firm specified that it meet a 24-hour turnaround time for rush invoices and three days for all other invoices. The high number of rescan requests was making it difficult to meet these SLAs.
The project team decided to identify the root cause of the rescan problem and implement a solution. To get the job done, the team implemented a Six Sigma-based Kaizen project — a quick and efficient improvement project focused on reducing defects in a process. The goal for the initiative was to find solutions that would reduce scanning defects by 50 percent.
The team exceeded that goal, achieving a 53 percent improvement. More important, the initiative revealed a related problem. A large number of rescan requests involved images that did not require rescanning (i.e. they were legible and within an acceptable image quality level) but somehow were rejected. There was no control to prevent these unnecessary requests from occurring. As a result, process changes and continuous improvements were implemented such as documenting rescan requests; improving communications between the pharmaceutical company, BPO provider and project team; providing more detailed data analysis, and updating standard operating procedures (SOPs).
Implementing AP Automation
In addition to centralizing and digitizing the front end of invoice process activities, the project team is currently engaged in implementing the third prong of its AP optimization strategy — implement the AP workflow and e-invoice technology. As the research I cited earlier suggests2, the benefits of automation potentially include lower cost per invoice, faster processing cycle time; more visibility across the process and acknowledgement from the firm’s suppliers and internal business managers that AP performance is significantly improved.
The process automation is a work in progress. Due to the acquisitions, during the past four years the pharmaceutical firm has integrated disparate ERP systems, culling six systems down to two currently. Now that this integration is basically complete, the AP operation is proceeding with such initiatives as a workflow automation system and e-invoice supplier portal.
The project to date has yielded important results, some of which include significant reductions in invoice document rescans, cycle time for processing invoices, errors and overall operating cost.
Canon Business Process Services, 2014, High Performance Accounts Payable: Three Key Drivers to Success
Ken Neal is a certified enterprise content management practitioner (ECMP) and fellow, corporate communications at Canon Business Process Services, a leader in managed services and technology.