Topics of Interest Archives: Procure-to-Pay

From Bottoms Up to Bottom Line: Ariba Live Returns to Vegas (Pt 2 of 2)

Ariba Live Wrap-Up Part 2: Bottom Line. Image Source: Pixabay.comLast week’s Ariba Live event at The Venetian and Palazzo in Las Vegas gave us a lot to think about — and not just from a business process perspective. Cirque du Soleil‘s live acrobatics woke us up, and Candy Chang‘s fusion of art, public space, and community-based collaboration, got us engaged. It’s not always easy–or natural–to smoothly transition from non-business to business content and messages in these type of environments, but I think it’s fair to say that the non-practitioner content did its job in getting us to think a bit differently about what’s possible when we apply equal parts creativity, skill, and preparation. And that’s where I make the tie back to the wonderful world of procure-to-pay.

Looking back over the different sessions and conversations, there are four main things that I think are important to note, for current customers, prospects, and the market in general. These have to do with (1) network expansion, (2) user experience, (3) partner ecosystem, and (4) payment options. I discussed the first two in my previous post, and will wrap things up here with the final two pieces of the puzzle.

Opening the API
The attractive storyline here is that SAP and Ariba learned from Concur’s success in nurturing a developer network for their platform and are embracing the approach post-acquisition. That said, folks like Salesforce.com and NetSuite have been doing this very well for a while too, and their success has been quite visible in the marketplace. Regardless of whether any of those were the real genesis of Ariba’s Open API initiative, I think it has the opportunity to start something special.

Until now, Ariba has been running a pretty classic two-sided network of buyers and suppliers. An honest review has to point out that what has been missing is the two-sided benefit model that leads to true network effects. By that, I mean that the vast majority of development (and marketing) has been focused on buy-side benefits. That serves to attract buyers, and they bring suppliers with them – but there isn’t an independent value source attracting new suppliers to the system.  That’s where we get into the realm of the telephone model of value: new buyers make the system more attractive to sellers, leading to new sellers who make the system more attractive to buyers. And B-school professors everywhere go wild…

With an Open API, the model changes a bit: there’s a third community that can participate, adding value that can attract new buyers (and perhaps sellers too). The number of participants already on the network attracts developers to add functionality on a completely separate development track than Ariba’s own roadmap. The cool thing is that, as we’ve seen with the Force.com/Salesforce1 platform approach (1), this adds new features but maintains the connection to the data that runs the show. That’s the big difference between API-based platform developers and third-party solutions that communicate with, but live apart from, the main system.

Since that was all quite general, let’s get specific. I think new apps will focus, at first, on the buy-side. That’s where the focus has been, and that’s probably who will benefit first. That said, I think there’s a real opportunity to show some love to the sell-side community as well. Ariba’s started doing this on their own. One subtle point that a sell-side attendee pointed out to me is that they’ve started referring to sellers as “customers” as well, and not keeping that label just for buyers. The same sentiment was there when I chatted with folks who were entirely focused on supplier satisfaction and retention.

I think this could be a real inflection point for the network, depending on how it all shakes out. If someone—either Ariba or the developer community—builds out functionality that provides enough value to suppliers to get them signing up without needing their buyers to invite them, the equation starts to get really interesting. New suppliers and broader participation from existing suppliers are two things that could (if we trust models… and professors) catch the attention of new buyers. I thought Discovery might have had a chance to play this catalyst role, but that hasn’t been the case. Who knows, though – perhaps the Open API will lead to development of functionality that makes Discovery more attractive, and everything will come into alignment.

Building the Payment Alternative
Last but not least, something directly related to finance. As I mentioned previously, I had the chance to sit on a panel discussing B2B payment options. For Ariba, that means their continued development of AribaPay. From conversations with buy-side and sell-side folks at the show, Ariba and Discover seem to be on to something here. They’re discussing it as an ACH replacement, removing the need/ burden for you to store and manage all of your suppliers’ bank account information. When compared to ACH, the settlement time is the same (two days, generally) but the transaction cost is a bit higher. You’ll need to see if that is offset by savings in other areas (IT support, security infrastructure, supplier information management reduction). One very interesting value point they’ve highlighted is AribaPay’s ability to improve on-boarding rates for procurement programs. If you can drive greater procurement savings by using AribaPay as an incentive, the per-transaction costs may not be an issue at all.

If we look at the roadmap, I think the some significant buy-side value will come when AribaPay does something that ACH/EFT cannot (at least outside of SEPA): go cross-border. When we talk international, we’re in wire territory – with the costs that go along with that channel. True, wires are a small portion of most companies’ payment mix, but if a lower-cost (and almost as fast) option exists—and is acceptable to suppliers who may value the non-recourse/certain nature of wires—that could be a fairly easy swap.

On the sell-side, AribaPay is more attractive as a card replacement. Ariba hasn’t published the exact pricing, but different conversations at Live point to rates a few decimal places away from the 150-350 basis points suppliers currently incur on card-based payments. In addition, there’s a hard-dollar cap on that transaction fee that makes it an absolute no-brainer for suppliers when compared to currently-uncapped card fees.  The flipside, of course, is that the buyer loses the rebate income. The suppliers I spoke with say that they end up pricing those rebates into the sales anyway, so the rebate income may actually be illusory in the end.

 

 And that’s a wrap. If you missed the first part of the series, you can find it here. It will be interesting to see how these developments are received by the market as the solutions, partnerships, and design approaches are put through their paces in live enterprise environments.

 

-Scott

 

1. Let’s not undersell what’s possible with that open platform approach. Salesforce.com began as a CRM/SFA application, but it’s creation of a development platform for others to build from has led to the creation of FinancialForce.com — an entire ERP on-top of Salesforce1. True, they weren’t starting from scratch. It was a joint venture between Salesforce and Unit4 (FinancialForce began its life as Coda). Even still, that’s a heck of a lot more than a simple plug-in.

Posted in Blog, Executive Management, Finance & Accounting, Financial Operations, General Industry, General Management, Procurement, Research | Tagged , , , | 1 Comment

From Bottoms Up to Bottom Line: Ariba Live Returns to Vegas (Pt 1 of 2)

Bottoms Up - Ariba Live Part 1. Image Source: Pixabay.comIt was an interesting few days in Vegas for this year’s edition of Ariba Live. With a new captain at the helm, there was a lot of talk of the future. For those of us outside of core procurement, this provided a view into new financial functionality as well as some foundational changes to the platform that bring Ariba in line with what started at last year’s SAPPHIRE with the UI5/Fiori and HANA announcements. There were also some main-stage acrobatics care of Cirque du Soleil, which provided a helpful jolt to attention for an early morning Day 1 start in Sin City.

Looking back over the different sessions and conversations, there are four main things that I think are important to note, for current customers, prospects, and the market in general. These have to do with (1) network expansion, (2) user experience, (3) partner ecosystem, and (4) payment options. For this blog, I want to spend a bit of time talking about this first two. The discussion of the third and fourth items continues here.

Networking the Network
There’s a push to expand the Ariba Network by connecting up with other platforms out in the market. When I heard Alex Atzberger (Ariba’s new President, and SAP CEO Bill McDermott’s former chief-of-staff) say that the “network needs to network” my first thought something along the lines of: you mean like hooking up with Tungsten/OB10? While I’ll admit to a temporary (if naïve) elation at the thought of standardized, provider-agnostic, cross-network invoicing to cut down on the number of access points buyers and sellers need to manage, the answer to that is a ‘no.’  The effort is to connect with complementary (rather than competing) networks, like eBay and Alibaba to facilitate the managed purchase of items not available through currently-enabled catalog sellers.

The eBay partnership was initially teased at last year’s SAPPHIRE, and it looks like it has come along well and can serve as a model for other network partnerships. Applying procurement rigor and review to off-network purchases seems like a win all around. It just means that we have to pin our hopes for portal rationalization on something else – perhaps the OASIS project’s ability to define some agreed-upon standards for XML business documents that can be easily integrated into ERP and financial applications large and small.  Naiveté can only go so far, of course. For the foreseeable future, there will still be a great number of connections and logins and UIs and unique flows to manage.

UX > UI
I’ve got two thoughts about Ariba’s new UX approach, which uses the SAP Fiori UI and has been engineered for mobile. The first is that, much like when Fiori was rolled out last year, it seems like a great way to present information – and tailor that presentation by persona. No complaints. I didn’t think Ariba’s old UI was horrible (especially relative to what most ERP UIs look like), but this is a nice, sleek revision. The team’s take on mobile is cool as well. They don’t try to fit the desktop experience into a mobile form factor. Rather, they’ve kept an eye on the types of tasks you’d look to complete on different devices and made those things the focus. When we roll in dashboarding with drill-down capabilities, it’s hard to complain.

But not impossible. My point of contention isn’t with the design, but with the messaging that goes along with it. I’m not sure that usability as judged by millennials should be the standard for enterprise UI and UX design. If that was the case, Ariba would have announced an image-recognition feature where employees can take a selfie with the desired good and that would trigger a purchasing workflow. All vowels would be removed from UI elements and any instance of “100%” would be replaced with “totes.” In reality, what they’ve adopted isn’t about appealing to millennials – it’s about making solutions more usable and intuitive. I’ll sign on for that. As long as that is the real driving force behind design choices, we’re in a good place.

That’s a wrap for the first installment of this two-part Ariba Live wrap-up. For more, take a look at the second half right here.

 

-Scott

Posted in Blog, Executive Management, Finance & Accounting, Financial Operations, General Industry, General Management, Procurement, Research | Tagged , , | Leave a comment

My Perspective on B2B Payments

My Perspective on B2B Payments

Next Wednesday, I’ll be part of a panel discussion at Ariba Live 2015 on the topic of B2B Payments in the Networked Age.1  Alongside T-Mobile’s Ashley Bartels and Ariba’s own Jerry Bernard, we’re going to dig into the current state of business payments, and highlight where there are opportunities to do things a bit better. I won’t speak for my fellow panelists, but there are a few key points that I plan to touch on in my piece of the presentation. This blog is a bit of a sneak preview.

It’s a bit of a “chicken and egg” question as to what came first, the analyst or the analytical framework. I’m biased towards the former, but in the end, we get to the same place: a five-element breakdown of the way that I like to look at the topic of B2B payments. At the high level, I like to divvy things up into five areas: Speed, Cost, Geography, Benefits, and Security. To maintain some balance, I try to view each of those from both the buyer’s and seller’s perspective. Let’s take a quick look at how that works out.

5-Part B2B Payments Framework

Blue Hill - Framework for B2B Payments

Speed. On the buy-side, this is mainly the time it takes to get a payment reviewed, approved, and out the door. Whether actual time required to push it through, or an artificial delay until the next check run, the real impact is on how long it takes for our supplier to receive the payment. That’s the big sell-side issue: how long it takes to transmit, receive, review, settle, and reconcile. The longer that process takes, the longer it is until the funds hit the balance sheet and are able to be redeployed elsewhere. That delay can be felt through both DSO levels and cash-flow sensitivity.

Cost. For buyers, we’re focused on the labor required to move payments through coupled with the transaction costs we accumulate along the way. That can be in the form of things like check stock, transaction fees for ACH and wire, or for security-related services like bank fees for Positive Pay. For sellers, the costs break out along the same lines: labor costs for the time it takes staff to process incoming payments, and transaction fees (e.g. card interchange fees) levied on sellers. When payments are slow to be received, there’s also the opportunity cost (what return could have been achieved in the interim) and financing cost (if cash is so tight that outside sources are needed).

Geography. This category can pose some interesting challenges. In the Eurozone, SEPA allows for EFT across national borders, but cross-border ACH is still a work in progress in North America. That mean we’re back to checks or wires, with the speed and/or cost concerns discussed previously. With checks, there can be even longer clearance delays with banks, on top of basic transit time. That’s great for the buy-side, who keep the cash in their accounts longer – to the detriment of sellers looking to bring money in the door. Depending on the length of the overall timeline, and the volatility of the currency chosen, there can be added difficulties in terms of ensuring the availability of local funds in the required currency, additional fees for conversion, or even required hedging to protect against fluctuations between local and contract currencies.

Benefits. It’s not all doom and gloom, of course. Payments offer buyers opportunities for discount capture, for card rebates, and even in the absence of those two, for greater control over their disbursements. In that last case, the benefit may be in paying later (i.e. maintaining DPO) rather than paying less. When we think of faster payment methods like wires, EFT, or cards, the sell-side can benefit too: they can get their money more quickly, and—with the big qualification of “depending on payment method chosen”—can even get more detailed information to make their cash application process easier.

Security. Although it’s comes last on this list, Security is really central to everything mentioned above. It’s the counterbalance to keep in mind when looking at the positives and negatives in the other category. Checks may be slower, but with positive pay there’s less potential for fraud. Wire is faster, but if you don’t triple-check the recipient’s information, you will likely not see your funds again if you’ve sent them in error. There’s data security concerns on both sides, most acute with sellers looking to store their buyers’ credit card information – and thus needing to ensure ongoing PCI-DSS compliance. In essence, this is the category that brings all of the others together and helps answer the question of “is it worth it?”

 

And that’s my starting point.

 

Walking through those five categories is how I make sense of the different payment-related technologies and services available in the market. I’m fairly confident that next week’s panel will probably include a discussion of AribaPay.  Stranger things have happened. If that’s the case, this is the framework I’ll use to structure my views. For example, since AribaPay executes transactions over the Discover Network,2 it’s got speed on its side. Since it uses tokenization, sellers don’t handle buyers’ account information – so security gets a check-mark.  That’s the beginnings of the discussion, at least. I’d take the same approach when evaluating other options, like ACH, virtual cards, and other alternative payment methods. And as we get farther into the year, I will be doing just that. But there’s no need to give everything away just yet.

So, if you’ll be in Vegas next week, drop on by the session. If not, I’ll look to post a follow-up blog after the show with some key points from this panel and other sessions over the course of the event. There’s no lack of content on the agenda, so it should provide some good highlights.

 

-Scott

 

1. The agenda has us planned for 1:30 – 2:45pm 10:45 am – 12:00 pm on Wednesday the 8th. If you’ll be at the show, we’re included in both the Sell and Manage Cash tracks (visible here). Drop on by for what should be a great conversation!

2. Even though the transactions go over the Discover Network, Ariba is pretty emphatic in pointing out that there are not card-based transactions. It’s all about the infrastructure.

Posted in Blog, Executive Management, Finance & Accounting, Financial Operations, General Industry, General Management, Research | Tagged , , | Leave a comment

FinOps 2014: Looking Back and Forging Ahead

Astronaut_640It’s been quite an eventful year. I’ve seen a lot of activity in the market, with acquisitions, partnerships, and new products. I’ve had more interesting and engaging conversations with practitioners and providers than I can count. Taking a step back and looking at a year’s worth of those discussions (and publications), I’ve put together a quick summary of what I see as the high points, broken out across four big categories: Procure-to-Pay, Discounting and Supply Chain Finance, Order-to-Cash, and Subscription Billing.

For each, there is far more to say than can be captured in a single paragraph. My hope is that these quick bites highlight some key themes, and provide a jumping off point for deeper dives into past research and further conversations about future projects. As always, I welcome your feedback and participation in this collaborative research process. And now, on with the show!

Procure-to-Pay

Early on, it looked like 2014 might be a repeat of what we’ve heard in years past when it comes to P2P: folks still looking to reduce paper, lower costs, and explore some degree of automation. I was prepared to keep advocating for a different mindset, but hadn’t seen much reason to expect change. I’m happy to report that I’ve been pleasantly surprised. I’ve seen pieces like The Rockstar Controller and Financial vs. Operational Savings strike a chord with their discussions of how AP’s potential to provide strategic working capital benefits can catch the eye of peers who traditionally viewed it as a tactical function. I won’t say that we’re quite “there” yet, but I’m more optimistic today than I have been in years that AP’s true potential will be more broadly recognized than just among its champions in the analyst world.

What’s Next?

Even though I sing AP’s praises, I recognize that the biggest threat to progress is an inability to provide a realistic business case for automation. Building on my earlier framework for analyzing AP costs, I’ll be taking an honest look at the ROI of P2P solutions. This means being mindful of different stages of maturity, identifying the different choices available, and getting a handle on how those choices impact both benefits gained and costs incurred.

Discounting and Supply Chain Finance

One of the biggest boons for P2P this year was the publicity (and the message, of course) of the White House’s SupplierPay initiative. To me, it served three very important purposes: (1) it brought wider attention to the P2P world; (2) it underscored the strategic importance P2P can have both for the companies themselves and the wider economy; and (3) it sought to bolster small businesses, a group that is not normally given priority in discussions of payments and invoicing. With the goal of accelerating payments to SMB suppliers, SupplierPay also put the focus on efficient invoice processing, programs that provide incentives for earlier payment, and the provision of access to alternative financing solutions when companies do not want to fund accelerated payments from their own working capital. In other words, it put a big spotlight on AP automation, discounting programs, and supply chain finance. Awesome.

What’s Next?

The biggest thing on the horizon here is sharedserviceslink’s upcoming Dynamic Discounting and Supply Chain Finance Summit in Scottsdale, AZ at the end of February.  For my part, I’ll be presenting on “SupplierPay Decoded,” continuing the discussion of what it is, what it means, and what opportunities it holds for buyers and suppliers alike. Blue Hill and sharedserviceslink are partnering on a pre-event survey, which will both inform the summit’s sessions and fuel additional research publishing in the New Year.

See Related Research

Order-to-Cash

I’ve said it many times, but it bears repeating: I think the AR side of financial operations is a sadly underserved area. It’s in a bit of a different position than AP, however. AR has to work harder to demonstrate the benefits of automation, as it doesn’t have the same discount/rebate-based savings card up its sleeve that AP boasts. Perhaps ironically, it’s AP that I think is giving AR a bit more exposure. As buyers look to push out payment terms to improve their own working capital positions, discussions of how to accelerate those payments and mitigate those terms extensions get more attention. This goes beyond offering discount-based incentives. It means a focus on collaboration and data sharing to ensure bills are accurate and disputes are resolved efficiently. This also means looking outside of DSO when gauging “success,” by including factors like customer satisfaction and renewal rates in the evaluation of AR’s impact.

What’s Next?

Since I think the business case for O2C technologies is there, but has yet to be properly set out, that’s first up on my AR agenda. There are some very interesting use cases for billing and payments technologies, eInvoicing from the supplier perspective, and the application of analytics to sell-side data. I’ll be working through a maturity framework to detail what those options are, what impact they can have, and for which companies/environments they might be good fits.

Subscription Billing

Last, but certainly not least, subscription billing really has had a banner year. I say that for two reasons: (1) “as a service” offerings are expanding today in both the B2C and B2B worlds, and (2) this flavor of billing is at the heart of the monetization of future technologies. In the more traditional context, service-based offerings are helping to hammer home the importance of customer satisfaction on future revenues. I think everyone can learn from that. When we look out to the future, we see very interesting developments with the Internet of (Billable) Things, and we’ve already seen some market activity hinting that the preparations are well underway. In contrast to the AP and AR topics discussed above, this is about as cutting-edge as topics in financial operations get. When we move beyond some of the hype, there is still some work to be done in providing a complete and frank assessment of what this model means, what choices businesses have in tackling it, and what outcomes they can realistically expect.

What’s Next?

I’m doing some work now on a model for analyzing the different flavors of subscription billing solutions, seeing how they impact operations, and working through their potential benefits. The goal is to embrace what is different in an as-a-service model, while being mindful of the lessons learned from the more traditional, individual purchase approach. As this market continues to gain exposure and attract new entrants with new solutions, it will be important to have a solid foundation to evaluate which option might be a good fit for a particular billing environment. Not every solution is right for every business, and we’ll kick off 2015 looking to provide a bit of guidance to help folks navigate their way through.

Were there other developments that caught your attention this past year? Anything you’re keeping your eye on in the months ahead? Let’s talk.

-Scott

Posted in Blog, Executive Management, Finance & Accounting, Financial Operations, General Function, General Industry, General Management, Research | Tagged , , , | Leave a comment

AP and Treasury: A Growing Friendship (AFP Wrap-Up Part 2)

FriendsIf this year’s AFP conference was any indication, I think we’re coming to a bit of a crossroads in financial operations. For years, we’ve been talking about how to deal with paper. Our focus has been on getting payments out on-time, and we’ve largely viewed “improvement” in terms of efficiency and headcount reduction. The space is evolving, however, and we’re finally seeing some light at the end of the AP automation tunnel. From my own research, and from the topics discussed and conversations I had while in D.C., the strategic importance of AP for folks in treasury and the CFO’s office is rising.

This is the second of a two-part series on this year’s AFP conference. You can find the first part, discussing payments and fraud, here.

Traditionally, AFP’s main draw has been in areas like treasury and financial planning and analysis. The exhibitor hall was mainly banks, software companies, and service providers focused on payments execution, investments, workstations and the like. This year was a bit different. While the perennial players were certainly in attendance, so too were folks like C2FO, Direct Commerce, Direct Insite, NVoicePay, Scan One, and Taulia. These are providers focused on AP efficiency, discounting, and supply chain finance. They’re providers who we’d expect to see at more operationally-focused conferences run by IFO or IOFM. That’s not by mistake: these providers made a smart move, recognizing the increasingly close tie between AP efficiency and strategic working capital decisions. Treasurers and CFOs may not have paid much attention in the past, but they’re increasingly doing so now.

Why?

When you’re focused on paying invoices on-time, and doing so more efficiently, you’re dealing with a mostly tactical issue. You might avoid late payment penalties, which is great. From time to time, you might also pick up a discount from a supplier with pre-existing discount terms. Again, that’s wonderful. Because it is accomplished more by chance than by a programmatic approach, the overall impact on cash flow is fairly small. In that scenario, you’re also likely handling these decisions on a one-by-one basis, prioritizing a specific invoice for payment when a discount is available – and when there’s adequate funding to make the payment in the short term. That leads to a few ad hoc conversations with folks outside of AP operations, but not to a strategic, ongoing relationship.

See Related Research

Things change a bit when we look at discounting and supply chain finance programmatically. When discounting programs cover a large majority of suppliers and you’re efficient enough to capture all of them, decisions here can lead to huge cash flow impacts. If you traditionally pay in 30 or 45 days, do you have the cash on hand today to fund an accelerated payment? If not already in a disbursement account, can it be transferred? Whether done to reduce fraud risk or to take advantage of short-term investment opportunities, treasury likely has funds stored somewhere else. Now that the ability to capture discounts is firmly established and accelerated payments are predictable, they’ll need to revise their cash management strategies to ensure adequate funds are available to take advantage of discounting’s great returns. This requires partnership; AP cannot do this on its own.

I think that this is an important step in raising AP’s profile. When discounts are predictable, they can be accurately modeled for budgeting and planning purposes. The effective return that discounting provides (the oft-cited 36% annualized rate for 2/10 Net 30 terms, for example) is difficult to beat. It necessitates efficient AP operations to support, and requires supplier on-boarding to scale up.  The good news is that this too can be modeled, making business case development that much easier. As the space continues to evolve, and more stories of successful programs circulate in the market, I think we’ll see this now-emerging trend become more commonplace. With that, we should see more and more familiar faces at AFP in years to come.

-Scott

 

 

 

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How Does Tech Impact Financial Ops Jobs?

ChangeIFO’s Q3 Financial Ops magazine features an interesting cover story by Caroline Glenn entitled Evolutions in Automation: From the Cave to the Cloud. In it, she takes a look at how technology has advanced and how it can drastically change the way that traditional processes are run. “New advanced technologies and innovations in the finance industry have not only changed the ways AP and AR manage cash, but have brought these departments out of the Stone Age and into an era of efficiency.” As a companion to that piece, I was honored to contribute my own perspective on how these technologies have changed—and will continue to change—the financial operations employment landscape.  

As time moves on, things change. There are people in the workforce today who have never known a world without color televisions, or the internet – or mobile phones for that matter. As an analyst, I have never used a typewriter for a research report or done my analysis on paper; those approaches have been improved upon with the advance of technology. The same unavoidable evolution has happened—and will continue to happen—in the realm of financial operations jobs.

When I look at these areas, I see two important trends converging to impact what you, as a financial operations professional, do on a day-to-day basis: technology adoption and technological evolution. The former impacts what you do, as more and more tasks are automated; the latter impacts how you do it, as providers (finally!) focus more effort on user experience.

Technology Adoption

While things may be moving a bit more slowly than many of us would expect, we are progressing towards wider automation in financial operations. On the receivables side, IFO’s 2013 AR Automation Study reported that 54% of responding organizations already used eInvoicing technology, while another 34% had plans to move that way (with varying timelines for change, of course). Looking at payables, the 2013 AP Automation Study found that in addition to the 36% of respondents who had already transitioned to mostly electronic payments, another 49.9% were either planning for or actively migrating in that direction. Those are just two examples, but we see similar sentiment in other areas as well, with priorities focused on things like approval workflow and document imaging.

The takeaway here is that as technology changes, it either modifies or replaces the things you currently do. OCR removes the need for hand-keying, and shifts the work to error detection and correction. Electronic invoicing removes the data input step entirely, with errors now flagged during the (potentially) automated matching process. AP jobs, then, are less about keying in information and more about problem solving and communication to address and correct errors.  Successful AR has always been focused on communications (both internal and external), though offerings like electronic billing and portals have certainly replaced physical bill creation, prep, and mailing for many organizations. In both disciplines, then, your day-to-day tasks are moving away from the tactical, and the required skills for success involve effective communication, collaboration, and troubleshooting to contribute more directly to strategic goals.

See Related Research

Technology Evolution

There has been a lot of action in this piece of the puzzle recently. Specifically, I am referring to improvements in user interface design that are aimed at making it easier to complete (and track) your outstanding tasks. Enterprise applications have not always been the easiest to use, with ERPs earning the least goodwill. In the market, there are two main strategies to help you get your job done in these environments: some solutions embed within your ERP or financial system, so you have a single look-and-feel and user experience across all aspects of the process; others take advantage of browser-based interfaces, which have much greater freedom to be designed to be intuitive and user-friendly.

What’s the result? We should be able to avoid the explosion of different job requirements based on specific systems in use. Put differently–keeping an eye on the employers in the audience—with the evolution of these technologies, you should not need to limit yourselves to candidates with experience working with specific point solutions. For a time, experience with specific underlying systems like Oracle, SAP, Microsoft Dynamics, etc., will still be helpful. Due to the scope of these solutions, they’re a bit slower to change. Even here, however, we’re seeing much more focus on the user experience. It will likely take a decade or more for these newly-available solutions to be widely implemented, but the trend is in the direction of less proprietary—and more intuitive—systems. When we get there, the focus can truly be on finding the best person for the given job, based more on skills like problem-solving and interpersonal communications than on typing speed or past experience with specific software applications.

Is your organization there yet?

-Scott

Posted in Blog, Executive Management, Finance & Accounting, Financial Operations, General Function, General Industry, General Management, Procurement, Research | Tagged , | Leave a comment

Operational vs. Financial Savings (Video)

When looking to improve accounts payable performance, there’s potential for savings from both operational and financial sources. In this video, Principal Analyst Scott Pezza provides a brief overview of these categories and compares the scale of savings that can be gained from each.

Scott Pezza will also be presenting a webinar on this topic Thursday, November 13, 1 pm EST/10 am PST; register now.

Posted in Financial Operations, General Function, General Industry, Multimedia, Research | Tagged , | Leave a comment

Beyond Forecasting: A Dream for Supply Chain Convergence

Storage ShelvingI’ll admit that when I usually discuss Working Capital Management, it’s purely from the financial point of view. That means focusing on cash and accounts receivable on the asset side, and accounts payable (and notes payable to a lesser degree) on the liabilities side. In those discussions, inventory is taken as a given, and we keep the conversation solely within the Finance group. It doesn’t need to be this way, and thanks to APICS, CSCMP, and ISM, I think we’ve got a great opportunity for a holistic discussion of WCM. Here’s why:

Last week, those three organizations came together for the 2014 edition of the New England Supply Chain Conference and Exhibition (NESCON). In their Operations Management track, they put together a three-session series all about demand management – specially, about Demand-Driven Material Requirements Planning (DDMRP). The crux of this approach should put a smile on the faces of anyone in the Finance function (and many others as well): getting rid of forecasting — in supply chain management, at least. It’s a fascinating possibility, with some potentially huge impact on our WCM discussion. 1

A Quick Background

An oversimplified description of traditional planning goes something like this: I look at what I sold last year to make a guess at how much I’ll sell this year. Based on my guess of how much I’ll sell, I’ll know how much I’ll need to order (either of finished goods for distributors or raw materials for manufacturers). As I use up what I’ve ordered, and I fall below some static re-order point, I’ll get more. I may order a bit more than I need, to buffer against my supplier’s under-fulfillment or quality issues. If they do the same for their suppliers, and those suppliers do the same for theirs, we end up with the much-maligned “bullwhip effect,” where small changes in downstream demand are amplified into large-scale changes upstream in the supply chain. But this isn’t the fun part yet.

For DDMRP advocates, the real “fun” comes when we look at a metrics-based approach to managing these processes. That was one of the key messages of the presentation by Carol Ptak of the Demand Driven Institute. At that point, we’re not focused specifically on forecasting and meeting demand. We start there, but then an efficiency-focus takes over. We say “I know I need to produce 10 more widgets, but I can really drive down my per-unit cost if I produce 100.” And with that, the dominos are set in motion: we need 10 but make 100 to minimize per-unit cost, producing excess inventory that isn’t even tied to the forecast. That results in larger raw materials orders, with potentially longer lead-times. It consumes production capacity for the sake “efficiency” but with the impact of buying, making, and storing unnecessary items. Bringing it back to Finance, it threatens to vastly inflate the amount of money tied up in Inventory, reducing the cash available for alternative investments.

What’s The Answer?

Again, this is a super-condensed version, but here we go. First, we create some safety stock buffers – collections of raw materials or sub-assemblies – in different locations that will support future production. It would be great if they were general enough to be shared between multiple different potential products, rather than pre-assembled into things that can only feed into one specific product. How much safety stock do we hold? Enough to ensure that we won’t run out in the time it takes to get more – which can change dynamically as we adjust our planned production based on actual demand (i.e. real sales orders received from real customers). Until we dip below those dynamic re-supply points, we keep on as usual. When we do, we only order enough to get us back to the level we’ve decided based on planned consumption and re-supply cycle-time. This quick explanation doesn’t do justice to what Mike Lilly of Synergy Resources and Brendan Fox of Synchronata presented, but it’s a decent snapshot.

For this discussion, there are two important questions: (1) does it work, and (2) what impact does it have? Since these sessions weren’t practitioner-driven, I can’t answer one way or the other on the first point. What I can say is that the approach seems logical, that the working demonstration of iterative monitoring and reordering seemed to work as advertised, and that there seemed to be a good level of engagement with these ideas. Ptak had mentioned that Unilever is in the process of rolling this out, beginning internationally but covering domestically in the future as well, so we could have a big proof-point in the not-so-distant future.

The second question is where we can bring this back around to finance. If it works, the expected impacts are potentially dramatic: 30%+ reductions in inventory levels with 0% stock-outs. That would be a win for balance sheets and cash flows alike. Reducing inventory levels reduces investment in raw materials and finished goods inventory. Moving away from a focus on per-unit costs could also mean less risk of obsolescence for products made but never sold. Eliminating stock-outs means not losing sales for lack of inventory, not delaying fulfillment (and then billing, and then revenue recognition), and not creating customer service issues that could compromise future sales. Summing all that up, the promise of DDMRP is not just more efficiency in supply chain, but more flexibility and opportunity for Finance to fund further value-creating activities (discounting programs, acquisitions, new product development, etc.)

See Related Research

Bringing It All Together

I’ve written a bit before about the convergence of physical and financial supply chains. That doesn’t mean simply pairing the physical shipment of goods with the related financial information and documentation. It means managing them together – which is an important point that holistic WCM helps to emphasize. What’s great is that this sentiment was also reflected by some of the exhibitors in attendance at NESCON. It wasn’t just demand planners and operationally-focused folks. Ariba was there as a Platinum Sponsor, bringing a firm well-known for indirect spend management up close and personal with a direct materials crowd. Proactis made the trip as well, emphasizing their real commitment to taking a holistic, end-to-end, approach to P2P. Seeing folks like Avotus (integrated communications) and Atlas Travel in the room drove home that same point: when we look at working capital holistically, we want to address all categories of spend, and not take a siloed view that ignores expenses for the sake of direct materials or vice versa.

Making the best decisions possible across all areas of direct and indirect procurement: a pretty worthy goal, wouldn’t you say?

1. This may sound a bit familiar. The demand-driven MRP discussed in this blog aims to make an impact in the same area I discussed about “flowcasting.” There, it was folks like JDA and One Network looking to ‘flow’ demand information from consumers backwards through the supply chain to enable better planning. The approaches are a bit different, of course, but they’re together in spirit.

- Scott

Posted in Blog, Executive Management, Finance & Accounting, Financial Operations, General Function, General Industry, General Management, Procurement, Research | Tagged | Leave a comment

Starwood Hotels and Resorts: Building a Global Supply Chain with Cloud P2P

With annual revenues topping $6 billion in 2013, Starwood Hotels and Resorts is a leader in the hospitality market. Its portfolio of nearly 1,200 owned, managed, and franchised properties across 100 countries includes brands such as Aloft, Le Meridien, Sheraton, St. Regis, The Luxury Collection, W, and Westin. For their Chief Supply Chain Officer, looking at a new procure-to-pay technology investment, it all boiled down to one question: “how do we best run a global supply chain?” This case study profiles their journey, evaluating potential providers on their way to selecting BirchStreet Systems.

Please use the form on the right to download this report.

Starwood Hotel Cover Photo

Posted in Executive Management, Finance & Accounting, Financial Operations, General Function, General Industry, General Management, Procurement, Research | Tagged | Leave a comment

Omni Hotels & Resorts: High Goals and Higher Achievements in Global Procure-to-Pay

Tracing its roots back to 1958, Omni Hotels & Resorts operates sixty upscale destination properties across North America, mostly self-owned and some managed on behalf of others. Its properties, divided into Resort, City Center, Convention, and Landmark “Collections,” total over 20,000 rooms and are staffed by over 18,000 associates. Set in this diverse and expansive environment, this Case Study profiles Omni’s solution selection journey as they evaluated their options and ultimately decided on BirchStreet Systems as their P2P provider.

Please use the form on the right to download this report.

Omni Hotel

Posted in Executive Management, Finance & Accounting, Financial Operations, General Function, General Industry, Procurement, Research | Tagged | Leave a comment

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