HOW TO SIMPLIFY OPERATIONS AND SPEND SMARTER

Transcription

1 HOW TO SIMPLIFY OPERATIONS AND SPEND SMARTER A step-by-step guide to achieving sustainable business value across Source-to-Pay

2 TOO LITTLE VISIBILITY, TOO LITTLE CONTROL THE ROAD TO BEST-IN-CLASS SOURCE-TO-PAY Procurement and financial professionals tend to focus on cutting costs and net income to satisfy shareholders who are scrutinizing quarterly earnings. They also spend significant resources on developing robust systems to manage inventories, direct spend and optimize cash as it passes through the organization. Yet, many still don t have the level of visibility and control that they need. They would like to improve financial agility but lack the tools to accurately manage cash flow, take advantage of supplier discounts, and optimize working capital without compromising the supply chain. Markets are more volatile today than at any time in living memory. Risk is more keenly felt. While businesses need to keep pace with the increasing speed and competitiveness of the market, they must also control costs, maintain a reputation and seek new opportunities for growth. Constant uncertainty breeds caution and timidity. For most, financial agility is a distant dream while their day-to-day focus is on maintaining the status quo for operations. Best-in-class businesses have the flexibility and the confidence to make informed choices concerning the management of their working capital. They even have the power to turn their Accounts Payable (AP) organization into a profit center. They are driving integration and collaboration with suppliers to minimize spend and supply risk. They have taken control of their financial supply chain to create new economic value. This guide will help you identify where you currently are in terms of Source-to- Pay (S2P) maturity, and the actions you should take to reach a world-class level of financial agility. 02/

3 PLAYING IT SAFE BY HOARDING CASH AND SPENDING SMARTER In a volatile market, risk assessment is tricky and many procurement and financial professionals do what people typically do in uncertain circumstances they hedge their bets. In the context of operating cash flow (and the fundamental requirement not to run out of cash), they overprovision for working capital. If you can t be sure precisely how much cash is in the business at any point in time, and what the current liabilities are, it s better to err on the side of caution. So, they borrow to make up for potential shortfalls, and/or they reduce expenditures (which can needlessly hobble the business). Even though interest rates are historically low, there are limits to easy access to credit. Credit lines remain tight, especially for smaller businesses, who often find themselves strapped for cash. Even major banks have failed to manage risks properly, resulting in liquidity shortages that triggered their failure. It doesn t end there. This lack of visibility and control makes closing an accounting period more difficult and riskier than it needs to be. In worst case scenarios, it can force businesses to restate their figures (resulting in a negative impact on shareholder confidence). Many companies have more cash than they think they do. It s just obscured from view, making it difficult to get a handle on. It s hidden within the S2P cycle. It s hidden in opaque paper-based invoicing, and in costly manual workflows, and in a host of processes that no longer add value to the organization. 03/

4 SIMPLE QUESTIONS, DIFFICULT ANSWERS Why is gaining visibility and control so difficult? On the surface, the questions are simple. What are we buying right now? What are we paying for it and under what terms? And when is the best time for that cash to leave the company? Most companies can accurately forecast sales over the mid- to long-term. Given time, they can influence profitability, margins and costs. The problem is there s no time. Today s finance leaders need to get a clear picture of how much cash is available to the business right now. But they often can t. You may be thinking, This isn t us we ve got systems in place that tell us how much cash is committed, and how much is available at any point in time. You might think that your current purchase order management processes prevent unauthorized spending, and that your AP department tightly manages what goes out, and times it to the company s best advantage. And maybe you re right. However, for too many companies, any true sense of individual payment obligation happens far too late. For example, say that your business invests in some training for your sales department. The cost is $25,000. When does that obligation become visible to your finance system? In our experience, the first meaningful view most financial managers get of this kind of obligation is when the invoice arrives on the desk of their AP clerk this despite the fact that the purchase passed through a full approval process and received all the proper authorizations. The business is unable to plan effectively for these obligations, or to make moves to reduce them. The result is, according to research from the Hackett group, that only 22% of companies can forecast mid-term cash flow within 5% accuracy. That simply isn t good enough. SLOW, AND ERROR-PRONE, HUMAN BEINGS STILL HANDLE MORE THAN 90% OF ALL BUSINESS- TO-BUSINESS (B2B) INVOICES. Duncan Jones, Senior Analyst, Forrester Research 04/

5 DIFFERENT DEPARTMENTS, DIFFERENT AGENDAS The root of the problem for many companies is that different departments are pulling in different directions. The following scenario will be familiar to many businesses: Finance wants to improve working capital by pushing out payment terms with suppliers. Procurement wants to ensure supply and improve savings by negotiating the best terms (which may include early payment discounts) with those same suppliers. AP is focused on process control (which can mean payment delays over minor anomalies). IT DOESN T HAVE TO BE THIS WAY By re-examining the S2P cycle, today s companies can address all these issues and more. The key is to re-examine your existing P2P process. Start by automating your AP processes (including e-invoicing) to maximize efficiency. Next, align your organization by breaking down departmental silos. Then, connect with your key trading partners through a B2B network. These will strengthen your supplier relationships and enable you to implement innovative payment strategies. By following this roadmap, today s companies can simplify operations and spend smarter to improve competiveness and bottom-line performance. And Treasury is tasked with optimizing available cash. Each department has good reasons for doing what they are doing, but they can create serious repercussions. With so many competing agendas, and a lack of collaboration and insight, the ability to control and plan is significantly compromised, resulting in poor bottom line performance and decreased competitiveness. 05/

6 SOURCE-TO-PAY What we mean and why it matters to your business When we talk about S2P, we mean everything that happens between the sourcing and ordering of goods, through to the receipt and payment of invoices, and on to continuous performance monitoring and improvement. Agility in S2P is an evolution. Suppliers are seamlessly connected, and both buyers and suppliers are able to take advantage of new electronic marketplaces and financing services in the cloud. This enables them to unlock new revenue streams. S2P is the catalyst to simplify operations and spend smarter. 06/

7 THE SOURCE-TO-PAY CYCLE While there may be many stages in the Source-to-Pay cycle, most companies can break it down into eight core steps: 1. Analytics Visibility across P2P should be a priority for all businesses. Key areas include financial, spend, supplier and process metrics. Managing the following steps becomes easier with analytics. 8. Payment Invoices are approved and cash passes from buyer to seller. This completes the S2P cycle. Innovative payment strategies can be used to extend Days Payable Outstanding (DPO) and obtain early payment discounts. Payment Analytics Sourcing 2. Sourcing The strategic sourcing or procurement team identifies the right suppliers and partners. Category level spend visibility helps to identify the right suppliers for indirect spend too. 7. Invoice Exception Handling Invoices without contract or purchase order reference must be reviewed manually. Electronic and mobile enabled workflows facilitate approvals from budget holders. Invoice Exception Handling SOURCE- TO-PAY CYCLE Contracting 3. Contracting Terms are negotiated with suppliers to form partnerships which deliver both business value and a continuity of supply at an advantageous rate. 6. Invoice Matching Invoices are received, preferably directly in electronic format, and put into the Accounts Payable (AP) system to be matched against purchase orders. A high level of automation reduces the manual work. Invoice Matching e-orders e-invoices Procurement 4. Procurement Purchases of goods or services are (hopefully) directed to contracts based on negotiated prices with preferred suppliers; up-to-date price lists facilitate the process. Done right, true visibility and control can be achieved throughout the S2P cycle with Procurement and AP functions collaborating seamlessly, and by including suppliers in the process. 5. Ordering and Invoicing Purchase orders are transmitted to suppliers. These days less paper is involved. Once the goods or services are received by the requestor, that receipt is logged and an invoice is expected to follow. 07/

8 EVOLVE TO SIMPLIFY OPERATIONS AND SPEND SMARTER AN END TO SILOS We have already pointed out that different departments often have competing agendas. For many organizations, these silos are so ingrained into the fabric of the company that they become a barrier to achieving the level of visibility and control (and the resulting cash management benefits) today s businesses need. It is critical that companies abandon the view of S2P as a set of discrete steps carried out in functional silos. Instead, the process should be looked at as an integrated value chain with Finance and Procurement working together to drive common objectives aligned to business goals. UNLOCK NEW REVENUE STREAMS The agile approach to S2P is more dynamic. It incorporates the supply chain, and simplifies key procurement and financial processes. It enables working capital optimization and frees up cash within the business. Most importantly, a S2P process unlocks profit streams that are currently hidden within the organization. For example, by applying early payment discounts to 10% or more of your spend, or by extending Days Payable Outstanding (DPO) to over 50 days. STRENGTHEN YOUR SUPPLY CHAIN The supply chain becomes stronger and more flexible by leveraging innovative financing services. These services are available on e-invoicing networks, which include rich remittance data. Buyers can extend DPO to increase cash, while enjoying the savings of attractive early pay discounts. Suppliers get new options to receive earlier payments with greater certainty and less hassle, thus dramatically decreasing their Days Sales Outstanding (DSO). It s a win for all parties. 08/

9 AN OPTIMIZED FINANCIAL SUPPLY CHAIN PROVIDES VALUE TO SHAREHOLDERS IN THREE WAYS: INCREASED PROFIT, REDUCED OPERATIONAL RISK, AND LOWER EXECUTIVE RISK. Penny Gillespie, Senior Analyst, formerly at Forrester Research, now at Gillespie International RETHINKING SOURCE-TO-PAY When businesses take a more integrated approach to S2P, it can free up working capital, increase profitable relationships with suppliers, and create more agile procurement and finance functions. The highest performing organizations turn S2P from a process into a dynamic way of doing business that drives value at every stage. NOW WE CAN INSTANTLY GIVE SUPPLIERS AN UPDATE. PREVIOUSLY IT TOOK HOURS TO TRACK DOWN THIS INFORMATION. WHAT S MORE, THEY CALL SIGNIFICANTLY LESS THESE DAYS, AS OUR INVOICES ARE PAID ON TIME. Pia Knørr, Falck 09/

10 THE THREE STEPS TO ACHIEVING AGILITY WITH SOURCE-TO-PAY Working with businesses across the globe, we ve identified three stages that organizations evolve through as they adopt automated and collaborative functionality for their P2P processes. 1. The Efficient Company: Establishing a solid AP process introduces control and visibility. Focus is often around getting rid of paper via AP automation and e-invoicing. 3. AGILE ``Benchmarking Across P2P ` ` Working Capital Optimization ``Cash Management Strategies ``Financial Supply Chain Management 2. The Aligned Company: Is breaking down silos so that Finance Control, AP, Treasury and Procurement are all part of a coherent P2P process. Spend under management increases. The focus starts shifting beyond operational efficiency to strategic impact. The company is forging strategic relationships with suppliers, creating significant value for both the company and its suppliers. 3. The Agile Company: Has achieved world class performance across the P2P process and beyond. Each stage of the process has been integrated and optimized, resulting in operational excellence that impacts bottom-line performance. They have networked with their suppliers and customers and are leveraging best-fit payment programs to optimize working capital in the financial supply chain. In the following sections we ll take a look at some of the characteristics and benefits of each of these three stages. 2. ALIGNED 1. EFFICIENT ``Shift from Tactical to Strategic ``Catalog-based Purchasing ``Standardized AP Processes ``Invoice Workflows ``Straight-Through Processing ``Supplier Consolidation and Engagement ``Payment Performance ``Intelligent Matching ``Cash Flow Forecasting ``Electronic Supplier Connectivity ``Spend Visibility ``Paperless Invoices THE SUCCESSFUL EXECUTION OF THE P2P STRATEGIES THAT IMPACT CASH POSITIONS REQUIRES A LEVEL OF COHESION AND VISIBILITY ACROSS THE ENTIRE P2P PROCESS THAT IS USUALLY BEST SUPPORTED BY TECHNOLOGY SOLUTIONS Andrew Bartolini, Chief Research Officer, Ardent Partners 010/

11 1. THE EFFICIENT COMPANY Establishing a solid foundation with efficient accounts payable processes and e-invoicing The Efficient Company is focused on replacing paper processes with invoice automation. Typically, this automation will extend to data capture, workflow and, where possible, auto-matching to contracts and orders. As paper invoices convert to e-invoices, they become a rich source of information about spend and cash commitments. Electronic invoices form the foundation for increased visibility and control. By getting a firm hold on invoice processing, Efficient Companies establish a platform for making spend more visible, and creating a procurement program strategy. 011/

12 EFFICIENT COMPANY CHARACTERISTICS Accounts Payable (AP) processes become more standardized and efficient. Invoicing becomes automated use of paper drops significantly. Visibility within AP improves both internally and for suppliers. Procurement has improved spend visibility but no direct alignment with Finance. Visibility into enterprise spend provides a baseline for review of the procurement strategy. MANAGEMENT IS VERY PLEASED WITH THE VISIBILITY AND CONTROL ACHIEVED IN ACCOUNTS PAYABLE. THEY ARE PARTICULARLY IMPRESSED WITH THE COST SAVINGS AND EFFICIENCIES WE VE BEEN ABLE TO ACHIEVE, AS WELL AS OUR ABILITY TO PAY INVOICES IN A TIMELY MANNER AND CLOSE OUR BOOKS FASTER AND MORE ACCURATELY. KICKING THE PAPER HABIT WITH INVOICE AUTOMATION AND E-INVOICING For many businesses and particularly their AP departments paper is the root of existing problems. Lost invoices and late payments are a common complaint. Many AP departments are drowning in paper, making them slow and expensive to administer. People are busy pushing paper when they could be creating value. AP automation, coupled with e-invoicing, delivers an accurate depiction of cash in the business and enables cost savings. Just by moving from manual invoice processing to electronic processing, companies can save between 70% and 90% of AP costs. Automated scanning brings further savings. And, by increasing the adoption of true e-invoicing where structured invoice data is electronically sent and received companies can save even more. BENEFITS Increased efficiency: The number of invoices that one person can process rises dramatically. Invoice processing times of best-in-class performers are almost 80% faster, and each AP person can process over three times as many invoices in the same amount of time 1. This frees up personnel to do more value-adding work. Better visibility: Improved invoice visibility (both in real time and for historical data) extends across AP, the cost center owner and suppliers, integrating them into the process. Reduced costs: Invoice processing costs for best in class performers are 86% below the average for their industries 1. Higher on-time payment performance: Best-in-class performers process over half of their invoices with no human intervention 1, so invoices are processed faster, and can be paid on time. Karen Higdon Director of Accounts Payable, SONIC Drive-In, USA 1 Ardent Partners: epayables 2014: The Quest 012/

13 OPPORTUNITIES IN PROCUREMENT While the Efficient Company focuses on Accounts Payable (AP) automation, Procurement gains visibility into spend, but still functions primarily as an order taker and does not collaborate with Finance. For this reason, its influence is minimal and it struggles for engagement with the business as a whole. The supplier base tends to be fragmented and poorly managed. There are plenty of opportunities for improvement. EFFICIENT COMPANY PERFORMANCE Days Payable Outstanding (DPO) < 25 days. Cash Conversion Cycle (CCC) ~ 50 days. Discount Capture Ratio < 5%. The cost of invoice transaction processing drops to $ 20. Average invoice processing time drops to 15 days. Enhanced productivity reduces AP costs. Improved invoice visibility across all stakeholders. Paper is eliminated across the invoice, receipt and approval processes. On-time payment performance is achieved if desired. Average cost per Purchase Order (PO) is $ 63. FIRM FOUNDATIONS In the Efficient Company, the foundations are now set for greater visibility and control. Invoices are a source of reliable information for analyzing the current spend within the company. Financial professionals have a better picture of how cash is flowing through the business. They can address issues concerning working capital, and design systems to free up valuable resources. Average requisition to order cycle > 35 days. Spend under management < 25%. 013/

14 2. THE ALIGNED COMPANY Collaborating across purchase-to-pay drives better alignment and increases spend under management The Aligned Company is focused on overcoming the issues that stem from disjointed, competing silos. P2P evolves from being a collection of processes to a seamless function. The Aligned Company uses e-procurement processes to align Accounts Payable (AP) and Procurement teams and create a more integrated whole. The benefits of alignment between functions across P2P include far greater visibility and control. 014/

15 ALIGNED COMPANY CHARACTERISTICS AP operates as a shared service with standardized and automated processes. AP is able to focus on efficiency metrics and growing the number of electronic invoices and payments. AP and Procurement can collaborate within a seamless P2P system. Travel policy enforcement Employee expense controls Resources shift from a tactical to a strategic mode. Procurement is focused on increasing savings, managing more of direct and indirect spend, and compliance. Supplier connectivity gains momentum. A P2P SYSTEM THAT SUPPORTS DECENTRALIZED PURCHASING HAS IMPROVED OUR PROCESSES IN MANY WAYS, NOT JUST IN PURCHASING. WE WANTED A SOLUTION THAT LETS DEPARTMENT HEADS DEAL WITH PURCHASES JUST ONCE. BY THE TIME THE INVOICE ARRIVES, IT S ALREADY APPROVED AND CAN BE SENT FOR PAYMENT AUTOMATICALLY ASSUMING THE DELIVERABLE IS AS AGREED. THAT HALVES THE WORK OF TWO PEOPLE. Rune Pind Nielsen, AP Manager, Atea 015/

16 BREAKING DOWN SILOS The Aligned Company is focusing on breaking down its functional silos to create one integrated P2P process. This integration connects business managers and most employees with the P2P process, thus reducing the need for ad-hoc communications outside the process. manager to track their function s spend against budgets. That increases the level of overall spend that is managed. Maverick spend is reduced by up to 40%. Contract compliance increases to between 50% and 75%. e-procurement systems ensure spend is channeled to preferred suppliers, with negotiated product/ service prices and payment terms. MORE VISIBILITY Because Procurement and AP are now integrated, Finance has visibility into the whole P2P process from purchase requisition to final payment. Finance professionals get a much clearer picture of the company s spend, suppliers, payment terms and cash flow. From a cash flow perspective, Finance now has a far more accurate picture of what has been purchased including payment terms. Reporting improves, and the need for over-provisioning diminishes. MORE SPEND UNDER CONTROL Control is key. Aligned Companies make spend visible to business managers, automate their purchase order processes, and establish robust compliance procedures. Proactive spend visibility also adds accountability by empowering each business BENEFITS TO ACCOUNTS PAYABLE Within the Aligned Company, AP evolves to receive 100% of invoices electronically, while simultaneously increasing their number of e-invoicing suppliers. Outsourced scan and capture of inbound invoices immediately reduces costs and enables focus on more strategic areas. The AP department is better aligned with the company s financial leadership. This shifts AP from a tactical, largely reactionary department into one that s contributing to the company s financial performance. Accounts Receivable also benefits from e-invoicing. Invoices can be sent earlier and faster. Earlier invoicing leads to earlier visibility into receivables. The result is that Days Sales Outstanding (DSO) times fall and cash flow improves even further. 016/

17 BENEFITS TO PROCUREMENT In the Aligned Company, Procurement becomes more integrated with other functions. Due to greater visibility over spend, and into the suppliers under each spend category, Procurement can more easily identify and connect with key suppliers. Procurement is able to broaden its scope of influence within the business, and to develop the strategic capabilities needed to derive greater value from more dynamic supplier relationships. Interaction with suppliers expands to include electronic exchange of product and service catalogs. This makes e-procurement easier to use, and empowers employees across the organization to purchase on-contract from preferred suppliers. ALIGNED COMPANY PERFORMANCE Days Payable Outstanding (DPO) is 42 days. Cash Conversion Cycle (CCC) ~ 20 days. Discount Capture Ratio 15%. Average invoices processing time is 5 days. Average cost per PO is $ 18. On-time payment performance is 95%. Spend under management is 50-70%. Contract compliance increases to between 60% and 80%. Maverick spend is reduced <20% % of suppliers are e-invoicing enabled. Requisition-to-order cycle times are reduced to ~5 days. INCORPORATING TRAVEL AND EXPENSE AP completes its automation by bringing expense management into the process. The benefits are clear. Employees are reimbursed more quickly, while the company receives greater compliance and increased visibility into the organization s financial commitments. 017/

18 STRATEGIC SOURCING The Agile Company uses strategic sourcing to drive significant cost savings and help ensure contract compliance. Contracts are now generated automatically as a byproduct of the sourcing process. Procurement is able to manage more complex areas such as travel, temporary labor and service-based spend. Compliance is ensured with a comprehensive No PO, no pay approach. Procurement also establishes supply risk programs to ensure a continuity of supply, revenue and reputation protection, and measures to safeguard against operational and regulatory risk. Due to new levels of visibility, Procurement can implement full compliance tracking and performance improvement initiatives. STRAIGHT-THROUGH PAYMENT PROCESSING The Agile Company s move to straight-through processing means incoming invoices are processed from receipt to payment. Invoices are approved quickly, with no manual intervention. Late payments are eliminated and early payments are possible. AP is more proactive, focusing on improving cash flow and taking advantage of early payment discounts. The discount capture ratio can be as high as 15%. SERVICE LEVEL AGREEMENTS DEFINED The Agile Company establishes Shared Service Centers and develops service level agreements (SLAs). SLAs cover a range of areas including: invoice processing, emergency check requests, payment processing, customer response time, travel and expenses reimbursement, procurement, time-sensitive check requests and vendor discount policies. These SLAs drive staff objectives and provide a metric for success. They also increase supplier satisfaction and form the foundation of the company s strategic supplier roster. DRIVING REAL VALUE ACROSS SOURCE-TO-PAY The level of integration across S2P enables AP and Procurement to upgrade the company s cash management strategy. CFOs gain significantly improved forecasting and period close capabilities. More payment strategies become available via early pay discount opportunities or extended days payable outstanding (DPO) to increase cash. The end result is an organization that has evolved from traditional functional silos focused on increasing the efficiency of manual processes, to simplified S2P operations delivering strategic impact, business value, risk mitigation and smarter spending. 018/

19 3. THE AGILE COMPANY World-class financial optimization across the supply chain The Agile Company has achieved world class performance across the S2P process and beyond. They have integrated and optimized every stage, gaining operational excellence that impacts bottom-line performance. They have networked with their suppliers and customers to take control of both the information and financial supply chains leveraging best-fit payment programs to manage working capital. With the financial supply chain optimized, the Agile Company operates within a stronger supply chain ecosystem. As a result they operate with simplified operations and smarter spending. 019/

20 STRONGER STRATEGIC PARTNERSHIPS WITH KEY SUPPLIERS Suppliers clearly benefit from this shift through lower costs of doing business, greater visibility into the process, and more flexible payment strategies. It enables a new level of collaboration that benefits everyone involved across the network. Benefits of these stronger partnerships with suppliers include: Both strategic and tactical sourcing Improved supplier performance Contract compliance True supplier risk management Complex category coverage AGILE COMPANY CHARACTERISTICS Seamless, holistic, efficient processes and world-class S2P operations. ROI-based cash management strategies are supported by multiple stakeholders. Risk management programs jointly driven by AP, Procurement and Treasury. No PO, no pay is an observed standard. Integrated travel and expenses management. Procurement is focused on adding value to the extended supply chain. Holistic view of supplier connectivity is systematically applied. Payment programs are multifaceted to target segments of spend. Finance and the CEO gain full visibility into the cash position of the company, and can forecast more accurately. Savings and increased working capital drive a positive bottom line impact. SINCE WE IMPLEMENTED OUR AP AUTOMATION SOLUTION, WE VE SEEN TREMENDOUS IMPROVEMENT IN THE APPROVAL PROCESS. WE ARE NOT ONLY ABLE TO PAY OUR VENDORS ON TIME, WE CAN PAY THEM AHEAD OF TIME. THIS HAS ENABLED US TO GO BACK TO OUR TOP VENDORS AND NEGOTIATE EARLY PAYMENT DISCOUNTS. WE HAVE TURNED ACCOUNTS PAYABLE FROM A COST CENTER INTO A REVENUE GENERATOR. Rock Persaud, Senior Manager AP, Take Two Interactive 020/

21 A DIFFERENT KIND OF COMPANY An Agile Company builds on Aligned Company characteristics to become financially agile. Processing costs dramatically decrease throughout the S2P cycle. E-invoicing automation is close to 100% as broad supplier connectivity makes adoption more attractive. Visibility is delivered on-demand through online dashboards with built-in control and compliance. AP is highly responsive at managing inquiries and policy exceptions as staff are released to focus on higher value activities. No PO, no pay becomes the norm as automation embeds control into the P2P cycle. PROCUREMENT REALIZES ITS POTENTIAL Procurement has undergone a fundamental change. It now manages nearly all spend with goals that are fully aligned to the business. Contracts are negotiated centrally, but employees are empowered to purchase where and when needed. Operational purchasing is the responsibility of business units, while the centralized procurement function benefits from true visibility, accountability and control. OPTIMIZATION OF THE SUPPLY CHAIN The company s network of suppliers is fully connected and engaged. It collaborates with strategic suppliers to drive innovation and efficiency. A broad supplier performance management program is in place. Supply risk programs are comprehensive and linked to overall corporate risk programs. Innovative payment programs are leveraged to improve working capital management from the start of buyer-supplier relationships. 021/

22 BOTTOM-LINE IMPACT All key internal stakeholders across S2P are seamlessly integrated. The CFO (along with Treasury, Procurement and AP), has developed a proactive payment strategy driven by return on investment. Cash flow visibility is absolute, enabling the company to lower the cost of capital, optimize its working capital, and increase its enterprise value in the market. At the same time, shareholder value increases, and the company s credit rating improves. In the Agile Company, S2P is a powerful force with a positive impact throughout the business. OPTIMIZED WORKING CAPITAL As an organization advances from automating AP to aligning their broader S2P processes, and then extends optimization to include their suppliers and customers, they open the door to new opportunities. Organizations that collaborate with their trading partners are better positioned to transform their financial supply chain into a just-in-time tool for financing and payment to optimize cash flow. Efficient access to new payment and financing options can reduce DSO (Days Sales Outstanding), increase DPO (Days Payable Outstanding), reduce DIO (Days Inventory Outstanding) and ultimately improve CCE (Cash Conversion Efficiency). The power of choice with regards to working capital management decisions is what makes an organization agile, and what separates best-in-class from average performance. 022/

23 FINANCIAL SUPPLY CHAIN MANAGEMENT Procurement teams are now embracing end-to-end S2P as are treasury managers. Both benefit from the connection between cash management and supplier relationship management, which results in overall financial agility. The timing of purchases, inventory on hand, payment terms with suppliers, and negotiated discounts all impact working capital. Choices of payment method and funding source also play a role in optimizing working capital. Thanks to simplified operations and smarter spending, Financial Supply Chain management becomes possible and it enables financial agility. OPERATIONAL EXCELLENCE & SOURCE-TO-PAY The Agile Company has journeyed all the way from process-based financial management to a holistic view of S2P. This is supported by the latest innovations in cloud processing, where value is created and converted into a source of working capital, which enables new profit streams. The Agile Company achieves world class performance that others benchmark against. They have integrated and optimized every stage of their processes, gaining operational excellence that impacts bottom-line performance. They have networked with their suppliers and customers to take control of their financial supply chain and all of the information it generates. They are leveraging best-fit payment programs to manage working capital. AGILE COMPANY PERFORMANCE Days Payable Outstanding (DPO) 51 days. Cash Conversion Cycle (CCC) <0 days. Discount Capture Ratio 20%. Average time to process an invoice < three days. On-time payment performance is approximately 99%. Expense report processing costs shrink by 80%. Travel policy compliance rises to 90%. Average cost per PO < $10. Spend under management > 90%. Maverick spend is reduced to < 10%. 80% of suppliers are e-invoice enabled. Requisition-to-order cycle times < three days. Averaging sourcing time drops by 50%. Savings leakage is reduced by automation (and closing) of the sourcing and contacts processes. Contract Lifecycle Management (CLM) used in 100% of new contracts. e-invoicing and payment program enrollment are mandatory contract conditions. Contract compliance approaches 95%. 023/

24 START ANYWHERE. GO ANYWHERE. As you ve read this far, you re beginning to understand how transforming the way you approach S2P would improve your business. You can get most out of the savings & supplier negotiations in strategic sourcing if you can effectively realize them with combination of: Strong e-procurement to spend smarter AP automation for simplified operations Analytics for 100% spend, supplier and process visibility. 024/

25 Within this ebook, you ve encountered three types of companies that are broadly characteristic of the types of organizations Basware deals with around the world. Each has deployed different aspects of S2P to improve the performance of their business. And each provides a model for success. It s a journey from one level to the next, progressing through degrees of sophistication, and gaining additional benefits along the way. The journey can start wherever your organization is now. Fundamentally, it s about what s important to your business, what you want to achieve, and the systems and culture you currently have in place. You will need to make decisions about how you balance cash and costs with risk, and the level of visibility and control you require (and are comfortable with). Once these are defined, you can implement systems that deliver against your objectives. QUICK PERFORMANCE SELF-ASSESSMENT WITH A FEW EXAMPLE INDICATORS The S2P Benefits Model provides many performance indicators to benchmark your business agility, and you can get started with the following: 1. EFFICIENCY ASSESSMENT Invoice Processing Cycle Time Requisition-to-Order Cycle Time ~ 15 days 35+ days 5 10 days 5 10 days < Three days < Three days 2. CONTROL & COMPLIANCE ASSESSMENT Spend Under Management Payment Performance No visibility < 50% on-time ~ 50% 80-95% on-time 50 70% > 99% on-time > 90% 3. WORKING CAPITAL ASSESSMENT Days Payable Outstanding Discount Capture Ratio < 25 < 5% % 42 15% > 51 > 20% Each answer helps to place your business at the Efficient, Aligned or Agile level. 025/

26 NINE QUESTIONS TO ASK YOURSELF While there s a lot to consider, here are nine questions to start your journey: 1 How much are manual paper-based processes compromising the efficiency and visibility of your S2P cycle? 6 How aligned are your Finance/Payables and Procurement teams? Do they speak the same language, share similar goals? 2 What could greater AP visibility deliver in terms of improved Days Payable Outstanding (DPO) performance? 7 Are competing agendas constraining your financial performance? 3 What is the real cost of capital? And how might you better use the working capital that would be freed up? 8 Do you have ready insight into the status of invoices and AP obligations across all regions and currencies? If you re part of a group, does this extend across all member companies? 4 How much of the savings negotiated by your procurement teams are actually realized through on-contract purchasing and proactive demand management? 9 Are you able to adapt supplier payment strategies to balance your cash flow objectives with supply assurance risks and costs? 5 How much of your spend is managed via an official procurement strategy? Your answers will point to some of the key issues that a more effective S2P process could deliver to your business (no matter where you start). 026/

27 SIMPLIFY OPERATIONS, SPEND SMARTER Improving the source-to-pay process has the potential to deliver widespread benefits. Regardless of whether you aspire to become an Efficient, Aligned or Agile Company, the benefits are far reaching. You will enjoy greater visibility, superior control and a firmer grasp of your cash flow position. The benefits make Source-to-Pay a strategic imperative that translates directly into hard cash advantages for your business. It offers you the visibility and control you need to become more efficient and more agile financially. And in today s world, increased agility is a tangible competitive advantage. ABOUT BASWARE Basware is the global leader in providing networked purchase-to-pay solutions, e-invoicing and innovative financing services. Basware s commerce and financing network connects businesses around the globe. As the largest open business network in the world, Basware provides scale and reach for organizations of all sizes, enabling them to grow their business and unlock value across their operations by simplifying and streamlining financial processes. Small and large companies around the world achieve significant cost savings, more flexible payment terms, greater efficiencies and closer relationships with their suppliers. Find out more at: Copyright 2017 Basware Corporation