Buy Right-Pay Right AP s Vital Role in P2P Transformation and Working Capital

Transcription

1 Buy Right-Pay Right AP s Vital Role in P2P Transformation and Working Capital Christine Betz Process & Efficiency Improvement Lead, AP American Electric Power Tanya Grannemann Senior Director Ariba Strategic Payables SAP Ariba

2 American Electric Power One of the largest U.S. utilities Deliver electricity to >5.3M customers across 11 states Own largest electrical transmission system in the nation Based in Columbus, OH Major business operations Regulated utility, transmission, power generation, AEP Energy Partners, 2

3 Challenge - Opportunity Needed to streamline Req to Check cycle Reduce invoice errors Accelerate invoice approvals Improve payment accuracy Capture early payment discounts Save money on goods and services, increase cash returns Apply cost savings to larger source-to-settle automation project 3

4 Working Capital Impact Drove a combined $2.5m of discount capture in CY 14 & 15 Promoted program in key periods: End of quarter, fiscal year Targeted 320 suppliers across % accepted discount term SMB suppliers more responsive Four primary payment terms, yielding 36.5% APR 2%10N30, 1.5%15N30,.5%25N30, Net45 Average face value discount rate of 1.66% 4

5 Process Improvement Improved KPIs in key areas Increased e-invoice volume by 279% in 2014 vs Reduced AP headcount by 2.5 FTEs Reduced invoice errors-exceptions Tighter Procurement-AP alignment Both groups reporting to EVP - CFO 5

6 Process Impact Broader Reach PO Invoice Automation Improving compliance & straight-through processing Expedites processing of invoices with partial shipments Resolves confusion (invoice credits, short pays) Sourcing Spend Analytics Tightly integrated with complementary cloud applications Improves ability to control spend and manage suppliers 6

7 Next Steps Procurement driving new supplier onboarding Engage with new suppliers during bid-contracting phase Brochure, website to promote program benefits Increase discount capture rate Identify root causes of missed discounts and resolve Continued expansion of early payment discounts Paper invoices, fulfillment problems, supplier invoice-ship delays Drive paper suppliers to the Ariba Network when feasible 7

8 What is No PO, No Pay? Financial management concept All transactions must be attached to a purchase order or contract Track spending more accurately; prevent overpayment to the suppliers Alleviate risk/liability potential; protected by standard terms and conditions Better control of invoice processing Invoices without a PO/contract number are returned to the supplier

9 Situations with a Non-PO Invoice Employee expenses Utility payments State, local, federal government payments Dividend payments and banking transactions Sponsorships, contributions Low dollar, low risk non-recurring transactions where vendor doesn t accept credit cards (requires approval of Procurement director)

10 Achieving Payables Working Capital Goals Best Practices Extend net payment terms to hold cash longer Offer early payment discounts for those suppliers who do not want to wait for extended payment terms Suppliers participating in e-commerce and discounting options more visible for repetitive business Lessons Learned Identify cause(s) of missed discounts; take required action to communicate and help resolve Set payment terms in line with peer companies Confirm supplier contact information is kept up-to-date 10

11 Buy Right-Pay Right SAP Ariba and Working Capital Management Tanya Grannemann Senior Director Ariba Strategic Payables SAP Ariba

12 Financial Value The Case For Payables: Invoices as Strategic Assets Better for Buyers, Better for Suppliers Buyers Suppliers HIGH EXTEND PAYMENT TERMS: Free Cash Flow $ LOW COST, ON DEMAND FINANCING: Reduce Costs, No Debt EARN EARLY PAY DISCOUNTS: Net Income INVOICE AUTOMATION: Controls & Automation BETTER COLLABORATION: Competitive Advantage FASTER COLLECTIONS Lower DSO INVOICE AUTOMATION: Ease & Visibility LOW SCALABE & SECURE PAYMENT Risk Management PAYMENT VISIBILITY & REMITTANCE Trust & Adoption

13 SAP Ariba Working Capital Management Solutions Working Capital Management Advisory & Supplier Services Procurement & (Payment Terms Standardization, Rationalization, Extension, Supplier Outreach) Invoicing Automation DiscountPro Supply Chain Finance (Q2 2016) Supplier accepts to be paid by Buyer at a prorated discount before Due Date Suppliers Targeted: Indirect Spend Small-Medium Size Supplier sells approved invoices to Funder at a discount rate based on Buyer s credit worthiness Suppliers Targeted: Direct Spend Large to Mid-size AribaPay Electronic payments to suppliers Bank account data stored externally Supplier self manages bank account data Rich remittance info to match invoices with payments Track & trace status Buy Right... Buyer Funded by Banks & Capital Markets Pay Right Operated on & with SCF Platform 13

14 Supply Chain Finance: What Problem is Being Solved & Why is SCF Valuable? The SUPPLIER wants to get paid earlier The BUYER wants to pay later Supplier Benefits: Low cost financing Choose when paid Improve cash flow without increasing debt Collection Date Supplier Accelerate Cash Extend Buyer Payment Date Buyer Benefits: Reduce supply chain costs by providing low cost financing Improve cash flow Enhance supplier relationships 14

15 Example: How Supply Chain Finance Works BUYER 2 Invoices approved to be paid on due date 5 Pays $10,000 to Funder 1 3 Invoice Submitted to Buyer for $10,000 with 60 day payment terms Supplier seeks early payment & sells invoice to funder 4 Funder buys receivable & pays supplier $9,960 (retains 40 bps) Day Receives $10,000 from Buyer Accessed from Operated on SCF Platform Integrated With & other ERPs 15

16 Why SAP Ariba? Ariba (Largest B2B) Network User Experience + Proven Success & Expertise + 1 Experience Across Sourcing, Buying, & Payables: Accelerates Adoption, Minimizes Risk, Lowers TCO + Global Successes & References: Buyers, Suppliers, Funders + Banks core competency: lending money SAP-Ariba s core competency: facilitating B2B Commerce Selecting SAP-Ariba is NOT deselecting a client s bank 16

17 Thank You! Christine Betz Process & Efficiency Improvement Lead, AP American Electric Power Tanya Grannemann Senior Director Ariba Strategic Payables SAP Ariba