how to increase po rates across 34 countries to reach 75%

How to Significantly Increase PO Rates Across 34 Countries to reach 75%

Pether Jonsson, ABB Accounting Centers. sharedserviceslink.com conference 8-10th June 2010, London

© ABB Group June 4, 2010 | Slide 1

Agenda

About ABB & P2P related factsThe P2P process improvement initiative

ScopingManagement

Focus areas 2009Purchase order ratio. Invoice requirements.

Summary and Next steps


A global leader in power and automation technologies Leading market positions in main businesses

117,000 employees in about 100 countries$32 billion in revenue (2009)Formed in 1988 merger of Swiss and Swedish engineering companiesPredecessors founded in 1883 and 1891Publicly owned company with head office in Switzerland


P2P related facts 2009

34 Accounting Centers spread over all continents4‘800‘000 supplier invoices processed550 Accounts Payable employees

Largest center processes 650‘000 invoices / yearSmallest center processes < 50‘000 invoices / year

Some centers are operational since 10 years, others are 1 year old

Efficiency varies between 5 and 25 invoices per hour


P2P Process improvement

In 2009, the “SCM/SAS cooperation” was launched to drive Process improvement in the Purchase-to-Pay process

Joint effort by SCM and Accounts Payable

Scope: 34 countries

DK, FI, IE, NO, RU, SE, UK, CA, MX, US, FR, IT, ES, TR, BR, CN, JP, KR, AT, CZ, DE, BNL, PL, CH, IN, EG, ZA, AE, SA, AU, MY, NZ, SG, TH


Management of the initiative

Focus areas jointly agreed between SCM and Accounts Payable on Group level and communicated to countries

Target setting by the Group, actions defined locally in each country jointly by country SCM and country AP

Quarterly calls arranged by Group, per region, for which countries submit action sheets and dial in

All actions and progress is made transparent to share experiences and good ideas

Tracking of progress using “bubble charts” and KPIs


Focus areas 2009

• Purchase Order ratioIncrease PO-ratio to ensure a controlled purchasing behavior and to enable higher efficiency in invoice processingStatus early 2009: PO-ratio of app 65%, much lower for Indirect material (especially Services) compared to Direct material

Invoice requirementsImproving the quality of supplier invoices to enable more efficient invoice processing and reduce risk for non-compliance with laws & regulationsStatus early 2009: Several countries had no agreed, communicated or enforced requirements on supplier invoices, resulting in significant rework in the AP department


Invoice volumes & Purchase Order ratio early 2009

Direct material has high PO-ratio and can not be easily improvedFocus on Indirect material since the PO-ratio is often low and provides an opportunity for improving overall PO-ratio

57%

7%

Indirect Material40%

Direct Material60%

PO-invoicesInvoice volumes

PO-ratio18%

PO-ratio95%

Consolidated PO-ratio64%

Potential for improvement


Actions taken to increase PO-ratio for indirect material

Standard SAP functionality used, for some countries SAP SRMLooked at all possible purchasing scenarios & found different solutions by commodity type

Training of organizationIdentified SAP Super Users in each region who understood Service OrdersOrganised and delivered events to train personnelUnits defined who locally would accept services

Assigned appropriate roles within SAPThorough system-testing prior to go-live

Implementation of no PO, no-PayImplemented by a few “pilot countries”

Small amount of exceptions (utilities, banks, government) will have a system PO but need not quote on invoiceWarning ABB people and Vendors of forthcoming change 12 months in advanceIncoming invoices can only be paid against a valid POInvoices that do not quote a PO will be rejected back to the vendor


% PO Cover - UK

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Invoices with PO 62.3% 62.3% 71.3% 71.0% 80.1% 72.2% 69.9% 71.9% 76.3% 74.18% 76.51% 77.9% 80.2% 98.8% 100.0%

Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Expect

• Increase from 60% Purchase Orders to 99% Purchase Orders in 14 months• No-PO, no-Pay policy implemented in Jan 2010• Primarily increase in PO-ratio for indirect material, especially services• Rejection of non-PO invoices is key component and started in Jan 2010

• To make reject possible strict Invoice Requirements had to be implemented

Example: ABB United Kingdom


Invoice requirements

5 „maturity levels“ defined1. Not jointly (between SAS & AP) agreed requirements2. Jointly agreed3. Communicated (to suppliers)4. Included in POs & Contracts5. Enforced (rejection of invoices)

Low Maturity level High


Invoice Requirements Progress made in 2009

Each country report their status, both actual and forecast, every quarter using „bubbles“Makes progress and ambition visible and creates competition


Actual Q1 2009 Actual Q4 2009

Invoice Requirements Actions taken by countries

Automatic printing of invoice requirements on Purchase Orders going outLetters to suppliers regarding invoice requirementsCommunication to ABB purchasers about requirementsEstablishment of web-sites with information for vendors about requirements on invoicesReject of invoices that do not meet requirements back to suppliers


Results of enforcing invoice requirementsRejection by outsourced scanning & OCR providerNumber of rejected invoices dropped from 25% in January (first month) to 7% in MarchEnd-target : 3 % rejected invoices

0%

5%

10%

15%

20%

25%

30%

FEB

MAR

CH

APRIL

APRIL

MAY

JUNE

JUNE/JULY

JULY

AUGUST

AUG/SEPT

SEPTEM

…

OCT

OBE

R

NOVE

M…

NOVE

M…

DEC

EMB…

Axis T

itle

Reject status for non‐compliant supplier invoicesExample from ABB United Kingdom

Estimation

Outcome


Consolidated results Purchase Order ratio early 2010

By increasing the PO-ratio for indirect material the consolidated PO ratio could be increased significantly

• From 60% to 99% in United Kingdom• From 65% to 75% in the ABB Group as a whole

57%

18%

Indirect Material40%

Direct Material60%

PO-invoicesInvoice volumes

PO-ratio45%

PO-ratio95%

Consolidated PO-ratioIncreased from 64% to 75%

in one year


Summary and next stepsHow to Significantly Increase PO Rates Across 34 Countries to reach 75%

• Main actions were• Analysis for which commodities POs were normally not placed• Review of tool support and purchasing process for these commodities• Review of “exception lists” for POs• Training of staff on how to place POs in SAP for especially Services• Establishment of no-PO, no-Pay policy and enforcement through rejection

of invoices (which required clear invoice requirements)

• Next steps• Continue focus on PO-ratio , increase expected as more countries adapt

“best practice” actions. • Start up work on 1st time match and Paid within terms, use same

management model but use structured process improvement model (“4Q”)


how to increase po rates across 34 countries to reach 75%

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