using a procure-to-pay process framework to improve...

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Using a Procure-to-Pay Process Framework to Improve Your Financial Supply Chain

Deb MillerDirector, Manufacturing & Retail Strategy, Software AG

Mike ShumpertSr. Director, Global Strategic Business Solutions, Software AG

August 2008

2 BUSINESS WHITE PAPER | CoRPoRATE P2P PRoCESS FRAmEWoRk2

ContentSIntRoDuCtIon 4

BuSIneSS ChAllenGeS 5

ADAptIve SolutIon AppRoACh 6

Key peRfoRMAnCe InDICAtoRS 8

pRoCeSS fRAMewoRK CoMponentS 8

pRoCuRe-to-pAy uSe CASe 9

next StepS foR youR p2p pRoCeSS 10

3BUSINESS WHITE PAPER | CoRPoRATE P2P PRoCESS FRAmEWoRk 3

ABStRACtTo improve performance, your business

needs to have the same control and

visibility over financial processes, those

that drive your company’s cash, accounts,

and working capital, as you do over the

physical movement of goods. Leading

corporations recognize that streamlining

the financial supply chain, including the

process from procurement to payment, is

an area that offers significant potential for

bottom-line improvements and competi-

tive advantage.

This white paper describes Software AG’s

Procure-to-Pay (P2P) Process Framework.

Using a P2P process framework based

on industry standards, best practices and

peer experience can dramatically assist

a corporation in improving its financial

supply chain processes. Discover how your

business can reduce operating costs while

at the same time achieving end-to-end

process visibility and control.

4 BUSINESS WHITE PAPER | CoRPoRATE P2P PRoCESS FRAmEWoRk

IntRoDuCtIon

As costs rise in today’s challenging economic envi-

ronment, business and IT executives are pursuing

strategies to streamline the financial supply chain.

Improving financial supply chain processes means

having the same control and visibility over busi-

ness financial transactions, those that drive your

company’s cash, accounts, and working capital, as

you do over the physical movement of goods.

Leading corporations recognize that the financial

supply chain, including the process from procure-

ment to payment, is an area that can offer sig-

nificant potential for bottom-line improvements.

The Software AG Procure-to-Pay (P2P) Process

Framework applies best practices in procure-to-

pay, with a focus on the accounts payable (A/P)

portion of the P2P process, to drive improvements

for the corporation.

Why focus on accounts payable?

This question brings to mind an apocryphal yet il-

luminating story about the gentleman bank robber

Willie Sutton. When asked why he robbed banks,

he answered simply, “Because that’s where the

money is.” This amusing legend actually resulted

in the “Willie Sutton rule” in accounting1 to be

applied “where the money is,” meaning where

the highest costs are incurred, and thus having the

highest potential of overall cost reduction. When

it comes to buying goods and services, it is pre-

cisely because businesses face significant, costly,

and flawed A/P processes that improvements

there can have such a big impact for the corpora-

tion. Consider that:

Accounts payable professionals process more •than a billion business-to-business invoices each week, and 97% of those are still pro-cessed manually.2 The average cost to process and pay a supplier •invoice is between $5 and $15, with 10% pro-cessed too late to be paid within discounting terms, and nearly 2% containing errors.3

1 Cost and Effect, Kaplan, R.S. and Cooper, R., Harvard Business School Press

2 Forrester Research cites a Billentis estimate that there are more than 60 billion business-to-business invoices per year in the US and Europe combined, of which 97% are processed manually.

3 Estimates from US Institute of Management and Administration Survey

Clearly, manual A/P processes can be expen-

sive, slow, and error-prone. Improvements in the

A/P process itself, and better integration across

functions in procure-to-pay, can help companies

achieve a much higher degree of reliability and

confidence in sourcing decisions, as well as lower

their costs and maximize service delivery.

Software AG is working with companies who have

made outstanding progress in coordinating product

and information across their physical supply chains

and realize that a next source of competitive

advantage is financial supply chain automation.

The Software AG Procure-to-Pay Process Frame-

work uses industry standards as a baseline and

leverages our domain expertise to help companies

increase automation, visibility, and compliance,

while improving productivity and lowering trans-

action costs. The process framework reflects an

understanding of the subject process and the chal-

lenges corporations’ face in improving the process.

It includes the set of key performance indicators4

(kPIs) that are significant to understanding and

improving the process, and the related technology

assets and artifacts that help advance require-

ments discovery and definition.

.

4 Key Performance Indicators (KPIs) are a list of metrics that a company‘s managers have identified as the most important variables reflecting operational or organizational performance.

5BUSINESS WHITE PAPER | CoRPoRATE P2P PRoCESS FRAmEWoRk

BuSIneSS ChAllenGeS

Corporations want to acquire direct and indirect

goods and services at the best possible total cost

of ownership5, in the right quantity and quality, at

the right time, and in the right place for the direct

benefit or use of the business. They face execu-

tion challenges throughout their procure-to-pay

process, from the point where a purchase order, or

other demand signal, is submitted to a supplier for

fulfillment, through the eventual receipt, verifica-

tion, and put away (of the product), to payment for

goods or services received. SCoR6 refers to this pro-

cess as the Source activity within the Fulfill Demand

process (Figure 1).

Software AG has created the Procure-to-Pay Process

Framework to assist our corporate customers in

their efforts to eliminate paper driven processes,

streamline and monitor purchasing, automate ap-

provals, and – last but not least – cut costs.

Through a coordinated approach, companies seek

to:

Reduce total procurement costs by shortening •cycle times and through better supplier integra-tion and performance managementReduce inventory of components through less •latency in communicating Purchase orders (Po’s) and statusImprove productivity of buyers, program and •product managers, and A/P personnel via auto-mated tasks and monitoring of potential issues.

5 Total cost of ownership includes costs associated with ordering/purchasing, delivery, repair, maintenance, and disposal.

6 SCOR (Supply-Chain Operations Reference model) is a process reference model that has been developed and endorsed by the Supply-Chain Council as the cross-industry standard diagnostic tool for supply-chain management. SCOR enables users to address, improve, and communicate supply-chain management practices within and between all interested parties. www.supply-chain.org

However, fragmented organizations, legacy tools,

and technology – not to mention non-uniform

processes – prevent corporations from optimizing

spend leverage and procurement processes.

For the purposes of this white paper discussion,

a simplified P2P flow is provided in Figure 2 that

highlights the main pain points a business is con-

fronted with in the procure-to-pay process.

Businesses need to consider the following chal-

lenge areas as they move to improve their procure-

to-pay process.

1. Inefficient, error-prone purchasing process.How easy is the entire process to track? Does •the business lack real-time or “Just in Time” visibility of the end-to-end process, including visibility into spend vs. budget and jeopardy of late receipt of key goods?Is the overall procurement cycle time too long? •Are the costs of Pos (purchase orders) too high? •Are orders consistently placed only with autho-•rized vendors? Are purchase orders often out of compliance •with other internal or external policies? P2P is one of the key processes subjected to compli-ance requirements.

2. Minimal visibility of PO status.Do suppliers provide quick, accurate acknowl-•edgement of orders at various stages of fulfill-ment? Is a significant amount of time spent manually •monitoring the status of purchase orders via

phone calls, emails, etc.?

Figure 1 – Procure-to-Pay within the Supply Chain

Figure 2 – Procure-to-Pay Typical Pain Points


3. Suppliers don’t deliver the “perfect order.”How many orders arrive when originally •promised? How many orders are received in full? •How many orders returned for various reasons? •Is all shipping documentation in order? •

4. Delays in payment processing.Is the timing of payments such that the busi-•ness can maximize cash flow, capture volume discounts, etc.? Does the company have excessive adjustments •to account payables? Are there errors in the transactional process, such as goods being received but for which no invoice has been generated, or vice versa?

5. Ineffective SLA management with trading

partners.Does the business have sufficient visibility into •outsourced manufacturing or other contract-based activities and the means to monitor Service Level Agreements (SLAs)? Is there insufficient control of SLAs with suppliers, with performance management happening well after the fact?Does the business understand how company •behavior affects suppliers’ ability to meet SLAs and vice versa?

In order to improve their Procure-to-Pay processes,

organizations need to address the above men-

tioned challenges and transform their A/P pro-

cesses to reduce transactional costs and shorten

cycle times, enabling full visibility as well as full

monitoring and process automation.

While many enterprise, e-procurement, or finan-

cial systems vendors might claim that these chal-

lenges are addressed within their structural logic,

the truth is that there are many opportunities for

error and that without state-of-the-art tools for au-

tomating, streamlining, managing and monitoring

across the financial supply chain, an organization

might be bearing significant costs due to manual

steps and non-compliance with respect to system

or process requirements.

ADAptIve SolutIon AppRoACh

Each company’s financial supply chain is unique;

however, businesses do face a common set of

process challenges (as discussed in the previous

section) and can benefit by taking an adaptive so-

lution approach that leverages best practices and

industry knowledge within a process framework

solution reference model.

An effective P2P process framework is all about

integration, standardization, process streamlining,

and visibility, because these allow a business to

improve and increase transparency and account-

ability, achieve cost savings, and simplify proce-

dures.

For example, as brand owners or retailers race

for competitive advantage, they look for diverse

global sourcing, as well as the flexibility to move

sourcing back locally or chose alternative trans-

portation modes to respond to rising fuel costs. At

the same time, major buyers are dependent on

strategic sourcing, linking information and systems

more tightly with fewer key suppliers. Success for

all these groups depends on automation of key

financial processes, compliance to corporate poli-

cies, and access to critical information to ensure

consistency of vendor payment terms, prevent

purchase order splitting, and flag purchase orders

that are created on-the-fly just to pay invoices.

As our Software AG customers pursue procure-

to-pay process improvement, they all cite the

following capabilities of our process framework

technology as key enablers.

visibility into business processesTo begin improving processes, a business needs

to start by understanding the as-is state of its

processes. A Business Process management (BPm)

suite with Business Activity monitoring (BAm) al-

lows an organization to get clear insight into areas

needing dramatic improvement, and rich, interac-

tive interfaces quickly reveal the root cause of

process problems. Before making any changes to

current processes and systems, the company can

model and visualize the way new processes, pro-

cess improvements, and new resource allocations


will operate when deployed, using rich, graphi-

cal simulation. And Software AG technology

delivers global P2P visibility, allowing corpora-

tions to track a purchase order from submission

to a supplier, through the receipt of goods and

services, and to the eventual payment.

Seamless end-to-end management management of human tasks, automated

system-based processes, and rapid process

application development within the same

environment is critically important. Process

requirements rarely fit neatly into pre-defined

categories of system-centric, human-centric,

or document-centric. Since processes rely on

systems, data, and people for handling transac-

tions, human-centric workflows must seamlessly

integrate with system-centric processes and

support the role played by people in processes.

Greater operational efficiency can be achieved

with automated system steps and guided human

interactions throughout the process framework.

Intuitive end-user interfaces provide all informa-

tion needed for process participants to col-

laborate and perform their associated tasks. In

addition, end-to-end management is achieved

through strong systems and data integration

capabilities, including Enterprise Services Bus

(ESB), business-to-business communication, and

application modernization tools.

Automation of decision-making through integrated KpIsonce implemented, newly automated P2P

process steps must be monitored on an ongoing

basis to optimize performance and guarantee

observance of corporate policies and compliance

with SLAs. Business issues and opportunities can

be discovered quickly by automatically identify-

ing problems in real time, instead of via after-

the-fact analysis. And by monitoring end-to-end

processes, a business can identify deviations

from the designed process in early process steps

that on their own have no impact, but are likely

to contribute to future process breakdowns.

Based on this knowledge, it is possible to predict

and alert about process errors before they occur.

Built-in document management capabilities sup-

port the processing of purchase orders and fully

integrated rules within the process allow for the

automation of steps (i.e. defining the purchase

allowance per user) and compliance to corporate

A/P controls (as illustrated in Figure 3).

Figure 3 – Example of Procurement Control Points


Key peRfoRMAnCe InDICAtoRS

There are industry standard models like the Sup-

ply Chain Reference model (SCoR) that have a

standard set of metrics relating to the procure-

to-pay (Source) process, and certain metrics con-

tinually emerge in and across industries as very

important in practice. Following is a sampling of

the process framework kPIs and considerations

that Software AG has found to be critical to out-

comes for our customers in this area:

KPIsAverage Cycle Time•order Volume•Total Spend, Spend by Category, SBA Status•% Touchless orders•% orders by channel (E-Transactions, Portal)•Average Cycle time for Touchless Pos•Average Cycle Time for Pos Requiring Inter-•ventionorder Defects (Ship, matching, Validation)•Transaction Cost•Planned vs. Actual Payment Date•% Early/Late Payments•

AlertsSlow Average Cycle Time•Po not acknowledged within 24 hours•Auto matching Failure•Early Payments•Late Payments•Abnormally Large order Amounts•order Defects (Ship, matching, Validation) •


work incorporates the operations and business

kPIs that are critical to achieving the benefits

of financial supply chain integration, automa-

tion, and visibility. Perhaps more importantly,

Software AG provides the software capabilities

necessary to integrate kPI data and implement

a solution for real-time alerts and decision-

making.

pRoCeSS fRAMewoRK CoMponentS


work includes a baseline process model, with

swim lanes for different users/roles (as illus-

trated in Figure 4), selected kPIs for the process

as a whole and for steps within the process,

rules to allow for different processing paths, and

dashboards for visibility to enable exception

management.

The design flow illustrated in Figure 4 focuses

on A/P matching within the overall automa-

tion, monitoring, and control of the end-to-

end purchasing life cycle. Process framework

components are designed to save time with an

easy-to-use user interface and built-in approval

workflows and policies. This enables corpora-

tions to minimize maverick off-contract purchas-

ing, facilitate electronic Po submission, invoic-

ing, reconciliation, and payment with a network

of suppliers, and gain visibility into the P2P

process and stakeholder performance.

Figure 4 – Basic Process Design Flow Example


The Process Framework Technology table in

Figure 5 highlights key capabilities and the as-

sociated Software AG technology and artifacts

that have been created for the solution refer-

ence model.

pRoCuRe-to-pAy uSe CASe

Following is one example of how the Software

AG Process Framework can be applied to im-

prove A/P processes in a corporate procure-to-

pay environment. To illustrate the case, we will

refer to the subject company as the “Galaxy”

Corporation.

Galaxy wants to replace its invoice payment

process with an automated workflow system

that will provide a paperless solution. Currently,

the Finance Department has multiple separate

purchasing systems (e.g. non-inventory procure-

ment, technical services procurement, food in-

ventory procurement) and one manual payment

process that requires the processing of paper

invoices along with manual data entry.

The solution would need to reduce workflow in-

efficiencies, eliminate labor-intensive activities,

and ensure the high quality of operations. Less

manual interaction and a lower number of errors

and discrepancies would translate into reduced

costs of operations, and the use of standards-

based technology would permit connection to

online marketplaces and procurement hubs.

After an analysis of the current situation and

the existing processes, the webmethods process

framework and technology is able to assist the

requirements definition and implementation to

automate the data entry of the paper invoice,

to perform a 2-, 3- or 4-way match, to route in-

voices based on defined workflows, and process

price or receiving discrepancies.

With automated processes in place, Galaxy can

use the new technology to provide tracking and

analysis of key control objectives at executive,

management, and technical levels within the

corporation. monitoring capabilities identify and

reduce/eliminate transactional errors, misuse,

and potential fraud in the P2P process. And

integrated dashboards and audit capabilities

highlight critical kPIs and ensure compliance

with policies and spending limits.

From an IT perspective, applications from mul-

tiple business units and systems can be integrat-

ed, along with information from legacy systems

via application modernization capabilities.

Service oriented Architecture (SoA) capabilities

can promote re-use and ensure governance for

the corporation in the implementation. IT is also

able to implement role-based security to cater to

a large multi-role organization (defining spend-

ing limits and approval rights on a user-by-user

basis).

Capability webMethods Product Suite

Process Framework Artifacts

Collaborative Process Modeling & Orchestration

Designer Business process Model .Process file

Data Orchestration

Integration Server Broker Developer

Business Object Definitions/ Schema Packages

Business Activity Monitoring

Optimize My webMethods

KPI Definitions Dashboards

Business Decision Controls

Blaze Sample Rules

Figure 5 – Procure-to-Pay Process Framework Technology


What are the results Galaxy can expect from the

process framework and implementation? Galaxy

will achieve benefits from streamlined processes

and concomitant cost savings, enhanced data

management, and increased controls, including:

Decreased processing time for purchase, rec-•onciliation, and payment, decreasing signifi-cantly as each step in the P2P process is made more efficientReduced spend, with business rules that •monitor and control maverick purchasingReduced invoice processing costs (Accounts •Payable and buyer); as the number of paper invoices decreases, the number of resources needed to receive/sort mail, manually enter invoice information, and produce/mail checks is lower, providing an opportunity to reduce or reallocate staffImproved reconciliation through automation•Availability of detailed data for spend analysis •and decision-making; plus, a comprehensive view of full spend activity by supplier enables improved vendor negotiations, and access to total spend provides senior officials the ability to drill down to total spending by business unit and function. This can enhance decision-making and budgetingEnhanced compliance with buying policies and •procedures, and with regulatory requirements such as Sarbanes-oxley Increased productivity, reporting flexibility and •visibility; as manual processes are eliminated, the time to accurately report data decreases Increased purchasing efficiency through mea-•suring and tracking cycle times

next StepS foR youR p2p pRoCeSS

Every element of the use case shared here illus-

trates the advantages of working with Software

AG to make financial supply chain improvements.

By leveraging the knowledge learned from ex-

perience, the Procure-to-Pay Process Framework

can help guide and accelerate the solution, from

modeling of critical process flows, to tracking

of key performance metrics through integrated

dashboards (as illustrated in Figure 6), to root

cause analysis and exception handling, and trans-

actional activity management across multiple

systems.

To learn how your organization can take the next

steps with the Procure-to-Pay Process Framework

and Software AG’s business infrastructure soft-

ware and services, contact Software AG and ask

about our CustomerFirst Program.

For more information on the CustomerFirst

Program, email: [email protected]

Figure 6 – Sample KPI Dashboard


About the Authors

Deb Miller is with the Software AG Industry

Solutions team, focused on the supply chain.

Her career includes more than 20 years of

global industry experience with GE. Since 2002,

she has been a study group contributor to the

President’s National Infrastructure Advisory

Council. Ms. Miller is a Phi Beta Kappa graduate

of Syracuse University with a degree in

Mathematics and a dual Masters in Education

and Mathematics. She attended GE’s Manage-

ment Development Institute and is a Six Sigma

Green Belt.

Mike Shumpert is a Senior Director in Strategic

Business Solutions for Software AG. He leads the

development of value assessment tools for

capturing and proving quantifiable ROI for

Software AG customers. His responsibilities also

include solution design and packaging repeat-

able solutions into best practice modules to

speed customer implementations. Mike has

served in numerous management roles at

Software AG, including product management

and marketing. He has 25 years of global

product management experience in business-to-

business industries, including 10 years at Dun &

Bradstreet as VP of global product management

and 10 years of industry experience in aero-

space for the Department of Defense. Mr.

Shumpert holds a Masters of Business Adminis-

tration degree from Georgetown University and

a Bachelors of Science degree in Systems

Engineering from the University of Virginia (via

the US Naval Academy).

ABoUT SoFTWARE AG PRoCESS FRAmEWoRkS

Software AG Process Frameworks are solution

reference models designed to guide

requirements discovery and definition, and

enable users to build quickly and confidently

upon Software AG’s knowledge and experi-

ence base in key process areas such as

order-to-cash. Built upon Software AG

technology and practices, and informed by

our collective customer experiences, the

frameworks reflect a deep understanding of

the subject process and the challenges

companies face in improving the process.

The Process Framework artifacts use industry

standards as a baseline and leverage

Software AG’s unique domain expertise to

help accelerate the requirements discovery

and definition process for our customers. For

key process areas, Software AG Process

Frameworks can assist with selection and

modeling of critical process flows, definition

of Key Process Indicators and metrics that

allow measurement of progress on key

success factors, and guidance for activity and

task management, root cause analysis and

exception handling.

The goal of the frameworks is to maximize

our customers’ efforts in addressing their

process improvement strategies and to help

them gain control over their performance in

the challenge areas most critical to their

business.

T O F I N D T H E S O F T W A R E A G O F F I C E N E A R E S T Y O U ,

P L E A S E V I S I T W W W . S O F T W A R E A G . C O M

Take the next step to get there – faster.

ABoUT SoFTWARE AG

Software AG is the world’s largest independent provider of Business Infrastructure Software. Our 4,000 global customers achieve business results faster by modernizing, automating and improving their IT systems and processes to rapidly build measurable business value and meet changing business demands. Using our solutions, organizations are able to libe-rate and govern their data, systems, applications, processes and services – achieving new levels of business automation and transparency.

Our industry-leading product portfolio includes best-in-class solutions for managing data, developing and modernizing applications, enabling service oriented architecture, and improving business processes. By combining this proven technology with industry expertise and best practices, our customers improve and differentiate their businesses – faster.

Software AG – Get There Faster

Copyright © 2008 Software AG, Darmstadt, Germany and/or Software AG USA, Inc., Reston, VA, United States of America, and/or their suppliers. All rights reserved.

The name Software AG™, webmethods™, Adabas™, Natural™, ApplinX™, EntireX™ and/or all Software AG product names are either trademarks or registered trade-marks of Software AG and/or Software AG USA, Inc. other company and product names mentioned herein may be trademarks of their respective owners. SA

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