Turn on the Power in Finance/AP Shared Service
Over the past year, we’ve seen some world-class power outages. Last summer, an estimated 600 million people were affected by a power outage in India. And in early February, the world watched as a power outage in the New Orleans Mercedes-Benz Super Dome left millions of television viewers around the world in the dark for over thirty minutes of the Super Bowl.
These news events grabbed the attention of so many because of the personal drama as well as the cost to those impacted. Many finance and accounts payable shared service organizations are also operating in the dark. They continue to rely on manual processing of paper invoices based on lower resource rates available in emerging markets. Human resource costs may be lower on a per full-time-equivalent basis; however, companies that are not investing in transformative change to their finance operations will not lead in today’s networked economy.
Companies driving operational improvements by automating their #invoice-to-pay processes with transformative solutions like e-Invoicing, dynamic discounting supply chain financing, and detailed remittance statements are realizing significant benefits including reduced operating risk, lower costs, and increased margins according to a recent McKinsey study on the networked enterprise.
The opportunity cost of not making these investments can mean about $10 million in lost savings for every billion dollars of spend. Consider the cost of Super Bowl commercials. At about $3.8M for every 30 seconds, this makes the estimated cost of the lights being out to be over $250M. Organizations have spent billions of dollars improving business functions within the four walls of their organizations including process improvements, business intelligence, ERP and Finance applications, etc. However, the state of collaboration with trading partners outside the four walls is tactical, fragmented, and often companies are still using rotary phones in a smart phone age. For example:
- Upwards of 80% of business transactions (i.e. purchase orders, invoices, payments) are still paper-based
- The use of EDI has been around for over 20 years; however, it typically only works with a small percent of suppliers and in limited commodity classes – for example, direct materials
- Supplier portals have helped provide invoice and payment processing status; however, these typically require costly point-to-point connections with each trading partner
- In most cases, companies are still using phone, fax, and email with the majority of their processes and suppliers.
Over 85% of commerce activities are conducted in this manner, which results in:
- HIGHER COSTS in Procurement, Supply Chain, AP, Treasury, IT from a buy-side perspective. And Sales, Customer Services, Order Management, and Accounts Receivable from a sell-side perspective.
- INCREASED RISK IN OPERATIONS resulting in shortage of supply, lost sales revenue, plant manufacturing, and, yes, stadium shut-downs.
- POOR MANAGEMENT OF CAPITAL from errors causing delays, incorrect or fraudulent payments, missed discount capture, lack of price, PO, and contract compliance.
Stay tuned for part two of this post to learn how business networks help companies see the light and gain visibility into the benefits of commerce collaboration.
Follow me on Twitter (@jbtucker3) as I continue to explore ways in which companies are extending investments they’ve made with their ERP and finance solutions using business networks. You can also join me in an upcoming free webinar on this topic:
Mar 13 – Webinar – Turn on the Power in Accounts Payable: Extend Your ERP with Ariba for True E-Invoicing