SUBMITTED BY DataServ

By Kristin Parshay, Brown Smith Wallace, and Christopher Gaia, DataServ

In Part 1 of our five-part blog series titled “Building the Right Approach to Paperless AP – 5 Steps to Success,” we addressed how to put the right team together. In Part 2 we will address how organizations:

  • Build an understanding of their current situation.
  • Identify the greatest opportunities for improvement.

Part 3 will quickly follow and address:

  • Articulating a vision for the future.
  • Engaging your team and the organization’s stakeholders to set the stage for a successful implementation.

Understanding your current situation

Creating and improving value are key goals of accounts payable automation efforts. Understanding how these business processes can create value is central to developing a competent solution. We suggest that you examine the question of value creation through the process by looking at the viewpoints of customers and stakeholders. Customers of the process include your suppliers and people involved in the purchase and payment of goods and services. Stakeholders include those people affected by the process or the outcomes of the process. Internal and external auditors, as well as various corporate support organizations (IT, Tech support, etc.), are examples of stakeholders who must rely on these processes not only for vendor payments, but also other business-related needs. 

To provide value to the customer, an organization needs a strong relationship with its suppliers and vendors. Vendors want to know they will be paid the right amount for the right services at the right time. The value to the stakeholder or business itself is the confidence that purchases of products and services are made for the right items, with the right vendors, at the right price.

So, how do you go about building a competent understanding of your current situation? While there are a number of business process and technology assessment tools and services available, we have found “value stream mapping” to be particularly effective for this analysis. Value stream mapping will provide you with several key insights, such as:

  • The current business process/activities that are engaged in by the organization to complete the AP process.
    • How well these activities align with customer and stakeholder requirements
    • Whether there are any gaps in the process.
    • How well the process is supported by technology.
  • How well people understand and are trained to effectively use the process and technology.

Performance measures – The team should work with stakeholders to review current performance measures, as well as identify additional performance measures, if necessary, that reflect the expectations of the customers and stakeholders identified in the step above. These measures are used to establish the current process performance, referred to as “baseline” performance, and the targeted performance improvements expected from the proposed changes. While not an exhaustive list, here are some of the more important performance measures that can be tracked:

  • Overall process performance
    • Total invoices processed per month
    • Cost per invoice processed
    • Days Payable Outstanding
    • Percent exceptions
    • Percent discounts taken
    • Percent of invoices paid on time
    • Percent compliance with review/decision targets
    • Invoices processed per payables full-time equivalent employees
  • Processor performance
    • Invoices processed per month
    • Percent of invoices paid on time
    • Percent exceptions

These measures will serve as guideposts for understanding the effectiveness of your current solution, remind current process owners and stakeholders of the pain experienced with the current process, and provide guidance for determining the return on investment of proposed performance improvements.

Once current state activities are understood and the process is measured to understand performance against the process requirements, you then will want to perform a qualitative analysis of the value of each activity involved in the process.

This analysis will identify activities which create value for the stakeholders throughout the process according to the following categorization:

  • Value added - Activities that create value for external and/or internal stakeholders.
  • Control focused - Activities that do not create value for external stakeholders, but create internal stakeholder value (Examples of this are internal controls or enhanced reporting.)
  • Non-value added - Activities that do not create any value.

Completion of this step will provide a comprehensive understanding of your current situation based on the perspectives of the customer and the various stakeholders involved with the process. This stage of the process should be considered complete when the team can present:

  • A process map for the current process.
  • The roles involved in the process and where they are involved.
  • A technology framework that identifies all the technology used to support the current process.
  • A metric-driven performance summary of the current process
  • A summary of gaps, issues to resolve, and recommendations by process step.

Being able to articulate a clear understanding of your current situation, in the context of existing process and technology, establishes the correct framework for identifying your vison for the future, which is the focus of our next post. Questions or comments? 

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