Kennametal makes the move to electronic invoices
First step, after selecting the software tool: Show suppliers the benefits.
By Maria Varmazis -- Purchasing, 9/13/2007 6:00:00 AM
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What it Means to Buyers: * Suppliers benefit from automated procure to pay by getting paid faster. * Electronic payments can slash up to 90% of paper-processing costs. * Proactive supplier support while replacing old processes for new ones goes a long way to preventing pushback. |
It's a seemingly simple problem with a simple solution: increase payment efficiencies by automating the procure-to-pay process. Only, as Dean Hoffman can tell you, it's not always so simple, especially when suppliers push back. Hoffman is the manager of customer and vendor support services at Latrobe, Pa.-based tooling, components and materials supplier Kennametal, and says in late 2001 the company wanted to shift to electronic payment from paper, which was "suffocating our processes." Several years later with 96% of suppliers enrolled with American Express Harbor Payments, Hoffman and Kennametal know the switch to automated procure-to-pay was worth it for both suppliers and the company itself.
His suggestions for others considering automation of procure to pay: Start with only your most important suppliers, stress the financial benefits to suppliers, and help them understand and use your system.
The bottom line of automating procure-to-pay is the time and money saved. Kennametal implemented its electronic payment process in 2002 with Harbor Payments, now S2S eInvoice & Pay after Harbor was purchased by American Express in late 2006. After Kennametal got 58% of vendors to use electronic payments within the first three months of deployment, the company cut payment processing costs by 67%.
And just as important, at least to suppliers that the company had to convince to use the system, automating procure-to-pay increased speed of supplier payment by 30%. It cut the suppliers' paperwork as well as Kennametal's paperwork.
"A strong business case can be made when talking about the cost of paper processing," says Lionel Le Meur, vice president of marketing and product design for electronic invoice and payment services at American Express. Le Meur states that the total cost of processing inventory by paper is about $30 per order, all the way through payment, while the same process would only cost $2 to $3 electronically. The business case for going electronic is clear for a company looking to save money. And that goes for suppliers too.
When Kennametal first introduced its electronic invoice presentment and payment tool to suppliers, the concept of procure-to-pay automation was still quite new. "Many of the suppliers didn't know what it was," Hoffman says. There was a knee-jerk reaction to "fear of the unknown." Some suppliers were so against having to change their way of doing business that they called the executive vice president of manufacturing at Kennametal—completely circumventing Hoffman—and threatened to shut down their supplies for fear of disruptions to their own back-end processes.
 Darin Herring: "Companies are typically successful with the most important suppliers, and find it more difficult to get the long-tail suppliers on it and justify it for them. Adoption is half the battle."  Lionel Le Meur: "A strong business case can be made when talking about the cost of paper processing." |
"That's where we were short-sighted," he adds. "We didn't have enough help available." Kennametal's response was to get more support to suppliers that needed it, as well as go directly to his in-house purchasing team and ask them to talk to critical suppliers and get their support.
That's an effective tactic, says Darin Herring, vice president of purchasing services at American Express. When it comes to interfacing with suppliers through a Web-based portal, don't shove the tool onto all suppliers simultaneously and hope for the best. "Companies are typically successful with the most important suppliers, and find it more difficult to get the long-tail suppliers on it and justify it for them," Herring says. "Adoption is half the battle." Of Kennametal's 18,000 total suppliers, only 211 needed real hand-holding to adopt and use the new payment system. Only two suppliers opted not to use the tool altogether and Kennametal eventually dropped them.
What really helped address suppliers' concerns was the accessibility of the EIPP tool and ease of adoptability. The tool, now S2S eInvoice & Pay, is entirely Web-based, meaning all a supplier needs to access their payment information is an internet connection. "Suppliers have no problem accessing it," says Hoffman. Deployment of this tool didn't require heavy investment. Kennametal didn't need to bring in an IT team and didn't need to buy computer support for smaller suppliers, which Kennametal would need to do if it had purchased licensed software that would need to be installed individually on each computer.
The electronic invoice presentment and payment tool has smoothed things over between the purchasing and payables departments as well. Whereas before the automation tool their relationship "was like cats and dogs, now it's more like cats," says Hoffman. Kennametal's payable department can spend less time trudging through invoice exception processing and more time working on strategic tasks like vendor negotiation.
Better yet, many of Kennametal's suppliers have become so comfortable with the payment software that they're adopting Kennametal's newest tools—before they're even rolled out. Now that 96% of all invoices coming in are flowing through the automated system, Kennametal is pushing new initiatives for their payment process. By September 1, Hoffman plans on using Harbor Payments' PO Flip—which can generate invoices from PO data—with all his suppliers. He's been testing it on some pilot suppliers in the months prior.
"Some vendors are using it proactively, and they're finding it helpful before it's even ready," he says.
 Self-service model is Celestica’s goal In a perfect world, says Celestica’s Vice President of Supply Chain Strategy and Planning Harvinder Sembhi, the definition of automated procure-to-pay means “nobody touches a purchase order, the system automatically kicks it out.” That’s not quite how it works at Celestica—yet—but it’s a goal the company is striving for. Sembi’s strategy to automate Celestica’s procure-to-pay is just one part of an overall plan to increase global supply chain efficiency and transparency, from start to finish. It’s a three-stage process to make this plan reality, and the final stage of visibility into the supply chain means a bigger link into the automated payment processes. Right now, says Sembhi, his active goal is to get as many manual processes automated as he can, so back-end work is already done as orders come in. “The ultimate end vision is a self-service model,” he says, “where the supply chain is linked end-to-end.” When Celestica’s procure-to-pay software by E2Open went live in March 2007, the deployment was purposely small—50 suppliers in Thailand were the first to give the online processes a try. By early October of this year, Sembhi estimates that 318 suppliers throughout China and Thailand will be using the tool. For Celestica, the fact that the E2Open software is Web-based is a huge plus that certainly drove adoption. “We haven’t had to spend a lot of time and effort to train,” he says, adding that usually a quick web-ex session was enough to get suppliers familiar with the online tool. It also helped that many of the suppliers’ other customers were already using these tools and were therefore familiar with how to use them. Celestica’s end goal is to get ten targeted “top sites” using the E2Open tool by mid-2008—right now three of ten top sites are using the tool. The business case for using E2Open’s Web tool for Celestica procurement and finance staff as well as suppliers came down to productivity hours saved. “Suppliers were saving two hours a week across ten sites, which translates to 20 hours a week saved for a supplier,” Sembhi says. “Suppliers have to do the manual work too, so automation is a plus for them as well.” |
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