Friday, March 27, 2009

If You Don't Keep Score Then You Are Only Practicing (SAP Invoice Management)

Keeping score is a fundamental business requirement. What you chose to monitor will often determine your success. One common pitfall is only measuring secondary key process indicators (KPIs) and not measuring primary KPIs. In baseball, is it more beneficial to know how the secondary KPI of times at bat or to know the primary results of the times at bat such as singles, doubles, triples, home runs, foul balls, strike outs and walks.

If you have implemented or you are considering implementation of the SAP Invoice Management by Open Text solution, you should be aware that this solution will dramatically improve the typical secondary KPIs but also the primary KPI of profit.

For example, measurements utilized in invoice to receipt payment process traditionally include (but not limited to) invoices processed per Accounts Payable processor, cost per invoice and invoices paid on time. While these are very important and should be measured, a case can be maid that they only tell part of the story.

One primary measure of corporate success is profit therefore what is the primary driver behind each of the measure mentioned above. The invoices per processor impacts profit by enabling of cost reduction due to labor savings therefore for every labor dollar saved, the profit increases.
Cost per invoice most often is based on the cost of the Accounting Department labor therefore much of the primary improvement would already be reflected by increasing invoices per processor. In addition to the direct labor savings there are other opportunities to improve the primary profit KPI. Implementation of a fully automated solution that includes OCR, e invoicing and workflow will also increase profit by enabling lower cost of invoice.

Measuring the percent of invoices paid on time impacts the primary profit KPI in several forms. The first is to ensure payment term discounts are captured as determined by cash management. Another impact is the ability to negotiate payment terms that were considered unattainable in the past since invoices could not be process in time to meet payment terms. Another consideration is how paying on time reduces the time spent talking with vendors about why they have not been paid. It is not uncommon for a corporation to have one or two persons with the primary responsibility to answer phones and emails from vendors.

Aside from the direct and significant impact on profit, paying late also impacts another very important area of primary interest, the corporate credit rating.

In summary...while it is very important to know how many times the Accounts Payable comes up to bat…it is even more important to know the results of the “at bat”!

See SAP EcoHub for more on SAP AP Optimization:

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