Manageable Steps Tackle a Complex AP Automation Project

This article is reprinted/republished by the express written permission of IOMA (The Institute of Management & Administration). ©2008; for more information about IOMA publications visit www.ioma.com

The implementation of a new, automated AP system can be complex and confusing—unless it is broken down into manageable steps. At the recent RECAP/IOMA AP Conference in Ft. Lauderdale, Darren Pate, director of Financial Operations at Sonepar USA, talked about some of the hard-learned lessons he acquired while implementing automated AP processes at Cameron & Barkley Co. and Hughes Supply.

Faced With a Daunting Task

When Pate started at Cameron & Barkley in 2000, he had little formal training in automated systems. "The organization wanted somebody who could manage and improve the AP function. I knew I wanted a challenge, but I guess I wasn’t really sure what I was getting into," said Pate.

When he walked into the office for the first time, Pate discovered the organization was using a manual system, and there were many problems with the workflow. "It was like a paper bomb exploded all over the place," he said. "There was really no handle on the invoice flow, so we knew we needed to do something."

Although Pate wasn’t familiar with all fine points of managing an AP process upgrade, he did understand project management and change, so he rolled up his sleeves and got to work.

He began by breaking the project into sequential steps, one step building on the next, incorporating a phased implementation. "My biggest problem was getting control of the paper invoices, so the first thing we implemented was scanning and keying from the images. As a result, we increased EDI from zero to 30,000 invoices a month. Once that was working well, we added Optical Character Recognition (OCR)—using templates to automatically take data from invoices. The final piece of the implementation was free-form OCR."

Analyze the Current System

It’s really important that you understand what your current system cost is—per employee and per invoice," said Pate. "You also need to assess how many transactions are done, identify your service-level agreements, and analyze how well you are performing against them. You also need to identify the obstacles causing the problems that you want to get rid of."
Some of the issues or problems that might need to be addressed include:

• Errors in processing
• Lost discounts
• Physical storage space
• Accruals
• Late payments
• Vendor relations
• Audits
• Personnel turnover

"If you are working with thousands of checks and invoices that are processed per month with mostly manual processes, it becomes imperative to find a way to manage that volume," said Pate.

Set Project Goals

To set goals, ask yourself: What do you want to improve? One way to find out is to do a process improvement evaluation. Some possibilities to look at are:

• Eliminate filing
• Add accountability and transparency
• Automate approvals
• Streamline invoice flow
• Enable vendor self-service
• Enhance reporting
• Automate invoice entry
• Decrease costs
• Increase productivity
• Clarify procedures and policies.

"As you look at a process, ask: ‘Why am I still doing this? Is it really important to continue?’ Try to understand where the flow of the data and the documents are going. That will give you the baseline to calculate the success of the upgrade."

At Cameron & Barkley, 30,000 invoices were processed manually before the upgrade. "We were pleased if someone did about 150 to 200 invoices a day; that was the maximum without a lot of errors and problems," said Pate. After the implementation their rate soared to 700 a day—or more—with no quality issues. The benefits were tremendous.

Determine What’s Right for You

"The goal is to design a system that is compliant with organization policies and procedures—a system with a flexible ‘friendly’ interface," said Pate. "Look for a system that can be integrated easily, enabling a rapid deployment. That can be a tremendous boost."
An integrated solution (see exhibit) can include:

• Unified capture of incoming data—scan, OCR, or e-invoicing
• Workflow moving to an ERP system
• Information moving to storage, which can include EDI
• A customer self-service portal for data retrieval

At Cameron & Barkley, Pate said "improving invoice throughput" was a major goal. "After the upgrade, we were able to get things opened, scanned, and entered into the system the same day we received the invoice. Exception handling improved.

"Before the upgrade, I had to look on someone’s desk for an invoice and hope I could find it. With the upgrade, there were no more invoices stuck in the drawer. We had some accountability," he said.

Know Your Options

To make the right choices about automating your processes, Pate advised that you gather data, analyses, and white papers; go to conferences; and look at AP benchmarking, measurements, and reports.

Your organization might have contracts with experienced consultants or use the expertise of AP organizations like IOMA. "But ultimately," Pate said, "you need to know your volumes, your costs, and your process. That’s key. When you have that, formulate a cost benefit," he added.

Evaluate Your Vendor Partners

Once you know what you need, the right partners will help you through the process. They take time to go through your operations to experience them firsthand. They can help determine your needs and suggest what products and services are best for you. This is especially true if you have minimum or no organization IT support.

A good vendor can help you provide a cost benefit or a return on investment analysis. With their experience, they might suggest issues you may not have thought about. They will provide engineering, documentation, training, and go-live support. And they will follow up after installation to make sure things are working optimally.

Choose a firm with experience integrating systems. For first-time projects, creating a request for proposal (RFP) is helpful. "Once you’ve gone through the process and you know what you want to do," Pate said, "you might not need an RFP, but be sure to gather information and system needs from departments that will be using the system."

Stay closely involved. It will be your system—when there’s a problem you will need to be knowledgeable enough to problem-solve. And stay informed. Know how the system will be integrated or interfaced to your current system. "At Hughes, I made the mistake of not fully understanding the complexities of the interfacing to our systems. The organization had already purchased a tool for workflow, and I took their word that it would do what I wanted it to do. When we started using it, it really didn’t do what it promised to do," he related.

Use your documents for demos. If the vendor is doing product demonstrations, use your own organization’s documents. Also, list your problems and ask the vendor to show you how they would address them. Site visits and conference calls can help you understand how a potential system really works, by seeing or hearing how it works for someone else.

Ask for financials. Get financial data from the companies you’re going to be dealing with. "You want to know that they’re stable and they’re going to be around for awhile," Pate said. "Ask for their customer service surveys. Are their customers happy with them? Ask them how many customers they have in AP, AR, HR, or other systems," he suggested.

Involve the Right Players

A management sponsor is important to your project. "I was lucky in both cases that I had a very strong management sponsor," he said. A sponsor can help you make your case to senior management and keep your project visible among all the other organization business.

Involve key members of other departments. Get IT, AR, finance, sales, purchasing, and HR input. "The first time I did an implementation, I didn’t really understand the impact on the employees. We had some people that couldn’t adapt to the new system, and we had to find them other jobs," said Pate. HR can help with employee training and coaching and assist with change management.

Purchasing is an important link to proper workflow. "We worked with purchasing to get at root-cause issues, like getting invoices to match purchase documents. We also worked on our vendor portal so vendors could get their information themselves rather than calling us," he said.

Monitor Implementation

Be clear on the type of implementation. Really understand this, and make certain one upgrade won’t confuse or cause problems with another.

For example, are you doing a phased approach or a full integrated shift-over? Will your implementation be inter-departmental or intradepartmental? What’s your scope? Are you going to upgrade within shared services or are you more regionalized?

One lesson Pate learned at Hughes was that the organization had too many things going on at once.

Plan for testing. It’s critical to know that it will work before the switch. "The big problem at Hughes was that we didn’t do enough testing," said Pate.

"How many should you test to make sure it’s going to work? With 130,000 invoices a month, we tested perhaps 5,000 invoices and it worked perfectly. Our techs said, ‘You’re good to go!’ But when we went live, the system choked when it got to 10,000 invoices a day. That was a problem."

The testing done on a test system can be different than real production; be sure you know how it will be performed.

Stay involved with training. You’ll want to understand what your employees are learning and how they are handling the shift in processes. "One of the big pluses is retraining your staff from transactional work to more value-added activities," said Pate.

After implementation, conduct follow-up training and continue to check on your employees’ responses to the changes. "In both companies, it was a drastic change from manual to automated, but within two months, you couldn’t have taken the new system from them. They really liked it that much," he said.

Have IT support when you go live. Pate emphasized having physical vendor and/or IT presence when you start the live install. "Don’t have them on a conference call because if you have a problem you need it resolved immediately—have them there on site," he advised. "And do a post-mortem. Recap what problems were experienced, how you addressed them, and how much time it took to find a solution. This will give you a handle on what’s working well and what needs adjustment."

Monitor regularly after implementation. Is the system working to expectations? Are you meeting your goals? Implement audit trails to be sure inputs are moving normally through the new system. Once improvements are implemented, your tracking should show distinct improvements in process measurements.

"At Hughes, we quickly went from 130,000 to 225,000 invoices a month with no additional staff time. At Cameron and Barkley, we reduced overall costs at least by half," he recalled.

Invest the time to document changes.Make sure you keep a record of all the changes that have been put into place. "Poor documentation made problems for Cameron and Barkley when the person managing the systems and I left. The information—and the history—was all in our heads, so when we left, the history left with us."

When upgrades are planned for and implemented sequentially, with the right partners and good monitoring, the results can be remarkable. You’ll see vast improvements in time management, reduced costs, and even happier employees.

As long as essential elements are thoroughly examined and actual processes are measured, a move to automated systems can be a positive experience for the whole organization.