Best Practices in Procure to Pay Cycle: Develop a Robust Technology w/a Portal to Minimize Touch P6
Published on: Mar, 02, 2006
A number of SME’s described the need to eliminate the manual intervention of multiple untrained individuals in entering information into systems such as SAP. Many ERP systems have modules for purchasing and plant maintenance, but they all require significant configuration. On the other hand, a number of “bolt-on packages are also available, but our SME’s advise against these due to the high probability of interface issues associated with deployment.
For example, some of the comments that came back include:
The CATS interface on SAP does need configuration. The beauty of it is that it puts the service entry sheet on the person using it, and puts the burden on people who know. So when it arrives at SAP – it is already matched. When the invoice arrives – it is easy to check if it matches what the requisitioner required.
It is important first to ensure that the business process is very good and can adopt to changing buying requirements. There are one time services like legal – for something like that – a blanket PO with some sort of a manual receipt process and invoice process is the only way to go. Project oriented monthly billing is important. When you get into temporary services – where you may have 300 or 400 administrative staff that work for an outplacement company, the situation is different. This is high volume, with people inputting time on a weekly basis – and cost center owners need to understand what their exposure is cost center by cost center. If I am hiring ten temps for a full year, and each is getting 20,000 per year – I need to accrue for that amount of money and draw that down….but you need to guess at things like overtime, weekend work at time and a half. It can be done, but it is difficult.
The problem is that with many of the laws regarding contractors versus employees it is necessary to set these people up as a “pseudo employee”. You have a purchase order that has line items that equate to each one of these people – for external services – and a range of hourly rates, and how long you expect them to be employed, etc. So we now have two extremes – high value manual processes, and low value but lots of them.
When it comes to the payment and invoicing part of this – purchasing is out of the loop. You want to decentralize this process as much as possible and push it as close to the people who are doing the work as you can….a web-based time-entry system. Some type of identification (we used the PO number and line number as the ID) is required and vendors need a secure environment to include this with us. The other challenge is that frequently you don’t have people working in one geographic area – so it becomes difficult to track temps at sales offices. So a web-based solution is the way to go on this. Once a week, the work flow can be configured to route that time sheet to the sponsor. That sponsor reviews all of the time sheets they are responsible for, and that gets entered into SAP as a service entry sheet. Now, all of your accounting and PO are now updated so when the invoice comes in there shouldn’t be discrepancies. If you trust your supplier, I would recommend going to evaluated receipts settlement. As the service entry sheets are entered, AP creates a batch program and they simply run this batch program and it creates the invoice and the check goes out. You need to audit from time to time, but it is always cheaper to do a post-audit to do one upfront. I would not recommend starting that way – and you need a long-term strategic relationship with that supplier. In the end however, what value does an invoice add? If there is a problem such as if we haven’t paid enough, then let the vendor come to me and we’ll fix the problem.
_We are working to develop a contractor charge collection product that is web-based. We will require contractors who execute the work at the end of the day to fill in a labor equipment materials sheet (WEM) and the supervisor to generate a WEM for that day which indicates how much labor we utilized. If you have negotiated those rates in the contract, then it becomes relatively easy for the supervisor to enter it into the system. Now you have a statement of WEM delivered – and you can put it in front of someone who can validate that it was done. It also lets you track earned value against a PO value- and you know you are getting to upper end of work (e.g. we have spent 80% of budget but only 50% of work executed) the supervisor knows there is an issue, which he can resolve in real time. But if John Smith is collecting his WEMS for the work and sending it weekly to the main office and collecting it in the system at the end of the month, you are in for a surprise when AP kicks in and generates a massive invoice to the client. You are getting the overrun signal a long time after the work period. _
Construction people are like dogs – they need to be punished close to the event, or they don’t understand! If you have all of those lags – it doesn’t let the control signals act. Contractor Charge Collection (CCC) systems allow tradesman to enter WEMS on a daily basis and sent to contract coordinator or work supervisor to acknowledge that work was delivered – and can let you know total commitment of dollar spent versus overall scope of the contract. If the ratio of dollar spent is out of whack with work complete – then they have a signal, and management can hold that person accountable. Otherwise mgmt has not way to hold the person accountable.
SAP has something called CAPS – it is just a grungy interface tool to do whatever you want it to do. We are configuring CAPs to do whatever WE want it to do. Time Industrial is another company that has a system that supports the entry of WEMS – a web-based system and you pay them a fee. It is very comparable to what we are developing. They charge a fee to every WEM entered and a fee to the contractor for every WEM entered – collect money from both parties. When we looked at it – Rita said it was a good tool we should look at – but some bells and whistles we wanted – as found as repaired requirements. Maintenance need to know how we found it and how we left it for reliability engineering. Time Industrial just collects WEMs, and did not address the as found as repaired requirements. That is why we went with our own. Anyone can go with it. For us it was not a trivial figure in terms of price – but if you look at the comparative analysis on cost overruns, lack of ability to audit, lack of dual charges – through using a consistent system that we would have paid for the fees within the first year of use.
Read the Supply Chain Management Professional Newsletter
Read the latest supply chain research, articles, and news as soon as we post them.