procure to pay process framework - software...

Procure To Pay Process Framework

Overview Document

November 2007

Company Confidential

Process Framework Overview

Software AG © 2007 Confidential Do Not Copy /12

Table of Contents Process: Procure To Pay.............................................................................................. 3

Description: ................................................................................................................... 3

The SCOR Model............................................................................................................ 3

S1 Source Stocked Product ..................................................................................... 3

Business Context & Key Issues:.................................................................................. 5

Best Practices / Key Themes ..................................................................................... 5

Benefits / Value Proposition ...................................................................................... 6

webMethods Fabric Enablement of P2P ................................................................... 6

BPM Examples ........................................................................................................... 6

CAF Examples............................................................................................................ 7

Blaze Rules (examples shown in Designer) .......................................................... 7

Process Framework Components in Demo ............................................................... 7

Roles ........................................................................................................................... 7

Process Modeling .......................................................................................................... 8

Document types............................................................................................................ 9

Purchase Order ......................................................................................................... 9

Goods Received ...................................................................................................... 10

Process Designer documentation fields (input RD) .............................................. 10



Process: Procure To Pay

Description:

The Procure to Pay process spans the point from where a purchase order (or other demand signal) is submitted to a supplier for fulfillment, to the eventual receipt, verification and putaway of the product into inventory or delivery straight to a production line, to payment for goods received. SCOR refers to this process as the Source process within Fulfill Demand.

Fulfill Demand

ReturnDeliverSource MakePlan

Procure to Pay

� Schedule Deliveries

� Receive Product

� Verify Product

� Transfer Product

� Authorize Payment

Figure 1 - Procure to Pay within the Supply Chain

The SCOR Model

S1 Source Stocked Product

For simplicity sake, we are considering the S1 scenario only for this framework, that is sourcing stocked product as opposed to engineer or make to order. This involves the procurement, delivery, receipt and transfer of raw material items, subassemblies, product and or services. This framework uses product. The Category S1 includes five Level 3 Elements: S1.1 Schedule Product Deliveries

Scheduling and managing the execution of the individual deliveries of product against an existing contract or purchase order. The requirements for product releases are determined based on the detailed sourcing plan or other types of product pull signals.

S1.2 Receive Product

The process and associated activities of receiving product to contract requirements.

S1.3 Verify Product

The process and actions required determining product conformance to requirements and criteria.



S1.4 Transfer Product

The transfer of accepted product to the appropriate stocking location within the supply chain. This includes all of the activities associated with repackaging, staging, transferring and stocking product. For service this is the transfer or application of service to the final customer or end user.

S1.5 Authorize Supplier Payment

The process of authorizing payments and paying suppliers for product or services. This process includes invoice collection, invoice matching and the issuance of checks.

Metrics (see Appendix A for metrics attributes): Cost to Source The sum of the costs associated with Source.

Inventory Days of Supply (Raw Material )

Value of raw materials ÷ (COGS ÷ 365).

Order Fulfillment Cycle Time

The average actual cycle time consistently achieved to fulfill customer orders.

Product Acquisition Costs

Product acquisition costs include costs incurred for the production of product: sum of product management and planning, supplier quality engineering, inbound freight and duties, receiving and product storage, incoming inspection, product process engineering and tooling costs.

Return on Supply Chain Fixed Assets

Return on Supply Chain Fixed Assets measures the return an organization receives on its invested capital in supply chain fixed assets. This includes the fixed assets used in Plan, Source, Make, Deliver, and Return. The levels of aggregation can be at any element associated with a supply chain asset.

Return on Working Capital

Return on working capital is a measurement which assesses the magnitude of investment relative to a company’s working capital position verses the revenue generated from a supply chain. Components include accounts receivable, accounts payable, inventory, supply chain revenue, cost of goods sold and supply chain management costs.

Source Cycle Time

The average time associated with Source Processes

Best Practices: Alliance and Leverage Agreements None identified

Joint Service Agreements (JSA) Collaborative Planning Systems

Postponement Postponement (delayed differentiation) is a supply chain concept where a product is kept as long as possible in a generic state. Differentiation of the generic product into a specific end-product is shifted closer to the consumer by postponing identify changes, such as assembly or packaging, to the last possible supply chain location.



Business Context & Key Issues:

The Procure to Pay process typically has the following challenges:

• Users lack real-time, or “Just in Time,” visibility of the end-to-end P2P process; including visibility into spend vs. budget and jeopardy of late receipt of key goods.

• There is insufficient control of SLAs with suppliers, with performance management happening well after the fact. There is insufficient understanding of supplier replenishment behavior.

• There are errors in the transactional process, such as goods being received but for which no invoice has been generated, or vice versa.

• The company cannot adapt to changes in its supplier network and / or too few of its suppliers are connected to it through B2B channels.

• Suppliers don’t ship what was ordered/confirmed via substitutions, obsolescence or new product changes.

• P2P is one of the key processes that is subjected to compliance requirements such as Sarbanes-Oxley. Automation of Controls (Section 404) requirements would include; segregation of duties, transaction integrity, automation of tables of authorities, and fraud detection attempts to bypass approval authorities by “PO Splitting”.

Best Practices / Key Themes

1. Global Procure to Pay Visibility – Be able to track a purchase order from

submission to a supplier, to receipt and eventual payment. 2. Supplier Performance Management - Define specific SLAs with classes

of suppliers or with individual suppliers. Provide alerts when SLAs are in jeopardy of being violated or when they have in fact been violated.

3. Vendor Catalog Compliance – manage inbound SKU proliferation from suppliers, controlling rouge changes, insertions and replacements of non-catalogue approved SKUs. Reduces future reconciliation issues.

4. Continuous Controls Monitoring for Procurement Compliance – Enforce and automate compliance controls.

5. Real-time Fraud detection; a subset of Continuous Compliance but focused on capturing deliberate attempts to breach process

6. Continuous process improvement for Procurement - Understand actual replenishment cycle times and cycle time variability from each vendor and by class or category of spend



Benefits / Value Proposition

• Improved visibility to the end to end process

• Reduced inventories, higher reliability

• Improved productivity of buyers and AP personnel in resolving exceptions

• Improved productivity of expediters

• Reduce late shipments to end-use customers caused by lack of knowledge of the inbound raw materials or distribution goods for resell

• Better Supplier behavior due to automated continuous monitoring

• One source of facts to use with supplier negotiations, driving down contract costs

• Reduced reconciliation issues with suppliers and AP

webMethods Fabric Enablement of P2P

BPM Examples

1. Understand how long the P2P process actually takes. Be able to dimension cycle times by supplier, product, spend category. [Dashboard]

a. Baselines – what are normal cycle times for P2P overall plus individual process step times. Also highlight variability (standard deviation)

b. Deadlines - % on time receipts, % in full receipts, and show performance in aggregate and by supplier, product, etc. Alert on missed or predicted missed intermediate deadlines across the various steps of the process.

2. Track volume and types of defects. Pareto Analysis of Defects Evaluate and monitor how defects accumulate throughout the P2P cycle. [Pie charts in detailed Optimize views]:

a. Goods received, no invoice

b. Invoice received, no goods received

c. % defective goods

d. Spend dimensioned by spend classification

3. Use workflow to manage:

a. Invoicing issues

b. Handle Returns

c. Automate approvals and tables of authorities



4. Use IS/BAM to automate, measure and enforce compliance controls

a. Segregation of Duties

b. Table of authorities compliance

c. Transaction integrity

CAF Examples

1. Enter PO upfront (although normally this will be done via ERP) using fields specified in the Designer process file.

2. SLA Management: a. Be able to define supplier-specific service levels by product

importance (strategic, non-strategic), usage (production, MRO), category (raw materials, packaging, etc.)

b. Be able to define an escalating penalty scheme for violating the SLA (x% of order if 1 day late, y% if 2-3 days late, z% if >3 days late)

c. Show what current performance is for a given supplier (for now, maybe just via a field on the screen, but eventually incorporating a performance dial for on time, in full and % defective)

3. Automate compliance reporting a. Report control performance b. Create task for reacting to compliance defect

Blaze Rules (examples shown in Designer)

1. Segregation of Duties Rule a. Review and Approve Departmental Step: Approver cannot equal

Requestor 2. Transaction Integrity Rule

a. Authorize Payment: Amount Invoiced Equal to Amount Approved (plus or minus 5%)

3. Delivered In Full on Time Rule a. Receive Confirmation Step: Does Acknowledged Quantity match

Requested Quantity; Does Promised Ship Date match Requested Ship Date

Process Framework Components in Demo

Roles

• Customer: o Requestor o Departmental Approver (Budge Owner) o Procurement/Purchasing officer creates purchase order o Procurement/Purchasing Manager approves purchase order



o Logistics Manager scheduling product deliveries o Warehouse Manager receiving, checking and transfering goods

received o Accounts Payable desk for validation and scheduling payment o Auditor

• Supplier o Customer Representative receiving order and PO confirmation o Automatic Product shipment

Process Modeling

Figure 2: Basic P2P Process Model in Fabric 7.0



Figure 3: Extended Process Model including SCOR

Document types

Purchase Order

• POrderID

• CustomerID

• CustomerName

• SupplierID

• SupplierName

• ProductID

• ProductName



• Quantity

• Priority (strategic; non strategic)

• Usage (production; mro)

• Category (raw materials; packaging; machinery; maintenance)

• TargetedDeliveryDate

• ConfirmedDeliverDate

• SourcePlanID

• Approved

• Confirmed

• Misc1

• Misc2

Goods Received

• POrderID

• SupplierID

• SupplierName

• OrderedQuantity

• DeliveredQuantity

• VerifiedQuantity

• ReturnedQuantity

• Priority (strategic; non strategic)

• Usage (production; mro)

• Category (raw materials; packaging; machinery; maintenance)

• TargetedDeliveryDate

• ConfirmedDeliveryDate

• ActualDeliveryDate

• Misc1

• Misc2

Process Designer documentation fields (input RD)

Nr Step [field] Documentation

0.1 Process [SLA Management]

A key capability for effective P2P process management is to monitor supplier performance against explicit or tacit SLAs. Tacit SLAs are based purely on the required date for each line item ordered. Explicit SLAs will have specific fill rates / DIFOT rates specified for each supplier along with penalties for violating the SLAs. - Cycle times by product by supplier by location(plant / warehouse where delivered)



- Cycle time variability, same dimensions - Explicit SLAs by supplier and performance against those SLAs

0.2 Process [Vendor Managed Inventory]

The supplier manages inventory on behalf of the customer, receiving demand signals via POS, inventory movements / adjustments / issues, etc. Replenishment does not require a PO, but is based upon the demand signals and a long-term contract with the customer.

1 Schedule Product Deliveries [SCOR]

S1.1 Schedule Product Deliveries Scheduling and managing the execution of the individual deliveries of product against an existing contract or purchase order. The requirements for product releases are determined based on the detailed sourcing plan or other types of product pull signals. Each occurrence consumes time:

2 Schedule Product Deliveries [Order Changes]

It would be very useful to compare the % Schedules Changed within Supplier LT versus % Orders Received On Time and In Full. At the simplest level, this can be done via the Optimize screen where multiple KPIs can be selected and viewed.

3 Receive Product [SCOR]

S1.2 Receive Product The process and associated activities of receiving product to contract requirements.

3 Verify Product [SCOR]

S1.3 Verify Product The process and actions required determining product conformance to requirements and criteria.

4 Transfer Product [SCOR]

S1.4 Transfer Product The transfer of accepted product to the appropriate stocking location within the supply chain. This includes all of the activities associated with repackaging, staging, transferring and stocking product. For service this is the transfer or application of service to the final customer or end user.



5 Return Defective Product [Workflow for Returns]

This would be a good step to use workflow to manage pending returns

6 Authorize Supplier Payment [SCOR]

S1.5 Authorize Supplier Payment The process of authorizing payments and paying suppliers for product or services. This process includes invoice collection, invoice matching and the issuance of checks.

7 Authorize Supplier Payment [Errors/Alerts]

1. Goods Received, Not Invoiced (unvouchered receipts) 2. Freight accrual mismatch due to actuals not being properly reconciled with estimated freight costs 3. Invoice issued, but PO not approved

Dept # for Spend Classifications

Internal accounting and tracking code to associate budgets and uses.

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