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Is Your Organization Still Focused Only on Labor Costs? Optimize Financial Shared Services Through Supplier Aggregation

by Steve Sprague, Vice President of Product Strategy, Invoiceware International | SAPinsider

October 1, 2008

Learn how Crossgate’s service aggregator, the Business-Ready Network, can facilitate the automation of your accounts receivable and accounts payable processes.
 

When companies started expanding their operations beyond their own geographical borders, they struggled to find new ways to remain profitable in an increasingly competitive global marketplace. Labor arbitrage seemed like a perfect solution: By leveraging labor markets in countries where salaries were lower, companies could transfer tasks that were traditionally performed in-house to offshore providers that could do the work faster and cheaper, reducing staff and overhead costs.

Although deploying cheaper labor for back-office tasks helped reduce the cost of specific processes like data entry and bookkeeping, it didn't take long for businesses to realize that sending such tasks elsewhere only addressed the cost aspect of service provisioning. There are many more considerations: The body of regulatory requirements with which organizations must comply has grown tremendously every year, for example. And with each new law comes increased risk of noncompliance fines and sanctions, any one of which could easily put a company out of business or irreparably tarnish its reputation.

The Shift: Beyond Labor Costs to Business Process Automation

As a result, a paradigm shift has begun to take place; companies have moved from looking only at labor costs to addressing business process automation. By consolidating non-revenue-generating financial functions and automating processes, companies can benefit from economies of scale and seek out new technologies and services to increase corporate flexibility and competitive advantage.

With their focus on process automation, Shared Service Centers (SSCs) enable companies to optimize high-priority financial functions including accounts payable (AP), accounts receivable (AR), ledger maintenance, reporting, and archiving.

Priority #1: Automating AP Processes

Automating AP processes, which typically involve large volumes of data, is a top priority for SSCs. Although all companies approach AP processes differently, most have developed a partially decentralized system where they maintain invoices at local offices and send only the financial data to the SSC for processing. But with current trends toward the electronic invoicing and digitizing of data and business documents, more advanced companies have centralized AP processing completely within the SSC.

Because AP processes directly affect a company's bottom line, they must be transparent and auditable; a fully automated SSC can easily reach these goals while maintaining — or even improving — quality of service. Companies need to closely monitor communications related to AP transactions. If the SSC does not manage AP, issues such as delivery verification may involve numerous people and complicated status checks. If the SSC does manage AP, it can implement a computerized AP communications workflow that enforces guidelines, tracks proceedings, accelerates the process, and decreases the risk of errors.

A company's ability to seamlessly exchange electronic invoices depends on how well the company negotiates document exchange formats with suppliers. But companies often buy from thousands of suppliers, and those suppliers deal with hundreds of customers. No single customer can expect a supplier to serve that customer's specific document exchange format unless it is one of that supplier's largest customers. Negotiating document exchange formats with all suppliers may seriously impede the level of automation the customer can achieve.

Priority #2: Automating AR Processes

An SSC typically takes over AR as soon as goods have been delivered to the customer and logged in to the AR system. The SSC then invoices the customer, usually by sending a paper invoice, and follows up on the due item until payment. Thanks to modern technology and legislative changes in many countries, companies now can send electronic invoices directly to their customers. Electronic invoicing helps the bottom line by reducing the costs associated with mailing invoices and maintaining administrative personnel in other locations. Electronic invoicing further improves control over the invoice-to-cash cycle time.

As with AP processes, negotiating document exchange formats with buyers is necessary for a seamless exchange of electronic invoices. If several customers demand custom document exchange formats, adopting electronic invoicing becomes too difficult for the supplier.

Leverage Economies of Scale with a Service Aggregator

The key to efficiency in AP and AR operations is sending and receiving invoices electronically. To do this, you need automated processes; but more importantly, you need clients and suppliers to agree to certain electronic formats. Getting everyone to standardize on these formats can be tedious, especially when you do business with thousands of suppliers or customers.

SAP's core software portfolio helps companies automate and streamline AP and AR processes to achieve the ultimate level of B2B communication required for managing invoices. To take this automation a step further, SAP is working closely with Crossgate, a business network enablement company, to offer customers a unique, preintegrated solution for enabling the electronic exchange of documents.

Crossgate has developed the Business-Ready Network, a service aggregator that allows companies to use any electronic format they choose to exchange electronic invoices with their customers and suppliers. The Business-Ready Network helps organizations be more flexible and easier to do business with; there are no forced standards, so trading partners can send information in the format easiest for them, including flat files, Web portals, Ansi X12, EDIFACT, or XML.

With the support of a service aggregator like Crossgate's Business-Ready Network, SSCs no longer have to integrate or onboard projects, partners no longer have to reformat information to meet specific standards, and suppliers no longer need to adapt to dozens of invoice standards. Service aggregators remove these efficiency hurdles, thereby drastically accelerating the adoption of electronic invoicing. Crossgate extends SAP clients' capabilities by enabling an end-to-end electronic process that can handle multiple electronic formats, eliminating the need to deal with format definitions and individual company changes. The result? A significant boost in efficiency, reduced costs, and simplified processes.

Crossgate's Business-Ready Network takes business documents from thousands of business partners and translates them into your preferred electronic format.

Increase Collaboration with Partners

Crossgate's Business-Ready Network gives your organization the power to expand your e-business community, monitor activities and transactions, and improve financial processes by automating AP and AR and offering inbound and outbound electronic invoicing. By eliminating paper invoices, companies can get up and running quickly with their global trading communities. Crossgate's centralized B2B repository contains over 40,000 accessible partner and ERP profiles, which customers can review, select, and activate without the need for expensive, internal integration projects.

Crossgate's Business-Ready Network operates on a common business process platform by using SAP NetWeaver technology to connect to the network. The network enhances the capabilities of existing SAP systems by supporting the electronic data exchange of business-critical information around the globe without requiring companies to acquire additional third-party software. SAP customers can connect to the Business-Ready Network and have instant access to the benefits of the Crossgate solution.1

The Next Logical Step Toward Efficiency

If your SSC aggregates a large invoice volume within your corporate organization — say, you process millions of invoices a year — you need to find a way to do things smarter and faster than an individual client organization can.

After bringing financial processes into your SSC, the next logical step for SAP customers is to engage with a service aggregator. Taking proactive steps to simplify communication and collaboration within business networks will allow you to focus on your company's individual value proposition and concentrate on making your organization an industry leader in providing quality customer service.

Bernhard Fischer (bernhard.fischer@sap.com) is responsible for SAP's solution strategy for shared services and business process outsourcing (BPO).Bernhard has been with SAP
since 1990, where he's developed software for the SAP R/3 system administration toolset, implemented SAP R/3 installations in Europe and North America, and founded regional support centers in Walldorf, Singapore, and Shanghai. He has a master's degree in physics from the Technical University of Karlsruhe.

Steve Sprague (steve.sprague@crossgate.com) has worked in the business network enablement and middleware integration space for over 13 years. As Vice President of Global Marketing for Crossgate, Steve manages global messaging, product strategy, and field enable-ment for the SAP relationship in North America. Prior to joining Crossgate, Steve spent six years as Executive Vice President of Marketing and Product Strategy with SEEBURGER. Before this, Steve worked as an analytical consultant, surveying companies about their B2B requirements.



1 See also "Your Business May Be Part of a Network — But Is It Truly Connected?" by SAP AG Chief Technology Officer Rolf Schumann in the April-June 2008 issue of SAP Insider (www.SAPinsideronline.com). [back]


 

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