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Case Study

 

Cooking Up Cost Savings with Order-to-Cash Automation

JBS USA Estimates $6.4 Million Savings within 5 Years by Automating Cash Application, Collections, and Dispute Management Processes

by Lauren Bonneau, Managing Editor | insiderPROFILES, Volume 8, Issue 3

July 20, 2017

JBS

With more than 6,000 customers on six continents, JBS USA sells a staggering amount of meat products all over the world. To improve how payments were collected from all of those sales, the business wanted to do away with manual financial processes and consistently — and in the process, lower its days sales outstanding (DSO) metric. To automate and streamline the order-to-cash process, specifically, JBS USA embarked on a project to implement SAP Cash Application and SAP Collections and Dispute Management. Discover how these solutions enabled JBS USA to decrease DSO metrics, obtain 85% zero-touch processing for electronic payments, and, over time, save $6.4 million. 

With almost 90% of Americans eating meat at least once each week and the average person consuming more than 50 pounds of beef each year, 2016 saw more than 25 billion pounds of beef purchased by US consumers in food services and retail.2 These statistics are great news for animal protein processor JBS USA, a global business headquartered in Greeley, Colorado, that prepares, packages, and delivers beef, pork, lamb, and poultry products. JBS USA sells these products in more than 105 countries on six continents to upwards of 6,000 domestic and international customers — ranging from small restaurants, eateries, or grocery stores to medium-sized food-services companies to bigger conglomerates like Walmart, Sysco, and Target.

A division of Brazil-based JBS S.A., which expanded into the US and Australia in 2007 with an acquisition of Swift & Company, JBS USA has approximately 78,000 employees spread across more than 100 facilities in the US, Canada, Puerto Rico, Mexico, and Australia. Having achieved dramatic growth through more than 20 mergers and acquisitions between 2008 and 2017 — most recently adding five production facilities and three distribution centers after acquiring Plumrose USA — the company’s technology infrastructure became increasingly complex. As the business operates with a shared services model, new acquisitions’ operations and processes are integrated onto JBS USA’s IT systems under the shared services umbrella when they are brought into the fold.

Since the company’s first foray into the poultry market with its acquisition of Pilgrim’s Pride Corporation in 2009, the business has been running on SAP software. As Pilgrim’s Pride had been running (and continues to run) its end-to-end processes on SAP ERP, JBS moved onto this SAP instance — and all later acquisitions were rolled up onto this same instance.1 On the beef and pork side of the business, JBS USA still has some legacy applications in place mixed in with the SAP environment; however, the core business runs on SAP ERP — including the functionality for finance, controlling, sales and distribution, plant maintenance, and logistics. Additionally, JBS USA uses SAP Financial Supply Chain Management, SAP Business Warehouse, SAP Business Planning and Consolidation, and SAP BusinessObjects solutions for reporting along with some non-SAP presentation tools.

To perform the IT and core business functions, the organization relies on the shared services organization so all the businesses have a centralized infrastructure and standardized processes. However, after a few years of bringing new acquisitions onto the shared services, JBS USA found that there were too many manual processes in the financials space, specifically around the order-to-cash process.

“Being a large company with huge amounts of data, the shared services department has an enormous volume of work,” says Shreepad Ankalgi, SAP Financials Analyst at JBS USA. “A lot of the centralized financial processes were manual and error-prone — such as the ones for the cash applications, collections, and dispute management functions — and there were significant challenges to address to become more productive and efficient.”

Every month, 112,000 orders are processed in JBS USA’s SAP ERP instance, and it’s common for 2,000 customers to have open accounts receivable at any point. When JBS USA customers make payments, many of them send remittance via email, fax, or mail with around 250 line items for different invoices. Accounts receivable workers had been taking that paper document — often printed from an email attachment — and physically inputting the data into SAP ERP. Having to take a piece of paper in hand to compare the invoices being paid off and apply the cash manually in the SAP system one at a time could take up to 45 minutes or longer, according to Ankalgi. “If the majority of our customers typically paid off, say, 50 line items of an invoice, and each employee processed around 300 payments in a day, that’s about 15,000 line items that need to be looked at and cleared,” he says. “And because we have cash coming in twice a day, in the morning and at night, it’s insane to think about a bunch of people doing this manually day in and day out.”

To automate the manual processes and help reach the desired efficiency, JBS USA decided to undergo a phased SAP project, implementing the SAP Cash Application module of SAP ERP and the SAP Collections and Dispute Management application. With this software, the business could eliminate manual tasks such as sending emails and printing invoices for past-due collections. As a result, accounts receivable could spend less time focusing on entering transactional data into the system and more time establishing key performance indicators and getting reporting metrics out of the system.

Moving Away from Manual Processes

When JBS USA decided to undertake the implementation, it opted to break down the project into three smaller pieces — focusing on cash applications first, collections second, and then the disputes functionality, which comes into play for deductions when a customer makes a short payment. “By addressing the cash applications piece first, we could get efficiencies coming in immediately, making use of the standard SAP functionality to get a lot of automation off the ground,” says Ankalgi. “During that process, the automation would lead to cleaner deductions being created, which would mean the collections and dispute management team’s jobs would become easier.”

Prior to the project, JBS USA had been using custom functionality to complete cash applications processes, which often led to reconciliation nightmares for accountants. For example, due to custom coding, a system error would prevent customers from being able to use the same check number as a reference for making two payments in the same day. Such failures would slow processes down even further.

A major challenge for collections representatives was figuring out their daily priorities out of thousands of customer accounts, as it would be impossible to follow up with all those customers in the same day. The problem was accentuated further by additional customization that prevented the collections team from prioritizing customer accounts in SAP ERP, making it difficult to reduce the days sales outstanding (DSO), which is a measure of the average number of days taken to collect revenue after an invoice is sent. “Taking into account the large number of customers we have and the average balances they hold, calculating the DSO is extremely crucial to the extent that a small change could mean millions of dollars in savings,” Ankalgi says. “If customers are consistently paying late, it puts a tremendous strain on the company’s cash flow. With automation, we could follow up with customers at the right points in time and bring the DSO down to an ideal measure.”

The project just fell into place perfectly. We had business buy-in, paid a lot of attention to the planning phase of the project — in scoping out the functionality and mapping the business requirements and configuration exactly — and had a tremendous focus on testing as well.

— Shreepad Ankalgi, SAP Financials Analyst, JBS USA

Automating with Standard SAP Functionality

The cash applications piece of the project kicked off in early 2014 with an implementation of SAP Cash Application that took about five months to roll out in the US and Canada. “The project just fell into place perfectly,” says Ankalgi. “We had business buy-in, paid a lot of attention to the planning phase of the project — in scoping out the functionality and mapping the business requirements and configuration exactly — and had a tremendous focus on testing as well.”

After a successful completion of the first phase, the business rolled out the collections functionality in the US in just three months, finishing six weeks ahead of schedule. The dispute management functionality was then deployed in about seven months in the US for just the poultry side of the business. In 2015, SAP Cash Application was rolled out to Australia in a separate implementation that took five months to complete. The company is now rolling out the dispute management functionality to the beef and pork side of the business. And both the collections and dispute management functionality will be brought over to Australia in the near future.

While SAP Cash Application and SAP Collections and Dispute Management are separate applications, they are intertwined. For example, if a customer pays less than the full cost of an invoice — due to a damaged product or some other grievance — an accountant uses SAP Cash Application to apply the amount received from the customer to the invoice, and then the residual balance left on the account becomes a deduction that is prioritized in SAP Collections and Dispute Management.

With automation, all the previously manual processes are now done behind the scenes, and more than 90% of email remittance processing is automated. A file comes in with invoice and payment information, and the cash is automatically applied. Now, the cash applications specialists don’t spend 45 minutes applying payments. They simply review the end result on the screen with no manual work required and confirm that the cash has been applied correctly.

On the collections side, employees at JBS USA previously struggled to follow up with all 6,000 customers, especially when they weren’t responding to emailed reminders for payments. Now, the automation that comes with SAP Collections and Dispute Management provides a prioritized to-do list for these folks so they know exactly what to focus on and which customers to call when they come in each morning. “When they log into the SAP application, they fire off a key code and receive a work list that tells them what to do and basically what their day needs to look like,” says Ankalgi.

When customers send payments, they normally refer to invoice, sales order, or purchase order numbers. In SAP ERP, these numbers are all stored in different places that link back to the same SAP document number. The customer usually has no idea what this document number is, but that doesn’t matter because with the new functionality, the cash application automatically matches the SAP document number to the stored reference number the customer provides. “This aggregation happening in the background understands that if a customer references a sales order number ABC, it is actually SAP document number XYZ, and it will clear the cash accordingly against invoice 1234,” says Ankalgi.

As part of this automation, when a customer makes a short payment and the money is cleared in the cash application, a dispute automatically opens and is delivered to SAP Collections and Dispute Management for follow-up. JBS USA has different teams that handle corresponding with customers for collections and disputes respectively, and these teams communicate often. For example, if a collections specialist is collecting money from a customer, the collections functionality alerts the specialist that an amount is being disputed. By looking at this disputed item, the specialist knows that someone in that other department is already chasing this matter and can either follow up with that person for more information or, if the collections agent has the appropriate access, view the direct correspondence in the system.

To enhance the applications’ functionality even further, JBS USA worked with a third-party implementation partner on capabilities such as using auto-matching to apply cash from customers’ bank accounts, routing correspondence about collections to a customer or group of customers directly from the SAP interface, and aggregating claims or proof of delivery documents all in one place. With the help of this partner, JBS USA created a report that can be run through SAP Collections and Dispute Management to identify certain customers that consistently pay slower, an exercise that previously would have been extremely manual, according to Ankalgi.

There are numerous other reports that the business can now run due to these new applications. For example, SAP Cash Application users can see how many payments came through for the day, how many were unprocessed, or how much total volume of cash was applied — all information that improves visibility into cash flow. There are also certain reports that help determine efficiency and measure performance. For example, SAP Collections and Dispute Management users can see how many customers a collections agent contacted, how long disputed items sat in someone’s inbox, or what the average length for resolving a dispute — all metrics that can help identify areas in need of corrective action or training.

Moving to Zero-Touch Processing and Other Benefits

The project has already seen tremendous time and cost savings through automation on the cash applications side. The time it took to collect and process data, decide what needed to be applied, and generate the result has been compressed significantly. For example, the majority of cash is applied and fully reconciled in a single day now, and 85% of electronic payments have straight-through zero-touch processing.

“When we say ‘zero touch,’ it means there is no manual input or intervention — file delivery and acceptance is all automated, and we just review the payment clearing information in the SAP screen and can apply cash automatically for 85% of our line items,” says Ankalgi. “We can consistently apply cash accurately, without making mistakes, so we have a lot more efficiency, and people can focus on performing more value-added tasks. In less than four years, we have doubled productivity, and we haven’t added one single head count in that department to achieve this.”

The cost savings due to the decreased DSO metric equates to more than $1 million a year, and with more accurate cash flows, financial planning and forecasting are improved as a result. From what was achieved so far by the DSO reduction and other wins, JBS USA anticipates a projected $6.4 million savings overall to be achieved within five years.

A soft benefit is that the morale of employees toward the business processes has improved dramatically, according to Ankalgi. “Instead of splitting up 600-to-700 payments to clear each day among a small team — which can be daunting — the automation alleviates the workload so they can just focus on 30-to-50 exceptions,” he says. “Now, they feel they are contributing very constructively to the development and growth of the company by focusing on value-added tasks like exception management rather than those routine tasks of coming in every day, looking through documents, and trying to clear the cash line by line.”

On the collections management side, collections specialists are benefitting from their prioritized list of customers that need immediate attention. “The collections functionality gives them the privilege to focus on the right customer accounts and take the appropriate follow-up actions at the right time, so they chase the right kinds of people, helping accounts receivable more effectively manage their function, and getting the DSO number to come down to that ideal level,” Ankalgi says.

Having a doable worklist of only priority customers to follow up with each day instead of a lengthy list of up to 3,000 customers has similarly improved the mindset of the collections team members, according to Ankalgi. “Naturally, when the volume of work comes down, people feel empowered to work through the exceptions management process and then feel that they are contributing toward the betterment of the company,” he says.

From an IT perspective, the project has freed up time for focusing on more strategic initiatives. The new applications removed the custom functionality that had been in place and therefore removed the accompanying problems routinely routed to IT. “Moving toward the standard SAP functionality has meant that IT can spend less time on these help desk tickets or other small issues and instead use our time to focus on big-sized, value-added projects,” Ankalgi says. “IT has been able to use its time more productively and figure out other areas where automation can help or further enhance functionality.”

The Road Ahead

As JBS USA continues to deploy the applications in the US, Canada, Australia, and eventually Mexico, the goal is to roll out the functionality as one big platform in a consistent, standard, and efficient manner, according to Ankalgi. “We want to establish a center of excellence model so that as we acquire more businesses and grow organically, we can continue to consolidate and bring these companies under our umbrella without investing in human resources,” he says.

And JBS USA aims to continue its journey to achieving a fully automated environment. “We want to be 100% automated for cash applications,” Ankalgi says. “We understand that is very challenging, but we continually want to push the bar higher and look at what we can do to automate that remaining 15% of customers and find newer ways to bring in more efficiency there.”

1 The only exception is the global trade division of the business that runs on a separate (smaller) SAP instance. [back]

JBS USA

Headquarters: Greeley, Colorado

Industry: Food processing

Employees: 78,000+

Revenue: $33.2 billion

Company details:

  • Processes, prepares, packages, and delivers beef, pork, lamb, and poultry products for sale to 6,000+ customers in 105+ countries on six continents
  • Operates more than 100 facilities in the US, Australia, Canada, and Mexico
  • Owns 10+ subsidiaries including Pilgrim’s Pride and Swift Brands Company, Inc.
  • Parent company, Brazil-based JBS S.A., founded in 1855, has 200,000+ employees worldwide, 300+ production units, and exports to customers in 150+ countries

SAP solutions: SAP ERP, SAP Collections and Dispute Management, SAP Business Warehouse, SAP Financial Supply Chain Management, SAP Business Planning and Consolidation, and SAP BusinessObjects solutions

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