Read how this major oilfield service firm ramped up to high volumes of spend under its automated procure-to-pay system automating its interactions with suppliers.
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Part One of this article described the business drivers, platform, and implementation/supplier on-boarding for Baker Hughes' automated Procure-to-Pay Platform (using OneSCM from TAKE Solutions). Here we examine the process of ramping up to high volumes and some of the benefits Baker Hughes has realized.
Flexibility for Handling Changing Quantities and Prices
The system enables exceptions to be handled much more easily. For example, if 100 items were ordered and received, but five of them failed inspection, the supplier can cancel the original invoice and create a new invoice for the 95 that passed inspection without having to go through a complex return order process.
The system also makes it much easier to support price changes. This is very helpful, for example, in supporting procurement of commodities which are based on market pricing, where the exact price is not fixed until the item is shipped. For example, if Baker Hughes orders a hundred feet of a certain class of steel (e.g. 1¾“ round bar), the PO might be created with a price of say $29.55/foot, but at the time the steel is actually shipped, the price is now $30.05/foot. If, for whatever reason, the buyer did not update the PO with the new actual price, the supplier can see that the PO to be invoiced is wrong and respond with a price change, which is sent for approval by the buyer. In the past, this sort of discrepancy would have caused a flurry of emails and phone calls back and forth and taken potentially weeks to reconcile as people dug through their emails, faxes, and paper documents. Now it can be resolved the same day with a clear and simple process. The same is true for POs issued with an incorrect price. The supplier will see it as soon as the PO is created and simply sends a correction request through the system to the buyer for approval.
Initially a few suppliers complained about what they perceived as extra work. Before, they did not have to acknowledge receipt of the PO. Now they cannot ship until they send a PO back. But they also get benefits—instead of having to wait 90 days or chase payments, they have full visibility and get paid sooner. And there is a lot less back and forth resolving issues in general. The vast majority of suppliers look at the net results of the full end-to-end system and are happy with the new platform and approach. With 2,000 suppliers on the system, Baker Hughes has gotten relatively few complaints, especially once suppliers use the system and see the benefits.
Ramping Up to Full Coverage
There are about 2,000 unique global suppliers on the system, representing over 80% of manufacturing spend. In 2010, Baker Hughes processed over 300,000 transactions through their collaboration platform (see Figure 1 below). Now they are looking at the operations side of their business to get more of that spend on the platform as well. Baker Hughes plans to cover 90% of all spend across the company by the end of this year.
Figure 1 - Ramp-up in Volume and Value Processed Through BHI’s P2P System
Cost Avoidance and Benefits
The P2P process for Baker Hughes is now paperless, much faster, and much more traceable. Baker Hughes estimates they avoided $1.9M of cost in 2010 through the use of the collaborative platform. This was primarily from reductions in manual labor—not having to send POs manually, not having to chase suppliers for missing documentation that should be with the shipment, and not having to spend time resolving invoicing disputes. Further, it has virtually eliminated invoice errors. For 2011, they are on track to avoid well over $2M.
In addition they have dramatically reduced payment delinquencies and improved Days Payables Outstanding, which results in far fewer orders being put on credit hold. Further, because suppliers now have confidence they will get paid on time, they are imposing far fewer requirements for prepayment, which is a huge benefit for Baker Hughes.
The Power of Complete Visibility
Now there is complete visibility throughout the procure-to-pay process for everyone, buyers and suppliers alike, which Baker Hughes never had before. With the system in place, they know exactly when they are going to receive the goods, which helps tremendously with planning and creates smoother operations. Suppliers know when they are going to get paid and can see the status, so they don’t have to make constant phone calls to ask about it. This, combined with much more timely payments, has improved supplier relationships. And finally, the ability to track metrics and receive alerts has enabled continuous process improvements for Baker Hughes.
The concept of automating supplier transactions is straightforward enough, but still far too few companies do it. Baker Hughes has shown that substantial benefits can be achieved by investing in this type of supplier integration.
To view other articles from this issue of the brief, click here.