‘Digital Transformation” is a seductive vision, but it is easy to fall into one of the many deep, dark “rabbit holes”.
We like to think that digitization will result in greater efficiency & effectiveness, less manual effort and an easier life.
BUT . . .
You may have heard the saying ‘Automation makes Bad, Worse, Faster’, which I first heard from an early digital warrior at Walmart.
More recently the phrase “the best form of automation is elimination” has been resonating.
When we talk about Source to Pay (S2P) or Purchase to Pay (P2P) transformation, most of the cases for action and business cases are built around one or more of the following key objectives;
- Reduce effort and cost of process operation
- “eliminate unnecessary (manual) tasks”
- Optimize working capital
- “agree and execute optimal payment terms”
- Manage risk
- “maintain visibility over supply, master data, cash, conflicts of interest etc”
- Reduce maverick spend
- “improve PO compliance”
- Reduce cycle time of process
- “make buying simple”
- Reduce cost of goods and services
- “improve sourcing, contract compliance and vendor oversight”
Most transformation initiatives tend to be “technology driven” or at least “technology enabled”. There are some sound reasons for this, not least the fact that it is often easier to build the required stakeholder coalition and get buy-in to a business case when supporting a large capital investment case. The focus around capital programs has an unfortunate side effect of assuming that the biggest business benefits come from the biggest investments, which is demonstrably not always the case.
Of course, examining the 6 key drivers above, it becomes obvious fairly quickly that achieving any one of these objectives is not primarily an automation problem. So why do we keep falling into the same old trap? The essence of this problem boils down to this critical observation “The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.”
SO, it follows that our primary goal must be to create an inherently efficient, effective process and then automate that.
On a recent webinar Tim Pumphrey, Senior Manager – Procure to Pay at Tarmac, took us through his ‘unplugged’ approach to substantial improvement in P2P efficiency and effectiveness.
Tim and his team were tasked by the Tarmac executives to improving the process, and they saw the single biggest root cause inhibitor to progress as their First Time Match Rate (FTMR).
This is the essence of “Straight Through Processing” or STP (confusing when discussing Source to Pay!), and reflects the ratio of invoices received that need no human touch to be matched to a PO and a Goods Receipt for automatic approval for payment in the appropriate payment run that reflects the agreed payment terms.
Some of the most powerful approaches are simple in concept. But simplicity can be complex to achieve. No-one has described this better than Steve Jobs.
With commitment from the Tarmac executives, Tim and team set to work in getting the data to analyze their current FTMR and looking at the root causes behind the large percentage of invoices that did NOT achieve First Time Match. This is a classic “Defectivity” tactic, a powerful approach that has its origins in the Lean 6 Sigma movement.
Spurred on by this Tim and his team began a deep process dive to better understand their process. They wanted to explore accuracy, reporting, calculations and better define FTMR in their business terms. What came about was an 8-step approach;
Starting with the Invoice, the team worked through the reasons behind the evasive 3 Way Match. From the contents of the invoice itself, to the details of the Purchase Order (PO), the discovery of a “mystical” route by which the PO found its way to the supplier (if ever!), the vagaries of the suppliers processes and working practices and how the Tarmac PO could best contribute, the Goods Receipt (GR) process, the understanding of its relevance, the timeliness and method of capture, through to the number of stakeholders and participants across the end to end process that either “touched” or had an interest in the PO, Invoice and GR.
They soon uncovered the core problems that needed to be fixed. From incorrect email addresses, centralized email boxes, to paper invoices and different parts of the business receiving the supplier invoice.
Fixing the issues required discussion and mutual understanding within and beyond the Tarmac business, some changes to formats & communication of invoice requirements, some adjustments to invoice scanning procures, a drive for digitally readable invoices, and some targeted point system improvements using RPA.
The results that this ‘unplugged’ approach gave were game-changing. Not only did they see a 3x improvement in overall performance, but Tim and the team can be credited with;
- Building a stronger relationship with his suppliers
- Freeing up time to focus on real value-adding tasks
- Improved collaboration across departments and the overall business
- Finding a BETTER way for his process to succeed before considering technology investments.
This leaves the Tarmac business in a much stronger position to reap the benefits of automation than if they had taken that route at the start.
The approach reflects the best practice in this maturity model below.
This is an excellent example of the best sequence to drive process improvements and transformation. It highlights that age-old question of ‘what does good look like?’ Well, if our processes aren’t ‘good’ in the first place (i.e. streamlined, efficient and driving successful outcomes) then throwing a digital element into an already flawed situation will make it worse.
There are many lessons in this story, not least that we need to understand and exert the “Influence” we have, rather than any illusions of “control”, over our end-to-end processes.
Thanks for reading….