While many business processes have become automated, accounts payable (AP) processes remain largely paper-based and cumbersome. Electronic Data Interchange (EDI) has long promised automated invoice delivery, verification, audit, and payment, but according to Gartner and Aberdeen Group research, 75% to 80% of invoices today are still received in paper form and processed manually. Clearly, paper isn't going anywhere. The question then becomes — what is the best way to streamline these paper processes in order to maximize productivity and minimize operational costs? The Goodyear Tire & Rubber Company recently answered this question by implementing an OCR and automated workflow solution in its AP department.
MANUAL DATA ENTRY CAN LEAD TO ERRORS, DELAYED PAYMENTS
Goodyear recently centralized all of its North American AP processing duties. This initiative effectively made the company's North American Tire AP department, located in Akron, OH, responsible for processing all vendor invoices for each of the company's North American manufacturing plants. Centralizing these processing tasks nearly doubled the invoice volume for the North American Tire AP department. Department managers were not only concerned about how to effectively absorb this added workload, but the added invoice volumes threatened to compound problems the department was already experiencing by processing invoices manually.
For example, Goodyear's manual method of processing invoices required a mailroom clerk to open and sort invoices into batches. An AP employee would then manually validate the paper invoice against the vendor record in SAP. Once the invoice was verified, the paper invoice was given back to the mailroom clerk, where it was scanned into Goodyear's IBM (formerly FileNet) content management system. The scanned invoice would then be sent to another AP employee who would manually key the invoice data into the SAP system and post the invoice for payment. The multiple touch points and manual data entry required by this method led to instances of human error. "AP clerks would sometimes transpose an invoice number or key in the wrong date or vendor code when manually entering invoice data," says Jami Dunphy, manager of accounts payable for Goodyear.
Furthermore, additional manual labor was required in instances where an invoice couldn't be immediately posted to SAP (e.g. invoices that require a cost center approval before being cleared for payment). In these instances, AP clerks had to manually type an email requesting approval, attach the file of the scanned invoice in need of approval, and send the email to the designated cost center employee. The cost center employee would approve the invoice for payment by placing an electronic signature on the document and emailing the file back to the AP clerk so the payment could be posted in SAP. This process was time-consuming and hindered the pace in which Goodyear could issue payment to its vendors.
"We need to ensure that we pay our vendors' invoices in a timely fashion," says Dunphy. "If we miss getting critical payments processed by the check-run date, we have to issue special 'quick pay' checks to these vendors, which requires added labor and operational costs."
EDI CAN'T ELIMINATE ALL PAPER PAINS
One of the Goodyear AP department's primary objectives throughout the centralization initiative was to identify ways to automate many of its manual paper-based processes. The first step the AP department took toward achieving a higher level of automation was to convince a percentage of Goodyear's vendors to send invoices via EDI as opposed to issuing paper invoices.
"We moved most of our freight carriers to EDI and requested that our MRO [maintenance, repair, and operations], service, and raw materials vendors with the highest monthly invoice traffic move to EDI as well," says Dunphy. "However, outside of the freight carriers, only 1.25% of our vendors have moved to an EDI method of invoicing. We needed another means of automation to gain control of the large number of paper invoices we would inevitably receive."
Then, in 2006, Goodyear's North American Tire Manager of SAP attended a session on OCR at an SAP user conference and passed what she learned on to members of Goodyear's AP department. The group believed this technology could help the company achieve its paper automation goals and issued an RFQ (request for quote) later that year. The RFQ was sent to 12 data capture vendors and solutions providers, and most of these vendors ultimately responded to the request. Goodyear then invited six vendors to its corporate headquarters for live presentations and demonstrations.
Goodyear's AP department used these demonstrations as a way to identify the solution that had the best mix of three primary capabilities. First, the department desired a solution with highly accurate location rules. This term is used to identify an automated data capture/OCR solution's ability to accurately locate and identify key invoice data fields (e.g. invoice number, date, vendor name, PO number, etc.) regardless of where it is located on a page. The system then uses this information to build a template or 'fingerprint' of that specific vendor's invoice layout so that this data can be quickly extracted when additional invoices from the same vendor are processed in the future.
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Second, Goodyear's AP department desired a solution that would extract key data with a high level of confidence on the first read so that AP employees wouldn't have to spend a lot of time verifying or rekeying data fields. Lastly, the AP department wanted the ability to set this confidence level itself, so it could control when a data field would be sent to a verification station rather than being decided by a default of the system. In the end, Goodyear selected a solution proposed by solutions provider EKI (Electronic Knowledge Interchange) that was built using Datacap's Taskmaster for Invoices software as its backbone. This solution not only provided all the previously mentioned capabilities Goodyear's AP department desired, it also provided the company with additional automation options the company hadn't previously considered (see sidebar on page 16).
AUTOMATED DATA CAPTURE, WORKFLOW ENHANCES ACCURACY
Selecting the right technology solution was just one step in Goodyear's automated invoice processing initiative. The AP department also needed to convince Goodyear executives to release the funds required to implement the solution. Dunphy and her team built its case by referencing studies from The Accounts Payable Network (TAPN). TAPN is a member organization that gives finance professionals access to exclusive AP information including best practices for AP functions; AP metrics and benchmarking data; tax, regulatory, and compliance guidelines; and member Q&A forums.
"We benchmarked the capabilities of our AP department with those deemed best-in-class by TAPN and identified key areas for improvement through automated invoice processing," says Dunphy. "We presented this data to our senior management, and they approved the project."
Goodyear began installing its automated invoice processing solution in late 2007, and the system went live this year. Where Goodyear's manual processing method required each invoice to be handled multiple times, the company's new solution requires each invoice to be handled only once. A mailroom clerk opens the mail and sorts invoices into categories (e.g. raw materials invoices, general invoices, utilities invoices, etc.). A small, controllable number of these invoices (i.e. 10 to 50) are then batched together and scanned by a mailroom clerk on a Canon DR-9080C document scanner. Invoice images are then imported into Taskmaster, where the software automatically identifies and extracts key information (e.g. invoice number, purchase order number, date, vendor name, etc.) off the invoice and validates this information against vendor records stored in SAP. If the invoice information is verified, then this data is released to SAP, and the invoice is posted for payment.
"By automating the data capture and validation process, we were able to absorb the additional invoice volumes we received as a result of the centralization initiative without adding headcount," says Dunphy. "In fact, we were able to redeploy many employees formerly dedicated to manual invoice processing to work on other AP projects. In addition, automated data extraction has helped to reduce the number of data entry errors we experience."
Goodyear's AP department also added an automated workflow component based on Lotus Notes to address invoices that required approval or other escalation before they could be posted to SAP. This workflow solution now automatically routes problem invoices to the appropriate internal parties rather than requiring an AP clerk to manually type and send invoice approval and escalation emails.
"Our automated workflow solution has helped us take a process that used to require 14 steps and five to seven days to complete and reduce it to a process that can be completed in a single day with 9 primarily automated steps," says Dunphy.
With its automated data capture and workflow solution, Goodyear has proven that while paper may be a necessary evil in AP processes, the time, labor costs, and inefficiency that often come along with paper don't have to be. If you haven't already done so, you may want to investigate how similar solutions can help you overcome the paper challenges currently impeding your business processes.