Exceptions are inevitable. But does your struggle against them have to be?

Exceptions are inevitable. But does your struggle against them have to be?

May 25, 2012 Kathleen Hamm, Accounts Payable Manager

J. R. Simplot Company

sharedserviceslink.com’s

Annual Procure-to-Pay Leaders Meeting

Agenda

Company overview

Procure-to-pay design

Using the Six Sigma Approach

• DMAIC

Results

Summary

Bringing Earth’s Resources to Life

J R Simplot Overview

Privately held

Revenues = $5 billion

10,000 employees

• 6,500 NA employees

Global presence

• US (33 states)

• Australia

• China

• Canada

• Japan

• Korea

• Mexico

Industries

• Food processing

• Mining

• Fertilizer

• Farming

• Cattle feeding

• Industrial products

• Feed ingredients

• Silica sand

• Turf and horticulture

• Retail farming supplies and services

Bringing Earth’s resources to life

Procure-to-Pay Design

Decentralized structure

170 buyers / receivers

150,000 purchase orders / 480,000 line items

US & Canadian operations (4 business groups)

• 3 mining facilities • 14 manufacturing / processing

plants • 2 import & distribution terminals • 95 retail stores • 2 feedlots • 30 farms • IT equipment / services

Multiple purchasing types

Multiple systems

Procurement structure Centralized AP process

19 AP employees

Process 600,000 invoices annually • 36% PO based (216,000) • 44% non-PO • 20% Interfaced

US & Canadian operations • Agribusiness group 45% • Food group 43% • Land & livestock group 5% • Corporate group 7% • Joint ventures / small businesses

Multiple invoice types Multiple systems

Accounts payable structure

April 2009

New manager joined disbursement team

Analyze

April 2011

Dig into the details to identify improvement

opportunities.

Analyze

Improve

June 2011

Take actions to improve processes and meet

defined performance expectations.

Transforming exception management Utilizing the Six-Sigma approach

Measure

Janauary 2010

Measure

performance and manage accordingly.

Control

Follow up, continuous measurement and

change management.

May 2012

Define

November 2009

A new direction for AP team to assure we are

working hard on the right things.

Discrepancy between PO Receipt and Vendor Invoice on 3-way PO Match. An invoice that does not make it through the AP process to pay

and gets rejected to a queue requiring human intervention.

Simplot exception reasons • No receiver • Price discrepancy • Quantity discrepancy • No PO provided on invoice • Invalid container ID/ticket • Wrong PO no. • Items not on PO • Freight unreconciled • Other • Miscellaneous

Transforming exception management Define – what are exceptions?

Transforming Exception Management

Time & Money • Manual processing & research (45 days on average to resolve exception) • Communicating exception issues (30 seconds per exception) • Additional processing time (5 working days in processing queue)

Decreased Efficiencies • Impacts service level commitments • Causes payment delays • Increases support center calls

Frustrations • Vendors • Internal customers • AP processors / business partners

Perception of poor service delivery • Accounts payable / shared services reputation

Define –Business Impact

32,879

38,608

50,887 20%

19%

22%

0%

5%

10%

15%

20%

25%

0

50,000

100,000

150,000

200,000

250,000

FY2009 FY2010 FY2011

Exceptions No Exceptions Exception Percentage of Total Invoices

PO invoices processed by fiscal year

The bad Lack of exception control

Transforming exception management

The good Exception processing activity

Measure – the good, the bad, and the ugly

The ugly Exception activity on the rise

Measure – the cost

Who

Avg Hours / Month

#

Months

# People

Hrs / Year

Avg Salary / Hour

Total Cost

Field Staff 4 12 150 7,200 $30.29 $218,088

Accounting 15 12 20 3,600 $36.06 $129,816

AP Processing 15 12 12 2,160 $24.52 $52,963

AP Exception Processors 170 12 1.5 3,060 $26.52 $81,151

Estimated Totals 204 183.5 16,020 $482,018

Transforming exception management

….to get buy-in

51%

26%

4%

5% 8% 6%

No Receipt Price Discrepancy

No Container ID Freight Unreconciled

Items not on PO Miscellaneous

Transforming Exception Management Transforming exception management Analyze – digging deeper – breaking it up!

Exceptions by reasons

0%

17% 4%

12%

67%

Corporate Agribusiness

L & L Food Group

SGS

n=4,012

Exceptions by operating group

Identified our greatest opportunities for improvement.

n=4,012

What – specifically causes the exceptions?

Who –specifically is causing

exceptions?

Where – are our “biggest” pain points?

Why –do we continue to have exceptions?

How – can we fix the root problems and reduce exceptions?

Transforming exception management Analyze – ask the tough questions?

Evaluate / Communicate / Educate

Transforming exception management

Built a dedicated team

• Repurposed our existing resources

o Shifted resolution responsibilities

• Redefined exception processing

o Shifted focus from managing to resolving exceptions

• Short term pain is worth the long term gains

Customized technology based on need

• Created PO classifications to manage specific invoice types

o Railcar

o JOB/CIP

Improve - evaluate

Worked with business to increase knowledge of complete procure-to-pay process

• Getting to Know You Assembly

• Shadowing Programs

Expand to outside locations

Created subcommittees for a more defined focus

• JRS Wholesale-to-JRS SGS Activity

• Six Sigma Project - SGS Exceptions

Transforming Exception Management Transforming exception management Improve – communicate & educate

Developed alliances with business partners

• Took advantage of opportunities to enhance AP presence.

o Participated in sales/department meetings (3)

o Attended Location visits (6)

o Encouraged visits from business (10)

• Listened to our customers

o Understand business and challenges

o Offer choices that support policies & procedures

• Continuously assess training needs

• Continuously provide training opportunities

Transforming exception management

Make sure the improvement efforts are working

• Continue to share results +/-

• Follow up and follow through

• Monitor and report

• Seek improvement opportunities

• Don’t give up….

Control

Where are we today?

Transforming exception management

Still room for improvement……………………

• Overall PO match rate remains stagnant at 78% - Goal of 90% by Dec 2012

• Retail exception rate has increased

• Culture change – be patient

• Continue with improvement efforts, subcommittees, education process

Successes: • Increased PO matched invoiced for all

operating groups. • Decreased average days to complete PO

exceptions (from 50 days (June 2011) to 17.84 days on average (May 2012)

• Decreased number of exceptions overall from 4,012 (June 2011) to 2,015 (May 1012)

• Maintained overall match percentage rate with “new” business sectors and acquisitions

0

10

20

30

40

50

Corp AB L&L Food SGS AVG

Average Calendar Days to Complete PO Exceptions

Corp AB L&L Food SGS AVG

Accounts Payable 3.7 3.4 3.3 4.1 5.6 4.0

Locations 6.2 13 5 11.9 33 13.8

Total 9.9 16.4 8.3 16 38.6 17.84

0%

17% 2%

12%

69%

Corporate Agribusiness L & L Food Group Retail

n=2,015

Exception Activity 4/30/12

Summary

Define Exceptions

• Caused by human interactions • Impact our disbursement efficiencies • Affect disbursement performance • Influence service perceptions • PREVENTABLE

• 22% of invoices to exception • $500,000 in additional costs • Ranked in 4th quartile for % of exceptions • ROOM FOR IMPROVMENT

Measure Performance

Analyze

• Break up into categories? • What’s the data telling us – are there specific areas of concern? • Continue to ask the questions (Who, What, Where, Why & How) • FOCUS ON WHAT’S IN OUR CONTROL?

Improve

• Evaluate • Communicate • Educate • BE PATIENT – IT MAY NOT

HAPPEN OVERNIGHT!

Control

• Consistently review, measure and adjust to assure improvement efforts are working