2015 Source-to-Settle for Manufacturing Report

© 2015 PayStream Advisors, Inc | www.paystreamadvisors.com | [email protected]

2015 Source-to-Settle for Manufacturing Report

Exploring the Value of Source-to-Settle Automation for the Manufacturing Industry

Q4 2015 | Featuring insights on...

» Global Trends in the Manufacturing Source-to-Settle (S2S) Process

» Differentiating Factors in the Manufacturing S2S Process

» Value of S2S Automation Software for Manufacturers » A Leading Manufacturing-Focused Provider of S2S

Automation

Underwritten in part by

Q4 2015 © 2015 PayStream Advisors, Inc | www.paystreamadvisors.com | [email protected]

Introduction 3

Source-to-Settle Automation 4

The Complexities of Source-to-Settle in Manufacturing 6

Source-to-Settle Trends Within Manufacturing 10

Specialized S2S Software for Manufacturing 12

Adoption Action Plans for Manufacturing 14

Ivalua 16

About PayStream Advisors 20

Contents


IntroductionIn many ways, Source-to-Settle (S2S) processes are the backbone of an organization, as their success can affect a company’s bottom line and competitive standing. S2S involves back-office functions for acquiring goods and services, managing and paying suppliers, and analyzing company spend. Effective S2S management relies upon efficiency and coordination among many different departments and processes—requirements that can grow even more specialized and complex for different industries.

One industry with complex S2S needs is manufacturing; typically involving multiple suppliers operating across a complex global supply chain, business processes in this realm are dependent upon a specialized set of rules, regulations, and efficiency standards. Organizations must maintain compliance with these requirements while also juggling the production of expansive and varying inventories of material goods.

Because manufacturing operations are so dependent upon maintaining transparent and secure processes, more companies in this industry are turning to Source-to-Settle automation. This software affords greater control and visibility into processes than manual procedures, and enables procurement, sourcing, and AP professionals to handle more tasks at greater speeds. In addition, because of the increasing need for S2S tools among manufacturers, software providers are tailoring their solutions specifically for this industry. With these tailored solutions, manufacturing organizations can handle industry-specific activities along with generalized processes (e.g., international supplier risk analysis in conjunction with basic supplier assessment).

For this publication, PayStream Advisors surveyed several professionals of varying roles and positions from global manufacturing enterprises in order to analyze current S2S processing trends within the industry. PayStream also consulted the top market and product analysts from several S2S technology companies that provide solutions for manufacturers, specifically those with extensive and diverse manufacturing customer bases. This technology guide offers a brief look at the current state of manufacturing S2S among global organizations, and it highlights the leading capabilities of S2S software for the manufacturing industry. This guide also offers adoption best practices for manufacturing organizations.


Source-to-Settle AutomationIn Source-to-Settle, there are several main functions involved in the acquisition, management, and payment of direct and indirect goods and services. These functions are procurement, sourcing, contract management, supplier management, accounts payable, and spend management.

Solutions that automate these S2S processes include the following capabilities:

» Procurement: Main features in procurement technology include requisition creation and workflow, in-house and punch-out catalogs featuring product information from thousands of suppliers, PO creation, and an order management interface that allows for full visibility into all order activity. These solutions often support PO flip to invoice and integration with AP as well.

» Sourcing: Sourcing platforms offer RFx creation and approval workflow, supplier discovery and facilitation of supplier interaction with RFx, live auction cockpits with reverse auction functionality,

Figure 1

The Source-to-Settle Platform

S2S

SOURCING CONTRACTMANAGEMENT

PROCUREMENT

ACCOUNTS PAYABLE

SUPPLIERMANAGEMENT

SPEND MANAGEMENT


supplier scoring and risk assessment, and automatic flip to PO or contract after bid or RFx award. Sourcing platforms can facilitate both goods and services sourcing.

» Contract Management: This tool manages the creation and lifecycle of organizations’ contracts, with collaborative authoring workflow, legal department integration, and alerts for expiring or non-compliant contracts.

» Supplier Management: Most solutions offer some level of supplier management, either through multi-level supplier self-service platforms or simply a searchable supplier directory. Other features include supplier data management, supplier risk assessment, and supplier analytics and reporting tools for insights and auditing.

» Accounts Payable: AP automation features paperless invoice processing, robust approval workflow capability, and secure and compliant payments support. Most S2S solutions feature integration capabilities with AP software, facilitating seamless movement from requisition to payment.

» Spend Management: Reporting and analytics tools allow purchasing, AP, and legal departments to pinpoint inefficient spend activity and identify areas for improvement. Features include out-of-box and/or ad-hoc reporting, interactive reporting dashboards with drill-down capabilities, integration with Excel and other analytics tools, and industry benchmarking for data analysis.

Throughout these main functions of Source-to-Settle software are other, more specific tools, including category management, oversight reporting, and purchasing process optimization (involving a consistent search of users’ transaction activity in sourcing and procurement for expiring or inefficient contracts, non-compliant suppliers, etc.). When an organization employs Source-to-Settle automation, it greatly increases cost control and savings, reduces processing times, improves supplier relationships, and builds the company’s competitive advantage.


The Complexities of Source-to-Settle in Manufacturing While every organization benefits from back-office automation, many industries require specific software to adapt to specialized procedures. Healthcare organizations, for example, must replenish their inventories and make off-the-cuff purchases frequently, and often require payments on high-dollar special items with complex approval workflows.

Why does the manufacturing industries need specialized S2S? The following sections illustrate the unique complexities that manufacturing companies must manage in their Source-to-Settle departments.

RISK BUDGETING FINANCIAL PLANNING

Multi-Tier Supply Chain

Quality Management

Lead Times

Project Management

EnviromentalRisks

Political Risks

Supplier Risk

DISTRIBUTION & USE

SOURCE-TO-SETTLE OPERATIONS

MANUFACTURING INDUSTRY LIFECYCLE

SUPPLY CHAIN FLOW AND LOGISTICSRAW MATERIALS

Brand Value

Legal Compliance

Tax Compliance

Transportation

Customs

International Shipping

SOURCING

CONTRACT MANAGEMENT

PROCUREMENT

ACCOUNTS PAYABLE

SUPPLIER MANAGEMENT

SPEND ANALYTICS

INVENTORY

BUYER PLANNERS

SUPPLY CHAIN

Figure 2

Source-to-Settle Factors in Manufacturing


Supplier Management

Global manufacturing organizations face many specific challenges in supplier management and supplier payment compliance. When working with suppliers from many different countries, AP departments must also comply with region-specific legal requirements. In order to maintain compliance with all government invoicing, tax, and legal regulations, manufacturing organizations establish numerous controls for onboarding international suppliers.

Supplier management in the AP department often involves a vetting process that ensures that new suppliers are valid legal entities. This process must be performed for every supplier, and it involves using multiple tools and guidelines to ensure that the supplier meets all of the organization’s compliance rules and is not a great financial risk.

Risk assessment tools are usually initiated when a requester sets up a new supplier for a manufacturing product or service. The process requires the requester to answer specific questions to assess whether that vendor is a potential partner / conflict of interest with the organization, and will classify them as a high-risk vendor if so. In addition, an organization can use a sanctioned-party screening tool that looks at blacklisted or sanctioned-party supplier lists. Manufacturing companies must also incorporate quality guidelines to ensure they are bringing in high quality suppliers.

Order Management

Manufacturing requires a rapid turnaround between product requisition or sourcing award to delivery and payment. This is because there are often multiple processes involved and multiple parties waiting on completion, including wholesalers, retailers, and consumers. This need is especially important for the procurement of direct goods, which involves multinational suppliers, long lead times, and a heavy reliance on logistics.

In indirect procurement for manufacturers, efficient order management means keeping costs down, working with compliant and legally valid suppliers, and negotiating high quality goods and services at good prices. For direct goods order management, the process also requires extensive collaboration—there are numerous parties and activities in each order’s lifecycle that procurement officers must track, coordinate, and control. Procurement teams in manufacturing maintain a strong focus on supply chain complexities that many other industries do not have to face, such as continuity of supply, transportation of goods between international borders, and even seasonal fluctuations.


Invoice Management

Tax and invoicing requirements vary widely by country and change often, and a manufacturing organization must be very mindful of compliance. Mandates include Value Added Tax (VAT) requirements in much of Latin America and Europe, and the 1042 vendor withholding tax required for service performed in the US by a foreign supplier. Many countries require businesses to maintain valid, certified copies of invoices, often in paper format (e.g., Mexico), as well as many verification documents for shipping. From a manufacturing perspective, these requirements make managing supply chains in different countries even more complex; a company must have all the proper paperwork before it can even purchase a product, much less transport it safely and legally to a factory to begin production.

Payments

Because risk control and compliance are important for manufacturing, AP processes often require a very complex payments approval workflow. Approvers assume any risk from payments made to high-risk suppliers, making them partially responsible if there is a mishap in the payment process. There are also often several more approvals required for international supplier payments than for local payments, especially to countries with complex tax systems.

Many AP departments do not send checks offshore, only making supplier payments through ACH. Some also conduct an after-payment audit, which involves looking back over payments for any suspicious qualities, such as suspicious addresses, potential partnerships with employees, or an address that matches that of an employee. This back-end check also ensures that employees are using the right procedures and authorizing payments with full caution and control. In all, these payment controls dramatically lower the occurrence of interaction with fraudulent vendors.

Integration

Sourcing, procurement, and order management for global manufacturers is highly complex, especially when ordering direct goods. Managing these processes involves a high level of communication among many different internal parties and systems, including inventory, procurement specialists, buyer planners, logistics, supply chain managers, and receiving. Therefore, back-office departments in manufacturing organizations rely on very collaborative and integrated management strategies.


Brand Value

Especially in direct goods procurement, the success of Source-to-Settle operations has a very close impact on global manufacturers’ front-end variables, such as brand value and customer retention. Various issues in procurement, order management, and payment can have great effects on companies’ supply chains, creating issues for product delivery. For example, an extended lead time can cause serious problems for many organizations. In the fashion industry, if it takes three months to manufacture a shipment of jeans, the cut of the jeans will likely already be out of style by the time they get to the shelves. Failures like these consequently affect an organization’s customer experience and customer loyalty, as well as the company’s market standing and growth.


Source-to-Settle Trends Within ManufacturingIn order to gain a clearer understanding of the current atmosphere for global manufacturing, PayStream spoke with several experts in the industry—both for insight on their S2S daily processes, and their use of S2S automation. This section summarizes the findings and analyzes them in conjunction with PayStream’s own global industry and market research.

According to experts’ insights on the manufacturing industry in general, more collaborative supply models are beginning to appear in markets around the world. This is partly due to increases in environmental and regulatory issues for international trade, such as SOX (Sarbanes-Oxley), which cause a greater need for visibility across complex networks of suppliers and partners. Organizations are also putting pressure on their procurement and supply chain teams to more proactively monitor their supplier networks in order reduce potential supply chain disruptions.

Additionally, experts report a greater level of spend in services procurement due to increased specialization and cost-management pressures. There is a general industry increase in spend for upgrading plants, equipment, and technologies to improve a company’s design innovation and its products’ speed to market. Companies are also increasingly shifting their manufacturing strategies from outsourcing to housing production closer to where the products will be sold. This is due to the rise of a more technical labor force in supply chain operations, combined with rising wages in Asia, higher shipping costs and lead times, and the need to accelerate time to market to meet retailer and consumer demands.

In terms of automation adoption, some industry experts believe that a heavy reliance upon legacy systems in the manufacturing industry leads more organizations towards integration and augmentation, as opposed to total replacement. Therefore, while current cloud-based procurement solutions offer great advantages to manufacturers, many still opt for piecemeal implementation over a full system change.

As technology improves and adoption spreads, full automatic conversion of manual back-end processes is an inevitable future, as well as a business necessity. Among those manufacturers that


are changing their systems at a more aggressive rate, the leading adoption trends include solutions that have comprehensive supplier performance and contract compliance capabilities.

Risk management solutions are becoming a critical component in the Source-to-Settle software as well. Manufacturing organizations seek to improve their supplier management with flexible, collaborative electronic platforms. In addition, manufacturers are leaning towards analytics technology that offers strong reporting on quantitative data, such as supplier performance metrics (e.g., delivery times).


Specialized S2S Software for Manufacturing A Source-to-Settle manufacturing platform should offer solutions that go beyond basic capabilities of indirect, direct, and services procurement and payment. Sourcing should expand supplier discovery and scoring tools to more closely evaluate legal reliability, certifications, and risk, specifically on the international level. Contract management should go beyond tracking payment terms and expiration dates—it must also consider factors like cover supplier performance and compliance and raw materials quality compliance. Procurement should be able to do more than acquire a dozen staplers for an organization; it must support the requisition of materials that will affect the organization’s supply chain, process success, and brand value all the way down to the final consumer.

Some of the following capabilities may not be present in basic S2S solutions, but most should be available in global S2S software that boasts a manufacturing focus.

Flexibility

The manufacturing industry features many sub-industries that require a whole new set of rules for every process and type of material being manufactured. The S2S solution should have a configurable design that is highly adaptable to an organization’s unique requirements and materials. Since many of the manufacturer’s purchases are direct goods, an organization also needs a solution that is able to discern between direct and indirect materials and change the solution’s strategies accordingly. The solution needs to have a robust order management system that is integrated with supply chain management, such as supplier onboarding and communication tools. In addition, the solution should be able to adapt to different customers by location and industry, such as countries in Asia Pacific, or textile suppliers. Tools include:

» Supplier- or industry-specific sourcing and contract templates (that measure cost, value, risk, etc.) » Approval workflows configurable by global qualities (such as

country, tax regimes, etc.) » Quality management (such as message boards, shipping

inspection statuses, etc.) » Raw material quality compliance management


Connectivity

It is important that automation software can adapt to the numerous other processes in manufacturing S2S. This includes either additional modules for things like inventory management or supply chain management, or integration capabilities that facilitate easy connection and control. In addition, supplier portals offer the ability to share documents and forecasts with suppliers (and vice versa), automate invoicing, and increase communication across supply chains. Tools include:

» Transportation services procurement » Milestone/brand management (data management with

milestone-based workflow configuration) » Additional materials management modules (such as chemical

material inventory management) » Connectivity with other departments, material requirements

planning (MRP) systems, and budgeting » Supplier portals

Control

Manufacturing Source-to-Settle involves a variety of diverse and vital information, and automation software must be able to measure, analyze, and present this data for process improvement and insights. Many solutions offer action plan templates that enable buyers to catch errors in the supply chain and create proactive steps to bring suppliers back on target. Some solutions offer measurement tools based on quantitative analytics, allowing a company to measure supplier performance metrics, such as on-time deliveries. The solutions also integrate into the Source-to-Settle platform and supplier management. Tools include:

» Action plans for suppliers and projects » Quantitative scorecards based on manufacturing-specific

metrics » Supplier risk and diversity assessment » Manufacturing-specific reporting and dashboarding tools » Industry benchmarking analytics


Adoption Action Plans for Manufacturing When adopting a solution, organizations should carefully consider their specific business requirements and structures. The following items are recommended for any manufacturing organization that is planning to invest in a Source-to-Settle platform or standalone solution.

» Recognize the value of a S2S platform: Many Source-to-Settle software providers only started out with standalone sourcing, purchasing, or AP solutions, only uniting these offerings into a S2S platform later in development. PayStream has found that this trend is speeding up in the technology market today: more and more providers are synchronizing their solution platforms, and the driving factor is the demand of their customers. Organizations want unified processes, as they bring much more security, control, and efficiency than a piecemeal blend of disparate systems and manual processes. It is especially important for manufacturing organizations to consider investing in an integrated S2S platform, as this creates the greatest long-term ROI.

» If applicable, start with the short term, work towards the long term: PayStream realizes that adopting a large S2S suite right away can be very difficult for manufacturers, as organizations in this industry tend to operate across many locations and rely on many different systems. If a manufacturing organization is not ready to move to a full S2S suite, it should begin piece-by-piece implementation with a provider that also offers a scalable S2S suite, or it should choose a standalone solution that has very advanced integration capabilities. For example, many solutions are designed to easily connect and enhance with existing systems rather than replace them, so as to accommodate organizations that cannot adopt and automate quickly.


» Don’t forget about risk management: This is especially important for manufacturing AP departments, and for smaller companies that have only recently started expanding their operations to a global scale. A mishap in the supply chain is unfortunate, but involvement with a blacklisted supplier can land an organization in crippling financial and legal trouble. Organizations should ensure that a solution has native or partnered risk management and supplier analysis support, or integration points for connection with existing risk management systems.

The following profile summarizes the offerings of a S2S solution provider with extensive experience in manufacturing process automation.


IvaluaIvalua offers a fully integrated Source-to-Settle platform that enables effective segmentation, performance tracking, and efficiency in the areas of invoice reconciliation, contract pricing enforcement, supplier catalog management, project-based budgeting, and spend tracking. In addition, Ivalua’s integrated suite keeps critical contract information, sourcing history, invoice status, and other data all in one searchable location.

Founded 2000Headquarters Redwood City, CAOther Locations Paris, UK, Canada, ItalyNumber of Employees 150 +Number of Customers 200 + Target Verticals Aerospace/Defense, Healthcare, Financial

Services, Oil & Gas/Energy, Luxury Goods, Public Sector, and Manufacturing

Partners/Resellers KPMG, Deloitte, HAVI Global Solutions, Docusign

Awards/Recognitions Leader in Gartner’s Magic Quadrant for Strategic Sourcing, 2015; Challenger in the P2P Magic Quadrant; “50 to Know” list, 2015, Spend Matters; 1 of Top 20 Procurement Solution Providers, 2015, CIO Review

Solution Functionality

Ivalua has strong integration capabilities with key ERPs such as Oracle and SAP, as well as native support for Excel, Word, and PDF files. Ivalua also offers a secure environment for customers; its security certifications include SSAE16 SOC-1 Type II certification, ISO-27001 and ISO-9001 certification, and LEED certification. The Ivalua suite supports full mobile functionality.

To ensure more efficient processing in manufacturing, Ivalua supports all categories of spend and aligns key S2S activities with complex supply chain collaboration and product development procedures. Ivalua has had many deployments within large global manufacturing companies, aerospace and defense manufacturing companies, and automotive manufacturers.


Leading strengths of the Ivalua platform for manufacturers include coverage across all spend categories, savings tracking and creation of action plans with internal or external stakeholders, executive dashboards to monitor real-time progress against goals and performance, and project-based triggers, tracking, budgeting and workflow approach for strategic sourcing. Ivalua also supports inventory management through its BOM (Bill of Materials) module, deep integration with back-end supply chain systems, a comprehensive supplier catalog, and management capabilities.

Source-to-Settle

Ivalua Sourcing supports event creation collaboration at all levels. Users can search and copy data from past events or templates, replacing or adding pieces with granular selection options (e.g., past RFP items, RFI questions, and attached documents). Once an event has been authored and approved, the solution facilitates multiple auction types and scenarios, including dutch reverse, forward, index-based bidding, premium and discount bidding, and transformation bidding (forward and reverse). Sourcing event managers can initiate an auction based on RFx response data, and use real-time messaging to communicate with auction participants.

For scoring supplier bids, users develop specific weighted criteria, then launch a series of questions or surveys and evaluate input from suppliers against those criteria. At any point during the bidding process, buyers can view potential savings against a reference price, and afterwards, users get comparative analyses of proposals based on qualitative and quantitative criteria. For more complex manufacturing needs, Ivalua Sourcing offers advanced functionality to analyze and break down costs, manage complex purchasing projects, and support collaboration around large BOMs and quoted item lists.

Ivalua’s contract management solution brings together all contracts in a single database, with comprehensive archiving and electronic signature capabilities. It includes tools for contract authoring and lifecycle management, detailed item and catalog management, and features for managing distributed assets across different locations and internal organizations. Document workflows are configured based on the type, commodity, or value allocation of the contract, and after negotiation and approval, users can generate requisitions and invoices directly from contracts.


Ivalua’s purchase requisition and orders modules manage the entire purchase requisition cycle. Ivalua’s supplier catalog functionality includes a multi-criteria search engine, supplier catalog import and update with built-in error management, and product descriptions with comparison tables. The procurement solution features a multi-criteria search engine for purchase requisitions and purchase orders, as well as purchase requisition functionality that supports multiple costs, multiple suppliers, and multiple delivery sites. Users can also conduct a spot bid directly from a requisition.

Requisition and PO workflow routing allows for flowchart-style control of an object through an authorization process. Once a PO has been issued and the order received, the solution can automatically flip it to an invoice. For all supplier invoices (PO and non-PO alike), users can employ the solution to capture, validate, reconcile, approve, and track payments. The solution’s invoicing capabilities include EDI and XML support, online entry submission forms, and scan and OCR functionality to bypass the need for manual data entry.

Ivalua’s supplier tools enhance manufacturing operations by bringing transparency into shared assets and performance, even extending to multi-tier supplier relationships. The Ivalua Supplier Portal gives suppliers self-service control in many areas of the solution suite. The portal also serves as a core information hub, providing an online supplier registration system with validation workflow, multi-company supplier contact management, and a repository for key supplier data updates and legal documents. All interactions on the portal can be associated with workflow actions, triggers, and approval steps on both the buyer and supplier sides. The solution also comes with a Supplier Risk Management module.

Reporting and Analytics

Ivalua provides a number of out-of-the-box spend analysis reports to explore all types of spend and supplier metrics. Users can change interface and dashboard layouts and configure reports to display on the home page. Dashboards can display notifications, timeliness, status/progress, RSS feeds, useful links, and more by adding widget-based “Webparts.” Tables, workflow, page navigation and user profiles/permissions are all accessible through a simple UI for adjustment by administrators. For benchmarking analysis, organizations can either import external benchmarks for any data element across the system, or reference historical data such as previous sourcing bids or supplier performance ratings.


Implementation and Pricing

An average Ivalua implementation lasts 6-8 weeks. Solution training typically follows a hybrid approach with on-site training for administrators and power users and web-based training via the Ivalua Academy for all others. After implementation, Ivalua offers three tiers of service, hosting, and support across all global regions. Services include phone/email support, the creation of a dedicated local phone number and email address, ticketing management, and more. Standard languages of operation are English, French, German, and Spanish.

Ivalua pricing follows a standard enterprise SaaS annual subscription model with no fees for suppliers. Fees are determined by company size and scope of deployment (e.g., geography, modules). There are no transaction costs or per-seat licensing terms.


About PayStream AdvisorsPayStream Advisors is a technology research and consulting firm that improves the way companies plan, evaluate, and select emerging technologies to achieve their business objectives. PayStream Advisors assists clients in sorting through the growing complexities of IT applications related to business process automation with the goal of making objective, analytical, and actionable recommendations. Wherever business process automation technology is an issue, PayStream Advisors is there to help. For more information, call (704) 523-7357 or visit us on the web at www.paystreamadvisors.com

2015 Source-to-Settle for Manufacturing Report

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