Back in May 2019, Bruno Koch of Billentis produced a report “The e-invoicing journey 2019-2025.” (You can download a copy from our website here.) It reviews the emerging technologies that are likely to influence e-Invoicing over the next five years.
However, given the acceleration of supply chain digital transformation due to the impact of COVID-19, as evidenced by the latest McKinsey Global Survey, many of Bruno’s predictions for the future are now being brought into supply chains as I write this.
If you did have a 5-year plan for your supply chain digital transformation prior to 2020 then I would definitely recommend reviewing it as a matter of urgency and deciding what steps to take to accelerate their deployment. That is if you are not doing so already. With all the evidence pointing to digitisation and automation plans being accelerated by at least three years, your 5-year plan should be looking very different right now.
I’m going to assume that you’ve already implemented best practice processes in your AP and AR teams as discussed in my previous two blogs. The reason being is that digitising poor processes will not improve those processes, if anything it will make things worse. Poor processes often have manual corrections in them that are typically not documented, just residing in the heads of a few key members of staff. It is very difficult to digitise undocumented manual interventions!
It’s the Desired Outcomes That Matter
The most common mistake with automation is to focus automation efforts on the wrong parts of the process and, more often than not, this is driven by putting the wrong KPIs in place to begin with. The temptation is to select KPIs that measure the automation rather than the desired outcome, that is the reason why you are automating the process or part of the process in the first place.
Desired outcomes depend upon the issues being faced in your supply chain processes, examples of issues include overstretched resources, poor customer service and too many errors. It is the desired outcomes that the digital KPIs should measure not the automation. Let’s start by looking at some of the most common digital automation that can be brought into supply chain processes.
Digitisation of hard copy documents is one of the most common automations within supply chain processes, indeed the automation of purchase orders was the subject of our Automated Orders white paper. Alongside purchase orders there are a number of supply chain documents that are suitable for digitisation and there are a number of approaches to digitisation. Determining the best approach depends upon a number of factors. They all achieve the same result which is to reduce the workload on AR staff by removing manual data entry from their day-to-day activity.
Clearly digitising the data from hard copy, FAX or PDF documents removes a manual data entry tasks for the AR process, but that’s only the first step of processing the document. There are additional tasks in the process that can be automated once the document is digitised. In order to determine which are the most appropriate tasks to automate the desired outcomes must first be defined. Best-practice process automation must be linked to a desired outcome aligned with business goals.
For example, a desired outcome of eliminating manual tasks is a good starting point, but to what end? Manual intervention may be necessary to deal with some orders, such as those with special delivery instructions that need to be confirmed before accepting the order. A better desired outcome, aligned with business goals, may be elimination of errors from orders, and then it is possible to focus on best practice automation to support this desired outcome.
Reducing order errors not only saves costs, but also improves service excellence. This desired outcome clearly aligns with the supporting pillars of increasing profitability and improving service excellence to achieve sustainable growth.
The same approach can be applied to automation of other documents and processes such as invoices, goods receipt notes and so on. First define the desired outcome and then automate to achieve that outcome. If we’re looking at purchase order acceptance or three way matching for invoices, then it’s important to look at how to automate approvals and exceptions as part of the process.
When is a KPI not a KPI?
In order to be an effective measure of performance a KPI must also be linked to a desired outcome, meaning that the KPI has a target, which is the desired outcome, and a direction of travel, increasing or decreasing. The achievement of the desired outcome can then be tracked using the KPI and measures such as automation can be introduced to support that achievement.
The temptation is always there to measure the impact of the automation itself, rather than the impact the automation is having on the process. Further to that, there’s also the temptation to strive for 100% automation without determining if that’s a beneficial outcome to target. As well as the challenge of diminishing returns there’s also the fact that 100% automation may simply not be achievable or desirable.
As I said earlier, success or failure can be as simple as picking the right or the wrong thing to measure. For example, if you’re automating purchase order processing to free up the time of your AR team then having a KPI based upon the value of purchase orders automated will focus efforts on your largest customers with a small number of high value orders. The more effective place to focus automation efforts to free up AR team time would be on the long tail where there is a high volume of low value orders. Hence a better KPI would be the number of purchase orders being processed automatically. With the wrong KPI it can appear that automation is driving significant results, when in reality it’s driving the wrong results.
The bottom line is that there are best-practice KPIs that support best-practice automation. However, they must be linked to desired business outcomes that are aligned with business goals and objectives. If you haven’t defined desired business outcomes at the start of your automation project you will not be in a position to maximise the return on your investment.
Therefore, if you’re not going to be left behind as your competitors accelerate the digital transformation of their supply chains you need to make sure you don’t automate for automation’s sake. Define your desired outcomes and deploy best-practice automation measured by best-practice KPIs to support the achievement of those outcomes.
As we move towards a post-lockdown world you really need to be bringing your plans forward, ensuring they are based upon desired outcomes and acting now before it is too late.