SAP shop turns to Ariba cloud for electronic invoicing, cuts DSO

Nalco reduced errors and customer complaints with electronic invoicing but found cloud-to-ERP integration and supplier onboarding nontrivial -- albeit solvable -- problems.

One manufacturer accelerated cash flow and boosted customer service by using Ariba’s cloud-based trading-partner network for electronic invoicing and automated billing, but not without some heavy lifting to pull suppliers onboard and integrate it with SAP.

Nalco, based in Naperville, Ill., sells water-treatment and emissions-control equipment and services to roughly 50,000 customer locations in more than 150 countries, relying heavily on regional suppliers and shipping companies. But it couldn’t track purchase orders, invoices and related documents reliably enough to avoid delays and other disruptions.

“Our customers expect Nalco to be able to tell them if a delivery is going to be late,” and whether it meets their requirements in the right quantity, said Belinda Cordina, Nalco’s procurement director for processes and projects. “We need to be able to provide our customer that information, whether it is coming from a Nalco plant or from a supplier directly.”

Often, Nalco wouldn't learn of delays until a customer called to inquire. Since the process wasn’t automated, seven customer service people would call third-party shippers to check on orders. The paper-based billing was inefficient, too. When a shipper received an order, it would bill Nalco, which would then bill the customer. If the order was lost or delayed, Nalco held off billing, which increased the company’s days sales outstanding (DSO), a common measure of the time needed to collect revenue from sales. In addition, Nalco found that 5% of purchase orders (POs) were never received.

 “We were getting the job done but knew we could do it better,” Cordina said. “Receiving electronic PO confirmations and shipment notices that automatically update the sales order and provide visibility to our sales organization was the primary objective of the project.”

Onboarding suppliers requires patience, persuasion
Nalco used an extensive process to identify the best e-invoicing automation solution and find a vendor, according to Cordina. “In the end, the major differentiator was the number of matched suppliers on the Ariba network,” she said. “We knew that if a large number of suppliers were already on the network it would be a much easier onboarding process.”

Easier -- but not easy.

“Onboarding is still continuing today and has been the most time-consuming part of the process,” Cordina said. “It takes time and lots of phone calls and webinars to get a significant number of suppliers onboarded. Eventually, we are getting an overall good response.”

The fact that Ariba already had some Nalco suppliers in its network led to quick wins during the deployment. Suppliers who had been the most sensitive about delayed invoice payments were given first priority. They liked having better visibility into their payments and more assurance they would be paid according to the negotiated terms, according to Cordina.

 “But we had a large percentage of suppliers who had not heard of Ariba before,” she said. “We originally thought this could be done completely in-house without Ariba’s help. After a few months of some -- but not enough -- progress, we went back to Ariba for help in the onboarding process. Since then, we have seen a spike in onboarding and have developed a process to make continuous improvement.”

SAP ERP integration with Ariba proves challenging
Integration consumed much of the cross-functional deployment team’s attention. Members spent half of each day for three months getting five electronic invoicing “messages” (PO, PO change, PO confirmation, shipment notice and invoice) to traverse smoothly between Ariba and Nalco's SAP ECC ERP software, according to Cordina. (SAP offers its own electronic invoicing feature, but Cordina declined to say why Nalco didn’t choose it.)

The seven-member team used the Scrum methodology for agile software development, dividing the project into “sprints” to map a process to the technology, ending in a key deliverable. 

“Our first deliverable was the mapping of the PO and shipment notice messages between SAP and Ariba,” Cordina said. “The second deliverable was onboarding a small group of pilot suppliers to start transacting just the PO and shipment notice.”

 “The invoicing message was the most challenging process mapping since we had a very manual way of coding invoices correctly in our AP [accounts payable] department,” she said. “It took us more time to understand and make decisions on how this would be handled automatically than originally anticipated.” Still, Cordina considers the turnaround time to be a success.

Order accuracy improves while DSO drops
Now, the Ariba network is Nalco’s communication channel with the suppliers that have been onboarded, though only a couple of Nalco workers interact directly with the network, according to Cordina. While all information is stored in Ariba, most of it is transferred to SAP. “All monitoring is done via SAP reports, and information is transferred to the sales order for ease of use of our sales force and customer service team,” which can use the information to update customers about their shipments, she said.  

Besides the improvements in customer service, Cordina is also pleased with the more quantifiable results. Nalco has reduced DSO by five days and no longer misplaces the POs of suppliers transacting through the Ariba network.

She said the biggest lesson for companies considering a similar project is to assign an internal team of experienced people who know their piece of the procure-to-pay and order-to-cash process. 

“Dedicating those resources to the project with little other distractions is why we were able to accomplish five messages completed in three months,” she said.

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