Supply Excellence — EIPP: The Value of Walking Before You Run

EIPP: The Value of Walking Before You Run

March 9th, 2007 · by Tim Minahan · 1 Comment · financial value chain, supply management

American Express signaled its entrance into the procurement solutions and services space yesterday with the launch of the Electronic Invoice Presentment and Payment (EIPP) portion of a future commercial Source-to-Settle (S2S) platform. The expected move follows Amex’s December acquisition of EIPP provider Harbor Payments, which had quietly amassed a top-tier customer base, including ADP, Proctor & Gamble, and Saint-Gobain.

The solution automates the complete EIPP cycle – including automated invoice receipt, reconciliation, payment, and dispute resolution. (And, in anticipation of your question, the solution supports multiple settlement options beyond the Amex P-card.) You can learn more about the new solution at www.americanexpress.com/s2s on your own. I want to focus of this post on the EIPP opportunity and how best to capitalize on it.

At the press launch at New York’s ultra-hip W Hotel, Amex showcased a compelling yet realistic case for EIPP. Financial services analyst Alenka Grealish revealed the extent of the problem: annual business-to-business transactions in the U.S. now top $36 trillion. But three-quarters of those transactions are still handled manually and paid by check.

According to Grealish, these antiquated approaches hurt a company’s ability to manage cash flow and working capital. “Working capital is not only a treasury issue. It’s also an operational issue.” She adds that supply managers (and other functions) need to take a more active role in improving working capital. Grealish says her argument is based on two premises:

Cash float exists across the entire supply chain; not just payment.
Improvement in working capital requires automation. (And the improved visibility and efficiencies it enables.)

Celent research finds that automating can reduce invoice processing costs by as much as 92%, while electronic settlement can slash payment costs by up to 86%. Forward-thinkers like Grealish argue that working capital improvements will improve exponentially when the improved visibility and efficiency enabled by EIPP are used to make rapid, fast-based decisions that dynamically balance cash and rebate management. (As noted here in previous posts, such dynamic or aggressive rebate management approaches can yield 2% to 20% discount offers off the orginally negotiated price from suppliers that are eager to get paid early.)

However, Amex officials candidly point out that few enterprises or supply chains are culturally prepared for such advanced cash management approaches. Harbor Payment Founder and CEO turned Amex SVP Ashish Bahl told me point blank: “The technology is there to support this. But most companies are just focused on reducing processing costs and improving efficiencies and visibility.”

Kennametal, Inc. is a prime example. The $2 billion supplier of industrial tool, engineered components, and advanced materials adopted Harbor Payment’s EIPP solution three years ago to cut costs and speed processing of the 12,500 supplier invoices it received each month. It also hoped to get out of the business of cutting costly paper checks: “On the payment side, we were strictly a [paper] check house,” said Dean Hoffman, manager of Kennametal’s vendor support services. “When we cut a check [manually] it costs us 87-cents per payment. When we pay electronically, that cost drops to 6-cents per check.”

Hoffman said EIPP cut Kennametal’s invoice processing costs by 65%. The company also reports converting nearly two-thirds of its suppliers to electronic payment – a move that has increased speed of pay to suppliers by 30%. Hoffman adds that EIPP has cut supplier inquiry calls by 99% by enabling them to view the status of their invoice and payment online.

Despite these benefits, Hoffman candidly revealed that Kennametal experienced challenges with initial supplier enablement and adoption. “We underestimated that the vendors would do everything we asked,” said Hoffman, noting that about 200 of Kennametal’s 18,000 suppliers initially refused to participate in the program. Through discussions about the value of EIPP, Kennametal was able to convert and enable all but two suppliers to the program. “They are no longer suppliers to Kennametal.”

Hoffman gave Harbor Payments credit for ramping up support to convert and enable suppliers in the program. And Bahl and other Amex execs argue that they have resolved the supplier enablement challenges by securing kingpin customers in multiple industry segments, such as the cable, diversified manufacturing, and financial sectors. “Companies within given industries have a high overlap of suppliers,” said Bahl. “Once we have the first customers’ suppliers enabled in a given industry, enabling future customers is much faster.”

American Express’s debut further validates the supply management discipline and supporting solution market. Their launch also offers some practical advice on the value of walking before you run when deploying EIPP or any other supply management solution.

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