May 2006 | Case Studies | I.T. Toolkit

Electronic Invoice Savings That Will Floor You

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Drowning in a sea of manual invoices, flooring supplier Mohawk Industries turns to electronic invoicing. Now, when it comes to paying suppliers quickly and accurately, Mohawk mops up.

At Mohawk Industries, accounts payable clerks used to spend hours each day just opening mail. Only after they'd pulled invoices out of envelopes could they enter that data into the company's accounting system.

In 2002, Mohawk—a residential and commercial flooring supplier—cut a great deal of labor out of that manual process when it implemented a workflow system. The company's imaging department opened mail as it arrived, and scanned invoices into the new system. The next morning, AP clerks called up the images on their computers, "scraped" certain data fields into the JD Edwards accounting software and keyed in the rest.

A clerk used to enter an average of 75 to 100 invoices per day. Based on the new process, "they can enter 200 to 250 invoices each day," says Mark Dailey, director of financial operations and support services at Mohawk in Calhoun, Ga.

That was a good start. But officials at Mohawk wanted to make the process of paying suppliers even more efficient. They considered several options, including outsourcing, electronic invoicing, and electronic data interchange (EDI). Last November, they signed an agreement to implement software developer OB10's e-Invoicing solution.

Based in London and San Francisco, OB10 operates a network that transmits electronic invoices from vendors to purchasers. Although companies have long been able to send invoices electronically through EDI networks, the process can be too complicated and expensive for many vendors, especially smaller ones, says Elizabeth Marcotte, OB10's vice president of operations for North America.

"EDI puts the onus on the supplier to create documents in the format required," Marcotte says.

Anything Goes

OB10, however, accepts invoice data in whatever export file format the vendor's accounting software is able to produce. "We can work with XML, comma-delimited, or any type of data structure file," she says.

And to generate that data, the supplier can use any software—"from large accounting systems, such as SAP and JD Edwards, down to Peachtree and Quickbooks," she says.

OB10 is also easier than EDI for buyers to implement, says Dailey. "If we tried to use EDI, we would have to figure out how to map all our vendors' data to our system. That's a costly, time-consuming undertaking and, frankly, we'd never get the vendor volume that we get with OB10."

Instead of putting the burden on the purchaser, OB10 takes responsibility for bringing vendors onto its network. Once it signed a contract with OB10, Mohawk gave the network operator a list of suppliers, and asked that they use the e-Invoicing solution.

Then OB10's staff swung into action to convince suppliers that the benefits they stood to gain would more than offset the e-Invoicing transaction fees.

OB10 charges both buyers and suppliers for participating in the network. Suppliers who join "save money because they no longer print or mail invoices, and they ensure that their data reaches us quickly," Dailey says.

Mohawk didn't suggest that it would do business only with vendors that complied. But the company sees OB10's network "as a tool that strengthens relationships with our vendors, because it enables us to pay them as quickly as possible, and makes sure we meet the terms and conditions of our purchasing agreements," Dailey says.

Along with the AP department, Mohawk's procurement department became involved in the implementation. "The procurement department encourages the vendors, and helps them understand the benefits all parties reap from this process," Dailey says.

When Mohawk takes on new vendors, it presents e-Invoicing as the standard way of doing business. "Once vendors understand that the system relieves them of manually creating and mailing invoices, and guarantees they will arrive when and where they are supposed to, it's not a hard sell," he says.

Three-Way Match

As OB10 receives exported files from a buyer's trading partners, it converts them to a format specified by the buyer. In Mohawk's case, it's an EDI format that JD Edwards already accepts. OB10 accumulates the invoices and transmits them to the buyer as often as required. Mohawk receives a feed once each day, "and JD Edwards does the rest," Dailey says.

"We had to do some programming to effect an automated three-way match—a purchase order to an invoice and a receipt—to trigger a payment," Dailey adds. "That's not typically an automated function. But now, literally, no human ever touches it."

One feature that Mohawk didn't require, but which Marcotte says is a boon for firms with global operations, is tax compliance. Countries that charge the value-added tax (VAT) impose regulations, which vary from country to country, on the buyer and seller.

OB10 "went to each government and received certification as a VAT expert. This way, we can properly help our customers comply with VAT regulations," she says. OB10 can help customers with VAT in the European Union, Singapore, Malaysia, Australia and New Zealand.

Having recently acquired a manufacturing plant in Belgium, Mohawk is now an international company and might look into OB10's VAT capabilities in the future, Dailey says.

Invoice Influx

Mohawk receives 18,000 to 20,000 invoices each week; 25 percent of which are "paid on approval." These invoices are for utilities and other services that don't require a purchase order, and they are not included in the OB10 implementation.

The other 75 percent of invoices—the ones Mohawk and OB10 have been working to convert to the electronic process—are for raw materials, supplies, and other goods. These do require purchase orders. As of March, about 6,000 of those invoices were coming through the OB10 system per week.

"We hit a good percentage on the first go-round," Dailey says. "Currently, about 700 vendors are enrolled and participating in the e-Invoicing system."

That makes a big difference in the AP operation. "Where clerks used to key those 6,000 invoices to voucher them, we now voucher them in a few minutes, without touching them."

That translates into significant human resource savings. Now that employees key in 6,000 fewer invoices per week than in the past, "we've got the opportunity to allocate that labor to other functions," Dailey says. "We're still in the process of analyzing the numbers, but we expect between 20 and 40 percent savings in some labor areas."

The savings spill over into the scanning department as well. With more invoices arriving electronically, "we have noticeably fewer AP invoices to scan," Dailey says. As a result, "we can allocate those resources to other areas where we still have a high volume of papers to scan for other applications."

To Err is Human

Beyond the reduced paperwork, Dailey says, "the thing we like most about the e-Invoicing system is the accuracy it provides. Whenever people are involved in data entry, you always expect a certain level of keying errors," he explains. "But when you remove humans from the data-entry function, payment accuracy increases."

Mohawk's system matches purchase orders, invoices, and receipts automatically, "and when all three match, it's a guarantee that the payment is correct."

This not only makes the operation run more smoothly, but it provides greater accuracy in record-keeping, which helps the company comply with provisions of the Sarbanes-Oxley Act.

The security built into OB10's process also helps with Sarbanes-Oxley compliance, says Marcotte. "Once the invoice is submitted electronically, the ability to change it is eliminated. It arrives at its destination the way it was submitted."

Now that Mohawk has the e-Invoicing process up and running, company officials want to see if they can apply the technology to the 25 percent of invoices that aren't linked to purchase orders.

Currently, receiving those invoices, getting approvals from the right people, coding them to a general ledger account, and sending them for processing is a manual procedure.

Document imaging through the workflow system helps, "but we would like to come up with an even more automated process," Dailey says. "It's a viable possibility."

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