Building a business case for SAP FSCM

1 Copyright © 2010, HighRadius Corporation. All rights reserved.

June 3rd, 2010

Creating a Business Case for Financial Supply Chain Management (FSCM)

Presented By: Sashi Narahari President & CEO HighRadius Corporation

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Agenda

• Key Performance Indicators (KPI’s)• Objectives of a Business Case• Creating a Business Case

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Key Performance Indicators (KPI’s)

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Sample KPI’s

Days Sales OutstandingAverage Days DelinquentCollections Effective IndexPercentage CurrentPercentage over 91Write-Offs

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Objectives of a Business Case

• What am I going to get? (KPI improvement)• What is my investment? (Cost)• What is my Payback? (ROI)

• Simple Example– 1 day DSO improvement = $0.50 M– Cost = $0.25 M– ROI = 6 months

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Which KPI to Use?

Days Sales OutstandingAverage Days DelinquentCollections Effective IndexPercentage CurrentPercentage over 91Write-Offs

• Which one has a broad coverage across all KPIs?

• Which one is easier to calculate?

• Which one is easy to sell to Management?

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FTE Processing Capacity!

KPIsKPIsKPIsKPIs FTEFTEFTEFTE KPI ImpactKPI ImpactKPI ImpactKPI Impact

Days Sales Days Sales OutstandingOutstandingDays Sales Days Sales OutstandingOutstanding

Average Days Average Days DelinquentDelinquentAverage Days Average Days DelinquentDelinquent

Collection Effective IndexCollection Effective IndexCollection Effective IndexCollection Effective Index

Percentage CurrentPercentage CurrentPercentage CurrentPercentage Current

Percentage Over 91Percentage Over 91Percentage Over 91Percentage Over 91

KPIsKPIs FTEFTE KPI ImpactKPI Impact

Days Sales Days Sales OutstandingOutstanding

Average Days Average Days DelinquentDelinquent

Collection Effective IndexCollection Effective Index

Percentage CurrentPercentage Current

Percentage Over 91Percentage Over 91

WriteWrite--OffsOffs

FTE Costs has a strong co-relation to most KPIs!

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FTE Processing Capacity (Contd..)

• Once you create additional capacity via automation. How you use it is your choice– Reduce Delinquency (‘More Collectors’)– Reduce Write-Offs (Reduce Thresholds)– Reduce FTE

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Creating a Business Case

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Steps to Developing a Business Case

Identify Key Processes

Break into Sub-Processes

Identify Improvement Opportunities

Model Potential Benefits

Summarize Results

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Identify Key Processes with a KPI impact

• Collections Management– Major Account Collections– SMB Collections

• Deductions Management– Trade Deductions– Non-Trade Deductions

• Credit Management– New Credit Applications– Periodic Credit Reviews– Blocked Order Management

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Identify Sub-Processes

S.No Deduction Sub-Processes1 Deduction Creation2 Associate Backup Documentation3 Associate related SAP transactions4 Deduction Research and Analysis5 Inter-departmental Collaboration 6 Valid Deduction: Issue Credit and Approval7 Invalid Deduction: Customer Correspondence and Follow-up8 Reconciliation/Write-Off/Close Deduction

S.No Collections Sub-Processes1 Identify Customers to Follow-up On2 Automated Workload Assignment and Distribution3 Automated Collection Letters4 Associate Backup Documentation5 Collection Forecasting6 Electronic Invoice Presentment and Payment (EIPP)7 Collection Agency Integration8 General Follow-Up Activities

S.NoDeduction Sub-Process Detailed Explanation Examples of Improvement Opportunities

1Deduction Creation

Deduction can be automatically created in SAP Dispute Management after Cash Appl and routed to the appropriate Analyst

Automatically Create Dispute Cases from Cash Application for ResidualsAutomatically Create Dispute Cases for Full Invoices that are Past Due based on a specific filter criteria

2Associate Backup Documentation

This involves getting all the backup documentation such as POD, BOL, Claim Copy, check remittance etc. A percentage of the backup can be automated via Web Aggregation, scanning/indexing etc and attached to the Dispute Case automatically so the Analyst does not have to fetch this manually.

Automatically fetch and attach BOL or POD from Carriers WebsiteAutomatically fetch and attach Debit Memos from Customer WebsitesAutomatically fetch check and remittance backup from Bank Lockbox

Scan/index mailed documentation and attach to dispute via matching rules

3Associate related SAP transactions

All the document flowing can be automated where-in all the relavant SAP transactions such as Sales order, Delivery, Invoice, Return Credits etc can be linked to the Dispute Case

SAP A/R document is autoamtically linkedSAP SD transactions can be linked using the standard SD document flow logicInvoice Copy can be automatically generated from SAP SD and attached to Dispute Case without requiring the user to print, scan and attachCredits issued for pricing, returns etc can be linked via matching logic

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Deduction Research and Analysis

Research can be automated in situations such as returns, promotions, pricing etc. Think about situations where-in all the data is in SAP and you are clicking across different screens and transactions to compare data and perform calculations.

Algorithm to simulate a pricing deduction by re-running the SD pricing conditions to identify if a pricing master data set-up lag has led to the deductionsAlgorithm to match return credit memo to debit memo and create a variance analysis reportAutomatically check and validate if deduction amount is equal to cash discountAutomatically check and validate if deduction amount is equal to sales tax

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Inter-departmental Collaboration

This involves all the communication via email/fax/mail between various departments and analysts. Dispute Cases will be orchestrated via SAP Workflow so a user can "Forward" the Dispute Case within SAP. All the SAP transaction links, documentation, notes etc is associated with the Dispute Case and does not require special handling

Most of current offline email communication can be eliminated and brought into SAP within the Dispute Case that gets routed using SAP workflowEliminate the need for composing Microsoft outlook emails and keying in text in email bodyEliminate the need for scanning or manually attaching all the back-up documentationEliminate the need for searching through email communication to review historyIf Debit Memo data is available via EDI or Web Aggregation via RecievablesRadius SD Credit Memo Requested can be auto-populated with item level data

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Valid Deduction: Issue Credit and Approval

Once the Analyst concludes it is a valid deduction then a SD Credit Memo Request can be created with a Billing Block. Trigger SAP Electronic Workflow via a hierarchical approval process

Analyst/Manager approval/reject process can be orchestrated within SAP workflow eliminating the need for offline email, printing and approval processAutomatically release credit memo and clear the deduction upon approval

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Invalid Deduction: Customer Correspondence and Follow-up

Once the Analyst concludes it is a invalid deduction then Repay Package is created and emailed to the customer

A standardardized Repay package can be created in SAP via SmartForms that contains a Cover letter, a Denial Form that can be automatically populated and generatedBackup documentation such as Invoice Copy, Claim Copy and POD Copy can be automatically included in the package above based on reason-codes etc

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Reconciliation/Write-Off/Close Deduction

This is the final step of clearing the deduction in A/R either via a credit memo, repayment or a write-off to a G/L account

Auto Write-Off program available to control automatically writing off deductions to G/L accounts based on Customer, reason-Code etcMatch Deduction to Credit Memo and automatically close deductionAutomatically release credit memo and clear the deduction upon approval

Deduction Sub-Processes

S.No Collections Sub-Process Detailed Explanation Examples of Improvement Opportunities

1Identify Customers to Follow-up On

Create a prioritized list of customers to contact based on rules such as aging, dollar amount, Risk Category etc

Free up time of Collection Analysts from doing Account reviews to conclude which customers to follow-up on

2Automated Workload Assignment and Distribution

Automatically assign and distribute 'collectable' customers to Collection Analysts on a daily basis Reduce the time spent of load balancing workload across collection analysts

3Automated Collection Letters

Automatically send different levels of Collection/Demand letters based on certain rules

Free up time of Collection Analysts requiring to manually populate Demand letters with invoice informationReduce the paper based Collection letters to email or fax where applicableAutomatically deliver letters via fax or email

4Associate Backup Documentation

For past due invoices that require backup documentation such as Invoice Copy, POD/BOL Copy, automatically pull and attach

POD copies can be automatically pulled from Carrier's website and automatically attached to InvoiceInvoice Copy can be automatically generated from SAP SD and attached to Invoice without requiring the user to print, scan and attach

5Collection ForecastingForecast Cash via Receivables based on customer pay habit

Calculate based on customer Average Days DeliquentAlgorithm to match return credit memo to debit memo and create a variance analysis reportAutomatically check and validate if deduction amount is equal to cash discountAutomatically check and validate if deduction amount is equal to sales tax

6Electronic Invoice Presentment and Payment (EIPP)

A self-service web portal to enable customers to go online and perform standardized account activities

Reduce inbound calls for inquiries via onine portal view to csutomer's account informationReduce manual delivery of invoices to non-EDI csutomers by providing invoice information onlineReduce manual processing of payment information via ACH/Credit Card by providing online payment capabilitiesEnable customers to Dispute Invoices onlineAutomatically generate all the customer related information such as Invoice copies, notes etc to third-party collection agency7Collection Agency Integration

Efficiently syndicate all customer history to third-party collection agencies

8General Follow-Up ActvitiesGeneral manual outbound calls, inbound calls and actvities that require high human-touch

Collection Sub-Processes

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ROI Model

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Input Parameters

Role Organization FTE Salary Benefits MarkupNumber of

Analysts

% of Analysts

working on this Process

Full Time FTE Equivalent Total Amount

Collections Analyst (SMB)

Accounts Receivables $ 45,000.00 $ 58,500.00 10 100% 10 $ 585,000.00

Collections Analyst (Major Accounts)


Deductions Analyst (Non-Trade)


Deductions Analyst (Trade)


Total 25 25 $ 1,462,500.00

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Key Process – Non-Trade Deductions

Task/Sub-Process% of Time

# of Resources

FTE Equivalent FTE Amount

Min Automation

Max Automation

Min FTE Savings

Max FTE Savings

Avg FTE Savings

Deduction Creation 5.0% 5 0.25 $ 14,625.00 40% 70% $ 5,850.00 $ 10,237.50 $ 8,043.75 Associate Backup Documentation 10.0% 5 0.50 $ 29,250.00 40% 70% $ 11,700.00 $ 20,475.00 $ 16,087.50 Associate related SAP transactions 5.0% 5 0.25 $ 14,625.00 50% 80% $ 7,312.50 $ 11,700.00 $ 9,506.25 Deduction Research and Analysis 30.0% 5 1.50 $ 87,750.00 10% 20% $ 8,775.00 $ 17,550.00 $ 13,162.50 Inter-departmental Collaboration 20.0% 5 1.00 $ 58,500.00 30% 60% $ 17,550.00 $ 35,100.00 $ 26,325.00 Valid Deduction: Issue Credit and Approval 10.0% 5 0.50 $ 29,250.00 20% 30% $ 5,850.00 $ 8,775.00 $ 7,312.50 Invalid Deduction: Customer Correspondence and Follow-up 15.0% 5 0.75 $ 43,875.00 20% 30% $ 8,775.00 $ 13,162.50 $ 10,968.75 Reconciliation/Write-Off/Close Deduction 5.0% 5 0.25 $ 14,625.00 10% 20% $ 1,462.50 $ 2,925.00 $ 2,193.75

100.0% 5.00 292,500.00 67,275.00 119,925.00 93,600.00

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Key Process – Trade Deductions


# of Resources


Min Automation

Max Automation

Min FTE Savings

Max FTE Savings

Avg FTE Savings

Deduction Creation 5.0% 5 0.25 $ 14,625.00 40% 70% $ 5,850.00 $ 10,237.50 $ 8,043.75 Associate Backup Documentation 10.0% 5 0.50 $ 29,250.00 30% 50% $ 8,775.00 $ 14,625.00 $ 11,700.00 Associate related SAP transactions 5.0% 5 0.25 $ 14,625.00 50% 80% $ 7,312.50 $ 11,700.00 $ 9,506.25 Deduction Research and Analysis 30.0% 5 1.50 $ 87,750.00 20% 40% $ 17,550.00 $ 35,100.00 $ 26,325.00 Inter-departmental Collaboration 20.0% 5 1.00 $ 58,500.00 30% 60% $ 17,550.00 $ 35,100.00 $ 26,325.00 Valid Deduction: Issue Credit and Approval 10.0% 5 0.50 $ 29,250.00 20% 30% $ 5,850.00 $ 8,775.00 $ 7,312.50 Invalid Deduction: Customer Correspondence and Follow-up 15.0% 5 0.75 $ 43,875.00 20% 30% $ 8,775.00 $ 13,162.50 $ 10,968.75 Reconciliation/Write-Off/Close Deduction 5.0% 5 0.25 $ 14,625.00 10% 20% $ 1,462.50 $ 2,925.00 $ 2,193.75

100.0% 5.00 292,500.00 73,125.00 131,625.00 102,375.00

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Key Process – SMB Collections


# of Resources


Min Automation

Max Automation

Min FTE Savings

Max FTE Savings

Avg FTE Savings

Identify Customers to Follow-up On 10.0% 10 1.00 $ 58,500.00 70% 90% $ 40,950.00 $ 52,650.00 $ 46,800.00 Automated Workload Assignment and Distribution 5.0% 10 0.50 $ 29,250.00 10% 20% $ 2,925.00 $ 5,850.00 $ 4,387.50 Automated Collection Letters 20.0% 10 2.00 $ 117,000.00 50% 70% $ 58,500.00 $ 81,900.00 $ 70,200.00 Associate Backup Documentation 10.0% 10 1.00 $ 58,500.00 30% 50% $ 17,550.00 $ 29,250.00 $ 23,400.00 Collection Forecasting 5.0% 10 0.50 $ 29,250.00 30% 50% $ 8,775.00 $ 14,625.00 $ 11,700.00 Electronic Invoice Presentment and Payment (EIPP) 10.0% 10 1.00 $ 58,500.00 30% 50% $ 17,550.00 $ 29,250.00 $ 23,400.00 Collection Agency Integration 5.0% 10 0.50 $ 29,250.00 10% 20% $ 2,925.00 $ 5,850.00 $ 4,387.50 General Follow-Up Actvities 35.0% 10 3.50 $ 204,750.00 0% 0% $ - $ - $ -

100.0% 10.00 $ 585,000.00 $ 149,175.00 $ 219,375.00 $ 184,275.00

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Key Process – Major Account Collections


# of Resources


Min Automation

Max Automation

Min FTE Savings

Max FTE Savings

Avg FTE Savings

Identify Customers to Follow-up On 10.0% 5 0.50 $ 29,250.00 70% 90% $ 20,475.00 $ 26,325.00 $ 23,400.00 Automated Workload Assignment and Distribution 5.0% 5 0.25 $ 14,625.00 10% 20% $ 1,462.50 $ 2,925.00 $ 2,193.75 Automated Collection Letters 20.0% 5 1.00 $ 58,500.00 50% 70% $ 29,250.00 $ 40,950.00 $ 35,100.00 Associate Backup Documentation 15.0% 5 0.75 $ 43,875.00 30% 50% $ 13,162.50 $ 21,937.50 $ 17,550.00 Collection Forecasting 5.0% 5 0.25 $ 14,625.00 30% 50% $ 4,387.50 $ 7,312.50 $ 5,850.00 Electronic Invoice Presentment and Payment (EIPP) 10.0% 5 0.50 $ 29,250.00 30% 50% $ 8,775.00 $ 14,625.00 $ 11,700.00 Collection Agency Integration 5.0% 5 0.25 $ 14,625.00 10% 20% $ 1,462.50 $ 2,925.00 $ 2,193.75 General Follow-Up Actvities 25.0% 5 1.25 $ 73,125.00 0% 0% $ - $ - $ -

95.0% 4.75 $ 277,875.00 $ 78,975.00 $ 117,000.00 $ 97,987.50

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ROI Summary

Minimum Maximum Average OPERATIONAL EXPENSESSMB Collections $ 149,175.00 $ 219,375.00 $ 184,275.00 Major Account Collections $ 78,975.00 $ 117,000.00 $ 97,987.50 Non-Trade Deductions $ 67,275.00 $ 119,925.00 $ 93,600.00 Trade Deductions $ 73,125.00 $ 131,625.00 $ 102,375.00 TOTAL VALUE CAPTURE $ 368,550.00 $ 587,925.00 $ 478,237.50 ADDITIONAL CAPACITY CREATED 25% 40% 33%

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Summary

• Identify which KPIs do you want to build the business case on

• FTE Processing Costs are easy to measure and sell to Management

• Break-up you operations into Key Processes• For each Process, identify Key Sub-processes• Identify improvement/automation opportunities

for Each Sub-Process• Estimate savings in Min, Max and Averages via

Enabling Technology

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Questions?