The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 5/19/2016

Buy Right-Pay Right

AP’s Vital Role in P2P Transformation and

Working Capital

Christine Betz Process & Efficiency Improvement Lead, AP

American Electric Power

Tanya Grannemann Senior Director Ariba Strategic Payables

SAP Ariba

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 2 5/19/2016

American Electric Power

• One of the largest U.S. utilities

– Deliver electricity to >5.3M customers across 11 states

– Own largest electrical transmission system in the nation

– Based in Columbus, OH

• Major business operations

– Regulated utility, transmission, power generation, AEP

Energy Partners,

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 3 5/19/2016

Challenge - Opportunity

• Needed to streamline “Req to Check” cycle

– Reduce invoice errors

– Accelerate invoice approvals

– Improve payment accuracy

• Capture early payment discounts

– Save money on goods and services, increase cash returns

– Apply cost savings to larger source-to-settle automation

project

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 4 5/19/2016

Working Capital Impact

• Drove a combined $2.5m of discount capture in CY ‘14 & ’15

• Promoted program in key periods: End of quarter, fiscal year

• Targeted 320 suppliers across 2014-15

– 21% accepted discount term

– SMB suppliers more responsive

• Four primary payment terms, yielding 36.5% APR

– 2%10N30, 1.5%15N30, .5%25N30, Net45

• Average face value discount rate of 1.66%

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 5 5/19/2016

Process Improvement

• Improved KPIs in key areas

– Increased e-invoice volume by 279% in 2014 vs. 2013

– Reduced AP headcount by 2.5 FTEs

– Reduced invoice errors-exceptions

• Tighter Procurement-AP alignment

– Both groups reporting to EVP - CFO

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 6 5/19/2016

Process Impact – Broader Reach

• PO – Invoice Automation

– Improving compliance & straight-through processing

– Expedites processing of invoices with partial shipments

• Resolves confusion (invoice credits, short pays)

• Sourcing – Spend Analytics

– Tightly integrated with complementary cloud applications

– Improves ability to control spend and manage suppliers

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 7 5/19/2016

Next Steps

• Procurement driving new supplier onboarding

– Engage with new suppliers during bid-contracting phase

– Brochure, website to promote program benefits

• Increase discount capture rate

– Identify root causes of missed discounts and resolve

• Continued expansion of early payment discounts

– Paper invoices, fulfillment problems, supplier invoice-ship

delays

– Drive paper suppliers to the Ariba Network when feasible

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by:

What is No PO, No Pay?

• Financial management concept

• All transactions must be attached to a purchase order or contract

– Track spending more accurately; prevent overpayment to the suppliers

– Alleviate risk/liability potential; protected by standard terms and conditions

– Better control of invoice processing

• Invoices without a PO/contract number are returned to the

supplier

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by:

Situations with a Non-PO Invoice

• Employee expenses

• Utility payments

• State, local, federal government payments

• Dividend payments and banking transactions

• Sponsorships, contributions

• Low dollar, low risk non-recurring transactions where vendor

doesn’t accept credit cards (requires approval of Procurement

director)

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 10 5/19/2016

Achieving Payables Working Capital Goals

• Best Practices

– Extend net payment terms to hold cash longer

– Offer early payment discounts for those suppliers who do not want to

wait for extended payment terms

– Suppliers participating in e-commerce and discounting options more

visible for repetitive business

• Lessons Learned

– Identify cause(s) of missed discounts; take required action to

communicate and help resolve

– Set payment terms in line with peer companies

– Confirm supplier contact information is kept up-to-date

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 5/19/2016

Buy Right-Pay Right

SAP Ariba and Working Capital Management

Tanya Grannemann Senior Director Ariba Strategic Payables

SAP Ariba

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by:

The Case For Payables: “Invoices as Strategic Assets” Better for Buyers, Better for Suppliers

EARN EARLY PAY DISCOUNTS:

Net Income

$ EXTEND PAYMENT TERMS: Free Cash Flow

SCALABE & SECURE PAYMENT Risk Management

FASTER COLLECTIONS Lower DSO

LOW COST, ON DEMAND FINANCING: Reduce Costs, No Debt

PAYMENT VISIBILITY & REMITTANCE Trust & Adoption

Fin

anci

al V

alu

e

LOW

HIGH

Buyers Suppliers

INVOICE AUTOMATION: Controls & Automation

INVOICE AUTOMATION: Ease & Visibility

BETTER COLLABORATION: Competitive Advantage

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 13 5/19/2016

Working Capital Management Advisory & Supplier Services

(Payment Terms Standardization, Rationalization, Extension, Supplier Outreach)

SAP Ariba Working Capital Management Solutions

Buyer Banks & Capital Markets

Procurement &

Invoicing

Automation Supply Chain Finance (Q2 2016)

Supplier sells approved invoices to

Funder at a discount rate based on

Buyer’s credit worthiness

Suppliers Targeted:

Direct Spend

Large to Mid-size

DiscountPro

Supplier accepts to be paid by Buyer at

a prorated discount before Due Date

Suppliers Targeted:

Indirect Spend

Small-Medium Size

…Pay Right Buy Right...

AribaPay

Electronic payments to

suppliers

Bank account data stored

externally

Supplier self manages bank

account data

Rich remittance info to match

invoices with payments

Track & trace status

Funded by

Operated on & with SCF Platform

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 14 5/19/2016

Supply Chain Finance:

What Problem is Being Solved & Why is SCF Valuable?

The SUPPLIER wants to get paid earlier

The BUYER wants to pay later

Payment Date

Collection Date

Supplier Buyer

Cash

Accelerate Extend

Supplier Benefits:

• Low cost financing

• Choose when paid

• Improve cash flow without increasing debt

Buyer Benefits:

• Reduce supply chain costs by providing low cost financing

• Improve cash flow

• Enhance supplier relationships

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 15 5/19/2016

BUYER

Invoice Submitted

to Buyer for

$10,000 with 60

day payment terms

Invoices

approved to be

paid on due date

Supplier seeks early

payment & sells

invoice to funder

Funder buys

receivable & pays

supplier

$9,960 (retains 40

bps)

1 3

2

4

Operated

on

Accessed

from

Integrated

With & other

ERPs

Pays $10,000

to Funder

5

Receives

$10,000 from

Buyer

6

Day 1 10 15 60

Example: How Supply Chain Finance Works

SCF

Platform

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 16 5/19/2016

Why SAP Ariba?

+

Global Successes & References:

Buyers, Suppliers, Funders

Banks core competency: lending money SAP-Ariba’s core competency: facilitating B2B

Commerce

Selecting SAP-Ariba is NOT deselecting a client’s bank

+

Ariba (Largest B2B) Network User Experience

+

1 Experience Across Sourcing, Buying, & Payables:

Accelerates Adoption, Minimizes Risk, Lowers TCO

+

Proven Success & Expertise

The Accounts Payable & Procure-To-Pay Conference & Expo is produced by: 5/19/2016

Thank You!

Christine Betz Process & Efficiency Improvement Lead, AP

American Electric Power

Tanya Grannemann Senior Director Ariba Strategic Payables

SAP Ariba