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SAP FSCM Dispute Management Case Study: Dow Corning

Ritch Cushway, Global Customer Financial Services Manager, Dow Corning Corporation, Midland, MI, USA

Dow Corning INTERNALDow Corning INTERNALHow Dow Corning deployed SAP FSCM Dispute Management across the globe through a phased approach that incorporated fine tuning the module to regional variances and how it was mapped it across our diverse business units.

1AgendaDow Corning BackgroundOur StructureOrganizationSAP InstallationInitial Implementation of FSCM Dispute ManagementTimelines and CostKey ChallengesDelivered ObjectivesGoing GlobalPhased approachKey Regional ChallengesBusiness Units DifferencesOur Implemented Dispute Mgt. LandscapeQ & ADow Corning INTERNAL3Dow Corning is ..3A global leader in silicones and high purity siliconMore than 7,000 products/servicesApprox 25,000 customersApprox 10,000 employeesStrong and healthy financially: $5.09billion sales 2009Investing in our future and our customers futures: geographic, manufacturing, innovationTransforming our business to deliver:Efficiency, Innovation and SustainabilityFocused on sustainability and Responsible Care

Dow Corning INTERNALclaim substantiation references - see attached document3

AV07647)4Pursuing our vision: 4We are innovative leadersunleashing the power of siliconto benefit everyone, everywhere.

AV13740Dow Corning INTERNAL4

55Serving customers diverse needsDow Corning INTERNALPhoto refs (left to right)

Top Row (left to right): AV11627, AV10013, AV09029, AV11590, AV12460 Row 2: AV13659, AV12935, AV13176, AV06118, AV10620 Row 3: AV13722, AV12255, AV12359, AV01161, AV10452 Row 4: AV06534, AV07436, AV10900, AV11889, AV03983

5Our Structure: OrganizationSixteen business units organized by Customer market or our approach to the market, includingLife Sciences, Construction, Solar, and Thermoplastics, for example.Customer base: typically other manufacturers with both direct customers and distribution (channel partners).9000 active customers (direct and distributors).Credit (Customer Financial Services) is directly aligned with the commercial function with indirect alignment to finance (treasury).CFS staff globally performing credit & collection in 10 locationsPayment application performed by our outsourcing partner in Krakow, Poland and Guangzhou, China

Dow Corning INTERNAL40 CFS Staff plus 7 Outsourced6Our Structure: SAP InstallationDow Corning first deployed SAP Globally in 1996A single instance globally with all data accessible from anywhere within the world.Dow Corning uses ALL modules of SAP for operational tasks (nearly without exception).Dow Corning users and our outsourced business partners access the same system, same data, real-time, working seamlessly with each other globally.Dow Corning INTERNALUse of bolt-ons or other solutions require CIO approval.

A significant productivity and cost impact must be demonstrated to use a non-SAP solution!

7Initial Implementation of FSCM Dispute Management

Timelines and CostKey ChallengesDelivered Objectives

Dow Corning INTERNALImplementation: Timelines and Cost Our IT project began in Jun-06, leading to a limited implementation in the US and Canada in Mar-07.Most resource was internal; however, we did engage an outside consultant to conduct a three day design workshop. The approximate project cost was $ 450K (internal chargeback) with minimal external cost.SAP cost was initially separate for the module (based on number of cases) and then later bundled in 2008.Initial startup included loading ALL existing payment disputes (~800 open at that time).

Dow Corning INTERNALDuring our workshop we were able to identify the module fit for Dow Corning.9Implementation: Key Challenges

FSCM Dispute Management 3.0 met our needs, except,Credit Case Lack of ReportingCustomer Solutions were create in-house:Credit Case We developed our own process utilizing additional programming to handle overpayments. This works well and seamlessly.Reporting We created 5 Business Warehouse reports (loosely based on the SAP default info cubes). We created a Dashboard with our key metrics.

Dow Corning INTERNALCredit Case there was no solution for a payment dispute with a credit value. SAP assumed that most clients only had short-pays!Lack or Reporting out of the box reporting was inadequate to support Dow Cornings objectives to drive down the cycle time and backlog for payment dispute resolution.

10Implementation: Delivered Objectives

We focused on three key metrics and the interplay between them. Each of these is captured in our Payment Dispute Dashboard.Payment Dispute Cycle Time: The number of days between the time a dispute is Opened and Closed.Backlog Chart: On monthly basis we measure the number of Disputes Open (the backlog)Disputes OpenedDisputes Closed.Payment Dispute Sigma: Monthly, we measure the standard deviation occurrences of disputes per invoice population

Dow Corning INTERNALGoing GlobalPhased approachKey Regional ChallengesBusiness Units Differences

Dow Corning INTERNALGoing Global - Phased approach

Our initial project implementation was for the US and Canada; where we historically had a very high rate of disputes.Implementation: Mar-2007Results: by year-end:achieved a 18% reduction in dispute volumeReduced Payment Cycle Time from 78 to 60 daysIn May-2008, we implemented in Europe, where our operations support the emerging markets of CIS, E Europe, Turkey, Middle East and Africa.In March-2010, we implemented the rest of the world, with key locations of Latin America, India, ASEAN, China, Korea, and ANZ.

Dow Corning INTERNALGoing Global - Key Regional Challenges

Europe:Customer disputes from short- and over-payments occur most frequently in Germany and countries with similar business behaviors (UK, Benelux, E Europe, CIS).Customers in Southern Europe and Southern regions (ME, Turkey) typically dont short pay they simply dont pay.For these situations, we developed a new workflow, where the Dispute Case is created based on a customer billing complaint.In Europe, 40% of our Disputes are related to customer billing complaints vs. payments.

Dow Corning INTERNALCustomer Billing Complaint Disputes resolution:

Customer agrees to pay as-is, correcting the issue in there system. Payment matches invoice and is closed.

Dow Corning issues Credits and/or Debits to produce an invoice agreeable to the customers. Payment is received and is used to clear all related open items.

or related credits being issued to close the dispute case.

14Going Global - Key Regional Challenges

Rest of the World:Latin America very few disputes from incorrect payments due to strong systems to avoid billing errors, including invoice presentation and acceptance in Mexico, banking system in Brazil, and use of documentary collection and L/CsKorea and China a very small number of disputes; but enough to warrant the implementation.ASEAN/ANZ a reasonable number of disputes with both advance and payment disputes involved. Higher rates in Australia, Thailand and VietnamIndia lots of items can cause disputes include complex transportation and tax impacts. Customer partial payments are also quite common. We have been steadily applying pressure with certain customers to improve our mutual processes.Japan excluded from scope due to the rarity of payment disputes!

Dow Corning INTERNALGoing Global - Business Unit Differences

We have several different businesses and brands. Two of the largest are the Dow Corning and XIAMETER brands.The XIAMETER brand incorporates a web based interface for ALL customer business. This efficient model adds surcharges for special services.Payment disputes are very rare!The Dow Corning brand accepts orders placed by web, email, fax, B2B Purchase Orders, or by phone.Payment dispute arise from a variety of reasons, including price, quantity, transportation, and tax.

Dow Corning INTERNALXIAMETER : Due to the exceptional communications in the process and the full confirmation and agreement of the customer when orders are placed, payment dispute are very rare!

Dow Corning :

This model does not have as many checks and balances, leading to greater opportunities for payment disputes to arise.

Payment dispute arise from a variety of reasons, including price, quantity, transportation, and tax.

16Our Implemented Dispute Mgt. LandscapeUDM Case Mgt.Case life cycleEmail NotificationsReportingBW DashboardBW Analyzer Reports

Dow Corning INTERNALDispute Mgt. Landscape: UDM Case Mgt.We utilize UDM Case Mgt. with some customization for our unique needs, includingCredit Case enhancementReason CategoriesUnique Routing of Disputes:Coordinator: always the person responsible for resolving the disputeProcessor: person responsible for the next task in the resolutionEmployee Responsible: always the person responsible for the overall relationship: Sales & Service Specialist. Dow Corning INTERNAL

Dow Corning INTERNALCan also attach documents through UDM_DISPUTE19

Dow Corning INTERNAL20This is the high level description of the ultimate reason for the dispute. Further breakdown is possible with the reason code. NO cases should be closed with the category or reason of TBD!!!!

CapGemini will use CATEGORY to determine who will be assigned the case.

CCPs will receive: Duplicate / Discount

CPS assigned to CPS coordinator or marketing

To be determined assigned to Credit Specialist to contact customer for actual reason

All others assigned to CSP

Dow Corning INTERNAL21These are the reason code choices. This is a further breakdown of the category field.At this point, the only one with further breakdown is the PRICING category.Dispute Mgt. Landscape: Case Life CycleDriven by Payment DiscrepancyBPO receives payment discrepancy and create payment dispute.Coordinator notified.Coordinator contacts customer and related parties.Coordinator gets resolution agreement and forwards to BPOBPO adjusts or receives payment and closes dispute. Driven by Billing Error ComplaintDC receives/establishes customer billing error complaint.Coordinator creates payment dispute case.Coordinator contacts customer and related parties.Coordinator gets resolution agreement and forwards to BPOBPO performs clearing or receives payment and closes dispute.

Dow Corning INTERNALDispute Mgt. Landscape: Email NotificationsIn order to drive toward faster resolution of payment disputes, we escalate aging disputes to management at key stages.

At 15 days, a notice goes to the coordinator and processor

At 30 days, another notice goes to coordinator, processor and their managers

Notices continue every 30 days until dispute case is closed

Dow Corning INTERNALDispute notifications are emailed via workflow (example below):

A payment dispute has been assigned to you as a processor. Please click on the link below to access your SAP Inbox or log on to SAP (DCE/010) and go to the SAP Inbox (transaction SO01) to process this Customer Payment Dispute Case.

http://horizons-dev.dowcorning.net/irj/servlet/prt/portal/prtroot/pcd!3aportal_content!2fcom.dowcorning.ROLES!2fGlobalPersonnel!2fcom.dowcorning.GlobalPersonnel!2fcom.dowcorning.MySAPInbox

Dispute: 6000000031SAP Payer Number: 1041090 - PROCTER & GAMBLE CO (OLAY)Disputed Amount: 15.90 USDReason: TAXResponsible CSP/CCP: PJCOE

This email is auto generated. Please do not reply.

Dow Corning INTERNAL24It is not necessary to retain these emails, as you are able to access your inbox without the link.Dispute Mgt. Landscape: Customer DashboardResolution Cycle TimeBacklog ChartSigma Chart Our Sigma ranges regionally between 1.7 and 3.5Our Dec-2010 sigma was 2.292

Dow Corning INTERNALDisputes= 285 Invoices= 25990 Sigma= 2.292

Roughly 1% of invoices resulting in a payment dispute!25Payment Dispute Cycle Time

Dow Corning INTERNALEurope Cycle time reduced in 2010 from a high of 46 days to 32 days!26Payment Dispute Backlog Chart

Dow Corning INTERNALEurope Backlog chart shows steady decline in backlog in 2010 with open disputes decreasing from 150 to 75!27Dow Corning Case Study TakeawaysGlobal Solution customized to our regional needsA sound control environment Operational ToolsCommunication via workflowReporting for management oversightDow Corning INTERNALQ & AThank you for your time!Dow Corning INTERNAL