Using Pareto Principle to optimise your SAP IM solutions

Author: Siddharth Bisoi

When a new ERP solution is implemented, the implementation team relies on best practices and learnings from the organisation’s historical data and processes. Once the solution is up and running, changing business environment’s and evolving technology landscape calls for continuous course corrections to extract the optimum value from the investment.

This process goes by the name Continuous improvement, Process optimisation or simply Run services in various organisations. Very often the way this is tackled is by collecting audible pain points from the Line of business and bundling them into a mini projects with the aim to deliver some quick wins to calm the most noisy areas of business.

If you have heard of the Pareto principle (also commonly known as the 80/20 rule, the law of the vital few, or the principle of factor sparsity) then you are aware that, for many events, roughly 80% of the effects come from 20% of the causes.

This also applies equally to software solutions and process pain points.The key is to then have a way for getting easy business insights into the 20 % of area which is causing 80 % of the pain. The challenge in most organisations is to have such a quick, easy and flexible way to get this data out, which should also be cost effective.

Let´s take the example of Accounts Payable process, which is common to any organisation, big or small, whatever industry or country they might be operating out of. How to then concretely apply the Pareto principle? If one succeeds to slice and dice the available data into visual business KPI’s, that can help in identifying the 20 percent of pain areas that can provide the 80 percent of gain.

In this blog we will shortly describe 3 of our 7 standard dashboards for Vendor Invoice management to show how we help customers achieve this

Turpikes I&A Vendor Invoice dashboard

Our Vendor Invoice dashboard presents the State of the nation of Invoices in Accounts payable process, with possibilities to visually slice into Company codes, vendors, vendor account groups ,types of Invoices, document dates and channels.

Fig1: Turnpikes I&A Vendor Invoice dashboard

Turpikes I&A Invoice Payment analysis dashboard

The primary goal of the AP department is to make sure the vendor invoices are paid on time. The definition of “on time payment” can then be judged by measuring the difference between the due date (calculated from payment terms maintained for the vendor and the actual clearing of the vendor invoices made for payment run). The Payment Analysis dashboard helps visualise exactly that and shows the areas (company code, vendors) where there are major deviations. So you can easily target your first 20 % of problem candidates. That means you succeed in a crucial part of the problem solving, being to identify to right problem. The solution to that problem can be many things, varying in AP process from master data alignment, making underlying processes optimal to even looking at the input channels.

Fig2: Turnpikes I&A Invoice Payment Analysis dashboar

Turpikes I&A dates analysis dashboard

The life of an Invoice has broadly three stages, when looked at it from Vendor (who is creating and sending invoice) and Customer (who is receiving and has to book and pay invoice) perspective:

1. Time from issue by Vendor, to receipt in customer system (Invoiced to Receipt)

2. Time spent in processing in customer system (Receipt to Posting)

3. Time spent in waiting after successfully posting of the accounting document in the customer system (Posting to Payment)

 

A vendor can be paid late due to problems in any or all of these areas. It then becomes important to visually quantify the problems and extract the problem areas that need to be addressed first. Here follow some examples and tips where the analysis focus should be. If there is an issue with receiving the invoice from the Vendor system to the Customer system correctly, then the focus should be to address the input channel challenge for this Vendor.

For another Vendor the bottleneck might be in the approval process, since many cost center approvals might be clubbed into one invoice.

For some Vendors even, it could be an issue with the Payment file being generated wrongly, with duplicates etc. Such errors cause rejection by the bank and then it needs to be sent again after corrections, thus causing delay in payment.

The possibility for slicing the data sets to surface the top 5 or top 3 vendors (across organisation or for specific companies/countries) then helps to decide the exact steps to be taken for this optimisation.

 

Fig3 : Turnpikes I&A Date analysis dashboard

We welcome you to try the live demo link on our website. Here you can see how, through help of dashboards and visualised KPI performance, you are offered intuitive means to easily locate the 20 % of your problems which can then deliver 80 % of your solutions.

We will be very happy to hear from you your experience in this area, and how you have been tackling these issues in your organisations.

We will be very happy to hear from you your experience in this area, and how you have been tackling these issues in your organisations.

Key takeaways:

  • Continuous improvement is a must for every organization aiming to stay relevant in fast-changing world
  • 80/20 Rule is key to success
  • Data-driven visualization of KPIs guarantees to make the right decisions
  • Examples and tips how to detect Accounts Payable process bottlenecks
  • Find out how to identify root causes for Late payments
  • Visual KPIs for SAP VIM with 100% ready data

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