Developing a successful Roadmap towards achieving

100% AP Automation

9th Annual Accounts Payable and Purchasing Process Summit

Singapore 2012

Purpose of this session

• Introduction to Kellogg and our European Finance Shared Service Centre

• Our roadmap towards achieving 100% AP invoice automation

• Key factors for successful implementation

• Accuracy, transparency and error reduction

• KPI’s of a fully automated AP function

Kellogg Company Overview• Global Company - Founded 1906

• Head Quarters is in Battle Creek, Chicago, USA

• UK HO is in Manchester and the European HO is in Dublin

• World's largest manufacturer of Ready to eat Cereals - Turnover $12 billion . PRINGLES!

• Employs 36,000 people worldwide

• 40 cereal brands, 160 countries, 19 manufacturing plants, operating on 6 continents

North AmericaFSC and COE

Mexico FSC

ManchesterFSC

Dublin COE

Finance within Kellogg’s Worldwide

3 Finance Shared Service Centres:• Manchester, UK – 120 finance employees• Battle Creek, USA – 150 finance employees• Queretaro, Mexico – 130 finance employees

2 Centres of Excellence:• Dublin, Ireland – 50 finance employees• Battle Creek, USA – 30 finance employees

Asia Pac:• Kuala Lumpur – 12 finance employees• Sydney – 30 finance employees

KL Finance Hub

Sydney Finance Hub

Russia

UKIreland

France

Benelux

Nordics

Spain

Italy

MED/ME

Germany

Greece

We deal with approx 20 EMEA markets, all with varying degrees of statutory complexity and fiscal requirements when considering e-billing arrangements

Including:• UK• Ireland• Denmark• Finland• Norway• Sweden• Russia• Germany• Austria• Switzerland• Belgium• France• Spain• Portugal• Greece• MED/ME• Italy• Poland

Split of Finance responsibilities - Europe

EFSC

• The Financial control centre for Europe handling all European Financial transactional activities

COE (MFG/MFP)

• Delivering reporting and data management; analysis and first line query resolution; this team bridges the gap between transactional process work and highly commercial business partnering

Local market

• Focused on highly commercial activity and tasks which require specific local knowledge

Manufacturing Plants

• Plant Controllers support the operational activity and budgeting of 5 European Plants. Giving value adding advice, supporting plant operations

Introducing the European Finance Shared Service Centre

Accounts Payable Accounts Receivable Costing

General Ledger Fixed Assets VAT

Intercompany

Control

Payroll Cash Statutory Reporting KLean

2006 - Time for Change

Our Approach to e-Invoicing roll out:

• Financial Business Case, improved control, reduction in error rates, cost benefit

• Engage Key Stakeholders for a successful implementation - Stakeholders included European VP of Finance, European Chief Procurement Officer & European Leadership Team

• Established dedicated Project Team - Procurement & Finance Alliance – focused on

value stream not functional silo’s

• Mapped Current PTP Process

• Standardise and simplified - Enforcement of 3 way match process

• Vendor Rationalisation - Vendor database cleansed - reduced suppliers by over 50%

• Identified Modes of Delivery

• Partner Selection

• Adherence to Fiscal requirements

• Pan – European solution

• Flexibility and scalability

The exchange of electronic data between 2 parties using globally recognised format1

2Dedicated e- Invoicing network used to pass invoice data. This solution is simple, secure and certified.

3Kelloggs creates a suppliers payment based on the goods receipting. Paper invoices eliminated

PCard – Procurement card used for low volume suppliers; full spend visibility, comparatively low purchaser administration

Mode of Delivery - Potential Solutions

Key Learning: One Size doesn’t fit all…yet

Key Factors for Successful Implementation

• Standardised processes

• Optimisation of SAP platform

• “Loud” communication to business and vendor base

• Tough “on-boarding” message. Mandated as a condition of supply

• ELT Sponsorship

• Dedicated resource for 18 months

• Vendor rationalisation

• Create momentum – rapid progress and quick wins

• Change Management

Readsoft

WebForm Supplier

• Confirmation/Rejection report

Integrated Supplier

E-Invoicing Process Flow

BTB EDI SUPPLIERS

• Validate• Translate

• Kazeon - Legal archive

SAP

OB10Archive

Virtual analyst

Touch less

WHAT ? HOW ?

1 Confirms who the supplier is SAP Vendor number & VAT Reg

2 Verifies who they are invoicing Matches the PO entity, Kellogg VAT reg and the entity identification number

3 Checks the financial calculations Performs same fiscal checks as OB10

4 Checks the PO valid for this supplier PO line open & in correct entity?

5 Compares the invoice data to the PO data

Matches invoice to the PO line

6 Notifies supplier via email if the invoice is being rejected

Happens automatically / manually

7 Checks credit notes are valid Quoting a PO? Quoting an invoice?

8 Checks Duplication Status Document already in SAP?

9 Creates invoice image from the invoice data – visible in SAP

Attaches to the SAP document

move to next check

rejects wrong data

move to next check

rejects wrong data

move to next check

rejects wrong data

move to next check

rejects wrong data

posts to Sap

rejects or stops

supplier to resend

Always stops for EFSC review

yes? reject

no? post to SAP

requisitioners, receiptors

can view

Resulting Action

Our Virtual Analyst

Direct via EDI1

Via OB102

Self-Billing (ERS)3

400 suppliers use ERS

(5.5% of all suppliers)

SAP

25 suppliers

2500 Suppliers (through

web portal and

integrated connection)

Supplier

35%

41 %

11 %

87 %

% InvoiceVolume

ePTP Automation Profile

Our roadmap to achieving 100% AP Automation

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

FTE’s

87% Auto

0% Auto

Invoice Volume 130000 132000 173000 177000 187,000

47 47 47 47 49

11000 7000 4700 5000 4900

£7.02 £6.77 £6.02 £4.80 £4.43

Company Codes

Vendors

CPT

40% Auto

80% Auto

82% Auto

Tim

e f

or

Ch

an

ge

40% reduction

37% reduction

55% reduction

69% increase

4% increase

CPT Target for 2012 - £3.75

Where are we now?... Pure E- Invoicing

Key drivers of the GAP • Tax code assignment -

57%• Credit note - 21%• PO/invoice setup - 9%• Service Entry - 7%

2011

Electronic 87%

Touchless 78%

Gap 9%

Invoice ProcessNumber of invoices

Number of Suppliers

EDI 66,000 26

OB10 76,000 2545

Self Bill 22,000 394

Paper 23,000 2005

Total 187,000 4970

Benefits and Achievements

Benefits:

• Cost reduction/Resource re-allocation

• Inefficiencies addressed

• Standardised process

• Business re-education

• Value add activities- Projects, Financial visibility reporting, Cash flow forecasting, variance analysis, driving compliance

We have achieved:

• Streamlined invoice process - 87% electronic and 78% touchless

• An increase in invoice volume by 44%

• A reduction/reallocation of headcount by 40%

• CPT reduced by 37%

We use LEAN tools SIPOC and VSM to work out what metrics we should be using

KPI’s in a fully automated PTP process

Talent Management

Continuous Improvement

Quality and Control

Customer Service

• Staff capability Matrix

• Staff turnover rates

• Staff Quarterly Survey

• Backfill ready for Key roles

• Recognition and Reward

• Automation KPI’s

– Invoices/STP/per FTE

–Invoice Cycle Times

– Payments

– Cash Matching

– Special/Manual payments

– Master data set up

• Cost per transaction

• Cost vs NSV

• Call/E-mail volumes and response times

• Pagares suppliers

• Same day payments

• Vendors and vendor set up

• Items in cockpit

• OB10 rejection

• Error rates :

– VAT coding

– Payments

– Reversals

• GRIR

– Control

– Missed CWC

– 3 way match adherence

– % invoices paid to terms

– Aged ledger items

–Debit balances

• Outstanding Rec review points

• DPO and Cashflow KPI’s

• Rep Letter points

• Service Level scores

• Outstanding customer actions

Our lean Information Centre

• Continue “onboarding” suppliers

• Look for solutions to tail– Currently 23,000 paper invoices from 2005 suppliers

• Use Lean methodologies to– Drive Down ‘ Gap Blocks’– Further Streamline process especially upstream– Enhance Control

• Even more rigorous KPI management

• Continually review market for cheaper offerings and innovation– OB10– Social Networking– EDI usage– PO Flip– Portal– P-Card – Indirect spend catalogue

Next Steps on our Journey to 100% Automation

Any questions