Using Customer Requirements to Drive & Guide Process Re-Engineering

SSON News and Analysis
Posted: 07/09/2012

HMSHost completed a rapid implementation of a shared services center (SSC) in March, 2003, integrating 175 accounting offices into one accounting center. Being a travel-related business with sites in major cities spread across the US, Canada and international locations, HMSHost identified an opportunity to create a consolidated, highly efficient and well-controlled centralized accounting services center, which we call the "NPC" (National Processing Center). Given business imperatives, we decided to build a center with highly manual processes and automate after implementation. Over the past year, HMSHost has re-engineered and automated numerous functions of the NPC, resulting in greater efficiency, improved quality and better, centrally managed controls.

The Voice of the Customer 

At the heart of process improvement is an understanding of "customer needs." During implementation, the NPC development team conducted a series of weekly conference calls with every branch accounting office as it transitioned into the NPC. These calls documented a training and transition process step-by-step for five weeks prior to integration and five weeks post integration. Through the course of the implementation, the team held over 1,700 of these calls, allowing us to stay closely in touch with our customers.

During the post-integration calls, the team focused on issues we encountered, specific transition concerns, issue resolution and early process improvement efforts.

Over time, our customers made the improvement of accounts payable services a top priority, so that is where the team focused our initial process improvement efforts.

Baseline Establishment 

The team recognized the importance of establishing a baseline both to measure improvement and to report on progress to stakeholders. We created a quality control group with the intent to measure approximately five percent of each week’s accounts payable transactions against a set of 15 quality measures. We established KPIs based on business impact, assigning higher performance standards against more critical factors. The team also committed to the stakeholders that it would maintain product flow and not distort financials; therefore, timely and accurate vendor payment and expense center accuracy targets were set near 100 percent.

At the beginning of 2003, only 12 percent of our invoices were processed electronically, so we were faced with having to manually code and process over 600,000 invoices per year. Given that the NPC was a newly created center, most accounts payable processors were new to NPC staff – many having been in position for less than six months. The team was further challenged by a process whereby we coded general ledger (G/L) accounts centrally against a newly adopted chart of accounts, with no purchase order or matching systems then in place.

While the team met its business guarantees of maintaining product flow and not distorting financials, the time to process an invoice hovered above seven minutes and quality scores for remaining benchmarks were lower than desired. The team viewed these shortcomings as learning opportunities. Going forward, we engaged vendors in dialogue about their key concerns, outlined plans for rework and reaffirmed our commitment to 100% customer satisfaction.

Initial Process 

The initial process for accounts payable transactions encompassed several steps. First, invoices received from each of 175 branches were logged in document control and then routed to AP. An AP processor would assign G/L codes to the invoice and record those codes plus other accounting information for data entry on a cover sheet. The cover sheet and invoice would return for imaging to the document control group before a data entry processor would key the cover sheet data from the scanned image into our PeopleSoft system. A customer support group would field vendor issues and corrections were made by the AP supervisors.

Structural factors prevented the process from realizing peak efficiency. Since the process employed a split screen data entry process working off of a cover sheet image, it was difficult and cumbersome to validate data entered against the actual invoice. There were opportunities for data transposition as well as problems caused by illegible handwriting on cover sheets.

At the beginning of 2003, we upgraded to the latest version of PeopleSoft Financials which presented further challenges. Time to process an invoice rose from approximately seven minutes per invoice to over nine minutes per invoice.

Process Improvement Methodology 

Our approach to process improvement is straightforward – automate where possible while optimizing the remaining manual processes. What follows is a discussion of both the process redesign and automation efforts we undertook to address the issues outlined above.

Process Redesign 

The team started the process redesign while still working on the integration of locations into the NPC. To begin, we designed a simplified data entry panel that would allow the AP processors to code and key their invoices directly into PeopleSoft. We added several validation steps to the data entry process that allowed for immediate identification and correction of vendor name, address and remit issues.

This first change consolidated the invoice entry process but also created a back end challenge to correctly attach scanned images of invoices to the associated PeopleSoft vouchers. To address this challenge, we developed and implemented a bar code attachment process that automated the image attachment process using barcodes printed after batches of invoices were entered.

While the customer support group still fields vendor issues and resolves those that can be quickly addressed, escalated problems requiring issue resolution now go to the processor responsible for the location involved. Thus, a single individual now carries complete accountability for a location’s invoice processing.

Additional Enhancements 

We tailored the quality control reports to reflect errors by processor on both a weekly and trended basis and built incentive programs for "zero errors" during specified time periods. The AP supervisors coached their processors daily on error prevention and created additional job aids related to trouble spots.

In addition, we partnered with several other functional areas to automate invoice processing wherever possible. The priority for automation went to vendors with high invoice volume as well as those with expensive transactions to handle. For example, we pay certain vendors who often have shorter payment terms or COD payment requirements, often dictated by state and local laws. For these vendors, we outsourced with a third party that delivers electronic funds transfer (EFT) and financial settlement solutions while providing us with an electronic feed tailored to our accounting needs.

Working with our procurement department, we helped introduce an indirect spend program that consolidates company purchases through an e-procurement tool while charging a p-card assigned to each user.

We also helped develop and test an interface to a new food management system that allows managers to create purchase orders on-line and enter receipts from invoices accompanying deliveries. An approval process then creates an upload file that feeds our PeopleSoft AP system nightly. For locations not yet using this new food management system, we partnered with our systems department to implement EDI and flat file processing for our vendors with higher invoice volumes.

These nascent automation efforts are critical for hard coding quality improvements while also driving down the time and cost of invoice processing in the NPC.

Results Achieved 

Through the process redesign and automation efforts described above, we were able to achieve significant improvements in the accounts payable process in the nine months since we completed our center implementation. Quality scores have improved over 70 percent and the time to manually process an invoice has dropped 50 percent to almost four minutes per invoice.

We surpassed our invoice automation target of 30 percent by completing the year at 36 percent. Importantly, in our December service satisfaction survey that we administered to all field customers, the Accounts Payable department received above average satisfaction scores plus frequent mentions as "most improved."

These efforts occurred simultaneously with numerous other process improvement efforts at NPC. Guided by a rolling two-year business planning process, we are pursuing high impact projects that each contribute to our goal of building a "Center of Excellence." We involve our customers in that planning process and share the economic benefits of our collective improvements with them through annual fee rebates.

Lastly, we will continue to formally and informally poll our customers to know where we can improve our service offerings to them in the future.

About the Author

Craig Ackerman is Director of Support for the HMSHost National Processing Center located in Bethesda, Maryland. He led the implementation effort that integrated 175 accounting offices into one SSC for HMSHost from October, 2001 to March, 2003. In his current role, he leads all support, process improvement and automation efforts for the center. Previously, Craig held positions in IT Development, Project Management, Operations, Business Development and Training with various companies in the hospitality industry. 

SSON News and Analysis
Posted: 07/09/2012


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