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Blog post - 2019. 07. 04

How to use the Pareto Principle to optimize your SAP VIM solutions

When a new ERP solution is implemented, the implementation team relies on best practices and learnings from the organization’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 Optimization or Run Services depending on the organization. Very often the approach method includes collecting audible pain points from the Line of Business and bundling them into a mini project with the aim to deliver some quick wins to calm the noisiest areas of business.

The Pareto Principle – 80/20 rule

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 find a way to ensure easy business insights into the 20% of area, which is causing 80% of the pain. The challenge in most organizations is having such a quick, easy, flexible and cost-effective way to extract that data.

Take the example of Accounts Payable (AP) process. This process is common to any organization, big or small, whatever industry or country they might be operating out of. The question is then, how to  concretely apply the Pareto principle? If one succeeds to slice and dice the available data into visual business KPI’s that helps identifying the 20% of pain areas, which provide the 80% of gain.

How our Insights and Analytics Dashboards can help you achieve the Pareto Principle.

In this blog we will shortly describe 3 of our 7 standard dashboards for Vendor Invoice Management (VIM) to show how we help customers achieve the Pareto Principle.

Insights & Analytics Dashboards for VIM

Our Insights & Analytics (I&A) dashboards for VIM presents the state of the nation of Invoices in AP process, with possibilities to visually slice into Company Codes, Vendors, Vendor Account Groups, Types of Invoices, Document Dates and Channels.

 

Fig1: Turnpikes Insights & Analytics Dashboards for VIM – Vendor Invoice Dashboard

Insights & Analytics 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 and when paid (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 visualize exactly that and shows the areas (Company Code, Vendors) where there are major deviations. Here you can easily target your first 20% of problem candidates. That means you succeed in a crucial part of the problem solving, being able to identify the right problem. The solution to that problem can be many things. It depends on the AP processes and can vary from master data alignment, making underlying processes optimal and to even looking at the input channels.

 

Fig2: Turnpikes Insights & Analytics Invoice Payment Analysis Dashboard

 

Insights & Analytics Dates Analysis Dashboard

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

  1. Time from issue by Vendor, to receipt in customer system (Invoiced to Receipt)
  2. Time spent processing in customer system (Receipt to Posting)
  3. Time spent waiting after successfully posting of accounting document in the customer system (Posting to Payment)

A vendor can be paid late due to problems in any or all of these three 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, it could even be an issue with the Payment file being generated wrong, with duplicates etc. Such errors cause rejection by the bank and then it needs to be sent again after corrections causing delay in payment.

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

 

Fig3 : Turnpikes Insights & Analytics Date Analysis Dashboard

 

How can we help you visualize your VIM processes?

If this has peaked your interest then feel free to check out many more features and benefits of our I&A Dashboards in our Demo. Here you can see how, through help of dashboards and visualized KPI performance, you are offered intuitive means to easily locate the 20% of your problems which can then deliver 80% of your solutions. You can also read more about our I&A Dashboard for VIM in our Product Brief.

Find more information on Insights & Analytics by clicking here.