Cliff Struhar, Hackett Senior Business Advisor, said CFOs whose finance organizations are not capturing these cost savings should demand them immediately.

According to another related Hackett research report, integrated ERP systems can drive significant cost savings and productivity gains in Accounts Payable (AP), despite their high implementation costs. The research compares median annual systems costs and AP metrics at companies with integrated ERP systems to those with legacy or non-integrated ERP systems.

"Understanding the 10x Cost Gap in Accounts Payable" details the AP practices of world-class companies and provides data and advice about how to obtain similar results. The report bases its results on a survey of more than 50 large U.S. companies.

Key findings include:

• When leaders cut costs, AP productivity improves. Cost leaders spend one tenth as much as worst-performers on AP, representing potential savings of $590,000/year per billion in revenue. Even average companies surveyed spend twice as much as cost leaders. Significant gaps are seen across a wide range of AP cost and productivity measures, including cost per line item, cost per invoice, full-time equivalent AP employees (FTEs) per billion in revenue, and line items per FTE.
• Eliminating paper is the key - Cost leaders eliminate paper throughout their AP organization, including areas such as receipt settlement, supplier invoicing, small-dollar purchases, and vendor payments. For example, cost leaders utilize paperless invoices 66 percent of the time, more than twice as often as average companies. They also rely on paperless payment methods such as EDI and EFT three times more often than average. Other keys to cost reduction include enabling Web-based supplier self-service, centralizing the vendor master file, and automating workflow for electronic or imaged invoices.

"The 10x gap in accounts payable that we've identified is simply wasteful," said Struhar. "Nothing we're talking about here is rocket science. The systems and process changes we have identified are all fairly mature, and they are neither difficult nor expensive to implement. Any CFO who becomes aware of this and takes action today can have tangible savings in six months or less."

A separate research report, titled "ERP Applications in Accounts Payable" and authored by Hackett Business Advisor David Hebert, details the cost savings and improved productivity that can be generated in AP through the use of integrated ERP systems. The research survey evaluated costs and productivity for companies in three categories: those with integrated ERP applications encompassing the AP process, those with other non-integrated purchased applications, and those companies using internally developed (legacy) systems.

Key findings include:

• Integrated ERP systems are cheaper despite implementation costs - A calculation of median annual systems costs (development plus operating costs) allocated to AP for integrated ERP, legacy, and non-integrated purchased systems demonstrates empirically that development costs for integrated ERP systems may be the highest (amortizing the initial system investment over a projected useful life of 6-8 years), but this is more than made up for by dramatically reduced operating costs. In total, integrated ERP systems show the lowest median annual systems costs per year of the three options. Median annual systems costs for legacy applications are 60 percent higher than integrated ERP systems, with non-integrated purchased systems falling in between the other two options.
• Properly implemented ERP systems drive clear AP cost savings. Surveyed companies drove average savings of $300,000/year in AP costs per billion in annual revenue through properly implemented ERP systems. This refutes some companies' claims that higher cost of ERP systems results in higher overall costs in AP. Cost per invoice line item at companies with integrated ERP systems averages 20 percent less than companies with legacy systems, and 25 percent less than companies with no ERP at all.
• Significant staff reductions possible through integrated ERP. Companies with ERP systems require only 61 percent as many FTEs in AP as those with legacy systems, and 76 percent as many as companies with non-integrated systems. The most dramatic reductions in staff are seen in the areas of discrepancy resolution and inquiry/response. For example, companies with legacy systems dedicate 18.1 percent of their FTEs in AP to discrepancy resolution, versus 11.4 percent of AP staff at companies with integrated ERP systems.

"Given the astronomical software license and implementation costs of ERP systems, it's understandable that executives have difficulty associating the benefits of ERP with specific processes such as Accounts Payable. But our research clearly addresses any concerns that people might have," said Hebert. "If companies take a best-practices-driven approach to ERP implementation, the result will be cost savings and productivity improvements. The significant decrease in AP operating costs that an integrated ERP system enables more than justifies the expense of implementing the system. Productivity of AP staff also improves dramatically, largely because they get better quality data that has been validated at the source. This eliminates many of the root causes of errors that traditional processes have had to correct manually."