Case Study

Leading manufacturer reimagines procure to pay with Lean DigitalSM

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Client: Global healthcare products company, manufacturer of medical devices and supplies

Business need addressed:

  • Enable processing of vendor invoices by interfacing with multiple legacy systems
  • Provided end-to-end visibility into spend on supplier invoices
  • Enhanced controllership and reporting capabilities
  • Standard invoicing processes, and
  • Improved relationships with suppliers

Genpact solution:

  • Engineered intelligent accounts payable (AP) operations that leverage Lean DigitalSM principles to address the hidden complexities of legacy processes and technologies
  • System of Engagement AKRITIV Enterprise Supplier Management (ESM) that works with existing systems of records to reimagine vendor management, invoice payment, and audit and analytics processes

Business impact:

  • Enhanced controllership, quality and accuracy in invoice processing
  • 17% improvement in employee productivity
  • Improvement in discount capture (81% to 94%)
  • Significant cash flow impact
  • Greater spend visibility for financial decision making

Technology enabled transformation for its procure to pay (P2P) operation was a necessity for this healthcare products and medical devices manufacturing leader, but it also represented a significant operational challenge. The change management and evolution involved material technology complexity, especially with regards to integration into legacy systems and processes, and transfer from an incumbent technology partner. These challenges are quite common in established organizations, and often result in transformation costs and time overruns that reduce return on investment. A robust, methodical approach to these issues is essential. This company overcame its initial struggle in transitioning to a best-in-class,digitally enabled operation using Lean DigitalSM principles and through its reliance on its partner ecosystem. The result was a rapid achievement of target performance goals in the areas of spend visibility, cost-efficiency, supplier relationships, and controllership. It also positioned the company to successfully reimagine its end-to-end P2P.

Business challenge

Like many organizations embarking on a digital transformation, this global manufacturer of healthcare products and medical devices also struggled with the complexity of underlying processes, disparate technology, poor cross-functional collaboration between IT and various interdependent business functions, pockets of tribal knowledge, and short term solutions, which often hid sub-optimal business performance and key operational vulnerabilities. A history of rapid growth, aided by mergers and acquisitions in which individual entities were not fully integrated into a uniform operating platform, further complicated matters, resulting in multiple disparate processes and systems being patched together.

The medical devices leader recognized the limitations of its existing processes and decided to move to a modern, best-in-class operating model. For the past few years, an outsourcing service provider had been managing the client's invoicing process using offshore resources in addition to its own technology platform and workflow solution. The solution, as well as the interfaces connecting it to other business systems, was customized extensively to accommodate the fragmented requirements of different acquired entities, regions, and business units. While the provider was meeting the agreed SLAs, the client became increasingly concerned about the insufficient business impact, which manifested itself in a lack of standardized invoicing processes, minimal spend visibility, poor reporting, inadequate data, and uncertainty about correct and timely supplier payments.

The client made a decision to address these issues by embracing modern digital technologies and partnered with Genpact.

As the processes were transitioned from Manila to Hyderabad, a difficult situation began to unfold. As it happens in many technology implementations involving transfer from incumbent partners and systems, insufficient documentation and change control, and dependence on a handful of experts can make it extremely difficult for organizations and their partners to determine the exact changes required.

Initial assessments often fail to capture the complexity of the legacy process and technology landscape. This initial phase is critical, as organizations and their partners must respond in an agile fashion to quickly discover gaps, reassess previous plans, and prioritize interventions while simultaneously minimizing disruption to business as usual.

In this case, too, the transition to the new solution exposed a series of issues previously hidden to the process owners and technology SMEs within the organization. Disparate systems and disjointed data-flow from multiple entities triggered an initial performance slump.

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Genpact solution

A Lean DigitalSM approach — combining digital technologies, design thinking, and Lean management principles — helped the medical devices major address the initial challenges, and subsequently drive real, value-generating transformation faster.

The approach was built on agile and Lean startup practices that tolerate a little deliberate waste early to avoid wasted time, and sub-optimal results, later. Focusing on end-to-end interventions aimed at business outcomes, while also looking beyond SLAs and process-level metrics, helped for instance reset performance KPIs to a lower first pass yield in payment of invoices in order to achieve far greater accuracy.

In the new operating architecture, System of Engagement AKRITIV ESM, was deployed to work along with legacy procurement, business planning, and ERP systems.

As expected, go-live was fraught with a number of issues related to data, technology, and process. The result was a material backlog of invoices and mounting tension with some suppliers.

Countering the disruption from the digital technology implementation, an agile operating model was put in place to buffer the temporary performance degradation, with leadership relying on the commitment of their partner to steward the organization through this phase. Rather than narrowly focusing on contractual terms and conditions, both sides collaborated effectively under pressure to put in place governance mechanisms that addressed operating needs during this critical period.

Three war rooms were established, with senior leaders from the service provider organization involved in all interactions until steady-state was reached. The war rooms were tasked with solving technology interface issues and flow mapping,manually managing the backlog and exceptions,and coordinating with business and client teams to ensure proper allocation of resources.

Process management experts experienced in running industrialized finance and procurement operations were deployed to train and ramp up resources in order to manually process the rapidly growing backlog of invoices. Operating 24/7 for a full five months, this team cushioned the impact to the business stemming from broken process and data flows, and unpaid invoices.

A team of process and technology experts found over 180 improvement areas in the original application and interface specifications. Using Lean principles that direct focus on material levers impacting business outcomes, the team came up with a road-map that included multiple implementation waves, with each wave jointly addressing related process and IT changes. The team prioritized critical changes, such as issues that would prevent payments to critical vendors, who could potentially disrupt the supply chain.

With successive iterations performance-related issues and the backlog of invoices began to diminish rapidly. New process controls and governance measures were codified along with robust master-data management to minimize delays and prevent serious errors, such as payments to duplicate invoices, wrong purchase orders, incorrect pricing,and payment transaction failures.

The Lean DigitalSM approach helped explore the full value envelope to achieve end-to-end spend visibility, enhanced controllership and reporting capabilities, standardized invoicing process,and significantly improved relationships with suppliers. By looking at the end-to-end process, the teams redesigned key operational solutions.

For example:

  • Streamlining vendor setup and maintenance with automated workflow-based approvals and notifications
  • Reducing inbound call volumes and inquiries by onboarding suppliers through a dedicated supplier portal
  • Developing robust reports and dashboards to enable quick decision-making, resolve process bottlenecks, and drive ongoing improvements

Business impact

The solution, in addition to enabling the client to quickly achieve target outcomes, created a build-to-adapt technology and process foundation for further improving end-to-end P2P process. The client's operations today have better, more reliable, and real-time data, as well as the ability to run data-to-action recursive cycles without stumbling on technology, process, or organizational complexity. The impact of this simpler and powerful architecture is already evident in:

  • Transformed invoice processing resulting in thehighest levels of controllership and auditability,through new process controls and accuratemaster data
  • 17% improvement in employee productivity due toeffective automation and process standardization
  • Improvement in discount capture (from 81% prior tothe Akritiv ESM implementation, to 94%), enablinga P&L impact of US$ 0.5 million annually
  • Significant cash flow impact through debit balancereduction enabled by an improved recovery process,leading to lower vendor balances
  • Greater visibility into spend and invoice payments for superior financial decision-making
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