Features: July 22nd, 2013

Procurement by different departments from a host of suppliers inevitably brings inefficiencies and reduces opportunities for leveraging better deals. This feature describes how Newcastle University got a grip on procurement and reaped the benefit.

The Newcastle University campus comprises of over 60 different schools and departments, all of which previously managed their own procurement process. As a result, the organisation had 60 different approaches, heightening the risk of poor supplier service, inconsistent entry processes and a lack of visibility across their accounting.

To improve its internal accounts processes, Newcastle carried out a full review. A key driver was to achieve a rationalisation of their supplier base. With so many suppliers to manage, ensuring competitive pricing was achieved could be difficult. In addition, their purchase order compliance rate was around 50%, meaning that half of all invoices could not be predicted or budgeted for.

With its payment period averaging at 33 days, the university was keen to see a marked improvement across all these numbers. Additionally, the fact that the university is part government funded meant that it had a responsibility to reduce unnecessary spending whilst also maintaining stable employment levels.

Defining the solution

After identifying the need for a centralised Accounts Payable (AP) function to consolidate current processes, the team had to first decide how to handle the physical logistics of receiving 120,000 invoices annually. They also needed to identify a cost-effective method of extracting the information from their paper and electronic invoices and uploading this into their SAP software.

“Following a tender exercise we chose to outsource this process to Capital Capture due to the high volumes of invoices we were receiving and the specialist nature of accurate data capture and extraction,” explains Craig Oliver, accounts payable manager, Newcastle University.

“By taking this process off site and into Capital Capture’s bureau we immediately freed up our own staff to focus on more cost effective work, whilst also making life easier for the university’s central mailroom.”

Now, Capital Capture receives all the university’s invoices on a daily basis from a dedicated PO Box, or directly by email. Once received, they are sorted, scanned, and up to 10 data fields are extracted from each invoice and this data is then sent by a SFTP transfer, along with the provision of all invoice images, ready for automatic input into their SAP system.

This process is also supported by the university’s decision to introduce a new e-marketplace procurement system (SRM) which provides supplier cataloguing and provides transparent pricing comparisons quickly, along with a new card based purchasing system for one off items. This enables them to reduce the administration required for single payments, whilst retaining visibility of their outgoing spend.

Outstanding financial savings

Ten months in and Newcastle University has already seen a number of quantitative benefits from the combination of this outsourced capture process and its new procurement system.

Contracted compliance has improved by 34% and has now reached 72%. As a result, it is able to negotiate far more favourable pricing and is better utilising its new procurement system to quickly assess alternative pricing online.
In addition, a new purchasing card system enables a number of one-off payments to be made electronically, leading to a saving of £260,000 in pure administration costs. However, perhaps the most significant savings were attributable to procurement costs. For example, across laboratory consumables the university saved £1.2 million in the first 10 months, with similar savings expected across other cost centres.

Qualitative benefits

In addition to these direct financial savings, the new centralised function has also reduced the university’s 33 day payment terms to an average of 24 days. With their target set at achieving a 90% purchase order compliance rate, the team have already seen a 43% increase to 93% in the initial months.

“Overall we have seen a dramatic improvement in the service we are able to offer suppliers,” adds Oliver. “Having the correct invoice data scanned and available electronically means we have complete transparency across all stages of our invoice process. And by using our SAP workbench system we can see exactly what point the invoice is at, making it much easier to deal with supplier queries quickly and effectively.”

As well as engaging Capital Capture to provide the invoice capture process, the university also appointed a change management team to help with the communications and cultural elements associated with departmental centralisation. By enabling university professionals such as laboratory technicians or lecturers to focus on their core responsibilities rather than on procurement and payment tasks, their value has been greatly increased.

Overall, the results achieved by Newcastle University present a great example for organisations facing similar challenges of the great results that can be achieved: most notably, the fact that they have brought their accounts payable responsibilities down to just nine individuals without making a single redundancy and at the same time, achieved calculable savings of over £1.46 million in as little as 12 months.