Law Firms 'Building a Case' for Automated e-Procurement Solutions

Law firms are most often ranked by their ability to produce and grow revenue and profits per partner (“PPP“). As a result, law firm management teams have historically focused on increasing revenues and PPP to attract talent and gain prestige in the marketplace. In a further effort to compete, mergers and acquisitions are sought to better position firms in winning over new clients, and to broaden service capabilities to existing clients.

In today's economy, the demands of clients are causing a shift in the strategic focus of some law firm executives. Firms still have to remain competitive in attracting top talent to build revenue, but now more than ever, they face the challenge of offering competitive rates on top of best-class customer service to their clients. While we have seen a dramatic rise in attorney salaries, we have seen an even greater rise in the costs of doing business and a reduced willingness by clients to foot the bill. In response to these trends, law firm executives are now experiencing an increased pressure from their partnership to strengthen the bottom line by optimizing administrative performance.

On all facets of the non-billable full time equivalent (“FTE“) infrastructure, we see initiatives which target:

• Improved operational efficiencies;
• Streamlined communications;
• Automated processes;
• Methods to enforce strict controls; and
• Opportunities to drive administrative employee accountability and monitor job performance.

These broad goals impact projects ranging from technology implementations to global recruiting efforts. As a function of the overall desire to increase accountability and decrease costs, transactional procedures relative to purchasing, payables, and receivables are under the highest scrutiny. Through the appropriate application of targeted, best-in-class procedures and technology, law firms can build their competitive edge in the marketplace by:

• Reducing overall administrative costs and leveraging firm spend;
• Minimizing purchase transaction expenses and cycle-times, driving administrative efficiency to further reduce costs;
• Offering better spend visibility and reporting to appease external requests and track internal metrics related to diversity and green vendor initiatives; and
• Showcasing professional procurement practices in client proposals, offering confidence to clients that reimbursed expenses are managed appropriately.

Drafted policies and procedures are supposed to dictate the rules, guidelines, and processes which secure efficient cost management. These policies typically focus on administrative areas such as budgeting, project management, purchasing, inventory management, and payables management. Unfortunately, paper policies are only effective when measures are taken to secure internal compliance. More often than not, we see firms invest time, resources, and energy to develop paper policies with strong intentions to improve business operations, but they are unable to overcome manual administrative commitments to conform. Additionally, we see firms expend resources to standardize procured commodities and leverage economies of scale with preferred suppliers only to be unable to drive spend through negotiated contracts. A main culprit for the unfulfilled potential in both examples is the lack of systemized tools to make these efforts work. Time is wasted and value is decreased because manual processes are burdensome, controls are not enforced, and communication is lost.

Turning to Technology

To address the situation, some law firms have turned to technology to drive adoption and execution of their cost management policies and procedures. There are now tools available that focus on the legal sector and help organizations automate their Sourcing, Procurement, Payables and Settlement processes. This is collectively known as “Procure-to-Pay.” These primarily Web-based technology solutions help organizations drive efficiency and compliance, while breaking away from paper-laden, manual, and time-consuming processes of the past.

To understand the impact that these solutions can have in delivering the benefits of cost savings, cycle-time reduction, contract compliance, and improved spend visibility, we first examine the processes that are the beneficiaries of Procure-to-Pay automation: including Source, Request, Approve, Purchase, Receive, Invoice, and Settle activities.

By aligning these processes into an integrated value chain, firms will experience improved collaboration and communication, and a significant reduction in the amount of administrative burden required to execute on firm cost management policies. Let us now examine the potential impact on an average law firm by starting at the beginning of the process flow.

Sourcing

“Sourcing” is a discipline often housed within the Procurement function, if it exists within the law firm. Sourcing primarily focuses on analyzing firm-wide spend to determine opportunities for savings, and then negotiating favorable contracts (price, quality, delivery, terms) for those commodities or services. Traditionally, administering this process has been extremely time consuming, involving tools such as MS-Word and MS-Excel, followed by a labor-intensive period of data analysis to determine the preferred award scenario. As a result, many firms are unable to reap and sustain the benefits that Sourcing can provide to their bottom line, and have turned to experienced consulting firms for assistance.

Sourcing solutions include Web-based technology that can simplify this process. Spend analysis tools help to make sense of current spend profiles. Best practice templates are provided to assist in the creation of RFIs and RFPs. Online bidding can replace numerous rounds of face-to-face or conference call meetings. Real-time analysis engines can expedite the manual analysis of an Excel spreadsheet.

The results are clear. Depending on the commodity or service, we have seen properly orchestrated Sourcing projects produce an average cost savings of between 10% and 15%. Regardless of whether these savings were generated in-house or consultant-driven, and regardless of what tools are utilized, many firms are moving forward in capturing this value for their stakeholders and clients. e-Procurement helps sustain these savings. In a study published by Aberdeen Research, “Enterprises on average displayed a 35% improvement in spend under management, with a 41% reduction in maverick spend (as a result of their E-Procurement initiatives).” (See Aberdeen Group, eProcurement Trials and Triumphs, October 2007.)

Once a contract has been established with a preferred supplier and deployed either firm-wide or with regional preferences, the next challenge is in building compliance to that contract and controlling your buying process. Do all employees in the firm know that the contract exists? Do they know what (which) suppliers offer the best pricing and service for different products and services? Is there budget available within their department to allow them to place a request? What controls are in place around the purchase to make sure that it supports organizational goals? How is the expense or capital purchase accrued and accounted for?

e-Procurement

“e-Procurement” addresses this step in the process through a collaborative environment for requisitioning, approval, ordering, and receiving. e-Procurement replaces a process that today may involve paper, spreadsheets, and e-mail with online tools, workflow, and reporting. Much like the online shopping experience employees are already familiar with, e-Procurement allows your firm's employees to log into a secure Web site where they are able to see all of the suppliers, catalogs, items, and services that your firm permits them to see. Once their requisition (think “shopping cart”) is completed, rules-based workflow automates the approval routing based on any number of criteria: dollar value (delegation), commodity, cost center(s), supplier, client, matter number, or any other relevant criteria. From there, fully approved Requisitions can be easily converted into a number of different Order Types to meet the intended business requirement. Orders can then be delivered to the supplier (in some instances automatically) in an order format that they prefer, whether it be mail, e-mail, fax, EDI, or cXML. After the supplier has delivered the good, or the service has been rendered, confirmation of receipt of the good or service can be performed online and permit the capture of information such as serial numbers and asset tag numbers.

Additionally, the collection of receipts helps in later invoice-matching procedures.

Why is all of this important? Because the process described above was delivered as part of an integrated Procure-to-Pay solution, with efficiencies that ensured:

• Contract compliance;
• Audit trails to follow transactional chain of command;
• Automated approval structure;
• Efficient data entry, no re-keying of data, and in some cases, auto-population of data fields;
• Complete process visibility;
• Collaboration among required stakeholders;
• Confirmed deliveries of ordered goods and services; and
• Prevention of fraud.

Aberdeen Research has stated that with e-Procurement, “enterprises [on average] reduced their requisition-to-order cost by approximately 48%, and more than halved their transaction cycle times.” (See Aberdeen Group, eProcurement Trials and Triumphs, October 2007.)

As part of the logical process flow, you will likely receive an invoice from your suppliers and therefore Accounts Payable represents the next step in Procure-to-Pay automation. According to Forrester Research, “AP professionals process more than a billion business-to-business (“B2B“) invoices each week, and 97% of those are still processed manually.” (Forrester, The EIPP Market Is Ripe for Consolidation, October 2007.)

Some firms estimate that roughly 80% of all invoices are still paper-based, and most organizations struggle with manual matching, coding, and approval processes that result in paper invoices being routed throughout the enterprise. The result is extended cycle times, opportunities for duplicate and overpayments, and difficulty in meeting agreed-upon payment terms with suppliers. These manual processes are also the primary barrier to significant returns through early payment discounts.

e-Payables and e-Settlement

This is where the “e-Payables” and “e-Settlement” capabilities of an integrated Procure-to-Pay solution come into play. e-Payables solutions typically automate the invoice submission, validation, matching, GL coding, payment approval, and vouchering processes for PO, Non-PO and professional service invoices. Settlement is broadly used to discuss the manner in which the supplier receives its payment, such as check, ACH, EFT/Wire, or card payment.

In an e-Payables-enabled organization, suppliers can submit invoices via electronic files, through a secure Web site, or by mailing/faxing/e-mailing hardcopy invoices that can be scanned and then treated as electronic invoices, thereby eliminating data entry and reducing errors. Matching can be automated with validation and tolerances. GL coding and payment approval workflow can be streamlined by rules-based routing engines. The process is now collaborative, highly visible, and carries a complete audit trail.

Once invoices are fully approved and “vouchered,” the benefits of electronic processing can be extended through electronic settlement. According to Gartner, check printing accounts for 86% of all B2B payments and the required “paper factories” are costing organizations millions of dollars annually. By moving to electronic settlement, suppliers' disbursements are easily converted to ACH, EFT/Wire or card payment, and are receiving the necessary remittance detail they require for their reconciliation process.

The resulting benefits from extending automation through payables and settlement include:

• Reduction or elimination of invoice data entry;
• Reduced errors and discrepancies;
• Streamlined matching, coding, and approval workflow;
• Ability to meet agreed upon payment terms;
• New opportunities for early payment discounts;
• Elimination of duplicates and overpayments;
• Reduction in fraudulent payments; and
• Comprehensive audit trails and reporting.

A recent e-Payables Solution Selection report produced by Aberdeen Research suggests that e-Payables solutions can help generate an average 50% reduction in invoice processing costs. This is based on a benchmark study of 300 enterprises. (See Aberdeen Group ePayables Solution Selection: Your 2007-2008 Guide to AP Transformation. September 2007.)

Conclusion

Procure-to-Pay automation technology has finally come of age as a user-friendly, flexible, and cost-effective strategic business solution. It is a solution that can ease pressures from the partnership by decreasing the cost of doing business. Whether traditional software or an “on-demand” service is chosen, automation technology can contribute to increasing profits per partner through reducing costs that directly impact the bottom line, providing your organization with the ability to not only attract top talent, but also to compete more effectively in the marketplace.

John H. Hutchinson, a member of this newsletter's Board of Editors, is Managing Director and Leader of Huron Consulting Group's Law Firm Management Practice. His team, which includes Andrew Gastwirth, focuses on helping law firms achieve a competitive edge in the marketplace through cost reduction and financial management process solutions and technologies. Frank A. Davis, Jr. is the Managing Director of Sales & Marketing for PurchasingNet, Inc., a provider of Procure-to-Pay technology solutions for mid-to-large size law firms and corporations. Hutchinson can be contacted at [email protected]. Davis can be reached at [email protected].

Law firms are most often ranked by their ability to produce and grow revenue and profits per partner (“PPP“). As a result, law firm management teams have historically focused on increasing revenues and PPP to attract talent and gain prestige in the marketplace. In a further effort to compete, mergers and acquisitions are sought to better position firms in winning over new clients, and to broaden service capabilities to existing clients.

In today's economy, the demands of clients are causing a shift in the strategic focus of some law firm executives. Firms still have to remain competitive in attracting top talent to build revenue, but now more than ever, they face the challenge of offering competitive rates on top of best-class customer service to their clients. While we have seen a dramatic rise in attorney salaries, we have seen an even greater rise in the costs of doing business and a reduced willingness by clients to foot the bill. In response to these trends, law firm executives are now experiencing an increased pressure from their partnership to strengthen the bottom line by optimizing administrative performance.

On all facets of the non-billable full time equivalent (“FTE“) infrastructure, we see initiatives which target:

• Improved operational efficiencies;
• Streamlined communications;
• Automated processes;
• Methods to enforce strict controls; and
• Opportunities to drive administrative employee accountability and monitor job performance.

These broad goals impact projects ranging from technology implementations to global recruiting efforts. As a function of the overall desire to increase accountability and decrease costs, transactional procedures relative to purchasing, payables, and receivables are under the highest scrutiny. Through the appropriate application of targeted, best-in-class procedures and technology, law firms can build their competitive edge in the marketplace by:

• Reducing overall administrative costs and leveraging firm spend;
• Minimizing purchase transaction expenses and cycle-times, driving administrative efficiency to further reduce costs;
• Offering better spend visibility and reporting to appease external requests and track internal metrics related to diversity and green vendor initiatives; and
• Showcasing professional procurement practices in client proposals, offering confidence to clients that reimbursed expenses are managed appropriately.

Drafted policies and procedures are supposed to dictate the rules, guidelines, and processes which secure efficient cost management. These policies typically focus on administrative areas such as budgeting, project management, purchasing, inventory management, and payables management. Unfortunately, paper policies are only effective when measures are taken to secure internal compliance. More often than not, we see firms invest time, resources, and energy to develop paper policies with strong intentions to improve business operations, but they are unable to overcome manual administrative commitments to conform. Additionally, we see firms expend resources to standardize procured commodities and leverage economies of scale with preferred suppliers only to be unable to drive spend through negotiated contracts. A main culprit for the unfulfilled potential in both examples is the lack of systemized tools to make these efforts work. Time is wasted and value is decreased because manual processes are burdensome, controls are not enforced, and communication is lost.

Turning to Technology

To address the situation, some law firms have turned to technology to drive adoption and execution of their cost management policies and procedures. There are now tools available that focus on the legal sector and help organizations automate their Sourcing, Procurement, Payables and Settlement processes. This is collectively known as “Procure-to-Pay.” These primarily Web-based technology solutions help organizations drive efficiency and compliance, while breaking away from paper-laden, manual, and time-consuming processes of the past.

To understand the impact that these solutions can have in delivering the benefits of cost savings, cycle-time reduction, contract compliance, and improved spend visibility, we first examine the processes that are the beneficiaries of Procure-to-Pay automation: including Source, Request, Approve, Purchase, Receive, Invoice, and Settle activities.

By aligning these processes into an integrated value chain, firms will experience improved collaboration and communication, and a significant reduction in the amount of administrative burden required to execute on firm cost management policies. Let us now examine the potential impact on an average law firm by starting at the beginning of the process flow.

Sourcing

“Sourcing” is a discipline often housed within the Procurement function, if it exists within the law firm. Sourcing primarily focuses on analyzing firm-wide spend to determine opportunities for savings, and then negotiating favorable contracts (price, quality, delivery, terms) for those commodities or services. Traditionally, administering this process has been extremely time consuming, involving tools such as MS-Word and MS-Excel, followed by a labor-intensive period of data analysis to determine the preferred award scenario. As a result, many firms are unable to reap and sustain the benefits that Sourcing can provide to their bottom line, and have turned to experienced consulting firms for assistance.

Sourcing solutions include Web-based technology that can simplify this process. Spend analysis tools help to make sense of current spend profiles. Best practice templates are provided to assist in the creation of RFIs and RFPs. Online bidding can replace numerous rounds of face-to-face or conference call meetings. Real-time analysis engines can expedite the manual analysis of an Excel spreadsheet.

The results are clear. Depending on the commodity or service, we have seen properly orchestrated Sourcing projects produce an average cost savings of between 10% and 15%. Regardless of whether these savings were generated in-house or consultant-driven, and regardless of what tools are utilized, many firms are moving forward in capturing this value for their stakeholders and clients. e-Procurement helps sustain these savings. In a study published by Aberdeen Research, “Enterprises on average displayed a 35% improvement in spend under management, with a 41% reduction in maverick spend (as a result of their E-Procurement initiatives).” (See Aberdeen Group, eProcurement Trials and Triumphs, October 2007.)

Once a contract has been established with a preferred supplier and deployed either firm-wide or with regional preferences, the next challenge is in building compliance to that contract and controlling your buying process. Do all employees in the firm know that the contract exists? Do they know what (which) suppliers offer the best pricing and service for different products and services? Is there budget available within their department to allow them to place a request? What controls are in place around the purchase to make sure that it supports organizational goals? How is the expense or capital purchase accrued and accounted for?

e-Procurement

“e-Procurement” addresses this step in the process through a collaborative environment for requisitioning, approval, ordering, and receiving. e-Procurement replaces a process that today may involve paper, spreadsheets, and e-mail with online tools, workflow, and reporting. Much like the online shopping experience employees are already familiar with, e-Procurement allows your firm's employees to log into a secure Web site where they are able to see all of the suppliers, catalogs, items, and services that your firm permits them to see. Once their requisition (think “shopping cart”) is completed, rules-based workflow automates the approval routing based on any number of criteria: dollar value (delegation), commodity, cost center(s), supplier, client, matter number, or any other relevant criteria. From there, fully approved Requisitions can be easily converted into a number of different Order Types to meet the intended business requirement. Orders can then be delivered to the supplier (in some instances automatically) in an order format that they prefer, whether it be mail, e-mail, fax, EDI, or cXML. After the supplier has delivered the good, or the service has been rendered, confirmation of receipt of the good or service can be performed online and permit the capture of information such as serial numbers and asset tag numbers.

Additionally, the collection of receipts helps in later invoice-matching procedures.

Why is all of this important? Because the process described above was delivered as part of an integrated Procure-to-Pay solution, with efficiencies that ensured:

• Contract compliance;
• Audit trails to follow transactional chain of command;
• Automated approval structure;
• Efficient data entry, no re-keying of data, and in some cases, auto-population of data fields;
• Complete process visibility;
• Collaboration among required stakeholders;
• Confirmed deliveries of ordered goods and services; and
• Prevention of fraud.

Aberdeen Research has stated that with e-Procurement, “enterprises [on average] reduced their requisition-to-order cost by approximately 48%, and more than halved their transaction cycle times.” (See Aberdeen Group, eProcurement Trials and Triumphs, October 2007.)

As part of the logical process flow, you will likely receive an invoice from your suppliers and therefore Accounts Payable represents the next step in Procure-to-Pay automation. According to Forrester Research, “AP professionals process more than a billion business-to-business (“B2B“) invoices each week, and 97% of those are still processed manually.” (Forrester, The EIPP Market Is Ripe for Consolidation, October 2007.)

Some firms estimate that roughly 80% of all invoices are still paper-based, and most organizations struggle with manual matching, coding, and approval processes that result in paper invoices being routed throughout the enterprise. The result is extended cycle times, opportunities for duplicate and overpayments, and difficulty in meeting agreed-upon payment terms with suppliers. These manual processes are also the primary barrier to significant returns through early payment discounts.

e-Payables and e-Settlement

This is where the “e-Payables” and “e-Settlement” capabilities of an integrated Procure-to-Pay solution come into play. e-Payables solutions typically automate the invoice submission, validation, matching, GL coding, payment approval, and vouchering processes for PO, Non-PO and professional service invoices. Settlement is broadly used to discuss the manner in which the supplier receives its payment, such as check, ACH, EFT/Wire, or card payment.

In an e-Payables-enabled organization, suppliers can submit invoices via electronic files, through a secure Web site, or by mailing/faxing/e-mailing hardcopy invoices that can be scanned and then treated as electronic invoices, thereby eliminating data entry and reducing errors. Matching can be automated with validation and tolerances. GL coding and payment approval workflow can be streamlined by rules-based routing engines. The process is now collaborative, highly visible, and carries a complete audit trail.

Once invoices are fully approved and “vouchered,” the benefits of electronic processing can be extended through electronic settlement. According to Gartner, check printing accounts for 86% of all B2B payments and the required “paper factories” are costing organizations millions of dollars annually. By moving to electronic settlement, suppliers' disbursements are easily converted to ACH, EFT/Wire or card payment, and are receiving the necessary remittance detail they require for their reconciliation process.

The resulting benefits from extending automation through payables and settlement include:

• Reduction or elimination of invoice data entry;
• Reduced errors and discrepancies;
• Streamlined matching, coding, and approval workflow;
• Ability to meet agreed upon payment terms;
• New opportunities for early payment discounts;
• Elimination of duplicates and overpayments;
• Reduction in fraudulent payments; and
• Comprehensive audit trails and reporting.

A recent e-Payables Solution Selection report produced by Aberdeen Research suggests that e-Payables solutions can help generate an average 50% reduction in invoice processing costs. This is based on a benchmark study of 300 enterprises. (See Aberdeen Group ePayables Solution Selection: Your 2007-2008 Guide to AP Transformation. September 2007.)

Conclusion

Procure-to-Pay automation technology has finally come of age as a user-friendly, flexible, and cost-effective strategic business solution. It is a solution that can ease pressures from the partnership by decreasing the cost of doing business. Whether traditional software or an “on-demand” service is chosen, automation technology can contribute to increasing profits per partner through reducing costs that directly impact the bottom line, providing your organization with the ability to not only attract top talent, but also to compete more effectively in the marketplace.

John H. Hutchinson, a member of this newsletter's Board of Editors, is Managing Director and Leader of Huron Consulting Group's Law Firm Management Practice. His team, which includes Andrew Gastwirth, focuses on helping law firms achieve a competitive edge in the marketplace through cost reduction and financial management process solutions and technologies. Frank A. Davis, Jr. is the Managing Director of Sales & Marketing for PurchasingNet, Inc., a provider of Procure-to-Pay technology solutions for mid-to-large size law firms and corporations. Hutchinson can be contacted at [email protected]. Davis can be reached at [email protected].