Many are familiar with the book, Reengineering the Corporation, by Hammer and Champy, published in 1993, that cited Ford Motor Company’s ability to eliminate 75% of their AP staff by implementing Evaluated Receipts Settlement (ERS) as an example of the fundamental rethinking and radical redesign companies must undertake to drive large scale improvement. While the idea made for great theater, the reality of achieving a process where payments are automatic based on the receipt of direct materials, with no efforts in the purchasing company’s Accounts Payable department or the suppliers Accounts Receivable department, isn’t easily achieved.
Today, companies implementing ERS typically leverage EDI, with the use of Advance Ship Notices and clear remittance advice files so that any discrepancies between payments expected and payments made can be quickly identified and resolved. While this topic was the “buzz of the day” in the 1990’s, today many companies are continuing to achieve real benefits by eliminating invoices from the Accounts Payable process. Properly implemented, the benefits of ERS are real and tangible and, for companies processing receipts for direct materials, a normal and natural part of the Purchase-to-Pay process.
Recently, several member companies that use ERS extensively were featured on a PeercastTM to share their experiences and answer questions from other Peeriosity members. Peeriosity members are encouraged to listen to the PeercastTM recording posted on the Peeriosity member website.
iPollingTM Results Review
To support the PeercastTM, a Peeriosity iPollingTM question was created to provide insight regarding how companies using ERS. Reviewing the results, 55% of Peeriosity member companies have either less than 10% or none of their payment transactions made via ERS, with 35% reporting over 30% of payment transactions being related to ERS.
The second question in the poll asked about the importance of ERS, with 60% of responses indicating the ERS is an important process that either is being maintained at a constant level or efforts are underway to increase usage. ERS isn’t a good fit for every industry, with 28% indicating that ERS isn’t used for a variety of reasons. Here are the details:
Listed below are several of the comments from responding companies:
- ERS usage varies by business unit.
- We use ERS for almost all direct material purchases in North America and we are looking to expand its usage to Singapore.
- We utilize ERS for most of our direct material purchases in the U.S.
- Though usage has been consistent, we are interested in understanding whether we should be expanding usage. In the past few years, some suppliers have opted out of ERS in favor of electronic invoicing; but we are assessing whether there are suppliers we should actively encourage to use ERS.
For companies with direct material purchases the benefits from implementing and using ERS can be significant. Successful implementations require a rigorous adherence to high quality standards at every step of the process to ensure that the elimination of the invoice doesn’t result in new problems or issues that need to be fixed, or unnecessarily transfers work from the company making the purchase to the company supplying the material.
What approach does your company take with regards to Evaluated Receipts Settlement? How do you prioritize this method with other approaches to reducing costs and simplifying the Purchase-to-Pay process?
Who are your peers and how are you collaborating with them?
“iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility to all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.
Peeriosity members are invited to log into www.peeriosity.com to join the discussion and connect with Peers. Membership is for practitioners only, with no consultants or vendors permitted. To learn more about Peeriosity, click here.