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How to integrate ECM with ERP

This article appears in the issue April 2014 [Volume 23, Issue 4]
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In this article, we explain how to successfully integrate enterprise content management (ECM) with enterprise resource planning (ERP), using accounts payable (AP) as an example. All commercial and government organizations have administrative or internal back-office processes such as accounting and human resources (HR), and all have to pay their bills for goods and services. We use accounts payable processes as a measuring stick when we look at how enterprise content management will fit an organization.

It's true that AP processes can be quite complex, embedded in the procurement-to-pay or purchase-to-pay lifecycle, but often they are simpler. Organizations have been trying to digitize and automate their AP processes since imaging first began, so it's well-trodden ground with relatively low risk, and often the best place to start with ECM before tackling any line-of-business processes.

When we walk into an organization and see that it has successfully digitized and automated AP, with solid ERP system integration, in less than four months, then we know that we and the organization can be aggressive with the ECM roadmap. When we see an organization that's failed on its third attempt over six years to deploy a solution that AP staff can use to simply see images of invoices, then we know that it needs a lot of help first laying down the foundation for the ECM program. 

Overview of the AP process

The business case for trying to improve AP processes with digitization and workflow is persuasive because the inefficiencies and other problems are significant and measurable. Talk to an AP team and members will usually cite the four following problems:

  • inefficient use of resources-too much time, labor and other resources;
  • processing cycle takes too long and should be streamlined;
  • not enough process control; and
  • not enough process visibility.

The appropriate ECM tools used effectively in conjunction with an ERP system can provide the following benefits:

1. reduced paper-handling and reduced labor;

2. reduced misplaced or lost invoices;

3. reduced storage costs;

4. increased processing speed;

5. decreased errors (higher accuracy);

6. fast, reliable, easy access to invoices, using the familiar ERP user interface;

7. on-time payments, more early payment discounts; and

8. auditable business processes with greater visibility, improving efficiency and facilitating regulatory compliance.

Some of those benefits, particularly benefits 1 through 6, can be derived almost immediately through invoice capture and digitization. Others, like 7 and 8, are more complex and require more significant changes in processes and software implementation. 

Overview of the typical target state AP process

The typical target state of an AP process that's been improved with ECM looks something like the chart below. Note that this is a target future state, and should be approached in phases, each of which can provide significant benefits:

  • First, paper invoices and related documents are captured. Electronic invoices are also ingested. Let's call the relevant capability Capture (#1 in the chart on page 16, April KMWorld, Vol. 23, Issue 4 or Download chart 1.
  • Then documents are sorted into relevant categories, relevant information is extracted from them, and the documents are indexed with metadata. That is done manually or automatically, using intelligent document recognition (IDR) and optical character recognition (OCR). Data from ERP systems is often used to identify and validate the documents and data. The relevant capabilities are OCR, Indexing, and Validation (#2).
  • The metadata and digital documents are released into the managed ECM repository. The relevant capabilities are Repository Services (#3).
  • The software also transfers a subset of the data extracted from the documents into the ERP system. The relevant capability is ERP Integration (#5).
  • Typically, if there is a complete match between the invoice and the purchase order in the ERP system, it is automatically posted for payment. If not, the invoice is routed in workflow to the correct AP clerk. The relevant capabilities are ERP Integration (#5) and Workflow (#4)
  • AP clerks can use the familiar SAP user interface (UI) for accessing documents. Depending on the ECM solution and how it is implemented, AP clerks and non-accounting participants may use other UIs as well for accessing documents and participating in workflows. The primary relevant capabilities are User Interface (#6) and Search (#7). But the documents are also managed by the ECM system (Repository Services, #3), which is integrated with the ERP system (ERP Integration, #5).
  • The workflow is provided by the ERP system, by the ECM tool or both. Workflows are usually designed for exception handling, matching and approval processes. The relevant capability is Workflow (#4).
  • The ECM system provides records management. The relevant capability is Records Management (#8).
  • The ECM system provides reporting, audit and analysis. The relevant capability is Reporting (#9).

Tackling ECM for SAP AP in multiple incremental phases

We recommend that you implement SAP AP in the approximate incremental phases:

Phase 1: Select a manageable set of staff using ERP (which may be a subset or everyone), and for them, focus on digitizing the documents, managing them with the ECM system and providing fast, reliable, easy access to AP clerks from within the ERP user interface (UI). In this phase:

  • Focus on capturing and digitizing invoices and related documents.
  • Look for good recognition technology candidates-evaluate the documents for classes that will be amenable to OCR and possibly IDR. Those will be documents that have the appropriate physical characteristics, and are also worth it because they represent a significant volume or value. Implement where appropriate.
  • Focus on implementing the ECM system for managing the documents, and integrate the repository with ERP to provide AP clerks access from the SAP UI.
  • Look for processes that can be easily implemented with workflow, either using ERP or the ECM system.

Phase 2: Roll out the Phase 1 capabilities to most or possibly all staff who will be using ERP. (This is unnecessary if you got everyone in Phase 1 but is recommended if you have a large or complex set of ERP processes or user base.)

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