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Electronic Payment Services
In 1991, Hewlett Packard, a $38 billion per annum computer manufacturer with headquarters in Palo Alto, California, decided to consolidate its
general accounting practice. The consolidation point chosen was the company's Financial Services Center, or as it is commonly referred to, the FSC, located in Colorado Springs, Colorado. The FSC has
responsibility for accounts payable, fixed assets, general ledger, inter-corporate billings, and travel processing for all of Hewlett Packard's
U.S. divisions.
Singular Supplier Relationships
"It's not just a project, it's an ongoing investment," according to Greg Spray, Financial Service Center manager, when offering advice to
other organizations undertaking their first electronic data interchange (EDI) implementation. "There's a strong need to continually staff and work on the program, but the payback is immediate." The
consolidation took the company three and a half years to move all of the work to the FSC and it was at that time that Hewlett Packard decided to pursue EDI. Because of Hewlett Packard's shift to a centralized
accounting approach, the company had the ability to invest in and maintain expertise in the EDI arena. The FSC also provided the company with the opportunity to prioritize suppliers and develop a singular
relationship with them. The consolidation of resources also provided the critical mass necessary to understand and educate employees about EDI opportunities.
Incenting the Supply Chain
Hewlett Packard's approach to establishing EDI partnerships was through procurement channels. There is a soft incentive of faster turnaround for
suppliers that adopt EDI; more importantly, there is a joint policy with the company's procurement department which states that "If you want to be a Hewlett Packard supplier, you have to be capable of doing
EDI." Greg notes that "The FSC group realized invoicing is not a compelling enough reason for suppliers to do EDI, but being a Hewlett Packard supplier is." Prior to the adoption of this joint policy,
FSC was converting one or two suppliers a month to EDI. The number jumped to an average of ten to thirteen suppliers once the order to the supplier was tied to EDI capability.
Currently, Hewlett Packard has over 100 EDI partnerships, a number that accounts for about 25% of their total invoice volume. EDI has become so
popular for the FSC group that they decided to create what they jokingly refer to as MDI (manual data interchange). MDI is the term used to describe the process of outsourcing clean invoices for data entry into an
EDI transaction file.
Of all of Hewlett Packard's transactions, MDI accounts for approximately
50% of the volume -- a number Greg says has and will continue to dramatically go down as more and more of the company's suppliers are converted. Recently, Hewlett Packard has undertaken an initiative to offer an electronic funds transfer (EFT) option to its vendors. With EFT, vendors will experience float savings by receiving payments 5 days sooner. Hewlett Packard will also benefit with a $0.40 savings in processing costs per check.
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