'HEMA in distress,' headlined the article in Trouw on Jan. 14, 2021. As far as I am concerned, 'HEMA suppliers in distress' would have been a better headline. Particularly for the Asian suppliers who produce exclusively for HEMA, as all orders have been called off until mid-April and payment terms are being stretched. The glaring reason: working from home has reduced invoice processing capacity.
Generally, suppliers consider themselves lucky to have a customer with such a good brand experience. Now it seems suppliers should consider themselves especially lucky if they are not suppliers of "Real HEMA." Indeed, the retailer is canceling with immediate effect all orders it had pending with its suppliers until mid-April, HEMA reported in a letter sent to key suppliers in Asia. For the time being, they should not expect any new orders either. In addition, the payment period for anything already delivered will be extended by 30 days.
I find particularly remarkable the reason given by commercial director Trevor Perren, the signatory of the letter. Although HEMA has been ailing for years and the chain store loses ten million euros a week due to the lockdown, there would be no acute cash shortage. No, the reason given for stretching payment terms is that many people are working from home and therefore the capacity to process invoices has been drastically reduced. As a reason for canceling pending orders, he argues that there is simply not enough room to accommodate new inventory.
Invoice processing in the cloud
So the unilateral adjustment of supplier agreements at HEMA is apparently caused by the reduction in capacity due to working from home. From my experience with purchase-to-pay automation, I have great difficulty with HEMA's argument. With a decent cloud solution for purchase-to-pay, working from home does not have to be an obstacle to fast and error-free invoice processing.
Through a web-based user interface, employees with internet access to the same data anytime, anywhere and can work in the same system. Printing, scanning and validating papers and PDFs: none of this is necessary anymore. Cloud, as opposed to on-premise solutions, also offers unburdening for application management, hosting, upgrades and management. Thus, it provides space for customer organizations to focus on their own core activities and actually provides additional capacity.
Moreover, when suppliers produce exclusively for one customer, you can assume that long-term contracts are in place. This means that orders are created in advance and which are pre-approved internally. If the invoice is received afterwards that meets the requirements, the invoice can be fully automatically matched and exempted for payment, without employee intervention.
More advanced solutions on top of that even offer the possibility to set complex and variable tolerances where the invoice can still be automatically matched. After all, the invoice is pre-approved with the same conditions. Deviations outside the tolerances do not even have to go through the accounts payable department, but can be automatically routed to the appropriate requestor or approver. This can also be a procurement officer, a branch manager or another budget holder. In short, minimal capacity in accounts payable is normally required for these invoices.
Non-argument
There are many public and independent studies from reputable agencies such as Gartner, Forrester, IDC, Paystream and Billentis that show that manually processing invoices costs about 40 euros per invoice. Best-in-class organizations realize cost savings of 35 euros per invoice with electronic invoice processing. These cost savings are primarily due to time savings. In short, processing the same number of invoices with less capacity. An additional advantage of cloud solutions is that most have a pay-per-use model. This means that the customer only pays for actual usage and therefore never more than necessary.
Especially in an industry such as retail (the only other besides automotive) where EDI has long been used as a standard communication format, you would expect to see a structured electronic format for orders and invoices as well. The quality of data exchanged with suppliers is high and the speed real-time. It eliminates any manual processing of paper and PDF.
Supplier and contract information is typically maintained centrally in either a best-of-suite (all in one ERP or financial system) or through integrations with best-of-breed (specialized systems for key sub-processes such as purchase-to-pay). Both situations create a single-point-of-truth with visibility into suppliers, contracts, orders, commitments and spend analytics. These KPIs are insightful in real time and provide accurate, organization-wide predictive power. This makes it impossible to imagine orders being canceled or invoices not being paid these days.
Because my experience as a consumer with HEMA is almost always positive, I was somewhat taken aback by the impact of this report in Trouw. It would behoove HEMA not to shift the consequences of its own inability right onto its suppliers. Where less capacity for invoice processing might have been a sincere excuse a few years ago, it can now be dismissed as a non-argument.
Solidarity
We are all in this crisis together. As HEMA CEO Tjeerd Jegen himself wrote earlier, it is therefore important that we show solidarity. This can be done by having an open dialogue together and, above all, not leaving each other out in the cold. Some suppliers are sometimes required to have stock weeks in advance without payment. It cannot be that large business organizations unilaterally adjust the payment terms and even worse, pay outside the legal terms.
Rather, I would like to see HEMA use short-term liquidity as much as possible to pay outstanding invoices from dedicated HEMA suppliers and SME suppliers. There are various forms of financing to keep the cash flow in the chain going or even to optimize it. In the medium term, a roadmap should be drawn up to achieve a mature and purchase-to-pay process. In this way, HEMA will once again become a company to be proud of. It goes without saying that we are happy to think along with HEMA about solutions for the future.