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API Outsourcing Helps National Chain of Clubs get its Financial House in Order Challenge
Spend a little time in an upscale fitness club, and it quickly becomes obvious where management's priorities lie. A snapshot: Mosaic tiles, lavish spa areas, mahogany locker rooms, mood lighting, fresh cut flowers, furnishings and fixtures which are scrupulously contemporary. It's all designed to deliver a distinctively upscale member experience, surpassing the expectations of fitness - conscious high achievers in New York, Miami, Los Angeles and other affluent urban markets. Take a peek into the back office for another clue about management's strategy. Here you'll see a back office staff which runs lean and efficiently. Any savings achievable here can be directly reinvested in customer-facing operations. "The back office is not where we focus our dollars," says their Vice President of Finance. While that philosophy is true of most health club chains in the hotly competitive fitness market, few adhere to it as religiously as this club. The strategy seems to be working. This company has grown exponentially over the last five years. From a single club in Manhattan, the chain now has clubs nationwide and more than 120,000 members. Throughout this growth, this company never lost its focus on the all-important member experience. The back office couldn't be ignored, however, this is where things went less smoothly. "Because we have been such a high-growth company, our internal infrastructure often couldn't keep pace," says their VP of Finance. "Eventually we knew it had to be upgraded by re-engineering a combination of people, processes and systems." Accounts payable (AP) involved all three areas and was especially troublesome for such a rapidly growing company. When it came to people, turnover was simply too high to ensure that AP policies were constantly followed both at their Manhattan facility, which doubles as the companies headquarters, and its growing number of clubs. Processes and systems fared no better, since the lack of financial staff continuity in the club made it hard to put in place procedures and technology which gave the finance staff at headquarters proper control. As a result, "We didn't have good visibility into the purchase-to-pay cycle," their VP of Finance says. "Because we had only informal procedures in place, we often didn't know who was authorized to make a request, who was authorized to approve it, whether invoices were being sent to the correct address, or the answers to other critical questions." As problems with misplaced invoices, mismatched purchases orders, duplicate billings from vendors and invoices, and out-of-control spending on the local level mounted, they decided it was time to take a fresh look at its AP people, processes and systems. The Solution
Before
joining this company in 2005, the VP of Finance had held a similar
position at Simon and Schuster, the publishing company, which had
successfully outsourced its AP function. He believed then, and now,
however, that outsourcing isn't the answer to every back office
problem. He resisted attempts, to outsource Simon and Schuster's IT
function, and while he took some heat for his stance, the company
eventually came around to his view. But certain functions, particularly
finance and accounting processes like AP, were a different story
"Because it was so far from being a core competency that we needed to
address internally, we could achieve much better efficiencies with more
discipline and control by outsourcing it," he says. "Philosophically,
I'm not someone who believes that everything can be done better outside
the company. But I absolutely think that's the case with AP." He also
knew that his company had numerous options for an AP outsourcing
partner. API, however, stood out. New to the Manhattan market, API
seemed to take special efforts to understand our companies
requirements, their VP of Finance says. The company also liked the fact that it could take an "a la carte" approach
with API by outsourcing a specific function such as AP, and seamlessly
add more functions over time, from billing to cash management
and check printing, even outsourcing its entire finance and accounting
operation. API's "assisted automation approach of providing a
combination of labor and technology to optimize AP processes has been
very valuable. API
was also flexible enough to adapt to the companies ideas about
electronic workflows. At the time, they were implementing a web-enabled
online purchase requisition system - essentially a web interface to the
companies backend accounting system which allows purchasers in the
clubs to select from approved vendors and products and submit orders.
"API was adaptable to interface with the purchase requisition system we
were bringing to the process," said their VP of Finance. "So they
looked like the right fit at the right time." Bottom Line Results Before outsourcing with API, the company was spending more than $300,000 annually on labor and overtime to process accounts payables internally. The VP of Finance estimates that API shaved $200,000 off that figure with an end-to-end solution for the accounts payables process - from initial invoice presentment through approval and payment. API provided both a purchase order and non-purchase. The purchase order solution matches incoming invoices with the companies purchase order data to ensure validation at the line item level. In addition to the reduction in operating costs, API's solution provided several other immediate benefits, including:
SAS
70 (American Institute of Certified Public Accountants (AICPA) Auditing
Standards Boards Statement on Auditing Standards No. 70) is the set of
standards used by a service auditor to assess the internal controls of
a service organization that provides outsourced services that impact a
customer's control environment. A Type II service auditor's report
includes the service auditor's opinion on the fairness of the
presentation of the service organization's description of controls
which had been placed in operation, the suitability of the design of
the controls to achieve the specified control objectives and an opinion
on whether the specific controls were operating effectively during the
period under review. In addition, the requirements of Section 404 of
Sarbanes-Oxley make SAS 70 audit reports essential to the process of
reporting on the effectiveness of internal control over financial
reporting. "We now have a process that is automated, traceable, auditable, and adaptable to changes in personnel and approval levels," says the purchasing director. "That fulfilled our number one objective for outsourcing accounts payable to API - gaining the internal controls we need in our environment." API turned out to be the perfect partner for the company. "Not only does the solution streamline our accounts payables process, but the automation API brings to the table provides us with the financial controls, cost reduction and procurement discipline needed to support our fast growing company," stated their VP of Finance. |
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