Marathon Oil: Improving Supplier Relations Through Increased P2P e-Invoice Visibility

Paul Hines Manager, Global Procurement Systems Development and Support

Marathon Oil Corporation

Who We Are

2013 marks 126th year in business

Now a global, independent exploration and production company

Focused on:

Safety

Profitable growth

Liquids-rich resources

Being socially responsible

2 Marathon Oil Corporation

Marathon Oil Facts & Figures For the year ended 12/31/2012

Established in 1887

Market Cap: ~ $25 billion (as of 9/03/13)

Revenues: $15.7 billion

Net Income: $1.6 billion

Capital Expenditures*: $3.4 billion

Net Liquid Hydrocarbon Sales: 282,000 BPD

Net Natural Gas Sales: 902 million CFD

Net Synthetic Crude Oil Sales: 47,000 BPD

Net Proved Liquid Hydrocarbon, Natural Gas and Synthetic Crude Oil Reserves: 2.0 billion BOE

Employees: ~3,400

Headquartered in Houston, Texas

*Excludes acquisitions and includes accruals

3 Marathon Oil Corporation

Marathon Oil Global Operations

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Driving Growth and Value Liquids Rich Shale Resource Plays

Marathon Oil Corporation

Bakken

Oklahoma Resource Basins

Eagle Ford

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Eagle Ford ~200,000 core net acres 2Q 2013 averaged 80,000 net BOED 2013 target ~85,000 net BOED

Bakken ~390,000 net acres 2Q 2013 averaged ~39,000 net BOED 2013 target ~40,000 net BOED

Oklahoma Resource Basins ~220,000 net acres 2Q 2013 averaged 13,000 net BOED Pace of development linked to NGL and gas prices

Marathon Oil Corporation

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2011 2012 2013 2014 2015 2016 2017

MBO

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Eagle Ford Shale Production growth profile

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P10

P90

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P90

Scope of Services – GP Business Management

Customers/End Users: All end users of Source to Pay

processes and solutions. – All 200+ members of GP – Any department that has third party

spend. – Accounts Payable (IBM)

Annual Volumes at a Glance: 26,000 POs 64,000 PO line items 3,000 Blanket RSOs 10,000 Active contract records 10 Systems and tools 4 Outsource providers 500,000 Invoice documents per year

(approx 44,000 each month)

Function Estimated Users

Buying/ Contracting

115

Receiving Goods/Materials

210

Material Controllers

30

Materials Delivered/ Services Rendered

Field Ticket Signed & Coded

Receipt Entry

Invoice Receipt

Invoice Exception Process

Vendor Payment Sourcing/ Contracting

Buying Channel Selection/Order Placement

The Challenges - 2012

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Paying vendors on time

The Challenges - 2012

Not taking advantage of negotiated discounts

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The Challenges – 2012

Not taking advantage of electronic invoicing technology

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The Root Cause(s)

Significant growth in invoice volume due to business model What works for 20,000 invoices doesn’t work for 40,000

– Controls – Systems – Processes

Fragmentation in role execution – Over 200 individuals accountable for confirmation of services, across 10+ orgs

Monitoring and accountability – Reporting – Goals – Ops/Technical approval timing – Vendors not providing appropriate info

Training gaps – Central training role had diminished – Project work had taken more resources away from core support

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The Solutions

There is no silver bullet Multifaceted action plan with focus on systems, process, and training

Focus areas: 1. Expand our use of electronic invoice submittal (EDI/XML, web form) 2. Expand use of systematic solutions for low risk/low dollar transactions 3. Expand use of systematic solutions for invoice creation/payment 4. Build systematic solutions to address vendor status Q&A 5. Develop expanded methods of holding vendors accountable to provide require

information accurately 6. Build systematic solutions to drive response to workflow 7. Expand monitoring plans 8. Assess roles and service delivery

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Using Electronic Invoicing

Within the US, less than 50% of invoices were being received via electronic invoicing.

MRO was limited in the criteria being utilized to select good e-invoicing candidates.

MRO was attempting to handle training and onboarding of e-invoicing candidates without the expertise or resources to properly support efforts.

Why electronic invoicing?

Paper invoicing compliance on coding, proper Purchase Document usage, etc is manual. E-invoicing automates this.

E-invoicing technical support and AP support teams have strong skills and quick response time.

Total cost is less.

Data comes in required format or it is rejected.

SAP Service Entries are automated and internal confirmation of work is simpler to execute.

Time from submittal to entry into SAP system (once info is accurate) is greatly reduced (clock starts sooner to get vendors paid) versus paper invoicing.

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Electronic Invoices - Focus on Improvements

From less than 50% to 70% of invoices being received electronically in less than a year.

How? Hire the right internal resource to

drive the program Set the right goals Educate the clients Revise criteria to consider big picture

value Understand what we were good at,

and not good at or staff for – and use third party provider to handle onboarding, vendor training, etc. Use big batch loads of vendors with

third party Enhance contractual requirements for

electronic invoice submittal with vendors

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Low Dollar/Low Risk Transactions

In excess of 10,000 low dollar transactions each month

Requiring system confirmation and physical Service Entry

Significant time spent processing 25% of the volume, but less than 5% of the value. – Entry to SAP – Approval (written and systematic) – Invoice compliance

FastTrac- Developed process and system functionality that would allow for reduction of manual work activity for low dollar/low risk transactions.

– Manual entry to SAP replaced with systematic solution – Approval continues by written signature on work tickets – Invoice compliance process expanded (sampling increased)

Currently: 25%+ reduction in transactional work

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Using the System for Invoice Creation

Historical use of ERS or Auto Payment based on receipt was minimal. International usage

Expanded usage of ERS solutions, specifically focused on material purchases within the US for delivery to IPO locations. Already had Goods Receipts proactively being done. Process was timely. Third party handled most of the entry work.

Alternative of expanded e-invoicing solution where ERS faced challenges.

Why? Eliminates invoice and GR/IR imbalances. Increases ability to meet payment terms.

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Vendors with Questions

High volumes of calls to the AP Call Center, SAP Processors, Engineers, and Supply Chain Personnel Where is my invoice? When will I be paid?

The Challenge – How to reduce the distractions on MRO staff and the frustrations the vendors were experiencing in determining invoice status?

1. Expanded use of e-invoicing allows vendors to have real time access to invoice status 2. Used third party e-invoicing provider to develop a Portal that extracts invoice information for

paper invoice vendors and allows vendors, once onboarded, to check status of invoices via the online Portal.

– Piloting in US – Expanding to International

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Vendors Invoice Doesn’t Meet Expectations – Return to Vendor

The Challenge – MRO staff were spending heavy amounts of time handling incomplete or inaccurate invoices. Wrong Purchasing Document (Or Missing Purchasing Document) Wrong Line Item Wrong Cost Coding Information

The Solution – Change the process to reward vendors for proper submittal of invoices Implemented Return to Vendor Standards where vendor does not submit all

required information – Invoice Back Up – Purchasing Doc and Line Item

When using EDI, compliance to requirements is automated

– Challenges when using a paper solution

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Getting Approvals

The Challenge – Invoices in excess of defined dollar values required additional approvals prior to payment. Invoices were being workflowed to Drilling & Completions / Operations and were getting “stuck” due to responsiveness issues.

The Solution – Build escalation logic to push approvals via authority hierarchy. Rules implemented regarding time that an invoice is allowed to sit in an inbox

before it moves to the next level. Provided monthly reports on the “problem areas”.

The Result – Reduced time that invoices sit in queue to be approved.

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Roles, Service Delivery, Monitoring and Accountability

Individuals accountable for execution of the various phases of Source to Pay are spread through the company. Service Entry Processing

Invoicing Handling

Approvals

Monitoring plans had fallen in some areas, due to volumes and priorities.

Actions deployed

1. Voice of Customer sessions held to gather feedback on performance of various phases of Source to Pay.

2. Reporting and Role Delivery reviewed by leadership and individuals held accountable where gaps existed.

3. Pending – Role-based goals to be deployed by end of year.

4. Centralization of some functions being piloted (Service Entries).

Discount Management - Now

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Where We Are Now!

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What Is Next

Full assessment of the Source to Pay Process and Systems We reacted to a problem, but do we have it right?

Use of mobile solutions

Evaluation of roles and work allocation

Improvements in service delivery

Evaluation of use of e-invoicing solutions in international locations (2014)

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