order to cash process
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COREY PEARSON[ASUG INSTALLATION MEMBER
MEMBER SINCE: 2008
CHAVONE JACOBS[ASUG INSTALLATION MEMBER
MEMBER SINCE: 2003
ALLAN FISHER[ASUG INSTALLATION MEMBER
MEMBER SINCE: 2008
Quote /Order To Cash (O2C)A Brief Overview
John Choate National ChairProgram Management &
Maintenance Strategies (PMMS) SIG
Scott Pezza Research AnalystAberdeen Group
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Real Experience. Real Advantage.
[ What is Order To Cash ?
Order to Cashnormally refers to the Enterprise Resource Planning(ERP) process in which taking customer sales (direct from thecustomer ) orders via different sales channels, such as email,internet, sales person, fax or by some other means like EDI, and thenfulfilling the order, shipping, logistic and then generating an invoice
and collecting payment for that invoice and then receipt.
CASH IS KING !
It is also the lifeblood of any company and it flows through theorder-to-cash cycle.
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http://en.wikipedia.org/wiki/Enterprise_Resource_Planninghttp://en.wikipedia.org/wiki/Enterprise_Resource_Planning -
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[ Pressures Driving a Focus on O2C
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19%
19%
21%
29%
29%
67%
0% 10% 20% 30% 40% 50% 60% 70%
Percentage of Respondents, n = 140
Customer pressure to extend payment terms
Rising cost of servicing major customers
Inability to accurately forecast cash flows
Customer demand to improve service levels
Risk of customer non-payment or default
Pressure to reduce overall costs
Source: Aberdeen Group, The Order-to-Cash Cycle: Enhancing Performance with Process Automation(July 2011)
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[ Objectives of Order to Cash Improvement
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30%
34%
35%
36%
42%
54%
0% 10% 20% 30% 40% 50% 60%
Percentage of Respondents, n = 140
Manage credit risk, losses from bad debt, and
collections expense
Improve transaction efficiency
Reduce 'customer-to-cash' or 'order-to-cash'
cycle
Reduce receivables processing cost/time
Improve cash flow forecasting/guidance
Reduce Days Sales Outstanding (DSO)
Source: Aberdeen Group, The Order-to-Cash Cycle: Enhancing Performance with Process Automation(July 2011)
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[ TYPICAL AREAS AFFECTED BY OTC CYCLEAn Integrated End to End Process
Customers
Sales and Marketing
Customer Service - Order Entry Finance and Accounting
Operations
Distribution
Customers (Cash)
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[ Order To Cash Process
1. Request for Quotation (RFQ)
2. Sales Order with quotation reference
Product Allocation (ATP/gATP)
Credit Limit Check
Service charges
Bill of Material (BOM)
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[ Order To Cash Process
3. Delivery Picking with automatic transfer order
creation and confirmation
Picking with manual transfer ordercreation
Confirmation Packing
Posting goods issue
4. Invoice
5. Payment by Customer (Cash)
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[ Simple Business View Order to Cash
Quotation
Sales Order with Ref. to
Quote
Credit Limit Check Availability Check and Allocation
Unlock Sales Order
Delivery Approved
Pick
Pack
Post Goods
Ship
Bill
Payment
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[ Symptoms of BROKEN Order To Cash Process
High order-taking error rates
High order-fulfillment error rates
High DSO (Days Sales Outstanding) rates
High cost of dispute resolutions
Inefficient/ineffective collection processes
Long-term losses due to customers going to bettermanaged companies for product/services
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Pressures: External forces that impact an organizations marketposition, competitiveness, or business operations (e.g., economic,regulatory, technology, competitive, etc.)
Actions: The strategic approaches that an organization takes inresponse to industry pressures (e.g. product/service strategy, target
markets, go-to-market, and sales strategy)
Capabilities: The business process competencies required toexecute corporate strategy (e.g., skilled people, brand, marketpositioning, viable products/services, financing, etc.)
Enablers: The key technology/solutions required to sup-port the
organizations business practices (e.g. development platform,applications, connectivity, user interface, training and support, etc.)
Note: Aberdeen utilizes a proprietary research framework called PACE to systematically and objectively develop its researchfindings.
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[PACEFramework Applied To Order To Cash
Pressures (P):
Reduce overall costs
Actions (A):
Streamline front and back office administrative
processes to remove non-value steps.
Automate process flows with electronic workflowtechnologies.
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[ PACE Framework
Capabilities (C):
Standardized enterprise-wide procedures through
quotation to order, order to delivery, and credit/cash
collection.
Up-to-date order, delivery, and billing information is
available in real time, on demand.
Manufacturing and/or service operations are integrated
and coordinated with customer service, logistics, and
delivery organizations.
Real time measurement of on-time delivery, inventory,
DSO, profitability, and cash position. 12
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[ PACE Framework
Enablers (E):
ERP - integrated order entry, procurement, production/resourceplanning and execution, and financial management
Event management (triggers and alerts)
Electronic interfaces to banks and customers
Web-based and electronic sales order management application
Credit management solution
Electronic Invoice Presentation and Payment solution
ERP features or extensions:
Customer Relationship Management (CRM)
Advanced Planning and Scheduling (APS)
Available to Promise (ATP)
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[ Key Metrics For OTC Process
Quotation and Sales Order (SO) Management Aging
Order Fulfillment Period
On Time Delivery (OTD) - % Perfect Order
Finance/Accounting
Invoice Payments Collections
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31% improvement in order-to-fulfill cycle time
97% complete and on-time shipments
33.5 DSO
3.3% of AR past due
1.3 days for payments to clear the AR ledger
16.2% of invoices require manual intervention
2.6 days from completion of product/work to invoicing
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Sources: Aberdeen Group, The Order-to-Cash Cycle: Enhancing Performance with Process Automation(July 2011);Aberdeen Group, The Order-to-Cash Cycle: Integrating Business Processes to Improve Operational Performance
(March 2008)
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[ Best-in-Class AR Technology Profile
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50%47%
43% 43%
37% 37%33%
26%23% 23%
18%
12%
0%
10%
20%
30%
40%
50%
60%
IntegratedOrder-to-Cash
Systems
BI /Analytics
ElectronicWorkflow
PerformanceDashboards
EventManagement
CustomerPortal
Best-in-Class All Others
Source: Aberdeen Group, The Order-to-Cash Cycle: Enhancing Performance with Process Automation(July 2011)
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[ Performance Results : Average (Middle 50%)
15% improvement in order-to-fulfill cycle time
88% complete and on-time shipments
48 DSO
8.6% of AR past due
4.1days for payments to clear the AR ledger
44.9% of invoices require manual intervention
3.9 days from completion of product/work to invoicing
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Sources: Aberdeen Group, The Order-to-Cash Cycle: Enhancing Performance with Process Automation(July 2011);Aberdeen Group, The Order-to-Cash Cycle: Integrating Business Processes to Improve Operational Performance
(March 2008)
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[ Performance Results : Laggard (Bottom 30%)
9% improvement in order-to-fulfill cycle time
83% complete and on-time shipments
58 DSO
16.1% of AR past due
11.7 days for payments to clear the AR ledger
79.9% of invoices require manual intervention
6.1 days from completion of product/work to invoicing
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Sources: Aberdeen Group, The Order-to-Cash Cycle: Enhancing Performance with Process Automation(July 2011);Aberdeen Group, The Order-to-Cash Cycle: Integrating Business Processes to Improve Operational Performance
(March 2008)
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[ Increasing Your Success on Order To Cash
Implement or expand automation of the order-to-cash cycle.
Standardize procedures for quotation and order
management.
Integrate order entry, credit, billing, and collections.
Investigate benefits of event management and automated
alerts.
Centralize customer risk information in a single location.
Keep up on regular scoring of the A/R portfolio.
Continue growing electronic volumes of POs, invoices, and 19
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[ Key Take Away Items on Order To Cash Process
Why is Order To CASH so important?
What functional organizations are key to the integrated process?
What are symptoms of a broken process?
What is PACE?
Name 2 key metrics for the O2C process.
Where does your company rank ?
Best-in-Class
Average
Laggard
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[ Key Financial Take Away Items
Improving efficiency addresses both the top pressure(cost) and the most-cited objective (DSO)
Improvement comes from streamlining internal
processes and making it easier for customers to workwith you
Understanding your current and prospective customerscan help reduce non-payment risk and tailor collections
strategies
Communication, between departments and with yourcustomers, is key to efficiency and visibility into cashflows
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[
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] Thank you for participating PMMS SIG / Aberdeen Group
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