order to cash re-engineered - iofm. · pdf filethe accounts receivable and order-to-cash...

The Accounts Receivable and Order-to-Cash Conference is produced by: 5/31/2016

Order to Cash

Re-engineered

j. bicking 2016

The Accounts Receivable and Order-to-Cash Conference is produced by: 2 5/31/2016

Introduction

• Business World:

– Very challenging

– Unpredictable

– Rapidly Changing

• Business Conditions:

– Economic crisis

– More competitive

– Fraud

– Ongoing threat of terrorism


Leadership • Four Key Elements

– Communication of Mission, Vision and Values

– Goals and Objectives to achieve MVV

– Give and Receive feedback

– Support Mission, Vision and Values

• Removing Preconceived Perceptions

– Office work can be re-engineered

– The organization can be restructured (silos, mgmt.)

– Can ask for help

Hardest Message


WLHY Why?

• Cash Management:

– can’t just be the worry of the CFO

• Getting orders:

– can’t just be the worry of the CMO/COO

• To survive: challenging, unpredictable,

rapidly changing, competitive, fraudulent

world: EVERYONE MUST CARE !


B2B and B2C Statistics

• “The vast majority of bankruptcies are now

filed by consumers and not by businesses.”

– Reason:

B2C: Pre 2005 was due to medical expenses;

after: reduced income, job loss, credit debt,

illness/injury, unexpected expenses and

divorce. “debt.org”

– B2B: Cash Flow: debt

– US Gov’t: 96+/min

2016 Total Business Consumer

844,495 24,735 819,760


We don’t have time to do it right,

but we have time to do it over • O2C is laden with:

– Errors

– Long cycle times

– Customer Deductions are usually valid

– Laws & Regulations are changing rapidly

– Potentially missing orders and

– Losing Customers


Ask Questions:

• Is there enough money being received to

meet the needs of the business?

• How do we protect the cash from fraud?

• What is the cost of the process?

– Errors

– Labor

– Loss of Customers

– Compliance

– Fraud


5% Reduction = 30% Increase

Fact: 5% reduction in operating cost

equals a 30% increase in sales in terms of effect on the bottom line! Gartner Group


Think End-to-End • P2P (Procure to Pay) Example

– Headcount (one time hit, don’t reduce all)

– Invoices Paid on Time (DPO)

• 36% on early pay discount

Dynamic Discounting

• Accept New Pay Methods

– Process: (30%) Doc Mgmt

– Accurate / Compliant

• Discounts (36%) • Dynamic Disc.

• New Pay Methods • Spend Management • Process: (30%)

• Cont’d benchmarking • Cont’d Education

• Compliance


Order to Cash Process

Thought of need

Order Fulfillment

Submit a PO

- Large dollars: request a quote - 3-5 suppliers - May require a

formal contract

Invoice & packing slip are

prepared

Deliver goods or service

Receipt of goods/serv

ice

Find suppliers

Use existing preapproved suppliers or have purchasing locate appropriate supplier

Sales Order is created on ‘approved’ suppliers

Based on terms

- Packing slip w/package

- Invoice to AP

80% of mismatches

Payment to

supplier

Carrier is contacted

Goods are pulled from inventory or Service is prepared

Need Spec’s

Order Acknowledgment: Confirms all product/service details & terms

Customer

Customer

Credit Research Set Credit

Line

Quote / Contract

O2C

O2C O2C

Financial Statement

Payment Cashed

INTERNAL CONTROLS

INTERNAL CONTROLS


O2C: Reduce Cost & Improve

Market Share – Headcount (one time hit, don’t reduce all)

– Invoices Paid on Time / DSO

– Accurate / Compliant

– Increase customer base: New Pay methods

– Discounts (36%)

• Dynamic Discounting

– Cont’d Education / Compliance

– Process: (30%): Continued benchmarking


Building a O2C Team


S Sponsorship

• Sponsor

– CFO & COO & CMO vs. One Chief Officer

• What should the organization look like

– Eliminate Silo’s

– In-House vs. SSC and/or Outsourcing

• Provide dedicated time

• Support ~ No work arounds


f Kick-off Meeting

• To the O2C community

• Lead by Sponsor

• Vision, Mission, Value and Goals

• Ask for cross function team members

• Organizations Participation

• Guidelines:

– Structure


f Cross-functional team

• Rules: Process not People

• Collaboration

• Dedicated work space

• Budget:

– Training

– Travel

– Team building meetings

• Empower them

- Customer - Sales - Credit Manager - Ordering - Order Fulfillment - Billing - Customer Master File - Cash Application - Deductions - Audit - Information Technology


f Recommended Training (1 of 2)

- Team Building Day: activities to develop

collaboration

- O2C Certification, which will provide: o End-to-end O2C training and tools

o Embrace & build change management into the process

o Information on compliance, laws and regulations

o Policy and procedures guidance

o Internal Controls to prevent fraud

oMetrics


f Recommended Training (2 of 2)

- Project Management

- Presentation Skills

- Leadership

- How to map and build workflows

- Not everyone needs all the training, depends on

role


Process to Re-engineer (1 of 4)

• Pre-work:

– Survey to get involvement:

They need to be “Heard”

• Mapping Meeting

– Map the Current Process against P&P

– Identify weakness in process

• Supported by metrics

– Eliminate “noise”

Communicate



• Research

– Seminars

– Workshops

– Benchmarking

– TARN

• Design Sessions

– Map new processes

– Write new P&P

– Write new Job Descriptions

Communicate


Process to Re-engineer (2 of 4) Process to Re-engineer (3 of 4)

– C-Suite Goals and Objectives (MVV)

– Laws and regulations built in

• OFAC

– Internal Controls to protect the cash:

• It can & does happen

– Benchmarking

• Validated best practices

– Setting Cross functional KPI’s

– Sponsorship approval

Communicate



• Testing

• Implement

• Change Management

• Celebrate

• Next Process

Communicate


Some things to consider


Automation Maybe an Answer


Types of Technology – On-line ordering that validates information and

passes through to:

~ Order Fulfillment to ~ Distribution to ~ Billing to

~ Cash Application to ~ Collections to ~ Customer History

– Automated Cash Application

– Contact Log Management

– Document Management (scanning and imaging)

– Accessing the customer’s AP Portals

– Collections: prioritization, communication, reporting & analytics

– Credit scoring


d OR Outsourcing Maybe the Answer


K Key O2C Metrics

Number of prompt payment discounts

captured, number not taken

Number of deductions by type

Number of cancelled orders

Number of orders returned and reasons

Duplicate/erroneous payments processed

Percent of bad debt

Percent of debt turned over to agency or

lawyer

Percentage of invoices sent electronically

Percentage of payments received

electronically

Number of customer incoming inquiries

Number of collection calls

Percent of market share

Cost per transaction – sales order, billing,

customer application, cash applications,

Cycle time – from order to cash, to include each

process

Number of orders with an amount less than

1,000

Invoices that include a PO number vs non-PO

orders

Number of electronic transactions vs. paper

(orders, invoicing, customer applications,

customer master file request to ‘add or change’,

Number of invoices billed per FTE

Number of invoices paid on time

Backlog of open items – number, value, and age

Days sales outstanding and best possible days

sale outstanding (DSO/BPDSO)


K Efficiency vs Effectiveness

Efficiency:

• Cost per transaction

Number of transactions per FTE

Span of control (one manager

functions and/or people)

Order cycle time

Invoice processing cycle time

Percent electronic transactions

Automation level

Effectiveness :

• First pass rate

• Streamlined transaction strategy

• Level of centralization

• Training investment

The Hackett Group


Activity Based Management

• Strategy – Obtaining financial and

operational performance data at the product

or service level can result in more effective

control because knowing what things cost

and having the ability to associate costs

with their causes enables the costs to be

managed more effectively. This information

can also aid in making better business

decisions.


v Summary

• Re-engineering is a wise investment with

Great paybacks: Reduced Cost & Larger

Market Share for increased profits.

– Plan thoroughly: MVVG

– Build in compliance

– Prevent Fraud

– Communicate~Communicate~Communicate

– Metrics = validation (baseline & progress)

– Recognition


v

Questions ?

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