How ERP speeds order-to-cash cycle

A recent Aberdeen survey co-sponsored by SAP discovered ERP’s ability to speed up the order-to-cash cycle in specific, measurable ways. The key takeaway is the following checklist of what best-in-class order-to-cash companies (those with the fastest cash flow) are doing:

• Standardizing enterprise-wide procedures for quotation and order management.
• Standardizing enterprise-wide procedures for order fulfillment and delivery.
• Accurately and consistently executing credit checks throughout the order-to-cash cycle.
• Integrating manufacturing and/or service operations, and coordinating them with customer service and logistics.
• Accessing up-to-date order, delivery, and billing information in real time, on demand.
• Offering customers visibility into order status via the Web.
• Integrating enterprise applications end-to-end.
• Automating credit checks, saving manual intervention only for exceptional cases.
• Automating process steps, requiring only minimal manual intervention in case of exceptions.
• Setting up automated alerts for process and performance exceptions.
• Measuring on-time delivery, inventory, DSO (Days Sales Outstanding), profitability, and cash position as transactions occur.

These activities can be simplified by an ERP system that offers: electronic interfaces to banks; Advanced Planning & Scheduling (APS); Available to Promise (ATP); Business Intelligence (BI); Web-based electronic sales order management; Collaborative Planning, Forecasting, and Replenishment (CPFR) tools for inventory planning and management; and support for lean methodologies.

The business case for acting on this checklist is simple, argues Aberdeen. Coordinating people, parts, and processes so as to maximize on-time deliveries leads to satisfied customers from whom cash is easier to collect. That’s job #1; job #2 is to manage the credit risks involved with customers.

Streamlining the order-to-cash cycle is worth doing for the hard dollar benefits it brings, but it’s a fairly complex initiative because of all the processes it touches from sourcing to delivery. Thus, improving order-to-cash processes usually takes place as part of the larger process re-engineering required by an ERP implementation or upgrade. Consider this quote from a survey respondent: “By re-engineering our processes and modeling them in our ERP system we were able to reduce DSO by 40%. As our sales grew 30%, we were able to grow margins an additional 20% through reduced inventory of slow moving items. We also reduced late deliveries.”

Slow cash flow is often the kiss of death for businesses, particularly in the current economic climate. Given that only 20 percent of the 235 enterprises surveyed by Aberdeen have a highly automated and standardized order-to-cash system, many enterprises have apparently misunderstood the business case for acting on the checklist above.

Demir Barlas, Site Editor