To improve Order-to-Cash efficiency, manufacturers need to close gaps in the process starting by improving the quality of data that drives everyday decisions. A great place to start is identifying how large the gaps are in an Order-to-Cash process and uncovering any financial strains.
Signs a Broken Process is Impacting Profit Margins
Competition to win new manufacturing business often includes price wars or margin sacrifices that could ruin otherwise profitable opportunities. Unfortunately, an inefficient Order-to-Cash process can also impact a manufacturer’s financials – and they might not even know it.
Leaks across the Order-to-Cash process cost manufacturers more margin than any competitor could ever take on their own. Manufacturers don’t have to rely on price alone to win deals. Improving Order-to-Cash at the process level can deliver greater visibility and control of costs, leading to stronger competitive advantages. They can sell on product quality and accurate delivery dates because they have the greater visibility and control to deliver it.
How can a manufacturer tell if a broken Order-to-Cash process is impacting their profits? By watching for these warning signs:
- Accounts Receivables (A/R) and the carrying costs of money are increasing. For example, a typical manufacturer will carry $4 million in outstanding A/R at any time. If half that amount is past due, then the carrying cost of that past due money is $100,000 per year. By following best practices in accounts receivable billing and collections, manufacturers can save $100,000 in A/R carrying costs.
- Manual workarounds for Order-to-Cash are common across accounting, finance, and manufacturing. Manual workarounds are the norm when a manufacturing company’s accounting systems are not integrated with manufacturing, supply chain, or customer order processing. A sure sign that Order-to-Cash is broken is when operations staff needs to expedite orders and complete transactions manually, and there is a lag and delays in financial reporting and close dates.
- Limited to no visibility and control over costs. A sure sign that Order-to-Cash processes need improvement is when there is little to no visibility and control of costs across the shop floor and the end-to-end manufacturing process. Warning signs of not enough visibility and control of costs are negative standard cost variances dominating production runs.
- Unknown how spikes and drops in production volume and quality impact financial performance. Order-to-Cash needs real-time data to deliver its full value. It is not enough to rely on batch-based reporting of machinery performance or after-the-fact data on production processes. What is needed is real-time production and process monitoring data available continuously to stay on top of machinery and process performance variations.
Four Steps to Improve Order-to-Cash Efficiency
Fine-tuning the Order-to-Cash process to the unique strengths of a given manufacturer are table stakes for staying financially strong today and being prepared for growth in the future. Becoming competitively stronger using Order-to-Cash needs to start with the following steps with a focus on improving cost, revenue, margin, and speed advantages:
- Get accounting, finance, ERP, MES, supply chain, and pricing data on the same database to help identify the most costly gaps. A great place to start looking at how Order-to-Cash can be improved is consolidating the core accounting, finance, manufacturing, supply chain, and customer data into a single, unified database. Manufacturers who do this say the immediate win is gaining greater visibility and control across the end-to-end manufacturing process. For example, a single database to manage the end-to-end manufacturing process providing the accounts receivable department with a holistic view of customer activity, making billing timely and collections cash efficient, including their purchase history, size, profitability, payment history, terms, discounts, delivery times, and proof of delivery.
- Unlock hidden opportunities to improve margins by finding cost and time leaks between product costing, sales, and marketing standard costs and variances. Cost variances that are not tracked accurately when Order-to-Cash processes are completely manually directly lead to significant gaps in profitability. Knowing where those leaks are, what’s causing them, and how to redefine Order-to-Cash processes to alleviate them are essential to staying profitable and growing.
- Automate standard costing for every order and ensure Bill of Materials cost accuracy. Another area that suffers when Order-to-Cash is managed manually is standard costing and the variances produced during every order fulfilled. That is where the value of real-time production and process monitoring comes in. Automating standard costing becomes possible when the accounting, finance, MES, and ERP systems have real-time production and process monitoring in a single database. In turn, reducing costing errors reduces variances, saves margins, and helps preserve profits, leading to a manufacturer staying financially strong.
- Consolidate quoting systems to a single one that shares the same data with accounting, finance, ERP, MES, and pricing systems. Multiple quoting systems create chaos for Order-to-Cash systems. Often having conflicting pricing and product availability data, multiple quoting systems make getting an accurate order from a customer a challenge. If possible, take steps now to consolidate down to a single quoting and product configuration system. Redefine Configure-Price-Quote (CPQ) as a centralized strategy integrated into the core of the Order-to-Cash process workflow. Using real-time visibility and control to discover new ways to improve the accuracy and speed of delivering quotes will drive more won deals and protect margins. It will also protect Order-to-Cash from costly quoting, pricing, and costing errors.
Manufacturers face the most turbulent, challenging competitive environment they have seen in decades. Competitive pressures are intense, and price wars are common. But, before jumping into a price war or giving away margin to secure a new customer or hold into an existing one, consider how improving Order-to-Cash could reduce costs, save margins and make operational performance more competitive. The goal of this article is to provide you with a starting point.