Quote

/ Order To Cash (O2C)

A Brief Overview
John Choate National Chair Program Management & Maintenance Strategies (PMMS) SIG Scott Pezza Research Analyst Aberdeen Group

[ CHAVONE JACOBS

ASUG INSTALLATION MEMBER MEMBER SINCE: 2003

[ ALLAN FISHER

[ COREY PEARSON

ASUG INSTALLATION MEMBER MEMBER SINCE: 2008

ASUG INSTALLATION MEMBER MEMBER SINCE: 2008

[ What is Order To Cash ?

Order to Cash normally refers to the Enterprise Resource Planning (ERP) process in which taking customer sales (direct from the customer ) orders via different sales channels, such as email, internet, sales person, fax or by some other means like EDI, and then fulfilling 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 the order-to-cash cycle.

Real Experience. Real Advantage.

[ Pressures Driving a Focus on O2C

Pressure to reduce overall costs Risk of customer non-payment or default Customer demand to improve service levels Inability to accurately forecast cash flows Rising cost of servicing major customers Customer pressure to extend payment terms 0% 21% 19% 19% 29% 29%

67%

10% 20% 30% 40% 50% 60% 70% Percentage of Respondents, n = 140

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

Reduce Days Sales Outstanding (DSO) Improve cash flow forecasting/guidance Reduce receivables processing cost/time Reduce 'customer-to-cash' or 'order-to-cash' cycle Improve transaction efficiency Manage credit risk, losses from bad debt, and collections expense 0% 10% 20% 30% 40% 50% 34% 36% 35% 42%

54%

30%
60%

Percentage of Respondents, n = 140

Source: Aberdeen Group, The Order-to-Cash Cycle: Enhancing Performance with Process Automation (July 2011)

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[ TYPICAL AREAS AFFECTED BY OTC CYCLE

An 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 order creation Confirmation Packing Posting goods issue

4. Invoice 5. Payment by Customer (Cash)

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Simple Business View Order to Cash

FINANCE (FI) SALES (SD) WAREHOUSE (WMS)

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 better managed companies for product/services

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[
Pressures: External forces that impact an organizations market position, competitiveness, or business operations (e.g., economic, regulatory, technology, competitive, etc.) Actions: The strategic approaches that an organization takes in response to industry pressures (e.g. product/service strategy, target markets, go-to-market, and sales strategy) Capabilities: The business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, 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 research findings.

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[PACE Framework 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 workflow technologies.
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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,
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DSO, profitability, and cash position.

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[ PACE Framework
Enablers (E):
ERP - integrated order entry, procurement, production/resource planning 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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[ Performance Results:

Best-in-Class (Top 20%)

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
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) Real Experience. Real Advantage.

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[ Best-in-Class AR Technology Profile

60% 50% 40% 30% 20% 10% 0% Integrated Order-to-Cash Systems BI / Analytics 50% 47%

Best-in-Class

All Others

43% 33% 26% 23%

43%

37%

37%

23%

18%
12%

Electronic Workflow

Performance Event Dashboards Management

Customer Portal

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
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) Real Experience. Real Advantage.

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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
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) Real Experience. Real Advantage.
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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
Real Experience. Real Advantage.
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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 work with you Understanding your current and prospective customers can help reduce non-payment risk and tailor collections strategies Communication, between departments and with your customers, is key to efficiency and visibility into cash flows
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Thank you for participating PMMS SIG / Aberdeen Group

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