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The Single Best Investment Your Company Can Make

Posted by Solomon Williams on May 28, 2020 3:08:01 PM

Optimizing order-to-cash with digital transformation is game changer; full stop. To realize the potential value, however, the approach must be comprehensive. Technology alone is not the answer.

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Few processes have greater impact on an organization than those that make up the order-to-cash cycle. Under-performing OTC leads to wasted time and effort, cash flow deficiencies, and decreased customer satisfaction, which translates into billions of dollars down the drain every year worldwide. An OTC digital transformation is the solution, but it requires efficient processes and systems which are integrated. A digital transformation will leverage automation, enterprise data management, modern data architecture, analytics and change management to improve your OTC processes. It will enable your organization to increase revenue, improve operational excellence, and brighten the customer experience.

What is order-to-cash and how does it degrade?

OTC is the collection of processes required to turn a customer order into cash for the company. As a company grows, so do the complexity of these processes, and so to the opportunities for defects to creep into the OTC cycle.

In today’s global economy, supply chains have become more complex than they have ever been, and with customers, suppliers, and carriers located all over the world, this complexity will grow. With each touchpoint between process activities and system interfaces, the risk of revenue leakage increases – and customer satisfaction decreases – until the measurable impact of both is noticeable at both top-line and bottom-line revenue.

As a result, one of the biggest challenges with OTC is that it does not degrade all at once. The impact of inefficiencies within the process accumulates over time until there is no choice but to address the problem.  

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Fig. 1 Order-to-cash cycle

Why does it matter?

OTC is one of the most critical business processes within an organization because it is the mechanism by which customers are served and the organization recognizes revenue. It is not a question of whether the process will fail; it is a question of how much revenue must leak and how many customers do they need to lose before an organization takes action.

To be clear: OTC that operates at 100% efficiency is unrealistic, so this should not be the objective of any organization. Rather, companies should focus on addressing the components that are critical to the process and building a strategy to monitor and address these components if efficiency drops below a specific threshold. The direct impact of OTC inefficiencies on organization performance, customer satisfaction and market share are well documented. This is something that cannot be ignored, and it cannot be addressed by technology alone.

Why is this happening to the tune of billions of dollars a year?

Nearly every organization has some element of OTC that is underperforming. Whether it is the operating model in place (disjointed or redundant functions, or obsolete activities), the technology being employed (centralized, monolithic systems that are not designed for emerging markets or have been poorly implemented), or sub-optimal data management capability (lack of availability, or accuracy of data), these challenges result in one workaround after another. The problem is that these workarounds are nothing more than Band-Aids that provide some short-term benefits, but inevitably add long-term complexity and increased costs.

Individually, each of these factors can contribute to revenue leakage and drops in customer satisfaction. When these factors coalesce, the impact can be severe and curtail an organization’s plans and objectives for many years. The reason the financial impact is so staggering is because many organizations do not have the ability to monitor OTC – and they have very few comprehensive measurement controls in place – so by the time they begin to realize the financial effects, they are unaware that they are actually experiencing the symptoms of sub-optimal OTC. This problem can continue in perpetuity if the root problem is not addressed.

 

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Fig. 2 Order-to-cash with operating model alignment

EXL has successfully optimized OTC for numerous clients across several industries, and in nearly every case, our clients exceeded the projected return on investment. How have we done it? By developing, refining, and implementing a comprehensive approach that leverages a proprietary methodology and includes:

  1. OTC Analysis and Evaluation. EXL’s solution begins with the end-to-end analysis of your OTC process, subprocesses, and OTC operating model (the organization). We inventory, evaluate and prioritize the totality of your OTC cycle in order to identify the processes that have the greatest risk.
  2. OTC Integration Strategy. We have developed a comprehensive model for OTC optimization that focuses on improving organizational alignment, choosing the appropriate integration Model, and developing a process integration strategy.
  3. Data Management. The cornerstone of our OTC Optimization solution is the data management component. We ensure you have consolidated, accurate data on your customers, suppliers, carriers, business rules, pricing, and contracts, and we provide you with a comprehensive approach to data quality, data governance.
  4. Automation. We provide an automation strategy that drives out paper-based processes to decrease costs and increase productivity while supporting compliance with internal and external mandates.
  5. Analytics. The analytics component of our solution enables your organization to not only have greater insights to the multiple functional areas of the OTC cycle, but also allows you to implement measurement and management controls to monitor the improvements, and take proactive measures should new inefficiencies creep into the system.

What are the benefits of this approach?

Companies that deploy a holistic approach to OTC experience numerous benefits that directly impact the bottom line. These include:

Cost and efficiency improvements

  • Increased visibility and control when dealing with disconnected systems, multiple locations, varying currencies and spreadsheet reporting. This directly impacts cash flow through more accurate forecasting, reduced borrowing costs and reduced variances.
  • Reduced operational costs from standardized processes, optimized headcount and more efficient outsourced processes.
  • Improved balance sheet metrics including reduced AR, increased receivables, significantly reduced DSO, and improved cash flow.
  • Reduction of bad debt through a reduction in the quantity and size of loans required to support operational costs.
  • Improved customer experience is achieved through accurate and efficient pricing, order management, service delivery, invoicing and dispute resolution.

Growth and expansion opportunities

  • Increased capacity to accommodate fast-paced digital transformations and cloud enablement.
  • Improved capability to develop more reliable strategies for revenue and profitability.
    • Ability to accelerate OTC processes for fulfillment efficiency, credit-risk management, and cash realization.
    • Improved credit, covenants, and compliance.
    • Improved ability to integrate and analyze mergers and acquisitions.
    • More efficient operations with BPOs and shared services.

Is it worth it?

Streamlining the OTC cycle is worth doing for the hard-dollar benefits it brings, but it’s a complex initiative because of all the processes it touches from sourcing to delivery. Documented cost savings include:

  • Process Integration (Maturity): Businesses that have adopted best-in-class OTC practices are more than 80% more effective at order management than those who have not. On average, sales for these businesses increased by 30%, and margins increased by 20%.
  • Data Management: OTC optimization depends upon enhanced data reliability, accuracy and streamlined connectivity. Inaccurate, incomplete and untimely data management can be one of the biggest cost factors in the OTC lifecycle.
  • Automation: When it comes to OTC, automating and streamlining processes has a massive impact on efficiency and profitability. On average, optimized OTC reduces Days Sales Outstanding by 40%.

Get in touch with our experts to learn more about how OTC optimization can help your business.

Written by Solomon Williams