Manual processes were not meant for the increasingly complex and interconnected manufacturing supply chain that we have today. In an industry that over the past couple of decades has embraced just-in-time (JIT) and lean manufacturing best practices to increase speed and efficiency, having an order-to-cash (O2C) cycle that relies almost entirely on human input won’t cut it. As with most manual systems, the cycle from the time an order was made to when payment was received was slow, inefficient, error-prone and costly. Data entry mistakes were commonplace and document processing was unable to keep up with the pace of modern commerce.
Enter Electronic Data Interchange (EDI). The introduction of EDI, which has been around for about 30 years, transformed much of the O2C cycle from a manual process to a digital one, making the exchange of documents one done between computers rather than through human intervention and paper. EDI accelerated the entire process and improved accuracy, increased the security of the documents and reduced overall costs. The O2C cycle is a crucial one in business, as it’s the core of the relationship between a manufacturer and its many customers and partners. It’s where orders are made, products are built and shipped, invoices are sent and payments are made. If shipments are late, products are returned, or payments are missed because of human error or a slow process, relationships can fray, business can be lost and profits can suffer.
EDI greatly improved the order-to-cash cycle. With EDI, data that the buyer has entered to the system goes through a range of translation, mapping and processing steps before an order is processed, an invoice is sent from the manufacturer or a payment is made by the buyer. It’s a much better option to manual processes, but it also presents its own set of challenges. It can be complex — there are multiple EDI formats and standards — and there are various points throughout the cycle where errors and exceptions can occur, which can impact accuracy, drive inefficiencies and add costs. This complexity can make the O2C process a bumpy one.
For example, we’ve found that about a third of EDI orders contain exceptions due to such errors as incorrect pricing, wrong promotions codes, missing segments and invalid material numbers. Fixing these issues can cost time and money, and often means that customer service representatives (CSRs) — who should be working with customers — instead have to bring in IT to fix the problem. Now there are two people being paid to address a single problem. It’s inefficient and expensive, and precious time is wasted. Such exceptions can negatively impact multiple points along the supply chain, causing inaccuracies and inefficiencies throughout. EDI has been a vast improvement over manual processes, but complexity and challenges remain.
This is where automating the highly complex O2C cycle comes into play. Within any business, there are multiple departments, teams of employees and technologies that make up the order-to-cash process, and keeping them in sync is no easy task. A glitch here or there can lead to problems throughout the chain and result in everything from slower order fulfillment times and delayed payments to unhappy customers.
Automated solutions can eliminate many of those glitches that can cause so many problems, as well as remove many of the challenges presented by EDI exceptions to ensure the accuracy, efficiency and security of the entire O2C process. EDI integration solutions can work as a replacement or complement to the EDI system and touches all parts of the larger O2C cycle. An automated accounts receivable (AR) solution can automate the entire process of delivering and archiving customer invoices and ensure the delivery of invoices through any avenue, whether that’s paper, e-invoices or EDI. Invoicing is not only accelerated, but accuracy is ensured, and costs are reduced. Automated AR software can generate invoices in multiple EDI formats, such as XML, EDIFACT and ANSI, and send invoices in whatever manner the customer wants, whether its through the mail or via email, EDI or the customer portal.
For order processing, an automated solution becomes the place where every order is processed, whether it’s received via EDI or email, fax, paper or any other route. The orders are forwarded to the correct CSR and the data is collected and used to create a sales order in the ERP system. Every order is readable to humans, giving CSRs greater control and visibility into those orders, and any discrepancies or issues within the order can automatically be detected and feedback provided to the business partner to be corrected.
Automation also encompasses the handling of EDI exceptions. The data from an EDI file is put into a PDF and problems can be quickly found and flagged. At the same time, the automated solution can take what it’s learned from previous situations to automatically correct issues that continue to occur by remembering changes users had made previously, which speeds up the process, improves accuracy and efficiency, and reduces the number of exceptions that need to be addressed. It also means that the CSR has total control over the handling of EDI exceptions, eliminating the need to bring in an IT technician for help.
This all leads to stronger relationships with customers and partners. With an automated O2C process, CSRs can easily and quickly track orders and address customer issues through a single interface. With automation software in place, they have more time to spend working closely with trading partners and selling more products. They essentially have more time to spend doing the job their title suggests.
The O2C cycle in the manufacturing industry is a complex one, from the time an order is made to when invoices are sent and payments are received. The business world is changing rapidly, and manual processes simply can’t keep up. EDI has been a vast improvement, but even with these systems, exceptions can mean more human intervention, which can slow things and cause a lot of pain throughout the supply chain. Automation software eliminates those issues by quickly and easily addressing exceptions and ensuring a single system for all steps of the O2C process, speeding up the cycle from order to fulfillment, invoice and payment, reducing errors and increasing efficiency and, most importantly, creating a highly positive customer experience.
Steve Smith is COO of Esker.