The supply chain can no longer afford to be a simple transactional system focused on cost containment, nor can it be managed as a group of individual silos, especially in today’s competitive environment. While order-to-cash and procure-to-pay activities have always been interdependent, the intricacies of today’s supply chains and the growing lack of market tolerance for anything that isn’t smarter, faster, better and cheaper produces the need for an operational model dependent on very tight synchronization.
In order to run the most efficient operations, companies need the ability to quickly determine how delays, disruptions and other events affect incoming customer orders, overall operations, expenses/cost of goods sold and, in the end, overall revenue. However, many companies face an operational visibility and management gap between revenue and expenses that impedes decision-making and business growth.
Companies can bridge the gaps by learning how to map out an effective strategy that leverages existing tools and systems in place. By integrating revenue and expense data, businesses gain a competitive advantage and holistic view that profits the company and solidifies customer loyalty.
Mind the revenue and expense operations gaps
Before identifying potential gaps between revenue and expense, companies should define their end-to-end supply chain model to gain insights into the relationship between external and internal processes within the supply chain. Whether the model begins with issuing a purchase order and ends when the order is shipped or covers a broader scope to include demand planning to field performance, understanding the structure enables companies to expand their scope of the supply chain to optimize operational logistics, such as inventory, and understand risks or areas in need of improvement.
Three initial revenue and expense operation gaps to consider in addition to inventory management, fulfillment activities and information proximity include:
1. Gap in time and location: The movement between sales orders and purchase orders often creates a gap, particularly in rapid transaction environments. For example, a company may experience lag between customer order to signature to order management system entry. The pending time spent between each activity creates a loss in appropriate allocation of labor and hard costs to the business.
2. Gap in data and activities: Siloed activities within the supply chain create the issue of differentiating hard and soft costs. Sales and purchase orders, for example, should be easily accessible and monitored together rather than siloed throughout the order’s lifecycle. The separation risks miscommunication and misguidance for stakeholders who handle and use the information in gauging companies’ real margins. A holistic perspective is valuable and necessary, especially in understanding how areas, such as operations planning, delivery tracking and margin visibility, work together.
3. Gap in inventory availability: Visibility into the supply chain can be improved by integrating order-to-cash and procure-to-pay activities. When utilizing the proper resources and solutions, real-time visibility offers real-time saving costs, however, not without insights into inventory availability. Once an order is prepared for shipment within the end-to-end supply chain, visibility is crucial beyond finished goods inventory availability, as well as available-to-promise and available-to-deliver. Cost savings also come with real-time visibility into quantity on order, quantity on reserve and planned replenishment, which help drive and reinforce sales orders.
Map a strategy and timeline to know what to tackle and when
Take a step back before tackling any visibility gaps and strategize given the insights into the end-to-end supply chain. Namely, analyze problem areas — access (or lack thereof) to information — that prevent business operations from taking immediate call to action. For example, analyze revenue streams that lack inventory visibility that could be causing slower or no commitment to sales orders. On the expense side, check for delays from receiving new customer orders and entering information into the back-office system, which could be triggering additional expenses (e.g. rush orders for materials, overtime for manufacturing operations and expedited transportation and logistics costs.)
Companies should monitor sets of costs to ensure they don’t exceed an acceptable threshold for sales profitability. This helps to determine any material difference between actual and planned margins. Possible costs areas to evaluate include transportation, labor (idle or overtime), materials, distribution, inventory and finished goods.
Following up, it is key to understand the trends present in on-time delivery (OTD) rates, noting any margin differences between OTD and late delivery charges that could produce a lower margin. In addition, monitor lost revenue causes to ensure they don’t include sales that could have been closed at an acceptable margin — such as lack of alternate supply sourcing or inefficient supply chain disruption risk planning.
To create an approach that provides a path to improving visibility, increasing response times and reducing costs, map out a strategy. Prioritizing next steps within that strategy typically follows two routes:
- Determine what percentage of improvement would be material and noticeable to the bottom line and pick a small area of focus to get to that number.
- Set up a pilot program that dives into a representative area with objective benchmarks.
Leverage existing tools and systems to save significant cost
Rather than adding costly and disruptive upgrades to existing tools and systems, or replacing them, companies can often integrate order-to-cash and procure-to-pay functions through data integration into a business-to-business (or system-to system) messaging tool.
Within internal systems, it’s important to evaluate if sales and operations, procurement planning, manufacturing, transportation management or warehouse systems inhibit data flow, information insight and effective decision-making. If current tools or systems have little to no automated data access and fail to deliver information effectively, companies can implement data integration to power order-to-cash and procure-to-pay functions. External systems, such as customer order portals, ecommerce platforms, contract manufacturer systems, logistics providers and carrier systems, can also be integrated.
Aside from evaluating internal and external systems, there is a need for execution tools that not only facilitate the accessibility, flow and updating of all revenue and expense data, but also serve as an adaptable, centralized, real-time decision-making system. When leveraged correctly with the right planning tools, execution systems can serve as a powerful, integrated management console that delivers holistic visibility and management across a company’s end-to-end supply chain operations.
Reap the benefits of integrating revenue and expense data
When revenue and expense operations are integrated, the end-to-end supply chain provides visibility into manufacturing, product delivery and inventory that provide data of information for improved strategic decision-making for stakeholders. As a result, priorities are better aligned with opportunities for business growth and relationships with trading partners and customers flourish.
The marriage of order-to-cash and procure-to-pay becomes advantageous as it creates a more powerful and responsive supply chain. From the first order of action to the last, the entire process succeeds with better communication and visibility — manufacturing teams have better intelligence about delivering finished goods into inventory, where order fulfillment is more accurate and timely; delivery or shipment issues are flagged to sales teams (and customers); and financial departments have a better handle on receivables and expenses. Everyone is more informed and expectations are better managed… which increases internal performance and produces more delighted customers.
Donna Fritz is Vice President of Marketing and Product Management for TAKE Supply Chain.