Bottom Line: ERP Process Mining is proving effective in closing costly Order-to-Cash process gaps that drain revenue, margin, and valuable time from organizations’ operations. Gaining greater visibility and control over these top ten most expensive process areas pays and improves customer experiences.
It’s easy to spot companies that excel at Order-To-Cash and those that don’t. The ones who excel are easier to buy from, track orders with, get help with complex, customized orders and take on the occasional logistics challenge together. When Order-to-Cash isn’t a priority, the customers feel the pain. It’s the missed shipments, incorrect invoices, errors in pricing, and defective products. Multiply that by a multi-tier distribution network, and the full effects of a broken Order-to-Cash process become apparent.
10 Ways Improving Order-to-Cash Performance Pays
The primary revenue generator of any business is Order-to-Cash. It spans Contracts and Order Management, Order Fulfillment, Invoice Management, Credit & Collections and Payment, Financial Reporting, and Analytics. It’s too important to the financial health to leave it to anecdotal data or, worse, siloed, legacy data that doesn’t fully reflect how the competitive intensity and complexity of a given situation is impacting the business.
Staying on top of the competitive dynamics of pricing through distribution channels and multi-tier distribution networks is a case in point. Using ERP Process Mining to identify and close the gaps in pricing through distribution alone can lead to a 50% increase in earning alone, according to a recent McKinsey article, Pricing: Distributors’ Most Powerful Value-Creation Lever. The report provides a fascinating glimpse into how improving pricing accuracy and closing pricing gaps delivers higher revenues and less lost margins. McKinsey found that a 1% price increase yields a 22% increase in Earnings before Interest & Taxes (EBITDA) margins for distribution-based businesses. Hidden in the gaps ERP Process Mining would find are insights showing how it would take a 7.5% reduction in fixed costs to achieve the same 22% increase in EBITDA that a 1% increase in pricing achieves. A distribution-based business would need to increase volume by 5.9% while holding operating expenses flat to achieve the same impact as a 1% price increase.
Channel partners are renowned for their loyalty to margins over manufacturers. Using ERP Process Mining to find how resellers can be motivated with margin-based incentives delivers immediate mindshare across a distribution network and, over time, more profitable sales. Using ERP Process Mining to find the gaps in multichannel pricing is a significant first step to identifying where margin and revenue leaks are happening and why.
The following are ten ways to improve Order-to-Cash performance with ERP Process Mining:
1. Taking on the most challenging pricing problems first with ERP Process Mining will deliver margin and revenue gains. It’s also going to identify where channel sales teams are leaving money on the table and when it’s time to raise prices. One manufacturer learned that the more inelastic the demand for their most commodity-oriented product, the more they could sustain a price increase. No one wants a price war, and using ERP Process Mining, they avoided one by seeing where long-standing pricing processes were leaking margin and gamed by more prominent distributors.
2. Operations do not need to see quarter-end Special Pricing Request (SPR) bottlenecks anymore once the constraints are identified and removed with Process Mining. Ask any VP of Sales Operations or Chief Revenue Officer what most needs to be automated today, and chances you’ll hear SPRs as they can create bottlenecks at the end of every quarter – and slow down more significant deals that need their attention. Gaining greater visibility and control across SPRs can help accelerate Order-to-Performance by removing what has typically been a manual, time-consuming process Sales Operations often owns. It is time to offload that burden from then by using Process Mining to remove the bottleneck.
3. Mining the sales contract and renewal process for new efficiencies leads to quicker order cycles and fewer iterations of contracts over time. Using ERP Process Mining to audit and then improve the sales contract creation, approval, and management processes is essential to gain complete visibility and control across a customers’ revenue lifecycle. Contracts are a core part of Revenue Management and need real-time integration at the clause level to financial modeling tools. Knowing if and why a given discount needs to be taken is the goal. ERP Process Mining can help make that happen with a sell-side contract management system.
4. Using ERP Process Mining to find the many gaps in Configure, Price and Quote (CPQ) system and process approval workflows can also make an immediate impact on margins and revenue. Getting CPQ right needs to start with pricing, selling, manufacturing, and engineering, all speaking the same language. Pricing and sales need to know the best configurations to sell for the highest margin, and manufacturing needs to communicate with are the most buildable. Engineering needs to know what is going on in the market to keep configurable and to-order products current. ERP Process Mining can identify the gaps between these departments and help them all speak the same language – and deliver significant financial gains, as the graphic below shows:
5. Improve customer and reseller invoicing and account reconciliation by using ERP Process Mining to find and close gaps while streamlining them simultaneously. Invoicing and account reconciliation by customer often varies widely in any financial reporting system and across an organization. Leaving the customer and reseller invoicing and account reconciliation alone for too long – letting them go for a year or more – will make them out of step with any organizations’ current business model. It’s important to audit these areas every 90 days to look for new ways to improve periodically.
6. Take on the most challenging areas of a Distributed Order Management system to see the greatest gains in Order-to-Cash. Too often, the core areas of any Distributed Order Management system are glossed over during process audits and internal process improvement efforts. Why? They’re complex, a challenge to work with and improve, and it often takes a specialist to change their configurations and options. ERP Process Mining can cut through those many challenges by immediately delivering greater visibility and control. There are opportunities hidden in credit analysis, account set-up, order receipt, and entry and order administration. Using ERP Process monitoring to see how credit hold processes could be improved and if the credit limits for customers are either too lenient or too stringent has an immediate impact on revenue. Uncovering inefficiencies in order receipt & entry and order administration remove barriers that make any business hard to do business with while uncovering potential new margin savings and revenue sources.
7. Improve Billing, Document Management, Customer Invoicing, and automated customer inquiries by removing unnecessary steps using ERP. Process Mapping is essential to keep growing at scale. It’s surprising how many large corporations – household names – have manual billing processes still in place. Add to that their reliance on semi-automated approaches to exception management, document management, and manual customer billing inquiries, and the entire area of Billing shows how much potential it has to improve. ERP Process Mining can find where and how manual billing can be automated, possibly using the existing ERP system already in place. Using ERP Process Mining to discover new ways to automate customer queries related to product quality, availability and delivery are possible too. All of these combined ties back to a more positive customer experience and potentially more repeat sales.
8. Aging and Collections are often the most out of date processes there are, and using ERP Process Mining can uncover areas for rapid improvement. The process to create aging reports hasn’t changed in decades across many manufacturing companies today. And bad-debt write-offs could be drastically improved with modified process workflows to find where the revenue leaks are. In short, Aging And Collections are the one area of any business that often lags on automation given the many workarounds and special treatment for long-standing customers. It’s time to look at how Aging and Collections can be made more efficient, starting with ERP Process Mining.
9. Improving processing adjustments, accrual, and refunds as part of Accounts Receivable is a must-do for Process Mining. Accounts Receivable (AR) is the core of any business and is the core of any ERP system. Getting AR right and keeping it in sync with the rest of the business has an immediate impact on net income and critical financial metrics. Using ERP Process Mining to re-evaluate and find lost time in retrievals, adjustments, rebates, calculations, and accruals and balance validation are just a few of the many process areas in AR that directly impact Order-to-Cash performance.
10. Look for new insights into how dispute resolution and education management can be improved by combing ERP Process Mining and updated policies for managing them. Like AR, dispute resolution and deduction management often lag in terms of how frequently they’ve been updated. In many cases, dispute resolution hasn’t been updated in many years. That’s unfortunate as its core to the experiences customers have. Focus on the customer-facing processes first and using Process Mining to see how customer responsiveness can be improved. Process Mining can also help identify the root causes of what’s going on with recurring problems customers are complaining about.
Gaining greater visibility and control across an organization must start with a continual commitment to improve. One of the best approaches to achieving continual improvement is to choose key process areas that need the most improvement.
Using ERP Process Mining to gain new insights into how inefficient processes can be improved is the first step. Continually reviewing procedures using an automated process mining approach can help identify gaps in techniques that could cost a company its customers, revenue, and margins., ERP Process Mining is a way to keep an entire organization synchronized across each core area.