Order-to-Cash + Procure-to-Pay: The growing competitive importance

for mid-market companies to integrate both functions for a more powerful

and responsive supply chain

Table of Contents

Introduction
4 The typical gaps between revenue
and expense operations
7 Mapping out a strategy of areas to address
and in what order
9

Leverage existing tools and systems

10 Benefits of integrating revenue

and expense data

Introduction

Its no secret that with competition

encroaching from every corner of the
globe, the supply chain can no longer
afford to be a simple transactional
system focused on cost containment.
Its also true that it can no longer afford
to be managed as a group of individual
silos. While order-to-cash and procureto-pay activities have always been
interdependent, the intricacies of
todays supply chains and the growing
lack of market tolerance for anything
that isnt smarter, faster, better and
cheaper has produced the need for
an operational model dependent on
very tight synchronization. In order
to run the most efficient operations,
companies require 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.

For many companies, however, gaps

remain in operational visibility and
management typically between
revenue and expensethat impede
the speed of information sharing,
updating, and ultimately, decision
making. Filling these gaps requires
additional planning tools, such as
those that focus on aligning sales
and operations. But, these types of tools
only solve part of the challenge. There is
also a need for execution tools (generally
based on B2B messaging technology)
that can facilitate the accessibility,
flow and updating of all revenue and
expense data (planning and actual).
When leveraged correctly with the right
planning tools, these execution systems
can serve as a powerful, integrated
management console that delivers
holistic visibility and management
across a companys end-to-end supply
chain operations.

This eBook outlines:

1. The typical gap areas that
exist between revenue and
expense operations
2. H
 ow to map out a strategy
of which areas to address
and in what order
3. How to leverage the majority
of existing tools and systems
4. Benefits of integrating revenue
and expense data

The typical gaps between revenue

and expense operations

Order-to-cash: refers to
activities beginning with
the planning & receipt of
a customer order through
receipt of payment from
the customer.
Procure-to-pay: refers
to the planning & issuance
of purchase orders to
suppliers through
payment to suppliers.
Combined, they cover
a companys entire
supply chain.

In order to identify potential gaps

between revenue and expense, it is
important to define what should be
considered as part of an end-to-end
supply chain. Some supply chain models
begin at the point of active execution
(issuing a purchase order (PO), entering
a sales order (SO), etc.) and end when
the order is shipped. However, there are
benefits to expanding this scope. As
alluded to in the introduction, planning
activities can now play a more formal
and active role. Order receipt and
ordered item quality are also important
factors due to their short term impact on
accounts receivable, as well as the longer
term impact on customer loyalty and
retention. Extending the scope of supply
chain operations at both ends helps to
create a more comprehensive view of
how things are really working and how
they can be improved.

One gap area emerges when there is a

lack of information proximity (in time
and location) or integration between
sales order operations and the resulting
purchase orders. As an example, a
whitepaper by WiPro about a telecom
customer found lead times greater than
15 days from customer order to signature
to entry into the Order Management
System.i A primary issue in this case is that
the aging between these related activities
often eliminates a key map of revenue to
expenses, especially in higher transaction
environments. In essence, too much
happens between activities to be able
to accurately allocate associated labor
and hard costs.

Another issue that often surfaces is the

lack of proximity and association across
data and activities. When sales orders and
corresponding purchase orders, for
example, cannot be easily accessed and
monitored together through the lifecycle
of the order, it makes it difficult to ensure
all relevant stakeholders are working with
current information and working toward
the same goal. It may seem counterintuitive that order fulfillment goals
would be different across departments,
however, siloed activities tend to focus
primarily on siloed performance metrics
rather than the big picture. As a result,
areas such as operations planning, delivery
tracking, and margin visibility can all be
impacted. As with the prior example, the
longer or wider the gap, the more difficult
it is to align the associated hard and
soft costs. On the other hand, a closer
tie in time and association/tracking
between the revenue and its associated
expenses ensures a better understanding
of the companys true margin and
operational efficiency.

An additional gap area that can emerge

involves information on inventory
availability. Without integration between
order-to-cash and procure-to-pay
activities, confidence in finished goods
inventory (FGI) availability, and, by
extension, available-to-promise/availableto-deliver (ATP/ATD) is limited. This is due
to the lack of visibility beyond FGI...into
what additional inventory will be available
when the order actually needs to be
shipped. Real-time visibility into quantity
on order (QOO), quantity on reserve (QOR)
and planned replenishment can positively
impact sales through accelerating and
solidifying sales commitments to orders,
as well as improve operations by providing
a better, more accurate planning canvas.

SO

SO

RECEIVE

BOOK

PO

Other gap areas can include:

Inventory management between
multiple internal and external
locations. The lack of visibility into
all inventory on-hand and on-order
makes it difficult to discern between
location shortages and overall
shortages for items in demand.

T his can impact sales order

commitments as well as
procurement, warehouse and
manufacturing planning decisions,
especially in determining when it
is more timely and cost efficient to
replenish inventory via a transfer
rather than a purchase order.

Fulfillment activities. The absence

of status visibility for internal order
fulfillment activities, for example,
manufacturing, quality, and pick/

pack/ship, can have a direct impact

on sales/customer relationship
management, especially on critical
orders. It can also have a more
direct impact on field resource
planning and profitability for on-site
service installations that require
careful logistical coordination of
resources and products/materials.

and verification of shipment

contents (i.e. parcel-level-traceability)
can lead to missed deliveries and
orphaned packages, which not
only affects customer satisfaction,
but margin.

Transportation and delivery.

Lack of visibility into shipment
geolocation, and perhaps,
environmental readings for cold
chain, is another area that can have
a direct impact on sales/customer
relationship management; in this
case relative to order delivery
requirements and performance
metrics for service level agreements
(SLAs). In addition, lack of visibility

Mapping out a strategy of areas

to address and in what order

In other words, what

information is delayed to
the point that when you
do gain access to it, it is too
late to take action for
meaningful improvements?

Before starting to address the visibility

gap, its a good idea to evaluate which
of the problem areas are most affecting
your business. You will want to
determine the areas within the supply
chain that have the least amount of
visibility within the timeframe needed
to make decisions. In other words, what
information is delayed to the point that
when you do gain access to it, it is too
late to take action for meaningful
improvements?
Here are some examples:

1. Revenue: Are you lacking

anywhere/anytime visibility into
inventory? If so, this could be
causing slower or no commitment
to sales orders some sales may
go to competitors who can commit
more readily.

2. Expense: Are you experiencing

delays between receiving new
customer orders (or updates to
existing customer orders) and the
time it takes to enter the information
into your back-office system? This
could be triggering additional
expense via rush orders for materials,
overtime for manufacturing
operations, expedited transportation
and logistics costs, etc.

3. Revenue: Are you late getting

invoices to customers? This can cause
delayed payment and unnecessarily
increase outstanding receivables.

4. Expense: Are you running into

delays on the manufacturing line,
in the warehouse or with a 3PL or
carrier? This can cause late deliveries
and additional cost via expedited
freight, additional labor, client
performance penalties, etc.

Next, it is important to determine what

costs need to be monitored more
frequently to ensure they dont go outside
the acceptable threshold for profitability
on the sales order. In other words, you
want to know how accurate the actual
margin is versus the planned margin.
Here are some cost areas to evaluate:

a. Transportation costs
b. Labor costs (idle or overtime)
c. Materials costs
d. Finished goods costs
e. Inventory costs/turns
f. Distribution costs

Its also important to understand the

trends present in on-time delivery (OTD)
rates. Your company will want to look for
any notable margin differences between
OTD and rush delivery rates. You might be
surprised at the data and which type of
delivery (regular or rush) may produce a
lower margin.
Lost revenue opportunities should also
be monitored to ensure they dont include
sales that could have been closed at an
acceptable margin.
Here are some lost revenue causes
to evaluate:
a. L ack of readily available inventory
or inventory proximity
b. Lack of manufacturing or
sub-contractor schedule availability
c. Lack of warehouse space
d. Lack of services resources
e. Lack of carrier/transportation availability
f. Lack of cash flow

And finally, evaluate whether you need to

keep an eye on specific processes, specific
customers or specific groups of customers.
Once youve determined the areas where
improved visibility can help and youve
identified the earliest time you need
to be aware of activities in order to
take corrective action, there are a
couple of ways to approach prioritization.
You can 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.
Or you can choose one representative
area to focus on via a pilot program
with objective success benchmarks.
Either of these approaches can put
you on a path to improving visibility,
speeding up response times and
reducing costs; it really depends on
what is best for your organization.

Leverage existing tools

and systems
SO

PO
OR DE R S

Fortunately, all of this doesnt need to

generate a large, capital expense.
There is a good possibility that many
of your existing tools and systems can
be leveraged to more tightly integrate
your order-to-cash and procure-to-pay
functions. Inside systems to evaluate
(in addition to ERP/finance) would
include sales and operations planning
systems, procurement planning systems,
manufacturing/quality systems,
warehouse systems, and transportation
management systems. Chances are,
however, they will still need a bit of data
integration work as they may fit into at
least one of the categories below, but it
will be far less disruptive and costly than
replacing a system.
Some quick evaluation points for existing
systems that may need a bit of data
integration work:
No automated data access in and
out of the system,

I N V E N TORY MA RG I N S

Some automated data access,

but not quickly enough to impact
decision-making, or
More automated data access, but lacks
the ability to render and distribute the
information in an effective manner.
In addition to your internal systems and
tools, youll also likely have outside systems
to consider for important data, such as
customer order portals, ecommerce
platforms, contract manufacturer systems,
logistics providers, and carrier systems.
Again, fortunately, all these systems can
remain quite useful and provide a great
foundation to build upon.
From this point, it becomes a cost-benefit
exercise. This is where the need for an
execution tool/system (referenced in
the introduction section) can emerge
quickly. The ones best suited for these
situations have robust B2B messaging
and workflow capabilities to effortlessly

handle data in a variety of formats

from both internal and external systems.
These types of systems can aggregate,
synthesize and distribute large amounts
of information quickly and effectively
to all relevant stakeholders a single
version of the data for all, a central location
and the ability to see and respond in real
time. The better suited of these systems
can also easily adapt to shifts in business,
whether that be changes in business
processes, shifts in product lines,
on-boarding and off-boarding trading
partners, etc.

With core systems and data remaining

in place, a B2B tool with the right
kind of horsepower can facilitate the
integration of your order-to-cash
and procure-to-pay functions with
very little disruption and relatively
minimal cost. There is typically not
a need to forklift an old system or
make significant and expensive
customizations to existing systems.

Benefits of integrating revenue

and expense data

The benefits of integrating order-to-cash

and procure-to-pay activities go beyond
short term dollars and cents. The holistic
view of revenue that drives expenses can
help to keep your company financially
healthy, as well as solidify customer loyalty.
When revenue and expenses are
integrated, the end-to-end supply chain
is viewable and trackable in a meaningful
format. This visibility turns silos of
information into a body of knowledge
that allows for better, more rapid
decision-making across all stakeholders.
This knowledge can then be used for
everything from reducing expenses to
improving processes to making strategic
decisions about what opportunities to
pursue next.

This newfound visibility helps

manufacturing know exactly when it
needs to have finished products in
inventory. Sales knows when availability
or delivery issues arise so they can alert
customers or expedite replacement
shipments. Margins can be managed
down to the customer/order level. Order
fulfillment is more timely and accurate.
Finance knows when to delay payments
or expedite billing. Plus, the C-suite no
longer needs to rely on ad-hoc queries
for information.

ultimately, delighted, profitable

customers. All this allows the company
to use energy once wasted putting out
fires and incurring unnecessary expenses
toward more productive activities
like expanding the business.

To discuss a specific project,

contact us at 800-324-5143.
For more information about supply
chain improvement, visit:
takesupplychain.com/resources

Margins are increased through

efficiencies, top-line growth comes from
better strategic decision-making, and
every internal and external stakeholder
works from the same central hub to
ensure alignment of priorities and,

ENDNOTES:
i
http://www.enterprisemanagement360.com/wp-content/files_mf/white_paper/Order2Cash_in_Telecom_MMI_A_Nov08_073.pdf

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A B O U T TA K E S U P P LY C H A I N
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