With more companies moving from a decentralized “close to the business” design for Order-to-Cash processes to multi-country, regional, or global designs for delivery via Shared Services, the need for setting clear service expectations quickly becomes apparent. While the type and complexity of service level agreements (if this term is even used) can vary greatly, the purpose and related benefits of setting clear expectations and responsibilities are the same.
A recent PeercastTM in Peeriosity’s Accounts Receivable (O2C) research area featured a large consumer products and services company with global operations sharing their experience in designing and administering service level agreements for Order-to-Cash for EMEA (Europe including Russia, Middle East, and Africa), Asia North, and Asia South (including Australia/New Zealand) out of service centers located in the Philippines and China.
Prior to creating formal service level agreements the featured company had two measures: 1) order acknowledgment turnaround timing, and 2) completing case fill rates. The measured metrics were “all green” (in other words, they were within performance expectations), however, the businesses served were not satisfied.
To better understand performance issues, monthly business reviews were conducted to reach an agreement on the critical activities that impact service levels and costs. The effort included organizing and standardizing internal reports to allow the Order-to-Cash team to generate more accurate and meaningful performance reports for customers. The Shared Services teams reached out to the Supply Chain teams in each of the three regions to compare, validate, standardize, and finalize key measures and targets. Finally, all proposed measures were reviewed with the Commercial and Finance teams of each business unit.
The purpose of the newly created service level agreements was: 1) to measure the performance of Global Shared Services in delivering services to customers and stakeholders, and 2) to identify opportunities for lower cost and improvements in efficiency.
The feature company identified three key lessons:
- Make the service level agreement meaningful, as an effective tool to measure effectiveness with stakeholders, and as a tool for identifying process improvement opportunities.
- Have a service level agreement that is a living document that can be changed and updated quickly and efficiently.
- Communicate performance expectations to all Order-to-Cash team members, including what it means to the customer, what it means to the team, and what it means to each employee who is part of the process.
Several of the most important insights from completing the process of creating more effective measures of performance include:
- If you can’t express it as a number, it’s just an opinion that can be debated. Numbers matter.
- Because service level agreements quantify performance by focusing on the facts, and not opinions, this makes them better tools for communicating with customers.
- Customer needs and service expectations change, and service level agreements need to change with them.
- Change in performance begins with measurement, so make sure to commit resources to make identified improvements to measured processes.
To support the PeercastTM two iPollingTM questions were asked to better understand the range of member experiences. The first question asked about the type of service level agreement primarily used for Order-to-Cash processes. While 21% of member companies report using detailed and formal agreements, 50% of companies use summary agreements that focus on key aspects of the relationship, and an additional 21% use informal agreements between senior leaders. Here are the details:
The next question explored the expected changes in emphasis on Service Level Agreements in the next three to five years. While half of the companies reported that they expected the designs to stay about the same, 36% of member companies indicated that they expected to see a shift towards more formal Service Level Agreements for Order-to-Cash processes.
If your company uses Service Level Agreements for Order-to-Cash processes, how detailed are the agreements, and how involved were key stakeholders and customers in setting performance expectations?
Who are your peers and how are you collaborating with them?
“PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion. Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content. Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member. Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees.
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