Most Accounts Receivable organizations have historically been measured on overall Accounts Receivable levels, overdue accounts, and department cost. But, in today’s challenging business climate, with companies implementing more advanced technology and end-to-end process design, there is a much more compelling need to measure and evaluate the entire Order-to-Cash (O2C) process. How to best approach this daunting task can vary based upon such factors as company structure, the type and complexity of the customer base, and the governance model overseeing the Order-to-Cash organization. Most importantly, however, is securing a strong senior leadership commitment to focus the appropriate resources on getting this performance measurement structure in place and then adjusting and enhancing as needed on a going-forward basis.
On a recent PeercastTM, the Senior Manager of Order-to-Cash Global Service Delivery from a multinational food company, shared their experiences in developing a dashboard for their Order-to-Cash operation. From service centers located in China, India, and Poland, the following Order-to-Cash services are provided by this organization:
- Authorize and Manage Credit
- Sales Order Management
- Customer Master Data & Contract Management
- Invoice, Collections, & Cash Application
- Dispute & Deduction Management
- A/R Reporting & Revenue Assurance
Recognizing the need to enhance their performance measurement capabilities in the O2C area, a project team was formed, with its overall guiding principles for metrics being that they are consistent, easily measurable, business-impact driven, and actionable. While the entire project took several months to complete, there were four distinct phases or “maturity levels” that were key milestones, with several weeks or months between them before any additional changes were made to allow for stability and enhancement. Below are the various maturity levels and their implementation time.
Maturity Level 1 (3-4 weeks)
- Vital, essential, desirable metrics
- Identified KPIs and KRIs
- Productivity, quality, customer satisfaction, HMM, value measurement defined
- Process metrics aligned to stakeholder expectations
- Management reports and scorecards
Maturity Level 2 (2-3 weeks)
- Targets, SLAs, ratings (RAG, thresholds)
- Decision making dashboards
- Comprehensive risk management
- Knowledge management
- Business continuity planning
- Process improvement
Maturity Level 3 (3-4 weeks)
- Process re-engineering
- Process optimization
- Resource optimization
Maturity Level 4 (5-7 weeks)
As part of this project was the creation of a structure for the review of the performance results on a periodic basis. Three types of reviews were created, which are the (1) Operational Review, which takes place every two weeks and involves the Shared Services Process Managers reviewing daily operational metrics, (2) Functional Review, which is held every month with the Functional Management Committee, and (3) Strategic Review, held every quarter with executive leadership. Each of these reviews focuses on a different objective and reporting tool based on the diverse audiences involved in these sessions. For further details around the technology utilized and the end results of this significant project, Peeriosity members can refer to the member company presentation and PeercastTM recording found on the Peeriosity member website.
iPollingTM Results Review
In conjunction with the PeercastTM, a poll was developed using the iPollingTM technology that first looked at the effectiveness of the Accounts Receivable key performance indicators that were being utilized by the companies participating in the research. The results show that a significant percentage (71%) of the companies consider their KPIs in this area as either Very Effective (38%) or Moderately Effective (33%), with the majority of the remaining companies indicating that it has Limited Effectiveness (21%). These results are a good indicator that the efforts companies have been making over the past several years in this area are now bearing fruit.
The second poll question addressed the issue of how frequently the Accounts Receivable KPIs are formally reviewed. Not surprisingly, the most popular response was Monthly, with 43% of the companies following that schedule. The remaining responses were fairly evenly distributed between Weekly (17%), Quarterly (17%), and Annually (26%).
Some of the poll comments provided by Peeriosity members include the following:
Media & Entertainment Member: Sometimes attention is drawn to the specific metric and not the big picture customer experience.
Manufacturing Member: We complete and publish KPIs monthly in order to keep current of the trends in payment processing.
Consumer Products & Services Member: KPIs/metrics/Service Level agreements are regularly reviewed, but officially reset annually.
Healthcare, Pharmaceuticals, Biotech Member: KPIs were reviewed globally each quarter, but an initiative to revamp metrics and method to collect data has led us to take a break from producing the AR KPIs.
Manufacturing Member: The KPIs make sure everyone understands the measure of success, but our effectiveness on gathering data to root cause problem solve is less effective than desired.
Consumer Products & Services Member: For our US businesses, we tack numerous KPIs internally and with the scope that is managed by our BPO provider. We have found it to be true that whatever is measured gets the focus and begins to improve. Adding in the complexity of a BPO provider in late 2013 led us to fine tune some KPIs that to gain more visibility over that scope, and they are beginning to yield results.
Healthcare, Pharmaceuticals, Biotech Member: Effectiveness is directly related to the rigor of the formal review and that is a work in progress.
Non-Profit Member: We review AR based on the business line of service, not as a consolidated entity, because of significant variations in the customer base and premise for extending credit.
With the increased prominence of the Order-to-Cash organization as the result of consolidation, global process ownership, and the application of advanced technologies comes the responsibility of providing enhanced operational transparency to its key stakeholders. As was well demonstrated by our feature company, through a focused application of the right resources a well-balanced and highly-effective performance measurement program can be designed and implemented in a reasonable period of time. The keys to success are to make this a high priority and to ensure the needs of the variety of customers and stakeholders are met through the proper measures and results reporting.
What is the status at your company regarding the current ability to effectively report the performance of the Order-to-Cash process area? Are the information needs of your employees, key internal customers, and stakeholders being met?
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.
“iPollingTM” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility to all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in iPolling.
Peeriosity members are invited to log into www.peeriosity.com to join the discussion and connect with Peers. Membership is for practitioners only, with no consultants or vendors permitted. To learn more about Peeriosity, click here