Improving the order-to-cash cycle time is an imperative for just about every business in these tough times. When a business fails it is normally as a result of a lack of cash.
These days, when companies trade with one another the exchange of information, such as orders, acknowledgements, advance shipping notices and invoices, can be conducted using electronic trading technology. The removal of paper and faxed documents from this process has cut the level of errors incurred significantly. But many companies have yet to adopt this technology and so are failing to take advantage of a reduced order-to-cash cycle time.
According to a report published this September by GS1 UK in conjunction with Cranfield School of Management, 81% of companies are still using manual, paper-based processes. However, the research highlights the advances made in the grocery sector. Some 27 million orders are made in the UK grocery sector every year, with 84% of orders by retailers and 87% of invoices transacted using EDI technology. The ‘EDI Cost Savings' report of the UK's top 15 grocery retailers - covering 90% of the sector - finds that the sector saves £650m per year in costs by using EDI instead of manual, paper-based processes for its orders, invoices and despatch advices.
The grocery sector understands the benefits of electronic trading but other sectors are being slow to realise these savings and the advantages the technology brings to improved order-to-cash cycle times.
Matching an invoice to a purchase order and checking against goods actually received creates a tricky three-way matching and approval process that can result in a delay in payment due to inconsistencies, errors and poor communications. Accuracy and consistency are essential to getting paid quickly.
Pre-invoice matching can now be achieved using intelligent EDI technology that is able to look at the data inside each message carried between buyer and supplier. Spotting errors or mismatches in invoicing becomes an automated process that brings direct cash benefits.
If invoices were to be pre-checked against purchase orders and delivery notes prior to sending to the customer, potential problems and mismatches could be identified and addressed in advance, so reducing hold-ups in payment and speeding cash-flow.
It may be that, say, 100 items were ordered by a buyer but under their terms and conditions it was acceptable for the supplier to ship up to a maximum of 110. However, the invoice might fail if there were a discrepancy between the purchase order and shipping notice. Action in advance could allow for the invoice to be adapted accordingly or for a buyer to be notified.
Also, if one line item in an invoice containing, say, 80 line items fails, the whole invoice may well be halted. Under these circumstances an alert would enable a supplier to pull out that one item and generate an invoice for 79 items instead, so ensuring fast payment of the majority of the order.
A further area where intelligent B2B integration can be successfully deployed to create cash efficiencies is in the area of supplier performance. As next generation systems are capable of looking at the content of the messages, and can apply intelligence to the data carried, analysis of supplier KPIs can be used to reveal the most reliable suppliers. By knowing that you can rely on a supplier that has a 98% performance rating enables you to reduce safety stock or may allow you to move to a vendor managed inventory arrangement or Direct Ship.
Direct shipment by a supplier to the end customer offers a retailer a distinct advantage in that it allows retailers to expand their product ranges without the need to tie up cash in inventory or expose themselves to the risk of carrying unsold stock. The problem for retailers is that they lose visibility and control putting the order out to suppliers for direct delivery. Although most retailers have pretty slick internal systems for the whole order-to-cash cycle, they revert to antiquated techniques, such as faxes, when it comes to working outside the four walls of the enterprise. However, an online platform enables the live exchange of information between retailer and supplier, which also links into the carrier to give real-time updates on scheduling.
The great thing is, this allows the customer to have a very tight delivery slot given to them and offers the retailer far greater control over the whole order-to-cash cycle for direct ship operations. Jewson, the retail building supplies company, has used Wesupply to break new ground in co-ordinating direct ship activities across multiple suppliers for consolidated deliveries to customers.
Intelligent electronic trading technology holds the key to reducing order-to-cash cycle times. Those with the key can open the door to improved cash performance.
For more information please visit www.wesupply.com
