Customers have grown used to ordering online and receiving a product very quickly. As such, when the turnaround time comes, customers expect manufacturers to shorten the time between order and delivery.

Decreasing the order-to-cash cycle is part of containing or reducing costs to preserve margins and profitability. Global competition and the economic downturn dictate the importance of taking advantage of every opportunity to cut costs.

Many businesses have pared inventories to low levels, so speeding delivery isn't necessarily a snap.

To satisfy fickle customers, "streamline front- and back-office administrative processes to remove non-value added steps," suggests Aberdeen Group's recent research report Benchmarking the Order-to-Cash Cycle.

To achieve best-in-class performance, Aberdeen also recommends companies consider pursuing the following actions:

• Improve visibility to real-time status of order, delivery and billing information;

• Standardize procedures for quotation, order management, order fulfillment and delivery, credit management, billing and cash collection;

• Employ work-flow automation to initiate major process steps; and

• Implement build-to-order, pull-based manufacturing methodologies.

The Aberdeen Group recommends these technology enablers for shortening the order-to-cash cycle: enterprise resource planning (ERP) with integrated order entry, procurement, production and resource planning and execution as well as financial management; work-flow automation; event management (triggers and alerts); electronic interfaces to banks and customers; Web-based and electronic sales order management application; a credit management solution; and an electronic invoice presentment and payment solution.

As many companies have shed the least-profitable products and services, they enlarge their reliance on supply chains. The relationship with supply chain members and the tools used to communicate quickly and accurately play a large role in minimizing the order-to-cash cycle.

"Implementing supply-chain planning, execution and event-level alert systems, sometimes in conjunction with other modern information technology, [shortens this cycle]. As customers up the ante by insisting orders be promptly delivered and at a precise time, reducing cycle time becomes the pivotal point in a supplier order-to-delivery performance rating," says management consultancy R. Michael Donovan & Co.

What's the significance of the above actions?

Aberdeen highlights the following characteristics that distinguish the best-in-class from the laggards:

• Invoicing in just 42 percent of the time it takes laggards;

• Days Sales Outstanding (DSO) is 41 percent lower than the laggard's DSO;

• Order-to-cash initiatives achieved more than three times the improvement in order-to-cash cycle times of the laggards;

To shorten the order-to-cash cycle, manufacturers need to know what to do, install the tools to do it and train the employees to use those new tools. The suggestions above are worth considering.

Resources

Benchmarking the Order-to-Cash Cycle
by Cindy Jutras
Aberdeen Group, March 2008

Cycle Time Reduction for Successful Manufacturing
R. Michael Donovan & Co.

Industrial Training for Your Real Needs
Business Industrial Network, April 21, 2008