The Quest for the Perfect Order: Optimizing SAP for Order-to-Cash Processing

Executive Summary With the challenges of the current economic climate, companies are increasingly looking for ways to streamline productivity and decrease expenditure. Optimizing the Order-to-Cash (O2C) process, defined as the complete set of operations necessary to turn a sale into financial gain, provides companies with an opportunity to improve operational efficiency and sales, thus reducing costs and raising revenue. Establishing the capability for the Perfect Order, an order processed through the entire O2C pipeline in a way that meets customer expectations and delivers the desired results for the company, allows organizations to reap tangible business benefits in the form of lower overhead costs, increased working capital efficiency, and higher customer satisfaction. Companies that use SAP for O2C processing face specific challenges in their effort to achieve the Perfect Order. This paper discusses the requirements and benefits of the Perfect Order and examines how Winshuttle solutions can help SAP customers optimize their O2C processing.

2011 Winshuttle, LLC. All rights reserved. 9/11

www.winshuttle.com

Introduction
The concept of the Perfect Order originally evolved to describe an order that delivered exactly what the customer wantedproducts delivered in full, on time, and to specification. However, there is much more to executing an order than just delivering a product. Modern companies define the Order-to-Cash (O2C) process as the complete set of operations necessary to turn a sale into tangible financial gain (see Figure 1). From this perspective, the Perfect Order must not only meet the customers expectations, but also deliver the desired results for the company.

Figure 1: The Order to Cash Cycle Most companies use Enterprise Resource Planning (ERP) software such as SAP as the basis for an integrated, end-to-end O2C system. Redefining the Perfect Order to include every step of the O2C process is useful for evaluating the efficiency and effectiveness of SAP implementation. The capability for perfection is a sign that that the companys systems are functioning at a high level, even if not every order turns out to be perfect in operation. Part 1 of this paper defines the requirements for delivering the Perfect Order and the benefits of meeting those requirements. Part 2 discusses how to optimize SAP to achieve the capability for perfection.

Part 1: The Perfect Order

Defining Perfection The O2C pipeline encompasses every process from the initial entry of an order to the collection of final payment. Each step involves different functional units of the organization and numerous subprocesses. Companies can and should examine each major step in detail and define benchmarks for optimal performance. At a high level, the Perfect Order can be defined as one that: moves seamlessly through the O2C pipeline, is error free, and is processed and reconciled in a timely fashion. While a simplification, this definition provides a powerful perspective for evaluating an organizations O2C system. Its three requirements are further explored below. Moves seamlessly through the O2C pipeline: This is the starting point of the quest for perfection, the baseline requirement for an effective O2C system. A Perfect Order is only possible if an organization has a highly integrated O2C system that moves data between functional units in a highly automated fashion. A company must be able to identify and repair process leaks that prevent an order and all of its related information from flowing from one step to the next. Is error-free: Like all data-intensive processes, O2C is vulnerable to errors resulting from improper data entry and out-of-date or otherwise inaccurate information. As in all integrated processes, errors introduced in one functional area are compounded as they pass through the system. Any organization striving for the Perfect Order must have processes in place to reliably prevent errors and to rapidly detect and repair any errors that do occur. Is processed and reconciled in a timely fashion: O2C is the process of converting a successful sale into a tangible financial gain for the company. The amount of time it takes for that conversion to occur directly The Quest for the Perfect Order 2

impacts the companys cash flow. Any company on the quest for the Perfect Order must use the right metrics to measure the performance and efficiency of its O2C system and look for ways to eliminate unnecessary steps and speed up processing at every point in the pipeline. The above requirements can serve as an effective roadmap to guide organizations in optimizing their O2C processes. Companies that meet these requirements are operating at a high level of efficiency.

Valuing Perfection
The ability to deliver the Perfect Order has tangible, measurable business benefits. While companies dont have the luxury of pursuing perfection at any cost, they should not engage in shortsighted costcutting that impairs their ability to deliver results. O2C is an unusual business process in that it is simultaneously viewed as a cost center and as a critical function. Improving O2C processing with an eye toward increasing efficiency and efficacy can yield positive results on both sides of the ledger. Specifically, improving O2C processing can result in: lower overhead costs improved working capital efficiency higher customer satisfaction Each of these is a desirable outcome, and even more so in the current economic climate, as discussed below. Lower overhead costs: In a 2011 survey, Aberdeen Group found that 67% of respondents cited lowering overall costs as the number one business driver to improve O2C performanceup from 48% in the 2007 survey, the last one prior to the current downturn. Integration and automation of O2C components yields real efficiency benefits that can lower cost per transaction. For example, Aberdeen reported that companies that had invested in baseline integration across order entry, credit, billing, and collections the minimum level necessary to execute a Perfect Orderwere able to process 41% more invoices per FTE than those that had not1. Improved working capital efficiency: With companies facing greater pressure to seek internal sources of financing, better cash flow management may be one of the most lucrative opportunities available to them. Days Sales Outstanding (DSO) is a useful metric for measuring overall O2C efficiency. An analysis by Citibank revealed that its top 3,000 global customers each had an average of $1.3 billion in trapped working capital that could be released if they simply reached their industry-average DSO benchmarks (see Figure 2).2 By defining the DSO benchmark for a Perfect Order and continually working toward it, companies of all sizes can reduce borrowing costs and improve cash flow.

Figure 2: Median DSO by Industry (source: Citibank)

The Quest for the Perfect Order

Higher customer satisfaction: While much of the O2C process is focused on internal systems and financial transactions, the customer-centric component should not be ignored. Reducing order error rates and decreasing order fulfillment times not only saves money, but also makes customers happier. In a competitive environment where price and quality are near parity, this is often the difference between making and losing a sale. A 2007 study by AMR showed that on average only 80% of orders met the customers expectations for accurate, on-time fulfillment and suggested that companies establish 95% as the minimum score to ensure customer satisfaction.3 The quest for the Perfect Order is not just an exercise in optimization for its own sake. It has tangible business benefits that can directly contribute to the organizations bottom line.

Part 2: SAP and the Perfect Order

Pursuing Perfection SAP is an excellent platform for building an integrated O2C system capable of delivering the Perfect Order. The combination of function-specific modules within a unified enterprise architecture maps well to the crossfunctional nature of O2C. Nevertheless, SAP has its limitations, and companies pursuing the Perfect Order must deal with the systems shortcomings that can cause leaks and inefficiencies in the O2C pipeline. A useful way to plan an optimization strategy for SAP Order-to-Cash processing is to look at the three Perfect Order requirements defined in Part 1 and consider how to meet the challenges posed by SAPs limitations. Table 1 identifies key challenges faced by SAP customers and provides recommendations for meeting those challenges. Table 1: Challenges to achieving the Perfect Order with SAP Requirement: Orders move seamlessly through the O2C pipeline Challenge: Integrating external data and processes. Despite SAPs extensive functionality, some aspects of the O2C process happen outside the SAP system in most companies. For example, orders taken over the Web may need to be consolidated and input into the system manually or via a batch update, or analysts may use external software to score accounts receivable. Customer remittance information also generally comes in from outside banking or payment services. All of this information must get into SAP accurately and on time for the O2C pipeline to function properly. Challenge: Capturing ad hoc information. SAP is designed to represent business processes in a structured, formal manner. In the real world, employees often use ad hoc processes to supplement the strict definition of a task imposed by SAP. In O2C, this can manifest as notes or memos attached to a sales order or rule of thumb calculations of a customers credit rating. Recommendation: Ideally, data from outside systems comes into SAP via EDI or some other fully automated, fully electronic system. Companies that have not invested in EDI must find ways to optimize their existing IT infrastructure to standardize and automate external data inputs to SAP and minimize manual data entry and processing.

Recommendation: Organizations face a constant dilemma between eliminating and accommodating ad hoc processes. Complete elimination may not be achievable and risks stifling employees innovation. A better strategy is to look for ways to bring the results of these ad hoc processes into SAP in the same way that other external data is entered into the system.

The Quest for the Perfect Order

Requirement: Orders are error-free. Challenge: Eliminating data entry errors. The mundane task of entering data into SAP is a major source of errors, which is exacerbated by SAPs well-documented usability shortcomings. Even in a highly automated O2C system, humans have to enter data manually at times. Simple dataentry mistakes can result in misquotes, shipping errors, invoice errors, and other blunders that hurt the customer experience and increase processing costs. Challenge: Performing maintenance on open orders. A discovery of an error or changes to sale conditions, such as pricing, inventory availability, etc., may necessitate a change to an open order. SAPs native tools for finding and changing specific fields in open orders are slow and inflexible, which increases the likelihood of persisting errors and inaccuracies. Challenge: Speeding up data operations. SAP usability issues can turn core O2C activities like entering sales orders and processing invoices into bottlenecks. The accumulated time spent on relatively simple, common tasks can have a material impact on an organizations DSO performance. Challenge: Enabling rapid exception handling. SAP workflow tools are optimized for capturing intended processes and actions, not for dealing with the unexpected. Common O2C exceptions, such as credit extension or discounting, need rapid resolution to keep customers happy and the sales pipeline full. Recommendation: Minimizing the need for manual data entry is the surest way to cut down on errors. This means not only automating processes but literally minimizing the number of fields and forms a user must interact with when entering data. Streamlining overloaded SAP data-entry interfaces and enabling record-based, rather than form-based, entry can dramatically reduce errors.

Recommendation: SAP users must have easy, flexible tools for searching through open orders using a variety of available criteria, in order to be able to make changes with the confidence that they are only affecting the intended records. This includes finding and extracting specific records grouped under a single header. Recommendation: Streamlining data entry by eliminating unnecessary fields and enabling batch updates can have a dramatic impact on the time it takes to perform common SAP operations. Empowering business unit developers to create simple automation routines is another strategy for speeding up data-intensive operations. Recommendation: Giving users workflow tools that are easy to use and flexible enough to handle a variety of scenarios can prevent isolated exceptions from slowing down the overall system.

Requirement: Orders are processed and reconciled in a timely manner.

By focusing on the requirements for delivering the Perfect Order, companies will gain a useful structure for evaluating the effectiveness of their O2C process and targeting limitations in their SAP systems.

The Winshuttle Solution

As a leader in SAP usability optimization, Winshuttle provides practical solutions to help companies get the most out of their SAP installation. Winshuttle tools directly address the challenges SAP customers face when pursuing the Perfect Order, as summarized in Table 2.

The Quest for the Perfect Order

Table 2: Winshuttle solutions for achieving the Perfect Order Perfect Order Challenge Integrating external data and processes Winshuttle Solution Winshuttle Transaction allows customers to use familiar tools like Microsoft Excel and Microsoft Access to facilitate data integration and migration from external systems into SAP. Winshuttle Query and Transaction makes round tripping of information from Excel to SAP efficient and secure. Winshuttle Forms helps organizations gather semistructured and unstructured data for input into SAP. Eliminating data entry errors Winshuttle Transaction gives users a simplified interface for entering data. Winshuttle Workflow allows business unit developers to design data entry forms tailored to their groups specific needs. Performing maintenance on open orders Winshuttle Query allows users to quickly find open orders meeting specific criteria. Winshuttle Transaction makes updating open orders fast and secure. Speeding up data operations Winshuttle Server allows batch processing of data operations. Winshuttle Direct supports a full range of BAPI processes without writing code. Enabling rapid exception handling Winshuttle Workflow provides simple tools for creating custom workflows without writing code.

Capturing ad hoc information

Conclusion Having consistent Perfect Order capability allows companies to gain a significant competitive advantage in todays marketplace. SAP provides a solid foundation for developing an integrated Order-to-Cash pipeline capable of delivering the Perfect Order. However, companies on the quest for the Perfect Order must invest in process optimization to overcome the systems limitations. Winshuttles proven solutions can help SAP users realize the ideal potential of their SAP investment, leading to higher customer satisfaction, increased productivity, and improved bottom line.

For more information about how Winshuttle can help your company on its quest for the Perfect Order, go to www.winshuttle.com or email info@winshuttle.com.

Scott Pezza, The Order-to-Cash Cycle: Enhancing Performance with Process Automation, The Aberdeen Group, 2011. Receivables Management: The Untapped Frontier, Treasury Today, April 2010. Jane Barrett & Stephen Hochman, DDSN for Discreet Organizations, AMR Research, March 2007.

The Quest for the Perfect Order

Winshuttle is the ERP Usability Company, providing software products that enable business users to work with SAP directly from Excel, Web forms and other interfaces without any programming. Winshuttle focuses on a simple fact when using SAP applications, time is money. Winshuttles usability solutions radically accelerate SAP user transactions, saving and redirecting millions of dollars for SAPs customers every day. These financial benefits are achieved by significantly reducing employee and contractor costs and increasing resources to address more strategic priorities. Thousands of customers use Winshuttle to make their SAP lives easier. Headquartered in Bothell, Washington, Winshuttle has offices in the United Kingdom, France, Germany, and India. For more information, visit www.winshuttle.com.

Corporate Headquarters
Bothell, WA Tel + 1 (800) 711-9798 Fax + 1 (425) 527-6666 www.winshuttle.com

United Kingdom

London, U.K. Tel +44 (0) 208 704 4170 Fax +44 (0) 208 711 2665 www.winshuttle.co.uk

Germany

Bremerhaven, Germany Tel +49 (0) 471 140840 Fax +49 (0)471 140849 www.winshuttle-software.de

France

Maisons-Alfort, France Tel +33 (0) 148 937 171 Fax +33 (0) 143 683 768 www.winshuttle.fr

India

Research & Development Chandigarh, India Tel +91 (0) 172 663 9800 www.winshuttle.in

The Quest for the Perfect Order