The Great Utility of Order-To-Cash Cycle Strategy

In my more that five (5) years as an independent consultant in the field of #ISO #management systems certification I met and talked to a handful of corporate presidents and leaders about their continual improvement strategy. Invariably, those who are already familiar with ISO management systems standards would suggest that they are following #PDCA or #Process Approach. Those who are not yet familiar with ISO would answer that their strategy is simply to focus on what works best.

However, it is a common mistake for business leaders to identify Plan Do Check Act (PDCA) Cycle as a strategy. Within the context of ISO management systems standard, PDCA is just one of the approaches being used to build a management system to effectively help the organization achieve its strategic objectives. Hence, strategy is something many business leaders confuse with approaches or even what can be described as merely tactical side to doing business.

Order to Cash Cycle

The Order to Cash Cycle (O2C) like PDCA, is a tool for business leaders to monitor how effective his strategies are in delivering clearly defined results. It is a way by which leaders could clearly see how their business is doing. The utility of tools such as PDCA and #O2C lie in their ability to simplify an otherwise bewildering sets of operations, organizational set up, movements of personnel, and the sheer frenzy of having employees doing their tasks and jobs to beat their goals, whatever they may be. The O2C Cycle, unlike the PDCA Cycle, is not suitable for all organizations. There are organizations for which O2C Cycle is very much applicable. One such industry is the transportation or logistics industry. The Process Approach is the basic tool for organizations to use to analyze how their entire system works or should work. Its usefulness lies in the ability to simplify complexities by insisting that procedures and work instructions should create or provide value to the overall mix of interrelated activities. Hence, process is defined as a series of interrelated activities whose end result is the production of goods or services. It is clear that process sets the unit of measure whereby a business could intelligently measure its productivity or value creation. The process approach allows organizations to see how they could reduce the number of procedures and instructions to produce a good or service, which is how the company makes money.

In the transportation industry, the O2C Cycle can helps create a wonderfully simplified way to manage the business. As shown in the picture above, O2C Cycle is composed of merely five (5) processes. There are:

1. Order

2. Delivery

3. Fulfillment

4. Billing

5. Collection

In a typical transport company, an order is received from a client. The transport company then proceed to deliver the goods to the customer. It then ensures fulfillment of the transactions by producing the necessary evidence of delivery and the return of the container, if any, to the client to avoid detention charges of demurrage. Then it proceeds to send the bill to the client. Depending on their service level agreement (SLA) the transport company shall collect the payments for the service rendered at a specified time after the fulfilment has been done. How complex, meaning how many number of people and procedures would involve for each process would depend on the transport company. Ideally, the company should be able to limit the number of people to control cost and make profit maximally. As a management consultant, I would design each process to be composed of the following:

Departments/Team

The departments involved in the execution of the activities involved in each process should be identified. This will help managers understand their role and responsibilities to properly achieve the goals and objectives of each process.

Personnel

Employees should perform the defined activities to achieve intended results.

Materials

These are the things people and machine need to get things done.

Machines

Are tools used to get the task or job done correctly, easily, or efficiently.

Cost

This refers to the cost of performing all the activities of each process and should be monitored to ensure profitability of the business.

Methods

Processes are drilled down to procedures, instructions, ways of work, etc. This must be properly documented and defined so that employees are producing expected results from them.

Goal(s)

Are defined outputs that serve as a measure of the effectiveness of methods being used to accomplish the tasks or jobs.

Objective(s)

These are targets for the group and usually defined or set by the top management.

Monitoring and Reportorial Requirements

The series of interrelated activities whose end results is the production of good or service means that the management must know how the organization is performing and whether the system is effective. This can be done through proper monitoring and reportorial requirements which is subject to audit to ensure that problems are addressed right away and for continual improvement to be built into the system.

In the Order segment, the Operations Department should be the one doing the job. Transport coordinators or supervisors shall be the one in contact with clients on processing of orders and/or sales to ensure that the company is able to meet its revenue targets. Then in the Delivery segment, several departments must come into play. It involves the Operations, Repairs and Maintenance, Safety and Human Resource Departments. In the Fulfillment segment, the same departments as the Delivery Segment must do this process.

For the Billing segment, the Operations and the Accounting Departments must come into play.

And lastly, for the Collection segment, the Accounting Department may have the exclusive domain helped from time to time by the Operations Department. Understanding the components of the processes allows the transport company to see the cost of doing its business at any given time. So that if the Operations Department has only processed half of its monthly target three weeks into the month, the top management could be alerted and corrective actions can be made. This is the great utility of O2C as a strategic tool to managing a transport business. #OrderToCashCycle #StrategicManagement #ManagementSystems