Shorter Order-To-Cash Time Is Key To Success
Framingham, MA, May 24, 2005 - Nothing is more important than short order-to-cash cycle times. Customers expect – and demand – that their suppliers quickly respond to their wants and needs, delivering perfect quality products in less time than ever before. Reducing cycle times is often a good place to start since it does not require acquiring and implementing entirely new business systems. Consequently, many manufacturers are streamlining internal and external supply operations in order to reduce overall order-to-cash cycle time.
Until the nineties, customers generally evaluated a supplier’s performance on four factors: product performance (features), price, quality, and delivery within a reasonable timeframe. Now customers are emphasizing two performance criteria: flawless delivery, i.e., very short-cycle on-time delivery, and responsiveness to the customers’ changing needs. Very often this drives getting new customers and keeping old ones.
Executives are revisiting existing strategies and operational tactics. This has led to the pursuit of new initiatives and directions, including:
-- Demand Management— Using improved sales forecasting and sales and operations planning to provide a real handle on demand and supply.
-- Cross-functional integration—Redesigning order-to-cash and other key processes to connect processes across the enterprise.
-- Lean Manufacturing—Radically redesigning information flow and material flow processes for dramatically shorter cycle times, lower costs, minimum inventory and near perfect delivery performance.
-- Supply Chain Management—Implementing supply chain planning, execution, and event-level alert systems, sometimes in conjunction with other modern information technology.
As more customers insist on prompt delivery time, reducing cycle time becomes the pivotal point in a supplier order-to-cash performance rating. A shorter order-to-cash cycle time also has other implications, including reduced inventories, lower costs, and more effective use of resources. In addition, experience shows that production throughput can improve dramatically once the order-to-cash cycle time is reduced. Added benefits that affect the bottom line are lower operating expenses, dramatically decreased requirements for working capital, and increased profit margins.
Cycle times can be reduced without investing in expensive software applications or new technology. Analyze each of the sub-processes. Determine how much of the cycle time involves tasks that add real value. Dividing the value-added time by the total cycle time used (including queue time) generates an efficiency measure. Typically, value-added time is less than 10% of the total process cycle time.
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- Mike Donovan
- Managing Partner
- R. Michael Donovan & Co.
- Contact via E-mail
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