Introduction
Establishing an environment of continuous improvement will go a long way to improve productivity and reduce costs. When a company makes continuous improvement a strategic priority and it is supported by all levels within the organization it becomes part of their culture and helps facilitate initiatives to streamline, simplify and automate workflows. When done right, one of the really great side benefits is improved morale which results from employees being empowered to make a change and do the right things because they make sense! Best of all…it doesn’t have to be too complicated or expensive.
Six Sigma, Lean Six Sigma, Total Quality, are terms we hear that describe the formalized approach or techniques used to get at the breakdowns occurring in a process that cause inefficiencies and poor quality. These management strategies originated in the manufacturing environment and took a statistical approach to focus on improving the productivity and/or quality of products by identifying the root cause of the issues driving the inefficiencies or product quality issues. Over time these strategies and the techniques used made their way into other parts of an organization beyond manufacturing as more and more companies began to recognize “losses” associated with the rest of their processes. The “Order to Cash” process and all of the activities represented in the process continue to represent lots of opportunities to reap the benefits of establishing a continuous improvement mindset. Here is a very high-level view of the activities typically associated with the OTC process along with common inefficiencies that drive cost and impact customer service.
- Order Management
- Customer Shipment
- Customer Invoice
- Receivables Management
- Invoice Collections
- Enforcement of Cash Discount Terms
- Cash Forecasting
- Payment Processing (Cash Application)
- Clear Invoices
- Create/Code deductions
- Deduction/Dispute Management
The challenges associated with these inefficiencies are further complicated by the number of peripheral parts of an organization that has fed into the basic OTC process which include areas like:
- Pricing Strategy & Administration
- Trade Promotion Strategy & Administration
- Treasury
- Supply Chain / Logistics / Transportation
- Master Data
- Sales Strategy / Policy
- EDI Management / Development
- Policy Compliance
Organizationally, these areas can be part of other functional groups and cause functional “silos” making change more difficult. When a company has truly embraced the concept of continuous improvement and it is part of their culture, the functional silo issue should be less prevalent.
The strategies discussed earlier like Lean Six Sigma have quite an arsenal of tools and techniques available to help identify issues and opportunities in the world of continuous improvement. Experts in these methodologies are given different designations or certifications such as Green or Black Belt. The certification process is formal and these people can then come into an organization and facilitate discussions using these tools as well as train others.
Although these different strategies and approaches are useful and can provide value, I would argue that they are not the end-all. Too much emphasis on the “how” can create an environment where the focus is on the use of the tool rather than process improvement. I think sometimes we overlook a very basic technique that can deliver some impressive results. The technique I am referring to here is “common sense”! There is a lot of “low hanging fruit” when it comes to processing improvement opportunities that don’t require any special tools to identify. For example, sometimes just a simple process map (flow chart) of an existing process can show obvious areas of opportunities such as redundancy or an inordinate number of “handoffs”. Another example is simply asking the question of why something is done a certain way can lead to the elimination of non-value added work. If the answer is “because that’s the way it’s always been done”, there is a good chance that represents an area of opportunity for some kind of change. If a process is continually breaking down and resulting in errors or re-work, some very basic root cause analysis can be performed to find out why. The more formalized and sophisticated approaches can be used for the more complex, larger scope opportunities and could benefit from the help of a certified expert.
Technology is something that needs to be continually looked at when pursuing “continuous” improvement because it is always changing and new developments are always occurring. For example, consider the following inefficiencies from the chart above:
- Follow-up with customers on missing documentation
- Remittance Detail
- Deduction Support
- Proof of Delivery
- Re-work associated with automatic cash application
The two main bullets above represent a significant impact on a company’s resources. An inordinate amount of time is spent tracking down backup documentation and even with auto cash application, there is a lot of re-work required to deal with exceptions and customer nuances. Until recently, process improvement in these areas was limited to improving the manual effort required to secure and organize backup and then match to the corresponding transaction. Improvement of the auto cash application process was often considered to be cost-prohibitive because of the number of programming changes required. Today, however, the technology is available through HighRadius’ cloud technology. This relatively new technology is available, cost-effective, and relatively easy to implement. It can also serve as an enabler to overall workflow automation. The 3 specific modules referred to here are:
In summary, making “Continuous Improvement” part of your culture and empowering ALL employees to challenge the status quo will pay big dividends in the form of eliminating waste and reducing costs.
Have you considered implementing cloud technology to improve your cash application operations?
