Reduce the Cost to Serve while

Improving Service.

A Financial Analysis of the

Order-to-Cash Cycle

Thomas Bartsch

Value Chain Consultant

#strategicadvantage

@OmPrompt

Agenda

• The financial opportunity

• An extended perspective of O2C

• Technology enables strategic advantage

• Conclusion

Poor customer experience costs

companies annually

~$350bn across the globe

Source: Genesys with Greenfield Online, Datamonitor (now Informa) and Ovum, The cost of poor customer service, November 2009

25.2%

14.4%

36.2%

24.2%

Pressures on FMCG companies

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

-30% -20% -10% 0% 10% 20% 30%

Operating margin 2014

Absolute operating margin increase from 2004 – 2014 (growth)

Weighted average

operating margin 2014

Data from Morningstar: 300 largest global, publicly-traded firms across FMCG sectors (beverages, confectioners, farm products, household & personal

products, packaged foods); weighted average operating margin based on reported and normalized USD revenue

30.6%

23.3%

22.8%

23.3%

Less pressures in healthcare?

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

-30% -20% -10% 0% 10% 20% 30%

Operating margin 2014

Absolute operating margin increase from 2004 – 2014 (growth)

Data from Morningstar: 200 largest firms across healthcare sectors (medical devices, medical distribution, medical instruments & supplies, drug manufacturers –

major, drug manufacturers – specialty & generic); weighted average operating margin based on reported and normalized USD revenue

FMCG weighted average

operating margin 2014

Healthcare weighted average

operating margin 2014

FMCG

Healthcare

Leaking value through sales & service

Cost-to-serve

Other SG&A1 costs

Cost of goods

REALISED OPERATING

MARGIN

TARGET MARKET VALUE

Revenue leakage

Standard terms

RISK: Too much time spent too late on non-value-added tasks Neglecting defined, profit-focused business rules

1 SG&A = Selling, General, and Administrative

What’s stopping us?

MINDSET AND BEHAVIOUR

UNSATISFIED EMPLOYEES

SHORT-TERM FINANCIAL GOALS

POOR SUPPLY CHAIN PERFORMANCE

From REACTIVE sales & service…

MANUAL ORDERS, GRN’S/POD’S, INVOICES, CLAIMS

PROCESSING LEADS TO REACTIVE BEHAVIOUR

• Data delays and inaccuracies

• Expedited shipments

• Under-shipments

• Over-shipments

• Unconfirmed deliveries

• Claims handling

• Collection delays

• Voluntary turnover

FROM LOSING MARKET SHARE, PRIMARY

COST FOCUS, AND FIRE-FIGHTING…

Losing

$ 60 – 100 per order - or wasting -

5% – 8% of cost-to-serve

…to PROACTIVE sales & service…

CUSTOMER SERVICE SHOULD WORK ON VALUE

CREATING, PROACTIVE TASKS

• Collaboratively analyse/plan with customers

• Drive promotions/cross-sell/up-sell

• Proactively communicate in case of delivery problems,

quality issues

• Improve accuracy/service delivery

• Reduce number/impact of claims

• Improve cash conversion cycle

…THIS LEADS TO SATISFIED CUSTOMERS,

MORE SALES AND HAPPY STAFF

Gaining

1% – 2% value per order - which directly drives -

profit

How can we do it?

RE-ARTICULATE THE BUSINESS VALUE

to achieve better customer experience, sustained revenue growth at a lower cost-to-serve

Three areas for differentiation

PROCESS: Extended O2C

Ord

er

en

try

Ware

ho

usin

g, in

ven

tory

man

ag

em

en

t &

fu

lfillm

en

t

Tra

nsp

ort

ati

on

Cu

sto

mer

an

d c

on

su

mer

inq

uir

ies

Co

nsu

mer

co

mp

lain

ts

Inv

oic

ing

/ b

illin

g

Cu

sto

mer

cla

ims

Rev

ers

e lo

gis

tics

Receiv

ab

les,

co

llecti

on

& c

ash

Ded

ucti

on

s

S1 L1 L2 S2 S3 F1 S4 L3 F2 F3

Customer

service LEGEND: Finance

Supply

chain/logistics

Retu

rns

S5

Revenue

Pro

fit

Leakage, labour, process and product costs

Revenue leakage and cost to serve

pushes down operating margins

PROCESS: Extended value-add O2C

Ord

er

en

try

Ware

ho

usin

g, in

ven

tory

man

ag

em

en

t &

fu

lfillm

en

t

Tra

nsp

ort

ati

on

Cu

sto

mer

an

d c

on

su

mer

inq

uir

ies

Co

nsu

mer

co

mp

lain

ts

Inv

oic

ing

/ b

illin

g

Cu

sto

mer

cla

ims

Rev

ers

e lo

gis

tics

Receiv

ab

les,

co

llecti

on

& c

ash

Ded

ucti

on

s

S1 L1 L2 S2 S3 F1 S4 L3 F2 F3

Customer

service LEGEND: Finance

Supply

chain/logistics

Retu

rns

S5

Pro

fit

Leakage, labour, process and product costs

Jo

int

an

aly

sis

an

d p

lan

nin

g

V1

Pro

acti

ve c

om

mu

nic

ati

on

V4

Pro

mo

tio

ns a

nd

cro

ss-s

ell/u

p-s

ell

V2

Imp

rov

e a

ccu

racy &

serv

ice

deliv

ery

V3

Red

uce n

um

ber

an

d im

pact

of

cla

ims

V5

Sales & service

value add

Value-added activities offset revenue

leakage, cost to serve and COGS Revenue

PEOPLE: The service-profit chain

Sources: 1. Heskett, James L., Jones, Thomas O., Loveman, Gary W., Sasser, W. Earl, and Schelsinger, Leonard A., "Putting the Service Profit Chain to Work", Harvard

Business Review, (March–April 1994) 164-174

2. Anthony J. Rucci, Steven P. Kirn, and Richard T. Quinn, “The Employee-Customer-Profit Chain at Sears”, Harvard Business Review, Vol. 76, No. 1, January 1998

0.5% increase in

revenue growth

1.3% increase in customer

satisfaction

5% increase in employee

satisfaction

DRIVES DRIVES

Revenue growth

Profit

External service value

Customer satisfaction

Customer loyalty

Internal service quality

Employee satisfaction

Employee retention

Employee productivity

CHANGE: A financial operating model for O2C

Under-

shipment

Over-

shipment

Unconfirmed

deliveries

Revenue at risk

Cust. service FTE

Finance FTE

Supply chain FTE

Logistics spend

Inventory

E&O / Write-off

Voluntary

turnover

Collection

delay

Total receivables

Maximise

SALES

Reduce

COGS

Reduce

SG&A

Optimise

working

capital

Paper

orders

EDI

orders

Fail: 4%

Manual order

entry

Re-key fail: 2%

Time: 0.25 hours

Exceptions

Time: 1 hour

Manual

GR

Manual

GR/POD

entry

Claims &

complaints

Mismatch: 10%

Time: 0.1 hours

Time: 1 -2 hours

Expedited handling

Lost loyalty 45%

Re-gain shelf space

Unsold inventory

Returns processing

Deductions 55%

Invoice for overages

Scrap and re-sale

Delayed processing

Deductions 20%

Logistics control

Lack of POD/GR

Delayed processing

Past due payments 10-20%

Working capital

Receivables

Activity distribution

Search cost 70%+

More pro-active tasks

Finance FTE

Service level up

Penalties

Refund/credit/fines

Past due AR

Volume increase

Re-stocked inventory

Deductions

Claims

handling

Delayed processing

Escalated complaints 10-20%

Improve accuracy

Receivables

Reconciliation

Customer service FTE

Deductions

Competitive advantage Expedited

shipments

Delayed processing

Day 1 commit 20-50%

Lost sales

Sales/logistics sync

More time spent on non value added activity by

CS & FI staff

LEGEND: Costs/risks Opportunities

Im

pro

ve

CU

ST

OM

ER

EX

PE

RIE

NC

E

Data fail: 8%

Remitta

nce

Defend: 33%

Manual

claims

Conclusion

Technology can

drive change:

1. Get customer transactions

on one technology platform

2. Enforce profit-oriented rules

3. Integrate operating model

across CFO, CMO, & COO

4. Focus on aligned financial

metrics, NPS & incentives

5. Free up resources and re-

allocate to more value-

added activities

6. Integrate O2C with related

functions/activities

“Companies that excel at

the customer experience

grow revenues 4-8% above

their market.” Bain & Company, April 2015

“Delivering great journeys

can boost revenues 10-

15%, lower costs to serve

10-20%, and increase

employee engagement 20-

30%.” McKinsey & Company, February 2015

Thank you!

You can contact me at:

EMAIL: tom@tbartsch.com

MOBILE: 0049 151 2400 2234

SKYPE: 001 415 992 7512

Contact OmPrompt

+44 (0)1235 436000

info@omprompt.com

www.omprompt.com

TWITTER: @OmPrompt

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