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: [email protected]
MOBILE: 0049 151 2400 2234
SKYPE: 001 415 992 7512
Contact OmPrompt
+44 (0)1235 436000
www.omprompt.com
TWITTER: @OmPrompt
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