The Order-to-Cash process, also known as O2C or OTC process, refers to a company's entire order processing system. It involves a series of business processes that need to be managed from customer order to customer payments. It is significantly important for business success and critical to a company's relationship with its customers.
O2C processes are often very complex (cross-functional, with many different approvals, process requirements, and suppliers), so each step within the process represents a potential source of errors.
This makes O2C processes an ideal target for Process Mining, which brings transparency to the entire end-to-end process, identifies the causes of issues, enables improvement measures, and opens up automation possibilities. Whether the goal is to serve customers more efficiently or minimize errors and delays, Process Mining will deliver excellent results.
What is Order-to-Cash?
The O2C process encompasses the entire process cycle of processing customer orders and involves various business areas such as inventory, delivery, invoicing, and customer care.
Therefore, the O2C process is an important business process in many enterprise information systems. A typical O2C process starts with creating the customer order, goes through credit management, order processing, shipping, invoicing, accounting, collection, reporting, and more, and ends with receiving payment.
The efficiency of the O2C process directly affects customer satisfaction, cash flow management, and employee satisfaction. A slow or complicated O2C process can lead to revenue loss, customer attrition, reputation damage, and compliance issues.
O2C activities impact operations across the entire organization, including supply chain management, inventory management, and human resources. Bottlenecks in one area can cause headaches for entirely unrelated departments.
Furthermore, the billing and accounts receivable functions carried out as part of O2C determine the company's cash inflows. Delays in collection can complicate accounts payable, payroll, potential acquisitions, and other liquidity-related matters. Therefore, companies should always strive to optimize the Order-to-Cash cycle.
Typical areas where the O2C process can be improved and their problems include:
- High error rates due to manual order entry, leading to costly and time-consuming rework.
- Poorly maintained customer master data leading to delays and revenue loss.
- Issues with order fulfillment.
- High Days Sales Outstanding (DSO) rate affecting cash flow and missed opportunities for investments in other business areas.
- Low ability to perform credit and risk assessments upfront, including credit limit checks.
- Different payment methods and terms.
- Low compliance with agreed-upon delivery dates affecting customer retention rates.
- Time-consuming creation of shipping documents.
- Untimely invoicing.
- Collection process.
- Low standardization of payment terms.
Ultimately, the complexity of the O2C process makes it highly susceptible to issues and inefficiencies, making it one of the most challenging processes to track and optimize.
Being a process with many interfaces, it is highly likely that there are multiple variants of the process. Variants may include unwanted changes to the process that extend lead times and impact both internal efficiency and customer satisfaction.
Furthermore, in the O2C process, no single individual is responsible for the entire process from start to finish. Instead, multiple individuals typically handle different parts of the process. In particular, order management and accounts receivable are highly interdependent and cannot achieve true efficiency without mutual support.
These characteristics make the O2C process a perfect topic for Process Mining, which can bridge cross-functional knowledge gaps and provide insights into individual process variants.
In the O2C process, Process Mining can quantify the exact impact of the most common delay-causing activities and reduce the On-Time Delivery (OTD) rate.
Generally, changes to orders related to quantity, product type, etc., delay order processing approval.
Delays in order processing result from procurement gaps, capacity availability forecasting errors, or rework in production. To measure the First-Time Right (FTR) rate, precise activities representing rework in the respective unit can be identified.
The ValueData Miner
Companies dealing with Process Mining typically face the challenge of integrating it into their systems and the time it takes to transfer data into the Process Mining tool and then visualize it in an engaging manner.
For companies looking for an easy entry and quick results, our Process Mining Sprint is the best starting point for their O2C processes.
We'll show you how quickly the optimization potential in your O2C business processes becomes visible within just 10 days. Within 10 days, we analyze the "digital footprints" of your processes within your IT system landscape and reconstruct your complete process flow. We visualize all variants of the respective processes as they actually occurred in your system. This enables you to quickly identify deviations from the desired process and initiate any necessary countermeasures. With our Process Mining solution, we can integrate all IT systems in your company, completely independent of the technology used.
ValueData Miner is an initiative of PMC Services GmbH