Technology offers numerous opportunities to improve workflow efficiency in the order-to-cash (O2C) cycle. As we complete workflow assessments and help implement enterprise resource planning (ERP) systems, we’ve noticed a significant amount of manual, duplicate effort outside the core business system.
It’s important to note that Excel is not a core business system for initiating, authorizing, processing or reporting business transactions, as it has no internal controls and lacks enterprise data integrity.
The O2C cycle begins with estimates and quotes. The company receives purchase orders from prospective customers. We often see prospects captured in an Excel file or Access database; we recommend managing prospects in an ERP or customer relationship management system. We also see several other issues, including:
We recommend preparing estimates and quotes in the ERP system and leveraging cost data from inventory, BOM and production routing and current selling prices. If the estimate or quote is revised, it’s difficult to determine who has the current set of numbers, putting target profit margin at risk. Many ERP systems include a rule-based configurator for preparing estimates or quotes.
If the estimate or quote is accepted by the customer, the duplicative activities begin. The customer is transferred from Excel or Access to the ERP system and the BOM, and routing is transferred from Excel to the ERP system and the Excel estimate or quote is entered into ERP as an order. All this transferring and data entry must agree with the Excel source data, which is highly dependent on quality data entry and the ERP system configuration. If the estimate or quote is originated in the ERP system, it can become the sales order—and eventually the production work order—with no duplicate data entry.
Once the order process is completed, it’s time to manufacture and ship the order. Too often, production and delivery schedules are maintained outside the ERP system, typically in Excel. This requires an individual to take the sales order from the ERP system and enter it into the Excel production schedule. We often notice these Excel-based production schedules are nothing more than a listing of customer orders by requested delivery date; they rarely include consideration for capacity planning, work-center throughput or production routing elapse time. As new sales orders are obtained and production work orders are completed, employees involved in the processes manipulate the Excel schedule. This process is further complicated by emergency orders and back orders. Typically, these processes create multiple sources to observe; imagine what happens with the customer calls for an order status. We recommend leveraging the ERP system’s production scheduling utilities, which take into consideration estimated time to complete the steps in the routing, tooling and work-center configuration and set up time and quality control inspections as well as work-in-process on the floor and open work orders.
Once the company has manufactured the product, it’s ready for shipping. If the company uses the ERP system, the production work order is closed, manufacturing costs are captured, inventories are updated and the system generates shipping requisitions and invoice documents. Consider the effort required to manually update all the data silos in the Excel manufacturing environment. Notice we didn’t say “information.” We see bills of lading (BOL), picking sheets and packing lists prepared in Excel from the Excel production schedule and ERP sales order list. The ERP system shipment includes the pick/pack materials, BOL and other shipping documentation based on the completed production work order. We don’t have time here to cover all the manual effort required to manage freight.
At the end of the day, someone in the back office is entering all the Excel production and shipping data into the AR system so the company can bill the customer. If the company is using the ERP system, the shipment is “shipped” and the system generates a billing invoice. If the ERP system is configured correctly, sales tax and freight (and sales commissions) are automatically included and the invoice is electronically delivered to the customer via email.
Other related areas of consideration include inventory, purchasing and general ledger updates. In the Excel environment, at the end of the week or month, someone in the back office must update the ERP system subledgers and the general ledger. This creates massive duplicate data entry and opportunities for manual errors.
Why does this environment exist? In general, it’s due to a lack of technical knowledge about the system. Those who implemented the system are long gone, and no one has kept the ERP system current or maintained the knowledge base. In certain situations, the ERP system lacks complete end-to-end functionality. We recommend staying current with annual maintenance and engaging a knowledgeable system implementer.
Extend this approach to financial statements. At the core of a company’s financial statement audits are controls over data and the integrity of such data. As part of an audit, we test systems and controls and consider whether processes work effectively. This allows us to truly audit the data we obtain from our clients. The more manual a process becomes, the more opportunity exists for errors related to human interaction with the underlying data. A client’s manually prepared schedules, such as those created and maintained in Excel separate from the company’s information technology systems, add time and effort in completing an audit analysis. A well-designed technology environment with the appropriate processes and controls can be essential to the foundation for an effective audit.
Experience indicates there’s value to be gained in the above situations from a workflow and system utilization assessment. Assessment deliverables include annotated workflow, a list of opportunities for improvement and system functional gaps and a work plan addressing these findings. This project can be organized into phases with focus on O2C, procure to pay, customer service and back office.
This article is for general information purposes only and is not to be considered as legal advice. Applying this information to your particular situation requires careful consideration of your specific facts and circumstances. Consult your financial advisor or legal counsel before acting on any matter covered in this update.
Article reprinted with permission from BKD, LLP, bkd.com. All rights reserved.