Order-to-Cash Through BPM

In the first two articles in this series, I made the case that a service-oriented architecture (SOA) is part of the arsenal that IT needs to create an Alert Enterprise, and that business process management (BPM) is a key component of SOA that drives continuous improvement. Now I’d like to make this more concrete by describing a scenario of BPM in use, using the order-to-cash process as our example.

Challenges in the Order-to-Cash Process
Why order-to-cash? First of all, it’s the heart of any manufacturer’s supply chain, and how they ultimately make money. Whether the manufacturer makes the end product itself, or outsources all or most of its production in order to focus on design and marketing, the company still has to take orders and ensure that goods get delivered to customers according to their expectations. This means the order must be on time, in full, without error – and, of course, profitable to the company.

Figure 1 highlights a basic order-to-cash flow. This process can easily become extremely complicated with numerous exceptions. For example, consider the case of a global industrial products manufacturer that has an inbound customer order error rate of just under 15 percent, which for them means more than 20,000 errors per month. These exceptions range from orders that are missing information to orders with the wrong information to mispriced orders. These are basic issues that plague many, many manufacturers and chew up a tremendous amount of time and talent to resolve. And this is just the booking process! This doesn’t even touch on the issues associated with manufacturing, sourcing, shipping, international trade and invoicing issues. Suffice it to say, there are a plethora of ways that orders can deviate from the “happy path” of perfection.

Although a supply chain encompasses numerous processes, there are several reasons why the unique order-to-cash process strongly demonstrates the value of SOA and BPM. There is no other process in a manufacturing organization that will span more work groups, departments, business units and even enterprises than this one, especially if the company outsources and if the product has even a modicum of complexity to it. Coordination, collaboration and a shared understanding of expectations become critical components of this process. Second, there is seldom a single, one-size-fits-all order-to-cash process across the entire organization. There are differences by business unit, by geography and even by customer that create additional challenges in managing this process.

A Simple Framework for Supply Chain Process Management
Now that the stage has been set for why the order-to-cash process is an important one to consider, let’s establish a framework for what makes for a best practice in overall supply chain management.

For the supply chain, the following four focal points, as shown in Figure 2,have garnered a significant attention from leading manufacturers. This diagram provides a straightforward way to think about supply chain process improvement.

Increased visibility into supply chain operations is an imperative for manufacturing and logistics companies. Visibility means more than just a static view of things such as inventory balances or order status – any basic ERP system will do that – but a dynamic, real time view of what is occurring at the moment in their supply chains. The problem is compounded by the reality that an order will typically cross multiple organizational and system boundaries on its way from a business’ call center or inbound EDI queue before finally arriving at a customer’s doorstep.

Beyond this simple definition of visibility, the best companies are also able to discern patterns and trends in their order-to-cash process. These may be unusual trends in volume, either in aggregate or for particular customers, products or regions. For example, the ability to quickly sense and respond to demand for new products that are coming in is becoming a necessity for many manufacturers, as well as retailers. These patterns may also represent recurring defects in the process that, if identified early enough, can be resolved without leading to a major disruption in the supply chain. This kind of data is also central to any process improvement effort.

Once a business has achieved visibility into what is happening across its order-to-cash process, the next step for the company is to improve its ability to respond, or in other words, its agility. A common example is deadline management. Customers expect on-time deliveries based on the promise date given to them. However, any number of events can occur that put these expected delivery dates in jeopardy. The key is to monitor progress continuously and alert the appropriate person in supply chain operations when events occur or when the trend is not positive.

Process assurance has three aspects to it: what a company defines as a consistent, high quality process (reliability); what customers expect (service levels); and what external regulatory bodies such as government agencies and trade organizations mandate (compliance). The best performing supply chains have systems and processes that ensure continuous compliance on all three levels. To do this, the company must have a clearly defined process, a clear set of key performance indicators (KPIs) and the ability to monitor these on demand (not necessarily real time, but certainly just in time).

Finally, the best supply chains are highly adaptable. Companies routinely add new customers, suppliers and complementary service providers (contract manufacturing, third party logistics, and so on). In the old days, when all transactions occurred via phone, fax or mail, adding a new trading partner wasn’t much more of a chore than dealing with existing ones – they were all equally inefficient. Today, with automated enterprise application integration (EAI) and B2B solutions, once a trading partner is added, things run relatively smoothly. The trick, however, is to add, remove or change these trading partners expeditiously and cost effectively.

So how do BPM and SOA help? Let me suggest a few ways by specifically zeroing in on the order-to-cash process.

Digitized Order-to-Cash Process Management
At its most basic level, a BPM system provides the capability for a business analyst to define the basic inputs, activities and outputs of a process – the process model – that an IT analyst can use to create an application-specific implementation of that process. But let’s examine this closer. Instead of creating Visio diagrams (or no process diagrams at all) that inevitably lie dormant and quickly become obsolete, organizations that use BPM have a tool to create a process model that is sustainable because the underlying applications or Web services are tied directly to it. This is a great boon for achieving process consistency, for easily adapting processes in different environments, such as customer-specific process requirements, country-specific needs and differences across business units. More than that, BPM should be thought of as a hub of assets, both tangible and intangible, that comprise the process: IT assets, business rules, roles and interactions of roles, shared knowledge about lessons learned and key challenges.

To support the notion of the Alert Enterprise – an organization with a well-developed capacity to respond to change, react to opportunity and pre-empt risks – BPM must also include business activity monitoring (BAM). The value of BPM is not as a static tool for process description, but as a conductor and manager of the process as it is being executed.

Let’s apply the framework to the order-to-cash process, and identify a few of the ways in which BPM can play a crucial role.

First, let’s examine visibility and agility together:
- Define the human and automated workflows beginning with the various customer channels through which orders arrive and ending with ultimate receipt of payment from customers
- Define the metrics that will be used to measure performance of the process, and the business rules that identify exceptions and unusual patterns of behavior that may affect performance
- Monitor the process in real time to ensure the ability to quickly respond to events in the order-to-cash process before they become disruptive, and keep orders moving according to schedule
- Use BAM to discover recurring patterns and automatically “learn” key system behaviors
- Provide incentives for users and trading partners to provide feedback on what is and is not working about the process and document this along with the “hard” data collected by BPM and BAM.

BPM thought of and deployed in this way provides a company with a comprehensive vehicle for successfully executing the “perfect order.”

Now, let’s consider process assurance and adaptability:
- Use the data collected by BPM – both automated and human – as the baseline for defining process improvement. Rather than spending weeks or months trying to gather data about what is normal about the process, how much variance there is in the process and where the defects are, BPM provides users with this information at their fingertips, allowing them to get down to the value-added task of analysis and problem solving
- Once the user is comfortable about his/her ability to control the company’s own internal processes, reach out to trading partners and establish a more formal, collaborative way of sharing process data and monitoring service level agreements
- Through BPM and SOA, tailor business processes to specific customers or regions by adapting the standard process model for order to cash, and reusing underlying system components to maximize productivity and out-of-thee-gate quality of applications delivered

Businesses have just scratched the surface of what is possible with BPM to effectively manage this one process. In the final article in this series, I will look at some of the practical aspects of using BPM for this and other processes.

 

 
About The Author: Richard Douglass

Richard Douglass
With twenty years of experience in supply chain management and operations, Richard Douglass joined webMethods as director overseeing the high-tech and discrete manufacturing sectors for the company’s Global Strategic Business Solutions group.  Previously, he was a principal consultant for Manufacturing Associates, and an associate partner at Accenture, a global consulting firm.