Why things that aren’t broken still sometimes need fixing
Homespun wisdom isn’t always that wise. For instance, take the expression: “If it ain’t broke, don’t fix it.” If we lived by that maxim, I would at this moment be writing this article on a manual typewriter. There was nothing wrong with typewriters – they worked perfectly well. But that didn’t mean there was no room for improvement.
Clearly, there was. There almost always is.
Understanding the issue
That’s why last year, one of our clients decided to take a fresh look at its order-to-cash (O2C) processes across its operations in South-East Asia, with a view to enhancing their effectiveness and efficiency. As one of the world’s oldest multinational businesses, this global company owns and operates a large number of consumer brands, most of them household names, and it sells products in around 190 countries.
Over a period of two weeks – and with the active engagement of our client’s senior executives – we led a “deep dive” into current practices, working closely with internal teams to:
- Understand the current set-up of the O2C process
- Study the process design and assess its maturity
- Identify pain points for both process owners and customers
- Determine opportunities for improvement
- Document process flows, both before and after changes were implemented.
ESOAR in action
The opportunities for change were identified in the context of our ESOAR methodology, and what emerged was a plan to eliminate some processes, and standardize and automate others.
By re-engineering the master data management processes related to new launches, we were able to able to generate perfect orders, which in turn minimized the deductions arising out of price differences. We were able to digitize more than 80% of the physical documents received as part of the deduction management process. This helped to extract data and eliminate manual data entry, bringing in more efficiency and effectiveness.
Requests for credit notes were created manually and then carried around physically to obtain approvals. We standardized the process using digitized templates and used automated workflows to eliminate physical handling.
We also introduced robotics to validate claims based on the rule sets provided and to post the credit notes into customer accounts in ERP. This increased the visibility of the claims process and reduced its cycle time. To summarize on automation, we:
- Resolved issues in SAP Supplier Network Collaboration (SAP SNC) and deployed the SNC Portal to give distributors visibility into their order and to enable distributors to modify and approve their orders online. This eliminated effort spent on manual order entry and modifications, as well as to and fro communications on order confirmation
- Deployed robots to automate the end-to-end cash application process (matching of receipts with invoices and other open line items), from downloading bank statements to posting in the ERP. Other activities robotized included creating official receipts for customers, extracting data from remittance advices, and matching open line items based on pre-agreed rule sets
- Reviewed the end-to-end reporting process to eliminate duplicate and ad hoc reports. All report preparation and delivery was automated to ensure the minimum manual effort in reporting.
In short, we used every part of the ESOAR methodology to achieve significant and lasting improvements. Like the manual typewriter, it wasn’t exactly broken – but, we fixed it anyway, and the difference has been substantial.
Evolution – a new approach
Implementing our ESOAR methodology led to the development of an enhanced order management function that ensured the full capability of applications and processes was achieved, while reducing the need for human intervention and increasing overall efficiency.
We enhanced usage of the SAP SNC platform to generate “no-touch, perfect orders.” We also defined stock norms based on demand forecast to create predefined dispatch plans and to improve efficiency in order processing by aligning product linkages, prices, and discounts.
We implemented our Webcollect tool to improve efficiencies in collection and claims processing, eliminating deductions and claims by better integrating O2C master data for prices and promotions. By standardizing processes, we ensured that prices could be updated automatically, reducing customer issues on price mismatches.
Finally, we leveraged analytics to improve credit control, reduce business waste, and optimize stock return levels – for example, by increasing the accuracy of warehouse dispatches and resolving customer ordering issues.
The digitization of claims documents and standardization of request for credit notes, along with deployment of robots for claims validation and posting into SAP, has delivered a range of tangible outcomes, including:
- Increase in zero touch orders
- Elimination of pricing related deductions and disputes
- Creation of a new target operating model that can be replicated across the entire client engagement
- Enhanced efficiency including 30% reduction in claims turnaround and 20% reduction in effort
- Increased effectiveness through better controls coming from no manual interventions.
Suresh Krishnamurthy partners with our clients to transform their order-to-cash processes. He is a thought leader in finance and accounting, order management, and master data management with over 25 years of experience in transformation and value stream mapping for global clients.
How to be resourceful with your material requirement planning
It’s widely accepted nowadays that organizations of all sizes need to be more customer focused than ever before. It’s also acknowledged that digital transformation is fundamentally reshaping business to help this intense new focus pay dividends.
So it will perhaps come as no surprise that this customer-oriented impetus is being felt, not just at the front line, but all the way back through the business. Digitally efficient material requirement planning (MRP) is not just a back-office imperative – it’s an essential part of meeting customer expectations.
Identifying the overlaps
A global manufacturing client of ours recently asked us to address its material requirement planning issues. The biggest need for transformation was in the company’s European operations, where efficiency issues included significant process overlaps in MRP between individual factories and the region’s operations center. For example, once a purchase order was released to the vendor, it wasn’t clear who should follow up with that vendor for the materials to be supplied, the central hub that raised the PO, or the factory that consumes the material. The result was that both the center and the individual factory were following up, duplicating effort, and muddying the waters.
Our initial and comprehensive study examined and classified the activities of the factories and the central hub. The result was a move from a two-tier structure to a three-tier model, with the client center maintaining process governance, factories maintaining responsibilities for material call off, and many MRP transaction functions being executed offshore by Capgemini. This overall transition to the new model took place over a six-month period.
ESOAR in action
Before this stage could be reached, however, we had to map all the MRP activities – first, to be sure we understood the current model, and second, so we could remap it. This process map enabled us to clarify areas of possible demarcation between the offshore function, the central hub, and the client’s factories, and to eliminate any duplications of effort.
The result of our process map was the identification of two distinct processes. The first of these was Plan to Order, which tracked through the steps from planning to the creation of a purchase order; and the second was Order to Deliver, which covered the stages between the purchase order and delivery to the client’s factories. Plan to Order became the responsibility of Capgemini, while the factories took ownership of Order to Deliver.
Processes were identified for elimination and the rest were optimized and consolidated. Several process elements were identified for possible automation. Hitherto, for instance, when a purchase order was raised, a confirmation was received from the vendor, and fed into the system. This entire routine was automated, and parts of it and of other sub-routines were also robotized.
Elimination of process overlaps between the client’s European central hub and its individual factories
Creation of a process map from which opportunities to standardize processes could be gauged. Subsequent standardization included that of Order to Deliver processes across factories
Optimization and consolidation of factory level process outputs
Automation of sub-processes relating to PO generation, reporting, and vendor feedback
Robotization of a number of sub-processes
Everyone’s a winner
As a result of these changes, there has been a significant reduction in overheads. Other benefits have included:
- Greater accountability, with clarity of areas of responsibility
- The creation of a governance center at the client’s European operations hub
- Cost reduction as a result of moving some operations out of Europe to a more competitive environment
- Faster turnaround of purchase orders
- Fewer PO modifications
- The opportunity for the client to re-allocate European hub team members to new responsibilities once the functions had been transferred to Capgemini.
While many if not all of these benefits accruing internally to the client – with suppliers also gaining – any efficiency improvement in the supply chain has a cascading effect. This ultimately makes a difference to the end customer, in the form of faster order fulfillment and delivery, less hassle, and lower prices as a result of reductions in unit costs.
Streamlining MRP really is essential in meeting – and perhaps even exceeding – the expectations of customers.
Within a single year of operations, our client’s materials planning function has been transformed, to:
- Making 50% of all the activities rule-based, avoiding the need for transactional decisions
- Eliminate 85% of modifications to POs
- Reduce manual POs by 33%
- Eliminate €24 million in excess inventory
- Reduce headcount by over 50%.
Dharmendra Patwardhan is responsible for developing offers and capabilities for transforming supply chain operations that drive tangible business outcomes for Capgemini’s clients.