Order-to-cash (O2C) is an end-to-end process that encompasses all the steps that a company carries out from the time it receives an order to the point at which it receives full payment for the order. It includes managing sales orders, processing customer credit, delivering products and services to customers, invoicing customers, and processing payments and collections.
Like other end-to-end processes, O2C involves an interconnected set of processes that span functional boundaries. It is important to be able to manage those discrete pieces of work, while at the same time remaining cognizant of how the pieces link together into one end-to-end process.
This month, we examine the number of full-time equivalent employees (FTEs) that companies use for O2C, which is a critical measure of efficiency across the value chain.
APQC finds that top performers on this measure use 104.7 FTEs per $1 billion of revenue on the O2C process, while bottom performers use 2,833.
It’s important to keep in mind that this is cross-industry data — the number of FTEs will vary quite a bit from one industry to another. For example, services use a smaller number of FTEs, which makes sense because many of these companies do not have large, complex supply chains nor do they manufacture and ship physical products. Companies in the industrial products industry, by contrast, use a far greater number of FTEs.
The wide variation between industries makes it critical to benchmark your company’s O2C process within your industry for a realistic sense of what “good” looks like. For a fuller picture of O2C process health, APQC also recommends benchmarking a balanced set of metrics like cost and cycle times for the process as well.
Regardless of your industry, the number of FTEs you use for O2C is a key measure of efficiency across the end-to-end process. All else being equal, a larger number of FTEs may be a sign of redundancies, process bottlenecks, excessive manual intervention, or other problems that could potentially hamper the organization’s ability to collect and might also alienate customers. Below, we discuss four strategies that leading companies pursue to make the process more efficient and effective across the value chain.
If it’s possible for the kind of work that your business does, collecting money upfront from customers (for example, in the form of a deposit) reduces the O2C timeline because you won’t be waiting for 100% of the value to be collected at a later date. A smaller balance to chase later in the process will mean fewer people on the back-end for collections. Having sales do some of the heavy lifting upfront not only shortens the O2C timeline but also brings cash in the door before the order is fulfilled.
APQC has found that process governance is one of the most important components of an effective O2C process. Setting up clear ownership and accountability for the entire process as well as its constituent processes encourage people to think beyond their component process boundaries, eliminating the siloed thinking that leads to bad handoffs and inefficiency. In addition to process owners for each process across O2C, leading companies typically have a global O2C process owner who works with individual process owners to dissolve functional silos and manage the process in an end-to-end manner. Global process owners provide the accountability necessary to impose enterprise-wide standards and provide transparency into O2C as a complex, cross-functional process.
Processes that lack standardization and consistency are a common challenge for companies that are struggling to mature O2C as a process. It’s true that many companies need to allow for a degree of flexibility in process execution due to local or regional regulations, needs, or business realities. However, there should always be a clear and consistent “gold standard” for each process that is well-documented through policies and procedures as well as supporting tools such as process maps, desk guides, RACIs (responsible, accountable, consulted, and informed), and SIPOCs (suppliers, inputs, process, outputs, and customers). This ensures that no matter what changes come to pass, the process will stay on track.
Companies that rate themselves as less effective in the O2C process often cite manual intervention and siloed data or systems as their top two roadblocks. For that reason, digitization is often a key strategy for companies that are looking to make O2C more efficient. The good news is that many technologies that once seemed exotic are now more affordable and easier to implement than you might expect. While many companies considered artificial intelligence out of reach just a few years ago, for example, today more than a third of companies in APQC’s research has already implemented AI for their O2C processes. These technologies can help build integration between systems, reduce manual touchpoints, and make processes with O2C run more efficiently — all of which can help decrease the number of FTEs.
O2C is a complex, cross-functional process that requires end-to-end management. Leading companies think holistically across the process about concerns such as governance, standardization, and digitization. The ability to see and think about the bigger picture of the entire value chain is key for building a more efficient O2C process — one that uses fewer FTEs but also performs better on a range of other key measures, from the total cost to cycle time to days sales outstanding and beyond.
Perry D. Wiggins, CPA, is CFO, secretary, and treasurer for APQC, a nonprofit benchmarking and best practices research organization based in Houston.