Order-to-Cash is one of the most popular core end-to-end processes of which our customers love to do process mining and process analyses on. If you don't quite understand the reasons behind this phenomenon yet, read on as I will introduce the Order-to-Cash process to you and share some of the core benefits of applying process mining to your Order-to-Cash process in this blog post.
What is Order-to-Cash?
An Order-to-Cash process covers everything literally in between customer order and the payment finally arriving at the vendor’s account. In other words, transforming orders into cash. Obviously, there are multiple process steps that occur before the Order-to-Cash process, for example, quotations or marketing, and sales actions. Equally, some process steps may take place after receiving the “cash”, such as aftersales activities or credit notes.
The process steps between the initial order and cash (=payment) vary significantly. This is mostly related to the business and operational model, whether the organization runs by Make-to-Order, Make-to-Stock, or some service business models.
Make-to-Order typically has more activities than Make-to-Stock because goods need to be manufactured or purchased specifically for that unique order. Therefore, lead times might also be slightly longer due to manufacturing phases. In a Make-to-Stock business model, goods are produced and restocked in the warehouse, to be ready for picking from the warehouse and shipping straight away according to the sales orders. In the service business, a project is kicked off after the customer order has been received, and then there are activities of all kinds to fulfill the customer needs.
The flowchart below is from a sample Order-to-Cash process model visualized by QPR ProcessAnalyzer, for an organization operating with the Make-to-Stock business model.
The process steps in a sample Order-to-Cash process model explained:
- Sales Order Created - Sales Order was either created in the source system or imported from another system to the ERP system.
- Picking Done - Goods were successfully picked from the warehouse.
- Delivery Changed - Some delivery line items were changed.
- Shipment Sent - Shipment Sent from the warehouse. Depending on the trade terms, this is also the event which is tracked when the shipping is the customer’s responsibility.
- Customer Pick-up - Another operating model; instead of shipping, the customer comes to pick up the goods from the vendor.
- Delivery Completed - This might come from the customer’s system or the carrier, indicating that the customer has received the goods.
- Confirmed Delivery Date - This is not an actual process step but a date to help analyze whether the delivery was done in time.
- Invoice Created – Invoicing of the goods, which might occur before or after the delivery.
- Returned with Notification - Customer has returned the goods for a reason or another.
- Credit Memo Created - The goods the customer returned were accepted, and a credit memo was created for the customer.
- Payment received - The payment has been received in the vendor’s account.
It is highly interesting that typically these process activities occur within a multitude of IT systems such as CRM, ERP, logistics (SCM), finance, or even data warehouses. Therefore, process mining solutions must be able to extract data from all the major IT systems but also from totally customized systems.
QPR Software has years of experience in extracting data from dozens of, even the most exotic, IT systems through connectors, which makes it easy to adapt to the customer’s enterprise architecture.
What are the core benefits of doing process mining and analysis of the Order-to-Cash process?
Improvements in Order-to-Cash KPIs such as:
- Amount of returned goods
- Rate of order changes
- Lead times between process steps
The beauty of QPR ProcessAnalyzer is that its unique influence analysis allows us to identify root causes for the process performance and efficiency of each KPI, adding a dimension of data-driven facts to the meaning of a KPI so that it is no longer only a bare value to be followed. With root causes that explain process observations, planning corrective actions and measures for improvement becomes super easy and can be effectively implemented.
To learn more, check out our webinar about process mining and Order-to-Cash process below.