University of Tennessee IM341 Spring 2014 Order to Cash Process Authored by Dr. Hollander, all rights reserved 1 THE PURPOSE OF THE ORDER TO CASH PROCESS Recall from Module 1 that decision makers require information processing outputs that pertain to each strategically significant business event (i.e., to help the organization plan, execute, control, or evaluate that business event). Strategically significant events may also include those that are regulated or mandated (e.g., inspecting meat, paying taxes, or performing an environmental study). In today’s businesses, all strategically significant business events will result in demand fo r accessible, useful and timely information. The order to cash process is a series of business events that collectively serve to attract customers, help customers select goods and services, deliver the goods and services requested, and collect payments for the goods and services. The order to cash process is referred to by a variety of names by various organizations and software vendors including Order to Payment, Revenue, and/or Sales process. Regardless of what it is called by an organization, the order to cash process is often viewed as the heart of a company’s value chain and is typically the only time the customer directly interacts with the organization. The long term ability of the organization to retain existing customers and attract new customers is critical. Whether a seller manufactures end products itself, outsources all or most of its production, or delivers services for sale, the seller still has to take orders and ensure that goods/services get delivered to customers according to their expectations. Because generating revenue and profit is the key to achieving growth and profitability, no matter how efficient the remaining organization processes are, if the order to cash process does not function well, it is unlikely the organization will generate sufficient revenue to sustain itself. Organizations can produce an abundance of goods and create a variety of services, but the real test of value is whether someone will pay a price that covers the cost of goods or services and provides the organization with an acceptable return on invested funds. Examples of order to cash process objectives include: - Minimizing the amount of time between the customer’s selection of products and services and the organization’s collection of cash from the customer. - Minimizing the amount of cash that is not collected from customers for goods and services provided. - Structuring product quality and price to balance customer value and organization profitability. - Providing quality, timely customer support and service that increase customer satisfaction, resulting in return customers and customer referrals. - Designing a lean process that maximizes the creation of value for the end customer and eliminates wasted resources while creating that value. - Reducing operating costs and increasing cash flow. University of Tennessee IM341 Spring 2014 Order to Cash Process Authored by Dr. Hollander, all rights reserved 2 ORDER TO CASH ACTIVITIES THAT MUST BE SUPPORTED BY INFORMATION PROCESSES Recall from Module 1, examples of typical activities that make up the order to cash process include: - Market goods or services and provide customer support (including bids or quotes). - Negotiate an order for goods or services. - Select and inspect goods or services to be delivered. - Prepare goods or services for delivery. - Deliver goods or services (point of sale). - Receive payment for goods or services. - Negotiate customer returns of goods (and if applicable, receive returned good and refund any received payments). Organizations need information processes to document and support each of these key business activities. Information processing activities that support all key business events include 1. recording data about business events, 2. maintaining reference data that are important to the organization, and 3. reporting useful information to management and other decision makers. Recording involves collecting data that describes business events and storing the data in a repository (e.g., a database or collection of files). Maintaining data involves organizations collecting and keeping current reference data about resources they own, external parties with whom they do business, employees who work for them, and locations or other entities that describe the organizations. The combination of recording and maintaining activities create and keep current a repository of data that documents and describes an organization’s business processes, including the people, resources, locations and other entities associated with carrying out business activities. This collection of data is used to generate outputs for information customers. Reporting or generating outputs, the third type of information processing activity, is the most demanding of the information events. Reporting provides information and measurements to support organization activities such as planning, controlling, and evaluating. University of Tennessee IM341 Spring 2014 Order to Cash Process Authored by Dr. Hollander, all rights reserved 3 The following table lists some of the key information processing required to document example Order to Cash business events. Business Event (introduced in Module 1) Key Information/Transaction Processing Associated with the Business Event Market goods or services and/or provide customer support • Record, maintain and report data that facilitates and documents marketing efforts. • Record and report data to facilitate and document providing quotes or bids for customers. • Record, maintain and report data to facilitate and document customer support efforts. Negotiate sales order with customer • Record, maintain, and report data that facilitates and documents sales order negotiation. Fulfill Order activities (including Select and Inspect goods or services to be delivered; Prepare goods or services for delivery; Deliver goods or services) • Record, maintain and report data that facilitates and documents fulfillment ‐ (picking in the warehouse, packing, and shipping – the point of sale). • Record, maintain and report data about invoicing (billing) the customer for the sale (and financial measurement of that sale). Receive payment for goods or services • Record, maintain and report data about