Analyzing Your Processes and Using Metrics to Create Processing Solutions

Ask any financial operations professional to name their number-one goal and it is likely to be “improving efficiencies to reduce costs.” The AR process is a prime target for improvement because it is often rife with time-consuming and labor-intensive manual processes.

Automation is usually seen as the primary means to reach AR’s process improvement goals, but the budget and resources may not be immediately available to implement it. Luckily, AR and O2C can take some alternative steps today that will pave the way for a more efficient process in lieu of automation.

It All Starts With Mapping Your Current Process

When was the last time you mapped the entire end-to-end O2C process at your company to analyze your workflow? In the AR and O2C arena, the term “end to end” refers to the very beginning: from the initial sale to the deposit of the payment.

Such a workflow analysis, if conducted thoughtfully, can identify and eliminate many “middle layers”—or steps in the process—in order to optimize efficiency in your end-to-end process.

Workflow analysis requires the participation and collaboration of everyone who impacts the O2C process, including sales, AR and credit & collections, IT and shipping. In fact, a good analysis will bring together key subject matter experts from each department of the business units. Ideally, customers should also be invited to attend and participate, as they may have solutions they adopted with other vendors that may be efficient and simple for you to use.

All Departments Are Interdependent

“If you study your processes inside and out and bring in key players in from each phase of the O2C process, you’ll make great process-improvement strides—even if your system is largely manual,” says Judy Bicking, IOFM’s Senior Education and Training Director. “The bonus is, it is also the most logical way to prepare yourself for automation.

“The biggest challenge with many AR & O2C operations is a lack of alignment between the functional areas,” Bicking explains. “If key departments such as AR and sales are not talking to each other, the two sides aren’t properly coordinated and will never be able to properly map existing processes and problems within the O2C cycle.

“For example, AR managers should know what the sales team and upper management are trying to accomplish so they can ensure that AR supports those goals and objectives. Likewise, sales needs to understand AR’s responsibilities and how their activities impact AR and credit & collections.

“Collaborating interdepartmentally in a workflow study will help you identify where any breakdowns are occurring and why they are occurring.”

Metrics Will Facilitate Your Analysis

Here are some steps to help you through your workflow analysis:

  1. Develop a list of key benefits and deliverables that will occur as a result of the proposed improvements. This will help gain the support of senior management.
  2. Document the cost of leaving the system “broken” in its current state and demonstrate the savings in time and resources that identifying new processes could achieve. These statistics will be used to measure the results of the new processes and procedures you will develop and will serve as a basis for reporting the results to senior management.
  3. On sticky notes or a whiteboard, list step-by-step what is involved on a daily basis to process a single order. Put a total financial figure on how many times that process happens and how much it costs to complete the process.
  4. Look for roadblocks and eliminate any unnecessary steps in the end-to-end process. Quickly identify the more obvious time-wasting and inefficient processes. These are “easy fixes.” Procedural changes can and should be implemented immediately on these easy fixes.
  5. Dig in to identify and work collaboratively to tackle the more complicated roadblocks.
  6. Ask: Why is this happening? How often is this happening? What metrics or benchmarks can we use to support a change in process? How many invoices are paid late and discounts lost as a result of this roadblock?
  7. Decide on a new process that will alleviate or eliminate the roadblock, save time and increase efficiency.
  8. Put the new process into practice and analyze the results. Compare these metrics with those of the “broken” processes.
  9. Report the results to senior management.

Develop and Track Your Metrics

The key to all effective process improvements is to begin by understanding your “as-is processes.” This involves metrics. Not only can the right metrics give you an idea of which processes are inefficient, but they can do so clearly and without emotion.

“The powerful thing about measurements is they take all the emotions out of the decisions you have to make,” says Bicking. “When working on something like improving end-to-end processing, it’s either everyone spending their time playing the blame game or everyone realizing they’re all in this together.

“Sometimes when you have a consistent error and the organization as a whole is not complying, it is imperative to listen to the customer,” she adds. “It might be easier to change the process, rather than having a standoff in which nothing gets resolved. Working together, you can increase efficiencies and maximize the opportunities for discounts. Of course, that ultimately benefits the bottom line for your organization.”