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The Many Interpretations of Order to Cash (O2C) Process

October 29th , 2020

Through this blog, I intend to:

  • Clarify the meaning and interpretations of a jargon – O2C process or OTC.
  • Challenges faced by companies during the O2C process
  • Understand the software solutions that exist for managing the O2C process.
  • Suggest parameters to be used while evaluating solutions for the O2C process

Let us start with a basic question - what does the O2C process stand for?

Before answering the above question, I would like to break this blog into three parts.

Part 1

Organizations try to accomplish their business objectives through strategies. Strategies are executed broadly through ‘Programs & Projects’ or ‘Operations.’ Going a step further, Programs & Projects are timebound with specific goals while Operations are ‘ongoing’ in nature.

Most references indicate the O2C process like Order to Cash Process or Order to Cash Cycle.

What is the Order to Cash Cycle?

From a Business-to-Business (B2B) context, they go on to explain Order to Cash in the context of ‘Operations’ and include the following dimensions:

  • Step One: The Customer places an order for a company’s product or service.
  • Step Two: Fulfil Customer Order by ensuring that the product is ready for shipment.
  • Step Three: The company ships the product to the customer.
  • Step Four: Generate an Invoice and send it to the customer.
  • Step Five: The Customer pays the invoice.
  • Step Six: Record the Payment in the Accounting Ledger.

The above steps are relatively simple and are applicable for simple businesses. For companies that deal in engineering products, with external vendors, and multiple distribution points, the O2C Process / Order to Cash Process Flow Chart / Order to Cash Process Map becomes complex as depicted below.

What are the KPIs to measure the Order to Cash process?

There are two sets of KPIs – efficiency and effectiveness.

World-Class organizations are more efficient, by having:

  • Lower total costs
  • Faster cycle time
  • Higher Productivity

World-Class organizations are more effective, by having:

  • Accurate decision making
  • Better alignment to business
  • Optimized working capital

There are many software applications such as SAP, Oracle, and others that manage the entire Order to Cash process.

Let me reiterate that these solutions are used daily – till the business exists!

Part 2

Now that we have discussed the dimensions of the Order to Cash cycle in an ‘Operations’ world, let us turn to Programs and Projects.

Unlike in the past decades, we are now living in a project economy.

Gone are the days when B2B customers could afford to wait till you were ready with your product or service. Competition and technology advancements have changed the face of the game. Customers, Government Agencies, Vendors, and Organizational Internal stakeholders want ‘predictability’ of outcomes. When customers give orders to service providers, they need a clear timeline when specific deliverables would be handed over – giving rise to the power of the program and project management discipline.

In the context of Programs and Projects, the O2C process has two possible interpretations:

Observing the above two terms closely, it becomes evident that –

  • Order to Cash starts from the time a company has successfully received a customer order till the project is delivered and payments received.
  • Opportunity to Cash starts with the pre-sales cycle and ends with the delivery of the project & money received.

Opportunity to Cash is a super-set that includes Order to Cash Cycle.

We could split the Opportunity to Cash Cycle as:

  • Opportunity to Order cycle and,
  • Order to Cash cycle

Let us start with the Opportunity to Order cycle.

Opportunity to Order

1. Opportunity Identification & Evaluation

During this phase, pre-sales teams look for potential customers or business opportunities. Based on interactions with these potential customers, pre-sales teams start to rank these opportunities based on potential business value as well as the probability of a closed deal.

2. Proposal Creation

In this stage, the probability of opportunities becoming real has increased. Here, the teams understand the customer business problems and challenges and offer potential solutions through a formal ‘Proposal.’ These proposals may undergo revisions based on customer inputs. To prepare customer proposals, the pre-sales / proposal teams understand and document:

  • High-level customer problem statement along with business objectives
  • Broad and potential solutions to address customer business problems
  • Soft-Book or tentatively block resources needed to deliver the solution
  • Likely costs, margins, and price to deliver the solution
  • Potential risks and constraints

3. Agreement or Contract Creation

After a series of discussions, the customer agrees to confirm the engagement. Subsequently, both the parties discuss the nitty-gritty of the deliverables, specifications, timelines, costs, quality, payment terms & conditions, and formal acceptance. Besides, there could be incentives or penalties applicable.

What are the challenges in the Opportunity to Order cycle?

  • Lack of standard process for proposal making
  • Accurate estimation of direct & indirect costs (resources, material, travel, miscellaneous, facility, overheads, etc.)
  • Ad hoc Master Cost profiles
  • Ineffective methods to incorporate costs, inflation, and margins
  • Unable to consider multiple project geographies
  • Understand & document customer requirements and scope; proposed revenue calculation based on competitive margin.
  • Assessing liabilities, payment terms, legal & other terms. Manually preparing professional-looking proposals in Word / PowerPoint / Acrobat PDF.
  • Seeking last-minute approvals from senior management. Tracking multiple versions of proposals because of customer negotiations.

The question is – how do organizations manage the Opportunity to Order cycle?

Unfortunately, most companies still rely on spreadsheets, Word documents, Shared Drives, and Emails to manage even complex ‘potential opportunities.’

In the process, managers end up with inefficiencies, duplication, and ineffective decision making. However, world-class organizations rely on an end-to-end, comprehensive, and collaborative Proposal Management Solution – in the process, beating their competition on multiple fronts.

Assuming that the company has received the contract, let us focus on the project planning and execution as part of the Order to Cash cycle.

Order to Cash Cycle

1. Project Initiation & Planning

The engagement moves from pre-sales to project delivery. The program or project manager would carefully document the ‘as-sold’ deal margin before initiating the next steps that include:

  • Creating a detailed project Work Breakdown Structure, which is a hierarchical decomposition of the project deliverables that go down to activities and sub-tasks.
  • Convert the Work Breakdown Structure into a project schedule after incorporating the deliverables along with estimates of tasks, dependencies, lags, leads, and constraints.
  • Estimate and assign resources to all the deliverables and, if required, alter the schedule or request for additional resources. Additionally, managers may need to review resource utilization and, if required, perform resource-leveling.
  • Procurement plan for products or services outsourced to vendors.
  • Identify risks, define response strategy as well as detailed response plans.
  • Create necessary documentation – scope, quality, specifications, drawings, engineering, etc.

2. Project Execution & Tracking

  • In this phase, the project moves into a delivery model and is characterized by:
  • The team completes its deliverables and tasks.
  • Assess and validate the quality of the program/project deliverables.
  • Team members report their time and expenses.
  • Evaluate ‘Revenue Recognition’ based on work completion.
  • Generate project billing requests.
  • Ensure the implementation of risk response plans.
  • Review the Change Requests through the change control process.
  • Create necessary program/project documentation.
  • Report project performance to project stakeholders
  • Define and implement preventive and corrective actions for negative variances.
  • Adjust project plans suitably.

3. Project Closure

In this phase, the focus is to ensure that the team can formally close the project by ensuring:

  • Handing over the project deliverables
  • Provide necessary documentation associated with the deliverables
  • Seek formal acceptance from the customer
  • Document lessons learned from the project
  • Evaluate customer satisfaction
  • Release project resources
  • Raise final customer invoice and collect payment
  • Contractually close the project

If the project involves an external vendor, the closure will also address:

  • Reviewing and approving vendor deliverables along with necessary documentation
  • Auditing bills and supporting documentation
  • Releasing payment to vendors
  • Contractually close the vendor contract

What are key challenges faced by companies in the Order-to-Cash process?

While some challenges are specific to the industry, the common challenges include:

Tracking Project Profitability & Cashflow

  • Disjoint customer billing, rate controls, and timesheets – leading to revenue leakage
  • Managing profit & loss at multiple layers – Project, Customer Account, Business Unit, Organization, and As-Sold vs. Actual

Inefficient Resource Management

  • Inappropriate mapping of business demand and resource capacity leads to:
  • Ineffective resource allocation
  • Inefficient resource utilization
  • Higher resource costs and thus reduced profitability
  • An Excel-based approach leads to lost revenues.

Integrated Project Management

Disconnected project timelines, project financials, project resources, project quality, and overall project health leads to:

  • Ineffective Customer Satisfaction (CSAT) management
  • Weak project governance

Fit-to-Purpose Templates

Programs / Projects vary in value, complexity, life cycle, and methodologies used. Organizations choose a ‘one-size-fits-all’ approach as they are not able to ‘templatize’ according to the project needs.

Collaboration Across Functions

Programs / Projects involve multiple functions and external vendors. For most companies, it is a struggle to foster stakeholder engagement and real-time collaboration. Spreadsheets, Documents, and Email add to their woes.

Various research and experiences indicate that great organizations trust world-class applications to manage their Order to Cash cycle.

So, let me summarize this blog.

  1. O2C stands for Order to Cash process or Opportunity to Cash process.
  2. Order to Cash cycle is a sub-set of Opportunity to Cash
  3. World-class organizations invest in robust, scalable, and integrated solutions to manage their end-to-end cycle of proposal-making to project delivery.

Part 3

The next logical question is: what parameters must leaders consider while evaluating potential O2C solutions?

  • Is the solution end-to-end or comprehensive?
  • Is the solution specific to my industry and company-specific business processes and protocols?
  • Does the solution digitize the entire business process?
  • Does the solution integrate seamlessly with existing enterprise applications such as ERPs, CRMs, and Accounting?
  • Does it allow real-time collaboration with internal and external stakeholders?
  • Does the solution support data integrity and thereby ‘one version of the truth’?
  • Does the solution have a best-in-class user interface (UI) and user experience (UX)?
  • Is the solution built on the latest available technologies?
  • How smooth is the implementation process?
  • Does the solution offer the best Value-to-Cost Ratio?

Early on, the team at ProductDossier realized the critical role played by an ‘integrated solution’ to empower both the sales and the project delivery teams. The result is TouchBase Opportunity to Cash, which is an industry-leading solution to manage programs and projects from pre-sales to project delivery.

Give TouchBase O2C a try; you will be delighted!


Name of Author


Srikanth PV comes with two decades of global corporate and consulting background across industries with diverse roles including Strategy, Leadership, and Management.

Currently, Srikanth is Head, PPM Content Management at ProductDossier focused on content management strategy aimed to empower customers create and enhance value through its flagship digital solution - TouchBase. Srikanth is also a former member of the Board of Directors of PMI Bangalore Chapter. View his detailed profile on LinkedIn at https://in.linkedin.com/in/srikanthpv-ppm



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