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Cashing in on "Order to Cash" through BPO shared services

 The Order to Cash process is at the heart of every business and I have often been tasked with asking clients and prospects to consider moving their Order to Cash processes into a Shared services delivery model with a third party service provider.  Over the years this attempt of mine has evinced myriad expressions from clients ranging from the "Have you lost it?" look to the "You just showed me business process nirvana" look. The industry where I experienced the most contrasting reactions was the CPG industry and I wanted to share some interesting learning from the experience of working with a few clients in walking the talk and sharing in their Order to Cash transformation journey over the years.

To provide some context, the concept of Business process outsourcing in the CPG industry is not a new one. This industry was one of the earliest adopters of outsourcing transactional and back office business processes such as Accounts Payables, Accounts Receivables, Payroll processing and Procurement. The primary driver for outsourcing across all these processes was labor cost arbitrage followed by process efficiencies from consolidation; harmonization and continuous improvement. These drivers have become the cornerstone of all business process outsourcing relationships and have for long settled into becoming the marketing tagline for the BPO industry.

With this legacy of perceived value from BPO relationships, when one has to go down the same journey with Order to Cash processes, the value equation does not necessary stack up. The most obvious reason for this skew in the case of O2C processes is Risk. To cite an instance provided by one of my clients - The entire annual cost savings delivered by a BPO relationship can potentially be eroded by one order from a large retailer being inadvertently dropped or shipped to the wrong address due to the contractual penalties involved. And one defect out of a million is acceptable even by "Six Sigma" standards!

So two questions come up, the "Why" and the "How"? The "Why" is easy. Given that the Order to Cash process impacts not just the G&A metric but also the Cost of Goods Sold, Working capital efficiency, Days Sales of Inventory and Gross Revenue metrics, a successful shared services strategy undertaken by engaging the right partner could catalyze business transformation impacting the highest levels of the organization.

The tough question however is the "How"? I often relate that to converting an "Art" into a "Science". The "Art" here refers to the finesse and proficiency that Customer service representatives have honed on their jobs for a number of years. The "Science" here refers to replicating that same level of service or sometimes even improving it but with a completely new team that's located thousands of miles away in a global delivery model.  Sounds like mission impossible right? Not really. It's been done before and involves the following best practices:

·         Create the right operating model: The tried and tested Front Office-Back Office model is a great starting point. It allows for a risk mitigated approach to the end state sourcing mix given the need to balance risk and value in a customer centric setup for the CPG industry.

·         Create the right performance measurement methodology: The days of adopting operational metrics such as cycle time, average handling time, Abandonment rate, First Contact Resolution etc to govern outsourcing relationships are a thing of the past. These metrics are now considered Business As Usual (BAU). Consider including business metrics and supply chain performance metrics such as cost per order/invoice, Case Fill Rates (CFRs), On Time Delivery (OTD), Truckload capacity utilization, Days Sales Outstanding (DSO) into the performance measurement framework

·         Create a segmented service framework: Most CPG businesses operate in the 80:20 model where 20% of customers account for 80% of revenues. Given this mix, a one size fits all shared services model will fail to deliver differentiated service experience to top tier customers. Consider a three tier service framework involving Transactional shared services, Business support services and Enterprise support services layers

·         Choose the right global delivery model: Most top tier BPO providers today have global presence with established Centers of Excellence. Adopt a hub and spoke global delivery model preferably aligned to customer tiers as well as the segmented service framework

·         Adopt a phased transition approach: A prudent transition plan is the foundation to successful Order to Cash shared services adoption. Consider creating a phased transition plan where phasing is based on customer tiers, markets, process complexity or a combination of these parameters

While there are several other design considerations, the above five are what I could call the essential ingredients of Order to Cash BPO solutions for the CPG industry. With these best practices implemented, companies can start to cash in on their Order to Cash processes through BPO shared services led transformation.

This article has been authored by Sushanth Ananth (Manager, Client Services - Retail, CPG, Logistics and Life Sciences, Infosys Ltd). You can reach Sushanth at Sushanth_ananth@infosys.com.

 

 

 

Comments

Sushanth,

Very well articulated article. Order to cash is typically considered a core supply chain function, and it needs a totally different view to visualize the outsourced operating model. The best practices that you mentioned are the cornerstone to develop that successful best in class solution.

regards,
Prashant

Brilliant article! Very informative, it is essential to speed up the o2c process as much as possible.

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