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June 01, 2005
Shorter Order-To-Cash Time is Key to Success
Shorter cycle time – order-to-cash – is seen as the key success factor in pleasing customers and increasing market share
Framingham, MA (PRWEB) June 1, 2005 -- There is probably nothing more important than short order-to-cash cycle times. Customers expect – and demand – that their suppliers quickly respond to their wants and needs, delivering perfect quality products in less time than ever before. Reducing cycle times is often a good place to start in the overall effort to improve operations because it can often be done without large capital investment to implement new production capacity and business systems. Consequently, many manufacturers are streamlining internal and external supply operations in order to reduce overall order-to-cash cycle time and increase capacity.
Until the nineties, customers generally evaluated a supplier’s performance on four factors: product performance (features), price, quality, and delivery within a reasonable timeframe. Now customers are increasingly emphasizing two performance criteria: flawless delivery, i.e., very short-cycle on-time delivery, and responsiveness to the customers’ changing needs. Flawless delivery and responsiveness can very often be the difference in getting new customers and keeping old ones.
CEOs and others in top management are revisiting existing strategies and operational tactics. This has led many to pursue new initiatives and directions, including:
- Demand Management—Using improved sales and operations planning and sales forecasting processes to provide a real handle on demand and supply.
- Cross-functional integration—Redesigning order-to-cash and other key processes to connect processes across the enterprise.
- Lean Manufacturing—Radically redesigning information flow and material flow processes for dramatically shorter cycle times, lower costs, minimum inventory and near perfect delivery performance.
- Supply Chain Management—Implementing supply chain planning, execution, and event-level alert systems, sometimes in conjunction with other modern information technology.
As more and more customers insist their orders be promptly delivered and at a precise time, reducing cycle time becomes the pivotal point in a supplier order-to-delivery performance rating. A shorter order-to-cash cycle time also has other implications, including reduced inventories, lower costs, and more effective use of resources. In addition, experience has shown that production throughput can improve dramatically once the order-to-cash cycle time is substantially reduced. An added set of benefits affects the bottom line in lower operating expenses, dramatically decreased requirements for working capital, and increased profit margins.
Cycle times can often be reduced without investing in a lot of expensive new information technology or other capital investments. First, analyze each of the many sub-processes involved in the entire process. It is important to determine how much of the cycle time involves tasks that add real value as distinct from activities that do not add value; waiting time or queues, for example. Dividing the value-added time by the total cycle time used (including queue time) generates an efficiency measure. Typically, value-added time is less than 10% of the total process cycle time.
For a free copy of the book "Lean Supply Chain Management: An Executive's Guide to Performance Improvement" visit - http://www.rmdonovan.com
Posted by Industrial-Manufacturing at June 1, 2005 02:29 AM