Category Archives: Best Practices

Working Capital Improvement: What the “Smart Kids” Do

Today’s guest post is from Sudy Bharadwaj, ex-analyst extraordinaire of the Aberdeen Group, former VP of MindFlow, former CMO of Informance, and, most recently, a star at Inovis.

Analyzing data from CFO Magazine’s “Working Capital Scorecard” (Part I and Part II), and reviewing case studies around the web as well as several interviews, reveals several themes, or habits, common to top performers. Perhaps the most compelling is a holistic view of the business process, change management and technologies deployed.

Business Process

Organizations can simplify the “bookends” of their enterprise business processes and focus on the order-to-cash (DSO — days sales outstanding) and source-to-settle (DPO — days payables outstanding; includes the procure-to-pay) processes. Simply put, focus on your customer processes and your supplier processes to improve these metrics. For DIO (days inventory outstanding), certainly internal processes need to be reviewed (for some enterprises, the manufacturing/production process). However, each external process connects into the manufacturing process, therefore, once optimizing each process has been successful, then organizations can optimize joint processes for further efficiencies. An example of optimizing joint business processes can be connecting your customers to your inventory, thus enabling faster moving inventory, and reducing the need for DIO. Similarly, on the supply-side, provide your suppliers visibility into your inventory and manufacturing requirements and enable the suppliers to replenish the inventory based on services levels.

Change Management

Some organizations are basing performance bonuses on working capital improvement, thus tying personal income to this specific business metric — a smart strategy. Organizations need to continue to think smarter. In several successful working capital initiatives, the sweeping organizational change is making the team pro-active vs. reactive. On the customer side, for example, some organizations (poor performers) do not realize a customer invoice is late until it is past due. By the time the collections team is aware of a specific delay in payment, they are too late — this payment from the customer may not happen for another 60 days. This can be referred to be as a reactive process. Organizations at the top-levels of working capital performance improve DSO by reviewing invoices prior to sending them to the customer. The review goes beyond just formatting and syntax to determine if the invoice matches a customer’s purchase order. In the event the invoice does not match, the collections team is notified and corrective action can be taken before the customer sees the error. By viewing collections within the order-to-cash process as a proactive process, successful enterprises transform the collections team and thus reduce time-to-receipt (payment).

Leverage various technologies

Technology can be double-edged sword. If an enterprise automates the process of manually generating invoices, and the invoices are incorrect 10% of the time, then automating causes the error to happen much faster. Key sets of technologies to leverage are a combination of automation, business process management (BPM) and a workflow-based system. Automation can come in numerous forms from a variety of vendors — from infrastructure providers, B2B integration providers, and providers of e-procurement and e-invoicing solutions to automate the various processes affecting DPO/DSO. Some of these technologies also support varying degrees of BPM, or a stand-alone BPM technology may be deployed, depending on the level of analysis required to analyze any information sent to customers/suppliers. Once such analysis is complete, the workflow-based system can be utilized to route any potential issues to proper personal within the organization.

Conclusion

The high performers in working capital, as measured by days working capital (DWC), improve the DWC by being pro-active vs. re-active in the various business processes which can directly impact this metric and it’s sub-metrics (DPO/DIO/DSO). However, the improvement is not accomplished by just addressing a single facet — process, technology or people, the improvement occurs by addresses all three facets simultaneously. Addressing all three facets enables the proactive management of the business processes, which contribute to improvement of working capital.

Thanks, Sudy.

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Want to Fail Faster? Automate it!

This recent article in the McKinsey Quarterly on “a better way to automate service operations” nailed it: processes and work practices are best designed and implemented before companies roll out the new IT. Otherwise, the COO will walk into the field operations control center after spending millions on a new automated scheduling and dispatching system (and over a year implementing the software and installing the hardware) only to find that response times have not improved, and the number of jobs each engineer handles in a day has not increased.

This experience is all to common for leaders of service operations organizations that manage large groups of remote or distributed employees, including those that have made multi-million dollar IT investments in areas such as automated dispatching, schedule prioritization, workflow automation, and performance management. This is because these systems require processes and work practices different from those used in non-IT enabled situations.

This means that before a company implements a new service management system, the company not only has to sit down and baseline its current operations, but determine how these processes need to change in order to appropriately utilize the capabilities of an automated system. This is because best practices developed over the years to insure that manual processes don’t break down tend to be over cautious due to the limitations of the average person to manually schedule hundreds, or thousands, of resources across thousands of jobs — limitations that today’s software doesn’t have.

To succeed, a company needs to go back to square one and define the goals of its service operations, the resources it has available, and the equipment at the resources’ disposal. It has to throw away all of the old rules and constraints and be sure to only define true constraints (an engineer is only available 8 hours a day, service for tier 1 contracts must occur within 24 hours, etc), not perceived constraints (an engineer can only handle two calls a day, the repair must be by an engineer at the closest office, etc.). And then it has to trust the system which can optimize across thousands of variables.

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You Don’t Need a Genie to Fulfill Your Wish!

Nor do you need the CFO to give you a big fat check either! If you want more automation in your supply chain, and according to the recent A.T. Kearney Indirect Procurement Study titled “Higher Visibility, Greater Expectations”, most of you do, all you have to do is call up one of a few dozen e-Procurement providers with a (new) SaaS offering and tell them you’re ready. Not only can you start for a small monthly fee, but the savings will pay for the system many times over.

And if you don’t know what system is right for you, just re-read SI’s recent series that provides A Hitchhiker’s Guide to e-Procurement. It will assist your organization in determining what is really important, what functionality the organization should be looking for, and how the solution compares to other solutions in the marketplace.

Stop waiting, and start buying. Considering you can pay by the drink, quit any time, and take your data with you … in the worst case, you select a system that only enables part of the efficiencies that are available, but that allows you to determine the full extent of the efficiencies the organization could reach with a system more in tune with the best practices the organization identifies as appropriate for adoption. In this case, you simply cancel the monthly contract and migrate to the new system, and triple the organization’s savings.

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Why You Should Use a Consultant

Editor’s Note: This post is from regular contributor Norman Katz, Sourcing Innovation’s resident expert on supply chain fraud and supply chain risk. Catch up on his column in the archive.

Over the years I’ve come to realize that clients rely on consulting services for two reasons:

  1. Because they don’t have the personnel
  2. Because they don’t have the personnel

The difference between the two reasons is that clients either don’t have enough warm bodies to throw at a problem and they need an extra one in the interim or they don’t have the specialized talents and expertise the consultant brings to the table.

Those are two pretty good reasons for organizations to use a consultant — especially one who is willing to transfer knowledge which enables them to take ownership of the projects that they work on jointly with the consultant. For short-term projects of a few weeks or a few months it usually does not make sense to hire an employee when using a consultant is actually a more effective and efficient answer.

So how do you find the right consultant?A great consultant strides to distinguish herself from other consultants by not offering commodity products and services, even though it can be a double-edged sword at times. Let’s face it: a great consultant’s bag of mixed tricks is somewhat specialized and can be a little difficult to explain. Her best “elevator pitch” is likely reliant on the elevator getting stuck between floors for an hour or so. But then again, if a consultant can provide you with their full value proposition in a minute or two, how much do they really know?

But there’s third reason — and a really good one — to use a consultant. And this aspect is what can even separate specialists from being viewed as valued advisors: a good consultant is professionally “out there”.

Aside from reading a daily newspaper or two and approximately a dozen or so various business publications (supply chain, manufacturing, technology, financial, fraud, security, etc.) each month, a good consultant will attend conferences and informational networking events and be on top of current trends and best practices. She will then relay this information to her clients when she learns something she thinks they should know — and do so in a timely fashion. (And, unlike a lawyer, won’t charge a minimum hourly fee to do it!) And the client stays on the ball without having to fork out tens of thousands of dollars to an analyst firm whose reports are stale as soon as they are published.

So hire a consultant today. It’s the best investment you can make with your money.

Norman Katz, Katzscan

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Is there a T in BPM?

Today’s guest post is from Sudy Bharadwaj, ex-analyst extraordinaire of the Aberdeen Group, former VP of MindFlow, former CMO of Informance, and, most recently, a star at Inovis.

I don’t get it. I have been involved in numerous business process improvement projects over the past 20 years. I have been in numerous meetings about “business process management”. I’ve read white papers and looked at discussion groups. In way too many cases, very early in the conversation, a business process discussion gets down and dirty into integration processes, XML and other related technologies. At a certain point in time, a technology discussion becomes necessary and important, but not early in a BPM initiative. Here is my vote — don’t get techie in a business process discussion. The point is to review, understand and diagram your business process.

Here are some quick guidelines I have pieced together over the years for various business process improvement initiatives:

Engage in a discussion. With respect to Global 2000 executives in particular: discuss your business process internally before you engage an outside vendor, be it a consulting or technology company. If you want to use a technology, use a white board and markers. After a thorough understanding of the process, only then should modern technology be used, and even then the first piece of modern technology employed should only be used to capture the process flow. In other words, you start with something like PowerPoint or Visio. If the organization is large and/or distributed, you might also leverage social networking and collaborative tools, such as wikis, to engage a larger team and obtain input into what your business process actually looks like. Social networking is a great tool to garner input and gain consensus on what a business process looks like, since the challenges of including a large, extended and distributed team is greatly simplified.

Don’t get myopic. Many business processes are cross-functional and extend beyond the walls of your own enterprise. Don’t let those boundaries affect the improvement initiative. Many times, a business process is only as good as its inputs (garbage-in/garbage out). Make sure you understand your inputs/outputs, and in some cases, it is not wrong to extend beyond your own scope of control to better understand and diagram the process. This can be a delicate process, so it may not be for everyone, but if you can engage externally and collaboratively, your results can improve.

Use common phrases and definitions. One way to get team members to understand and define the process better is not to use internal acronyms. Try using industry terms and/or terms you would use to explain a concept at a party. If this is a customer-facing business process, explain it in terms of benefits to your customers. A supplier-facing initiative, benefits to suppliers. By struggling to obtain new phrases/definitions, you will gain insight and, more importantly, challenge the establishment (“now that I say it that way, why do we do it that way?”) — a great 1st step in developing the improvement plan.

To summarize, engage your team, both a core team and an extended team, in defining your process, get it on paper (or electronic form) and have everyone agree that this is at least close. I have seen organizations who engage technology vendors about a business process realize that they did not truly understand the business process. It can get very amusing to watch executives learn about their own business and get insight from putting the business process on the table (hey — how about that for the “t” — the table).

Want to get creative? One business improvement initiative I was involved in actually fined members of the team for using technology acronyms and even internal names. We fined them $1.00 each. I donated $2.00 myself and the pot got as high as $14.00 — that got us an appetizer at dinner that evening!

Thanks, Sudy.

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