Organizations try to accomplish their business objectives through strategies. Strategies are executed broadly through ‘Programs & Projects’ or ‘Operations.
2. What does the O2C process stand for?
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.
3. 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.
5. 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.
6. 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:
Order to Cash
Opportunity to Cash
7. 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
8. 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
9. 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.
10. 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.