Driving Results in the B2B Channel
 By Greg Tabor, Director Supplier Programs, Ariba |
In the last issue of Supply Lines we discussed what, why, and how to measure in the B2B channel so you can assess the impact it has on your business (read part one)—the first step in helping the channel deliver more value to your company. So maybe your executives really liked your reporting, and now they want you to impact those results for even greater B2B channel success. Below are some practical steps to help you do exactly that. As a refresh, your company’s B2B channel should deliver results in three key areas:
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For the sake of reality, there is a fourth area—supporting your customer initiative—which can have value as well. But for this discussion, we’ll assume you’ve already decided to take that step.
Therefore, this article examines ways to impact or improve the results associated with the first of the three areas: a faster order-to-cash cycle. Keep in mind that this list is not exhaustive, nor does it cover every unique circumstance in every business. However, it should at least hit on themes or ideas that can be tailored to your specific situation and hopefully generate ideas.
A Faster Order-to-Cash Cycle
A faster order-to-cash cycle could also be described as a reduction in day sales outstanding (DSOs). If you’re not familiar with this concept, talk with your controller or CFO, who can quickly explain the impact it has on your company (and will likely be happy to hear that someone else is considering it!). By default, eProcurement and eInvoicing should accelerate this process, helping your company receive cash sooner than with traditional methods. At a minimum they get the clock started more quickly on both order fulfillment and invoice processing.
So how do you maximize this benefit? Here are some key ideas:
- Reduce your error rate. First, you need to know your error rate. You can bet that between 10 to 20 percent of invoices contain mistakes that will eventually slow payment by weeks or even months, making it critical to reduce this rate. Many suppliers report that electronic invoicing significantly reduces errors, and the Ariba® Supplier Network™ provides visibility and feedback that enable you to immediately solve invoicing issues. This accelerates payments and improves overall productivity, since problems are addressed when they occur rather than having to be researched 30 to 45 days later.
It’s also important to communicate this goal to customers and ask them to help you eliminate errors. By knowing a before B2B channel and after B2B channel error rate, you can easily justify additional channel investment. Depending on the value of the invoices you process, getting this down into single digits can mean major savings in reduced DSOs.
- Integrate purchase orders. Too often we hear suppliers say that the B2B channel does not reduce DSOs because it only routes electronic purchase orders, and the real value is in electronic invoicing. This is simply not the case. Orders left in the fax machine overnight, overlooked on a scratch pad, or entered with mistakes rob valuable days from the process, whereas orders already in the system can be shipped, invoiced, and paid. The faster this happens, the sooner you get working capital to reinvest in your business, buy more inventory, and pay your suppliers early to receive discounts. Customer service is enhanced as well.
Even if you decide not to integrate, don’t underestimate the value of receiving error-free orders in a standard format with a committed customer, which can cut days off the process. Shipping the wrong item ties up inventory and adds pick-up and restocking costs, making it a DSO killer—not to mention the hassle it causes the customer.
Accepting orders over the phone is actually a very expensive and unproductive undertaking. When you consider labor costs, lengthy conversations, and the inability to focus resources on more strategic opportunities, the process of having a customer read off part numbers to someone who writes them down and then re-enters them into an order management system seems almost criminal in today’s business climate. Instead, you should actively encourage customers to use the B2B channel for these orders to reduce costs.
- Integrate invoicing. Obviously, the ability to invoice directly from your back-end billing or financial software can save time. Consider the standard process: invoices are run at night, mailed the following day, received by the customer mailroom in two to three days, opened by a machine (hopefully), and distributed to the proper AP clerk. Then a three-way match is done, and the invoice is approved for payment and designated to be paid during the appropriate check run.
Now think about all the possibilities for problems in this scenario, from issue resolution to simply an understaffed and overworked AP department in which invoices are delayed. More commonly, questions arise that hold up the process, either with the purchasing entity (how many times has a purchasing agent called you to ask a question about an order?) or from the receiving department.
Electronic invoicing—or even using PO-Flip to generate invoices—resolves nearly all of this! You also gain immediate visibility into the problems that frequently add days to the process. Issues that do occur can be taken care of much more quickly. The result: reduced DSOs.
Every supplier should be considering ways to get paid faster. Whether you came to the B2B channel willingly or were pushed to it by customer demand, take advantage of this chance to reduce your DSOs. Make sure to connect with your finance/treasury departments to understand the opportunity involved, and work both internally and with your customers to leverage the B2B channel tools available—particularly those offered through the Ariba Supplier Network.
Find Out More
Customers are looking for suppliers who can effectively manage eInvoicing, and your knowledge and investments in this area can be a catalyst to gain new business. The Ariba® Ready™ Program is one resource that can help you in this area. Check out the benefits it provides by reading “Is Ariba Ready Right for You?” You can also contact supplierprograms@ariba.com if you have questions or want to learn more.
Coming Up
In the next issue of Supply Lines, we’ll look at ways to reduce costs and drive operational efficiencies.
