Cutting the Costs of Sales Order Processing

One way to get finance executives' attention is to show that operating cash and staff productivity are being squandered. A number of 2011 reports from APQC have done just that by using process performance metrics to illustrate gaps that are, quite frankly, indefensible. For example, we've looked closely at accounts payable-related processes such as invoice processing. Sizeable gaps between top and bottom performance (in terms of process cost and speed) argue strongly in favor of automation.

Let's now turn the spotlight on a business process that suffers from some of the same problems that plague invoice processing. We're talking about sales order processing. It's an area that continues to defy innovation such as optical character recognition, work-flow automation, electronic data consolidation, and, more recently, cloud-based software solutions.

Looking at data from APQC's Open Standards Benchmarking database, we find that the bottom performers who completed APQC's benchmarking survey incur 50 times more cost than the top performers. See Figure 1 below. This metric is calculated by taking the average total cost of managing sales orders and dividing that by the average number of sales orders placed.

Figure 1.

In the current economic climate, with demand soft in many sectors, organizations need to be on a steady hunt for waste. The shocking gap in cost performance suggests that this is an area controllers ought to investigate. What cost components to aim at? They are many, and they range from the costs of maintaining fax machines for receiving faxed orders to document storage. But it should be noted that the most significant cost driver is labor. And in that domain, consider not only the time (and therefore cost) required to collect and label a fax or phone order, enter data into a system, initiate work-flows that lead to order fulfillment, and communicate with the customer about the status of the order. Consider the time and costs that rack up when an order or part of an order is lost, data entry errors are made, or a change to an order arrives. Beyond measuring the direct labor cost, be sure to look at the opportunity cost incurred of having staff performing repetitive transaction-oriented chores when they could be spending time in more valuable ways.