When most businesses approach Supply Chain Management, the focus is on the item or product – the physical thing that ultimately gets delivered somewhere, somehow. And the handling of this is always in the hands of operations. Accounting is the “behind the scene” that deals with the finances and reporting.
What many businesses do not consider is that the orchestration and timing of supply chain activities have significant impact on financial performance, reporting and cash flow. The current processes could be working just “okay”, and not delivering the financial benefit that might be obtained through modernization of technologies and transformations in approaches. The key is to get the right people involved.
One big aspect of seeking to integrate electronic commerce and collaboration with customers, suppliers and payment services is the recognition that supply chain activities involving orders, invoices, payments, and remittances are directly related to finances, revenue recognition and cash management.
For any project to be successful, it should include execs from both the supply chain (operations) and finance (accounting) areas so that all concerns relating to event timing may be addressed to allow proper treatment in the financial statements. After all, the same things that trigger supply chain activities (orders, etc) are the same documents which drive finance. When the information is accurate and timely, and when the inefficient manual processes can be replaced with electronic workflows, the business is best positioned to improve cash flow and overall financial performance as well as business value.
Unfortunately, few business owners have a real understanding of the costs associated with manual entry activities and the direct financial impacts they have. The speed and accuracy of processing orders and invoicing customers means faster cash in, and leveraging the speed of electronic data interchange with suppliers so that “just in time” orders may be placed and logistics processes more fully enabled means cash out when necessary and not ahead of time.
… using a digital transaction for payments allowed them to hold on to cash longer and better control the timing of the release of funds, something more difficult to control when mailing a physical check. Check fraud remains rampant across many industries. According to an AFP payment fraud and control survey, 70% of U.S. organizations reported check fraud in 2019, responsible for more than $18 billion in losses.
source: What Every CFO Needs to Know About Supply Chains; Study published by DiCentral and Lehigh University; 2012
For example, there are many studies which show that when purchase orders are manually processed, this manual processing is most often sent to least-cost workers and then corrected by finance. Rather than looking to eliminate the manual entry of data and the errors and delays that come along with it, businesses execs first looked to where the lowest labor cost rests and had them handle the extra data input. A digital strategy that transforms inefficient manual process into efficient electronic workflows is the better solution.
However, streamlining of activities does not mean simply replacing manual entry with data file formatting and imports. The ultimate streamlining is via an integration that takes even less human time and effort.
The real goal of any business improvement effort is to improve overall business value. By bringing in finance along with supply chain execs to the “digital transformation” discussion, the business is much better positioned to make actionable progress in areas that directly impact long-term business value.
Mendelson Consulting‘s team of experts are here to help your business address issues with order process efficiency, EDI and supply chain integration, billing and electronic payments. Connect with us today to get started.