Tucking Order-to-Delivery Under the Rug?

On March 1, we published a study, “Perfect Order, Happy Customer: Managing the Order-to-Delivery Cycle,” based on a February survey of 115 manufacturers.

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We received great feedback from the manufacturing community and were able to look at the order-to-delivery cycle in build-to-order and build-to-stock manufacturing modes, as well as the differences in the cycle across various industries, such as process, discrete or consumer.
 
The order-to-delivery process (also referred to as quote-to-cash) is a somewhat neglected process compared to others. This is partially a result of its cross-functional nature—from sales quote to order entry, production and then fulfillment. For example, while 63 percent of Industry Average respondents indicate their order-to-delivery initiative has been in place for more than two years, just 33 percent have a strong ability to perform order promising for finished goods inventory. Similarly, just 24 percent of the Industry Average respondents have a strong ability to flexibly schedule and reschedule orders based on due dates. These are process capabilities that are at least 40 percent as likely to be in place among Best-in-Class companies. They also necessitate a form of information-sharing environment between customer service (ordering), planning and manufacturing.

In addition to the process spanning multiple functions, there are also fewer than a handful of technology vendors that enable the entire lifecycle. The predominant vehicle companies use to balance supply and demand is Sales and Operations Planning (S&OP), which leaves demand planning to a monthly or quarterly exercise. Thereafter, demand is sorted out serially, by reducing bottlenecks in supply or production and fulfilling orders from the warehouse. The problem with this is that there is no visibility connecting real-time demand with materials supply or production capacity.
 
Mike Cramer, director, logistics & customer operations at Owens Corning, Toledo, Ohio, summarized part of the reason his company involves order fulfillment in the S&OP process. “The last thing I want is for us to tell the customer one thing and then we don’t have the plan or the capability to execute on it;” he asserted. “Understanding the strategy, priorities and operational actions helps everyone service the customer in the manner they deserve.”

Tracking is critical

We saw many companies beginning their initiatives by looking more closely at order-to-delivery lead times, or perfect order delivery during S&OP. Both the data and some of the anecdotes we collected from manufacturers emphasize how correct tracking of customer service levels is critical to their current order-to-delivery initiatives. Companies frequently mentioned improving fill rates and customer pricing (though less to the extent that they are optimizing pricing for their margin—something that we will see Best-in-Class companies doing in the future). Also in these conversations, a common benefit that emerged for many—in addition to customer service levels—is the reduction of waste (by reducing errors at the front end of the cycle and reducing redundant inventory stock).

Including the order fulfillment team in the S&OP and tracking the order-to-delivery metric are not the only differences that enabled these pioneering companies to improve the order-to-delivery process. In fact, it is really only the starting point, or a way to monitor improvements. After taking up an initiative in order-to-delivery, we see Best-in-Class companies streamlining the order quoting process; enabling inventory visibility (finished goods, work-in-process, raw materials) for Available to Promise or Capable to Promise order promising; and enabling distributed order management capabilities to satisfy multi-channel environments.

For more details on the process, organization, performance management, or knowledge management practices and technology utilization among Best-in-Class, a complimentary version of the report is available until April 30, 2009 at http://www.aberdeen.com/summary/report/benchmark/5706-RA-order-delivery-cycle.asp.

Nari Viswanathan, nari.viswanathan@aberdeen.com, is Vice President/Principal Analyst, and Melissa Spinks,
melissa.spinks@aberdeen.com, is Senior Research Associate at Aberdeen Group Inc., in Boston.

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