At logistics and supply-chain company DSC Logistics, chief financial officer JoAnn Lilek recognizes that “one key to making money in logistics is business process automation.”
Lilek’s affection for automation extends to the order-to-cash cycle, in which she includes order entry, invoicing, accounts receivable, dispute resolution, collection, and cash application. By her lights, automating that cycle reduces costly, time-consuming errors, boosts collections, and improves working capital.
Those three improvements would be important to any business — but they’re especially important for a company like DSC whose profits depend on high transaction volume. As a third-party logistics manager, DSC arranges the shipment, warehousing, and delivery of goods, and settles accounts all along the way. Tens of thousands of business transactions pass through DSC’s systems every month, so management has developed a keen appreciation for quick and error-free order-to-cash processes.
DSC is private, and Lilek won’t reveal hard numbers associated with order-to-cash lapses or improvements, but she contends that the $300 million company uses its $6 million information technology budget “effectively.” What’s more, adds the finance chief, some of the company’s accounts receivable upgrades have improved the general-ledger processes of its customers. In fact, says chief information officer Jon Fieldman, integrating the flow of data between DSC and its customers is like implementing a merger because it “tied us so tightly together.”
Close customer contact, it happens, is how the company began. In 1960, Jim McIlrath was fired from a cold-storage company for arguing with the owner over expanding the business to help customers warehouse dry goods. McIlrath started his own business on Chicago’s South Side — Dry Storage Corp., or DSC — whose current chief executive officer is his daughter Ann Drake.
Window on Receivables
Close customer contact, in IT terms, often means data visibility — which is “a very relevant piece” of the order-to-cash cycle, says Lilek.
Two years ago, Fieldman introduced a Web-based tool from Viewlocity that gives customers a window on their part of DSC’s supply chain. Customers can search and filter order and inventory information in near real time; date-time stamps enable them to examine the history or check up on the status of any order.
After adding transparency to their supply chain, Lilek and Fieldman turned to the august business practice of invoicing. In some cases, their goal was to eliminate paper invoices; in other cases, it was to banish invoices altogether.
Paperless accounts receivable had plenty of takers among DSC’s clientele. Most of its customers are Fortune 500 retailers and manufacturers — such as Kimberly-Clark, Multifoods, Georgia-Pacific, Unilever, and Kellogg’s — that already use electronic data interchange (EDI) to transfer transaction information.
As for freeing the process from invoices completely, one approach is to use EDI 214 data, which can automatically update a customer’s supply chain system with shipment status information. A customer would integrate EDI 214 into its account payable system, then link to DSC’s accounts receivable system, part of JD Edwards’ OneWorld enterprise resource planning (ERP) system.
After the two systems are synched up, payment terms, carrier rates, and any other parameters are fed into the customer’s system. When a customer places an order, the carrier’s delivery of the appropriate goods initiates an EDI 214 transmission to the customer; the customer’s system then automatically authorizes a payment to DSC. Price discrepancies are kicked out for investigation.
Looking for Trouble
Although discrepancies must be investigated manually, Lilek insists that the greater the amount of automation in the accounts receivable process, the fewer the instances of manual intervention — and the less time and money spent researching and correcting errors. Exorcising manual postings from the order-to-cash cycle, she adds, is fundamental to good accounting, especially in a business with a high volume of transactions.
Lilek contends, however, that improving “data matching” is even more important to the order-to-cash cycle. Data matching refers to linking a payment with its corresponding invoice number and order number — which are usually different. That’s another reason Lilek favors eliminating invoices entirely: no invoice number means that only the order number need be linked to the customer’s remittance.
It took time to build the three-part information technology system that keeps DSC humming. In 1998, Fieldman and his team integrated DSC’s proprietary warehouse management system, which tracks and manages orders and inventory for 30 U.S.-based distribution centers, with a customized transportation system from i2 Technologies. In 2003, the company completed the integration of the OneWorld ERP software, tying the entire system together by running the applications on multiple AS/400 servers.
The effort was shepherded by both IT and operations executives because many of the changes were driven by customers who believed that improving DSC’s order-to-cash cycle would benefit them, too. For example, now that transactions are pushed through DSC’s system faster and with fewer errors, its customers enjoy faster, less-error-prone settlement.
Lilek believes that one of DSC’s business strengths is maintaining consistent processes from department to department across the company. During the next year, she wants to exploit the company’s order-to-cash technology to pursue other business-process goals.
For instance, eventually she’d like to eliminate the paper check-cutting process when DSC must pay its own suppliers. Today, a manager for the general ledger tells an accounting staffer that a batch of invoices needs to be reviewed and posted, and that checks need to be cut and mailed.
In an automated scenario, it would be DSC’s financial system that was loaded with payment terms and other invoicing criteria. An invoice submitted for payment would prompt an electronic funds transfer if all the criteria were met. The bigger challenge would be getting DSC and its suppliers to adopt such a system, says Lilek, but she has high hopes — she’s been through something like this before.