A recent study reveals that few companies are following best practices when it comes to a critical area of their commerce systems.
Posted Jun 4, 2007
Most order management processes remain siloed by functional areas such as finance, fulfillment, marketing, and sales, despite repeated advice to the contrary, according to a new report from Forrester Research. Only one out of 57 leading businesses surveyed identified a single business process owner for the complete order process, which could result in shortsightedness and inadequate process improvement. "The Order Management Missing Link: A Single Process Owner" identifies the risks companies face by lacking a unified approach, and suggests remedies to get the end-to-end order system back on track.
"I was surprised, and a little bit disappointed, to find this disparity between what's recommended and what's being done," says Ray Wang, principal analyst with Forrester and author of the report, whose original intent was to document best practices among the surveyed companies. Wang's extensive research on order hubs has shown that putting one person or organization in charge of optimizing the order process works better than the piecemeal approach commonly employed, so he expected to find variations on this theme.
"We had never really documented that this wasn't happening," Wang says. "Everybody believes they have a single process owner if you just ask them, but when you start probing it turns out that process improvements were coming from all directions."
Siloed and uncoordinated improvements to the order management process have two main detriments, according to Forrester. First, they sub-optimize the overall order process, wherein gains in one area of business can cause losses in another. Wang cites one B2B company that achieved 75 percent supply chain inventory reduction, but lost three partners and five percent of its market chare in one month due to lack of available product.
Second, they fail to deliver business agility. The report states that B2B order hub projects tend to be led by IT project managers seeking to streamline applications and data, while sales and marketing executives most often lead B2C order hub projects. "IT dominated projects often fail to deliver business agility in areas such as new product introduction, changing business models, and the acquisition of new stakeholders," Wang writes. "Meanwhile, business-dominated projects often fail to recognize IT considerations that may hamper future flexibility in areas such as integration with existing systems and in nonupgradeable product customizations." For example one B2C customer built a call center order capture system that led to order size increases of 15 percent, but its inability to integrate with the financial system resulted in a $1.5 million expense.
It's not too late, though; Forrester advises four key techniques for delivering on the promise of order hubs:
Start with one end-to-end process owner with a small project team, rather than involve the entire company in a multiyear project that disrupts all disciplines. Assign one business or IT leader to start with a small division or single product line, choose a few key channels to integrate, and assign key members from those areas to the team.
Assign accountability and authority for the end-to-end process, including the power to make business and IT decisions, revisit strategies, and resolve issues in accordance with the project schedule.
Choose order visibility scenarios as a starting point, modeling order scenarios for customers, employees, partners, and suppliers. Use these to design the future business processes.
Align organizational incentives to reward end-to-end efficiencies, such as rewarding salespeople for the accuracy of their forecasts and rewarding the warehouse for efficient delivery to the salesperson, rather than having the seller order too much because of expected partial shipments.
Whether a senate or an emperor governs the order management system, Wang says, common goals and efforts are critical to success. "The key is to understand that order hubs are a business decision and an IT decision," he says. "The projects that fail are the ones with no coordination."
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