The Order Snake: A Study in Order to Cash Process in the Building Industry
In the business world, one might argue that life mimics nature, where intricate processes create an interconnected network of events, just like the workings of an ecosystem. Consider the building industry, a jungle, teeming with myriad species of orders and invoices, contracts and materials.
Amid this diversity resides a mythical creature – The Order Snake – that holds the secret to business survival and prosperity: the ability to transform customer orders into profit.
Just as the naturalist observes the habits of creatures in the wild to understand the greater ecosystem, we too can gain invaluable insights into the complex journey of a customer order as it transmutes into revenue within the building industry. Let's track the path of this elusive creature, The Order Snake, as it navigates this industry's thick undergrowth and sheds light on the Order to Cash (O2C) process.
Infographic courtesy of CFO Guide
Hunting for Customer Orders
The Order Snake begins its journey in the dense foliage of customer orders. An adept hunter, it unhinges its jaws to devour the largest orders it can find, its ambitions constrained only by the scale and complexity of these opportunities. This initial capture of orders symbolizes the sales order management stage, where requests are confirmed, and a legally binding agreement is formulated.
Once the orders are swallowed, the digestion process begins, driven by 'planning enzymes'. This mirrors the planning phase in our O2C journey. The consumed orders are carefully estimated, the necessary materials ordered, and labour scheduled. In the natural world, the snake's digestive system is efficient, breaking down the order methodically to ensure that each component is handled with precision and efficacy.
However, if the Order Snake has bitten off more than it can chew, or gorged itself on too many orders at the same time, the digestion slows. The snake, bloated and lethargic, struggles to process its meal, just as a tree snake might strain to digest a large possum. This scenario mirrors the inefficiencies and delays that can occur in the building industry when overburdened with orders. An overload can lead to slower processing times, ultimately affecting the speed and efficiency of the O2C process.
Performing the Work / Fulfilling the Order
Following digestion, the order moves through the 'performance tract' and arrives in the 'review intestine'. If any issues arise during this phase, inappropriate or inaccurately sized chunks may be pushed onwards. In our building industry O2C metaphor, this stage refers to the delivery of services or goods, followed by internal quality checks and reviews. If any problems are detected, it can lead to invoice disputes, customer dissatisfaction, and potential impacts on future business.
Invoicing
By this stage, the once substantial order is now transformed into an invoice, its initial identity stripped away through the metabolic magic of the Order Snake. This invoice enters the 'debtor management loop', a stage which requires constant vigilance to ensure smooth passage. In the building industry, this involves invoice management, debt collection, and payment reconciliation. Just like the snake must carefully manage its digestion to avoid complications, businesses must pay close attention to their accounts receivable to prevent the invoice from getting stuck in the cycle and causing a cash flow blockage.
Cash Collection
Finally, our Order Snake completes its journey, leaving behind a healthy deposit of... money. In the rich soil of the business landscape, this pile of cash acts like compost, nurturing the growth of future orders, attracting more 'prey' to the jungle, and thus continuing the life cycle. This is the final stage of the O2C process, where the received payments are accounted for and analysed to plan for future orders, ensuring the growth and sustainability of the business.
Just as David Attenborough has spent a lifetime revealing the wonders of the natural world, our journey through the lifecycle of the Order Snake illuminates the intricate and vital processes of the Order to Cash journey in the building industry. It is a narrative that underlines the importance of efficiency at every stage of the process and the hazards of blockages, or 'constipation', that can stifle the flow of business.
In the end, our journey with the Order Snake serves as a vivid reminder of the cyclical and interconnected nature of the business ecosystem. It encourages us to approach each phase of the O2C process with care and consideration, ensuring the smooth transformation of orders into cash and securing the health and prosperity of the business jungle.