The Invoicing cycle gone web. The tangible benefits

In this post (http://goo.gl/DhcEZp) I have focused on the Invoicing Cycle and the paradigm shift that takes place when the enterprise utilizes a web-based ERP. I showed how specific business process steps within that cycle can be changed in order to invite customers “in”; make them part of the process instead of just giving them “data” or – worst yet – just an invoice at the end of the cycle.

In this post I will continue discussing the same example and calculate tangible benefits, for each of the steps of the process. You’d better first go through the previous post to understand how each step is altered in a web-enabled ERP and then make the comparison with the numbers below.

Let’s first assume that the employee that deals with these matters costs about 1.500 € per month for the company. Divided by 22 days of work per month and 8 hours per day, this gives us an hourly cost of 9 €. All calculations below are based on this number and extrapolated to a full year. This will give the reader the immediate comparison of the cost saving against the yearly cost of a new web-based ERP. My point is to show that, at the end of the day, the cost of the web-based ERP, if this is a cloud Software as a Service solution, can be financed through the mere cost savings of the Invoicing process. Let’s see if the numbers compute!

Step	Web-based ERP	How hours are saved	Hours saved, (monthly)	Cost savings (yearly)
Browsing of inventories and prices & Order placement	Enhanced by an integrated B2B sales portal inside the main system	Customers do their own browsing and purchase orders	2 * 22 = 44	4.752,00
Order confirmation	Automated notifications. Issuing of a pro-forma invoice for the customer’s acceptance. Close the process from within a web-based workflow system.	Less telephone calls. All orders are confirmed prior to issuing an invoice	0,5 * 22 = 11	1.188,00
Picking and shipment	Internal process. No major differences here.		0	0
Order tracking	Enhanced by an integrated B2B sales portal inside the main system. Invoice sent through email for faster processing by the customer.	Less telephone calls. Customers browse their status, when they need	0,2 * 22 = 4,4	475,00
Goods delivery	Only dispatch note received with package. Electronic equivalent of it may have been sent in previous step.	Electronic invoice zeroes time spent for printing, enveloping etc. More cost cutting by printing expenditure etc.	1 * 22 = 22	2.376,00
Order acceptance	Powered by a workflow inside the web-based system. Clock starts ticking for the invoice payment…	Formal order acceptance can result in decreasing overdue Accounts Receivable	0,5 * 22 = 11	1.188,00
Invoice payment	Customer “signals” invoice payment through automated workflow.	Accounting books the receipt but A/R employee is disengaged from this process!	1 * 22 = 22	2.376,00
Collections process	Through an integrated Collections system. Web technology can offer automated emails, SMS or even customer portal with capabilities of self-service by the customer.	Significant decrease in Collections actions	1 * 22 = 22	2.376,00
TOTAL (per year):				14.731,00

Notice that the above estimates indicate that the Customer Orders dept. will save almost one (1) FTE (Full time equivalent) by enhancing this process. Now, if you translate the numbers in people, you must certainly take into consideration that each employee must have a replacement in cases of sickness, leave of absence etc. It is evident that, if a job takes one FTE to be done, then the organization cannot have ONLY ONE FTE in place!

From the above, I think it becomes obvious that theoretical enhancements in just one business process can fuel (finance) the purchase of a cloud-based, Software as a Service ERP solution, at least for the small and medium enterprise. Of course, that is not to say that the mere introduction of such a system will improve the business processes! It takes some restructuring plus a road map to change. Although this is another discussion, outside the software itself, it might be a significant factor to take into consideration when selecting your new cloud vendor: Is everybody willing (and able) to guide you through this road map? Or will you need additional consulting assistance (=professional services) to make your way through?