Digitization can bring many benefits to supply chains, such as speed, cost and transparency. When carried out correctly, it can be massively transformative for a business. As the world becomes more connected and digital-based, digitization is the next logical step.
A recent study on how finance executives can take advantage of digitization in order to enhance Days Sales Outstanding (DSO) and improve profitability has recently been released by DiCentral, a global B2Bi and API solutions provider, and Lehigh University. The results were from a year-long study that focused on uncovering the impact that supply chain digitization improvement efforts truly have on a company’s bottom line.
The study is based on both survey data and interviews with 125 North American-based CEOs and CFOs at organizations with an average of $150 million in annual revenue. Among its top findings is the idea that more than 85% of C-level executives expect digitization efforts to enhance cash flow and reduce Days Sales Outstanding (DSO).
”Throughout this study, we’ve taken an in-depth look at supply chain collaboration and digitization, covering many different aspects such as when revenue is initially recognized, integration efforts with customers, suppliers, and banks, and even companies’ stance on electronic payments,” said Zacharia, Director of the Center for Supply Chain Research at Lehigh. “While many companies have made great strides toward improving their supply chain processes, this study has discovered that companies still face many physical and financial challenges. After analyzing the data collected, we’ve concluded that none of the respondents are entirely satisfied with their digitization level and all the respondents believe that the investment in these projects would be of significant benefit to their corporate bottom line.”
A look at some of the other notable numbers in the study:
- 95% of manufacturing companies surveyed have initiated a process to digitize the purchase order engagement activity with customers. Also, the same percentage of respondents had started their journey to digitize invoices sent to customers.
- Companies whose supply chains are not fully digitized have buried manual data entry activity in numerous departments throughout their organizations, revealing that very few companies have a true understanding of the actual cost associated with the manual data entry processes.
- $1 million was the average annual labor costs tied to manually entering data into their ERP and back-end systems.
- $600,000 was the average annual costs associated with entering manual invoices from suppliers.
- Only 40% of buying organizations pay manufacturers digitally.
- 75% of respondents said digital payments are not yet used by more than 60% of their customers.
- Only 54% of the companies invoice clients when the client has received the shipment. The remaining 46% invoice clients at the month end or quarter end boundary which is a significant delay in getting access to cash – to being paid.
- 77% of the respondents said they would increase their cash forecasting frequency if reconciliation time were improved.
- Nearly a 1/3 of the respondents would aim to move from a monthly cash forecasting process to a weekly process if the process were digitized.
“We frequently only think about a physical item and the delivery of this item when we consider the ‘supply chain,’” said Steve Scala, Executive Vice President of Corporate Development at DiCentral. “However, a supply chain encompasses all the individuals, organizations, resources, operations, and technology involved in supplying a product or service to a customer. In this research, we not only looked at the physical supply chain, but also the financial supply chain, and the interaction between the two. The importance of understanding this impact is underscored by the frequency by which investors and external appraisers base company valuations on the financial performance of key metrics and ratios.”
The study can be found here.