A new order is initially good news. But between the offer, order, procurement, delivery, and invoice, numerous work steps arise. The less clearly these are organized, the more time sales, purchasing, administration, and management require.
This additional working time is often not included in any order calculation. Employees repeatedly answer the same follow-up questions, transfer data between systems, or search for a missing approval. Although the order generates revenue, its actual margin is lower than expected.
Process optimization does not necessarily begin with new software. The first step is to make visible where time is lost and why the same process has to be handled multiple times.
What are hidden process costs?
Hidden process costs arise from activities that do not create additional value for the customer and nevertheless tie up working time internally. Typical examples are:
- duplicate data entry,
- incomplete orders,
- missing price or discount approvals,
- repeated follow-up questions between departments,
- searching for documents or emails,
- manual transfer of delivery dates,
- subsequent changes to already created documents,
- corrections of invoices,
- coordination across multiple communication channels,
- unclear responsibilities.
A single process may only take five or ten minutes longer. However, if it repeats every day for numerous orders, it creates a significant burden.
View the entire order process
Companies often optimize individual departments. Sales improves its quoting process, purchasing negotiates delivery terms, and the back office processes orders faster. Nevertheless, friction losses remain if the handovers between these areas do not work.
A typical order process can include the following stages:
- Capture customer inquiry
- Clarify requirements and technical requirements
- Check prices and availability
- Create and approve offer
- Receive order
- Create order
- Procure goods or services
- Coordinate delivery date
- Document service
- Create invoice
- Assign incoming payment
Every handover requires complete information. If the item number, delivery address, contact person, approved price, or payment terms are missing, a new cycle of follow-up questions begins.
Distinguish between process time and processing time
An order can take ten days from receipt to invoicing, although only two hours of active work are performed internally. The remaining time consists of waiting:
- for a customer response,
- for internal approval,
- for a delivery date,
- for missing documents,
- for feedback from the person responsible.
For process analysis, two values should therefore be considered separately:
Processing time describes the actual working time.
Lead time covers the entire period from start to completion.
A long lead time is not automatically problematic. Delivery times may be objectively necessary. It becomes critical when processes are left pending for no apparent reason or have to be restarted multiple times.
Estimate the actual cost of an order
An initial analysis does not require complicated cost calculation. For a selected order type, the involved activities and time requirements can be roughly captured.
Illustrative example
A trading company processes 80 comparable orders per month. In addition to the planned standard process, each order incurs:
- 10 minutes for missing customer data,
- 12 minutes for internal price approval,
- 8 minutes for searching for delivery information,
- 15 minutes for subsequent order changes,
- 10 minutes for a follow-up question about the invoice.
This is a total of 55 additional minutes per order. With 80 orders, this creates around 73 hours of additional effort per month.
At a sample internal full cost rate of 45 euros per hour, this would calculate to more than 3,200 euros per month. The values are for illustrative purposes only. For a reliable assessment, companies must use their own time and cost data.
However, the calculation shows: Small delays can become economically relevant in total.
Five questions for each process step
For a pragmatic analysis, a commonly occurring order type is initially sufficient. Five questions are asked at each process step:
- What information is required?
- Who provides this information?
- Who is authorized to decide or approve?
- Where is the result documented?
- What happens if information is missing or differs?
This makes interfaces visible. Often, the problem is not the actual activity, but the handover to the next person.
Organize follow-up questions by cause
A follow-up question is initially only a symptom. To improve, its cause must be identified.
Useful categories are:
- missing mandatory information,
- unclear responsibility,
- unclear price or discount rule,
- deviating special customer agreement,
- missing system access,
- contradictory data,
- media break between email, spreadsheet, and ERP system,
- missing or delayed approval.
Over a period of four weeks, even a simple tally sheet can show which causes occur particularly frequently. The most important category is then given priority.
This way, the entire process is not rebuilt at once. The company starts where the greatest impact can be expected with manageable effort.
Practical example: Order changes after the order
A customer orders individually assembled equipment. After order entry, they change the delivery address, quantity, and delivery date. The information reaches sales via email, purchasing by phone, and the back office via a forwarded message.
Each department temporarily works with a different data set. Purchasing orders the original quantity, while the back office is already using the new delivery address. Before delivery, the order has to be laboriously reconciled.
The improved process defines:
- a central entry point for order changes,
- a responsible processor,
- a binding change status,
- the required approvals,
- a documented confirmation to the customer,
- a uniform data set in the leading system.
This does not make changes disappear. However, they are processed in a controlled manner and no longer have to be reconstructed multiple times.
Prioritize measures by impact
Not every improvement requires automation. Often, clear organizational rules help first:
Short-term implementation
- Define mandatory fields for orders,
- define central storage locations,
- document approval limits,
- name responsibilities,
- use common status terms,
- keep exceptions in a clarification list.
After stabilizing the process
- automate recurring data transfers,
- adjust forms or system masks,
- set up approval workflows,
- check interfaces between shop, ERP, and accounting,
- build meaningful process KPIs.
An unclear process should not be rushed into digitalization. Otherwise, the existing lack of clarity is merely transported faster through the system.
Start with a few KPIs
For ongoing monitoring, the following are suitable, for example:
- average lead time,
- active processing time,
- number of follow-up questions per order,
- proportion of subsequently changed orders,
- number of required approvals,
- corrections after invoicing,
- orders without complete mandatory information.
The KPIs need a clear purpose. An evaluation is only helpful if a decision or measure follows from it.
From action plan to actual change
A process analysis only delivers benefits when improvements are implemented in everyday work. For this, every measure should include:
- a concrete goal,
- a responsible person,
- a realistic deadline,
- a measurable baseline value,
- the desired result,
- a review date.
ELB Services therefore combines the analysis of structures, figures, and processes with practical implementation. Measures are prioritized by impact and feasibility and accompanied in realistic steps together with management. ELB Services
Process optimization with ELB Services
ELB Services supports companies in making economic and organizational weaknesses visible. Depending on the starting situation, the cooperation can include the following steps:
- Capturing the existing order process,
- Analysis of processing and waiting times,
- Identification of recurring follow-up questions,
- Evaluation of interfaces and responsibilities,
- Development of a practical target process,
- Prioritization of concrete measures,
- Support of implementation,
- Building suitable KPIs and controls.
The consultation can be combined with operational project support as well as ERP-related process consulting. The goal is a process that works in daily business and remains economically controllable.
Would you like to know where time and margin are lost in your order process? Schedule a non-binding initial consultation with ELB Services. Together, we will select a suitable process and define a manageable first analysis step.
This post is for general information. The examples are illustrative and do not represent promised savings or economic results.
Keywords
- Recognize process costs
- Optimize order processing
- Process optimization for SMEs
- Improve margin
- Business consulting processes