2.1 REVENUE MANAGEMENT AT DEUTSCHE POST. Executive Summary. Introduction PERFORMANCE

Transcription

1 PERFORMANCE 2.1 REVENUE MANAGEMENT AT DEUTSCHE POST Executive Summary How to improve corporate profitability in today s highly competitive market environment when all opportunities of internal cost reduction have already been availed? Management has proved itself to be a beneficial concept to drive financial performance especially for companies with high transaction volumes which are seen to have leaking revenues to a significant extent. DHL LOGISTICS, one of the leading providers in logistic services and part of Deutsche Post World Net, initiated a global Management program. The general concept of Management is about building up robust process and system environments, ensuring that services or products are billed in a complete, correct, timely and efficient way and cash is collected as fast as possible. Introduction Companies with high transaction volumes such as telecommunications, airlines, logistics and parcel services face a high complexity of internal business processes and IT systems. The offer to cash process as a core process of a company often suffers from this complexity and lack of transparency. This results in services or products which have been rendered, not billed in a timely manner completely or correctly; adversely affecting the profitability and performance. Considering the fact that the costs of delivering services have already been 30

2 Talent Hits A Target No One Else Can Hit; Genius Hits A Target No One Else Can See. Arthur Schopenhauer German Philosopher Case Studies incurred, so called Leakages have a direct negative impact on profit. Management aims at recovering those leakages in a sustainable manner. In conjunction with collecting billed debts as fast as possible, significant cash-flow increases can be realized. The concept of Management was invented by the telecommunications industry in the early 1990 s. Caused by the market pressure after deregulation in various countries, telcos had to maximize their profits but were hardly in the position to expand the customer base. It was observed that material amounts of cash were lost due to weaknesses in the processing of service data, inadequate processes and unreliable IT systems: data records got lost or were rated with lower tariffs than agreed. Following the telcos, internet service providers and airlines have also adopted Management concepts. Today Management gains importance across industries. A recent study of more than 150 German companies from various industries clearly states the potential: 70% of the companies estimate leakages up to 2% of yearly revenues; 80% of the companies confirm high benefit from conducted assessment of sub-processes and systems of the offer to cash process; Every 4th company is not satisfied with its internal level of Management. The aforementioned study confirms the trend by stating that 94% of respondents consider Management as business critical. Companies dealing with a high volume and low margin business simply cannot afford even small percentages of leaked revenues. The increase of the effective margin by fixing revenue leakages is tremendous for those businesses. 31

3 PERFORMANCE Downturn of and Margin Due to Leakages 10% All Attempted Events % Opportunity losses 100% Billable Events % Services not billed or misbilled Potential Opportunity 1% Correct Charge Adjustments 9% Billed Cash Flow Uncollectible Expense 1% Allowance 3% Adjustments Write-offs (Disputes) (Bad Debt) 1% Fraud 90% Collectible Typically cross-industry gap: 2 15% Standard services in logistics such as freight forwarding or warehousing have razor thin margins. Increasing number of error rates in invoicing results in lost revenues because the billing process in most companies is manual and/or non-standardized. Management at DHL LOGISTICS DHL is the global market leader in international express, overland transport and air freight. It is also the world s number one in ocean freight and contract logistics. DHL offers a full range of customized solutions - from express document shipping to supply chain management. DHL LOGISTICS with its business units DHL Global Forwarding, providing road, air and ocean freight forwarding services and DHL Exel Supply Chain as a full service contract logistics provider is characterized by very complex and network driven operational processes. Massive customer base spread across the globe sets challenging demands on DHL s service models. The variety of services ranges from in-plant supply activities at automotive factories to the management of customers web content management systems and sales support. On one hand, some services such as forwarding activities are time critical and require for real-time interaction between stations worldwide making standardized operations key to success On the other hand, services like contract logistics with highly customized supply chain solutions jeopardize standardization. Especially in the contract logistics every site in every country is individual and the chances for lost revenues appear boundless. I am glad that we are in the right place at the right time to take up the challenge with our Management program. Andreas Hespe, Senior Vice President and Head of Management DHL LOGISTICS. The multi-phase Management program used at DHL LOGISTICS in cooperation with Ernst & Young started in 2005 with a profound analysis of the current business situation and the probabilistic assessment of revenue leakages. The focus was on process evaluation by walkthroughs of the complete offer to cash process and by system analysis based on mass data reconciliation. Key root causes for revenue leakages were identified through testing historic invoices. A selected sample of invoices was reconciled against the underlying agreements and services delivered. During the 5 months of assessment phase at the Company s stations worldwide the gap between the potential and realized revenue was quantified and subsequently a business case for a global revenue management program was established. In general Management programs, in a very short time, can offset the efforts with additional revenues and hence have a very strong business case. To leverage the full potential at DHL LOGISTICS, it was decided to roll-out the process and systems improvements on a global level. The implementation in top-25 countries of the Company started in mid 32

4 In General Management Programs, In A Very Short Time, Can Offset The Efforts With Additional s And Hence Have A Very Strong Business Case. 33

5 PERFORMANCE Typical Offer to Cash Process and Root Causes for Leakages Realized Potential Service Definition Contractual Arrangement System Input Incorrect data formats Inconsistenet customer data Lack of error processing Incorrect presentation of customer and conditions hierarchy Interface problems Surcharges are not applied Errors in capturing service data Manual calculation errors Establishment of a contractual relationship not ensured Customer Care Rating & Billing Capturing Service Data During the roll-out, the project team defined and implemented work streams to address weaknesses in different stages of the offer to cash process. Besides local improvements in the countries, global initiatives were initiated to cover areas of improvement within the network. Some of the examples of those initiatives include the description and definition of billing and documentation procedures, improvement of master data quality and set-up of information flow standards between origin and destination stations. The experience gained during the in-depth study of sub-processes and systems was taken into account in strategic considerations about standardization and centralization of parts of the billing processes. Efficiency aspects like increased manual or double work were another by-product having a mid- or long-term profitability potential. Management should not be considered as a oneshot activity. Changes in the service offerings, market or customer structure or in the IT environment demand an ongoing monitoring and assessment of possible revenue leakages. Hence full potential can be unleashed through a continuous and sustainable program. The support of Executive Management is key to success and therefore a business case outlining the improvements and subsequent returns is a must. Also important is to have sound indicators to assess continuous improvements. Examples of those Key Performance Indicators (KPI) include the period of time to bill and bill to cash, number of unbilled shipments or number of invoices per FTE. Ideally, every sub-process of offer to cash should be equipped with a set of KPIs to identify deviations in the process from target values. In the DHL project, sustainability was addressed as one of the key elements of the overall Management program. Continuously fine-tuned follow-up activities on improvement have become a regular feature. Announcing a Management organization, DHL LOGISTICS finally put Management on the strategic agenda. Financial returns and internal efficiency are not the only gains: customers also recognize and appreciate billing transparency and accuracy. Hespe outlines: Keeping in mind that the LOGISTICS division generates revenues of approx. 25 billion in 2007, a sustainable recovery of even a small revenue percentage results in significant financial benefits. After a year of great efforts taken to roll-out the program towards a robust process framework, benefit and recovery calculations draw a clear picture. At a business of this 34

6 2006. During the roll-out, the project team defined and implemented work streams to address weaknesses in different stages of the offer to cash process. Besides local improvements in the countries, global initiatives were initiated to cover areas of improvement within the network. Some of the examples of those initiatives include the description and definition of billing and documentation procedures, improvement of master data quality and set-up of information flow standards between origin and destination stations. The experience gained during the in-depth study of sub-processes and systems was taken into account in strategic considerations about standardization and centralization of parts of the billing processes. Efficiency aspects like increased manual or double work were another by-product having a mid- or long-term profitability potential. Management should not be considered as a oneshot activity. Changes in the service offerings, market or customer structure or in the IT environment demand an ongoing monitoring and assessment of possible revenue leakages. Hence full potential can be unleashed through a continuous and sustainable program. The support of Executive Management is key to success and therefore a business case outlining the improvements and subsequent returns is a must. Also important is to have sound indicators to assess continuous improvements. Examples of those Key Performance Indicators (KPI) include the period of time to bill and bill to cash, number of unbilled shipments or number of invoices per FTE. Ideally, every sub-process of offer to cash should be equipped with a set of KPIs to identify deviations in the process from target values. In the DHL project, sustainability was addressed as one of the key elements of the overall Management program. Continuously fine-tuned follow-up activities on improvement have become a regular feature. Announcing a Management organization, DHL LOGISTICS finally put Management on the strategic agenda. Financial returns and internal efficiency are not the only gains: customers also recognize and appreciate billing transparency and accuracy. Hespe outlines: Keeping in mind that the LOGISTICS division generates revenues of approx. 25 billion in 2007, a sustainable recovery of even a small revenue percentage results in significant financial benefits. After a year of great efforts taken to roll-out the program towards a robust process framework, benefit and recovery calculations draw a clear picture. At a business of this size program returns in the range of high double digit million Euro are achievable over the next two years. Amadou Diallo, CFO DHL LOGISTICS is convinced: Management is real value-added to the business. We listen to the business needs and possible problems. The mindset changes from the operations to top management at all levels of the organization a great leverage for DHL LOGISTICS. Conclusion The showcase of DHL LOGISTICS has proved the valuable concept of Management. Developed as a management tool for telecommunication companies, it turns out today to be one of the most beneficial concepts to improve the financial performance, especially for the low margin and high volume industries. We believe that upcoming years will show considerable progress in embedding Management. Authors: Andreas Bonnard, Matthias Heintke. 35