Hearing that there is the first pending recession in 10-years is not dissimilar to a meteorologist telling us the worst storm in 10 years is likely heading our way – our customers are starting to ask us “how can they prepare?” As management consultants and NetSuite experts, we have been preaching a few key strategies that we’ve seen a large number of our customers deploy over the years to help protect themselves against an economic downturn. These customers have leveraged NetSuite’s robust features/functionality as their shield.
The following are our best practice recommendations to recession proof your business via NetSuite:
- Reduce or reallocate Headcount Through Process Automation
There are several key processes that we see companies able to automate in order to reduce or reallocate headcount:
- Accounts payable – One of our NetSuite customers in the software industry does $100M in revenue was able to reduce their AP department to 1 person. Their strategies include:
- Purchase orders – control what can be purchased and from who
- Vendor Invoice capture – leverage OCR technology and AP portal for capturing a vendor’s invoice details
- Electronic Payments – using electronic payment functionality from NetSuite to eliminate checks and eliminate signing into a bank’s portal to process payments
Benchmarks: Your spend under contract (purchase order helps control this) should be greater than 60%. Additionally, your cost to process an invoice should be less than $4.86.
- Accounts receivable – The slower you get invoices out, the longer it takes to collect cash. Let alone, the risks of your customers not paying for numerous reasons. Accounts receivable should be treated no different than sales, it’s all about speed.
- Invoice creation – your invoices should be automated from your orders and also automatically e-mailed or electronically (EDI) sent to your customers reducing processing time from the AR department
- Collections – automated e-mails should be sent to your customers multiple times before the due date of the invoice and then daily after the invoice is overdue.
Benchmarks: Your benchmark days sales out standing (DSO) should be 36 days or less. Additionally, you should be able to maintain .4 accounts receivable employees for every $100M in revenue.
- There are many other departments ripe for reduction and re-allocation strategies. A process review of your departments to identify the manual and non-routine tasks will help identify your excess spend on personnel and process.
- Ensure you have near real-time reporting to track your businesses KPIs
With any storm brewing, you need to be able to see the bad weather as it’s coming, not find out about it once it’s already here – you won’t be able to react. Our customers are starting to watch trends daily on their KPIs (i.e. Revenue $, number of new orders, average order qty, average sales price, etc.). NetSuite’s reporting is real-time allowing managers and decision makers to see trends as they happen and to react quickly and data-driven.
We deploy a three “M” approach with our customers: Measure, Monitor and Manage.
- Measure – Identify the KPIs that your business is most sensitive to. Make sure to also budget for these KPIs so that you will know in a given week or month if you are underperforming (the storm is coming).
- Monitor – Ensure that you are able to see these measures in near real-time in one platform. It’s important to have one reporting tool that consolidates all your company’s key data in order to show you a Budget vs Actual of your KPIs. NetSuite’s real-time dashboards and scheduled searches/reports provide a robust reporting platform.
- Manage – Have alerts and alarms go off (i.e. e-mail notifications) when your KPIs enter thresholds that aren’t acceptable and/or require warning. NetSuite has numerous features including, but not limited to, blinking dashboard icons and automated exception-based e-mails to let you know when your KPIs are slipping.
- Ensure your cash outflow is controlled and data-driven
- Purchase Orders (PO) – implementing a PO system helps control spend on both COGS and expense related items. As previously mentioned, we should strive to have more than 60% of purchases be under contract. Additionally, PO’s help departments stay on budget and hold individuals accountable. Implementing a PO system can be a big culture change, so it’s better to do it before a storm hits.
- Inventory/Supply Chain – we have a customer (pre-NetSuite) who had four employees in charge of their supply chain. The customer had a complex supply chain with tons of component items going to multiple contract manufacturers and then to disparate 3PLs. With NetSuite’s supply chain automation functionality – they were able to reduce their supply planning team to one and achieve industry best practice benchmarks:
- Gross Margin: 24.1%+
- Inventory Turnover: 7.3 turns
- Warehouse Fill Rate: 97.5%
In conclusion, a storm is brewing in our economy and a recession is looking inevitable. We encourage you to reach out to us and let us show you how we can help you recession proof your business by taking advantage of the features/functionality NetSuite has to offer.
Note: These benchmarks are “best in class” process performance benchmarks for general business companies based on data collected by APQC.