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Unit 6.5

How ERP Systems Support Business Processes: The Order-to-Cash Cycle

IT 233: Business Information Systems

Learning Objectives 🎯

By the end of this session, you will be able to:

  • ✅ Explain how an ERP system supports a cross-functional business process.
  • ✅ Describe the steps of the Order-to-Cash (O2C) business process.
  • ✅ Identify how different ERP modules (Sales, SCM, Finance) interact during the O2C cycle.
  • ✅ Understand the power of integration in reducing errors and providing real-time visibility.

The Challenge: Information Silos

Traditional (Siloed) Approach

  • Sales has its own system.
  • Warehouse has a separate inventory list.
  • Accounting uses different software.
  • ❌ Manual data re-entry
  • ❌ High chance of errors
  • ❌ No real-time visibility

Integrated ERP Approach

  • One central database.
  • All departments use the same system.
  • Data entered once is available to everyone.
  • ⚡ Automated workflows
  • ⚡ Single source of truth
  • ⚡ Real-time visibility

💥 Animation: Breaking the Silos

🛒
Sales
📦
Warehouse
💰
Finance
⚡ ERP: One Shared Database
Three departments — three isolated systems. Data cannot flow between them.

⚡ Simulation: Silos vs. ERP — Same Order, Different Worlds

❌ Siloed System
    Outcome:—
    ✅ Integrated ERP
      Outcome:—

      The Order-to-Cash (O2C) Cycle

      Definition: The Order-to-Cash (O2C) cycle is the complete set of business processes covering the receipt and processing of a customer order, its fulfillment, and the receipt of payment.

      It's the core process of how a company makes money from its sales.

      Let's see how an ERP makes this seamless.

      O2C Cycle Flow

      The O2C Journey: An Overview 🗺️

      1. Step 1: Create Sales Order (Sales Dept)
      2. Step 2: Fulfill Order (Warehouse/Operations)
      3. Step 3: Ship Order (Logistics/Shipping)
      4. Step 4: Create Invoice (Accounting)
      5. Step 5: Receive Payment (Accounting)

      In an ERP, each step automatically triggers the next, creating a smooth, integrated flow.

      🔗 Interactive: O2C Pipeline Tracker

      Step 0 of 5
      🎉 O2C Complete! One system, five modules, zero manual errors.

      Step 1: Create Sales Order (Sales Dept)

      A salesperson receives a new order from a customer.

      • They access the CRM or Sales module to create the order.
      • ⚡ Integration in Action: The ERP instantly...
        • Checks customer credit limit (Financial Module).
        • Verifies and reserves inventory (SCM Module).
      • Once confirmed, the order automatically moves to the next stage.
      Sales Order Integration

      📝 Try It: Place a Sales Order

      Credit Check (Finance):—
      Inventory Check (SCM):—

      Steps 2 & 3: Fulfill & Ship (Operations)

      Step 2: Fulfill Order (Warehouse)

      • Confirmed order appears as a "pick list" in the SCM module.
      • Staff picks and scans items.
      • 📊 Inventory levels are updated in real-time across the entire system.
      Warehouse Scan

      Step 3: Ship Order (Logistics)

      • SCM module generates shipping documents (packing slip, etc.).
      • System can integrate with carriers (e.g., Aramex, local couriers).
      • Shipping the order updates its status and triggers invoicing.

      🏭 Simulator: Warehouse Pick

      📦 Laptop
      12
      in stock
      🖨️ Printer
      3
      in stock
      🖥️ Monitor
      8
      in stock
      ItemQty to PickLocationStatus
      💻 Laptop2Rack A-12Pending
      🖨️ Printer1Rack B-03Pending
      🖥️ Monitor3Rack C-07Pending
      Pick list received from ERP — scan each item to confirm.
      ✅ Pick Complete! ERP has updated live inventory. Shipping documents are being auto-generated (Step 3).

      Steps 4 & 5: Invoice & Payment (Accounting)

      Step 4: Create Invoice

      • Shipping the order automatically triggers the Financial module.
      • An invoice is generated and sent to the customer.
      • An entry is created in Accounts Receivable (A/R).

      Step 5: Receive Payment

      • Clerk records payment in the Financial module.
      • ⚡ Integration in Action: This single entry...
        • Clears the A/R invoice.
        • Updates the cash balance.
        • Updates the customer's credit status.

      🧾 Demo: Generate Invoice & Record Payment

      📄 Invoice #INV-2024-1087  OPEN
      Customer:Bikram Shrestha, Kathmandu
      Items:2× Laptop + 1× Printer
      Amount:NPR 1,85,000
      Due Date:2024-09-15
      📒 Accounts Receivable (A/R) Ledger
      DateDescriptionDebit (A/R)Credit (Cash)Balance
      2024-09-01Previous balance——NPR 0
      Payment Reconciliation

      Visualizing the Integrated Flow 🔄

      Sales Module

      Sales Order Created

      ⬇️

      Triggers...

      SCM Module

      Pick List Generated

      Inventory Updated

      Order Shipped

      ⬇️

      Triggers...

      Financial Module

      Invoice Generated

      Payment Recorded

      General Ledger Updated

      The ERP acts as the central nervous system, ensuring seamless communication between departments.

      🔄 Animation: Data Flowing Between ERP Modules

      🛒
      Sales
      Idle
      →
      📦
      SCM
      Idle
      →
      💰
      Finance
      Idle
      0
      Events fired
      0
      Modules touched
      0
      Manual steps
      Event log will appear here…

      Practical Application: O2C in Nepal

      Scenario: A Kathmandu-based electronics distributor (e.g., a supplier for Daraz) uses an ERP system.

      • Order: A customer in Pokhara orders a laptop via their website (integrated with the ERP's Sales module).
      • Integration: The ERP checks the Kathmandu warehouse stock (SCM) and the customer's payment status via an integrated gateway like eSewa or Khalti (Finance).
      • Fulfillment: The warehouse team gets the pick order. The ERP suggests the best local courier based on delivery time to Pokhara.
      • Visibility 🔍: The sales team in Kathmandu can see the exact moment the laptop is shipped and when the payment is cleared, without making a single phone call to the warehouse or accounting.

      🇳🇵 Interactive: O2C in Nepal — Day-by-Day

      Day 0 of 7 — Click "Next Day" to advance
      🎉 O2C Complete — 7 days, 3 ERP modules, 0 phone calls between departments!

      Key Takeaways recap

      What have we learned about ERPs and the O2C cycle?

      • ERPs streamline cross-functional processes by integrating departments onto a single platform.
      • The Order-to-Cash (O2C) cycle is a perfect example of an end-to-end process supported by an ERP.
      • An action in one module (Sales) automatically triggers actions in others (SCM, Finance).
      • This integration provides a single source of truth and real-time visibility across the entire organization.

      Discussion Questions 💬

      1. What problems could occur in the O2C process if a company used separate, non-integrated systems (information silos)?
      2. Besides Order-to-Cash, what is another cross-functional process that would benefit from an ERP system? (Hint: Think about buying materials).
      3. How does real-time inventory visibility from an ERP specifically benefit the sales department?

      Thank You

      Any questions?

      Next Topic: Unit 6.6: Cloud Computing in Business | IT 233

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