Demand Planning: The first step in Supply Chain planning

Demand planning or sales forecasting is one of the
most important aspects of any organization, be it in
the services or the manufacturing sector. A services
organization estimates demand for its services and
thereby gears itself up to service demand. A
manufacturing organization estimates demand for its
manufactured goods and works towards activities such as the
supply of raw materials, production capacity, distribution etc.
Demand planning plays a strategic role in any organization as the
planning for a lot of other activities depends on the accuracy and
validity of this exercise. For example, sales and operations
planning is an important function and in some organizations this
planning cycle is triggered once the demand forecasting cycle is
closed. There are many pieces of software available in the market
which help us conduct demand planning in an effective manner.
One of the most widely used of these is Microsoft Excel. Most of
the ERP products like SAP, Oracle Applications and SCM products
like i2 have Demand Planning functionality available in their suite
of product offerings. This article explores some important
functionalities and features that are useful for organizations in
demand planning.

􀁺 Statistical forecasting: Most demand planning exercises
start with a statistical forecast. There are various models,
each catering to different behavioral patterns shown by
products and markets. These include univariate models,
linear models, the multivariate linear and non linear models,
seasonal models, Croston’s model, mixed model etc. The list
is virtually endless. They may look like small words but
selecting an appropriate model for each of the products in a
portfolio can be a time consuming and intricate task. There
are no shortcuts here. A detailed simulation exercise needs
to be carried out to select the best model for a product and
market. Statistical forecasting models need to be
continuously tested and refined. This means that the
demand planning tool should also support a simulation
environment and also the ability to compare different
forecasting models. Depending on the way that data is
stored in the demand planning tool, statistical forecasting
can be done at various levels. There can be a top down
approach or a bottom up approach. A top down approach
means carrying on statistical forecasting at the highest level
and then breaking it down, while the bottom up approach is
the exact opposite.
􀁺 Consensus planning: The demand planning tool should
support consensus planning features since demand planning
is rarely the work of a single person or a single department.
Demand planning is often a collaborative exercise between
different departments and people, who bring in their years of
expertise. That is why a tool should be able to capture their
inputs on top of statistically forecasted numbers.
􀁺 Promotional planning features: The demand planning
tool should also be able to handle promotional planning. An
extensive promotional planning feature is a great asset for
any organization. It helps plan promotions and the effect of
said promotions on other products, like cannibalization.
Cannibalization can be extremely difficult to capture as it not
only affects one’s own product lines in a similar category but
also products in other categories.
􀁺 Lifecycle management: Planning for the demand of a
product spanning its lifecycle is a complex process. They
may not be a simple introduction of new products or phasing
out of existing products; the situation could also call for
replacing an existing product with a new product or multiple
products. Product substitution functionality should be an
integral part of a demand planning tool. This might seem
extremely simple but technically it requires a lot of features,
like the ability to copy historical sales of one product into
another, the ability to play around with he sales figures of
one geographical area in another area etc.
􀁺 Seasonal planning: Seasonal planning is an intriguing
process. It can be a difficult thing to simulate in statistics
with a reasonable degree of accuracy if demand patterns are
not regular. The complexity is due to the fact that festival
seasons can fall in different months of the year in different
years. The time span or the duration of a particular season
could be different in different years. For example winter can
be lengthy one year and shorter next year.
􀁺 User interface: Most organizations start demand planning
with Microsoft Excel. Any organization would vouch for the
fact that Excel is easy to use and over the years they have
become quite comfortable with it. Thus, it makes great sense
if the user interface of the demand planning tool is
comfortable and user friendly. This makes it easy to get
acceptance from the end users.
􀁺 Data management and archival: Another important
feature of any demand planning tool is the ability to churn a
huge amount of data in a reasonable period of time. It
should also be able to archive old data for reference. This
archival process should be easy and should not affect the
current functionality of the product. If a demand planning
tool is built on the data warehousing backbone it can have
great ability to play around with data in many dimensions.
This also makes it feasible to have statistical data forecasting
at various levels not only at the lowest level at which data is
captured. A data warehousing backbone also makes it easy
to look at the data’s various dimensions and levels increasing
the utility of demand forecasting and planning manifold.
There are various other interesting features which would be
important for an organization. Demand forecasting and planning is
the first step in most planning cycles in any organization. Any
errors that creep into the numbers at this point have a ripple effect
later on which only gets amplified. This phenomenon is popularly
known as the Bullwhip effect in supply chain. With the ever
changing nature of the environment that an organization is
operating in along with shortening product lifecycles and other
competitive pressures it is imperative to have a demand planning
tool which should be able to handle the complexities of the
business not only today but also for the future needs of an
organization as it grows.
Originally published by Express Computers.

Success of ERP Projects

Enterprise Resource Planning or ERP as it is more popularly known has been prominent in the Industry for quite some time. We often hear of successful implementations and at other times learn about the devastating impact that a failed ERP implementation can have.

It is important to reflect on what is meant by a successful implementation and how an implementation is considered to be a failure.

Despite best efforts and abilities of ERP consultants, ERP implementations don’t take off the grand way it is supposed to do. There are many deterrent parameters that often result in a negative ROI.

The most important of these are the human factors that impact application value. The basic tenet of empowering an organization with new technology: if the end-users won’t use the application, the ROI will likely be negative needs to be realized by ERP consultants worldwide, be it on any platform.

We broadly categorize 4 categories of human barriers faced in ERP implementations:

• Individual – this pertains to the willingness of individuals of the organization in sharing knowledge and information. Individual employees often feel insecure in doing so perceiving that their domain knowledge once incorporated in the ERP would render them dispensable.
• Structural – Groups within the organization may not share information freely and technology alone will not change them. This usually happens more between departments that worked in isolation Pre-ERP.
• Hierarchical – ERP leads to transparency across the organization and this contradicts the usual hierarchical barriers of managers and line staff. ERP changes these ideologies.
• Cultural – This refers to ERP implementations integrating the enterprise with suppliers and customers across the globe. Different countries have different cultures and initially cultural barriers also prevent the ROI from reaching its potential.

Our implementation experience has shown that human factors can influence upto half the potential value to be derived from the ERP.

To maximize this return value, the organization must devote as much energy, to addressing human barriers during deployment and the first operational year, as they did to select the ERP. Issues such as this come under the purview of Change Management. It is extremely important to educate end-users about the concept and the ideology of a ERP.

Most implementations begin with users not aware of what they are going in for. This results in a gap between expectation levels of the client team and implementers. Training sessions on how to adapt to the changing environment and making users aware, help in reducing the shock of the changes that the ERP brings.

Factors which are critical to the success of the project / RoI of the project includes:

Business Process Enhancement (BPE): The biggest advantage of implementing a ERP package is that, it brings with it time-tested streamlined Business processes which are standards across countries and across sectors. Sector specific verticals come as add-on’s to give thrust to that particular industry. The challenge lies in the organizations adaptability to the new post-implementation business scenario

Technology Upgrade (TU): Another important factor is keeping with times and changing the way business is done, by means of advanced technology. Technology has proved to be a boon and benefits derived from this include, better and more efficient manner of execution of tasks, better reliability, better availability, more productivity and less manual intervention. But this is also a volatile component, because only the right kind of technology for the right company will be beneficial.

Spectrum of Application (SoA): · he organization needs to thoroughly analyze the scope of implementation. The spectrum that would be impacted by the implementation is a key factor of ROI. More mature organizations will get higher ROI from wide Application Spectrum whereas less mature organizations with less IT infrastructure and awareness will get higher ROI from a limited Application Spectrum. The best solution for these less mature organizations is to incorporate an iterative model of ERP implementation with “a module – at – a time” approach. The change management becomes easier and less tech-savvy employees can take their time to grasp the new system. With successful implementation of each module, the acceptance factor reaches a high, and in turn gives a high ROI.

Human Resource Maturity and Learnabilility (HRML): · The organization should go in for external consultation for assessing this factor, unbiased. The people of the organization can have a radical impact on the ROI of ERP. With this factor in mind, the implementation process needs to be selected, in order to provide high ROI. The process adjustment would negate low HRML index, and will be matured enough to introduce the ERP in a gradual comprehensive manner.

Payback Period (PP): · The payback period is the period from inception of implementation to the point when the ERP begins to give pertinent answers to business problems. The shorter the payback period, the higher is the ROI, which means these are inversely proportional to each other.

Organizational Factor (OFac): Every organization is unique, and would have organization specific factors, which will impact the ROI of ERP. In our implementation experience, we have witnessed this and found it difficult to classify. This is therefore a generic factor, which will be decided by the organization, if found to have a bearing on the ROI.

RFID enabled WMS

In the last few years the scope of the Warehouse Management System (WMS) has undergone a lot of changes, even though the primary object of WMS still remains the same. As the name suggest WMS is meant to manage the resources of the warehouse efficiently. WMS not only manages the material flows and other resources of the warehouse like equipments, labor and space but it also tries to manage the flow of information and plays a vital role in the supply chain. Even though the core functionality of WMS is still picking, replenishment, and putaway but today the role of WMS is continuously evolving and it is expanding to include new areas like light manufacturing, transportation management, distribution, order management, and even the accounting system. Some of the vendors have even gone a step further by adding workflows, EDI and OLAP reporting modules. This evolution of WMS is not an isolated case, over the years even the popular Enterprise Resource Planning packages have undergone metamorphosis and have added business intelligence, supply chain management, warehouse management and other capabilities. The ubiquitous ERP is slowly giving rise to ERP II. The diffusion of role and expansion of functionalities is placing the WMS in same league with other enterprise packages like Enterprise resource planning (II), Supply chain management, Advance supply chain planning etc. This is creating utter confusion in the market and it is apparent that some of the segments would shrink as they make way for the rest. In spite of its new incarnation WMS is finding it increasingly difficult to position itself in the fiercely competitive market. According to a survey the market of WMS has shrunk by almost 3%.

WMS and RFID
Even though Radio Frequency Identification (RFID) has been around for almost fifteen years now but it is only recently that the world has woken up to the immense potential of RFID. One of the obvious applications of RFID is in tracking the inventory with RFID enabled tags (Wal-Mart has already directed its suppliers to gear up and supply goods with RFID tags). The U.S retail supply chain which is today spending around $200 million on RFID is expected to spend around $1300 million by the year 2008. This has a direct bearing on the warehouse management systems. RFID can be utilized to enable the WMS into a real time system. The opening of this new possibility has immediately infused the WMS market with immense possibilities. RFID enabled WMS will not only reduce the operational costs, but will also increased the warehouse productivity by optimizing the storage and resource utilization. RFID enabled WMS can help in implementing collaborative sourcing strategies through real time flow of information with the suppliers.

RFID will not only hit the WMS when the good is received in the warehouse but RFID can also be used at the supplier side to send Advance Ship Notice (ASN). This early flow of information will help organizations to plan efficiently by determining the lead time accurately. RFID can streamline the handover process by removing human intervention of reconciling the goods received with purchase orders and goods being dispatched with sales orders. Suppliers can ship goods with RFID tags at both the case and pallet level. FIFO, LIFO and other concepts in inventory can be easily implemented through RFID. Effective slotting logic can now be implemented through active RFID tags in a warehouse. RFID enabled WMS can automatically route goods to line haul vehicles thus saving time in the loading process. Distribution centers will be RFID enabled which will help in tracking the outbound logistics. Providing updated information and tracking the returned or rejected goods is one of the vital tasks of a WMS. RFID holds lot of promise in this area by streamlining the Warranty Support.

The RFID enabled features will increase the average selling prices of the WMS systems and will open up the gates for a host of other value added services which can be provided by the WMS vendors.

The Approach
The WMS vendors can take a three pronged approach to manage this change. The first approach would be to build new RFID enabled WMS modules which can be bolt on to the existing systems. The other approach is to upgrade the existing WMS to bring in RFID features. The final approach will be to build new RFID enabled WMS which will eventually replace the existing WMS already in place. WMS vendors can work in tandem with the suppliers who have already been asked to become RFID compliant. The first two approaches can be used to help suppliers under immediate pressure in the short run but the third approach would be a long term approach. Most organizations would not be able to reap the benefits of RFID unless it is used create a pull across the whole supply chain.


Immediate Approach
Long Term Approach

RFID Compliant WMS
Upgrade existing WMS to support RFID
RFID enabled WMS modules to be plugged in.
Replace existing WMS with RFID enabled WMS

















The WMS market will slowly crystallize and cluster along the following lines: The first would be the continuation of the standard warehouse management systems. The other would be warehouse management modules as a part of the ERP packages and finally the RFID enabled WMS components.

The challenges
Of coarse the RFID technology opens up the Pandora’s box and there are a number of technical difficulties which need to be tackled before the dream turns to a reality. WMS has to be integrated to RFID readers and they will have to read RFID tags in bursts rather than sequentially, to increase the efficiency. Also the volume of data is going to be enormous which is going to stretch the limits of a WMS. Making business sense out of the enormous volume of data is also a big challenge which has to be overcome. Error Proofing is another technical hurdle which needs to be surmounted. Accidental and inadvertent reading of adjacent RFID tags can result in erroneous data. Different materials like metals and liquids interfere with reads. It is believed that excessive exposure to radio frequency (RF) can lead to certain ailments. Even though this has not been proved scientifically but this has lead to cases where workers have resisted RFID implementation. In addition to this the effect of RF on food and drugs need to be explored. Standardization has to be bought in the RFID reader and printer market otherwise making a WMS capable enough to interface with all the possible readers and printers available in the market is going to be a humungous task. Unless this standardization is brought in quickly it will create mayhem and might even kill the promising market.

The Future
In spite of the capabilities, all is not calm and quite on the western front. There are other important issues which need to be addressed before the WMS market is rejuvenated. ERP is slowly eating away the niche positioning of WMS. Already the popular ERP vendors are including RFID enabled WMS modules in their applications. This might also lead to consolidation in the WMS market through acquisitions. The realizable potential benefits through RFID enabled WMS may not be the same across all regions and industries hence WMS vendors need to quickly narrow down on the promising regions and industries. Retail, Distribution and logistics, Manufacturing etc. are some of the promising industries. Only time will tell if WMS will come out victorious with the new RFID enabled features or will eventually be a victim of the market, but it is apparent that RFID is revolutionizing the way WMS functions.

The article was originally published by Express Computers. For the complete article visit www.expresscomputers.com

Impact of IFRS on Technology Industry

“Impact on Technology Industry” authored by Anand Chatterjee looks at how the technology companies are affected by the adoption of IFRS. The transition to IFRS in this industry will bring about a change in the firms’ accounting policies and procedures. The implementation of IFRS has to be done with care, by assessing the impact, and communicating it to the stakeholders, and formulating strategies for successful implementation. This article highlights the strategies technology companies are adopting for implementing the IFRS. Areas of impact of IFRS in the technology sector include disclosure norms and financial reporting, recognition of revenue, stock options and share-based plans and treatment of foreign currency. For the complete article please visit : http://www.books.iupindia.org/overview.asp?bookid=IB1100661

Process Integration for enterprise value creation

Process Integration for enterprise value creation

The prerequisite for survival for an organisation is agility, and companies are continually reviewing their value propositions and restructuring to become leaner and more efficient in an uncertain business environment. The growth strategy of the organization is two prong :- Organic growth by way diversification into new markets and business opportunities and secondly the route of merger & acquisition. With this growth initiative, the organisations also tends to accumulate & gather lots of mass alongwith it in the journey.

The velocity and the pace of the growth could be only sustained if the organisation continue to stay fit and flexible with no extra flab or mass. This will enable the organise to focus constantly on the core function for growth and value proposition. This is only possible if the support / service functions which provides the edifice for the core function can provide strong footage and grounding. As the saying goes – a hungry man cannot write poetry.

A close look at the organisation will reveal very clearly the Value Creator Functions and Value Provider Functions. The Organisation must devote more resources to nurture the core competencies – those that provide value to customers and shareholders and differentiate the company from the competitors. This is crucial in today’s tough markets.

Therefore, the Value Provider functions like AP, AR , GL, HR, Project, Logistics, QA etc. which are generic and homogeneous in terms of business process across the business groups / units have potential to get integrated. The two pillars based on which organisation wise business process to be initiated for integration are – ERP as a strong operating back-bone and Corporate Governance for sound internal control and security. The units will have purely contractual agreement basis price and service- levels contracts with the in-house service provider function. This integrated service group – Value Providers will work in partnership with the value Creator Function to deliver continuing and sustained value for the organisation. The principal of this partnership must rely strongly on sound business foundations, such as process automation and related technology.

The working principals and arrangements will be exactly like any BPO service but with complete indigenous and in-house domain knowledge expertise. The common problems as experienced with BPO arrangement are - insufficient preparation, too little transparency, and an incomplete understanding of outsourced processes, loss of flexibility, difficulties in measuring performance and financial baselines before and after the agreement, suboptimal governance, complex transitions, and related spiraling costs.


The steps that are required to be taken by the organisation to transform a tempting idea to a thriving reality :-

Step 1 – Think Strategically :-

Identify at every unit level the tasks that require specialization or propriety in nature. A detailed level ground work is required to be done at the Divisional / unit level in order to understand the outsourced functionality even if the same is proposed to be in-house.

This proposition needs buy-in from all the divisional DMCs since the success of such model require tweaking and nurturing over a time. Further, the Divisional DMC can provide commitment and the resource from the division. Otherwise, such programs typically becomes initiative of IT / CIO, who gets the program started and could not get going, because there is no mandate from the divisional CEO to invest time and personnel needed to make it work.

Further, it may be advisable to get the study done across the Divisions by external consultants to evaluate our internal operations and develop benchmarks to measure ROI. That could help the organization to determine what part of the business process should be integrated for value generation.

In order to strategize the successfully, three questions are to answered at the individual business division level ;

• The expected business outcome of the service, such as cost reduction or improved processes
• The best model for delivering the service
• The best location to deliver the service


Step 2 – Develop the right business model :-

With the availability of ERP applications like SAP / RAMCO / Oracle etc. as IS systems back-bone to the business operation, the same has created more flexibility to work out multiple solution options. With multiple options available the key is to design an integration model that works best for the division and the type of activities that each division is willing to share in the integration model. The thumb rule is for high volume task like data entry of employees, the same could be managed through off-site integration but the activities that require more integration and communication, the mix of onsite and off-site model will be a best fit in terms of cost, quality and effectiveness.

A successful model will be to select the right talent from each of the division and form an integrated team who will be motivated to provide value to the business at an competitive price to the market. This will enable the organization to rejuvenate the back-room boys since they know they are compared to rivals at the market place and are also responsible for generating value for the organization. Further, value creating function will no longer use the service of value provider as captive but selective since the value creating function will have to take accountability for both cost and revenue. Hence the whole model should be ‘win win’ for both Value Creator and Value Provider and thereby generate more value for Shareholder and for the organization.

Step 3 – Assemble an in-house team of experts:-

No matter what strategy or business model a company embraces, there should be an external expert appointed as consultant [ Sponsor] for management of the Value Creator and the Value Provider relationship. The competency of the program management consultant as a part of must have – is understanding of the cross-cultural differences and management of out-sourced operation from within the organisation. Further, the program management office will also have representatives from both the function and the same should function as a central repository of knowledge data base, best practice and Corporate Governance & other operating policies.

The managers ensure that milestones and the financial targets are being met. They help to improve processes and resolve issue pertaining to integration.

Step 4 – Value Creator and value provider to work in partnership :-

The service provider function even integrated within the organization, the relationship must be always like vendor and client or partners. The external consultant – sponsor is to constantly evaluate the relationship as collaboration but with the objectivity of out-sourcing service provider.

It is important to create an integrated work-processes flow and operating principals so that every-one can communicate with and understand each other.

Step 5 – Build Value over time :-

Instead of integrating all the possible process in one go, the integration process is required to be ramped up gradually over a period of time. The approach to be taken as small scale operations to be taken up for integration wherein the division level and organisation level risk is low. The integration process to be experienced by both the user and provider function, work out the kinks in the operation and thereafter roll-out to the other branches for capturing the value at the organisational level.

The typical approach will be start with the easier pieces, across stable division, high-volume, easy & repetitive functions where there’s not too much that can go wrong. For example pay-roll and accounts payable function be integrated before auditing and reporting function.

This integration approach will enable the organisation to lay a strong foundation for future integration in area which goes beyond the easy stuff. Because this strategic model promises to pay-off in the long run.

Steps 6 – Go off site for the right reasons :-

It is easy to support all the routine transaction process centrally from a site where the cost of the operation will be competitive and saving can be generating by reducing the cost of operation compared to some very high cost operations in places like Banglaore. Ideally, speaking, this kind of operation must put out to a location where the cost of qualified resources will be competitive but backed by one-time IT infra-structure investment cost in some Class – C towns like Bhopal, Gowalior, Nagpur etc.

The pay-off in savings, efficiency and access to new talent, can be enormous but like everything the value creation won’t happen just like that overnight. The challenges are exactly like out-sourcing – throwing the process over the wall and saying “catch”.

Key components for integration

The potential resources that exists today within the organisation that must be leveraged to kick-start the process of integration are :-

a. ERP back-bone for operating process. Out of all ERP installed divisions, about 75% of the Divisions have installation of best- in- class ERP i.e. SAP which supports ESA [ Enterprise Service Architecture]
b. Highly committed and competent ‘Talent Pool’ of resources across the Value Provider & Value Creator functions.
c. Strong internal audit function for quality assurance
d. Well disciplined Corporate Governance and security policy to ensure integrity and security of both the data and the process.


SAP ERP Solutions as back-bone of IS:

Compared to standard business process outsourcing model, integration powered by SAP solutions will have substantial advantages:
• Lower risk of transformation (migration, ongoing evolution, switching/re in sourcing BPO), operations (for example, cost-effective accuracy, consistency, and timeliness of output),
• legal compliance, and contract governance
• Lower cost during transition and evolution/upgrades, lower ongoing total process cost (process steps, monitoring, cost of errors), and lower cost of keeping long-term options open
• SAP NetWeaver–based applications: state-of-the art and regulation-compliant tools with unparalleled geographic and industry-specific coverage based on superior SAP architecture (out-of-the-box functionalities, multi tenancy for superior economies of scale, clear road map to service-oriented architecture)
• SAP as a trusted, solid, and future-proof partner able to support integration

Therefore, it is advisable that the IS [ information systems] landscape for the integration service provider is required to be on ERP SAP and other ERP application and the business process can get integrated seamlessly through ESA [enterprise service architecture] like SAP NetWeave

Create Talent Pool

“People are our number one asset.” People really are the lifeblood for the organisation and it is the people and people policies that are really generating shareholder value. Further the focus of the organisation has increased on to sustainable development and broader social responsibilities for people due to the diverse external pressures that are presently added to the challenges faced by all the units of business organisation are :

• Global & national geo-political developments, continued terrorist threats, health scares etc have become higher business risks for the organisation.

• Customers’ expectations are becoming ever more demanding thereby increasing the onus to find new sources of potential differentiation

• Recent global capital market adjustments combined with high profile corporate scandals (such as Enron and WorldCom) have altered shareholder expectations and heightened the need to re-build trust between business and its stakeholders through improved transparency

• The ageing population, changing preferences between work and leisure and increasing mobility are among many forces altering the shape of the potential workforce

• Other diverse stakeholders, including governments, are showing growing interest in businesses’ performance and their rights and responsibilities with regards to their employees.

Hence, at the organisation level initiative have been taken to formulate recognition and retention policy for people form both the ‘ Value Provider Function’ and ‘Value Creator Function’ with a clear perception that both being the value drivers for the shareholder and stakeholders. The evaluation strategy of the Value Provider will at par with the service sector workforce outside the organisation and like any other service sector workforce these resources should be also classified as knowledge workers. These new mix of employees suggests that more emphasis needs to be placed on the knowledge or information content of human resources, abandoning the traditional view of labor as variable costs. Under the new paradigm, human resources are treated as an asset of the organisation. This implies that one time hiring and training costs need to be spread out over the economic life of employees at a firm, preferably in a way that reflects their economic value. This argument parallels the traditional theory for the depreciation of physical capital. A significant difference between physical and human capital is that people are capable of learning and improving their performance over time.

The objective of this study is to re-visit and test the potential and hidden assumptions for the influence of human asset specificity on the degree of in-house integration. This corresponds with a more recent claim for advancements in transaction cost theory. In order to recognize the common practice of selective integration, this study focuses on the integration of integration services, including both value-added and routine services. Impact of human asset specificity from the view of TCT [transaction cost theory], the variations in processing and transaction costs by in-house integration service represents two major criteria :-
• trustworthiness and
• intrinsic motivation of internal resources thereby providing effective the internal production cost advantages.

The Resource-Based Theory also suggested that Companies that solely focus on minimizing costs when making outsourcing decisions of service as opposed to integration, run the risk of neglecting the strategic contribution of talent pool and domain knowledge expertise. In managing service, it is not only about minimizing costs but also about ensuring that the output of the service centers matches with the strategic objectives of an organization. A pure cost comparison of alternative sourcing options implies that a service function can be provided in the same manner and of the same quality, no matter whether it is performed in-house or externally. It is assumed that the firm and the market have access to the same input factors and can create the same outputs. In contrast, resource-based theory holds that organizations generally differ in their resources and capabilities and that these differences serve as a basis for the achievement of competitive advantages against competitors.

Hence it is imperative that integrated in-house service function can contribute to achieve cost savings and/or to differentiate the products/services of an organization by enabling a higher level of automation and improved information supply in the primary business processes and operational functions.

This may be summarized as follows:
• The more specific the human assets required to perform an IS function are, the higher is the advantage of in - sourcing as opposed to outsourcing in providing a strategically significant service function.
• The higher trustworthiness
• Intrinsic motivation of in-house as opposed to outsourced service workers in providing an service function, the higher is the impact of human asset specificity on in-house advantages in providing a strategically significant service function.

How to Evaluate a Sales and Operation Planning System

Sales and operations planning (SOP) is one of the more critical functions an organization must undertake, as its effects span across various departments, and have the potential to directly influence the organization’s profits. A successful SOP department harmonizes the different beats of each division into an agreeable melody. It is definitely a challenge to find an effective tool that can merge the data from different systems to create a coherent picture of the organization.
An SOP system is used by the most important departments of an organization: finance, sales, marketing, and operations. This is why a powerful SOP system can make the difference between the success and failure of an SOP cycle. SOP systems are very useful to senior management, as they allow a “bird’s eye view” (an overall view) of the health of the whole organization. With its graphical representations and dashboards, an SOP system is an indispensable tool for any organization.
The software market is becoming increasingly competitive, which is having a positive effect on the SOP products available. Today, SOP systems have many advanced features, such as real-time dataflow and intuitive user interfaces. A couple of years back, many features like these were considered “nice to have,” but today they are essential. Also, vendors have streamlined their products so that implementation times are more manageable, making the return on implementing an SOP system more attractive. Today, a typical SOP implementation—assuming that the organization is already running an enterprise resource planning (ERP), supply chain management (SCM), and business intelligence (BI) system—should take around three months worth of labor hours.
Predefined Key Performance Indicators and Metrics
Standard key performance indicators (KPIs) and metrics already built into an SOP system is a particularly useful feature that offers many benefits to an organization. Standard KPIs and metrics could be based on popular models, such as the supply chain operations reference (SCOR) model, and they can drastically reduce the implementation time of an SOP system. Most SOP system implementations take a long time to develop reports based on SCOR-based KPIs, so this capability should be a fundamental feature of any SOP system. If this capability is not supported by the SOP system, then a considerable amount of time will go to identifying KPIs and then building reports for them, be they financial or operational.
If the KPIs on budget, inventory norms, sales forecasting error, etc. are built in, then they do not need to be configured from scratch. Furthermore, a visual representation of KPIs in graphs and dashboards helps top management to keep tabs on various “numbers.”
Integration with Different Systems
An SOP system should be able to integrate with different systems. Most organizations have a transactional system, which is usually an ERP system. Such systems are rich with data that organizations could use to their benefit. An SOP system should be able to draw data from these systems to show a realistic value of the KPIs and metrics through internal benchmarking of their historical data.
An SOP system should also be able to integrate with the SCM system. Integration of these two systems gives organizations the flexibility to modify data in the SOP system if certain organizational objectives are not being met. For example, a sales manager might need to change the sales forecast figure of a certain product in order to meet organizational objectives for that product. With the two systems integrated, instead of logging into the SCM system to make this change, it can be made directly in the SOP system, and the information will be updated in the SCM system as well.
An SOP system should be able to extract data from the BI system, such as historical data and calculated metrics. To do this, the SOP system should be sitting “on top” of the ERP, BI, and SCM systems. It is preferable that the dataflow from these systems is bidirectional, but still today, in some cases, technological limitations severely restrict bidirectional flow. For example, data changed in the SOP system may not be automatically updated in the BI system. For an SOP system to have this capability, it should be built on a platform that can integrate with heterogeneous systems seamlessly. This should be a fundamental feature of an SOP system.
In the case of a stand-alone SOP system, the system should be able to load data from files directly so that transactional and historical data can be loaded into the SOP system directly. The system should also be able to download the data into files, and then upload them back into the ERP, BI, SCM, and other systems.
Drill Down
The drill down feature of an SOP system is one of its most important, as upper management can view KPIs at various levels, and take prompt action if required. The manager, for example, can look at inventory turns at the national, regional, or branch level. The manager can also look at the metric at a product level or at a product group level. If proper hierarchies are maintained, then a drill down feature, which is similar to BI reports, can help senior management make appropriate business decisions. The drill down feature greatly increases the efficacy of an SOP system.
Hierarchy Building
Building up a hierarchy across dimensions can enhance the power of the SOP system. Hierarchies can be built directly into an SOP system, or they can be imported from other systems, such as the ERP or SCM system. If a hierarchy is built directly into the SOP system, then it should be possible to map the SOP’s hierarchy with that of the SCM or ERP hierarchy.
The number of dimensions over which a hierarchy can be built in today’s SOP systems is limited. The dimensions most used across industries are the product, customer, and geographical dimensions. The ability to modify these hierarchies is important, as they can change as the business grows or if the nature of business changes. In today’s competitive environment, changes like these can be frequent, and any restrictions in the SOP system on this front will be viewed negatively by the user company.
Simulation
The features discussed above help the SOP team perform simulations using different figures (i.e., revenue objectives). These features also help to monitor KPIs in different business scenarios. Thus, the SOP team can simulate various scenarios, and agree on a figure. These figures can be arrived at after a consensus on a planning cycle is reached among various departments, and can be published for top management. Also, if a drill down feature is available in the SOP system, the KPIs can be built either top down or bottom up. For example, after the KPI values are fixed at the top management level, they can be broken down to the other levels using the hierarchy that has been built into the SOP system. The reverse can also be followed, where the KPIs can be rolled up after the values from the field are taken and finalized. This feature is important because it helps top management test various scenarios.
Built-in Task and Process Management System
The more advanced SOP systems have built-in task management modules. These modules can have built-in workflows that are integrated with a worker’s tasks. Hence, the system can send a mailer to the next person in the workflow once a particular task has been completed. It can also monitor the status of a task by showing what percentage of it has been completed, which gives a visual representation of the amount of work that remains to be done. Tasks can be built into a hierarchy, which can thus help to define tasks at various levels. These levels can be mapped to the levels in the organization hierarchy. A hierarchy of tasks also helps to coordinate the various tasks in the SOP planning cycle as a whole.
In Closing
SOP helps organizations build upon their tactical plan after strategic planning has been done. A broad SOP system can streamline the planning cycle and the flow of information between different entities within the organization. SOP systems are slowly evolving into complex systems, as new features are constantly being added to them. SOP systems today are an integral part of any organization. In some cases, the basic functionalities of an SOP system come bundled with a transactional system (ERP) or an SCM system. These functionalities cover the basic requirements of an organization, but they lag far behind a full-fledged SOP system.
Organizations should carefully evaluate different parameters when selecting an SOP system. They need not add complexity to the SOP system if their business requirements are relatively simple.

Author: Anand Chatterjee.
Originally published by TEC.

Current challenges of supply-chain process and scope for improvement for driving the business value :-

In a de-verticalised and outsourced business model, supply chain process functions as an enterprise wide nervous system and ensures integration of both up-stream and down-stream process of the business value chain. The success of the business is squarely dependent on an efficient, agile, flexible and innovative supply chain process. It is imperative to have a well oiled supply chain machine for the business, where growth engines are to drive market share and brand building for achieving shareholder value.

Operating challenges of supply-chain in the present context :-

Number of product sku proliferation for enriching the revue mix and maximizing the product reach and presence in the market place.

Variable supply chain process at the product category level, threatening the supply chain infra-structure and the process to look for more and more flexibility, innovation and responsiveness. Leading to a creation of customized sub-process for these products in terms of stocking, stacking and delivery.

Further, the situation gets even more complicated due to variable market forces and practices, local trade practices and statute and expensive & inadequate infra-structure causing hindrance to the introduction of automation and modernization.

The toll on the process is further imposed due to non-availability of good quality professional people and service providers. The process stabilization effort is constantly getting mulled on the issues like people attrition, service providers SLA [ service level agreement] negotiation. Therefore, there is a substantial quantum of resource, energy and value of the business is getting wasted in training of the new people and service providers.

Interventions in the supply chain process for addressing these challenges :-

Storage hubs are created at the strategic locations for handling aberrations and blips in the demand – supply equations.

Outsourcing of the warehousing processes to third party service providers and performance based SLAs are negotiated

Supply chain process is enabled by IS [ information systems ] for ensuring transparency, traceability, tracking, control, data integrity, operating decision-support and management decision-support.

IT infrastructure in terms of Vsats connectivity for ensuring data acquisition efficiency at source.

Monthly internal audit for physical verification of the stock to ensure compliance of best practices in the areas of storing, stacking and delivery processes of warehouses.

Analysis of current areas of concern in supply chain

Storing, stacking, retrieval and delivery process :- the most critical aspect of supply chain – inventory management and inventory control are two areas concern in the present business context. The issues are
stock mismatch both in terms of excess / shortfall,
code date and remaining shelf life of the inventory
tracking of slow moving and fast moving sku for effective rotation and minimize obsolesces and write-off.
Customer delivery accuracies in terms of quantity, sku and code date
Inadequate storage space resulting in the delay of unloading, stacking and retrieval of the inventory.

People turnover and training :- due to non-variability of the process and fuelled with the increase in the number of sku & volume, the process knowledge management and training is increasing becoming a very daunting task. Further, for every introduction of new process and product, the field communications are not handled in a structured manner by way of training manual and SOP [ standard operating process] documents. The expectations from the field level resources including the service providers are sky high. This is resulting in a huge impact on the work-life balance of the individual resources leading to a huge dissent, resistance to change and leading to attrition. The formal reward and recognition system is also very unwieldy for the resources to draw any inferences for self motivation.

Change management of processes due to ERP implementation :- the mandated objective of the current ERP & its eco-system implementation is to address all supply chain processes comprehensively. The drive is to have an IS intervention to transform the system from transaction support to decision-support. This has resulted an increase in the data acquisition process, data coordination process and transaction process. The decision support systems always require data integrity and data authenticity. This has resulted in the system process design which is more robust and error proof and so-call erstwhile short cuts & compromises in the system have been done away with. These change managements were discussed with operations team at the time of the design but due to the issues of attritions, the same process faced a huge problem at the time of implementation and execution. Dueled by the issue of business scaling up, the entire focus of the supply chain got shifted to execution of the physical operations and in handling the scale. This has resulted in a complete negligence of the system process at the time of implementation in terms of master data, data migration, testing and roll-out by the members of the supply chain operations team. On contrary, the entire implementation was executed by the system support team to aid the physical execution process on ground. This has further created distance between the process operators and system process ownership. The change was never seen as a benefit in the process rather always being termed as hindrance and often labeled as show-stoppers. As a result the HODs of the various supply chain process never could get the change management implemented amongst operators effectively and efficiently. All interventions in the areas of making system usage effective become more and more sporadic and ad hoc. The decision –support reports are therefore by and large desktop driven and personalized.

Aggressive addition of new product sku, increase in volume and godown infra structure:- these are good sign of a progressive and growing business process. That is also an indication of stabilization of the existing processes and practices. Hence, the new product, increase in the volume and godown infra structure – are rollout and replication of the stabilized process. It should not create a stir and chaos in the system. However, the majority of the reasons causing stress on the supply chain process are due the aforesaid issues. The root cause of the same is due to the absence of a structure SOP documents defining clearly the roles and responsibilities of the various stakeholders of the supply chain. In the absence of clarity, it is re-invention or re-visit of the of the same process time and again by various stakeholders. This is further, aggravated by the fact the stakeholders are also at their different stages of their employment life-cycle and experience due to attrition, ineffective knowledge management and sub-optimal system process understanding.

Suggestion:-

In order to bring in efficiencies and effectiveness in the supply chain process – it is imperative that the operating resources must try to decipher the ‘must have’ and ‘nice to have’. Identify the gaps in the current process and then classify the same in their order of priority and intervention. The popular perception of addressing all process pains by introduction of IT [ information technology] must be replaced by the philosophy of ‘ people, process and then system’. The business process is business led and IS enabled.

Overselling and under-delivering

Is “overselling and under-delivering” becoming a norm for the IT software industry today? This question would have diametrically divergent views depending on which side of the table you are sitting. Whereas clients would seem to nod their head in unison, but ask any IT software firm they would deny it vehemently. Being a part of the IT industry for quite some time now and however skeptical I may be of the clients, I have some reasons to partially agree with the strong statement made above. However, I believe much of the malaise can be attributed to the internal dynamics of the IT software industry.
The industry is replete with Death March projects. Some industry statistics suggest that almost 60-70 percent of software projects experience cost and time slippages. This is making fixed costs projects more popular with the clients as they are no longer willing to bear the brunt of the software vendor’s overzealous marketing and sales tactics. Time and material projects are a rarity today.

Intangible deliverables
The very name ‘software’ suggests that much of the attributes of the deliverables of the software industry is intangible and often difficult to quantify with numbers. Robustness, scalable, flexible are terms which are used with penchant in this industry. Often when an RFP (Request for Proposal) is prepared by the customer these loosely defined terms are frequently used to play safe, thinking they can be later used to squeeze the software vendors, but they don’t realize that they often backfire resulting in the bleeding project costs on both sides. The requirements of an IT solution is not adequately covered and open ended requirements are preferred thinking that these can be used to cover up any changes in requirements later on.
Project slippage
The IT software market is increasingly becoming commoditized. On the other hand, appreciating Indian rupee is putting pressure on the margins. This is often resulting in myopic attitudes by the sales and marketing team to bag new clients and customers. Often there is very little communication between the sales team and the delivery team and any threatening objections to the proposal by the delivery team is quelled at the very onset. Thereafter, once the project has been bagged, all responsibility falls on the delivery team to meet project deadlines and delivery costs. The sales team basks in glory and the delivery team sweats. If there is a slippage in delivery the whole blame falls on the project delivery team and little is done to bring the sales team under scanner for their shoddy estimates of the project delivery costs. Another important factor which contributes to the project slippage is our resistance to say ‘no’ to our clients and also to raise our voice against unreasonable demands made by them.
Lack of documentation
I have rarely seen a project which has very detailed documentation of the project’s various phases. We don’t like to do documentation, as cutting time on documentation can save costs. That is probably reflected in the documents we prepare as a part of our deliverable and also as a part of the internal monitoring process. Often client requirements are poorly captured during the initial study of any IT project. This makes any project extremely vulnerable during the later part of the project lifecycle when clients start getting a feel of the IT solution.
Poor quality of delivery
There are other reasons for poor quality of delivery by software companies. The quality of consultants is much to be blamed for this. Most IT companies are increasingly recruiting freshers to reduce costs and train them on projects. Thus consultants are being trained on clients’ expenses. However unethical it might seem but it is the hard reality. Inadequate scrutiny during the selection process often results in unscrupulous candidates being selected. Such is the pressure of recruitment that previously rejected candidates are offered jobs later on to meet the requirements of a depleting workforce.
Some of the projects are taken by companies just to gain a foothold in a particular domain or geographical area. In such projects profit is not the main object but without such profits in place, the delivery quality suffers subsequently.
Increasing offshore components of projects is also one of the reasons of why client requirements are not captured adequately. Regular client and end-user interaction is an important component in client satisfaction.

Anand Chatterjee explores the reasons why it so difficult to manage client expectations in the software services industry
For the complete article please follow the link:
http://www.expresscomputeronline.com/20071112/technologylife05.shtml
© Copyright 2001: Indian Express Newspapers (Mumbai) Limited (Mumbai, India).

Who is the best consultant ?

It is a very important day for Mr CIO of M/s Cyprimo Cosulting Inc. Senior Team from a top ERP consulting team is going to make a presentation to the Board. Mr CIO had already forwarded the Board members’ expectations to the consulting firm.

During the presentation, the firm highlighted all their capabilities, competencies, experience and band width of ERP implementation. Some successful implementation stories were also narrated alongwith the video clippings of CIO,CEO & CFO’s of various organization sharing their experience and benefits of ERP implementation in their organization.

The entire board room is filled with lots of excitement and satisfaction. There is a sense of great relief and containment on the face of all key stake holders with a hope that if this firm is appointed, all their pain points will get resolved on a ‘press of a button’. Now, the consultants have already done a positive sales peach in the organization. On realization of the same, the head of the consulting team proposed to the board that they would like to take the board members through the implementation plan. All the board members without even realizing what has hit them, overwhelmed board members instantaneously agreed to go through the plan.

In the plan presentation, the consultant has listed out the detailed steps for implementation. Wherein, there is mention of broadly four steps :-
·Preparation
· Process mapping
· Configuration
· Go_live

Then they started emphasizing on the critical success factors. The stated pre-conditions to any successful implementation are :-
· Governance model with detailed role and responsibilities of Project Sponsor, Program Manager, Project Manager etc.
· Project execution structure and involvement of resources like Process Owner, Module lead, Module team etc.
· Project implementation structure and roles and responsibilities of Super user, Training manager, end user etc.
Looking at the requirement and involvement of the various resources at the various levels of the organization CEO responded by saying “ Who will then run the business? If, this is the level of involvement of people in the organization then what will be the role of consultant in this entire process of implementation.”
The head of consultant replied by saying “ Unless you involve your entire organization then how will you bring about change management across the landscape of the organization. The value that we will bring on board is only about the implementation experience and ERP knowledge expertise. But the you and your people know your business best and you have to take the ownership of getting it right at the time implementation.”

Mr CIO added by saying “ But you are also bring the industry specific best practices also I suppose “. The head of consulting explained that every organization believe that their business practice and process is the best and that is preciously the reason why the business is thriving. He further, mentioned that there is no standard industry specific template or formula per say that can be applied across various enterprise in the industry space to get a ‘one size- fit- all’ solutions.Mr CIO asked the head of consultant “Who is the best consultant”? He immediately replied “You and your team, sir. Since, you know your own business best. That knowledge repository cannot be replicated by any consulting house in this world. With our multi project bandwidth we can only do benchmarking and validation and provide some input for some functional correction.”

Mr CEO asked “ What for we are engaging you”? The consultant head replied “ It’s only for our knowledge in the ERP product functionality and for our bandwidth in such implementation across various industry vertical. In fact we are enabling you to unleash and realize potential value of your business better and bigger”………….

For more information please contact us at cyprimo@gmail.com