PRISMA ………………. Prism for ur vision & ideas
Monday morning in M/s Prism Inc is very busy day for the MIS team, marketing team and sales team. They publish their turnover data for the previous week to their management for performance reporting.
Mr CIO of Prism is very busy trying to push his battery of data entry operators [ other wise designated as MIS managers ] to get the Sales data collated for the week. The team is struggling to put the data into a standard template as preferred by the Mr CEO since the data have to received by them from all corners of the market in a multiple formats with non-standard product description. The non standard data is an accepted reality in the organization. The Sales force have been given complete flexibility in terms of data collection. The Marketing Head and CEO both feel that this a favor that these guys are doing to the organization. Because their prime job is to do selling in the market place and not data collation.
While, Mr CIO is dire hurry to get the weekly sales report for the marketing director and stressfully sitting in his office, gets a service call from a vendor. He promptly shouted back to the vendor in a very dismal mood and said “ Don’t you know that today is Monday. I have no time to take your call early morning and waste my time.” Reply from the vendor “ I know Sir, today is monday …but couldn’t understand what so special about the day?” Mr CIO said “ It is our sales report day. You SME vendors will understand all these. We report sales for the week to the management board on this day every week” Vendor replied with a surprise “ But Sir, we do it every hour, everyday! From our system data flows automatically to us with every invoice that we raise”. Mr CIO with great surprise disconnected the phone but keep wondering “ How is that possible!”
During the sales review meeting with board members, CEO broached the topic of everyday sales report review in view of growing competitiveness in the market place and with increase in number of product ranges and its variants. The immediate reaction of the Marketing director is like “ how that is possible?” He reacted by saying “ Do you expect boys to sit back in office and collate sales numbers instead of pushing sales in the market place?” CEO looked at CIO and asked “ Can IT do something in this area ?” Mr CIO remembered what his vendor told him in morning about tracking of sales data every hour, responded by saying “ I think the same could be done by doing ERP system implementation. Somebody in our vendor organization was mentioning that they track in the system almost on hourly basis”. Mr CEO said “ But we also get our sales data from the system. Then in that case the same should be possible in our organization also”. Mr CIO replied in confused manner “ But we have our systems which are all localized at the sales offices spread across various locations and they are not integrated. Hence, we get the data from each of the sales offices and collate the sales data centrally in the MIS department for weekly review. The entire activity requires atleast one full working day for data to get collated at the Head Office for Sales Reporting. On-line data capture and reporting requires implementation of ERP system for the entire enterprise.” CEO immediately said “Then lets go for it”. Mr CFO replied “ But this is a very expensive proposition. ERP implantation is very resource intensive and returns on that investment may not come that thick and fast”. CEO said “ Lets have a full fledged board meeting on the same immediately to have some detailed level of understanding ”.
On the next day Mr CIO prepared a detailed level presentation covering various aspects of ERP system, its deliverables and benefits to the organization. But the board members seem to be not very convinced with the fact that the unique business practice and processes could be easily put into the system easily which are currently being done by their high skilled and trained resources of the organization. Further, all of them are very concerned as to how suddenly the age old work practices could be changed overnight for which the organization had spend fortune for training and development of their resources. On hearing such apprehensions, CEO requested to each of the board member to put down their expectation from the proposed ERP system in order to engage some implementation consultant who have good experience in such implementation and have better understanding of the industry best practices.
The exact from the minutes of the meeting of the board held are ……………
Marketing Director expects that sales data to be made available in the system with every invoicing done in the sales office across all markets and location. The data must be available on real-time basis.
Finance Directors expects a very ROI from this investment in qualitative terms
Supply Chain Director expects that system will be able to help the business to optimize the inventory holding and do the demand servicing on least cost basis
Technical Director expects system to improve upon the Good Manufacturing Practices and measure production efficiency
CIO expects the system should enable to drive ‘ single version of truth’ in terms of data and reports
CEO expects the system to be a ‘decision support’ and ‘decision enabler‘.
As per instruction of CEO, all these expectations are collated and CIO briefed all potential ERP consultant for proposal.
Almost, all reputed consulting firms are invited for their presentation to the Board on the proposal. Everybody has impressed that all the stated expectations and objective will be delivered but everybody has left the board with some after thoughts by using some terms like Business Process definition, Change management, Change agent, Project Governance and Role definition, Enterprise scope definition, User classifications, training etc. The entire Board suddenly started realizing that onus of such ERP system implementation of more them rather than on the consultants.
Now, the entire board is grappling with these terminologies and trying to decipher more appropriate meaning in context to their own business. Realization has started dawning on them that ERP implementation success lies more on the business rather than on the quality of consulting firm. The debate and deliberation is still on since no consultant can provide input to your business since YOU KNOW THE BEST…………………..
Come, let’s see whether we can provide you with any cues and pointer to sharpen your own thought processes, so that you have a better clarity and understanding about of all these buzz words and terminologies which are frequently used by your consultants. We shall try to walk you through our library of experiences which we have gathered in a very hard way in the past. You share your pain points and we shall try to apply our experiential learning on to it to make your journey more pleasant and smooth. Promise is not the moon or starts it is very hard-core ground level realities which people tend to overlook during such grand phanole.
Wednesday, November 18, 2009
Exposure Draft on Fair Value Measurement
Observations on the Fair Value Measurement Exposure Draft is detailed under :-
a/ Refer Appendix A - definition of " most advantageous market" - The fair value measurement is done to benchmark the value of the existing asset / liability of the entity. The intent of the measurement is not to ascertain exit price / realisation price of the asset / liability which are an integral part of going concern and the entity will continue to derive economic benefit from the same. In such context, the consideration of transaction cost and transport cost will destort the true spirit of the value measurement since such cost operate under various market conditions. In the absence of the definition of transaction cost, the value measurement will further get distorted since the element of subjectivity will prevail.
Further, the reason stated for inclusion of the term tranportation cost [ as explianed by Mr K Prabhakar - Board member is ISB on 8/09/09 during deliberation ] is to neutralise the locational disparities between the operating markets and to bring the value more closer to realistic terms. In view of such consideration, then the other costs like storage, handling cost etc. should also be considered. However, there is no mention of such other costs in the exposure draft.
Hence, it is recommended that the operating price in the advantageous market unadjusted for any other cost should be a better reference for fair value measurement. The most relevent reference in this context would be quoted [ unadjusted] price - as mentioned in para 45 of the exposure draft for level 1 input for fair value measurement purpose.
b/ Reference para 53 - 54 of the exposure draft on Level 3 input, read alongwith disclosure requirements as per para 57, the value measurement for assets/liabities will be done basis unobservable input. In absence of any any specific guidline, the entity valuation will get influenced by management assumption and interpretaion. Thus the scope of subjectivity will be very high in the value measurement of assets/ liabilities.
Further, the disclosure requirements as specified in the draft standard will lead to the exposure of entity specific confidential information to competitors.
a/ Refer Appendix A - definition of " most advantageous market" - The fair value measurement is done to benchmark the value of the existing asset / liability of the entity. The intent of the measurement is not to ascertain exit price / realisation price of the asset / liability which are an integral part of going concern and the entity will continue to derive economic benefit from the same. In such context, the consideration of transaction cost and transport cost will destort the true spirit of the value measurement since such cost operate under various market conditions. In the absence of the definition of transaction cost, the value measurement will further get distorted since the element of subjectivity will prevail.
Further, the reason stated for inclusion of the term tranportation cost [ as explianed by Mr K Prabhakar - Board member is ISB on 8/09/09 during deliberation ] is to neutralise the locational disparities between the operating markets and to bring the value more closer to realistic terms. In view of such consideration, then the other costs like storage, handling cost etc. should also be considered. However, there is no mention of such other costs in the exposure draft.
Hence, it is recommended that the operating price in the advantageous market unadjusted for any other cost should be a better reference for fair value measurement. The most relevent reference in this context would be quoted [ unadjusted] price - as mentioned in para 45 of the exposure draft for level 1 input for fair value measurement purpose.
b/ Reference para 53 - 54 of the exposure draft on Level 3 input, read alongwith disclosure requirements as per para 57, the value measurement for assets/liabities will be done basis unobservable input. In absence of any any specific guidline, the entity valuation will get influenced by management assumption and interpretaion. Thus the scope of subjectivity will be very high in the value measurement of assets/ liabilities.
Further, the disclosure requirements as specified in the draft standard will lead to the exposure of entity specific confidential information to competitors.
Thursday, December 4, 2008
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.
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.
Monday, November 24, 2008
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:
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.
Monday, November 10, 2008
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
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
Monday, October 20, 2008
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.
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.
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