Today, manufacturing is a global activity. As supply chain management (SCM) becomes more prevalent in this industry, process manufacturers need to know what raw materials, or ingredients, are available in inventory and when they are needed, since sourcing these ingredients is a complex process.
Demand management (DM) software has been developed so that it can be integrated within the supply chain in order to help manufacturers meet sales forecast objectives and increase customer satisfaction. DM software also helps manufacturers deal with customers' expectations of what can be produced and how much will be available.
Process manufacturers are seeing other issues as well:
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increasing manufacturing costs in the process industry, and the need to get a handle on these costs
*
difficulty in measuring sales forecasts accurately due to issues of seasonality, changing customer demand, and availability of materials, if no demand planning software is in place
*
diminished visibility of data and materials across the entire supply chain if systems are not integrated together, leaving departments to rely on previous forecasts to manufacture the product(s)
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longer lead times if proper procurement practices are not taken, and either too much of the wrong inventory or not enough of the right inventory is in the warehouse, increasing inventory holding costs
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decreased customer satisfaction as responsiveness to changing customer demands decreases
In order to combat the above issues, attribute-based demand planning (ABDP) has been developed within DM software—an approach based on just in time (JIT) inventory methods and DM software. ABDP can reduce inventory levels and supply chain connections, as well as allow organizations to become adaptable to changing customer demands.
The main goal of ABDP is to eliminate the holding of inventory as much as possible, which is achieved by planning for materials needed based on attributes as opposed to the whole product itself. This means that if an ingredient or part with a particular specification is needed, then the product demand will be triggered in the system, and the needed material will be ordered. Normally within DM for manufacturing, the component is ordered based on historical data as opposed to the need for that particular item.
DM and ABDP
DM, or demand planning, is a method that gives managers the ability to forecast needed inventory stock, parts, or components within the supply chain in order to manufacture a final good. DM helps to manage a firm's inventory by way of setting minimum and maximum levels of stock, and letting the system indicate to the appropriate managers what to buy and if the stock is needed either immediately or in the next period.
ABDP takes the above process one step further. It is, in essence, a method of lean inventory management that focuses on the next level down. Using a DM software solution, a manager can not only forecast how many products will be needed, but also which type of components will be needed to produce the products, as well as if any modifications are to be made to those components.
With ABDP, the system can accurately decide what stock is needed, as well as when it is needed, in order to adapt to changes in customer demands—a capability that will invariably increase the manufacturer's bottom line by reducing inventory holding costs.
How Can ABDP Help Manufacturers?
With regards to the business issues listed above, ABDP can help firms decrease manufacturing costs and accurately measure the precise components or materials needed for JIT types of manufacturing. DM software in combination with ABDP methodologies can also increase visibility of both data and materials, and help in the procurement of these goods.
In process manufacturing specifically, ingredients management is a very important component to the production of the goods. Whether launching a new product, changing or modifying present products, or discontinuing old products, managing this process can be tricky, especially when selling multiple products at the same time. ABDP can help manufacturers avoid problems and mitigate the business issues outlined above.
Let's take a closer look at what ABDP is and how it can help manufacturers.
ABDP has to do with manufacturing the product itself and managing the inventory for that product. ABDP takes into account a larger amount of data than a typical DM solution does, as each item is attributed particular characteristics, and forecasting is done for each of those characteristics, depending on the needs of the customer.
The system analyzes demand against available supply, and performs a rebalancing of supply and demand based on the needs of the customer and the availability of each characteristic for that item. Requirements that can be measured may include specific consumption, location of manufacture, and specifications of raw materials that would also be calculated into the price of the item.
ABDP also helps managers avoid building up too much inventory to accommodate every scenario, which is a situation that could lead to excess holding costs. Instead, the system will perform two functions:
1.
Minimize and maximize stock levels for each attribute specified by the manufacturer, allowing for minimum stock to be carried. If more stock is needed, the ABDP solution will be able to forecast and directly order new stock, so as to not run short.
2.
Allow the customer to pick attributes of a product, such as type of item, color, size, location of the manufacturer, etc. Only the attributes of the product are managed, not the entire inventory unit, which lowers inventory carrying costs.
How Demand Planning Works: An Example
Let's take a manufacturer that produces chemical fibres, namely, nylon. Due to advances in chemical fibre technology, the number of variations and types of nylon materials is practically endless.
In this example, the manufacturer will be producing two types of nylon—one particular type for two unique customers. Both customers have completely different requirements, as the first client is from the garment industry, and the other client is from the safety industry, and provides nets for construction workers. Because of these differences, the ingredients for each type of nylon to be produced are different.
An ABDM software solution will allow the manufacturer to order only what is necessary for each customer requirement, and at the same time, meet customer expectations by allowing the customers choose the attributes of the each nylon fibre, such as color, strength of the material, etc.
In this example, the DM system would input the following attributes:
* different chemicals needed
* manufacturing delivery date
* fibre color
* fibre thickness
* fibre shape
Furthermore, based on these factors, the system would be able to calculate when, how much, and for whom the products are to be produced. Using the ABDP method, the DM software will enable the organization to lower inventory levels rather than stocking several different types of fibre, which would tie up working capital.
This is strictly an example, but the benefits of ABDM can extend to any type of manufacturing environment, as the system can accommodate any type of component or material needed to manufacture a product.
Products to Review in the Market Space
ABDP is a very effective method to reduce inventory costs and increase customer satisfaction. It takes into account customer expectations, and can help to shape those expectations, as well as minimize the risk of having too little or too much stock.
The solutions of software vendors such as Supply Chain Consultants, which carries Zemeter software (http://www.supplychain.com/); Oracle, which offers Demantra Demand Management (http://www.oracle.com/demantra/index.html); and RockySoft Corporation, with its RockySoft Demand Manager (http://www.rockysoft.com/demand_manager.cfm), will enable manufacturers to increase profitability and improve overall manufacturing activities.
Each of the above DM solutions has specific advantages, but all will help with the issue of increased manufacturing costs. These solutions will allow for more accurate sales forecasting methods that will coincide with the product attributes needed, help out purchasing, and finally, increase overall customer satisfaction.
Following are some of the specific advantages of each DM software listed above:
1. Zemeter
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advanced methods such as baseline forecasting, which uses more than 20 statistical methods, including optimal "best fit" methods for any series of data
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business intelligence, which consolidates data from sales, marketing, and operations, and provides visibility across different business units
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adaptive collaboration—a forecasting process that "learns" to use the right data from different data sources
2. Demantra Demand Management
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a proprietary Bayesian algorithm that can handle multiple and simultaneous causal factors, including pricing and promotions
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a hybrid online analytical processing (OLAP) data architecture design that is able to handle massive volumes of data
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chaining and attribute-based forecasting that will help shape modeling to predict new product phase-out and phase-in
3. RockySoft Demand Manager
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Web-based solutions for easy access to updates
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integration to a requirements-procurement program to increase real-time supply chain decisions
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custom seasonality index forecasting that allows modification of algorithms by seasonality factors
The Final Word
ABDP is a very effective method of reducing inventory levels—and thus costs—within the manufacturing environment. To that end, the DM software solutions mentioned above have very strong functionality. Among the many benefits for the process manufacturing environment specifically, ABDP and DM software can help manufacturers obtain specific materials in an efficient and cost-cutting way, improve workflow by procuring specific materials only when they are needed, and increase customer satisfaction by adhering to the needs of the client.
SOURCE:http://www.technologyevaluation.com/research/articles/attribute-based-demand-planning-a-powerful-tool-for-process-manufacturers-19441/
Friday, July 30, 2010
Improving Human Performance by Identifying the Gaps
Mariano Bernádez: Methodology and practice are two very different things. From the practice standpoint, I think the issue with performance in Latin-American organizations in general—although I'm more familiar with those in Argentina, Chile, Brazil, Mexico, Colombia, Peru, and Spain—is very clear: we have made all the mistakes inherent to practice, and we continue to make them. This is a way of learning and improving. That's why there are companies that are able to survive in spite of having great disadvantages compared to their competitors. The companies that will survive this natural selection process are the ones that will adapt and find solutions for some performance issues. But the fact that they survive does not mean that they are good; they are just not as bad as other organizations.
Now, a few companies are able to apply the methodology successfully. They already have international structures. They are familiar with the methodology and see their companies as systems with a specific priority (that is, to sell, to control expenses, etc.).
What is happening in Latin America is that the environment is ever changing and has become unstable. Therefore, companies adopt strategies to adapt to these changes that don't operate as systems. In cases like this, what helps these companies survive becomes the cause of the next crisis.
As an example, an organization adapts and becomes a government supplier. Later, politics and the government change and favor privatization, which actually happened in the 1990s. However, remnants of a government supplier system remain in the system that is now private. When a company is not perceived as a system, its internal areas develop at different rates, and may become incompatible with each other.
VI: Why is this model not applied? Who in the organization should back this proposal?
MB: In general, these books are written for business people, managers, and directors, whose jobs are to develop new projects or new organizations, and who face the problem of understanding the business as a single entity. This problem starts outside the company, in the market and with the customers, and then attacks the company's internal systems.
This is difficult mainly because when we think of performance, we think of individuals—either the individual who has a problem or the individual who is going to solve it. In other words, [we think of] the individual who shows poor performance, or the leader who will create a new vision and renew the company.
From our experience—and the Rummler Law—we know that in a fight between the individual and the performance system, the system will win 95 percent of the time. This means that we don't perceive the rest of the system components that are not related to the individual. A person can be very competent, but are the goals clear? Are the goals consistent with the market's needs? Is the strategy compatible with the work systems that are in place? Do we reward good performance or bad performance?
For example, take an organization that rewards individuals who achieve a specific sales quota. If the organization lacks sound control mechanisms, it may find that sales are low specifically because its system is stimulating only one area that is potentially harmful to the organization.
We can also end up punishing individuals who do things correctly. An example of this is a company that has a very unorganized system, where competent people are assigned all the tasks that other people in the organization are not able to complete. This creates a situation where some employees do very little work, and others, too much. Such conditions can generate a high rate of turnover, where people leave the organization while new, enthusiastic individuals come in; a few weeks later, these new employees either leave too or start a crisis.
The system becomes invisible. Although a system has seven performance components, we generally only see those related to individuals.
VI: How does the HPT model address this issue?
MB: The performance technology system helps us know what will happen before we take any action. That is, the consequences our actions will have on a given set of factors.
It's like playing pool … hitting the ball is the easiest part, but knowing how it will bounce is difficult. A good player uses the rail cushions, which, in this example, represent the components I mentioned before. Performance technology is like having seven key components that must be taken into account simultaneously. The book [Human Performance Technology] mentions the questions we must ask before implementing a partial solution.
Another important aspect is that the ideas in this book should not be applied only before implementation, because they also help you see the big picture in the organization. Many of the problems we see in human performance arise from applying solutions without having a full understanding of the issues. We launched e-learning, thinking it was this great technology, and although it is useful in making learning accessible to all in an organization, it might not be what we need.
Methodology helps us identify the organization's problems by defining the desired results, the real results, and the gaps, and by analyzing the causes of these gaps before selecting a range of solutions (rarely is just a single solution enough).
VI: Then the key is identifying the gaps?
MB: If we take a look at the cycle model of what we call performance technology, it starts with performance analysis. The first step is to find out what the goals and the desired results are, then to specify the goals we want to achieve and the current standards. We then need to identify the gaps between these two. We can only justify investing in performance management when the gaps affect both the current and the desired results.
We often say things like "This is the fifth time employees have attended training courses, yet they continue to make the same mistakes." Maybe training is not the solution. Maybe the employees have no way of knowing that they are making mistakes, so they have no way of avoiding them. Or it might occur to them that they are making mistakes, but perhaps they receive no feedback to confirm this. Maybe they are selling services that might have a negative effect in the future, but they are unable to see these consequences. Or the customer didn't understand because of a lack of real-time communication. These are but a few examples of possible causes for employee errors.
In these cases, instead of providing more training, we may need to define a process to enable direct inquiries. That way, when we know the causes of errors made, we will be able to decide what type of intervention is required.
VI: Is e-learning just another tool in what we call performance improvement technology?
MB: Exactly. First of all, there is the diagnosis-detection stage, where we see the performance gaps; second, we have the causes for the gaps; and third, the selection and design of interventions. E-learning is an intervention.
A new accounting or enterprise resource planning (ERP) system, or an enhancement to the selection, can easily be considered interventions. According to the methodology, we can see interventions as different types of tools that we can—or should—combine and use in consistent ways. What we do with one, we don't undo with the other. They must be aligned.
VI: The return on investment (ROI) topic is critical when presenting a new project. In this case, how do we obtain an ROI?
MB: [Human Performance Technology] defines ROI and describes four main groups that constitute it. When we use the methodology to design a project, we have to calculate the ROI. We must compare the cost of the issue with the cost of the solution, and distribute it through the life cycle of the solution.
We might have a fixed period for our ROI. In this case, we must manage the periods in which we expect to see that ROI, and define how we will measure the investment. We must consider economic indicators that will translate into a balance sheet and other indirect factors that will affect it. For example, if we ask "How do we measure ROI in education?" we must consider how difficult it is to measure ROI in education per se. But if you consider the cost of ignorance or the cost of incompetence to perform a specific task, you can infer the consequences.
To illustrate this point, consider a bank that has a program to help cashier managers make cashiers improve their performance. These managers should provide the cashiers with some type of training, but the managers argue that they have no time because they have other tasks to do. Some of these tasks surely consist of answering the cashiers' repetitive questions.
So, how many times a day do cashiers bother their managers with questions? Let's say five times. And how long does it take the manager to respond? At least five minutes. That means five minutes, five times a day—twenty-five minutes per cashier. If we have three cashiers, then that already equates to seventy-five minutes a day, five days a week. That is the cost of not investing in the time to train the cashiers. How do we measure the cost? We must see what the cashier manager's working day costs. We divide the manager's salary by the number of days or hours, then we multiply that number by the time, and we get the cost.
The manager thinks that he has to either schedule a day to teach cashiers how to perform these tasks so that they don't have to constantly ask questions, or use an online help system to improve performance and provide the cashiers with a way to obtain responses to their questions in real time.
When we add up all the costs of failures that can be attributed to this problem with the cashiers, and we compare that to the project cost, we must consider how long it would take us to recover the amount we invested in solving this problem in terms of what would happen with the cost of lost time spent doing rework, solving cashier mistakes, etc., if we eliminated this problem.
The basis of ROI is that in order to know what an investment is, we must have results and use them in a practical way—see how we can translate them into useful information. Human Performance Technology explains different formulas, models—even ways to compare solution A to solution B (for example, e-learning compared to an on-site training course).
[Human Performance Technology] provides tools to build a solid case for ROI, which is made before starting the project, not after. That is, when we decide we will sell the project, the logical question is, "What will the results be?" The answer is not only how much it will cost, but how much we will earn from this.
SOIRCE:http://www.technologyevaluation.com/research/articles/improving-human-performance-by-identifying-the-gaps-19046/
Now, a few companies are able to apply the methodology successfully. They already have international structures. They are familiar with the methodology and see their companies as systems with a specific priority (that is, to sell, to control expenses, etc.).
What is happening in Latin America is that the environment is ever changing and has become unstable. Therefore, companies adopt strategies to adapt to these changes that don't operate as systems. In cases like this, what helps these companies survive becomes the cause of the next crisis.
As an example, an organization adapts and becomes a government supplier. Later, politics and the government change and favor privatization, which actually happened in the 1990s. However, remnants of a government supplier system remain in the system that is now private. When a company is not perceived as a system, its internal areas develop at different rates, and may become incompatible with each other.
VI: Why is this model not applied? Who in the organization should back this proposal?
MB: In general, these books are written for business people, managers, and directors, whose jobs are to develop new projects or new organizations, and who face the problem of understanding the business as a single entity. This problem starts outside the company, in the market and with the customers, and then attacks the company's internal systems.
This is difficult mainly because when we think of performance, we think of individuals—either the individual who has a problem or the individual who is going to solve it. In other words, [we think of] the individual who shows poor performance, or the leader who will create a new vision and renew the company.
From our experience—and the Rummler Law—we know that in a fight between the individual and the performance system, the system will win 95 percent of the time. This means that we don't perceive the rest of the system components that are not related to the individual. A person can be very competent, but are the goals clear? Are the goals consistent with the market's needs? Is the strategy compatible with the work systems that are in place? Do we reward good performance or bad performance?
For example, take an organization that rewards individuals who achieve a specific sales quota. If the organization lacks sound control mechanisms, it may find that sales are low specifically because its system is stimulating only one area that is potentially harmful to the organization.
We can also end up punishing individuals who do things correctly. An example of this is a company that has a very unorganized system, where competent people are assigned all the tasks that other people in the organization are not able to complete. This creates a situation where some employees do very little work, and others, too much. Such conditions can generate a high rate of turnover, where people leave the organization while new, enthusiastic individuals come in; a few weeks later, these new employees either leave too or start a crisis.
The system becomes invisible. Although a system has seven performance components, we generally only see those related to individuals.
VI: How does the HPT model address this issue?
MB: The performance technology system helps us know what will happen before we take any action. That is, the consequences our actions will have on a given set of factors.
It's like playing pool … hitting the ball is the easiest part, but knowing how it will bounce is difficult. A good player uses the rail cushions, which, in this example, represent the components I mentioned before. Performance technology is like having seven key components that must be taken into account simultaneously. The book [Human Performance Technology] mentions the questions we must ask before implementing a partial solution.
Another important aspect is that the ideas in this book should not be applied only before implementation, because they also help you see the big picture in the organization. Many of the problems we see in human performance arise from applying solutions without having a full understanding of the issues. We launched e-learning, thinking it was this great technology, and although it is useful in making learning accessible to all in an organization, it might not be what we need.
Methodology helps us identify the organization's problems by defining the desired results, the real results, and the gaps, and by analyzing the causes of these gaps before selecting a range of solutions (rarely is just a single solution enough).
VI: Then the key is identifying the gaps?
MB: If we take a look at the cycle model of what we call performance technology, it starts with performance analysis. The first step is to find out what the goals and the desired results are, then to specify the goals we want to achieve and the current standards. We then need to identify the gaps between these two. We can only justify investing in performance management when the gaps affect both the current and the desired results.
We often say things like "This is the fifth time employees have attended training courses, yet they continue to make the same mistakes." Maybe training is not the solution. Maybe the employees have no way of knowing that they are making mistakes, so they have no way of avoiding them. Or it might occur to them that they are making mistakes, but perhaps they receive no feedback to confirm this. Maybe they are selling services that might have a negative effect in the future, but they are unable to see these consequences. Or the customer didn't understand because of a lack of real-time communication. These are but a few examples of possible causes for employee errors.
In these cases, instead of providing more training, we may need to define a process to enable direct inquiries. That way, when we know the causes of errors made, we will be able to decide what type of intervention is required.
VI: Is e-learning just another tool in what we call performance improvement technology?
MB: Exactly. First of all, there is the diagnosis-detection stage, where we see the performance gaps; second, we have the causes for the gaps; and third, the selection and design of interventions. E-learning is an intervention.
A new accounting or enterprise resource planning (ERP) system, or an enhancement to the selection, can easily be considered interventions. According to the methodology, we can see interventions as different types of tools that we can—or should—combine and use in consistent ways. What we do with one, we don't undo with the other. They must be aligned.
VI: The return on investment (ROI) topic is critical when presenting a new project. In this case, how do we obtain an ROI?
MB: [Human Performance Technology] defines ROI and describes four main groups that constitute it. When we use the methodology to design a project, we have to calculate the ROI. We must compare the cost of the issue with the cost of the solution, and distribute it through the life cycle of the solution.
We might have a fixed period for our ROI. In this case, we must manage the periods in which we expect to see that ROI, and define how we will measure the investment. We must consider economic indicators that will translate into a balance sheet and other indirect factors that will affect it. For example, if we ask "How do we measure ROI in education?" we must consider how difficult it is to measure ROI in education per se. But if you consider the cost of ignorance or the cost of incompetence to perform a specific task, you can infer the consequences.
To illustrate this point, consider a bank that has a program to help cashier managers make cashiers improve their performance. These managers should provide the cashiers with some type of training, but the managers argue that they have no time because they have other tasks to do. Some of these tasks surely consist of answering the cashiers' repetitive questions.
So, how many times a day do cashiers bother their managers with questions? Let's say five times. And how long does it take the manager to respond? At least five minutes. That means five minutes, five times a day—twenty-five minutes per cashier. If we have three cashiers, then that already equates to seventy-five minutes a day, five days a week. That is the cost of not investing in the time to train the cashiers. How do we measure the cost? We must see what the cashier manager's working day costs. We divide the manager's salary by the number of days or hours, then we multiply that number by the time, and we get the cost.
The manager thinks that he has to either schedule a day to teach cashiers how to perform these tasks so that they don't have to constantly ask questions, or use an online help system to improve performance and provide the cashiers with a way to obtain responses to their questions in real time.
When we add up all the costs of failures that can be attributed to this problem with the cashiers, and we compare that to the project cost, we must consider how long it would take us to recover the amount we invested in solving this problem in terms of what would happen with the cost of lost time spent doing rework, solving cashier mistakes, etc., if we eliminated this problem.
The basis of ROI is that in order to know what an investment is, we must have results and use them in a practical way—see how we can translate them into useful information. Human Performance Technology explains different formulas, models—even ways to compare solution A to solution B (for example, e-learning compared to an on-site training course).
[Human Performance Technology] provides tools to build a solid case for ROI, which is made before starting the project, not after. That is, when we decide we will sell the project, the logical question is, "What will the results be?" The answer is not only how much it will cost, but how much we will earn from this.
SOIRCE:http://www.technologyevaluation.com/research/articles/improving-human-performance-by-identifying-the-gaps-19046/
Demand-driven Versus Traditional Materials Requirement Planning
Nowadays, manufacturers are increasingly subject to massive pressures to drive down costs and increase efficiency. However, these pressures often invalidate the traditional materials requirements planning (MRP) batch-based manufacturing planning and product costing approaches. Moreover, companies struggling to serve their customers using purely traditional MRP methodology are often unable to meet the demands for agility and responsiveness that consumers at the end of the supply chain are requesting. To make things worse, with product life cycles decreasing, it means that manufacturing and distribution are increasing in complexity. For the manufacturer, this translates into a need to better manage customer demands and expectations, and to respond accordingly.
With ever shorter product life cycles in fashion due to shifts in buying trends and marketers attempting to best guess what fickle consumers will desire from season to season, the supply chain cannot afford items that sit on shelves (tying up capital and facing obsolescence). Whether these items are finished products, components, or subassemblies becomes irrelevant in this scenario. Therefore, there is a real need to reduce inventory throughout the supply chain nodes. For example, carmakers tend to see an increase in supplying customized products, with consumers able to specify everything from the color pallet for bodywork and interiors to choosing the latest electronic gadgetry for the dashboard. One can even witness customization creeping into mass-produced goods too, where certain versions of items of wide ranging types are being made available through different outlets—may it be food, fast moving consumer goods (FMCG), etc.
Needless to say, the need to reduce capital employed within the manufacturing enterprise and the trend of outsourcing manufacturing to lower-cost regions overseas, which typically increases lead times (which customers do not appreciate), only complicates the conundrum of low costs and increased efficiency for embattled manufacturers. This means that customer management has to move up several steps of the efficiency ladder, with the best companies staying very close to their customers.
In reality, the way to overcome these difficulties and better serve customers might often be to adopt demand-driven manufacturing principles. For example, manufacturers could make product as close to the point of order as possible, anticipating needs, and delivering within an acceptable time frame. Demand-driven manufacturing is not a new concept. Japanese manufacturers went down this route back in the 1980s. Now the rest of the world is slowly waking up and moving away from batch production towards demand-driven manufacturing, because wavering demands from customers create too many demands on the inflexibility of traditional manufacturing methods.
It is old news that optimizing within the four walls of the factory is no longer a workable solution, and while outsourcing may be seen as important in lowering the price of finished goods, it causes further problems by increasing lead times in a world where decreasing lead times are equally necessary to satisfy the customer.
Further, manufacturing anything—from mobile phones and computers, to cars and toys in the discrete manufacturing segments, to meat processing, producing paints, and brewing beer in the process manufacturing segments—can entail extremely complex business processes. Namely, parts or ingredients are needed to make components, which in turn, need to be configured or assembled before a final product can be delivered to a customer.
Scheduling and Forecasting
Alternatively, the manufacturing process itself can be rather straightforward, but is subject to difficult scheduling requirements, due to long lead times and fluctuating market demand. The APICS Dictionary defines demand as a need for a particular product or component, which could come from any number of sources. This includes customer order or forecast, an interplant requirement, or a request from a branch warehouse for a service part or to manufacture another product. At the finished goods level, demand data are usually different from sales data because demand does not necessarily result in sales. For example, in the sales scenario, if there is no stock, there will be no sale. Generally, there are up to four components of demand: cyclical component, random component, seasonal component, and trend component.
On the other hand, demand management is the function of recognizing all the demands for goods and services to support the market place, which involves prioritizing demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results. In other words, it integrates supply and demand information so as to optimize operations. Forecasting applications, which predict activity over a weekly, monthly or even yearly time horizon, remain central, but demand management is a broader activity that can include replenishment, sales and operations planning (S&OP), integration with marketing, order, and customer resource management (CRM) systems.
The traditional time-series forecasting approach the averages of the past performance of a demand stream to anticipate further demand, but more sophisticated systems take into account factors beyond historical demand, employing statistical methods to remove biases. These more complex forms of forecasting determine and predict the effect of "causal" or "event-driven factors," and macro-economic indicators, might have on demand. To that end, recent advances in forecasting have focused on gauging the impact of pricing and promotions, product introduction and obsolescence, intermittent demand, and product proliferation, while forecasting accuracy is improved through collaborative processes that allow sales and distribution channels to work interactively with forecasters.
Either way, planning and controlling this enormous flow of processes and information requires sophisticated software. Adding to this complexity is the distribution of manufactured goods to market, since many variables come into play, such as lead-times; customer orders; internal orders and inventories of products; components; and raw materials. Many decisions must be made, such as when to re-order components or parts, how much inventory to keep, and so on.
It was not until the late 1970s, when computers begun being used in the manufacturing process, that some of these complexities could be mitigated. Solutions such as re-order point (ROP) systems and MRP have been the most common tools to plan for when, and how much, of a certain component or part should be re-ordered. To refresh our memory, a ROP system is an inventory method that places an order for a lot, whenever the quantity on hand is reduced to a predetermined level, known as the reorder point. On the other hand, master production schedule (MPS) is the anticipated build schedule for those items assigned to the master scheduler. It is a set of planning numbers that drives MRP, and it represents what the company plans to produce, expressed in specific configurations, quantities, and dates.
Finally, MRP is a set of techniques that uses bill of material (BOM) data, inventory data, and MPS to calculate requirements for materials, to make recommendations to release replenishment orders for materials. Further, because it is time-phased, it makes recommendations to reschedule open orders when due dates and need dates are not in phase. For more definitions, see Glossary of Enterprise Applications Terminology.
Impact of Computer on Planning Process
The impact that the computer had on material planning and enterprise management in the 1970s was immense. From manual planning to the huge inventory of posting card decks, this new computerized system promised to automatically plan, build, and purchase requirements based on the finished products to be shipped, the current inventory on hand, the allocated inventory for other orders, and the expected arrivals. The posting, originally done manually on input/output cards, was replaced by transactions directly made in the computer and documented on pick lists. The amount of inventory was supposedly visible to anyone with access to a computer, and did not require the user to go to the card deck.
Hence, MRP represented a huge step forward in the planning process. For the first time, based on a schedule of what was going to be produced, which was supported by a list of parts that were needed for that finished item, the computer could calculate the total need and compare it to what was already on hand or committed to arrive. This comparison could then suggest an activity to place an order; cancel orders that were already placed; or simply move the timing to expedite or delay existing orders. The real significance of MRP was that, for the first time, the planner was able to answer the questions "what?", "when?", and "how much?". In other words, rather than being reactive and waiting until the shortage occurred, the planner could be proactive and time phase orders, including releasing orders with multiple deliveries. Indeed, the enterprise systems currently in use by most large corporations worldwide are an evolution of the MRP systems, which had managed to regiment former chaotic manual systems, to a degree.
Nevertheless, some simplifying assumptions were needed to allow the computers of the day to make the required calculations. One was that the orders should be started at the latest possible date to provide for minimal inventory while still serving the customer's need on time. This method is referred to as backward scheduling. Therefore, all orders were scheduled backwards from the desired completion date to calculate the required start date.
Also, there was no inherent slack time in the schedule. The downside of this assumption was that if there were any hiccups in the execution of the plan, the order would most likely be sent to the customer late. Further, if only one part required for the finished product was going to be late, there was no automatic way to know the impact on the other needed parts.
The result of the MRP run, which can take several hours in some environments, is supposed to tell planners how to organize their work by releasing production orders. MRP will, by default, create orders with specific due dates for products and when they need to be manufactured. Companies prioritize resources based on these calculated due dates. The unfortunate result is that other orders, perhaps more important, are neglected, which often leads to overtime in the factory. Therefore, slack would often have to be built into the schedule through conservative, often unjustifiably pessimistic lead times. Despite this drawback, the benefits of the system far outweighed the costs and more companies began to embrace the tools and techniques of MRP. For more information, see Enterprise Applications—The Genesis and Future, Revisited.
MRP Limitations
Combined with information from actual customer orders, MRP is still the most widely used tool in manufacturing industries to track, monitor, and order the volumes of components needed to make a certain product. However, for these reasons, many manufacturing environments have discovered that MRP has trouble controlling stock levels, which results in poor delivery performance. Also, MRP is incapable of handling demand-driven, ever-changing manufacturing, working better when demand for a particular product is constant (fairly even) and predictable. If there is any variation, however, then MRP loses many of its advantages and the benefits of using alternative planning approaches increase.
In fact, the main flaw with MRP is that it is too deterministic. It is too rigid, as it does not allow for natural variations that occur in real life, such as people getting sick or going on strike, truck and shipment delays, machines malfunctioning, quality issues requiring scrap or rework, and customers not order according to forecasts. In other words, MRP is a static model of a stochastic reality, which happens to manufacturing all the time, and is based on customer orders, available parts, and so on. MRP attempts to apply a high degree of precision to something that is inherently imprecise.
Again, MRP is a system that strives to plan replenishment just before a withdrawal from stock, which does not work in some manufacturing environments. In the language of logistics experts, MRP is a "push" system, which schedules production based on forecasts and customer orders, and thus creates plans to push materials through the production process based on forecasts that, by nature, are not accurate. That is to say, traditional MRP methods rely on the movement of materials through functionally-oriented work centers or production lines, and are designed to maximize efficiencies and lower unit cost by producing products in large lots. Production is planned, scheduled, and managed to meet a combination of actual and forecast demand, and thus, production orders stemming from the master production schedule (MPS) and MRP planned orders are "pushed" out to the factory floor and in stock. External suppliers also work to support planned production, while materials management often relies on maintaining sufficient inventory, using a make-to-stock (MTS) rather than make-to-order (MTO) or assemble-to-order (ATO) approach.
SOURCE:http://www.technologyevaluation.com/research/articles/demand-driven-versus-traditional-materials-requirement-planning-18100/
With ever shorter product life cycles in fashion due to shifts in buying trends and marketers attempting to best guess what fickle consumers will desire from season to season, the supply chain cannot afford items that sit on shelves (tying up capital and facing obsolescence). Whether these items are finished products, components, or subassemblies becomes irrelevant in this scenario. Therefore, there is a real need to reduce inventory throughout the supply chain nodes. For example, carmakers tend to see an increase in supplying customized products, with consumers able to specify everything from the color pallet for bodywork and interiors to choosing the latest electronic gadgetry for the dashboard. One can even witness customization creeping into mass-produced goods too, where certain versions of items of wide ranging types are being made available through different outlets—may it be food, fast moving consumer goods (FMCG), etc.
Needless to say, the need to reduce capital employed within the manufacturing enterprise and the trend of outsourcing manufacturing to lower-cost regions overseas, which typically increases lead times (which customers do not appreciate), only complicates the conundrum of low costs and increased efficiency for embattled manufacturers. This means that customer management has to move up several steps of the efficiency ladder, with the best companies staying very close to their customers.
In reality, the way to overcome these difficulties and better serve customers might often be to adopt demand-driven manufacturing principles. For example, manufacturers could make product as close to the point of order as possible, anticipating needs, and delivering within an acceptable time frame. Demand-driven manufacturing is not a new concept. Japanese manufacturers went down this route back in the 1980s. Now the rest of the world is slowly waking up and moving away from batch production towards demand-driven manufacturing, because wavering demands from customers create too many demands on the inflexibility of traditional manufacturing methods.
It is old news that optimizing within the four walls of the factory is no longer a workable solution, and while outsourcing may be seen as important in lowering the price of finished goods, it causes further problems by increasing lead times in a world where decreasing lead times are equally necessary to satisfy the customer.
Further, manufacturing anything—from mobile phones and computers, to cars and toys in the discrete manufacturing segments, to meat processing, producing paints, and brewing beer in the process manufacturing segments—can entail extremely complex business processes. Namely, parts or ingredients are needed to make components, which in turn, need to be configured or assembled before a final product can be delivered to a customer.
Scheduling and Forecasting
Alternatively, the manufacturing process itself can be rather straightforward, but is subject to difficult scheduling requirements, due to long lead times and fluctuating market demand. The APICS Dictionary defines demand as a need for a particular product or component, which could come from any number of sources. This includes customer order or forecast, an interplant requirement, or a request from a branch warehouse for a service part or to manufacture another product. At the finished goods level, demand data are usually different from sales data because demand does not necessarily result in sales. For example, in the sales scenario, if there is no stock, there will be no sale. Generally, there are up to four components of demand: cyclical component, random component, seasonal component, and trend component.
On the other hand, demand management is the function of recognizing all the demands for goods and services to support the market place, which involves prioritizing demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results. In other words, it integrates supply and demand information so as to optimize operations. Forecasting applications, which predict activity over a weekly, monthly or even yearly time horizon, remain central, but demand management is a broader activity that can include replenishment, sales and operations planning (S&OP), integration with marketing, order, and customer resource management (CRM) systems.
The traditional time-series forecasting approach the averages of the past performance of a demand stream to anticipate further demand, but more sophisticated systems take into account factors beyond historical demand, employing statistical methods to remove biases. These more complex forms of forecasting determine and predict the effect of "causal" or "event-driven factors," and macro-economic indicators, might have on demand. To that end, recent advances in forecasting have focused on gauging the impact of pricing and promotions, product introduction and obsolescence, intermittent demand, and product proliferation, while forecasting accuracy is improved through collaborative processes that allow sales and distribution channels to work interactively with forecasters.
Either way, planning and controlling this enormous flow of processes and information requires sophisticated software. Adding to this complexity is the distribution of manufactured goods to market, since many variables come into play, such as lead-times; customer orders; internal orders and inventories of products; components; and raw materials. Many decisions must be made, such as when to re-order components or parts, how much inventory to keep, and so on.
It was not until the late 1970s, when computers begun being used in the manufacturing process, that some of these complexities could be mitigated. Solutions such as re-order point (ROP) systems and MRP have been the most common tools to plan for when, and how much, of a certain component or part should be re-ordered. To refresh our memory, a ROP system is an inventory method that places an order for a lot, whenever the quantity on hand is reduced to a predetermined level, known as the reorder point. On the other hand, master production schedule (MPS) is the anticipated build schedule for those items assigned to the master scheduler. It is a set of planning numbers that drives MRP, and it represents what the company plans to produce, expressed in specific configurations, quantities, and dates.
Finally, MRP is a set of techniques that uses bill of material (BOM) data, inventory data, and MPS to calculate requirements for materials, to make recommendations to release replenishment orders for materials. Further, because it is time-phased, it makes recommendations to reschedule open orders when due dates and need dates are not in phase. For more definitions, see Glossary of Enterprise Applications Terminology.
Impact of Computer on Planning Process
The impact that the computer had on material planning and enterprise management in the 1970s was immense. From manual planning to the huge inventory of posting card decks, this new computerized system promised to automatically plan, build, and purchase requirements based on the finished products to be shipped, the current inventory on hand, the allocated inventory for other orders, and the expected arrivals. The posting, originally done manually on input/output cards, was replaced by transactions directly made in the computer and documented on pick lists. The amount of inventory was supposedly visible to anyone with access to a computer, and did not require the user to go to the card deck.
Hence, MRP represented a huge step forward in the planning process. For the first time, based on a schedule of what was going to be produced, which was supported by a list of parts that were needed for that finished item, the computer could calculate the total need and compare it to what was already on hand or committed to arrive. This comparison could then suggest an activity to place an order; cancel orders that were already placed; or simply move the timing to expedite or delay existing orders. The real significance of MRP was that, for the first time, the planner was able to answer the questions "what?", "when?", and "how much?". In other words, rather than being reactive and waiting until the shortage occurred, the planner could be proactive and time phase orders, including releasing orders with multiple deliveries. Indeed, the enterprise systems currently in use by most large corporations worldwide are an evolution of the MRP systems, which had managed to regiment former chaotic manual systems, to a degree.
Nevertheless, some simplifying assumptions were needed to allow the computers of the day to make the required calculations. One was that the orders should be started at the latest possible date to provide for minimal inventory while still serving the customer's need on time. This method is referred to as backward scheduling. Therefore, all orders were scheduled backwards from the desired completion date to calculate the required start date.
Also, there was no inherent slack time in the schedule. The downside of this assumption was that if there were any hiccups in the execution of the plan, the order would most likely be sent to the customer late. Further, if only one part required for the finished product was going to be late, there was no automatic way to know the impact on the other needed parts.
The result of the MRP run, which can take several hours in some environments, is supposed to tell planners how to organize their work by releasing production orders. MRP will, by default, create orders with specific due dates for products and when they need to be manufactured. Companies prioritize resources based on these calculated due dates. The unfortunate result is that other orders, perhaps more important, are neglected, which often leads to overtime in the factory. Therefore, slack would often have to be built into the schedule through conservative, often unjustifiably pessimistic lead times. Despite this drawback, the benefits of the system far outweighed the costs and more companies began to embrace the tools and techniques of MRP. For more information, see Enterprise Applications—The Genesis and Future, Revisited.
MRP Limitations
Combined with information from actual customer orders, MRP is still the most widely used tool in manufacturing industries to track, monitor, and order the volumes of components needed to make a certain product. However, for these reasons, many manufacturing environments have discovered that MRP has trouble controlling stock levels, which results in poor delivery performance. Also, MRP is incapable of handling demand-driven, ever-changing manufacturing, working better when demand for a particular product is constant (fairly even) and predictable. If there is any variation, however, then MRP loses many of its advantages and the benefits of using alternative planning approaches increase.
In fact, the main flaw with MRP is that it is too deterministic. It is too rigid, as it does not allow for natural variations that occur in real life, such as people getting sick or going on strike, truck and shipment delays, machines malfunctioning, quality issues requiring scrap or rework, and customers not order according to forecasts. In other words, MRP is a static model of a stochastic reality, which happens to manufacturing all the time, and is based on customer orders, available parts, and so on. MRP attempts to apply a high degree of precision to something that is inherently imprecise.
Again, MRP is a system that strives to plan replenishment just before a withdrawal from stock, which does not work in some manufacturing environments. In the language of logistics experts, MRP is a "push" system, which schedules production based on forecasts and customer orders, and thus creates plans to push materials through the production process based on forecasts that, by nature, are not accurate. That is to say, traditional MRP methods rely on the movement of materials through functionally-oriented work centers or production lines, and are designed to maximize efficiencies and lower unit cost by producing products in large lots. Production is planned, scheduled, and managed to meet a combination of actual and forecast demand, and thus, production orders stemming from the master production schedule (MPS) and MRP planned orders are "pushed" out to the factory floor and in stock. External suppliers also work to support planned production, while materials management often relies on maintaining sufficient inventory, using a make-to-stock (MTS) rather than make-to-order (MTO) or assemble-to-order (ATO) approach.
SOURCE:http://www.technologyevaluation.com/research/articles/demand-driven-versus-traditional-materials-requirement-planning-18100/
Is Intentia Truly Industry’s First In Food Traceability?
As a result of their acquisition of 49% of the Norwegian software company Scase on March 15, Intentia International AB (XSSE: INT B), a Swedish provider of enterprise business applications, has announced that it is the first Enterprise Applications provider to offer an integrated system for origin tracing of food items.
According to Intentia's John Gledhill, Food & Beverage Industry Application Manager, "With the pressures now being created by the consumer and governments throughout the world for transparent traceability, our solution has the ability to track the individual carcass from farmer to the supermarket shelf, collecting all relevant information from each stage in the production process. These include veterinary control, slaughter, freezer, de-boning, processing and packing. This information is then extended, using integration with external animal passport databases, such as those being created within the EU to give the consumer the total view of the history of any animal. These details include, its origin, the breed, where it has been throughout its life, veterinary records, slaughter information etc. This information can then sent by e-file to each store when a delivery of meat, fish or poultry is made, this will give the consumer (in store) the ability to buy with total confidence."
New functionality will be incorporated into Intentia's flagship Movex Food & Beverage product suite and be further refined. Intentia touts that Scase will provide it with a combination of depth, breadth and specialized know-how in applications for managing meat, among other products, that no other supplier of business systems can offer.
Market Impact
Intentia is clearly trying to capitalize on the media coverage of mad cow disease and foot-and-mouth disease frenzy in the EU. While it is correct in stating that this announcement can assist its livestock processing customers (especially in the EU) in tracing product from the farm to the consumer, its "first to market" claims are a bit overstated relative to the food industry in general. While we endorse Intentia's attempt to market the Movex product with more boldness that is rather characteristic of its US-based counterparts, we believe that the company should have emphasized other more valid merits to differentiate its offering and attract the market attention (e.g., Movex' openness).
Intentia's announcement claims applicability for the entire food industry, but actually appears to be very targeted to the live stock markets of red meat and pork within the meat processing industry. The announcement extends the lot tracking functionality available in Movex backward in the supply chain toward to the source of the animal, e.g., the farm. Yet, the lot tracking capabilities of many ERP products provide the infrastructure which can accomplish most of what Intentia claims as a first in the marketplace. Early process-manufacturing oriented ERP (MRP II) products like BPCS, Datalogix and PRISM provided the majority of this in the early 1980's. Today, ERP products from process-oriented vendors, for example SCT and Ross, provide this functionality and more. Even some non-process specific products from companies like J.D. Edwards and SAP address most of these requirements.
The challenges for a food manufacturer in providing tracking from the agricultural source (farms, feedlots and fisheries) to the consumer have not been primarily systems issues. The primary problems are derived from the lack of procedures, both within the company and at all levels of the supply chain, to identify the product (product identification, labeling, location management, etc.) and to gain access to the required information in the first place. To that end, the Intentia's announcement indeed appears to address some of these challenges within the supply chain that starts with livestock.
Some system issues do impact the users of some ERP applications though. Regulatory requirements for full product tracing varies by type of product and country, but may include for example, the identity of the source (farm), where in the warehouse (slot location for example) a specific product was stored, which piece of production equipment was used in processing the item, which truck did it go on, etc. Integration of quality data is an important part of the requirements, and the Intentia's announcement appears to address many of these requirements, as do several of its process oriented competitors. However, the fact remains that not all ERP products have the facilities to store or trace product based upon this level of information.
Jim Brown, VP of Marketing of SCT Corporation, Process Manufacturing & Distribution Division, states, "Our many customers in the meat industries have taught us that product traceability from the farm to the consumer is a key requirement. These customers use Adage to fulfill their traceability commitment to the consumer. We see Intentia's announcement as helping the meat industry and the consumer focus on this critical need."
SOURCE:http://www.technologyevaluation.com/research/articles/is-intentia-truly-industry-s-first-in-food-traceability-16352/
According to Intentia's John Gledhill, Food & Beverage Industry Application Manager, "With the pressures now being created by the consumer and governments throughout the world for transparent traceability, our solution has the ability to track the individual carcass from farmer to the supermarket shelf, collecting all relevant information from each stage in the production process. These include veterinary control, slaughter, freezer, de-boning, processing and packing. This information is then extended, using integration with external animal passport databases, such as those being created within the EU to give the consumer the total view of the history of any animal. These details include, its origin, the breed, where it has been throughout its life, veterinary records, slaughter information etc. This information can then sent by e-file to each store when a delivery of meat, fish or poultry is made, this will give the consumer (in store) the ability to buy with total confidence."
New functionality will be incorporated into Intentia's flagship Movex Food & Beverage product suite and be further refined. Intentia touts that Scase will provide it with a combination of depth, breadth and specialized know-how in applications for managing meat, among other products, that no other supplier of business systems can offer.
Market Impact
Intentia is clearly trying to capitalize on the media coverage of mad cow disease and foot-and-mouth disease frenzy in the EU. While it is correct in stating that this announcement can assist its livestock processing customers (especially in the EU) in tracing product from the farm to the consumer, its "first to market" claims are a bit overstated relative to the food industry in general. While we endorse Intentia's attempt to market the Movex product with more boldness that is rather characteristic of its US-based counterparts, we believe that the company should have emphasized other more valid merits to differentiate its offering and attract the market attention (e.g., Movex' openness).
Intentia's announcement claims applicability for the entire food industry, but actually appears to be very targeted to the live stock markets of red meat and pork within the meat processing industry. The announcement extends the lot tracking functionality available in Movex backward in the supply chain toward to the source of the animal, e.g., the farm. Yet, the lot tracking capabilities of many ERP products provide the infrastructure which can accomplish most of what Intentia claims as a first in the marketplace. Early process-manufacturing oriented ERP (MRP II) products like BPCS, Datalogix and PRISM provided the majority of this in the early 1980's. Today, ERP products from process-oriented vendors, for example SCT and Ross, provide this functionality and more. Even some non-process specific products from companies like J.D. Edwards and SAP address most of these requirements.
The challenges for a food manufacturer in providing tracking from the agricultural source (farms, feedlots and fisheries) to the consumer have not been primarily systems issues. The primary problems are derived from the lack of procedures, both within the company and at all levels of the supply chain, to identify the product (product identification, labeling, location management, etc.) and to gain access to the required information in the first place. To that end, the Intentia's announcement indeed appears to address some of these challenges within the supply chain that starts with livestock.
Some system issues do impact the users of some ERP applications though. Regulatory requirements for full product tracing varies by type of product and country, but may include for example, the identity of the source (farm), where in the warehouse (slot location for example) a specific product was stored, which piece of production equipment was used in processing the item, which truck did it go on, etc. Integration of quality data is an important part of the requirements, and the Intentia's announcement appears to address many of these requirements, as do several of its process oriented competitors. However, the fact remains that not all ERP products have the facilities to store or trace product based upon this level of information.
Jim Brown, VP of Marketing of SCT Corporation, Process Manufacturing & Distribution Division, states, "Our many customers in the meat industries have taught us that product traceability from the farm to the consumer is a key requirement. These customers use Adage to fulfill their traceability commitment to the consumer. We see Intentia's announcement as helping the meat industry and the consumer focus on this critical need."
SOURCE:http://www.technologyevaluation.com/research/articles/is-intentia-truly-industry-s-first-in-food-traceability-16352/
Quote-to-order: New Ingredients in the Recipe for Success
One of Technology Evaluation Centers' (TEC's) series of articles focused on an emerging class of front-office e-business and customer relationship management (CRM) applications aimed at managing what is being termed the lead-to-order, configure, price, quote (CPQ), or quote-to-order (Q2O) set of processes in the complex multichannel sales environment (see Q2O Systems: Solutions for Quotation Management and Pricing Configuration).
This software category has to do with much more than product configuration. As suggested by a 2002 article from Manufacturing Computer Solutions,
it automates the processes from "needs analysis" (what the customer wants and why), through option recommendations, to configuration and change management (including validation), pricing, quoting and financing. The emphasis is on right-first-time and business process web automation.
This applies equally within the context of business-to-business (B2B) and business-to-consumer (B2C) e-commerce. (See also The Perfect Order – Inside Out or Outside In?).
Why Such Demand for Q2O Systems?
The reasons for the recent healthy market interest in these applications are manifold. For one thing, there has long been the need for mass customization capabilities within manufacturers' operations. In a supply surplus economy, almost all products and services are made more customizable to meet customers' exacting needs.
The best example is the evolution in the automotive industry from Ford's 1914 Model T to today's Ford lineup and the ability for customers to even build their own cars online. To be fair, in the 1930s, the long defunct Duisenberg car manufacturer let "celebrity" (deep-pocketed) customers buy a unique, customized car; but the point here is that this has increasingly become a prerogative of the general population today.
The coffee shop industry is another great example of creating value via mass customization. While the ordinary, corner-store filter coffee still generally costs $ 0.99 (USD) a pop, a highly customized cup of coffee can easily amount to several bucks (or 50 cents per syllable, anecdotally). Those who prefer "an extra-hot, half-decaf, triple-shot, vente, sugar-free, low-fat milk, vanilla, extra-foamy dry latte" know all about this.
Furthermore, personal computer (PC) industry leaders are also moving from selling solutions with basic configuration to those that are more customized and higher value, while both hi-tech and industrial products are increasingly packaged into higher value-added customer hardware and software solutions and accompanying services.
Besides mass customization, some ill-fated "dot-com" ideas from the early 2000s are back now, but with a refined value proposition and backed by the latest technological developments. Thus, in 2007, the MFG.com Internet marketplace reported that in the preceding 12 months, the $2 billion (USD)–value was sourced on the site. Then, beside unstoppable globalization, as described in Don Tapscott and Anthony D. Williams's book entitled Wikinomics: How Mass Collaboration Changes Everything, there is a "perfect storm" (or "category six business revolution") in the market owing to Internet generation demographics, broadband pipes, and networks going on everywhere in the global playing field.
The mass collaboration phenomenon is the direct result of many online collaboration tools being readily available for shared innovation and development, forums and knowledge bases, and peer production. In fact, collaboration nowadays is rather about efficiency and driving costs down by maintaining win-win relationships and working together (with the idea of shared, paperless repositories of information). This differs significantly from the concept behind e-commerce tools in their first incarnation, which had everything to do with driving down supplier prices (and thus reducing costs).
According to a 2002 article from Manufacturing Computer Solutions, the vast majority of global manufacturers (about 90 percent) have a number of predominantly B2B relationships, while only about 20 percent sell directly to end consumers. Also, they have multiple sales channels, mostly with agents and distributors, necessitating (for example) slick and easy-to-use digital catalogs, portals, and product configurators for sales support.
Thus, being on the same page has become the name of the game; proposals and other similar documents must be clear, concise, and use acronyms and vernacular that rings a bell with decision makers.
Contemporary technology has rendered integration of formerly separate point solutions into more cohesive Q2O suites much easier. In other words, it is nowadays more feasible to standardize and integrate systems and customer-facing processes, such as generating multitier channel leads, taking and fulfilling customized orders (with highly configurable items), and coordinating warranty, spare parts, and other post-sale services.
Some realization of identifying and empowering a single "inquiry-to-cash" process owner (to provide a unified, single face to the customer) has also been helping to defuse the conflict of multiple functional groups traditionally claiming ownership of various parts of the process at most companies. Consequently, the inquiry-to-cash processes are no longer siloed by functional areas, such as sales, marketing, engineering, fulfillment, or finance departments.
As products and services become more complex, the work of internal sales people, partners and distributors, and direct sales forces has become more difficult than ever. Yet, today, the majority of customers using complex equipment still use cumbersome, manual processes to specify and purchase sophisticated equipment like pumps, compressors, or valves.
On the other hand, manufacturers (suppliers) also rely on manual processes (the so-called "quote-and-hope" or "if it passes, fine" methods) that thrive on fragmented product knowledge (the so-called "tribal knowledge" or "chasing the expert" phenomenon), long lead times, and costly and inefficient proposal generation. Not to mention the complication when dealing with the indirect channel with the lack of consistency and visibility, when multiple companies, functional departments, and people have to be involved. In addition, the complicated purchased equipment often has to be correctly sized and configured to meet the customer's application requirements, which requires process and related technology know-how.
In addition, the pricing and commercial terms can be quite complex as companies have multiple price lists and various channel- and customer-specific pricing policies. Thus, any process improvement solution must be able to fulfill both the technical and commercial requirements, as well as facilitate an efficient information flow and collaboration among all parties involved.
While technologies and tools like guided selling are critical elements of customer self-service sales, giving tools to salespeople is also crucial. Salespeople seem to fall into two proverbial categories: "eagles" and "journey-people." Eagles are the intuitive, fast-moving, high-flying minority, those who take to sales easily and excel in the role. Conversely, journey-people are pretty much everybody else, and although they make a comfortable living at sales, they need ongoing coaching and enabling tools to improve.
New Web Technology Developments Certainly Help
On the B2C side, turning casual online shoppers into buyers takes a personal touch, and that is where the latest generation of e-commerce personalization tools comes in. As a recent article in the Wall Street Journal points out, this software produces product recommendations "behind the scenes" that cater to individual tastes and needs on a supplier's web site. Compared with earlier versions, the latest tools, besides being much more affordable, perform more (predictive) analysis of buyer activity, and the resulting recommendations are more likely to reflect the interests of individual customers.
The article goes on to say that personalization is an increasingly used tactic on the Web, since it often results in significant improvement in conversion rates (i.e., from "just browsing" to "now buying"). Thus, tools for analyzing individual buying and browsing habits have existed for some time. However, early tools—in spite of a steep price tag—were simply not robust enough to transform this analysis into useful or accurate results.
Such analytical tools are now both cheaper and more powerful, some even featuring the ability to operate in "hands-free" mode (in other words, without necessitating human intervention; see also Using Predictive Analytics within Business Intelligence: A Primer).
Helping to Establish Cross-departmental Metrics
For its part, the B2B environment requires even more special analytics (metrics and key performance indicators [KPI]) and sophistication (see Differences in Complexity between B2C and B2B E-commerce). In addition to logically expected improvements of quote and order accuracy (to eliminate costly and unnecessary customer service intervention before the order can be processed, which in turn contributes to lengthened lead times beyond the typical forecast window, while in some cases, erroneously omitted components need to be added in at a supplier's cost), other potential benefits can be derived from deploying a Q2O system. AMR Research's report Sales Configuration—From Efficiency to Excellence (from late 2007) suggests that such benefits include the ability to use the data gathered during the configuration process to feed the demand (forecasting) signals; to make better decisions on future product features and options, configuration constraints, and recommendations rules; and even to determine entire product lines across seasons and geographies.
The report goes on to say that manufacturers increasingly realize the need to improve demand visibility as a driver for sales tools like guided selling and configuration, since a well-deployed Q2O system can determine demand variability and product variants' profitability.
Also, in the spirit of mass customization, the report claims that pushing historical configuration data back into the product lifecycle management (PLM) process can lead to products with broader appeal and lower production costs. AMR has identified a broad trend of manufacturing organizations becoming interested in using insights gathered in the sales process for demand forecasting, product development (including rationalization and parts standardization), field service, and overall improvements in the customer experience.
"Leaning" the Front End Too
Additionally, while most lean initiatives start on the manufacturing floor, the time has come for best-in-class manufacturers to apply the basic philosophies of lean (in other words, continuous improvement and waste elimination in business processes while delivering more value to customers; see Lean Manufacturing: A Primer) to other parts of the enterprise. Many manufacturers that made improvements in their back-end manufacturing processes have meanwhile recognized that significant opportunity still exists to reduce manual effort and costly errors in the front-end selling and services.
According to Godard Abel, chief executive officer (CEO) of BigMachines (to be featured in parts two and three of this series), the same lean thinking can be applied to complex product specification, quoting, and ordering processes, by mapping the steps and identifying those that add value and those that are wasteful. Some of the most apparent examples of wasteful steps include
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repeatedly clarifying and checking prior work due to incomplete information flow
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re-entering (re-keying) order data multiple times in various systems
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fixing specification and engineering errors after an order has been placed
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re-work, warranty, and plant rescheduling costs caused by faulty process and application engineering
Lean initiatives have recently driven some cutting-edge manufacturers to identify objectives for a more effective front-end process, specifically to eliminate manual processes and the need to rely on a wide variety of paper-based tools (such as catalogs, price books, and sizing tables), as well as homegrown software such as that for sizing compact discs (CDs). Many existing quotation and order-entry processes involve many redundant steps and labor-intensive manual processes that only add lead time and complexity to the value chain, as noted in a 2007 case study (Case Study: Rolling Out Lean) published in Quality Magazine. The case study also notes that
given the complexity of some products, the processes used to create quotes and orders become slow and error-ridden, and manufacturers realize the need for a technology enabler that meets the challenges of this lean front-end vision to reduce non-value-added activities, leverage best practices and knowledge, and develop a "mistake-proof process" for product selection, configuration, pricing, quoting, and ordering.
In addition to analyzing their current customer-facing processes, companies need to analyze the tools and systems that support front-end information flow during these processes.
Broad Enterprise Systems Providers Largely Coming Up Short
Moreover, traditional enterprise application software packages have not easily supported the management of end-to-end inquiry-to-cash processes. Enterprise resource planning (ERP) systems, for instance, have traditionally been weak in their ability to handle sales, marketing, and product configuration tasks. Another weak spot for ERP products is in generating proposals, whereby manufacturers can set up Web tools to automatically generate proposals online, complete with all of the technical and commercial data the customer needs to evaluate the quotation. This can include cover letters, product descriptions, technical datasheets, performance graphs, drawings, and commercial terms and conditions.
Consequently, a slew of well-funded start-ups have flooded the market with integrated modules that can be mixed and matched, so that enterprises can assemble a package of tools that suit their needs instead of committing to a single product with flaws that they're unlikely to be able to fix. The latest Web 2.0 technologies have helped in that regard, like so-called "mashups" that enable two on-demand Web applications to work seamlessly as one via Web-services integration.
SOURCE:http://www.technologyevaluation.com/research/articles/quote-to-order-new-ingredients-in-the-recipe-for-success-19361/
This software category has to do with much more than product configuration. As suggested by a 2002 article from Manufacturing Computer Solutions,
it automates the processes from "needs analysis" (what the customer wants and why), through option recommendations, to configuration and change management (including validation), pricing, quoting and financing. The emphasis is on right-first-time and business process web automation.
This applies equally within the context of business-to-business (B2B) and business-to-consumer (B2C) e-commerce. (See also The Perfect Order – Inside Out or Outside In?).
Why Such Demand for Q2O Systems?
The reasons for the recent healthy market interest in these applications are manifold. For one thing, there has long been the need for mass customization capabilities within manufacturers' operations. In a supply surplus economy, almost all products and services are made more customizable to meet customers' exacting needs.
The best example is the evolution in the automotive industry from Ford's 1914 Model T to today's Ford lineup and the ability for customers to even build their own cars online. To be fair, in the 1930s, the long defunct Duisenberg car manufacturer let "celebrity" (deep-pocketed) customers buy a unique, customized car; but the point here is that this has increasingly become a prerogative of the general population today.
The coffee shop industry is another great example of creating value via mass customization. While the ordinary, corner-store filter coffee still generally costs $ 0.99 (USD) a pop, a highly customized cup of coffee can easily amount to several bucks (or 50 cents per syllable, anecdotally). Those who prefer "an extra-hot, half-decaf, triple-shot, vente, sugar-free, low-fat milk, vanilla, extra-foamy dry latte" know all about this.
Furthermore, personal computer (PC) industry leaders are also moving from selling solutions with basic configuration to those that are more customized and higher value, while both hi-tech and industrial products are increasingly packaged into higher value-added customer hardware and software solutions and accompanying services.
Besides mass customization, some ill-fated "dot-com" ideas from the early 2000s are back now, but with a refined value proposition and backed by the latest technological developments. Thus, in 2007, the MFG.com Internet marketplace reported that in the preceding 12 months, the $2 billion (USD)–value was sourced on the site. Then, beside unstoppable globalization, as described in Don Tapscott and Anthony D. Williams's book entitled Wikinomics: How Mass Collaboration Changes Everything, there is a "perfect storm" (or "category six business revolution") in the market owing to Internet generation demographics, broadband pipes, and networks going on everywhere in the global playing field.
The mass collaboration phenomenon is the direct result of many online collaboration tools being readily available for shared innovation and development, forums and knowledge bases, and peer production. In fact, collaboration nowadays is rather about efficiency and driving costs down by maintaining win-win relationships and working together (with the idea of shared, paperless repositories of information). This differs significantly from the concept behind e-commerce tools in their first incarnation, which had everything to do with driving down supplier prices (and thus reducing costs).
According to a 2002 article from Manufacturing Computer Solutions, the vast majority of global manufacturers (about 90 percent) have a number of predominantly B2B relationships, while only about 20 percent sell directly to end consumers. Also, they have multiple sales channels, mostly with agents and distributors, necessitating (for example) slick and easy-to-use digital catalogs, portals, and product configurators for sales support.
Thus, being on the same page has become the name of the game; proposals and other similar documents must be clear, concise, and use acronyms and vernacular that rings a bell with decision makers.
Contemporary technology has rendered integration of formerly separate point solutions into more cohesive Q2O suites much easier. In other words, it is nowadays more feasible to standardize and integrate systems and customer-facing processes, such as generating multitier channel leads, taking and fulfilling customized orders (with highly configurable items), and coordinating warranty, spare parts, and other post-sale services.
Some realization of identifying and empowering a single "inquiry-to-cash" process owner (to provide a unified, single face to the customer) has also been helping to defuse the conflict of multiple functional groups traditionally claiming ownership of various parts of the process at most companies. Consequently, the inquiry-to-cash processes are no longer siloed by functional areas, such as sales, marketing, engineering, fulfillment, or finance departments.
As products and services become more complex, the work of internal sales people, partners and distributors, and direct sales forces has become more difficult than ever. Yet, today, the majority of customers using complex equipment still use cumbersome, manual processes to specify and purchase sophisticated equipment like pumps, compressors, or valves.
On the other hand, manufacturers (suppliers) also rely on manual processes (the so-called "quote-and-hope" or "if it passes, fine" methods) that thrive on fragmented product knowledge (the so-called "tribal knowledge" or "chasing the expert" phenomenon), long lead times, and costly and inefficient proposal generation. Not to mention the complication when dealing with the indirect channel with the lack of consistency and visibility, when multiple companies, functional departments, and people have to be involved. In addition, the complicated purchased equipment often has to be correctly sized and configured to meet the customer's application requirements, which requires process and related technology know-how.
In addition, the pricing and commercial terms can be quite complex as companies have multiple price lists and various channel- and customer-specific pricing policies. Thus, any process improvement solution must be able to fulfill both the technical and commercial requirements, as well as facilitate an efficient information flow and collaboration among all parties involved.
While technologies and tools like guided selling are critical elements of customer self-service sales, giving tools to salespeople is also crucial. Salespeople seem to fall into two proverbial categories: "eagles" and "journey-people." Eagles are the intuitive, fast-moving, high-flying minority, those who take to sales easily and excel in the role. Conversely, journey-people are pretty much everybody else, and although they make a comfortable living at sales, they need ongoing coaching and enabling tools to improve.
New Web Technology Developments Certainly Help
On the B2C side, turning casual online shoppers into buyers takes a personal touch, and that is where the latest generation of e-commerce personalization tools comes in. As a recent article in the Wall Street Journal points out, this software produces product recommendations "behind the scenes" that cater to individual tastes and needs on a supplier's web site. Compared with earlier versions, the latest tools, besides being much more affordable, perform more (predictive) analysis of buyer activity, and the resulting recommendations are more likely to reflect the interests of individual customers.
The article goes on to say that personalization is an increasingly used tactic on the Web, since it often results in significant improvement in conversion rates (i.e., from "just browsing" to "now buying"). Thus, tools for analyzing individual buying and browsing habits have existed for some time. However, early tools—in spite of a steep price tag—were simply not robust enough to transform this analysis into useful or accurate results.
Such analytical tools are now both cheaper and more powerful, some even featuring the ability to operate in "hands-free" mode (in other words, without necessitating human intervention; see also Using Predictive Analytics within Business Intelligence: A Primer).
Helping to Establish Cross-departmental Metrics
For its part, the B2B environment requires even more special analytics (metrics and key performance indicators [KPI]) and sophistication (see Differences in Complexity between B2C and B2B E-commerce). In addition to logically expected improvements of quote and order accuracy (to eliminate costly and unnecessary customer service intervention before the order can be processed, which in turn contributes to lengthened lead times beyond the typical forecast window, while in some cases, erroneously omitted components need to be added in at a supplier's cost), other potential benefits can be derived from deploying a Q2O system. AMR Research's report Sales Configuration—From Efficiency to Excellence (from late 2007) suggests that such benefits include the ability to use the data gathered during the configuration process to feed the demand (forecasting) signals; to make better decisions on future product features and options, configuration constraints, and recommendations rules; and even to determine entire product lines across seasons and geographies.
The report goes on to say that manufacturers increasingly realize the need to improve demand visibility as a driver for sales tools like guided selling and configuration, since a well-deployed Q2O system can determine demand variability and product variants' profitability.
Also, in the spirit of mass customization, the report claims that pushing historical configuration data back into the product lifecycle management (PLM) process can lead to products with broader appeal and lower production costs. AMR has identified a broad trend of manufacturing organizations becoming interested in using insights gathered in the sales process for demand forecasting, product development (including rationalization and parts standardization), field service, and overall improvements in the customer experience.
"Leaning" the Front End Too
Additionally, while most lean initiatives start on the manufacturing floor, the time has come for best-in-class manufacturers to apply the basic philosophies of lean (in other words, continuous improvement and waste elimination in business processes while delivering more value to customers; see Lean Manufacturing: A Primer) to other parts of the enterprise. Many manufacturers that made improvements in their back-end manufacturing processes have meanwhile recognized that significant opportunity still exists to reduce manual effort and costly errors in the front-end selling and services.
According to Godard Abel, chief executive officer (CEO) of BigMachines (to be featured in parts two and three of this series), the same lean thinking can be applied to complex product specification, quoting, and ordering processes, by mapping the steps and identifying those that add value and those that are wasteful. Some of the most apparent examples of wasteful steps include
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repeatedly clarifying and checking prior work due to incomplete information flow
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re-entering (re-keying) order data multiple times in various systems
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fixing specification and engineering errors after an order has been placed
*
re-work, warranty, and plant rescheduling costs caused by faulty process and application engineering
Lean initiatives have recently driven some cutting-edge manufacturers to identify objectives for a more effective front-end process, specifically to eliminate manual processes and the need to rely on a wide variety of paper-based tools (such as catalogs, price books, and sizing tables), as well as homegrown software such as that for sizing compact discs (CDs). Many existing quotation and order-entry processes involve many redundant steps and labor-intensive manual processes that only add lead time and complexity to the value chain, as noted in a 2007 case study (Case Study: Rolling Out Lean) published in Quality Magazine. The case study also notes that
given the complexity of some products, the processes used to create quotes and orders become slow and error-ridden, and manufacturers realize the need for a technology enabler that meets the challenges of this lean front-end vision to reduce non-value-added activities, leverage best practices and knowledge, and develop a "mistake-proof process" for product selection, configuration, pricing, quoting, and ordering.
In addition to analyzing their current customer-facing processes, companies need to analyze the tools and systems that support front-end information flow during these processes.
Broad Enterprise Systems Providers Largely Coming Up Short
Moreover, traditional enterprise application software packages have not easily supported the management of end-to-end inquiry-to-cash processes. Enterprise resource planning (ERP) systems, for instance, have traditionally been weak in their ability to handle sales, marketing, and product configuration tasks. Another weak spot for ERP products is in generating proposals, whereby manufacturers can set up Web tools to automatically generate proposals online, complete with all of the technical and commercial data the customer needs to evaluate the quotation. This can include cover letters, product descriptions, technical datasheets, performance graphs, drawings, and commercial terms and conditions.
Consequently, a slew of well-funded start-ups have flooded the market with integrated modules that can be mixed and matched, so that enterprises can assemble a package of tools that suit their needs instead of committing to a single product with flaws that they're unlikely to be able to fix. The latest Web 2.0 technologies have helped in that regard, like so-called "mashups" that enable two on-demand Web applications to work seamlessly as one via Web-services integration.
SOURCE:http://www.technologyevaluation.com/research/articles/quote-to-order-new-ingredients-in-the-recipe-for-success-19361/
Benchmarking: How Am I Really Performing
Do you remember when you were in grammar school or high school, and at the end of every semester you received your "report card"? Some dreaded that day and some welcomed it! Either way, it was the method that the school used to tell us and our parents how well (or not so well) we were doing in our job of getting an education. The report card was really just a benchmarking report! Benchmarking, as defined by the dictionary, is "a standard against which something can be measured or assessed." But it is actually much more than the dictionary definition suggests.
All of us wonder how we are really performing: Are we doing a better job than others? Or are we not doing as well as others? Most importantly, are we doing the best we can be doing? It is a natural and proper question to ask, and the answer to the question is contained in our report card. And just like in school, that report card helped us to focus on what needed improvement. In school, however, we often had only five or six subjects that we were graded on. In our retail business, we can easily find hundreds of "subjects" that we can be graded on, but to try to measure all of these is not only impossible, but also very foolish.
Almost every category of retail today does some benchmarking, including the National Sporting Goods Association (NSGA), the National Jewelry Association (NJA), the National Shoe Retailers Association (NSRA), and many more. These associations recognize that giving their members benchmarks to strive for helps the entire industry. As independent retailers, we often do not have a large head office to set our objectives and plan our business. We are the head office! Benchmarking is like having a large corporation behind us: it gives us direction and helps us do what we need to do.
What Does Benchmarking Do?
Benchmarking simply means that we measure our performance against a standard. This standard can be almost anything, but it is much more meaningful if we measure our performance in relation to our peers, and to other stores of similar size and type. Benchmarking gives us a goal to achieve. It helps us focus our day-to-day work on the important things that can help our business. The key thing to remember is that the end product of benchmarking is happy and satisfied customers and staff.
The most compelling reason to benchmark our activities is that it will help us be better retailers. This will help us improve our customer service and our sales. We have an obligation to do as well as we can, so that the store does not just survive but thrives.
What Do I Benchmark?
So what benchmark measures should we consider? As we said, there are hundreds of choices available, but in reality there are only a handful that can make a real change in our business. Another thing to remember is that benchmarks are often not absolute numbers. For example, imagine if we told you that a good sales benchmark is $900,000. What would that tell you if you were operating a small store with only 800 square feet of selling space? It is almost impossible for a store that size to achieve sales of $900,000! A more realistic number for an 800-square-foot store would be sales of $400,000. So using the total sales number is really not a very good idea. A better way is to make the measure more fair is by using sales per square foot. This benchmark equalizes performance no matter what size the store is.
The best benchmarks to use for independent stores are the following:
- average transaction (AT)
- items per transaction (IPT)
- conversion rate (CR)
- sales per square foot (SPSF)
- inventory turnover (IT)
- sales per employee (SPE)
All of the above benchmarks (measures) are directly related to productivity—that is, our ability to do more with what we have. We have a saying in retail that "what gets measured gets done." If you're not aware of and measuring your store's productivity, then—surprise, surprise—it doesn't increase! For almost every store, the first thing we should focus on and improve is selling more of what we have, to the customers we already have. The first three productivity benchmarks mentioned above are the most powerful tools that we have in retailing: AT, IPT, and CR. The other three measures are also very critical, but they only make real sense when we look at them over a twelve-month period.
The first three measurements need to be looked at every day. Make your staff aware of the figures. Then, set goals and have employee contests to increase these figures. To calculate your AT, you simply take your total sales for the day (excluding sales tax), and divide the total sales dollars by the number of transactions. For example, if your sales for the day were $820 and you had 50 transactions, your AT would be $16.40 ($820 divided by 50).
To calculate IPT, take the total number of items sold for the day, and divide by the number of transactions. For example, if you sold 200 items and you had 50 transactions, your IPT would be 4 (200 divided by 50).
To calculate CR, take the total transactions for the day, and divide by the number of customers who entered the store. For example, if you had 50 transactions, and 300 customers entered the store, your CR would be 16.6 percent (50 divided by 300). CR tells us how many shoppers we turn into buyers. It can be tracked by installing a traffic counter at the door. The technology costs about $800 (USD) (http://www.storetraffic.com/), and pays for itself in approximately three months. Many stores tell me that their traffic is really down. I ask, "How do you know that? Is it down 10 percent, 20 percent, 30 percent?" Without a traffic counter, they don't really know.
With these three measurements in place, we can then measure our performance against a standard (benchmark). For example, a well-performing store should be increasing AT, IPT and CR every week. The important thing is not so much where you are today, but the fact that you are improving these numbers every week. If these numbers are not increasing, it may be due to lax staff, too many or not enough staff, the wrong merchandise mix, high pricing, poor category management, lack of advertising, signage, or the store's layout or location. Pinpointing the exact cause is not easy, but a low AT or IPT often signals that we are not suggestion-selling our customers, while low CR is often caused by not approaching customers properly, or by an incorrect mix of merchandise (out-of-stock for best sellers, or no-stock for key desired items).
The best way to increase AT and IPT is through suggestion, or what I often call "education selling." This happens when a sales associate engages the customer and determines what their real need is. For every customer, the need will be different. If we are not there to help them then why are we there? If we are just there to be self-serve stores, then we really do not need anyone in the store except for a cashier, as in a grocery store. Benchmarking AT and IPT allows us to measure how well our staff is really educating and serving our customers. If my staff are truly engaged with a customer, and fully understanding of their needs, then my AT and IPT will increase. These two benchmarks are invaluable in reminding every sales associate how important it is to fully engage and educate customers so that we can share our knowledge with them and make their purchases even better.
Suggestion selling has to be practiced all the time and become part of the culture (DNA) of the store. I suggest that owners pick up an item (when customers are not around) and ask their staff, "Give me five! Five additional items you would suggest to a customer who likes this item." It is only when we constantly practice it that it becomes second nature to know right away what will help our customer. This is not easy: there are so many items in our stores, and so many that can enhance others. Our sales associates have to be constantly practicing and learning in order to make this a reality in our store. It does not come easily, and will not happen through wishful thinking. Establishing the benchmarks of AT and IPT will focus each sales associate on each individual customer. It is powerful. And do not forget that "what gets rewarded gets done." Once I start to measure these two benchmarks, I have to reward my staff when they improve them. The most powerful reward of all is praise. Every time I hear one of my sales associates practicing suggestion or education selling, I need to tell that associate, "I just heard you helping that customer. I want you to know that you really made a difference in their life—what you just suggested to them will not only improve their performance, but it could also save them from an injury. You did a great thing, thank you!" This praise, immediately following a sale, will not only make your associates feel better about themselves, but it will also increase the likelihood that they will do it with every customer. Contests are also motivating, but do group contests. Tell all your staff that if we can get the AT up by $2 this week, everyone will get a gift certificate to a local restaurant, or you will make a donation to their favorite charity, or you will wash their cars in the parking lot! It does not have to be a big prize, just something that says "great job." Don't forget having contests and praise for IPT and CR too!
SPSF is the next benchmark that we need to examine. The formula to calculate this number is our total selling area (this is our total store, excluding the stock room, office, receiving room, and behind the cash register) divided into our total annual sales. For example, if our store has 800 square feet of selling area and our annual sales are $140,000, then $140,000 divided by 800 equals $175 per square foot. We always calculate this over the time frame of a year. What it measures is how productive we are in the space that we have. If the SPSF figures are too low, it tells us that we most likely have too much space: we are paying rent on that excess, as well as often filling it up with inventory, which is also expensive. Benchmarks for SPSF are relatively universal for stores. Consider that Wal-Mart has SPSF numbers in excess of $300. The rule of thumb is that for an independent sporting goods store, if your SPSF are less than $200, you have a problem; if they are between $200 and $300, you are moderately productive; $300 to $500 is very good; over $500 is outstanding; and in excess of $800, you probably need to move to a bigger store!
IT is the next benchmark, and like SPSF it is calculated on an annual basis. The formula for calculating this is to divide total annual sales by average inventory at retail value. For example, if your year's sales are $140,000 and your average inventory at retail value was $85,000 (calculated by adding each month's beginning inventory at retail value and the last month's ending inventory at retail value, and dividing by 13), then your IT would be $140,000 divided by $85,000, which equals 1.65 stock turns. Just like SPSF, there are industry standards for this measure. If your stock turns are less than 3, you are not being productive; from 3 to 5 turns is good performance; and over 5 turns, you are really doing a great job. Inventory turnover affects so many parts of our business. When turnover is low, we also often have cash flow problems, old and obsolete inventory, and not enough of what is selling. When turnover is higher, we have better cash flow (since we can pay our bills from what is selling), we always have new items to show our customers, and we use less space in the store. The best way to improve IT is to buy less! Ask yourself before you write an order, "How long will it take me to sell this?" Remember it is easy to write 48 on a purchase order, but it is often difficult to find 48 customers in a month that want that specific item. Try to just buy what you can sell in sixty days (thirty is even better).
The last benchmark that we will discuss is SPE. This measure tells us how productive we are with our people on an annual basis. This benchmark is completely internal, as it can vary widely from store to store. The formula for calculating this is to divide total annual sales by the number of full-time equivalent employees (FTEs). (FTEs are calculated by taking the entire number of hours worked by everyone in the store for a year, and dividing that number by 2,080). For example, if my annual sales were $180,000, and the total number of hours that everyone in the company worked that year was 6,200, then the FTE would equal 6,200 divided by 2,080, or 2.98, which I would then divide into $180,000. This would give me $60,402 as my SPE. What is important is not the absolute number, but rather that it increase each year. It is not a good thing if I add employees while my SPE are declining. Eventually I will go out of business if the decline continues. Have your accountant calculate it for the past five years, and see what your trend is.
SOURCE:http://www.technologyevaluation.com/research/articles/benchmarking-how-am-i-really-performing-18599/
J.D. Edwards On The Mend; This Time Might Be For Real Part 2: Market Impact
The following recent announcements by, J.D. Edwards & Company (NASDAQ: JDEC), indicate that J.D. Edwards has been putting it's house in order, expanding its offerings, and executing an aggressive sales strategy, and improving its cash situation at a critical time.
The announcements include:
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Advanced Planning 4.0
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Financial results for fourth quarter and fiscal year 2001 (ended in October 2001)
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Completed acquisition of YOUcentric
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CRM version 1.1
This is Part Two of a three-part Event Note on recent developments at J.D. Edwards. Part One detailed the announcements. Part Three will continue the Market Impact and make User Recommendations.
J.D. Edwards continues to disseminate mixed blessing signals to the market, although this time the positive news might be getting the slight upper hand. The company's revenue slump remains disconcerting in spite of recent license revenue invigoration (See Figure 1 & 2), while there has still been a lingering bitter taste owing to past frequent business model changes, soul searching, and staff departures/layoffs.
Many eyebrows may be also raised by the company's continued need to leverage the 'magic' of financial accounting (e.g., tax adjustments and write-offs) as means to embellish the income statement. While J.D. Edwards does not follow the fatal accounting steps that for example former Baan management had attempted (i.e., to report fictitious revenue), some may still find slight resemblance and perceive it as desperate move. There is indeed nothing alchemic in J.D. Edwards' reporting - the profit and positive cash flow did not come from organic revenue growth, but in part through for example the change in the balance sheet where the company assets have been reduced by almost $300 million over the last year.
The company, therefore, faces the challenge of overcoming the perception of internal trouble and the difficulty of regaining confidence. When prospects sense troubling news about some vendor, they tend to consider moving to other, more stable providers. The market has in fact been crowded with strong vendors vying for the piece of J.D. Edwards' target market.
Nevertheless, the situation should not be seen as completely gloomy. One may regard the above as an example of a business cutting its coat according to its cloth. It may also appear that J.D. Edwards had started to put its house in order well before the tragic events of September 11, as it has actually seen some improvement in its license revenue (even excluding the revenue related to its CRM product) during the period that has been painful for the vast majority. The fact remains that the company's cash situation has improved by $60 million to $232 million in total, which matters tremendously during these difficult economic times, with a number of cash starved vendors ceasing their existence. Should the 'pent-up demand' continue, one might expect to see continuing performance improvements as well.
Product Functionality Scope Expansion
Particularly encouraging, however, is the fact that the company has recently been talking much more about the product functionality scope expansion than the product architecture 'superiority'. In its attempt to shed the image of mere a traditional ERP vendor, J.D. Edwards had initially focused on e-collaboration and extended-ERP applications, albeit with much of the functionality coming from numerous third parties. The company had instead tried to differentiate itself from competitors by embedding Enterprise Application Integration (EAI) into its OneWorld Xe product through its eXtended Process Integration (XPI) integration layer. XPI is an eXtensible Markup Language (XML)-based interoperability engine and architecture that handles data, process, and workflow integration between enterprises. Although J.D. Edwards' move into the EAI and the product openness arenas has been recently vindicated by SAP's endorsement of product openness (see SAP Opens The 'Miss Congeniality' Contest) and even Oracle's surprising interconnectivity strategy twist (see Oracle Makes A U-Turn At The "All Things To All People" Exit), and although the XPIs seems to have proven their concept, the company has so far struggled without widening the breadth of its natively provided applications.
The crucial driver of its license revenue revival has been J.D. Edwards' client base's adoption of its strong native extended-ERP functionality such as supply chain planning, collaboration and execution. The fact that approximately 80% of Q4 2001 revenues came from the install base proves that these modules have recently been the major order winners.
A small-to-medium enterprise simply wants to manufacture and deliver a product in a most efficient way and by utilizing minimal necessary resources. Therefore, smaller companies consider planning and execution as one process. J.D. Edwards has resolved many pieces of the puzzle by delivering or planning to deliver soon the real-time XPI-based integration of all the components of its Advanced Planning Solution (APS) (e.g., Strategic Network Optimization, Demand Planning, Order Promising, Production & Distribution Planning) and OneWorld with event-driven product architecture. By providing the above noteworthy functionality pieces such as order promising, consensus forecasting for make-to-order (MTO) industries (where the pure statistical forecasting based on historical data does not suffice), multi-site pegging, and supply chain event management (SCEM), J.D. Edwards joins the pack of SCM leaders.
Collaborative Commerce CRM Strategy
Another potential revenue driver should be the company's acquired CRM product, as the move puts quite a substance in J.D. Edwards' long confused and wandering CRM strategy. J.D. Edwards' delivered Collaborative Commerce CRM product set brings together ERP, APS, and Supplier Relationship Management (SRM) functions such as delivery, billing, order promising and collaboration with traditional CRM functions, which should enable a customer-oriented, collaborative B2B solution for optimizing a company's planning, marketing, sales, order fulfillment, delivery, and service operations.
Therefore, as the whole is always better than the sum of the parts, J.D. Edwards' APS product's functionality should be bolstered by the integration of CRM, as it will also be able to also include prospective orders into planning (in addition to the actual ones), or it should likewise be able to optimize spare parts inventories for field service. Furthermore, sales force automation (SFA) has been a hot item in the mid-market, and J.D. Edwards' own survey shows that its customers are keen on purchasing an SFA solution. YOUcentric's YOUrelate product has indeed one of the best SFA modules for the market segment.
Nevertheless, the acquisition bears its challenges too. The major one is that YOUcentric has had only a handful of customers that have integrated their new SFA software to an ERP system including J.D. Edwards' one, whereas other CRM modules have yet to create a live reference. To be fair, J.D. Edwards, on its hand, has long offered parts of CRM functionality such as configurator and store front, and it has acquired several dozens of customers, but these facts have not been publicized so as not to jeopardize the former premier relationship with Siebel.
As the YOUcentric offering is rather a CRM development platform than a well-defined CRM product, it may not have a major immediate appeal to customers that prefer the off-the-shelf product. Therefore, it will take some time for the complete architectural products' alignment beyond the mere integration at portal level as to have an overall market appeal and consecutive impact to J.D. Edwards' top line, despite the products compatible architectures, data mapping technology and therefore potentially expedient integration.
Also, there is currently only one major business process level integration - SFA to Sales Order Processing (which entails many lower level integration points such as to accounting, inventory management, and credit control), while the other process integrations like to Demand Planning, Contact Center, and Configurator should be expected in 2002. There has almost not been articulated industry-specific CRM functionality as well.
SOYRCE:http://www.technologyevaluation.com/research/articles/j-d-edwards-on-the-mend-this-time-might-be-for-real-part-2-market-impact-16565/
Negotiating the Best Software Deal
Negotiating a software and services license is a multi-faceted endeavor in which many aspects of the vendors' strengths and challenges may be leveraged to the purchasers' advantage. Perhaps the most basic software negotiation tip is to treat the process as a combined system rather than a discrete set of individual point negotiations. In other words, do not walk into the negotiation without a plan. Rather, the lead negotiator must have a definitive structure in mind that encompasses all three components of a software negotiation - product pricing, product maintenance and vendor service and support. All negotiations should be conducted from two different but related perspectives - an absolute price (the price provided by the vendor in a vacuum) and relative price (vendor price versus its top competitors).
Each sub negotiation should be managed within the context of the larger process. The client should be willing to give ground tactically in areas that are known in advance to be vendor sticking points, while using that vendor inflexibility to gain additional strategic concessions in other areas. For example, when a vendor is well known for never dropping its software maintenance fees (Peregrine Systems is a good example), a client can use that information as leverage for reduced product license or service and support fees. In another example, a client could use Oracle's legendary stubbornness in reducing its professional services pricing to gain major concessions on Oracle application pricing. In all cases, a comprehensive plan should be designed prior to the negotiation discussion, with multiple project team individuals playing different roles throughout the process.
TEC analysts have separated the software negotiation process into three discrete categories. All three are critical individually, yet should always be pursued within the context of the larger discussion. The first negotiation category combines basic negotiation skills and recommendations with specific software pricing tips:
Basic Negotiation and Product Pricing Tips
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Always have the final closing/acquisition call with the most senior vendor sales rep at your site. Ensure in advance that this sales executive has the ability to rewrite or adjust the deal on the spot given the direction of the negotiation. In general, this vendor sales position is, at minimum, a District or Regional Manager level or higher.
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Ensure that you have legal or contract counsel at the final meeting in order to document all updates to the contract. All contract points agreed to at the meeting should be documented and initialed by both parties.
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Negotiate up front the price for additional future seats/copies. Future copies should be included in the volume discount negotiated in the initial acquisition price.
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Negotiate multiyear contracts for a percentage discount. In general, organizations should expect a five to fifteen percent discount off the final discounted price. Never mix a multiyear discount in with a volume discount. Both should be negotiated separately and subtracted from the original price.
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Ensure that all pricing is done in one currency (preferably US dollars) and no price increases are applied for licenses used in other countries.
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Extend payment cycles out for a minimum of net 60 days. As documented in more detail within the service negotiation section, map all payments to clearly defined, pre-negotiated milestones and service levels.
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Ensure that you have the right to reproduce paper and electronic copies of the software documentation free of charge. This is an important, but frequently overlooked right that allows the client availability of documentation to every current and potential user.
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Ensure that the software license is perpetual and never runs out, including if the maintenance fees expire or if the company is acquired.
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Negotiate in advance the ability to place a copy of the vendor's software source code and all necessary supporting compilers and tools in escrow in case of a vendor acquisition or bankruptcy. In case of vendor bankruptcy, insert contract language allowing the user organization to recruit technical staff from the vendor for future product support.
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Negotiate early access to the vendor's future beta software releases and first level access to vendor bug fixes if interested.
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Specify in the contract the exact delivery date of the software. The first payment to the vendor should be gated by client receipt of the software.
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The vendor should include the following for no additional price:
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A provision for consultants or outsourcers utilized by the client organization to use the software
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Given a site license, a provision that defines authorized locations as including all current and future facilities
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Always have more people in the room than they do. An ideal number is double the total number of vendor representatives. Each individual should know his/her role prior to entering the meeting and multiple profiles should be present: technical guru, bargain basement financial representative, legal and contract resource, lead negotiator, bad cop, good cop.
Maintenance Pricing
This is one of the most overlooked negotiation areas for software deals. Maintenance pricing consistently represents a ripe opportunity for long term client savings because vendor sales representatives are rarely compensated for future maintenance fees. The result is an increased willingness on the part of the rep to either reduce the percentage of annual maintenance fees for the same level of service, or increase the level of committed service for the same fee. Client organizations should always aggressively pursue software maintenance reductions; some recommended tips are documented below.
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Reduce the overall maintenance percentage. The industry average software maintenance percentage is 16-22 percent depending upon the level of service provided by the vendor. Start first by attempting to drop the overall maintenance percentage paid by at least 2%, for the same service through the duration of the contract. Always enter into this phase of the negotiation with competitive information on other vendor programs and use it as leverage during the discussion.
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Ensure that the final negotiated maintenance percentage is taken from the final negotiated net price, not the initial list price. This is perhaps the easiest and most obvious maintenance reduction, and usually a "no brainer" for the vendor sales rep.
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Negotiate the level of services provided for the final maintenance price. Never assume anything from the vendor, especially issues related to maintenance and service and support. Always build detailed service levels into the maintenance plan for the same percentage price. Service level agreement examples include specific time zones supported, overall support times, and committed response times for specified service levels.
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Define severity levels with the vendor and tie levels to response time. As a followup to the service level tip discussed above, develop a minimum of 3-4 severity levels for service and support and require appropriate service levels for each. Four severity level examples with related support requirements are: Critical Priority (1 hour response, 3 hour resolution), High Priority (3 hour response, 12 hour resolution), Medium Priority (24 hour response, 72 hour resolution), Low Priority (72 hour response, 5 day resolution).
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Ensure that the maintenance fee includes the right to obtain new versions of the product and all fixes at no additional cost. As documented in the general software negotiation tips, negotiate first access to all new versions and bug fixes, as well as write a named contact into the deal in the case of specific questions on new features and functions.
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Do not allow the vendor to tie its software license grant to the renewal of its maintenance/support coverage. The software and maintenance licenses should be defined as separate transactions and negotiated separately. If the client organization decides not to renew its maintenance contract, it should retain the right to utilize the software as it pleases.
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Ensure that vendor price increases do not impact pre-negotiated maintenance fees. If unsuccessful, negotiate caps on price and maintenance increases both per year (5% maximum) and over the life of the contract (20% maximum).
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Make the vendor specify how many releases/versions will be supported concurrently by the vendor and for what minimum period. This is critical if the organization believes that it may stay on a particular software version longer than the vendor desires. It also ensures that the organization migrates to new software versions on its' time, not the vendor's time.
Service Negotiation
Perhaps the most valuable way to approach vendor services negotiation is to imagine the endgame as a vendor in a box. The entire goal of the service negotiation is to define a finite set of vendor cost and service limits while providing the greatest amount of client control over payment schedules, personnel approvals and service levels. Some recommended tips are documented below.
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As discussed in the maintenance negotiation section, detailed service levels should be defined for all phases of the implementation process.
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The vendor should always pick up all travel and expenses. If the vendor refuses, a cap should be placed on travel costs. Detailed expense reports should be filed by the consultants and approved by the client, with specific price limits placed on meals, and all personal expenses (phone calls, in-room movies, etc.) charged to the vendor.
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The client should always have control and final approval rights over all original personnel and final approval of all personnel changes. This includes both personnel added to the project and personnel removed from the project.
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Money should be placed in escrow based upon implementation milestones completed by the vendor and approval by the client. Upon reaching a specific milestone, the client signs off on the next stage of the funding that has been negotiated in advance. In general, funding is based upon a one-third, one-third, one-third model for services provided.
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Negotiate in advance a price per day appropriate for volume and personnel level. Price per day will vary by area.
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All services committed to in the contract must be completed for the initial price. Timeframes and pricing guidelines exceeded by the vendor should be picked up by the vendor at no additional cost.
Aggressive vendor negotiation should be perceived as both an organizational right and opportunity. Utilizing the tips documented above, a user organization should, on average, reduce its final software acquisition cost by 20 percent, and ensure higher quality service and support for the duration of the contract.
SOURCE:http://www.technologyevaluation.com/research/articles/negotiating-the-best-software-deal-16136/
SOA From a Management Perspective: Part One
We have been hearing about service-oriented architecture (SOA) for some time. Now, major software players are starting to lay out their plans and strategies. Some are even willing to assign delivery dates. As a company, you cannot ignore SOA, since we are constantly told that, from a software perspective, it is the best thing since sliced bread or, to use an updated analogy, the TV remote control. Regardless of your views, chief information officers (CIOs) need to outline their plans and be prepared to respond to executive management's question: "What are we doing?" This note sounds the alert, raises the flag, or fires the warning flare as to why converting to SOA does not appear to be an easy transition and cannot be accomplished with smoke and mirrors. Accordingly, we will look at the basics of SOA; the rollout plans of major software vendors; the benefits of SOA; concerns about SOA; and why the implementation of SOA won't be easy.
This is Part One of a two-part research note. Part Two addresses concerns about SOA and how your organization can migrate to an SOA environment.
What is SOA?
SOA is a collection of services or groups of components that perform business processes such as credit verification, currency conversion, or inventory availability. SOA employs an architectural style for building applications by combining loosely coupled and interoperable services. By being loosely coupled, an application does not have to understand or even know the technical details of a service to call it. As a result, SOA attempts to deliver platform independence, and is not tied to a specific technology.
Examples of SOA can be found in our everyday lives. A common example is a DVD player. The player offers the service of playing a DVD. You can play multiple DVDs in the player. You can even play the same DVD in another player, but the sound quality may not be the same. SOA, however, should not be confused with object-oriented programming (OOP). Following our DVD example, in OOP the DVD would come with its own player, not to be separated. This diminishes one of the primary advantages of SOA, namely reusability. To understand the evolution of SOA, see research note Architecture Evolution: From Mainframes to Service-oriented Architecture.
Being loosely coupled also helps to screen some of the technical complexity of programming, a potentially big boost for productivity. For example, you do not need to know how a credit check is performed to complete a customer's order. You just need to know what information, such as customer ID and order amount, the credit checking service needs to return an approval or rejection. The process is similar to when televisions were built with individual electronic components and repair meant replacing a component and not the entire set.
With SOA comes new terms and concepts, or old concepts with a new lexicon, both of which mean some difficult decisions lie ahead. With the use of services you can expect a lot of messaging traffic. Accordingly, you will need technology to manage this traffic and its flow on the information highway. An enterprise service bus (ESB) facilitates the connection of legacy systems to services. It also transforms and routes traffic. ESBs are particularly effective for long-running processes, invoking multiple services such as purchasing, which can encompass item look-up, pricing, discount terms, and more. After being developed and tested, services must live somewhere. Typically, services are published in registries or directories while being stored in repositories. This combined infrastructure controls secured access, specifies the input parameters, and enforces run-time performance parameters. Relative to performance and after services enjoy wider and wider acceptance, reporting and alerts are needed to ensure that applications are taking full advantage of SOA. Other difficult choices such as development platform, integration with web services, and testing and debugging protocols remain, and must coexist with your current technology and network topology.
Major vendors are starting to lay out their visions for SOA. Based on its NetWeaver development and integration platform (see research note Multipurpose SAP NetWeaver), SAP's approach is to deliver narrowly defined models or packages rather than release large-scale updates of closely interlinked components. By providing business process models, SAP provides the means of getting you up and running quickly, assuming that the models can fit within the constraints of your business.
Attempting to merge the software code resulting from its recent acquisition of PeopleSoft, Oracle's Project Fusion endeavors to provide a more open environment. Accordingly, Oracle's approach is to provide tools to model your business processes. These tools include a business process development platform and middleware and database components, which are open to third party vendors. This business process management (BPM) approach can deliver a more open framework, resulting in components tailored to your environment. So, while SAP's approach could simplify and accelerate the overall process of implementing SOA, Oracle's plan may provide greater adaptability of the unique aspects that make a company successful.
Referring to the "real approach" to SOA, Microsoft advocates a more incremental method, using advancements in .Net Framework, SharePoint, 2007 Microsoft Office System, Exchange Server, and Vista (see research note Subtle (or Not-so-subtle) Nuances of Microsoft .NET Enablement). Unlike the enterprise infrastructure-centric approach, Microsoft touts a wave approach to deliver SOA interoperability gradually to the Microsoft Dynamics product lines. Microsoft Dynamics, formerly known as Microsoft Business Solutions, includes Axapta, Great Plains, Navision, and Solomon. In so doing, some features will be available now instead of waiting for the full rollout. Originally known as Project Green, Microsoft has committed to an initial phase called Wave 1, which is nearing completion. It is expected to achieve a common look and feel throughout Microsoft Dynamics. Obviously, this is where Office 2007 and Vista will set the tone. Expect to see left-pane navigation bars for easy access, top-page trails for traversing back to a previous point of reference, and user ribbons, which will replace the traditional menus and toolbars with a set of tabs of common and most relevant commands. Wave 2 is expected for release in 2008 or 2009 as product lines continue to move away from coding to model-based development using Visual Studio .Net tools and languages. Once this transition is complete, Microsoft can consider merging product lines. Microsoft shares two potential obstacles with Oracle. First is seamlessly integrating acquired software packages to present a consistent and familiar theme. Second is adopting a model building capability as opposed to delivering the models, potentially sacrificing delivery speed for the sake of flexibility. While Microsoft's architecture vision appears to be clearer due to our familiarity with and the release of Office and Vista, the starting point for merging product lines is vague, particularly when compared to SAP and Oracle.
Given SAP's increased interest in penetrating the small and medium enterprise (SME) market, its approach of providing process models ready for deployment makes a lot of sense. For companies with information technology (IT) resources, availability of Oracle's modeling tools allows enterprises to grow their own services, customized to their business requirements. However, Microsoft's similar approach is somewhat baffling given its predominance in the SME space.
Vendor plans are, at best, sketchy, as more vendors are jumping onto the SOA bandwagon in an attempt to generate new software revenue streams. After digesting the over-hyped Y2K phenomenon, many companies are adopting a reasonable wait-and-see attitude before taking another bite of the technology apple. Can you blame them?
What Are the Benefits of SOA?
Be assured that the benefits of SOA are significant and achievable, and deserve careful evaluation and analysis. Reviewing some of the more substantial benefits justifies this cautious stance.
Service Reusability
Nowadays programs are rarely written from scratch. Typically, you start with a familiar program that most emulates the functionality you are trying to re-create, or that provides structural consistency. Now take this philosophy and incorporate built-in services and routines. Service reuse is the real power of SOA. Companies are finding that development time is significantly reduced, program logic flow greatly simplified, and duplication of effort eliminated. A well-maintained, tested service can be reused across the entire enterprise. Recent surveys indicate that service reusability is the most often cited benefit delivered by SOA. This should not be surprising. The concept of reusability has been the nirvana that IT groups have been trying to attain since the first IFTHENELSE statement was coded. Whether SOA will achieve this objective remains to be seen. Remember, IT can also stand for independent and temperamental.
Agility
Recall that one of the problems associated with contending with Y2K was interpreting the two-digit year designation. Finding every date routine in every program was considered a nightmare, warranting a complete replacement of legacy systems. Suppose that date handling was a called service that ensured correct formatting and calculation of periods of time. Y2K would not have been the worrisome beast that everyone thought it was. The analogy can be applied to more frequently changed business processes. Want to attract more customers by changing the pricing policy? Is bad debt increasing at an alarming rate, making you want to tighten credit checking procedures? If these processes were being supplied as centrally located services, accommodation of these business changes can be quick and immediate. If done correctly, SOA gives new meaning to agility and the concept of turning on a dime.
Corporate Governance and Security
Unfortunately, this next benefit bemoans the sad state of IT, but is necessary for SOA to be effective, namely "Tell them and they will comply." Corporate governance promotes compliance with policies and standards and ensures that everyone is marching to the same beat. Developers can be persuaded/encouraged/forced to use repository-based services if they ever want their applications to see the light of day. As a result, SOA can facilitate compliance with the US Sarbanes-Oxley (SOX) law and industry-specific regulations, thereby making it increasingly important to give sufficient notice to SOA governance. And, if personnel modeling business processes understand the need of using services, the need to provide secured access to these services is a natural follow-on. But this can be a double-edged sword. If you require the use of services, a communication channel must be established to let everyone know and find what is available for reuse. While registries and directories can help facilitate this communication, proactive methods must be added to supplement these passive tools.
SOURCE:http://www.technologyevaluation.com/research/articles/soa-from-a-management-perspective-part-one-18864/
This is Part One of a two-part research note. Part Two addresses concerns about SOA and how your organization can migrate to an SOA environment.
What is SOA?
SOA is a collection of services or groups of components that perform business processes such as credit verification, currency conversion, or inventory availability. SOA employs an architectural style for building applications by combining loosely coupled and interoperable services. By being loosely coupled, an application does not have to understand or even know the technical details of a service to call it. As a result, SOA attempts to deliver platform independence, and is not tied to a specific technology.
Examples of SOA can be found in our everyday lives. A common example is a DVD player. The player offers the service of playing a DVD. You can play multiple DVDs in the player. You can even play the same DVD in another player, but the sound quality may not be the same. SOA, however, should not be confused with object-oriented programming (OOP). Following our DVD example, in OOP the DVD would come with its own player, not to be separated. This diminishes one of the primary advantages of SOA, namely reusability. To understand the evolution of SOA, see research note Architecture Evolution: From Mainframes to Service-oriented Architecture.
Being loosely coupled also helps to screen some of the technical complexity of programming, a potentially big boost for productivity. For example, you do not need to know how a credit check is performed to complete a customer's order. You just need to know what information, such as customer ID and order amount, the credit checking service needs to return an approval or rejection. The process is similar to when televisions were built with individual electronic components and repair meant replacing a component and not the entire set.
With SOA comes new terms and concepts, or old concepts with a new lexicon, both of which mean some difficult decisions lie ahead. With the use of services you can expect a lot of messaging traffic. Accordingly, you will need technology to manage this traffic and its flow on the information highway. An enterprise service bus (ESB) facilitates the connection of legacy systems to services. It also transforms and routes traffic. ESBs are particularly effective for long-running processes, invoking multiple services such as purchasing, which can encompass item look-up, pricing, discount terms, and more. After being developed and tested, services must live somewhere. Typically, services are published in registries or directories while being stored in repositories. This combined infrastructure controls secured access, specifies the input parameters, and enforces run-time performance parameters. Relative to performance and after services enjoy wider and wider acceptance, reporting and alerts are needed to ensure that applications are taking full advantage of SOA. Other difficult choices such as development platform, integration with web services, and testing and debugging protocols remain, and must coexist with your current technology and network topology.
Major vendors are starting to lay out their visions for SOA. Based on its NetWeaver development and integration platform (see research note Multipurpose SAP NetWeaver), SAP's approach is to deliver narrowly defined models or packages rather than release large-scale updates of closely interlinked components. By providing business process models, SAP provides the means of getting you up and running quickly, assuming that the models can fit within the constraints of your business.
Attempting to merge the software code resulting from its recent acquisition of PeopleSoft, Oracle's Project Fusion endeavors to provide a more open environment. Accordingly, Oracle's approach is to provide tools to model your business processes. These tools include a business process development platform and middleware and database components, which are open to third party vendors. This business process management (BPM) approach can deliver a more open framework, resulting in components tailored to your environment. So, while SAP's approach could simplify and accelerate the overall process of implementing SOA, Oracle's plan may provide greater adaptability of the unique aspects that make a company successful.
Referring to the "real approach" to SOA, Microsoft advocates a more incremental method, using advancements in .Net Framework, SharePoint, 2007 Microsoft Office System, Exchange Server, and Vista (see research note Subtle (or Not-so-subtle) Nuances of Microsoft .NET Enablement). Unlike the enterprise infrastructure-centric approach, Microsoft touts a wave approach to deliver SOA interoperability gradually to the Microsoft Dynamics product lines. Microsoft Dynamics, formerly known as Microsoft Business Solutions, includes Axapta, Great Plains, Navision, and Solomon. In so doing, some features will be available now instead of waiting for the full rollout. Originally known as Project Green, Microsoft has committed to an initial phase called Wave 1, which is nearing completion. It is expected to achieve a common look and feel throughout Microsoft Dynamics. Obviously, this is where Office 2007 and Vista will set the tone. Expect to see left-pane navigation bars for easy access, top-page trails for traversing back to a previous point of reference, and user ribbons, which will replace the traditional menus and toolbars with a set of tabs of common and most relevant commands. Wave 2 is expected for release in 2008 or 2009 as product lines continue to move away from coding to model-based development using Visual Studio .Net tools and languages. Once this transition is complete, Microsoft can consider merging product lines. Microsoft shares two potential obstacles with Oracle. First is seamlessly integrating acquired software packages to present a consistent and familiar theme. Second is adopting a model building capability as opposed to delivering the models, potentially sacrificing delivery speed for the sake of flexibility. While Microsoft's architecture vision appears to be clearer due to our familiarity with and the release of Office and Vista, the starting point for merging product lines is vague, particularly when compared to SAP and Oracle.
Given SAP's increased interest in penetrating the small and medium enterprise (SME) market, its approach of providing process models ready for deployment makes a lot of sense. For companies with information technology (IT) resources, availability of Oracle's modeling tools allows enterprises to grow their own services, customized to their business requirements. However, Microsoft's similar approach is somewhat baffling given its predominance in the SME space.
Vendor plans are, at best, sketchy, as more vendors are jumping onto the SOA bandwagon in an attempt to generate new software revenue streams. After digesting the over-hyped Y2K phenomenon, many companies are adopting a reasonable wait-and-see attitude before taking another bite of the technology apple. Can you blame them?
What Are the Benefits of SOA?
Be assured that the benefits of SOA are significant and achievable, and deserve careful evaluation and analysis. Reviewing some of the more substantial benefits justifies this cautious stance.
Service Reusability
Nowadays programs are rarely written from scratch. Typically, you start with a familiar program that most emulates the functionality you are trying to re-create, or that provides structural consistency. Now take this philosophy and incorporate built-in services and routines. Service reuse is the real power of SOA. Companies are finding that development time is significantly reduced, program logic flow greatly simplified, and duplication of effort eliminated. A well-maintained, tested service can be reused across the entire enterprise. Recent surveys indicate that service reusability is the most often cited benefit delivered by SOA. This should not be surprising. The concept of reusability has been the nirvana that IT groups have been trying to attain since the first IFTHENELSE statement was coded. Whether SOA will achieve this objective remains to be seen. Remember, IT can also stand for independent and temperamental.
Agility
Recall that one of the problems associated with contending with Y2K was interpreting the two-digit year designation. Finding every date routine in every program was considered a nightmare, warranting a complete replacement of legacy systems. Suppose that date handling was a called service that ensured correct formatting and calculation of periods of time. Y2K would not have been the worrisome beast that everyone thought it was. The analogy can be applied to more frequently changed business processes. Want to attract more customers by changing the pricing policy? Is bad debt increasing at an alarming rate, making you want to tighten credit checking procedures? If these processes were being supplied as centrally located services, accommodation of these business changes can be quick and immediate. If done correctly, SOA gives new meaning to agility and the concept of turning on a dime.
Corporate Governance and Security
Unfortunately, this next benefit bemoans the sad state of IT, but is necessary for SOA to be effective, namely "Tell them and they will comply." Corporate governance promotes compliance with policies and standards and ensures that everyone is marching to the same beat. Developers can be persuaded/encouraged/forced to use repository-based services if they ever want their applications to see the light of day. As a result, SOA can facilitate compliance with the US Sarbanes-Oxley (SOX) law and industry-specific regulations, thereby making it increasingly important to give sufficient notice to SOA governance. And, if personnel modeling business processes understand the need of using services, the need to provide secured access to these services is a natural follow-on. But this can be a double-edged sword. If you require the use of services, a communication channel must be established to let everyone know and find what is available for reuse. While registries and directories can help facilitate this communication, proactive methods must be added to supplement these passive tools.
SOURCE:http://www.technologyevaluation.com/research/articles/soa-from-a-management-perspective-part-one-18864/
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