Reinventing Business - Enterprise Data Warehouse Business Opportunities for

Manufacturing
Business improvement opportunities in the enterprise
1. Productivity Improvement
O!ective"
Productivity for knowledge workers is improved with easier, faster access to business
intelligence and analyses. Marketing, sales, customer service, and technical service organizations
become more efficient with access to comprehensive market-focused multimedia product information.
The E! is used to monitor and measure productivity for both operational and knowledge workers.
Bac#ground"
!ithout an E!, most knowledge workers waste a great deal of time finding and retrieving
information they need " if they can get it at all. #omprehensive, yet fle$ible, productivity measurement
capabilities are rare. %nowledge workers are defined as everyone whose performance depends on
information, including e$ecutives and management in all functional areas and most personnel in sales,
marketing, customer service, and finance positions.
$e% Process"
E! business intelligence applications are designed to provide easy fle$ible access to
information, with the goal of answering &any 'uestion, any time,( down to and including
actionable detail. )pplications enable users to analyze many common metrics *sales, margins, service,
demand, inventory, productivity, purchases, etc.+ from the perspective of their own responsibilities. !ith
the ability to enter personalized product, market, customer, and geographic hierarchies or &views(
online into the E!, managers can define their own responsibilities. )dding the ability to maintain their
own responsibility goals or %P,s *key performance indicators+ in the E! makes it a comprehensive
performance management tool.
Resu&ts"
#onservatively assuming a productivity improvement of -../ *e'uivalent to one hour per week
per person+ for management, marketing, sales, customer service, and technical service personnel
costing 01/ of revenue, savings are .-./ of revenue.
Business improvement opportunities in the enterprise
'. Integrated P&anning
O!ective
Planning activities across the enterprise are coordinated and integrated with top-to-bottom
visibility of sales, financial, operational, and supply chain impacts of the common plan. )s a result, all
functional areas are &on the same page( and measured against common ob2ectives.
Bac#ground
,ntegrated planning *also called sales and operational planning or 345P+ is a common goal of
manufacturers. 6ut, typically, each functional area creates forecasts or plans based on their own data
sources, from their own perspective. 7inancial forecasts, sales forecasts, marketing plans, demand
forecasts, supply plans, and factory plans are often inconsistent. Product, market, and customer
segmentation may differ, currency value and unit relationships *pricing+ assumptions may differ, time
frames differ *months versus weeks+, level of detail differs *product family, product, 3%8, etc.+. 3ales
territories may not align with distribution center or plant distribution regions.
) great deal of time is typically spent in cross-functional meetings attempting to resolve these
differences but, lacking a common data source with the detail data and hierarchies necessary to
summarize in different ways, accurate reconciliation is impossible.
$e% Process
The E! enables integration of sales forecasts, marketing plans, financial forecasts and
budgets, demand forecasts, supply plans, operational and factory plans. )nd, the E! provides a
single source of historical information on which to base those forecasts and plans so that everyone
starts with the same history. 7orecasting, planning, and budgeting systems access the E! for
historical information, and then return their output " forecasts, plans, and budgets " back to the E!.
7le$ible hierarchies enable different views and levels of summary appropriate to each planning
process. Even if the plans are created at different levels of summary, history detail enables allocation
and reconciliation processes. )fter reconciling planning differences and agreeing on an enterprise or
business unit plan, the integrated plan is stored in the E! and can be viewed from the perspectives
of each functional area. ) single integrated report or chart can display historical demand, sales,
production, inventory, and service levels, along with planned demand, sales, production, inventory, and
service for the ne$t 0--09 months *literally &on the same page(+. This plan is credible, because drill-
down capabilities allow it to be viewed in product, channel, or geographic detail as re'uired. #alendar-
based algorithms do the week-month transformations to align time periods correctly.
Resu&ts
There are many improvements with this approach, including productivity, marketing
effectiveness, business unit management, and manufacturing efficiency. 6est-practice e$perience has
shown that one of the significant measurable impacts is on inventory. #onservatively, if inventory
represents 01/ of revenue and is reduced 01/, with an inventory carrying cost of -1/, profits are
increased by .-/ of revenue.
Business improvement opportunities in supp&y chain management
1. Inventory (&&ocation
O!ective
5ptimal allocation of inventories improves customer service, reduces inventory investment, and
improves profitability. The allocation process balances inventory among distribution centers, factories, and
channel partners to achieve optimal service while minimizing inventory investment.
Bac#ground
8ne$pected demand can cause an imbalance of inventory among multiple distribution centers or
plants. This happens for a number of reasons, including:
)n une$pected large order from a customer or channel partner.
) large return due to defective merchandise, re'uiring prompt replacement.
) competitive promotion resulting in one;s own urgent, unplanned promotion.
5rders transferred in because an emergency renders another plant unable to produce.
) capacity or production problem creates shortages. #hannel partners or customers order large
amounts attempting to corner supplies thus e$acerbating the situation.
Manufacturers are at the mercy of large, unpredictable channel replenishment orders. )utomated order
processing systems normally release large orders to be filled in chronological se'uence, creating an
imbalance between channel partners; inventories *first large order gets it all+ with a very negative effect on
end customers. This situation can be unintentional or intentional, as when one distributor or wholesaler
tries to corner the market.
,n large global companies, plants and distribution centers are often using different operational systems, so
inventory allocation processes are not feasible.
$e% Process
!ith integrated visibility via an E!, unbalanced inventory versus demand situations can be
monitored and corrected. )llocation algorithms can e'ualize service and inventory levels, create
appropriate move orders or replenishment orders, and interface to transactional systems.
Enterprise-wide visibility of inventories, forecasts *demand plans+, customer orders, internal
replenishment orders, and supply plans in the E! enables comple$ analysis of availability in all
locations and offers the ability to allocate inventory to best meet re'uirements. 3ervice or inventory levels
can be e'ualized across all locations. The impact on your ability to fill current orders and forecasts in all
locations, while responding to an e$ceptional situation, can be evaluated. 3uch optimal use of enterprise
inventory has a substantial positive effect on sales and customer satisfaction.
!ith visibility of inventories, customer orders, replenishment orders, demand plans and supply plans for
all distribution centers and their associated distribution regions, an allocation algorithm can actively
equalize service in each region on a daily basis. 3uch an algorithm can be used to move e$isting
inventories in response to changing demand or to proactively allocate prior to generating replenishment
orders for the #. 6efore generating a replenishment order for one #, all # available inventories and
forecasts are analyzed and available inventory is allocated to e'ualize service throughout the distribution
system.
!ith visibility of end customer orders from channel partners, it is possible to manage channel partner
replenishment using the same principle " ad2usting your replenishment shipments to their end customer
demand. The best practice is to replenish channel partners automatically based on their customer
demand *P53 transactions+.
<elated analyses:
<eport impact of ma2or stock-outs on sales *based on backorder value+.
,dentify lost orders due to lack of inventory *cancelled backorders+.
E$ception reporting of e$cess inventory over ma$imum and = week supply.
E$ception reporting of replenishment, production, or purchase orders that will result in inventory
over ma$imum level.
,dentify most serious product and raw material shortages *negative available balances+.
7or items out of stock, identify replenishment or production orders overdue.
<eport value of open, overdue orders for custom-made products.
<ank products and materials with highest and lowest inventory turns.
Measure inventory investment optimization *higher inventory level for fast moving, less e$pensive
items+ to
5ptimize service to investment ratio.
E$ception reporting of promotional items needing replenishment e$pedited to meet planned
promotional demand.
,dentify products not meeting target service levels *too many out-of-stocks+.
Resu&ts
,f finished goods inventory is 01/ of revenue, and its carrying cost is -1/, a conservative 01/
reduction in inventory will result in a profit increase of .-/ of revenue. 3ignificantly greater inventory
reductions have been achieved. )dditional benefit will come from reducing stock-outs and improving
customer service and satisfaction.
Business improvement opportunities in supp&y chain management
'. Procurement Optimi)ation
O!ective
Procurement activities are leveraged across business units and locations globally, assuring best
terms, pricing, supply and delivery. )ll buyers have direct access to contract prices, best actual prices,
and supplier information to facilitate day-to-day buying decisions. ,nternal and e$ternal information is
leveraged with proactive buying campaigns, evaluating additional vendors, finding less e$pensive
sources, and enticing new suppliers where competition is lacking. 8nauthorized buying *&off-P5(+ is
monitored, managed, and minimized.
Bac#ground
>arge manufacturers with multiple factories, often in multiple countries, typically do not have
integrated, detailed purchasing information. Thus, buyers do not have access to the best prices globally
for specific raw material or indirect supply re'uirements. They are left to do their best with local
information or corporate information lacking ade'uate detail. Many indirect materials and services are
purchased with informal &off-P5( processes and are not well monitored or controlled.
$e% Process
Ma2or procurement savings opportunities come from integration of global vendor, contract, and
purchase order data from all business units and sites into an E!. ?endor names, addresses, and
identification from source systems may need to be standardized and classified because vendors may
operate under different names in different countries. 7inding new suppliers, particularly in emerging
source areas, is simplified with global business site and industry classification data from e$ternal
information sources such as un 4 6radstreet, @oover;s, Thomson, 5ne 3ource, etc.
,ntegrated procurement order and invoice data includes vendor contracts, purchase orders, delivery data,
'uality data, invoice 'uantities, prices, credits, debits, rebates, allowances, returns, and payment
information for real net price visibility. ,nvoiced transportation costs should be included and matched to
P5s for freight allocation. 3tandard freight costs associated with specific source-to-destination route
combinations allow analysis of delivered cost options.
Material item and services transactional data from source systems needs to be supplemented with
standard material and services identification and classification to enable price comparisons of like
materials and to identify possible substitutions. E$ternal data services are available to help automate
identification and classification. 8se of the 8A3P3# *8nited Aations 3tandard Product and 3ervices
#ode managed by the B30 Blobal 3tandards organization+ is recommended.
)nalysis of purchase prices for common materials and services identifies opportunities to lower prices by
negotiation and to leverage larger volumes. ,n some cases, identical products are purchased in different
packaging or shipping configurations *such as bulk versus drums for li'uids+. ,t is important to see the
combined purchases of all configurations, as well as each configuration, because they may or may not be
substitutable. )ssure use of common measuring units for analysis because different manufacturing sites
may be ordering in different units.
Provide department summary and e$ception reporting for &off-P5( purchasing by department or area of
responsibility to instill discipline and control these e$penses.
Provide standard analyses such as:
6uyer 'uery to find lowest cost source
Cear-over-year unit cost comparisons for materials and services
Blobal comparisons of material and service costs
#alculate savings opportunity if everyone buys at lowest price
?alueDcost comparisons using 'uality information
5ther analyses such as:
3pending trend by business unit, cost center, and buyer
?endors not meeting on-time delivery and 'uality re'uirements
E$ception report of significant price change versus previous P5
E$ception report of purchases differing from contract prices
#ompare vendor price, service, and 'uality for materials purchased from multiple vendors.
Resu&ts
#onservatively, if procurement accounts for -./ of revenue and 01/ savings are achieved on
-1/ of those purchases, then profit is increased by ../ of revenue. *)ctual best-practice procurement
savings for a global manufacturer with an E! e$ceeds 0/ of revenue annually.+
Business improvement opportunities in Information *echno&ogy
1. ERP +ost Reduction
O!ective
6usiness e$ecutives and ,T people understand that E<P *enterprise resource planning+
standardization is not re'uired for standardized business intelligence. 6, and decision making
re'uirements for the enterprise are met from the E!, which may be sourced from multiple, different
E<P systems. E<P pro2ects are done only when necessary to improve operational performance or to
replace operational systems which are no longer sustainable. E,t should be noted that &E<P( is a
misnomer commonly used for operational transaction systems.F
Bac#ground
,t is a common belief in manufacturing companies that operational *&E<P(+ system
standardization is re'uired to achieve standardized business intelligence and financial reporting. This
idea is propagated by E<P software vendors and consultants who make big money doing E<P
implementations. ,t is not unusual for large manufacturers to spend a billion dollars or euros trying to
standardize their E<P system*s+. Most large manufacturers have not achieved a single E<P system, or
even multiple instances of a single E<P design, because of decentralized decision making,
ac'uisitions of companies with different E<P systems, and the challenge of trying to standardize
operational processes across business units globally.
$e% Process
)n E! pro2ect is far easier, faster, and less costly than an E<P pro2ect because it does not
re'uire re-engineering of operational processes. ata can be e$tracted and transformed from many
different operational systems into one standardized and integrated E!. The E! data model and
standards are designed for 6,, not for transaction processing. E<P systems change as commercial
software development technology changes *the latest at the moment being 35), or service-oriented
architecture+. The E! data model and basic functionality does not need to change if it was properly
architected to meet long-term &any 'uestion, any time, from any perspective( re'uirements *although
improving 6, tools will provide improving user interfaces and 6, functionality+.
Resu&ts
?ery conservatively, an E! will reduce ongoing E<P spending and increase profits by .-./
of revenues. 6est practice is much higher.