In this Era of Innovation,the latest gadget becomes obsolete within no time. Better products come to market at cheaper prices and/or with higher value. The result is shorter product lifecycles.
The main effects of shorter lifecycles are:
The key enabler to achieve the above is
Design collaboration tools enables companies collaborate between design teams across geographies and with different vendors. These tools offer real-time shared work- spaces across geographies. Design is validated using high end analysis tools in order to eliminate errors in prototyping stage.
Design collaboration and validation tools ensures almost perfect product but given that fact that on an average only 30% of the new products succeed, care should be taken to ensure the product launched is successful in market. Collaborative Product Commerce (CPC) tools ensure that product launched is successful by collaborating with all departments and partners thereby ensuring availability of right resources. CPC tools also have archive of all relevant details of previous new product Introductions – this archive helps companies to reuse data already available and to avoid mistakes made in the past.
The other dimension to be considered is the need for customized products. Companies are forced to move from traditional ‘made-to-stock’ model to ‘build-to-demand’ model. This demands an efficient customer-producer interface. To deliver custom products on time, Manufacturers out-source most of the components and focus only on their core product – modular manufacturing helps companies to cut costs and deliver on time, this again calls for collaboration with all the suppliers.
Thus, CPC focuses on the manufacturer’s core business of designing and building products. Manufacturers interacting with suppliers are not new but collaborating real-time on many levels is made possible by CPC tools. Manufacturers interact with both customers and suppliers to share early product concepts, designs and prototypes to develop a product that is manufacturable, satisfy customer needs and ensure timeliness to market. CPC is about applying technology to the entire product lifecycle process of designing, engineering, building, delivering, and servicing the product while applying technology to do it better, faster, and cheaper. CPC helps to evaluate existing business practices and introduce more efficient new practices. Also it enables sharing of knowledge within the company and also with partners and customers.
To conclude the demands of accuracy in design, speed to market, customization, and the need to manufacture using pre-built components from third parties means that cross-enterprise collaboration is becoming a necessity for manufacturing success.
(With technology inputs from Aberdeen Group - www.aberdeen.com )
Next target for Oracle is to have all middleware products upgraded to be "hot-pluggable" with the ability to run on multiple Java application servers, such as those from competing vendors like IBM to support multiple infrastructures. Many components for example, BPEL PM, Coherence, Top Link, and J-Developer are already hot-pluggable. However to make BEA products like Aqua Logic Service Bus work on application servers other than Weblogic will be a daunting task.
If one were to ask Oracle on the top three motivating factors behind the acquisition honest answer would be - increase in market share, customer base and entry in Chinese market. The bold decision made by Oracle to drop homegrown products, opens easy opportunities for competitors to coax customers away from Oracle/BEA but many believe and are sure it would only reinforce faith of its customers in Oracle in providing best in class products to them.
According to Gartner “Investments in Oracle's middleware are low-risked”, Acquisition of BEA Systems will not disrupt OFM's architectural foundations or technology direction. Both are strongly founded and nurtured in Java and they support the same set of fundamental standards (XML and SOA).
The real fusion has begun now heralding a new powerhouse.
I would like to hear your views if you are impacted by one of the biggest mergers in IT middleware camp.
]]>With the present economic recessionary environment Small and Medium Enterprises (SMEs) which have been running on very thin bottomline must look at various avenues to reduce their costs and increase the operational efficiencies. The business applications provided by various ERP packages have over the last few decades evolved from just being a transactional system to one that provides functionalities built around industry specific best practices and standards. Notwithstanding the benefits an ERP may provide the IT and business executives of SMEs face the challenge of convincing the stakeholders that this is an investment towards an ability that provides better productivity which would help lead to better profitability, market share and / or customer service.
]]> The cost of implementing ERP; which has traditionally been assumed to be highly exorbitant, is being driven to lower levels based on newer implementation approaches being evolved by seasoned Implementation Partners or System Integrators. Also the investment from various ERP product vendors to include industry specific best practices has made the advantages of implementing ERP far outweigh the expense, and ERP decisions can now be considered to be are a ''lower-risk high return'' option.Inspite of the present economic scenario mandating SMEs to adopt packages driven by best practices and low risk high returns possibility to increase their productivity SMEs are reluctant to invest in an ERP package as they are not too sure about the following: Implementation Time, Ease of usage by its Employees, Flexible for changes and ofcourse Total cost of ownership (TCO).
Over the last two decades where more and more large scale companies; especially in developed markets, have implemented one or the other ERP package, the experience and insight gained by both Implementation partner and system integrators has made them focus on reducing the total implementation time of the ERP solution. The industry specific process templates; which are the outcome of the extensive experience gained by seasoned implementation partners and developed by their synergic partnership with product vendors, help to greatly reduce the time required to evolve the baseline processes which translates to significant reduction in the overall implementation timelines. To be able to leverage the templates the SME should be flexible to change its present processes and adapt to the best practices offered by the standard processes. The benefit to be gained would be squandered if the SME chooses to customize the package based on its present processes.
This reminds me of a simile which one of my professors at b-school used to quote: He said that ERP is like a Jet Airplane leveraging which companies can fly instead of driving an old worn out car. But most of the companies after buying the Jet want to add headlights just the way they have in the present ‘car’, want to add indicators, horn, brake etc. and finally they turn a Jet into the same old car. This similie aptly sums the pitfall that SMEs must avoid while to not only have the best practices but also have a significant reduction in the overall implementation timelines.
I will be touching upon the other points which bother SME in my future posts to this blog.
There are few prebuilt KPIs (Key Performance Indicators) which come as standard offering in any ERP applications and some will have provision to define custom KPIs based on the industry requirements. Oracle eBS provides Daily Business Intelligence modules, Standard Oracle reports, Discoverer tool and dashboards to measure and monitor some of these metrics. There are organizations which use tools like Noetix; which gives an option to build your own dashboard, or build custom portal / intranet webpage which pull data from a data warehouse or from ERP database.
Following are some of the key aspects required to design the operational excellence metrics:
Driver
Identify the driver for the metric; ask what you are trying to achieve by capturing the metric. For example Promise date to request date this is directly driving the Customer satisfaction. This may or may not be a key metric in a distribution / storage center where the key metric can be the turnaround time for order entry to delivery instead of promise date to request date. It is very important to identify the key metric which makes sense to the organization to capture instead of having all possible metrics available in the ERP application. Some of the metrics are driven by corporate standards and reporting requirements not necessarily driven by the ERP implementation.
Audience
Identify who will use which metric and how frequently the data need to be refreshed (daily, weekly, monthly, quarterly, and annual). Metrics can be grouped by departments like Shipping, Planning, Procurement, Finance, etc. for ease of distribution. Traditionally Data Analysts or IT department was preparing the data and graphs and presenting it to the business users. Now with the evolution of new interfaces like dashboards and excel file extracts users are able to directly pull the information and analyze. There are few metrics shared with external entities also like PPM which is shared with Suppliers.
Medium
Determine how the data will be distributed; it can be as simple as data extracted from database and sent in an Excel file, or sending the data in the form of a graph/ table by e-mail, Intranet website with spotlight charts and data tables, use of data analysis tools like Discoverer, displaying charts on notice board, displaying charts on each line in the shop floor, as a slide shared in regular staff meetings / newsletters. There is no single medium used as standard it purely depends on the type of metric audience.
Content
This again depends on audience; content should be simple and clear in projecting the progress. Content can be just data presented in a table or graph showing the progress. There are few metrics which need historical data to show progress like Lead time improvement, this drives the requirement to archive the data. Most of the organizations use a data warehouse to maintain historical data and use this to do analysis. For few metrics there is static data (like organization targets) also required and need provision for loading this data.
Operational excellence metric design is very important for any ERP implementation and this definition should happen early. Metrics should be clearly defined before start of the project to measure the benefits of implementation. It becomes even more important in the current recessionary times to improve operational efficiency by reducing cost, increasing Customer satisfaction and achieving operational excellence
]]>Health Information Exchange (HIE) is a way to electronically make personal and medical information securely available among doctors, hospitals and other health care providers when it is needed for care. A secure electronic HIE allows patients to make sure their health information is available when they need it while seeking medical care or treatment. HIE enables authorized physicians and other health care providers to share a patient's clinical results across institutional boundaries.
Client utilizes a healthcare industry standard, which is based on XML, that could be easily consumed by other systems. Client also wanted to expose internal services encapsulating the data repository to external world so as to be easily consumed by other systems.
•Systems accepts and provide different versions of HL7 messages.
•HL7 V2.X messages which the clinical system send are in pipe delimited format.
•HL7 V3.0 messages which the client system accepts, are in XML format and has 2 different sections. The header part is in ebXML format and the body part in CCD/C32 format. The real challenge is to convert the Pipe delimited HL7 V2.X messages to HL7 V3.0 Message which is in XML format, without any data mismatch(This is so critical that data related to patient medical information).
•Another target system accepts messages in HITSP C32 format and its response is in ebXML format.
•Huge data volume, which has to be exchanged between systems in HL7 format, which resulted in huge performance flaw in SOA server and Java Heap error etc…
•Issues with Jdeveloper while doing the transformation, as it was not able recognize the schema due to its complexity.
•Developed Java API to convert the data body part of the HL7V3.0 Message to Base64Encoded format.
•Oracle B2B is used for the trading partner Management and validation. The oracle healthcare adapter provides,HL7 2.x in/outbound validation and translation to/from the native file format to an XML instance(ebXML for instance).
•Above all good team effort from principal architect to developer.
In 13 days the team was able to:
·Conduct 1st PoC demonstration with-in 6 days of kick-off for client CEO & Chief Architect and their reaction - “…impressive…we didn’t think you could achieve that much in 6 days!” and did the final demo on 13th day and RHIO folks were impressed by the amount of work achieved in such a short duration
·Complete some of the most complex XML based HL7 Mapping, Transformation, BPEL Configuration, & portal component in just 9 days that typically takes weeks
The challenges thrown strike at the following areas:
1. Reduction in cost
2. Reduction in lead times
3. Increase in product proliferation
The demand today is low lead time, low cost, mass customization. This is driving manufacturing firms towards tailoring product offerings knowing fully well that the offering may have an extremely short life cycle – during which they have to recover the development cost as well as corporate objectives of new product introduction. Thus a manufacturing firm is being further driven towards the aforementioned three points and the need to manage the same in the most efficient manner. The need for tighter control on these only seeks to enhance the need for higher real time visibility of data to drive more informed and responsive decision making. This also means an extremely hard look at the metrics to be considered for such dashboards. The measures as I see remaining as important could be grouped into:
The change(??) lies in the manner in which these metrics are analyzed. The viewing of these in isolation for a manufacturing process is what skews judgment on performance and could lead to erroneous decision making. These now need to be very tightly coupled with key performance indicators from other functional departments as well. The metrics that these tie into from an Order Capture and Sales perspective are as follows:
Similar metrics could be looked at for the Picking and Shipping process as well. The overall metric needs to take the effect of the aforementioned into account when developing the same for the business.
The development of such a metric requires a cross functional approach in evaluating performance. The days of functional/divisional efficiencies being the factor to drive overall efficiency are now passé. The sum of efficiencies gained might actually be driving the overall efficiency of a process down. The metric to be applied needs to be much more inclusive.
In one of my assignments, the Engineering department in a bid to reduce the number of transactions performed, got consent for a process by which a lot of stocked subassemblies used on the floor were made phantom in the system thereby removing the part numbers in the system. The result of this was:
Another example in this regard was the definition of On Time Delivery as a performance metric for Operations and Shipping personnel. Order Entry was expected to record the customer request date as the scheduled ship date. The consequence of this was the order entry team putting in dates as the customer requested perfectly – with little or no check on what the lead times for the products actually were. Operations team was reduced to creating a separate commitment metric which tempered the dates down as per the actual committed lead time for the orders. This was a result of elimination of the process of conversations with customers with the order entry team. The order entry team was now supposed to take orders on faxes thereby saving the interaction time. The absence of the interaction window, no association with overall metric were again shown to be the cause of what choice of metric in isolation could lead to.
What emerges is departmental kaizens are good but unless there is a broader organizational perspective/metric that is taken into account, it would result in the transfer of, if not addition of overall ‘waste’ to the organization.
Simplistic as this may sound, the key lies in being able to put together what each department believes is the contributing factors and their weight age to the overall metric. Formalizing, tracking and actionizing the same diligently then become the next set of challenges in the evolution path of the firm’s quest to its objectives.
As companies struggle to cut costs in a dwindling economy, many of the automobile manufacturers have resorted to what we call as ‘Remanufacturing’.
]]>Typically these companies receive the engine from the customer in lieu of a new engine (if it is within warranty). And when there is shortage of ‘Cores’ as it is normally known , it is bought from the open market. Once the Core is received, it is disassembled and an assessment is made of what all can be salvaged. There are certain parts which are beyond repair and are scraped. For the salvageable parts, they go through a typical cleaning process and further processing is done to deem them fit for further assembly.
In context of this, we have something called a ‘Replacement factor’. For example, suppose 30% of the total bearing bushes can be used and rest has to be procured new, the Replacement Factor in this case will be 0.7. Typically, the Bill of Material is designed in a way to accommodate this replacement factor which is typically changed once a month. This ensures that the Planning recommendations are in sync with the shop floor operations.
Typically, there are plants dedicated for these kind of operations and they normally operate as Cost Centres. The Bill of Material is designed in such a way that the salvaged part will have a zero cost while any new part will have a cost associated with it. There are common routings which are apportioned and hence there is no labor component as such per job. Also, some of the core is sent for outside processing which typically goes out as a Purchase Order.
Companies resorting to this business model have been able to save a lot of money and it has been equally good for the environment.
]]>The strategic track is divided into the following phases
The Project track divided into the following phases
A few of the foundations that can be built to ensure minimal delays and gaps–
- Orientation of the Implementation Team and Team Building with System Integration/ IT team (customer or external vendor), End users, Project Sponsors, Change Management and Communication teams is essential for common understanding of project scope, objectives and goals.
- Establishment of protocols for communication during the project, phase completion criteria and documentation and signoff through the Project Charter.
- Regular tracking of the project plan and plan for additional resources and skill sets required and also considering the business complexity and the team capabilities.
- Clear definition of scope of activities and identification of deliverables.
- Defining Hardware and Software requirements for the Project including Server Capacity Planning
- Deciding on the PeopleSoft instances available during the implementation
Implementation time depends upon the number of modules, extent of industry specific or customer specific customisations, functionalities required to be implemented, number of reports, interfaces and conversions. Estimation can be made using Function Points or Package points as spoken about in another blog titled "Are you still using function points for estimating the size of Package Implementation?".
Extensive preparations need to be made prior to beginning of the project to ensure time can be crashed in each of the implementation phases. Reusable Tools/accelarators and techniques, templates, standard configuration documents, knowledge articles and standard process documents are some of the resources that help in reducing overall timelines of implementation.
In the coming weeks, lets discuss the accelerators which reduce overall implementation times in each of these phases. Also lets think of ideal timelines for plain vanilla implementations of different module mixes and increased implementation times required to implement add-ons.
· Lack of information necessary for estimation
· Lack of knowledge on how to estimate and estimation techniques
· Inexperience in doing estimation for similar kind of work
· Inappropriate estimation methodologies
· Historical information availability, Historic Conditions and their Understanding and comparison with current conditions.
· Inadequate timeframe to perform estimates
How does one overcome the above shortcomings.
· Have an in-depth knowledge on the estimation Tools and Techniques through proper Training Session.
· Apply the Estimation Tools and Techniques on smaller projects and then over Bigger Sized projects.
· Use different Techniques of estimation over the different phases of the project based on the phase type and the expectation from the phase.
· Estimation is an ongoing process and not a onetime process throughout the project life cycle. So re-estimate in case of any change in the assumptions to estimations.
· Baseline Estimations by following proper guidelines.
· Document Change Request and re-estimate accordingly.
· Provide for Known and unknown contingencies in the Estimation.
· Document project inputs and Outputs clearly for better estimation.
· Leverage historical information about project's effort, schedule, cost, risk, and resources which can be referred as lessons learned / best practices from engagements executed in the past. Statistical baselines should be created for each factor affecting project effort for e.g. user training effort baseline or project management effort baseline. These statistical baselines should be revised periodically.
· Understand the Scope of the project very well.
· Break down the entire work into work Packages and estimation should be at the lower level and then summed up to the higher level.
· Every organization has influence on overall project effort which should be considered while estimating the project timelines as each organization has their own tried and tested way of executing project based on their available skill set and capability with the client.
· Estimation should not only be based for Cost and Time but also for Size. Size estimation would help in calculating the Budgeted Organizational productivity.
· Proper Risk Management will help in reducing the uncertainties and will help to provide better estimates.
· Project Health and Decision making should be validated regularly through proper tools and techniques.
What does one Estimate?
Some of the parameters that one needs to estimate for a successful execution of a project are
· Project Duration
· Finish Time
· Cost
· Resource
· Success rate
· Quality
Why estimations deviate from the real.
At the Start of every project Objective or business requirement is just a thought and our understanding of the Business of the Customer. Once requirements are converted to core Designs things get clearer and development is nearing completion uncertainties start reducing.
Does that mean that we cannot give estimates?
Estimates can always be provided as they represent costs and other values based on certain assumptions. Distance between Pune and Mumbai approximately 94 Miles and the averge speed of a vechile @ 60KM’s Per hour reaches in 2.5 Hrs. Does that mean that we can commit to reach Mumbai from Pune in 2.5 Hrs. The answer is No. But surely one can commit that we can reach Mumbai to Pune in a minimum of 2.5 Hrs and maximum of 3.2 Hrs based on the speed of the Vehicle, Traffic on the Road, Stoppage time in between etc.
Conclusion
The above recommended solutions will help in improved estimation effectiveness will enhance business to:
· Make better investment decisions
· Generate more return on investment (ROI)
· Gain advantage over competitors by taking appropriate and timely decisions
· More control over project execution
· Finally improve organizational productivity.
Essentially estimation effectiveness is nothing more than how close your estimates are to actual.
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What need to be defined as a Standard?
Only the process or data which is global in nature need to be standardized and there should be a benefit identified for each standard proposed. Standardization can be driven by Industry standards, Package process / upgrades, Organization level initiatives, Compliance requirements, etc. There should be a thorough review of the Standard proposed for the Objective (long term and short term), impact to business because of its implementation, benefits identified, score card to measure these benefits and plan to implement.
What should be the composition of Standards board team?
Ideally Standards board needs to comprise of a good mix of Subject Matter Experts, Package Consultants, Change Management Champions and Program Management Office.
For what duration Standards board need to be planned?
Standards can evolve throughout the length of the project this varies by Organization to Organization on how much Standardization is required and how they want to implement Standards (all at once or in phases). Typically they start heavy (Full time) during pre implementation and go light (Part time) in post go live phase.
How the Standards are are defined / revised and communicated?
Typically Standards are published in word, ppt or PDF formats, posted in a SharePoint or intranet website. Audience will be the implementation teams, core and extended team members and in some case even the key users. All these documents are revision controlled for any changes. Communication of standards happens with as simple as sending a mail, having a conference call, or as complex as having a workshop on any new standard or any revision for existing standard.
How is a new Standard implemented?
Impact of implementing any Standard need to be document and approved by all parties concerned to go ahead and implement the Standard. There can be some Standards evolved after an implementation and a retrofit project need to be planned for bringing the exiting process / data in compliance with new standards. In both scenarios a dedicated team or a project is setup to implement the Standard.
How to track compliance to Standards?
Typically review of Standards is conducted by Standards board at different phases of the implementation like CRP (Conference Room Pilot) or SIT (System Integration Testing). After review a report will be published and the implementation team notified on any deviation and an action plan is discussed to make the changes to comply with Standards.
As I mentioned earlier Standardization is a continuous process, it is not to be treated like a project with a fixed start and end date. As implementation partner Infosys is helping many clients in Standardization process, bloggers can share their view point on Standardization and what is required to implement Standards?
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In my opinion it is! While drastic measures such as reducing work shifts and laying off workers tends to produce the easiest and the most obvious cost reduction, it has repercussions on the companies relations with unions, future workforce and governments, among others. Also, one needs to keep in mind the cost of re-hiring when the demand picks up. While some of such measures can be unavoidable, this might also be the most opportune time to implement philosophies such as lean that one might have been dithering on or completely ignoring under the pressure of meeting on time shipments. Fortunately or unfortunately, a downturn allows time for some introspection. If successful, a company can gain competitive advantage even in a downturn and emerge as a more agile player when the upturn comes. Needless to say, these measures will also produce the cost reduction that companies are seeking in these uncertain times.
So what are some measures that a company can adopt? The answer is no different from what I would have given in any other time. Identify the inefficiencies whose elimination can make the most impact, be it inventory, overproduction, rework, product proliferation, lack of real time information, duplication or inaccuracy of data in ERP system…. Have your best people tackle them; they have some time on hand and their time is going to be well spent.
While focusing on the tactical is the response of most in such times, forward looking measures will help a “best in class” organization emerge when the times do get better.
]]>Bullwhip effect is an important aspect of demand forecasting that could play a critical role in managing demand during the current depressed economic situation. Bullwhip effect in a supply chain refers to the phenomenon where a change in forecasted end-customer demand gets amplified as one moves up the supply chain.
Given the current economic environment what strategies should organizations adopt to manage demand and reduce the bullwhip effect on their supply chains?
Organizations have traditionally used one of the following methods for demand forecasting –Time Series (using historical data to extrapolate future sales) or Life Cycle (using sales curve of similar products for forecasting purposes)
Though these methods are popular they do not take into account the entire distribution channel. Let’s consider the example of an OEM component manufacturer. Even though the forecast for the component demand is dependent on the forecast of the reseller whose final product uses the component, there are others in the supply chain who also affect the forecast of the component demand. For example, in a typical supply chain, these include distributors and retailers. Each of these channel members will have their own forecasts for the same component demand. Each of these channel members creates their own forecast to reflect their view of adequate safety stock which in turn is a reflection of their view of the forecast errors. Moving up the value chain, this amplification of forecast demand has a multiplying effect when used by the OEM. To reduce this amplification of forecast error, it is imperative for manufacturers to have visibility into the demand at each stage of the supply chain.
This is where multi-tiered forecasting or collaborative forecasting techniques can be extremely useful. Both of these forecasting techniques refer to the concept of multi-tier inventory visibility and multi-tier demand visibility so that each channel partner can forecast demand optimally. Techniques such as Vendor Managed Inventory (VMI), use of Point-of-Sales (POS) or consumption data by upstream channel partners, sharing of promotion information etc. are some of examples of collaborative or multi-tiered forecasting approaches that can be used by entities within the supply chain to reduce the bullwhip effect.
I am curious to hear from readers of this blog their experiences/inputs on collaborative forecasting. Some of the key areas I am hoping to hear about include:
a. What are the challenges in adopting collaborative forecasting?
b. Do suppliers trust their customers well enough to share their internal forecasting data?
c. Does an ERP system such as Oracle help in collaborative forecasting?
I will try discussing my thoughts on these questions in my upcoming
]]>Package Points Methodology also scores high in terms of usability when compared to Function Point Methodology. A Project Manager or an Implementation Consultant needs to be enabled enough on either methodology to derive accurate estimates for a project. Function Point methodology seems to be more complicated in terms of understanding and arriving at the five components -- External Inputs, External Outputs, External Inquiries, Internal Logical Files and External Interface Files. Understanding Record Element Types still remains a difficult job for many project managers. Without thoroughly understanding these concepts, it’s highly improbable that an accurate estimate of FP size can be arrived at. To use FP methodology, every Project Manager has to be trained thoroughly before put into the task of estimation. On the other hand, Package Points methodology is designed in such a way that the underlying framework and the calculations need not be understood by every user of the methodology. A user just needs to know what are the functionalities along with setups to be done on the package, life cycle tasks the project involves and client complexity parameters. With these inputs, he/she can derive the size of the implementation. So, a user of the methodology doesn’t require being an expert nor formal training on the methodology to use it for sizing.
Please post your views on the Package Points methodology especially in comparison with other popular techniques available in the industry or from your experience.
]]>As an example, let us consider idle capacity. Usually idle time is considered bad, and as such higher machine utilization is considered good. Higher machine utilization is desirable only if there is sufficient demand to back up the supply created by a highly utilized machine. A machine operating 90% of the time and producing goods filling up warehouses (without any immediate customer demand), would have high machine utilization, but it would lead to higher inventory levels as well. In a lean manufacturing environment, a machine should run only in response to pull from customer demand; targeting a high utilization alone is contrary to that. As such, a better measure of utilization would be schedule reliability- what percentage of the schedule was met on time so as to satisfy the demand created by customer pull. Also, operating the machine only in response to customer demand would mean that flexible capacity is being created and machine maintenance could also be planned better.
Another traditional measure often used is the purchase price variance- the lesser the variance from the standard price, the better. Often suppliers give discounts for large order quantities. In order to use those discounts to keep procurement costs down, buyers place orders for larger than required quantities, or place orders for items that might not have immediate demand. This does reduce the purchase price variance in general, but this also adds to the inventory levels in the warehouse. In addition to the working capital that gets tied up, the administrative costs related to maintaining the inventory also goes up. An alternative measure for the buyer could be their contribution in right- sizing the inventory.
Another example of traditional costing measurements not providing the best results is in the factory overhead allocation. Overheads rates are usually determined based on maximum theoretical capacity, and the actual overhead costs within a period are pro- rated to each unit that gets manufactured irrespective of how much each product consumes the overhead. When profitability analyses are done by product lines/ families, this could inflate or deflate costs incorrectly for different products. Rationalization of product lines to limit the product offering based on product profitability is a lean principle that leads to better capacity management, reduction of inventory and increased flexibility. However, because of the way high overhead costs are pro-rated, the product profitability analyses could lead to erroneous results thereby hiding the non-profitable products.
An important underlying concept directly attached to on-time delivery is lead time. This is a common measure I have seen customers use across industries. They often measure their on- time delivery against the date scheduled by their ERP systems. To ensure on- time delivery, planners often build a buffer into the lead times so that ERP schedules it with some amount of safety built into the date. If a BOM consists of several levels, then a little bit of buffer in each components’ lead time would considerably inflate the parent lead time. Thus, components would be procured and made in advance of the actual time. This would also add to the inventory and might need rescheduling of the transportation activity. Having said that, on- time delivery is an important measurement and people are justifiably appraised on it, however, efforts should be made to ensure that lead times are not inflated just to get a good grade on on- time delivery.
Another way of looking at this is that traditional measures do not give due credit to those parameters that improve as an outcome of operational improvements. For example, a lean operation would lead to reduced inventory levels, reduced cycle times, increased working capital, reduction in bottlenecks etc.. However, even though these may be measured, they are not tied to any incentives. In my consulting experience, I have observed that employees are appraised on the traditional measures, and seldom on how much they have reduced inventory in a period while meeting customer demand, or what is the cycle time reduction a department has achieved, by what percentage has supplier reliability gone up, what is the schedule adherence for a line etc..
Operational excellence is a journey and the commitment to get leaner is an important part of that journey. However, backing this journey up should be appropriate accounting and operational measures that provide incentives for these initiatives. Traditional accounting measures usually serve the needs of the finance department, however, in modern day world, it should also serve the needs of a lean operational system.
The above are just some examples of measurements that need to be reexamined onb a case by case basis. Can you think of other such measurements that would create the incentives for operational excellence?
]]>1. With a integrated Product/Item master, it is easier to setup an online item/category listing
2. Multiple Order and pricing formats can be readily offered to the online customers.
3. Most Package ERP products offer integrated Order Management functionality for online customers.
What do you think are some of the readily available features that can be exploited for online sales.
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