Business Improvement Opportunities

While Part 1 of this series provided the definition and scope of the enterprise data warehouse (EDW), Parts 2 � 6 address how the EDW is used to reinvent business. Thirty major business improvement opportunities are described. Collectively, they comprise revolutionary change for most manufacturers. Each opportunity is described as follows:

• Objective describes the goal state.
  
• Background describes a typical current state without an enterprise data warehouse.
  
• New Process describes recommended processes and enterprise data warehouse functionality.
  
• Leadership summarizes management focus required to achieve the results.
  
• Results are business improvement opportunity financial benefit potentials as a percent of revenue for a 뱓ypical� manufacturer. These should be modified based on current information system capabilities, current costs, and opportunities appropriate to the specific business and industry.
  

Two common methods for evaluating investments are ROI (return on investment) and NPV (net present value). Some companies use both. In either case, business improvement opportunities (returns) should include both cost reductions and incremental profit margin on increased revenue expectations. Because an enterprise data warehouse is strategic, use of a five-year scope for the investment calculations is recommended. A time-phased financial analysis, recognizing the implementation timing and benefits of each phase, should be used.

Because the cost of implementing an enterprise data warehouse depends on company specifics, notably the number of source systems, this series does not include ROI estimates. But, best practice EDWs have been proven to provide exceptional ROIs.

EDW implementation cost estimates should be based on net added cost beyond spending for the current business intelligence (BI) environment. BI environments with many data marts and operational data stores are expensive. During EDW implementation, spending on data marts and operational data stores should be minimized so the net added cost is less than the total EDW cost. An EDW does not require re-engineering of operational processes, so it is substantially easier, faster, and less expensive than enterprise resource planning (ERP) projects.

Net present value calculations state future costs and benefits in terms of today뭩 money, using an appropriate annual cost of money to reduce future cash flow values to today뭩 value. This enables direct comparison of ongoing benefits with one-time investments, such as an EDW implementation. To simplify the concept, NPV for each opportunity is included in Part 8. The stated five-year NPV is four times the annual benefit, using a simple and conservative valuation. This represents roughly an 8% annual cost of money for the next five years. Using a lower value of money or longer time horizon will increase NPV.

Part 2 of this series described business improvement opportunities in the enterprise and Part 3 described opportunities in marketing and sales. This installment will continue with a description of 4 financial business improvement opportunities.

Financial

The four business opportunities described in this section primarily impact financial functions and business unit performance metrics.

1. Finance Cost Reduction

Objective:
Finance function costs are minimized and effectiveness improved with all financial information maintained in one database. The financial reporting close process is simplified and shortened. Finance personnel are financial analysts focused on improving business performance, not number crunchers using desktop databases to roll-up, consolidate, and report financial results.

Background:
Many large manufacturers with multiple financial systems in business units or subsidiaries do not have consistent financial data. Financial results are typically summarized only at a high level. Some companies invest heavily to implement standard financial ERP (enterprise resource planning) systems. There are difficulties scaling these systems to large enterprises, and business intelligence functionality consists primarily of structured reporting, with limited ability to drill down to�actionable detail for decision making.

New Process:
All transactions and allocations with financial impact are integrated and standardized in the EDW at the detail level, although they may be sourced from diverse transactional systems. Using the standardized base of detail in the EDW, one centralized financial ERP system and process summarizes financial results by allocating and rolling up revenue, cost, asset, and liability information, with results returned to the EDW. The centralized financial ERP system is the 뱎rocessing engine� for financial data, but the EDW stores the inputs and the outputs. (In this case, storing summarized information is usually required for computing performance reasons because allocation and summarization processes involve intensive computing by a financial ERP system. Also, summarized results will be accessed frequently, so it is more efficient to store them.)

This recommended financial architecture does not require extensive reengineering of source transaction systems, yet allows implementation of one standard centralized financial process. With detailed and summary financial information stored in the EDW, top-to-bottom visibility of financial information is provided from one central source. This approach costs less than traditional ERP reengineering and can be implemented faster. Note that most 밼inancial� transactions (invoices, receipts, material and labor usage, production output, etc.) are not used only for financial purposes. The data from these transactions is used by all functional areas and stored only once in the EDW. Thus, benefits of this integrated enterprise approach are greater than with a separate financial database.

With this EDW-centric financial architecture, it is practical to analyze revenue, cost, and margin by customer, market, brand, geography, and SKU. Exception reporting and actionable detail for all functional areas enables business unit people to take responsibility for financial results.

The monthly and quarterly financial close process is substantially simplified. In the best-practice example, operating expenses, allocations, balance sheets, consolidations, and preliminary P&L statements are run daily the last five working days of each month. With all detail and summary data in one database, most reconciliation processes are eliminated. (Routine internal audits validate the daily or real-time ETL processes feeding data from source systems to the EDW.) Questionable results can usually be identified and resolved before closing. Top-to-bottom financial results drill-down visibility can be available daily. Only subjective decisions, such as write-offs, repatriation of profits, etc. need to be made prior to closing.

Leadership:
Finance is treated as an integral component of the enterprise, sharing information with other functional areas (although there are tighter constraints on access to financial information, enabled by appropriate database-level security). Charts of accounts are maintained in the EDW, like other hierarchies. All financial reporting and analyses use the EDW. Finance organization staffing is greatly reduced and remaining people become analysts and consultants, rather than clerical people generating financial reports from their desktops with a myriad of spreadsheets, databases, and inconsistent results.

Results:
A finance organization with costs equal to 1% of revenue can achieve a 10% cost reduction, improving profitability by .1% of revenue.

2. Reporting Compliance

Objective:
Cost of compliance with financial reporting regulatory requirements, particularly Sarbanes-Oxley, is minimized or eliminated.

Background:
Currently, large companies registered for trading on U.S. exchanges are spending tens of millions of dollars per year to meet Sarbanes-Oxley (SOX) financial reporting requirements. Much of the spending relates to the challenges of auditing distributed and inconsistent roll-up processes. It is often difficult or impossible to trace summary financial results back to transactional detail. Because of the expense of meeting SOX requirements, U.S. firms are going private, moving their headquarters to other countries, moving their stock listings to exchanges in other countries, and pushing for relaxed regulations. Many new businesses are not going public because of the high cost of compliance. Non-U.S. firms do not want to register for trading on U.S. exchanges. Public auditors and accounting firms are being enriched at high cost to their clients, who blame the government for onerous regulations.

New Process:
The real fault lies not with governmental regulations, but with deficient management and systems. Unfortunately, executives have proven that the regulations are required. Now, systems people need to prove they can step up to the challenge and meet the requirements. The architecture described in the Finance Cost Reduction section, provides top-to-bottom financial information in one single place and enables companies to meet regulatory requirements with no incremental spending.

Leadership:
The EDW support organization is held responsible for assuring that transactions from all source systems are correctly extracted, transformed, and loaded into the EDW. Source systems, processes, and people are held responsible for the accuracy of all transactions. Corrections go through normal system processes to the EDW. Internal Auditing is held responsible for validating operational systems and processes. Public auditors verify reporting processes in the EDW. This job is quite easy because they can drill down to detailed transactions with top-to-bottom visibility in one place. Auditing costs go down � not up.

Results:
SOX compliance is conservatively costing most publicly held manufacturers an incremental .1% of revenues. Best practice proves that the incremental cost of SOX (external spending) can be eliminated, increasing profits by .1% of revenue.

3. Business Unit Management

Objective:
Business units within the enterprise are managed based on fully allocated costs and consistent metrics such as productivity, sales volume change, operating income, economic profit, and return on capital employed. Organizational transformation is simplified and business unit flexibility is supported. Centralized information enables decentralized management where appropriate.

Background:
Manufacturing company business units often have different metrics or different systems that calculate inconsistent results, thus contributing to inefficient management processes and decisions. Alternatively, forced system standardization often diminishes availability of information required to efficiently manage different business units.

New Process:
Standardized and comparable information for all business units and subsidiaries enables reliable comparisons of results with drill-down to actionable information using a corporate 밹hart of accounts� (organizational structure and relationships). Daily, monthly, and quarterly results are available within 24 hours. This enables faster reaction to problem areas and timely financial reporting, thus improving stockholder credibility and market value of the company. With standardized financial data and analyses available from the EDW, business unit personnel can practically take far more responsibility for results.

Business units can define their own views (hierarchies) of products, customers, markets, manufacturing, and procurement, enabling flexibility to manage their business as needed. In many cases, the corporate chart of accounts does not provide enough detail to meet business unit requirements. The EDW can provide all levels of detail required by the business units.

Briefly, the five suggested common business unit metrics are:

• Productivity at the business unit level is typically measured by revenue in common currency per employee.
• Sales volume change is typically stated as a percent change of this-year-to-date versus last-year-to-date net sales in one common currency, but may also be stated in standard product units where applicable to differentiate unit growth versus pricing changes.
• Operating income excludes taxes but requires allocation of asset depreciation to business units.
• Economic profit is net profit calculated after allocating and subtracting a corporate cost of money for all assets employed by the business unit.
• Return on capital employed is similar to economic profit, but stated as a percentage return on capital investment (assets) allocated to the business unit.
  

All of these metrics are enabled by the EDW, and executives at the enterprise, business unit, and subsidiary levels should have direct access to them. (The analyses are complex and typically need to be pre-calculated and stored on an executive BI server, rather than calculated on demand.) Where business units share manufacturing or distribution facilities, activity based costing is important to provide accurate allocation of costs, at least to the business unit level. Also, fixed assets (property, plant, and equipment), inventory, and accounts receivable data must be correctly identified and allocated to business units to calculate operating income, economic profit, and return on capital employed.

Other related business analyses include:

• What are our most/least profitable factories or source locations?
• What is the effect of currency fluctuation on performance metrics?
• What are major variances from our financial plan or budget?
• What is our overhead cost versus variable production and distribution costs?
• What is our spending trend by cost category?
  

Leadership:
Corporate executives measure business unit performance with standard performance metrics, similar to the way stockholders evaluate companies. Thus, business unit executives are held accountable for overall results without micromanagement by their bosses, enabling decentralized business unit management where appropriate. Within the business unit, flexibility exists to establish other metrics appropriate to the individual business. Business units may be managed globally or locally. If managed globally, they have access to global information. With detailed business unit performance visibility, executives spend a great deal less of their valuable time (and expensive corporate aircraft time) traveling around the world attempting to micromanage. These EDW capabilities may enable elimination of a whole layer of management in large corporations. Subsidiaries may be consolidated by region; business units and staff functions may be consolidated; and business units may be given global responsibility.

Results:
In Part 2, we accounted for general knowledge management productivity improvement. But, additional benefits will be realized due to organizational simplification with reductions in corporate executive and staff organizations. If corporate executive and staff costs are 1% of revenues, and that cost is reduced by 5%, benefits will be .05% of revenue. Additional benefits will likely be realized due to improved management at the business unit level.

4. Asset and Liability Management

Objective:
Current assets (cash, accounts receivable, inventories, etc.) and fixed assets (property, plant, equipment, etc.) are actively managed to assure optimal return on investment at corporate and business unit levels. Non-performing assets are minimized or sold. Liabilities (debt, accounts payable, accrued payroll, taxes, etc.) are monitored and managed to control risk and leverage debt effectively.

Background:
Manufacturers� focus, particularly at the business unit level, is often on costs, prices, and margins (the numerator of ROI), rather than assets or investments (the denominator of ROI). In many cases, business units or functional areas are not assigned responsibility for assets.

New Process:
To improve ROI, reducing investment is often just as easy and effective as reducing costs or increasing prices. Of course, inventory represents a substantial asset for manufacturers and is usually visible and managed. Integrated planning, demand driven supply chain and inventory allocation collectively identify opportunities to reduce inventories. Cash management involves investment strategy and is outside the scope of this article.

Fixed assets are typically the largest asset and most important for a manufacturer to manage. Plant and equipment may be managed at the corporate level under a manufacturing or supply chain executive, or at a business unit level where a specific business unit is given responsibility to run each plant (even though plants and equipment often serve multiple business units). The EDW should provide complete visibility of asset book values (cost minus depreciation to-date) and current market value of fixed assets. Return on fixed plant and major equipment assets (investment) should be calculated based on product profitability for products produced by each facility.

Global visibility of plant and equipment assets, utilization, and cost for the enterprise will help identify opportunities to improve utilization. Equipment can be moved to other regions where it may be needed. Production can be re-allocated to plants where capacity is available. New investment is avoided when current assets can be better utilized.

Accounts receivable management is improved with the EDW providing complete visibility of accounts receivable (measured by total value and 밺ays outstanding�) by customer account, customer business unit, and the global customer corporation. The customer뭩 payment strategy is often mandated at their corporate level. Suppliers can best identify problems and influence correction with global corporate customer visibility. The manufacturer needs the EDW with global internal visibility across business units and subsidiaries, particularly when business units with different billing systems share common customers.

Credit risk is inherent in accounts receivable. Manufacturers use external credit ratings (like Dun & Bradstreet) to judge acceptable levels of credit (receivables) for customers, and may integrate credit rating information into the EDW along with customer hierarchies and industry classifications. Write-offs occur when customers go bankrupt or don뭪 pay � and these write-offs come directly from the bottom line. Accounts receivable are usually treated as a corporate asset, and can best be managed at a corporate level when business units share common customers. There is an inherent conflict when business unit credit and sales strategies lead to excessive credit risk. These conflicts and risks are best managed with visibility in the EDW. Best practice is using the EDW for all accounts receivable analyses and actions, particularly for companies with multiple billing systems.

Targets for current asset and liability levels should be established in the EDW, with monitoring and exception reporting. When customer payments take longer than allowed by invoice terms, action messages should go to appropriate management levels, with escalation as appropriate.

Analyses related to accounts receivable and payable include:

• What are receivables and payables trends over last two years?
• What is the age (days outstanding) of payables/receivables?
• What is total value of receivables by customer or business unit?
• What customer receivables exceed levels appropriate to their credit rating?
• Are we paying faster than required?
• What customers frequently violate terms and what is the cost to us?
• How much do excessively favorable terms cost us?
  

Leadership:
Responsibilities for asset and liability management are clearly defined. Executives are assigned global responsibility for receivables by customer, payables by vendor, assets, and liabilities when appropriate. Fixed asset utilization is actively managed across business units globally. All significant assets and liabilities are allocated to business units for business unit metrics.

Results:
A two day reduction in receivables with a 10% cost of money (.10 x 2/365) adds .05% of revenue to profitability. A 5% reduction of receivable write-offs, running at .4% of revenues, adds another .02%. A 1% improvement in fixed asset utilization, with a 10% cost of money, with fixed assets valued at 30% of revenues, adds .03% to profitability. Combined, these benefits increase profitability by .1% of revenue.

Part 5 of this series will cover EDW-enabled business improvement opportunities in the supply chain.

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Business Improvement Opportunities

While Part 1 of this series provided the definition and scope of the enterprise data warehouse (EDW), Parts 2 � 6 address how the EDW is used to reinvent business. Thirty major business improvement opportunities are described. Collectively, they comprise revolutionary change for most manufacturers. Each opportunity is described as follows:

• Objective describes the goal state.
  
• Background describes a typical current state without an EDW.
  
• New Process describes recommended processes and EDW functionality.
  
• Leadership summarizes management focus required to achieve the results.
  
• Results are business improvement opportunity financial benefit potentials as a percent of revenue for a 뱓ypical� manufacturer. These should be modified based on current information system capabilities, current costs, and opportunities appropriate to the specific business and industry.
  

Two common methods for evaluating investments are ROI (return on investment) and NPV (net present value). Some companies use both. In either case, business improvement opportunities (returns) should include both cost reductions and incremental profit margin on increased revenue expectations. Because an EDW is strategic, use of a five-year scope for the investment calculations is recommended. A time-phased financial analysis, recognizing the implementation timing and benefits of each phase, should be used.

Because the cost of implementing an EDW depends on company specifics, notably the number of source systems, this series does not include ROI estimates. But, best practice EDWs have been proven to provide exceptional ROIs.

EDW implementation cost estimates should be based on net added cost beyond spending for the current business intelligence (BI) environment. BI environments with many data marts and operational data stores are expensive. During EDW implementation, spending on data marts and operational data stores should be minimized so the net added cost is less than the total EDW cost. An EDW does not require re-engineering of operational processes, so it is substantially easier, faster, and less expensive than enterprise resource planning (ERP) projects.

Net present value calculations state future costs and benefits in terms of today뭩 money, using an appropriate annual cost of money to reduce future cash flow values to today뭩 value. This enables direct comparison of ongoing benefits with one-time investments, such as an EDW implementation. To simplify the concept, NPV for each opportunity is included in Part 8. The stated five-year NPV is four times the annual benefit, using a simple and conservative valuation. This represents roughly an 8% annual cost of money for the next five years. Using a lower value of money or longer time horizon will increase NPV.

Part 2 of this series described 7 business improvement opportunities in the enterprise. This installment will continue with a description of 10 business improvement opportunities in marketing and sales.

Marketing and Sales

The ten business improvement opportunities described in this section primarily impact marketing and sales organizations.

1. Marketing Effectiveness

Objective:
Marketing programs including advertising, promotions, price changes, rebates, allowances, and trade funds are well-planned, well-executed, profitable, and add value to customer relationships. Results of marketing programs are tracked on a timely basis.

Background:
In manufacturing companies, marketing programs are often not well conceived, planned, or coordinated with supply chain management, resulting in limited results, or even negative results. These poor results may be exacerbated by the lack of timely, exception-based feedback during the programs.

Non-existent, inaccurate, or unreliable demand forecasts for marketing programs may result in poor supply planning, stock-outs and backlogs. Stock-outs can result in lost customers and/or reduced customer satisfaction and loyalty. Poorly conceived programs can have a significant negative effect on margins when total volume increase, if any, does not offset increased costs or investment requirements. Erratic demand patterns require excess capacity and increased investments in manufacturing and inventory.

New Process:
The EDW provides visibility of total impacts of marketing programs, enabling cross-functional coordination and improved management of programs. Program plans in the EDW support advance supply chain planning. During the program, actual daily or weekly order (demand) and invoice (sales) results are compared to program forecasts. Order visibility, in addition to sales visibility, is critical to manage out-of-stock or backorder situations when orders are being received but no sales billed. Promotions are monitored, with exception reporting of those not meeting forecast or those resulting in excess cannibalization of other products. Financial analysis determines positive and negative financial impacts, including margins for all impacted products, net increased market share, supply chain investments, liquidation of excess inventories, etc. Supply chain analysis evaluates supply chain impacts including effect on service, customer satisfaction, returns, etc.

For consumer packaged goods (CPG) companies, where allowances to retailers may be 10% of revenue, trade fund management is improved with visibility of total purchases, incremental threshold analysis, and analysis of year-to-date versus last-year-to-date promotional funding. Regional test program effectiveness is more accurately measured with results in the market test areas being compared to those in control areas � at a detailed level on a daily basis.

Related analyses include:

• Product promotions that did not meet plan by period, by customer location.
• Promotions creating excess cannibalization of related product sales.
• Impact of advertising campaigns: in total, by region, and by customer.
• Impact of programs on revenue and profitability: for the category and the company.
  

In addition to transactional data, good analysis requires marketing program data including identification of associated advertising and promotional costs, special pricing, allowances, relevant time period, regions, and forecasted volume impacts by product and SKU.

Leadership:
Business unit executives take responsibility for the total impact of marketing programs on operational results. Cross-functional communication and decision making among marketing, sales, finance, and supply chain areas is required when planning programs. Comprehensive daily or weekly monitoring of results versus forecasts is implemented, with exception reporting and drill-down access to line item detail, including order unit demand, invoiced revenue, and backlogs. Items that may be cannibalized are identified and tracked. Both positive and negative impacts for all programs are evaluated. Total financial impact analysis assures that programs are well-conceived and yield substantial net value to the entire enterprise. Ineffective programs are fixed or eliminated. Full understanding of promotional impacts often results in substantial reductions in their use.

Results:
If marketing programs affect 10% of sales with a 25% profit margin, and that margin is improved 10%, the bottom line is improved by .25% of revenue. Further value stems from better customer service, improved satisfaction, fewer lost customers, and less cost impact on supply chain operations. [For a CPG company with trade funds representing 10% of revenue, a 2.5% savings in trade fund costs contributes .25% of revenue to the bottom line.]

2. Marketing Communications

Objective:
Marketing communications cost is reduced and effectiveness improved by using the EDW to integrate and share product information inside and outside the company by providing market-focused product information to subsidiaries, channel partners (wholesalers, distributors, dealers, and retailers), customers, and the public. The company presents one face to the customer and becomes easy to do business with.

Background:
Marketing communications include advertising, promotional material, product documents, catalogs, brochures, price pages, websites, training material, and other product information for channel partner and customer databases. Market-focused product information (sometimes called 뱈aster data�) includes descriptions, characteristics, packaging hierarchies and dimensions, Global Trade Item Numbers, documents, manuals, images, training materials, ordering quantities, prices, and product line hierarchies. Information content may be related to individual SKUs or to groups of products.

Product commercialization processes are generally not well integrated across business units. Marketing communications processes are often decentralized and inconsistent, with much of the content created by outsourced advertising and graphic arts vendors. Vendors may retain ownership of the content and charge manufacturers for each reuse. Content is often re-invented country by country � a slow and expensive process.

New Process:
Product development and commercialization processes feed all product information into the EDW, where it is integrated at least daily. Current information from product development, manufacturing, legal, and marketing sources is integrated and made available for internal sales and marketing, subsidiaries, channel partners, customers and the public. The EDW becomes the repository for sharing all global and local product information.

Documents, photographs, and other multimedia are digital and treated like any other data, with multimedia sources feeding the EDW. (Some multimedia may be stored on a separate file server, but should be indexed and integrated with structured data in the EDW.) Market center managers maintain relationships between structured and multimedia content in the EDW. They also control product hierarchies (taxonomies or categories) and related content specific to each market, distribution channel, and country.

Publishing systems enable immediate creation of catalogs, price pages, brochures and advertising by selecting format templates and content from the EDW. Paper distribution is minimized. For some large manufacturers, the market-focused responsibility enables integration across business units, enabling the one face objective.

Public information is accessible on the Internet directly from the EDW or from an Internet server fed by the EDW. Customer and channel-specific information is delivered via secured Internet sites and other electronic media. The channel-specific information enables Internet-based online commerce with channel partner or customer portals and ordering capabilities across business units.

Call centers and sales have access to documents and other product information with the ability to fax or email information from the EDW immediately. The EDW tracks information distribution for marketing or sales follow-up.

Channel partner product information maintenance processes are automated via EDI or XML transmissions of new or changed product information. These are transmitted directly to channel partners or via industry gateways such as UCCnet. Similarly, the EDW pushes product master data to internal company and subsidiary fulfillment systems. Channel partners and subsidiaries are able to eliminate time-consuming manual product database maintenance processes.

Product information is translated and adapted to local requirements by subsidiaries, country operations, or channel partners. They access product information, translate, and modify content to meet local language and other requirements. That localized content is then maintained in the EDW within hierarchies specific to each country � in local languages. [For a global company, the database is structured to handle all languages, including Kanji and other double-byte character sets.]

Leadership:
Marketing executives lead the transition and take responsibility for changing to the data management culture. Product commercialization processes are established to collect and integrate all 뱒tructured� and 뱈ultimedia� information in the EDW in standardized formats. Market managers are assigned responsibility to organize and position the data for each specific market or channel. Electronic publishing capability enables in-sourcing of most marketing communications tasks, such as catalog and price page publishing, reducing external contract vendor costs. Photography and other multimedia to support customer training is treated like any other digital data � integrated, standardized, and accessible. All marketing communications costs are identified and managed.

Results:
If total marketing communications costs are 2% of revenue and can be reduced by 10%, the contribution to profits is .2% of revenue. For many manufacturers, the long term impact of presenting one face to the customer and becoming easier to do business with can lead to higher customer satisfaction and retention with substantially greater impact on the bottom line.

3. Customer Profitability

Objective:
Customer relationship management is based on customer profitability, rather than just revenue. Marketing, distribution, pricing, and channel strategies are based on profitability. Global purchasing agreements can be negotiated with customers if appropriate. CRM programs to increase market and customer penetration are pursued with visibility of the impact on profits. Profitability information is available for individual customer accounts, the entire customer enterprise, and by market or channel.

Background:
Companies without an EDW may only have profitability information by business unit, product line, region, and country. Without customer profitability information, sales, marketing, and distribution strategies are not rationalized. Often a significant percent of channel partners and/or end customers make little or no contribution to profit, and may even generate net losses. Some companies initiate CRM programs and increase market penetration � adding unprofitable customers and decreasing overall profitability! Improving customer profitability is a major driver of EDW implementations.

New Process:
Customer profitability is calculated from transaction detail by subtracting cost from actual revenue. Of course, net revenue should be used (gross invoice amount minus credits, deductions, rebates, allowances, etc.). Since rebates and allowances may apply across customer locations, they should preferably be allocated to the customer location and SKU for more accurate accountability. If standard manufacturing cost is used, the result is called gross margin because it does not take into account distribution, marketing, sales, and customer service costs. Gross margin information is helpful, but can result in misleading conclusions because of different customer ordering patterns and support requirements. Ideally, activity based costing (ABC) is used to determine real profitability with fully allocated costs. If ABC is not available, average distribution, marketing, sales, and customer service costs may be used, but then customer activity must be carefully analyzed to identify and avoid costly ordering patterns or excess support costs.

Analytic capabilities should include ranking channel partners or customers by profitability; classifying customers by type, channel, or market; tracking profitability trends; and interactive drill-down through the customer's organizational hierarchy to individual customer locations and accounts. If POS data from channel partners (distributors, wholesalers, dealers, etc.) is available, end customer profitability can also be analyzed.

Leadership:
Executives are assigned responsibility for monitoring and managing customer profitability for individual accounts and for the total customer or channel partner. Pricing strategies are corrected or unprofitable customers and channel partners are dropped. This process may be called 밹hannel rationalization.� With detail visibility, problems are identified and resolved by individual customer location or store and by SKU. Correction of problems may involve avoidance of credits, deductions, rebates, returns, or allowances, in addition to pricing and discount issues.

Results:
A typical company, previously lacking visibility of channel partner or customer profitability, can reasonably expect to reduce losses or improve margin by 2% for 10% of customer sales. This results in profit improvement of .2% of revenue.

4. Customer Penetration

Objective:
밪hare of customer� is maximized by realizing the total sales potential of all products and services to current customers.

Background:
Increasing penetration of current customers is typically a sales process dependent upon product knowledge of individual sales reps within the scope of their customers and area.

New Process:
Opportunities to increase customer penetration are found by a systematic program comparing the products sold to comparable channel partners (distributors, wholesalers, dealers, and retailers) or customers globally. For example, if products A, B, C, and D are sold to customer X, but only A, C, and D are sold to similar Y, then selling product B to customer Y is a customer penetration opportunity. There are likely to be thousands of such opportunities on a global basis.

Another approach to customer penetration is leveraging procurement. For example, if you buy from major companies but they don뭪 buy from you, you may be able to leverage your purchasing power to improve sales opportunities. Analysis requires matching customer and vendor information across business units. Legal advice is recommended, as there may be some constraints to this approach.

Visibility of end customers served indirectly through channel partners requires customer point of sale (POS) information from channel partners. For this purpose, POS data must include customer name and address. Customer data is often not available from retail POS, but is available from most distributors, wholesalers, and dealers. Data must also include order or invoice line item detail including product identification, unit quantity, and price. Channel partners can be motivated to share POS data by the opportunity to jointly improve end customer penetration. An EDW is often needed, and justified, for handling large POS data volumes.

To identify and compare similar customers or channel partners, industry classification of businesses is required. Companies with many customers will find it necessary to automate classification. This can be done by standardizing names and addresses in the EDW, using software such as Trillium with name and address standardization and verification capabilities. Standardized customer names and addresses are then matched to a database with standard industry classifications, such as Dun & Bradstreet. For example, below are industry classifications that might be used by a company selling food ingredients or packaging products to food manufacturing customers:

20 00 Food and Kindred Products	�
�	�20 00 A Pasta, breakfast cereal, chocolate, powders, desserts
�	�20 00 B Canned and preserved fruit and vegetables
�	�20 00 C Fats and oils
�	�20 00 D Frozen and refrigerated food
�	�20 00 E Milky and dairy products
�	�20 00 F Ice cream
�	�20 00 G Basic products (grains, products, etc.)
�	�20 00 H Mineral water
�	�20 00 I Juices, teas and health drinks
�	�20 00 J Alcoholic beverages (wine and spirits)
�	�20 00 K Soft drinks
�	�20 00 L Beer
�	�20 00 M Animal prepared feeds

Customer penetration would typically be compared within each specific classification, but could also be compared for the more general 20 00 Food and Kindred Products category.

Leadership:
Marketing or sales management is assigned responsibility for using customer penetration analyses to identify product sales opportunities for current customers. These sales opportunities are assigned to the responsible sales representatives, or more automated marketing campaigns are established to increase penetration. Detailed sales goals are set and monitored.

Results:
A 1% gain in revenue with a 25% incremental profit margin adds .25% of revenue to the bottom line.

5. Global Market Penetration

Objective:
Improved market penetration is achieved with global visibility of potential channel partners (distributors, wholesalers, dealers, and retailers) or direct business customers. Prospective channel partners and customers are found and classified using leads generated internally, or with externally-sourced business information integrated in the EDW. Prospects are efficiently and accurately targeted with appropriate product information and proposals via automated electronic campaigns or sales contacts.

Background:
Whereas customer penetration is focused on current customers or channel partners, market penetration is focused on new customers or channel partners. Many manufacturers rely primarily on internal local knowledge, rather than a systematic use of external business data, to find new customers and to penetrate new markets.

New Process:
The recommended approach is similar to that defined in the customer penetration section but, first, prospects must be identified and classified. They can come from internally generated marketing leads, sales or customer call center contacts, email contacts, Internet accesses, or by integrating business information from external sources.

For external business information sources, the Dun & Bradstreet World Base may be the most globally comprehensive source of business data, but there are competitors including Hoover뭩, Thomson, OneSource and others. And there are national sources such as InfoUSA. Integrating information from these sources into the EDW enables innovative market penetration capabilities.

Prospect information in the EDW is combined with product information to create target advertising, direct mail or email campaigns, and sales call lists for field or inside sales representatives. This approach to market penetration is especially valuable for targeting emerging areas or countries where little information is available internally or where there is no established sales force or marketing organization.

Related analyses:

• Identify all products selling to a specific market or industry anywhere globally.
• Identify global business prospects in a market or industry who are not current customers.
  

Leadership:
Executives establish revenue growth responsibilities, initiatives, and goals using global prospect and analysis information to generate new customer and market growth. EDW-based applications create advertising, mailings, emails, and sales calls lists targeted to prospects.

Results:
If revenue growth is improved 2% in less developed markets with 40% of global revenue and 1% in more developed markets with 60% of global revenue, and incremental profit margin is 25%, then .35% of revenue is added to the bottom line.

6. Channel Partner Performance

Objective:
Improve manufacturer growth and profitability by improving channel partner performance.

Background:
Most businesses are internally focused, and do not proactively focus on understanding and improving channel partner performance. Channel partner performance is often constrained due to obsolete, incomplete, inaccurate and inconsistent product information in their databases, websites, and catalogs. Inefficient manual processes for maintaining product information are expensive and often not performed adequately, accurately, or in a timely manner. This results in a poor representation of your products to the end customers and brand dilution.

New Process:
Improved use of integrated information from the EDW improves channel partner performance and sales growth. Channel partner services are offered via the EDW that were not previously available. Efficient automated data exchange processes protect brand assets. Channel partner relationships are improved to the benefit of both partners and manufacturers.

First, channel partner performance is improved with current, accurate, consistent, and comprehensive product information transmitted in standard formats via EDI or XML from the EDW, as described in the marketing communications section.

A second approach to improving channel partner performance is sharing end customer and market penetration opportunities with channel partners (see the sections on customer penetration and global market penetration). Consider your channel partners to be part of your enterprise and thus EDW customers. New prospect information will increase their growth potential and improve the partnership with a 뱖in/win� relationship. It can be accomplished by doing the analyses internally, then sharing the results with selected channel partners. Or, you may choose to give selected channel partners direct access to your EDW and support them with access and training to share the analytic applications described in the sections on customer penetration and global market penetration.

A third method of improving channel partner performance is to "hand-off" current real customers to them. This can be done from your Internet site, using the EDW, when product data is accessible to the public. When people navigating your Internet site choose to buy, you electronically hand them off to an appropriate channel partner website, with the product information they are interested in, providing an integrated buying experience. As they complete the purchase transaction online, you capture the end customer and purchase information at the same time it is entered into the channel partner website.

These 뱎artner-friendly� actions are likely to result in partners� willingness to share their POS data, which then opens up an additional level of opportunities to improve partner relationships and mutual business results. Supply chain performance can be improved. Joint marketing and sales relationships can be initiated. Reporting and analyses for end customer business can be shared with channel partners. Distributor territories can be rationalized. All these joint actions reduce costs and improve growth.

Related analyses:

• Identify the top customers of each of our distributors.
  
• Where are distributors competing for customers in the same areas?
  
• Do multiple distributors sell to the same customers?
  
• What products are most profitable for each of our distributors?
  
• Measure and rank distributor margins.

Leadership:
Responsibility for channel partner management is assigned and expectations are established. In some cases, a new organization specifically responsible for channel relationships may be required. Channel partner rationalization may be necessary, resulting in discontinuance of some and strengthening of others.

Results:
If partners representing 40% of your revenue increase their sales by 2%, and your incremental profit margin is 25%, then your profitability is improved by .2% of revenue. Of course, their profitability should improve at the same time, resulting in more dedicated channel partners.

7. Global Pricing Rationalization

Objective:
With global visibility of pricing, corporate headquarters prevents subsidiary operating units from competing with each other for customers. Channel partners or customers are not able to undercut your profits by creating competition among your own operating entities. Pricing is rationalized as required by local markets, but with appropriate controls on exportation.

Background:
A global company can be its own worst enemy if subsidiaries are allowed to compete with each other for customers without visibility of the impact. This is common, and to be expected when local subsidiary or business unit managers are rewarded for results. Due to supply and demand or other market conditions, it may be profitable to have higher prices in some countries than others. But, in that case, there is a need to track customer buying activity to avoid distribution inefficiencies and lower margins that stem from internal competition for customers who shop globally.

New Process:
Recognize that many customers are intelligent global buyers. Global procurement programs aggressively target price differentials to minimize cost. As a supplier, you must be equally knowledgeable and aggressive.

Comparisons of net price in common currency units and common product units across all regions, countries, and localities will identify opportunities to avoid subsidiaries competing with each other. An exception reporting system should monitor actual invoice net price inconsistencies and customers buying from different countries to get lower prices. Salespeople motivated by revenue are very creative! Even with globally standardized list pricing, monitoring of actual invoice prices, discounts, deductions, rebates, and allowances may be required.

Leadership:
The appropriate global executive is charged with responsibility for monitoring and enforcing rational pricing. Situations where significant pricing differences exist are monitored. Where customers buy outside their country to get lower prices, appropriate action is taken to adjust distribution, sales, or pricing strategy. Business rules and processes are established and enforced to avoid destructive internal competition.

Results:
A pricing improvement of 1% on 10% of revenues will yield a profit improvement of .1% of revenue.

8. Pricing Optimization

Objective:
Pricing decisions are made to optimize profitability considering demand elasticity (the relationship of demand to price), changing costs, and global market demand versus capacity.

Background:
Pricing is often a guessing game because systems are not available to support ongoing analysis of demand elasticity. Elasticity is not a useful concept because it is not measured or understood. Guessing is seriously flawed. Also, manufacturers are often slow to reflect changing raw material availability and cost, manufacturing capacity and costs, competitive activity, and other factors into pricing decisions.

New Process:
The EDW enables testing and evaluation of the demand impact of varying prices. Pricing can be tested with different prices in test areas, or by price variations over time. These tests must be run over a fairly long period of time to avoid 뱒tocking up� at lower prices. And, care must be taken that lower prices in a test area don뭪 steal 밺emand� from another area. In commodity markets, a little price change may have a major impact on demand, whereas for more differentiated products, there are significantly different pricing options.

In the global economy, manufacturers must become much more aware and reactive to changing raw material availability and cost, labor costs, manufacturing location alternatives, and competition. Increasing or decreasing costs change the prices at which margins are optimized. Faster pricing change reactions are driven from integrated cost, price, margin, and demand information.

Related analyses include:

• Identify products where raw material or manufacturing costs are increasing faster than prices.
• Identify price increases that decrease total profit. Identify price decreases that increase total profit.
• Identify products coming from raw materials with shortages or facilities lacking capacity, where price increases should be considered.

Leadership:
Responsibility for pricing is focused, but involves cross-functional decision making. Pricing strategy and practice considers market penetration goals, margin optimization, demand elasticity, changing costs, company and industry capacity constraints, and market conditions. Timely monitoring of integrated cross-functional information leads to faster response to changing market conditions � avoiding loss of market share on the downside and improved margin on the upside.

Results:
A price improvement of 1% on 20% of revenues yields a profit improvement of .2% of revenue.

9. Contract Management

Objective:
Customer sales contracts and purchasing agreements are established and monitored effectively, assuring that all parties are meeting their responsibilities and objectives. Contract profit margins are measured and monitored.

Background:
Customer contracts and purchasing agreements are typically based on annual quantities of a market basket of products. These agreements are too often established without the information or process in place to monitor and manage them. The result is lower margins, missed volume opportunities, and lack of negotiating credibility. Further, there is often a lack of information about the contribution to revenues and profits of contracts versus standard pricing.

New Process:
Contracts and agreements should be monitored at least monthly, with exception reporting, to establish credibility with customers or channel partners and to assure everyone is working together toward common goals. Contract to-date sales are compared to prorated contract purchase requirements to assure contract volumes will be met. Contract pricing is voided for customers not meeting contract terms.

An enterprise-wide system enables global and multi-business unit contracts, thus improving cross-selling and customer penetrations. Channel partners and customers can be given access to contract conformance and detailed sales information via secured Internet applications.

Related analyses:

• Identify any orders not priced in compliance with the contract.
  
• Identify products sold to the customer outside the contract.
  
• Compare contract prices to pricing for other similar customers.
  
• Compare national or global pricing for a large customer: Should we integrate multiple contracts? Establish global contracts? Extend contracts to other products?

Leadership:
Clear responsibilities and processes for contracts and price agreements are defined. A negotiating process is initiated when to-date contract volumes are not on track. Corrective action is taken on any non-compliance issues. Contract profit margin targets are known and monitored, preferably using activity based costing.

Results:
If a company sells 20% of its volume via contracts or price agreements, and careful monitoring improves pricing by .5%, the profit improvement is .1% of revenue.

10. Sales Profitability and Compensation

Objective:
Sales performances versus quotas are monitored via the EDW. Performance is measured by profitability, rather than revenue only. Salespeople are compensated, at least in part, by profitability rather than revenue quotas to align sales with enterprise goals.

Background:
Salespeople are typically compensated based on revenue versus goals. Given the incentive to maximize sales regardless of profits, there is an inconsistency between sales goals and corporate goals. As a result, inefficient and cumbersome pricing approval processes often create friction with customers and slow down the sales process. Sales compensation systems are typically not fully integrated with other business intelligence (BI) systems.

New Process:
Use of the EDW to measure sales performance, by either revenues or profits, requires the ability to define and maintain sales territories in the EDW database. Sales representative responsibilities for specified geographies, customers, or products are represented by hierarchies and rules (such as specified customers or product lines within specified areas) that define each sales territory. Sales management maintains hierarchies and rules defining territories, along with the sales or profit quotas associated with each territory. Also, sales organization hierarchies are maintained to summarize results for each level of sales management.

Sales revenue is rolled up from invoice line item detail, using the territory rules or hierarchies. Sales profitability is calculated as net revenue minus cost for the territory. Net revenue includes credits, deductions, rebates, returns, allowances, etc. Activity based costing, per Part 2, is preferable to standard costing.

With territories and quotas defined in the EDW, and revenues and profitability calculated in the EDW, sales compensation systems use the EDW as a direct source to calculate appropriate incentives.

Leadership:
Executives establish some portion of sales compensation based on profitability to improve sales decisions and performance. Sales compensation is integrated with the EDW, assuring a consistent source of information. Sales territories and organizations are defined in the EDW. More pricing decisions are delegated when sales representatives are given responsibility for profit margins.

Results:
If profit margins are improved by 1% on 5% of revenue, the bottom line is improved by .05% of revenue.

Part 4 of this series will continue with EDW-enabled business improvement opportunities in finance.
출처 : http://www.b-eye-network.com/print/12907

Business Improvement Opportunities

While Part 1 of this series provided the definition and scope of the enterprise data warehouse (EDW), Parts 2 � 6 address how the EDW is used to reinvent business. Thirty major business improvement opportunities are described. Collectively, they comprise revolutionary change for most manufacturers. Each opportunity is described as follows:

• Objective describes the goal state.
  
  
• Background describes a typical current state without an EDW.
  
  
• New Process describes recommended processes and EDW functionality.
  
  
• Leadership summarizes management focus required to achieve the results.
  
  
• Results are business improvement opportunity financial benefit potentials as a percent of revenue for a 뱓ypical� manufacturer. These should be modified based on current information system capabilities, current costs, and opportunities appropriate to the specific business and industry.

Two common methods for evaluating investments are ROI (return on investment) and NPV (net present value). Some companies use both. In either case, business improvement opportunities (returns) should include both cost reductions and incremental profit margin on increased revenue expectations. Because an EDW is strategic, use of a five-year scope for the investment calculations is recommended. A time-phased financial analysis, recognizing the implementation timing and benefits of each phase, should be used.

Because the cost of implementing an EDW depends on company specifics, notably the number of source systems, this series does not include ROI estimates. But, best practice EDWs have been proven to provide exceptional ROIs.

EDW implementation cost estimates should be based on net added cost beyond spending for the current business intelligence (BI) environment. BI environments with many data marts and operational data stores are expensive. During EDW implementation, spending on data marts and operational data stores should be minimized so the net added cost is less than the total EDW cost. An EDW does not require re-engineering of operational processes, so it is substantially easier, faster, and less expensive than enterprise resource planning (ERP) projects.

Net present value calculations state future costs and benefits in terms of today뭩 money, using an appropriate annual cost of money to reduce future cash flow values to today뭩 value. This enables direct comparison of ongoing benefits with one-time investments, such as an EDW implementation. To simplify the concept, NPV for each opportunity is included in Part 8. The stated five-year NPV is four times the annual benefit, using a simple and conservative valuation. This represents roughly an 8% annual cost of money for the next five years. Using a lower value of money or longer time horizon will increase NPV.

This installment will continue with a description of 7 business improvement opportunities in the enterprise.

Enterprise

The seven business improvement opportunities described in this article impact all functional areas of the enterprise.

1. Productivity Improvement

Objective:
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 EDW is used to monitor and measure productivity for both operational and knowledge workers.

Background:
Without an EDW, most knowledge workers waste a great deal of time finding and retrieving information they need � if they can get it at all. Comprehensive, yet flexible, productivity measurement capabilities are rare. Knowledge workers are defined as everyone whose performance depends on information, including executives and management in all functional areas and most personnel in sales, marketing, customer service, and finance positions.

New Process:
EDW business intelligence applications are designed to provide easy flexible access to information, with the goal of answering 밶ny question, any time,� down to and including actionable detail. Applications enable users to analyze many common metrics (sales, margins, service, demand, inventory, productivity, purchases, etc.) from the perspective of their own responsibilities. With the ability to enter personalized product, market, customer, and geographic hierarchies or 뱕iews� online into the EDW, managers can define their own responsibilities. Adding the ability to maintain their own responsibility goals or KPIs (key performance indicators) in the EDW makes it a comprehensive performance management tool.

밨ole-based, event-driven� exception reporting can be used to proactively inform managers when they need to take action because performance is not on target or there is a specific operational problem. The result is additional productivity improvement for everyone who uses information because they don뭪 need to analyze reports to determine when action is required.

Market-focused product information includes descriptions, characteristics, packaging hierarchies and dimensions, standard marketplace identification, images, documents, multimedia training, ordering quantities, pricing, and much more. Providing easy access and sharing of product information throughout the enterprise leads to dramatic improvements in marketing communications, customer service, sales, and channel partner productivity � particularly in global companies.

Management should have timely visibility of actual productivity versus goals (such as: customer service orders entered per hour, factory output per shift, warehouse shipments per day, call center calls per hour, sales contacts per week, etc.). With supporting drill-down capability, the performance issues can be analyzed and resolved.

Measuring productivity requires organizational and staffing information for all functional areas, combined with appropriate metrics derived from transactional and other activity detail relevant to each area.

Leadership:
Executives take responsibility for productivity, setting improvement goals, and realizing results. With actionable information at everyone뭩 fingertips, it is often feasible to eliminate whole levels of management. At a minimum, substantially larger executive and management spans of control should be expected and implemented. And, non-management knowledge workers should substantially improve productivity.

Results:
Conservatively assuming a productivity improvement of 2.5% (equivalent to one hour per week per person) for management, marketing, sales, customer service, and technical service personnel costing 10% of revenue, savings are .25% of revenue.

2. Quality and Warranty

Objective:
Quality is improved and the total cost of quality, including field repair, replacement, warranty claims, recalls, government compliance, lost customers, and liability lawsuits, is reduced. Management at all levels in all functional areas has integrated and comprehensive information about the total cost of quality, customer perceptions about quality, the analytic capability to trace quality problems to sources, early detection, and recall capability.

Background:
Comprehensive information and analyses concerning quality are a significant challenge for many manufacturers because of diverse information sources, lack of systems capabilities and capacity to integrate the data, and the prevalence of unstructured data. Many operational systems are not readily adapted to collect the traceability information needed for analysis. Few materials or products have been labeled with the requisite bar codes or radio frequency tags (RFID) to automate capturing of lots or serial numbers. Traceability can be expensive and is not common in many manufacturing industries (including food and many other low cost, high volume consumer products). Customer complaints, warranty work, and field or dealer technical service activities are typically not integrated into analytic systems because the key information is represented in unstructured text format.

New Process:
Traceability information is often required to solve quality problems. Traceability involves tracking lot or serial number of raw materials and components through manufacturing processes, and tracking product distribution by lot or serial number to end users. Tracking enables early detection of manufacturing processes, products and customers who may be impacted by a component or process problem. Early detection allows impacts to be minimized by stopping manufacturing processes or distribution before the product gets to the customer.

밫rack and trace� systems and processes are becoming more common because of the high cost of quality problems. Bar codes and RFIDs are becoming more prevalent to enable track and trace, and their cost is coming down. The very large data volumes generated by track and trace systems typically require EDW technology to process the volume and integrate the diverse data sources. Quality testing processes at each step of the supply chain, from material receipts through all manufacturing processes, enable prevention. With quality information captured, along with track and trace, integrated analytics can help link vendor or process quality variables to product performance. These 밹radle to grave� complex analytics often require the power and data integration of an EDW platform.

Unfortunately, the best quality systems and processes are not perfect. Recalls, field technical service fixes, warranty claims, and lawsuits may occur. All of these can be minimized with EDW-based track and trace capability, enabling early identification and recall of impacted product from wherever it is in the supply chain or customer hands.

It is important to capture customer complaint, service, and warranty information promptly, and integrate it in the EDW. These information sources may be the first indicators of a problem. Today뭩 EDW technology supports integration and 밿ntelligent analysis� of text information, helping to automate early detection and analysis processes.

Related analyses are almost endless, but some common examples include:

• To whom did we ship potentially defective product?
  
  
• Is there a linkage of returns, complaints, or service issues with a specific product or component lot or serial number?
  
  
• Is there a linkage of product problems to specific components, vendors, lot or serial number? Can we hold vendors responsible?
  
  
• What is our total cost of quality? By product?

Leadership:
A Six Sigma or similar rigorous approach to improving quality and minimizing the total cost of quality is instilled in the organization, with the EDW supporting requisite metrics and analytics.

Results:
If cost of quality is 2% of revenue and it is reduced 10%, profitability improves by .2% of revenues. If improved market perception of quality increases sales by .4% with an incremental profit margin of 25%, profitability improves by a further .1%. The total profit improvement is .3% of annual revenue.

3. Product Commercialization

Objective:
Time-to-market is substantially reduced by integrating internal and market-focused product information, and providing access to all functional areas, subsidiaries, channel partners (wholesalers, distributors, dealers, and retailers), and end customers or prospects. Also, management has timely information about orders and sales versus plan for new products, and responds promptly with fact-based decisions.

Background:
Product commercialization processes in manufacturing are generally not well integrated. Global rollouts are typically slowed due to the complexity of sharing and distributing product information. Much of the marketing content required, including outsourced advertising and graphic arts content, is reinvented country-by-country � a slow and expensive process. And, monitoring of new product sales results versus plan is often an inconsistent process.

New Process:
Local and global product development and commercialization processes feed all product information into the EDW, where it is integrated at least daily. Integrated, consistent, and current multimedia product information is made available for internal sales and marketing, channel partners, and customers. Product information is translated and/or localized for each region, subsidiary, or country. The EDW is the repository for sharing global and local product information.

Channel partner product information maintenance processes are automated via EDI or XML standards for sharing new product information � via direct transmission or industry gateways such as UCCnet. Similarly, the EDW pushes product data to internal fulfillment systems.

Time-to-market for a new product is monitored and further improved with timely visibility of roll-out results. Including visibility of the impact on products subject to cannibalization provides a full picture of revenue and margin impacts. Daily or weekly exception reporting of orders versus forecast by region, area, or territory enables prompt action by sales management to assure effective introduction processes are in place.

Order (demand) visibility is critical because there may be out-of-stock (backorder) situations or production backlogs. Order, invoice and backlog data are available daily in both units and value at the order item-line level for drill-down analysis.

Leadership:
Accessibility and distribution of multimedia product information is considered part of business intelligence (like analytics), and is a function of the EDW. Executives assure that information is not a barrier to time-to-market optimization.

Management reacts appropriately when sales are not on target. Failure to generate orders is a marketing or sales issue, whereas failure to fill orders and generate sales may be a supply chain issue. Cross-functional product introduction planning improves due to better understanding of results.

Results:
Faster product commercialization processes translate to significant increases in market share. One major company reduced average global time-to-market by several months. Reducing average time-to-market for new products by one month, with 10% of revenue from products new within the past 12 months, yields a revenue gain of .8% (10% of annual revenue times 1/12 of a year). With an incremental profit margin of 25%, profit is increased by .2% of revenue. This is a conservative calculation because more rapid introduction will also achieve greater market share.

4. Integrated Planning

Objective:
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. As a result, all functional areas are 뱋n the same page� and measured against common objectives.

Background:
Integrated planning (also called sales and operational planning or S&OP) is a common goal of manufacturers. But, typically, each functional area creates forecasts or plans based on their own data sources, from their own perspective. Financial 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, SKU, etc.). Sales territories may not align with distribution center or plant distribution regions.

A 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.

New Process:
The EDW enables integration of sales forecasts, marketing plans, financial forecasts and budgets, demand forecasts, supply plans, operational and factory plans. And, the EDW provides a single source of historical information on which to base those forecasts and plans so that everyone starts with the same history. Forecasting, planning, and budgeting systems access the EDW for historical information, then return their output � forecasts, plans, and budgets � back to the EDW.

Flexible 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. After reconciling planning differences and agreeing on an enterprise or business unit plan, the integrated plan is stored in the EDW and can be viewed from the perspectives of each functional area. A 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 next 12-18 months (literally 뱋n the same page�). This plan is credible, because drill-down capabilities allow it to be viewed in product, channel, or geographic detail as required. Calendar-based algorithms do the week-month transformations to align time periods correctly.

Leadership:
Executives require agreement across functional areas on the integrated business plan. Of course, the plan may include high and low assumptions, but everyone is synchronized on the plan.

Results:
There are many improvements with this approach, including productivity, marketing effectiveness, business unit management, and manufacturing efficiency. Best-practice experience has shown that one of the significant measurable impacts is on inventory. Conservatively, if inventory represents 10% of revenue and is reduced 10%, with an inventory carrying cost of 20%, profits are increased by .2% of revenue.

5. Activity Based Costing

Objective:
Activity based costing (ABC) provides accurate allocation of all significant costs, enabling enterprise performance management based on accurate unit costs. Six Sigma and lean manufacturing processes are based on current accurate cost information. Distribution, pricing, sales strategies, product line rationalization, and customer profitability analyses are all based on accurately allocated costs.

Background:
Most manufacturers desire ABC, but do not have the systems or data management capacities to implement a comprehensive ABC system.

Because manufacturing costs often account for a major portion of total enterprise cost, most manufacturing companies do a reasonably good job of managing total manufacturing cost. But, they typically allocate manufacturing inputs (raw materials, labor, factory overhead and equipment) to general products or categories, based on total production inputs and outputs. This cost of goods sold (COGS) is a basic financial metric for managing manufacturing.

However, COGS is often averaged over quarterly or annual time periods (called standard COGS) rather than being calculated for specific production output (orders, batches, or individual items). Also, standard COGS is typically averaged across all the SKUs within a product category, so SKU-level costing is not accurate. [SKU, or stock-keeping unit, means a unique product item or configuration. For commodities, an SKU may represent a specific grade or other classification. An SKU may also represent a specific service.]

Due to system data capacity and processing limitations, distribution, sales, and customer support costs are typically allocated based on revenues, resulting in invalid cost data and bad decisions.

New Process:
An EDW provides the data capacity and processing capability to do ABC at least monthly. With ABC functionality in manufacturing through all production stages (including packaging and shipping), accurate and current SKU-level COGS can be achieved. Calculating SKU-level COGS requires comprehensive manufacturing detail, including all material, labor, and capital equipment inputs and their costs, allocated to specific SKU output. An EDW offers the potential to get ABC accuracy down to the specific production order, lot, or serial number level. (Serial number represents a specific single unit. This level of detail is important for major capital goods like planes, trains, automobiles, and other large equipment with varying configurations.)

Beyond the factory, ABC includes allocation of costs for order processing and billing, distribution center space, order filling and shipping, transportation, direct delivery, call centers, marketing, sales, technical support, and any other major cost activity. Freight invoices should be allocated to each purchase order, intra-company move order, and shipment to customers. Distribution center labor and equipment costs should be allocated to specific shipments of specific products to specific customers. Storage should be allocated to SKUs based on actual product cube and inventory levels. Allocating activity costs to order line items, where possible, enables roll-up of revenues, costs, and profitability by order item line, order, product, customer location or store, total customer, brand, product segment, market or channel, etc.

One simple example will help you understand the opportunity: Suppose that customers A and B each buy $100,000 per month of the same product. Customer A places daily orders and requires daily shipments, while Customer B orders weekly and requires weekly shipments. With pricing based on total contract purchase quantities, both get the same price. With costs allocated based on revenues, we will conclude that the two customers are equally profitable, whereas reality may be that we are losing money on Customer A and Customer B is profitable.

Examples of some major ABC allocation opportunities with an EDW include:

• All production and packaging costs to SKUs based on production reports
  
  
• Warehouse storage to SKUs, based on storage space used
  
  
• Warehouse labor cost to order line items, using actual transaction detail available from automated warehouse systems or applying labor factors for shipping units and line items
  
  
• Transportation invoices paid by manufacturer matched to shipment line item detail
  
  
• DSD (direct store or customer delivery) route and delivery cost to SKUs and store
  
  
• Call center time to customer and SKUs based on customer calls
  
  
• Technical service activities to customer and SKUs
  
  
• Sales calls to customer and SKUs
  
  
• Deductions, rebates, trade funds, and allowances to customer and SKUs

Key business questions that can be answered accurately with ABC include:

• Which brands or categories are not yielding margin goals?
  
  
• Which customers and customer locations are not yielding margin goals?
  
  
• Which orders are not yielding margin goals?
  
  
• Which sales territories are not yielding margin goals?
  
  
• Which contracts or promotions are not yielding margin goals?
  
  
• What pricing policy changes are required to meet margin goals?

Leadership:
Executives banish the process of allocating costs based on revenues. Direct cost impacts of manufacturing, distribution, selling, pricing, and customer service strategies are fully understood and provide the foundation for substantially improved processes and decisions. Operational management people in all functional areas are measured based on specific unit cost goals and performance. ABC provides the foundation for better product rationalization and customer profitability analyses.

Results:
A profit margin improvement of .25% of revenue from improved operating cost management is achievable, in addition to improving product line rationalization and customer profitability.

6. Product Line Rationalization

Objective:
Product lines are continuously rationalized based on SKU profitability, while considering customer impacts. Unprofitable items, or those not meeting profit goals, are dropped, re-priced or re-launched to assure optimal total product line or category margins. Impact on the current product line is considered before introducing new items.

Background:
Due to system constraints in many companies, profitability is only available summarized by product line by country, not at the SKU detail level. Hence companies may try to rationalize the product line by ranking SKU order frequency, demand, or sales. But, low volume or slow-moving SKUs may be very profitable, so bad decisions are common.

New Process:
Profit line rationalization is based on visibility of margin or profitability for each specific product SKU and customer. Margin or profitability is dynamically calculated based on revenues minus costs in the EDW. Revenue should be net revenue: invoice amount minus credits, deductions, rebates, allowances, etc. Rebates and allowances often apply to groups of SKUs, but should be allocated appropriately to SKUs. Cost can be standard manufacturing cost (cost of goods sold), but will preferably be delivered unit cost based on ABC of logistics processes including transportation costs allocated to shipment and orders. Ideally, marketing, sales, and customer service costs are also allocated specifically to SKUs based on ABC techniques.

Related business questions to consider include:

• What percent of gross margin is generated from SKUs introduced in the past 3 years?
  
  
• What is the margin trend for the category? Most positive and negative trends by SKU?
  
  
• What is the ranking of SKUs in a product category by margin? By customer site?
  
  
• What is the cannibalization impact of a new product (effect on other product margins)?
  
  
• For a product category, which SKUs should be dropped based on low margin, low preference by top customers, redundancy, and low affinity to higher margin items? (Affinity requires POS data by customer transaction.)

Leadership:
Product line rationalization becomes an established cross-functional enterprise or business unit process with clearly defined goals and responsibilities. Product line decisions are based on total profitability and impact on manufacturing and the supply chain, as well as customer and market considerations. Product value to the customer is understood and decisions include both product offerings and pricing strategy.

Results:
Assume a typical company not doing effective product rationalization at the SKU level. If product line rationalization reduces losses or improves profits by 5% on 2% of the product line, then savings are .1% of revenue.

7.젨� Acquisitions and Mergers

Objective:
Acquisitions or mergers are concluded with minimal effort, without disrupting operations. An integrated view of customers, financials, supply chain, and vendors for acquired or merged businesses is available within a few months to achieve potential synergy benefits quickly.

Background:
If companies being integrated or merged are using different operational (밇RP�) systems, it is a common misperception that they must be converted to a standard system to gain operational synergies. Forcing immediate compliance and conversion to the acquiring enterprise뭩 operational systems is expensive, time consuming, and has a significant negative impact on short-term results. This is a major contributing factor in acquisitions that fail or don뭪 achieve expected results.

New Process:
If the acquiring company (or a merging company) has an EDW in place, it is relatively fast and inexpensive to integrate the acquired or merged company information into the EDW. This is not a disruptive process because operational processes do not need to change. Extract and transformation processes should only affect the IT department, not business operations. Within a few months, information should be integrated in the EDW to gain a common view of customers, vendors, and supply chain information.

EDW integration typically enables many of the synergies expected from acquisitions, including cross-selling to common customers, buying from common vendors, integrating management and staff functions to eliminate redundancy, and utilizing available manufacturing capacities. For complete fulfillment integration (one integrated ordering system), it may be necessary to convert to one common operational system. But, this step is often not urgent and can take place gradually if, or when, it makes sense.

Leadership:
The EDW team should be an early and integral part of the acquisition or merger team. They should be expected to go into the company being acquired or merged to map their major source systems data to the EDW standard input formats and implement the ETL processes for data integration in the EDW within a few months. Existing common BI applications and tools can then immediately be used to identify and implement synergistic opportunities.

Results:
If acquisitions represent 5% of annual enterprise revenues, and faster synergies improve combined performance by 1% of acquisition revenue, then total enterprise profitability improves by .05% of revenue.

Part 3 of this series will continue with EDW-enabled business improvement opportunities in marketing and sales.


출처 : http://www.b-eye-network.com/print/12666

Series Overview

Implementing an enterprise data warehouse offers the opportunity to dramatically improve business results. This series of 12 articles describes what exactly an EDW is and how it can be used to run the business, and quantifies dramatic business improvement potentials. Continue reading for a more complete understanding of what it is and what it can do for your enterprise. Many variables affect the specific opportunity for your company, but the impact will be substantial. An EDW represents one of the best investments you can make.

This series of articles describes the enterprise data warehouse and thirty major business improvement opportunities for manufacturing companies. Their combined scope encompasses the entire enterprise and realistically represents reinventing business.

• Part 1 provides and overview of the series and gives a definition and scope for the EDW
  
  
• Parts 2 � 6 describe and quantify 30 major benefit opportunities
  
  
• Part 7 contains 10 business analysis examples for enabling benefits and summarizes the business improvement opportunities
  
  
• Part 8 describes 30 best practices to ensure success
  
  
• Part 9 briefly describes the governance process and provides a recommended organizational structure
  
  
• Part 10 summarizes the series

Description and Scope of the Enterprise Data Warehouse

An EDW contains integrated, standardized, detailed, comprehensive, current, and historical data, providing a single source of business intelligence supporting strategic, tactical and operational decision making for an enterprise.

Enterprise means that it includes data from all functional areas and business units, and some external sources. It is designed to be used by all knowledge workers, customers, channel partners (wholesalers, distributors, dealers, and retailers), suppliers, and prospective customers (often the global public). For very large conglomerates, 밻nterprise� may be defined as a segment or major business unit of the parent company, provided that segment does not share common customers, suppliers, or supply chains with other segments of the business. Enterprise data warehouse means standardization and integration of current and historical detailed data in one central database.

Achieving the benefits described in this series requires atomic detail � all available data about each transaction and event, in addition to supplier, channel partner, customer, product, material, bill of material, and hierarchies (뱈aster data�) relevant to business intelligence. This data must be standardized, requiring transformation of data from inconsistent sources into consistent data formats and content in the EDW. Normalization is required to avoid data duplication and assure that all data relationships are defined to support 밶ny question, any time.� Historical detail is kept as long as required for the business or industry � often seven to ten years, but in some cases indefinitely.

Achieving all the benefits described in this series also requires that the EDW is current, or active. Active is defined to mean that data is loaded from all source systems at least daily � but more frequently as required. Current information enables timely tactical and operational analytics and decision making. Active also means that the EDW provides frequent or continuous monitoring of actual business status and results against defined goals, with messaging to responsible people or feedback of data to operational systems.

By integrating detailed cross-functional data from all business units and geographic regions, the EDW enables analysis of business performance and opportunities by market, customer, product, geography and time dimensions spanning corporate business units. A global scope is important for manufacturers who have global customers, global markets, global suppliers, or global supply chains.

Realizing maximum value from the EDW involves business unit cooperation and teamwork to leverage customer and market opportunities across business units in a customer-focused business environment. The EDW supports related-selling opportunities across multiple business units in the enterprise. From the customer perspective, it enables a �one face� business environment, improving customer satisfaction and being �easier to do business with.�

The EDW enables everyone in the enterprise to work cooperatively together based on shared information, while allowing business units flexibility to operate appropriately for their product, industry, market, or region. This seeming contradiction is accomplished by providing enterprise-wide standardized views of information, while also providing business-unit-specific views of the same detailed data.

The daily or continuous (뱑eal-time�) process of feeding the EDW involves ETL:

• Extracting atomic transaction data from transaction processing systems; relevant �event� data from sales contacts, call centers, customer communications, Internet navigation, and documents; and all master data additions or changes, including product documents, images, and bills of material,
  
  
• Transforming incoming data into standardized formats, and
  
  
• Loading it into the EDW standardized database.
  

To re-emphasize: Atomic data means detailed data from every transaction and event; customer and vendor account; and product, component, raw material, and inventory stock-keeping unit (SKU). Failure to capture atomic information means inaccurate, unreliable or missing data. Loading only summarized data means data accuracy can not be assured and information lacks credibility. Atomic detail enables complete analytic flexibility, with 뱑estatement� of changing territories, regions, markets, customer and vendor hierarchies, product categories, and business unit structures. Restatements require summarizing detailed historic data to match current data summarization hierarchies. If history detail is not retained, restatements are not possible.

Atomic detail is required to enable common views of customers, markets, etc. across business units, while at the same time enabling business units to maintain different, unique views. Atomic detail is also required for drill-down to actionable detail. Detailed data required to achieve all the benefits described in this series includes:

1. Customer, prospect, and vendor master data, including names, addresses, contacts, industry classifications, hierarchies, and demographics
   
   
2. Product, material, and services master data, including market-focused descriptions, characteristics, standard packaging hierarchies and dimensions (pallet, case, carton, and consumer unit), Global Trade Item Numbers (GTIN), standard material and services classifications (UNSPSC), product hierarchies, documents, manuals, images, training materials, ordering quantities, prices, costs, and bills of material
   
   
3. Customer order and invoice line item details, quantities, unit and total prices, status changes, fulfillment, shipment, logistics, delivery, returns, lot or serial numbers if required, debits, credits, deductions, and payments received
   
   
4. Purchase order and vendor (including transportation carriers) invoice line item details, quantities, unit and total prices, status changes, fulfillment, shipment, logistics, receipts, returns, quality data, lot or serial numbers if required, debits, credits, deductions, and payments
   
   
5. Internal warehouse replenishment and production order line item details, quantities, costs, status changes, fulfillment, shipments, receipts, logistics, and lot or serial numbers if required
   
   
6. Manufacturing process inputs and outputs, including materials, labor, plant and equipment utilization and associated costs, quality data, and lot or serial numbers
   
   
7. Inventory locations, balances, lot or serial numbers if required, and inventory control parameters
   
   
8. Channel partner (wholesalers, distributors, dealers, and retailers) POS data, preferably with customer information, and lot or serial numbers if required
   
   
9. Business information from external data sources, with DUNS numbers (recognized global standard for business identification), SIC codes (standard industry classifications), names, addresses, contact information, credit ratings, and business characteristics
   
   
10. Sales, call center, customer surveys, field service, warranty service, e-mail, Internet clickstream, and other 뱓ouch point� information, with associated text describing the contact, complaint, problem, or service issue, relevant product identification, and lot or serial numbers if required
    
    
11. Non-invoice allowances, trade funds, and rebates
    
    
12. Sales and purchase contracts, pricing and contract amounts
    
    
13. Marketing programs, dates, and associated plans
    
    
14. Sales forecasts, financial forecasts and budgets, demand forecasts, supply plans, operational and factory plans
    
    
15. Human resource information, organization hierarchies, and performance goals
    
    
16. Financial assets, liabilities, and balances
    
    
17. All other financial transactions, adjustments, allocations, consolidations, general ledger, and profit and loss statements
    
    
18. Global currency conversion tables and work day calendars, if the scope is global
    
    
19. Standard freight cost tables by mode, source, and destination
    
    
20. Metadata describing atomic data element sources, transformations, valid code content, name and synonyms, business descriptions; and definitions of standard summary algorithms (such as gross sales, net sales, gross margin, profit, etc.)

Some information, such as gross margin and profit, is a result of summary analyses, but is not input to the EDW. This information is derived from cost and invoice information, which are EDW inputs. Service metrics are also critical information components for supply chain management, but are derived from order-related transactions. There are many other such examples of derived data, which may be calculated and stored in the EDW, or calculated on-demand when required.

An EDW requires customer, market, vendor, product, material, organization, and geographic hierarchical relationships to complement atomic information detail. These hierarchies are required to view detailed and summary information from various perspectives or 밺imensions.� They may be maintained from internal or external sources. External information sources should typically be used to maintain customer, vendor, and market hierarchies, and to provide material and services classifications. For most manufacturers, it is impractical to maintain these internally because of frequent changes.

To achieve enterprise synergy while retaining business unit flexibility requires easily maintainable hierarchies, specific to business units and functional areas, as well as enterprise hierarchies. For example, marketing, finance, and supply chain typically require different product hierarchies. Customer and market segmentation (represented by hierarchies) often varies by business unit. With detailed data in the EDW, these multiple hierarchies can co-exist. A good way to meet these requirements is for hierarchies to be maintained directly in the EDW via a dynamic front-end process. Appropriate software is available to enable business units and functional areas to update hierarchies online to meet their analytic requirements.

Hierarchies are not typically required for transaction processing. With the EDW meeting all business intelligence requirements, it is appropriate to have hierarchies sourced in the EDW or in a master data management system feeding the EDW.

The charts below illustrate some of the many interactive analytic views of information available from an EDW. Queries, as illustrated by the interconnecting lines, result in summarized, easy to understand results. Well-designed queries will allow interactive drill-down to actionable detail on any of the three hierarchical dimensions (product, customer, and geography hierarchies for the customer focused example, material, vendor and geography hierarchies for the procurement focused example). Queries may also allow drill-across to other facts or time dimensions.


Part 2 of this series will begin addressing how the EDW is used to reinvent business in the enterprise. Business improvement opportunities described in Parts 2 � 6 are grouped into 5 categories:

• Enterprise
  
  
• Marketing and sales
  
  
• Financial
  
  
• Supply chain
  
  
• Information technology
  

출처 : http://www.b-eye-network.com/print/12620