For the IT community, typical benefits of the new-style architecture and BPM include:
_ Reduction in IT development cost by up to 30%
_ Payback typically between six and nine months
_ Typical enterprise integration project implementation down from 18
months to 7 months
_ BPM supports highly iterative IT projects; start small then grow
For the business community:
_ Some early adopters have achieved annual revenue increases of 5%,
with a three-year return on investment as high as 250%.
_ These figures coexist with annual IT cost reductions of 10% or
more and savings of 50 to 80% for application management alone.
_ BPM puts businesspeople back in the driving seat and enables and encourages
continuous business process improvement and evolution. Directly
executable business models become feasible, with reusable building blocks
for the business, so as the process library builds up, subsequent processes
become easier and quicker to define and implement.
_ BPM aligns processes more directly with business objectives and streamlines
internal and external business processes, eliminating redundancies
and increasing automation.
_ BPM provides end-to-end process visibility, control, and accountability,
supported by common process integration protocol (BPML) behind the
firewall and over the Internet � ideal for supply chain collaboration.
BPM allows for global process convergence while catering to essential
local customization.
Saturday, January 2, 2010
THE EFFORT BEGINS WITH DRIVING METRICS:
As we have worked with numerous firms in various industries and helped guide
them toward enhanced performance through a concerted supply chain effort, a
variety of methods have been used to track the actual improvements, as well
as a number of specific measurements. Depending on the orientation of the
company, we have been asked to document enhancement to economic value
added, earnings per share, return on net assets employed, return on investment,
improved cash flow, and better earnings before taxes. In virtually all cases, we
were able to show the direct link between supply chain improvement and the
desired metric.
Unfortunately, along the way we encountered a number of firms that had
difficulty making the direct connection between important financial measures
and what was resulting from their supply chain actions � in a way that could
be reported on their earnings statements. In spite of good efforts to improve
sourcing costs, cut transportation and logistics costs, reduce dependency on
inventory, implement better forecasting and planning and scheduling, introduce
greatly improved order management systems, and enhance sales lifts through
better manufacturing and delivery techniques, many companies simply lack the
ability to show the direct association with improved financial performance. It
is our intention to eliminate that cloud from the supply chain environment and
show how such a linkage can be established and tracked.
As another example of how the potential positive benefits can be derived
if a driving metric is at the center of the effort, we would cite the actions taken
by Colgate-Palmolive (C-P). This firm has concentrated on achieving the highest
market share in one very competitive market, oral care, which includes
toothpaste and associated products. From a position in 1994 where the firm had
a share of 21.9%, C-P has progressed to a point where it now has 32% of that
market. As this performance was increasing, C-P was deep into a supply chain
effort, with one concentration on cash-flow return on investment. That metric
stood at 14.4% in 2003, versus an industry average 4.8%.
While part of the transformation was no doubt due to significant product
innovations, it was dramatically impacted by the connection to C-P�s supply
chain effort. According to one study, �This let Colgate integrate demand and
supply chain information � and decisions � more effectively. After years of
stagnant sales and narrowing margins in the mid 1990s, Colgate rethought the
entire process involved in its value chain. The company then slashed supply
chain costs for all its products even as it shortened manufacturing and delivery
times.� The report further states that �Colgate�s planning is now much more
precise: Errors in forecasting have been cut from 61% to 21%, and case-fill rates
nudged up from 94% to 97%� (Koudal and Lavien, 2003, p. 82).
To make the most of the exposition to be delivered, it is best for the reader
to set out those metrics of greatest importance to his or her business. Table 3.1
is an excellent reference in this area. Created by Raymond Clayton, and reported
in Supply Chain Management Review, it presents the kind of financial measures
of most importance to a business. Next to each measure is a brief list of the
elements from the financial statement that are related to the measure. Then
Clayton lists the performance drivers that need improving in order to enhance
the desired performance (Clayton, 2002, p. 35). Each company is advised to
develop its own set of financial outcome measures and performance drivers.
With the Clayton chart as a guide, the information we present will then have
the most benefit in determining how a concerted effort will produce the type
of desired impact.
Along the way, it is equally important to understand the relationship between
financial results and the specific elements within the supply chain that
impact performance in both directions � positive and negative. This refers to
the need to make sure efforts devoted to supply chain improvements are linked
with process changes that are valuable to the firm, and not just measures that
show improvement without really having a positive effect on financial perfor
mance. For example, we could consider the very important need to segregate
suppliers and customers by value, before developing supply chain changes that
impact both areas, so a lot of effort is not wasted on areas that have little
additional merit (weak suppliers and customers serviced at a loss).
We note, for example, that one firm which has made great progress with
supply chain improvements, Procter & Gamble, is constantly faced with the
need to put emphasis in its supply chain effort on areas that have the most
overall impact to the firm. According to one report, �In 2002, just 12 of P&G�s
250-odd brands generated half of its sales and an even bigger share of net
profits� (Andrew and Sirkin, 2003, p. 77). Clearly, a lot of valuable effort could
be wasted on brands that have little overall merit. It becomes essential, as a
supply chain effort matures, to track what return is being made from the specific
areas of most value, so that carefully directed investments in time and resources
are made in the areas of greatest importance.
them toward enhanced performance through a concerted supply chain effort, a
variety of methods have been used to track the actual improvements, as well
as a number of specific measurements. Depending on the orientation of the
company, we have been asked to document enhancement to economic value
added, earnings per share, return on net assets employed, return on investment,
improved cash flow, and better earnings before taxes. In virtually all cases, we
were able to show the direct link between supply chain improvement and the
desired metric.
Unfortunately, along the way we encountered a number of firms that had
difficulty making the direct connection between important financial measures
and what was resulting from their supply chain actions � in a way that could
be reported on their earnings statements. In spite of good efforts to improve
sourcing costs, cut transportation and logistics costs, reduce dependency on
inventory, implement better forecasting and planning and scheduling, introduce
greatly improved order management systems, and enhance sales lifts through
better manufacturing and delivery techniques, many companies simply lack the
ability to show the direct association with improved financial performance. It
is our intention to eliminate that cloud from the supply chain environment and
show how such a linkage can be established and tracked.
As another example of how the potential positive benefits can be derived
if a driving metric is at the center of the effort, we would cite the actions taken
by Colgate-Palmolive (C-P). This firm has concentrated on achieving the highest
market share in one very competitive market, oral care, which includes
toothpaste and associated products. From a position in 1994 where the firm had
a share of 21.9%, C-P has progressed to a point where it now has 32% of that
market. As this performance was increasing, C-P was deep into a supply chain
effort, with one concentration on cash-flow return on investment. That metric
stood at 14.4% in 2003, versus an industry average 4.8%.
While part of the transformation was no doubt due to significant product
innovations, it was dramatically impacted by the connection to C-P�s supply
chain effort. According to one study, �This let Colgate integrate demand and
supply chain information � and decisions � more effectively. After years of
stagnant sales and narrowing margins in the mid 1990s, Colgate rethought the
entire process involved in its value chain. The company then slashed supply
chain costs for all its products even as it shortened manufacturing and delivery
times.� The report further states that �Colgate�s planning is now much more
precise: Errors in forecasting have been cut from 61% to 21%, and case-fill rates
nudged up from 94% to 97%� (Koudal and Lavien, 2003, p. 82).
To make the most of the exposition to be delivered, it is best for the reader
to set out those metrics of greatest importance to his or her business. Table 3.1
is an excellent reference in this area. Created by Raymond Clayton, and reported
in Supply Chain Management Review, it presents the kind of financial measures
of most importance to a business. Next to each measure is a brief list of the
elements from the financial statement that are related to the measure. Then
Clayton lists the performance drivers that need improving in order to enhance
the desired performance (Clayton, 2002, p. 35). Each company is advised to
develop its own set of financial outcome measures and performance drivers.
With the Clayton chart as a guide, the information we present will then have
the most benefit in determining how a concerted effort will produce the type
of desired impact.
Along the way, it is equally important to understand the relationship between
financial results and the specific elements within the supply chain that
impact performance in both directions � positive and negative. This refers to
the need to make sure efforts devoted to supply chain improvements are linked
with process changes that are valuable to the firm, and not just measures that
show improvement without really having a positive effect on financial perfor
mance. For example, we could consider the very important need to segregate
suppliers and customers by value, before developing supply chain changes that
impact both areas, so a lot of effort is not wasted on areas that have little
additional merit (weak suppliers and customers serviced at a loss).
We note, for example, that one firm which has made great progress with
supply chain improvements, Procter & Gamble, is constantly faced with the
need to put emphasis in its supply chain effort on areas that have the most
overall impact to the firm. According to one report, �In 2002, just 12 of P&G�s
250-odd brands generated half of its sales and an even bigger share of net
profits� (Andrew and Sirkin, 2003, p. 77). Clearly, a lot of valuable effort could
be wasted on brands that have little overall merit. It becomes essential, as a
supply chain effort matures, to track what return is being made from the specific
areas of most value, so that carefully directed investments in time and resources
are made in the areas of greatest importance.
THE PROCESS-BASED PROFIT AND LOSS STATEMENT AND BALANCE SHEET:
At this point, we have introduced several ideas:
_ A supply chain maturity model can be used to calibrate a firm�s position
with regard to advancing to the highest appropriate level and to determine
the order-of-magnitude benefits for making such a progression.
_ The SCOR� model can be applied to match the best practices across an
advanced progression with the elements of that model.
_ A series of matrices can be used to determine that the best practices have
been achieved at the desired level of maturity.
_ Customer satisfaction, delivered through an intelligent value network,
will be a major factor distinguishing the businesses linked in a wellplanned
and -executed extended enterprise.
We have also indicated that business process management and business process
management systems should be used to make the communication breakthrough
between important constituents of the supply chain network and to gain access
into disparate technology systems, so that business allies can access the necessary
knowledge across the enterprise, of which they are one link, to make
important end-to-end process changes. With those concepts as our background,
Our basic premise is that once the appropriate connections are made between
business processes within the network, so a view of potential optimized conditions
and highest possible customer satisfaction can be attained, attention
should turn to pursuing the necessary improvement effort while verifying the
enhanced financial performance. This means that the real opportunities for
increasing value move from nebulous concepts to identified additions to revenues
and profits. This thesis is encapsulated in the transition values for each
process in the maturity model introduced in the first chapter. By identifying a
firm�s and its enterprise�s current and desired status on the maturity model and
the SCOR� matrices, and relating the examples, improvement percentages, and
actual numbers to be documented through case studies to one�s own financial
statements, the reader will be able to create a first-cut value-based transformation
plan.
That means the processes being improved are cared for not simply because
they are elements of the supply chain, but because the improvements can be
tracked to financial performance. This idea is no longer part of an elusive quest.
Recent reports by major companies are beginning to verify exactly what can
be accomplished. In one specific example, IBM Corporation determined that its
2000 financial statement showed an inventory of roughly $4.8 billion, while
sales were $88.4 billion. Using a formula for days of inventory, which divided
the amount of inventory by the sales and multiplied the result by 365 days, the
company reckoned its days of inventory at 19.7 days. A one-day reduction to
that figure ($4.8 billion divided by 19.7 days) would generate a one-time positive
cash flow of $241 million.
For further substantiation of the potential for ASCM, a few examples verify
what can be brought to the balance sheet and profit and loss (P&L) statements:
_ Gillette Company, the Boston-based manufacturer of shaving and oral
care products and Duracell batteries, has reduced its inventory by 30%,
or $400 million, since the January 2000 formation of its supply chain
organization.
_ Quaker Oats, a division of Pepsico, Inc., through its supply chain initiative
dubbed North American Manufacturing Study, expects to achieve
savings between $60 and $70 million.
_ KYB Manufacturing, a Franklin, New Jersey supplier of automotive
struts and shock absorbers, experienced a volume explosion from 80,000
units per month to over 500,000. Applying supply chain techniques and
enabling technology to track inventory, order parts, and forecast demand,
the company reduced raw material inventory from $7.8 million
to $6.3 million. Scrap has been reduced by 50%, while errors have been
eliminated and on-time rates have skyrocketed.
_ Unilever, the global consumer goods firm, through its Path to Growth
supply chain effort, expects an annual sales growth of 5 to 6%, coupled
with a 16% increase in operating margins.
_ IBM�s Integrated Supply Chain Group is expecting to cut up to $2
billion from its $40 billion raw material and supplies spend.
_ Johnson & Johnson Medical, Inc. saw an increase in forecast accuracy
from 12% to 53%, a reduction in inventory turnaround from 154 days
to 110 days, and an increase in customer service from 95% to 99.38%.
These types of documentation serve to verify that the search for real financial
gains is not a spurious effort, but is bringing the long-sought improvements to
the P&L statement and balance sheet.
_ A supply chain maturity model can be used to calibrate a firm�s position
with regard to advancing to the highest appropriate level and to determine
the order-of-magnitude benefits for making such a progression.
_ The SCOR� model can be applied to match the best practices across an
advanced progression with the elements of that model.
_ A series of matrices can be used to determine that the best practices have
been achieved at the desired level of maturity.
_ Customer satisfaction, delivered through an intelligent value network,
will be a major factor distinguishing the businesses linked in a wellplanned
and -executed extended enterprise.
We have also indicated that business process management and business process
management systems should be used to make the communication breakthrough
between important constituents of the supply chain network and to gain access
into disparate technology systems, so that business allies can access the necessary
knowledge across the enterprise, of which they are one link, to make
important end-to-end process changes. With those concepts as our background,
Our basic premise is that once the appropriate connections are made between
business processes within the network, so a view of potential optimized conditions
and highest possible customer satisfaction can be attained, attention
should turn to pursuing the necessary improvement effort while verifying the
enhanced financial performance. This means that the real opportunities for
increasing value move from nebulous concepts to identified additions to revenues
and profits. This thesis is encapsulated in the transition values for each
process in the maturity model introduced in the first chapter. By identifying a
firm�s and its enterprise�s current and desired status on the maturity model and
the SCOR� matrices, and relating the examples, improvement percentages, and
actual numbers to be documented through case studies to one�s own financial
statements, the reader will be able to create a first-cut value-based transformation
plan.
That means the processes being improved are cared for not simply because
they are elements of the supply chain, but because the improvements can be
tracked to financial performance. This idea is no longer part of an elusive quest.
Recent reports by major companies are beginning to verify exactly what can
be accomplished. In one specific example, IBM Corporation determined that its
2000 financial statement showed an inventory of roughly $4.8 billion, while
sales were $88.4 billion. Using a formula for days of inventory, which divided
the amount of inventory by the sales and multiplied the result by 365 days, the
company reckoned its days of inventory at 19.7 days. A one-day reduction to
that figure ($4.8 billion divided by 19.7 days) would generate a one-time positive
cash flow of $241 million.
For further substantiation of the potential for ASCM, a few examples verify
what can be brought to the balance sheet and profit and loss (P&L) statements:
_ Gillette Company, the Boston-based manufacturer of shaving and oral
care products and Duracell batteries, has reduced its inventory by 30%,
or $400 million, since the January 2000 formation of its supply chain
organization.
_ Quaker Oats, a division of Pepsico, Inc., through its supply chain initiative
dubbed North American Manufacturing Study, expects to achieve
savings between $60 and $70 million.
_ KYB Manufacturing, a Franklin, New Jersey supplier of automotive
struts and shock absorbers, experienced a volume explosion from 80,000
units per month to over 500,000. Applying supply chain techniques and
enabling technology to track inventory, order parts, and forecast demand,
the company reduced raw material inventory from $7.8 million
to $6.3 million. Scrap has been reduced by 50%, while errors have been
eliminated and on-time rates have skyrocketed.
_ Unilever, the global consumer goods firm, through its Path to Growth
supply chain effort, expects an annual sales growth of 5 to 6%, coupled
with a 16% increase in operating margins.
_ IBM�s Integrated Supply Chain Group is expecting to cut up to $2
billion from its $40 billion raw material and supplies spend.
_ Johnson & Johnson Medical, Inc. saw an increase in forecast accuracy
from 12% to 53%, a reduction in inventory turnaround from 154 days
to 110 days, and an increase in customer service from 95% to 99.38%.
These types of documentation serve to verify that the search for real financial
gains is not a spurious effort, but is bringing the long-sought improvements to
the P&L statement and balance sheet.
. THE PROCESS-BASED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET:
The statement shows how our business is doing overall, but does
not tell us how well the processes are performing. What are the costs associated
with the Plan process? With the Make or Deliver process? Are these funds being
spent well?
The product design processes can
be dealt with in a similar way and can easily be added to the figure. The key
to the decisions is deciding who is accountable for generating the income or
consuming the cost � or has some responsibility for the process. As in many
situations, these roles are not always clear. In the authors� experience, one
process should be accountable for each key metric or share of it, and the
contributions of others should be clearly understood. The accountabilities and
responsibilities are then built into individuals� performance measurements.
Nonetheless, they will
all, ultimately, come under the control of one or more processes in the complete
enterprise process map. The ultimate responsibility of the managers of the
enterprise is, of course, to maximize the return for the shareholders and increase
the strength of their balance sheet.
We now have a set of metrics against which the performance of each process
can be judged as investments are made in increasing maturity. The same principles
can and should be extended to nonfinancial key performance indicators
such as fill rates, on-time delivery, and customer satisfaction. The impact of
process changes can now be judged against the RONA performance of the
whole enterprise. Are we reducing cost or increasing revenue? Are we investing
in our balance sheet in a way that enhances our overall return on net assets?
Are we seeing the kinds of returns promised by those who advised investing
in supply chain efforts?
The task of establishing an internal supply chain and measuring its effectiveness
is well illustrated by work done with Zeneca Agrochemicals, now part
of Syngenta. The project piloted a new approach to supply chain management
in the company�s insecticide/fungicide suspended colloids business. Farmers
around the world use these products to guard their crops from infestations by
not tell us how well the processes are performing. What are the costs associated
with the Plan process? With the Make or Deliver process? Are these funds being
spent well?
The product design processes can
be dealt with in a similar way and can easily be added to the figure. The key
to the decisions is deciding who is accountable for generating the income or
consuming the cost � or has some responsibility for the process. As in many
situations, these roles are not always clear. In the authors� experience, one
process should be accountable for each key metric or share of it, and the
contributions of others should be clearly understood. The accountabilities and
responsibilities are then built into individuals� performance measurements.
Nonetheless, they will
all, ultimately, come under the control of one or more processes in the complete
enterprise process map. The ultimate responsibility of the managers of the
enterprise is, of course, to maximize the return for the shareholders and increase
the strength of their balance sheet.
We now have a set of metrics against which the performance of each process
can be judged as investments are made in increasing maturity. The same principles
can and should be extended to nonfinancial key performance indicators
such as fill rates, on-time delivery, and customer satisfaction. The impact of
process changes can now be judged against the RONA performance of the
whole enterprise. Are we reducing cost or increasing revenue? Are we investing
in our balance sheet in a way that enhances our overall return on net assets?
Are we seeing the kinds of returns promised by those who advised investing
in supply chain efforts?
The task of establishing an internal supply chain and measuring its effectiveness
is well illustrated by work done with Zeneca Agrochemicals, now part
of Syngenta. The project piloted a new approach to supply chain management
in the company�s insecticide/fungicide suspended colloids business. Farmers
around the world use these products to guard their crops from infestations by
THE APPROACH BEGINS WITH MAKING THE FINANCIAL LINK TO PROCESSES
The value created in a supply chain network can be measured in several ways,
but the key is to find a set of measures that encourage the efficient creation of
profit. These measures look good if either profit goes up or the assets used to
generate the same amount of profit go down. We shall begin by using the
concept of return on net assets (RONA) as it relates to supply chain management.
This technique will take us well on the journey, through levels 1 and 2,
and will support a more advanced treatment when we get beyond level 3.
In other words, it compares the P&L
account with elements of the balance sheet. The value of RONA is that it allows
a balance to be struck between the often-conflicting pressures of trying to
increase profit and manage the asset base. For example, if you increase your
inventories, you may be able to sell more, but will you make commensurately
more profit? If RONA goes up, you will. If it goes down, you won�t.
A second consideration is to choose the scope for applying RONA. Few
supply chains involve the whole of a multidivisional corporation working as a
single entity to supply its customers. In fact, from the authors� experience, most
corporations can be divided into autonomous horizontal businesses,
The horizontals may share suppliers and channels,
but the key decisions about range of investment management, investment in
assets, and tactical decisions around sales order management can all be taken
within the horizontal unit, with no great conflict with other horizontals. The key
determinant of a good decision is whether RONA for the horizontal organization
will go up or down. Interestingly, these horizontals often cross the formal
boundaries in the organization and are the root cause of some of the complexities
encountered in supply chain management.
These horizontals will be the basic building blocks for our thesis. A selfcontained
level 1 organization will be able to decide on its product portfolio
and investment in assets. It will have a supplier base, which it may share with
other parts of the corporation to which it belongs and will be able to see the
sales it generates from its (possibly shared) channels to market, and will incur
a share of the cost of those channels. But for our purposes, it is a self-contained
business, governed by RONA.
but the key is to find a set of measures that encourage the efficient creation of
profit. These measures look good if either profit goes up or the assets used to
generate the same amount of profit go down. We shall begin by using the
concept of return on net assets (RONA) as it relates to supply chain management.
This technique will take us well on the journey, through levels 1 and 2,
and will support a more advanced treatment when we get beyond level 3.
In other words, it compares the P&L
account with elements of the balance sheet. The value of RONA is that it allows
a balance to be struck between the often-conflicting pressures of trying to
increase profit and manage the asset base. For example, if you increase your
inventories, you may be able to sell more, but will you make commensurately
more profit? If RONA goes up, you will. If it goes down, you won�t.
A second consideration is to choose the scope for applying RONA. Few
supply chains involve the whole of a multidivisional corporation working as a
single entity to supply its customers. In fact, from the authors� experience, most
corporations can be divided into autonomous horizontal businesses,
The horizontals may share suppliers and channels,
but the key decisions about range of investment management, investment in
assets, and tactical decisions around sales order management can all be taken
within the horizontal unit, with no great conflict with other horizontals. The key
determinant of a good decision is whether RONA for the horizontal organization
will go up or down. Interestingly, these horizontals often cross the formal
boundaries in the organization and are the root cause of some of the complexities
encountered in supply chain management.
These horizontals will be the basic building blocks for our thesis. A selfcontained
level 1 organization will be able to decide on its product portfolio
and investment in assets. It will have a supplier base, which it may share with
other parts of the corporation to which it belongs and will be able to see the
sales it generates from its (possibly shared) channels to market, and will incur
a share of the cost of those channels. But for our purposes, it is a self-contained
business, governed by RONA.
SUPPLY CHAIN IS ABOUT MORE THAN REDUCING COSTS
To begin, then, the process of tracing value to the P&L and financial statements,
we must accept the premise that there is more to a supply chain effort than simply
cutting costs in perpetuity. That sort of intention will get the effort launched and
provide the early savings to fund a continued effort, but it cannot be the long-term
element of sustenance. At its core, ASCM is concerned with improving business
processes, and thereby enhancing a variety of important metrics, including those
affecting costs, revenues, asset utilization, customer satisfaction, and return to
stakeholders.
Using SCOR� as a guide, we see the linked supply chain processes, laid over
the overall enterprise processes with a few carefully selected additions. Beginning
with the source or buy process step, the challenge begins with a need to
move beyond just finding the lowest priced suppliers, to work with key suppliers
to help with the design and development of new products and services.
The intention becomes to create and deliver a flow of innovative products and
services in the shortest possible cycle time, from concept to commercial success,
while improving the percentage of successful efforts. The next need is to
link the development processes in a way that features of customization can be
added for the highest priority customers and consumers.
Underpinning the third important process step is the need to have a communication
system at work that reliably informs the constituent members of the
supply chain network of exactly what is happening within the overall system.
That means there is visibility into the linked partners� operations and access to
their databases in a way that vital knowledge can be easily extracted, without
risk to security. This information becomes a key element in effective forecasting
and planning, so that schedules going to the manufacturing process are truly
linked with actual demand.
we must accept the premise that there is more to a supply chain effort than simply
cutting costs in perpetuity. That sort of intention will get the effort launched and
provide the early savings to fund a continued effort, but it cannot be the long-term
element of sustenance. At its core, ASCM is concerned with improving business
processes, and thereby enhancing a variety of important metrics, including those
affecting costs, revenues, asset utilization, customer satisfaction, and return to
stakeholders.
Using SCOR� as a guide, we see the linked supply chain processes, laid over
the overall enterprise processes with a few carefully selected additions. Beginning
with the source or buy process step, the challenge begins with a need to
move beyond just finding the lowest priced suppliers, to work with key suppliers
to help with the design and development of new products and services.
The intention becomes to create and deliver a flow of innovative products and
services in the shortest possible cycle time, from concept to commercial success,
while improving the percentage of successful efforts. The next need is to
link the development processes in a way that features of customization can be
added for the highest priority customers and consumers.
Underpinning the third important process step is the need to have a communication
system at work that reliably informs the constituent members of the
supply chain network of exactly what is happening within the overall system.
That means there is visibility into the linked partners� operations and access to
their databases in a way that vital knowledge can be easily extracted, without
risk to security. This information becomes a key element in effective forecasting
and planning, so that schedules going to the manufacturing process are truly
linked with actual demand.
THE VALUE OF INCREASING PROCESS MATURITY
We now have the foundation for assessing the value of increasing process
maturity. Based on an analysis of 40 case studies, we asked the owner of each
case study to:
_ Select the processes that had been improved
_ Assess the maturity level that each process had been moved from and
to
_ Allocate the value created to the processes
Surprisingly, we could find
little hard information about the returns process � perhaps indicative of just
how recently this process has become important.
Doing a better job of planning showed the greatest return on inventory, as
the need for extra safety stocks was reduced and redundant inventories were
eliminated. Labor costs went down nicely, and customer service ratings increased.
Sourcing showed a wide range of advantages, as this core function
usually provides help throughout the maturity process. Substantial improvements
were found in four of the five major categories. Make was especially
beneficial in reducing inventory and labor costs, but had considerable impact
on customer service and lead time as well. Deliver showed a range of enhancements,
but our analysis here indicated that these are minimal ranges of potential
improvement. We expect more will develop as this part of the model continues
to mature.
maturity. Based on an analysis of 40 case studies, we asked the owner of each
case study to:
_ Select the processes that had been improved
_ Assess the maturity level that each process had been moved from and
to
_ Allocate the value created to the processes
Surprisingly, we could find
little hard information about the returns process � perhaps indicative of just
how recently this process has become important.
Doing a better job of planning showed the greatest return on inventory, as
the need for extra safety stocks was reduced and redundant inventories were
eliminated. Labor costs went down nicely, and customer service ratings increased.
Sourcing showed a wide range of advantages, as this core function
usually provides help throughout the maturity process. Substantial improvements
were found in four of the five major categories. Make was especially
beneficial in reducing inventory and labor costs, but had considerable impact
on customer service and lead time as well. Deliver showed a range of enhancements,
but our analysis here indicated that these are minimal ranges of potential
improvement. We expect more will develop as this part of the model continues
to mature.
EXTENDING THE CONCEPTS BEYOND THE SINGLE ENTERPRISE
So far we have looked at a single enterprise, with its accounts and shareholders.
This will stand us in good stead in level 1 and level 2. When we get to level
3 and beyond, we need to be able to judge the effectiveness of our investments
not only on our shareholders but also our value chain partners. RONA is still
a good measure, but there is another useful indicator � economic value added
(EVA), which factors in the cost of capital for the different players in the value
chain.
EVA is a measure of true financial performance, with particular emphasis
on the efficient use of capital, that corrects distortions caused by anomalies in
generally accepted accounting principles and takes account of the cost of all
capital invested in an enterprise, including equity. More than any other traditional
financial measure, EVA provides the highest correlation between corporate
performance and increase in shareholder value.
EVA will increase if one or all of the following strategies are adopted:
_ Operating profits are grown without additional capital investment.
_ New capital is invested in any and all projects that earn more than the
cost of capital.
_ Capital is diverted from business assets that do not cover their cost of
investment.
EVA is calculated by multiplying the economic book value of a firm�s
capital by the difference between the return on capital (r) and the cost of capital
(c):
prise processes and create what amounts to a value chain P&L account and
balance sheet, by adding up the P&L and balance sheets of the constituent parts.
The judgment on increasing overall performance can now be made using EVA
as the overarching value chain metric. Managing transactions in this environment
is reasonably straightforward: cash flows from the final customer back
along the value chain. The major consideration is the profit taken by each
company at each stage.
Funding decisions are more complex, as shown in Figure 3.9. To maximize
value in the whole network, it is quite likely that an investment made by one
company, say Company A, results in value in a second, Company C, farther
down the network. Of course, the investments will be in improving the processes
that cross the boundaries between the partners. An investment in equipment
to improve the Make process in A may result in the reduction of material
costs for the Source process of C. Until the thinking of level 4 and 5 comes
into play, there are barriers to making this type of investment. There must be
trust between the value chain partners that value will be shared, and there needs
to be a mechanism in place to calculate the value and share it.
This will stand us in good stead in level 1 and level 2. When we get to level
3 and beyond, we need to be able to judge the effectiveness of our investments
not only on our shareholders but also our value chain partners. RONA is still
a good measure, but there is another useful indicator � economic value added
(EVA), which factors in the cost of capital for the different players in the value
chain.
EVA is a measure of true financial performance, with particular emphasis
on the efficient use of capital, that corrects distortions caused by anomalies in
generally accepted accounting principles and takes account of the cost of all
capital invested in an enterprise, including equity. More than any other traditional
financial measure, EVA provides the highest correlation between corporate
performance and increase in shareholder value.
EVA will increase if one or all of the following strategies are adopted:
_ Operating profits are grown without additional capital investment.
_ New capital is invested in any and all projects that earn more than the
cost of capital.
_ Capital is diverted from business assets that do not cover their cost of
investment.
EVA is calculated by multiplying the economic book value of a firm�s
capital by the difference between the return on capital (r) and the cost of capital
(c):
prise processes and create what amounts to a value chain P&L account and
balance sheet, by adding up the P&L and balance sheets of the constituent parts.
The judgment on increasing overall performance can now be made using EVA
as the overarching value chain metric. Managing transactions in this environment
is reasonably straightforward: cash flows from the final customer back
along the value chain. The major consideration is the profit taken by each
company at each stage.
Funding decisions are more complex, as shown in Figure 3.9. To maximize
value in the whole network, it is quite likely that an investment made by one
company, say Company A, results in value in a second, Company C, farther
down the network. Of course, the investments will be in improving the processes
that cross the boundaries between the partners. An investment in equipment
to improve the Make process in A may result in the reduction of material
costs for the Source process of C. Until the thinking of level 4 and 5 comes
into play, there are barriers to making this type of investment. There must be
trust between the value chain partners that value will be shared, and there needs
to be a mechanism in place to calculate the value and share it.
GETTING BEYOND THE SUPPLY CHAIN ROADBLOCKS
With a determination to not only pursue supply chain excellence but also to
reflect the results through meaningful financial improvements, the firm is prepared
to further consider its progress through the five levels of the supply chain
maturity model. Now we consider the changes that an enterprise must make as
it moves from an entry-level position and begins to ready itself for the advanced
levels of supply chain management. With adequate attention directed to the
necessities of level 1, the firm can develop early savings, which can be traced
to the financial statements and used to fund later efforts. The requirements in
this part of the evolution are also essential for getting the firm ready for the
use of business process management (BPM) and BPM systems, the tools of
integration that will be applied across the value network that is eventually
created.
Critical to this first level is the need for the business to gain control of its
internal processes, so there is an adequate level of collaboration within the
company�s four walls. Then the total leverage of the business can be put to
use to gain maximum business advantages across an extended enterprise. Getting
the house in order so that the greatest overall network benefits are achieved
is one of the supply chain absolutes, a necessity for best success. Any chance
of optimizing the end-to-end business processes in the extended enterprise
begins inside the firm. That is an extremely elusive concept for some business
organizations.
Let us be clear about one point. Not every firm embraces supply chain
management as a necessary business initiative, nor do some organizations and
people accept the essential tenets of using collaboration and technology as the
enablers to gaining the advanced positions. We have encountered many people
in a number of industries where the existing business model and internal cultures
are so steeped in lack of trust and fierce independence � between business
units, functions, and parts of the hierarchy � that becoming prepared for supply
chain management and using BPM to reach advanced levels, with the help of
key external business allies, is virtually impossible. Content to apply timehonored
practices, for example, which dramatically limit information transfer
within the company and virtually exclude such transfer to external business
allies, these companies and their leaders constantly work on local optimization
efforts. Refusal to cooperate on projects that require the combining of resources
and focusing on the firm�s full leverage is another great inhibitor to progress.
Such attitudes and positions become the major problems to the advancement we
will discuss.
reflect the results through meaningful financial improvements, the firm is prepared
to further consider its progress through the five levels of the supply chain
maturity model. Now we consider the changes that an enterprise must make as
it moves from an entry-level position and begins to ready itself for the advanced
levels of supply chain management. With adequate attention directed to the
necessities of level 1, the firm can develop early savings, which can be traced
to the financial statements and used to fund later efforts. The requirements in
this part of the evolution are also essential for getting the firm ready for the
use of business process management (BPM) and BPM systems, the tools of
integration that will be applied across the value network that is eventually
created.
Critical to this first level is the need for the business to gain control of its
internal processes, so there is an adequate level of collaboration within the
company�s four walls. Then the total leverage of the business can be put to
use to gain maximum business advantages across an extended enterprise. Getting
the house in order so that the greatest overall network benefits are achieved
is one of the supply chain absolutes, a necessity for best success. Any chance
of optimizing the end-to-end business processes in the extended enterprise
begins inside the firm. That is an extremely elusive concept for some business
organizations.
Let us be clear about one point. Not every firm embraces supply chain
management as a necessary business initiative, nor do some organizations and
people accept the essential tenets of using collaboration and technology as the
enablers to gaining the advanced positions. We have encountered many people
in a number of industries where the existing business model and internal cultures
are so steeped in lack of trust and fierce independence � between business
units, functions, and parts of the hierarchy � that becoming prepared for supply
chain management and using BPM to reach advanced levels, with the help of
key external business allies, is virtually impossible. Content to apply timehonored
practices, for example, which dramatically limit information transfer
within the company and virtually exclude such transfer to external business
allies, these companies and their leaders constantly work on local optimization
efforts. Refusal to cooperate on projects that require the combining of resources
and focusing on the firm�s full leverage is another great inhibitor to progress.
Such attitudes and positions become the major problems to the advancement we
will discuss.
THE IT DEPARTMENT NEEDS TO ASSUME A NEW AND IMPORTANT ROLE
To support this advanced level of effort, another important transformation must
take place. The new view for members of the IT department is to move from
being a cost center to being a strategic partner and help find and validate the
improvements. They must also help manage IT investments so that there is a
credible return on those investments. Finally, they need to help the firm respond
to actual market demands through the most effective knowledge transfer system.
This means that IT projects need to be aligned with business plans and goals
and not be stand-alone efforts. Using business process management systems, IT
must take the lead in developing the inter-enterprise knowledge sharing we have
been discussing.
Within the framework we have presented, it is possible to assign responsibility
for improvement and to track the enhancements directly to the P&L statement
and the balance sheet. Doing so requires establishing the criteria of importance
to be captured, roles and responsibilities for execution, and a tracking mechanism
that verifies the benefits achieved. We have outlined a procedure for
accomplishing these objectives. In the following chapters, we will further illustrate
how actual benefits can be achieved through each level of the maturity
model. Actual case studies, supplemented with the enabling technology, will be
used to validate that what we have suggested is feasible.
take place. The new view for members of the IT department is to move from
being a cost center to being a strategic partner and help find and validate the
improvements. They must also help manage IT investments so that there is a
credible return on those investments. Finally, they need to help the firm respond
to actual market demands through the most effective knowledge transfer system.
This means that IT projects need to be aligned with business plans and goals
and not be stand-alone efforts. Using business process management systems, IT
must take the lead in developing the inter-enterprise knowledge sharing we have
been discussing.
Within the framework we have presented, it is possible to assign responsibility
for improvement and to track the enhancements directly to the P&L statement
and the balance sheet. Doing so requires establishing the criteria of importance
to be captured, roles and responsibilities for execution, and a tracking mechanism
that verifies the benefits achieved. We have outlined a procedure for
accomplishing these objectives. In the following chapters, we will further illustrate
how actual benefits can be achieved through each level of the maturity
model. Actual case studies, supplemented with the enabling technology, will be
used to validate that what we have suggested is feasible.
SETTING THE AGENDA: CURRENT AND DESIRED LEVELS OF PROCESS MATURITY
We now have all the tools we need to set the direction and priorities for
improving the maturity of the business processes. Figure 3.14 shows a simple
model used to illustrate the current and desired levels of process maturity.
Current levels are the province of each company�s management. The recent
surveys done by CSC and Supply Chain Management Review suggest that few
companies rate themselves much beyond level 3 in their current state of development.
The assessment of the desired levels of process maturity is driven by
a number of features, in particular:
_ The value that can be driven out by investing in greater maturity
_ Market pressures that demand levels of customer service
_ Responsiveness that can only be achieved by more collaboration
Now we know where we are and the destination we want to achieve. Next
we need some view of costs and time scales. The technology maturity matrices
that were presented in Chapter 1 give part of the view of the likely costs and
time scales to achieve the desired levels of maturity. The additional costs are
those of the effort required to introduce the changes.
The process of analysis now enables us to establish a likely net contribution
of value from the increasing maturity of each process based on:
_ Value created, from the process maturity transition matrix
_ The likely cost of delivering the supporting technology, from the technology
maturity value matrix
With the rough order-of-magnitude costs and benefits, we can establish a
supply chain process transformation program that is:
_ Value based
_ Prioritized
_ Time based
improving the maturity of the business processes. Figure 3.14 shows a simple
model used to illustrate the current and desired levels of process maturity.
Current levels are the province of each company�s management. The recent
surveys done by CSC and Supply Chain Management Review suggest that few
companies rate themselves much beyond level 3 in their current state of development.
The assessment of the desired levels of process maturity is driven by
a number of features, in particular:
_ The value that can be driven out by investing in greater maturity
_ Market pressures that demand levels of customer service
_ Responsiveness that can only be achieved by more collaboration
Now we know where we are and the destination we want to achieve. Next
we need some view of costs and time scales. The technology maturity matrices
that were presented in Chapter 1 give part of the view of the likely costs and
time scales to achieve the desired levels of maturity. The additional costs are
those of the effort required to introduce the changes.
The process of analysis now enables us to establish a likely net contribution
of value from the increasing maturity of each process based on:
_ Value created, from the process maturity transition matrix
_ The likely cost of delivering the supporting technology, from the technology
maturity value matrix
With the rough order-of-magnitude costs and benefits, we can establish a
supply chain process transformation program that is:
_ Value based
_ Prioritized
_ Time based
Virtual hosting is a method that servers such as web servers use to host more than one domain name on the same computer sometimes on the same IP address Virtual web hosting is one of the most popular hosting options available at the moment probably because it is one of the most cost effective options on the market Also known as shared web hosting, virtual hosting allows a website owner to have a site hosted on a web server that is shared with other websites In simple terms the virtual hosting company server will allocate out hosting services and bandwidth to more than one website. Virtual web hosting is a good solution for small to medium sized websites that aren constantly being visited or that have reasonable bandwidth needs.Name-based virtual hosts use multiple host names for the same webserver IP address With web browsers that support HTTP/1.1 upon connecting to a webserver the browsers send the address that the user typed into their browsers address bar The server can use this information to determine which web site, as well as page to show the user. The browser specifies the address by setting the Host HTTP header with the host specified by the user The Host header is required in all HTTP/1.1 requests.
A server could be receiving requests for two domains, www.site1.com and www.site2.com, both of which resolve to the same IP address. For www.site1.com, the server would send the HTML file from the directory /var/www/user/Joe/site/, while requests for www.site2.com would make the server serve pages from /var/www/user/Mary/site/.If the Domain Name System (DNS) is not properly functioning, it becomes much harder to access a virtually-hosted website. The user could try to fall back to using the IP address to contact the system the web browser doesn't know which hostname to use when this happens; moreover, since the web server relies on the web browser client telling it what server name (vhost) to use, the server will respond with a default website�often not the site the user expects.A workaround in this case is to add the IP address and hostname to the client system's hosts file. Accessing the server with the domain name should work again. Users should be careful when doing this, however, as any changes to the true mapping between hostname and IP address will be overridden by the local setting. This workaround is not really useful for an average web user but may be of some use to a site administrator while fixing DNS records.
Another issue with virtual hosting is the inability to host multiple secure websites running Secure Sockets Layer or SSL. Because the SSL handshake takes place before the expected hostname is sent to the server, the server doesn't know which certificate to present when the connection is made. One workaround is to run multiple web server programs, each listening to a different incoming port, which still allows the system to just use a single IP address. If running multiple web server programs is considered clumsy, a more efficient solution is to select TLS Another option is to do IP aliasing, where a single computer listens on more than one IP address.
A server could be receiving requests for two domains, www.site1.com and www.site2.com, both of which resolve to the same IP address. For www.site1.com, the server would send the HTML file from the directory /var/www/user/Joe/site/, while requests for www.site2.com would make the server serve pages from /var/www/user/Mary/site/.If the Domain Name System (DNS) is not properly functioning, it becomes much harder to access a virtually-hosted website. The user could try to fall back to using the IP address to contact the system the web browser doesn't know which hostname to use when this happens; moreover, since the web server relies on the web browser client telling it what server name (vhost) to use, the server will respond with a default website�often not the site the user expects.A workaround in this case is to add the IP address and hostname to the client system's hosts file. Accessing the server with the domain name should work again. Users should be careful when doing this, however, as any changes to the true mapping between hostname and IP address will be overridden by the local setting. This workaround is not really useful for an average web user but may be of some use to a site administrator while fixing DNS records.
Another issue with virtual hosting is the inability to host multiple secure websites running Secure Sockets Layer or SSL. Because the SSL handshake takes place before the expected hostname is sent to the server, the server doesn't know which certificate to present when the connection is made. One workaround is to run multiple web server programs, each listening to a different incoming port, which still allows the system to just use a single IP address. If running multiple web server programs is considered clumsy, a more efficient solution is to select TLS Another option is to do IP aliasing, where a single computer listens on more than one IP address.
BEGIN WITH PROCESS CHANGES THAT ADD VALUE
As the firm does embark on its supply chain management journey, it invariably
initiates a search for immediate improvement to areas that offer financial gain.
To assist this effort, process maps are drawn detailing the important process for
whatever is defined as the end-to-end business. Most of these maps are developed
on an individual business unit basis, which is very acceptable for early
efforts. Using current modeling tools, as described by Poirier (2004), the firm
can move forward to implementing the enhancements in the areas of greatest
importance. The early gains confirm the potential of a supply chain effort, but
eventually lead to the need for cross-organizational collaboration.
This effort generally gets off to a good start, because of the potential benefits
that can be achieved. The secret is to make certain the major cultural inhibitors
are overcome, so the progress can continue to higher levels. As mentioned, the
survey conducted by CSC and Supply Chain Management Review verifies that
most firms do make early gains and can document financial gains, but get
bogged down in the middle of the effort. As the recommended steps are discussed,
we will take care to point out the more salient inhibitors we have
encountered and the solutions that aid progress.
There we
see that the firm analyzes its business processes and begins an attempt to
improve those that have the greatest opportunity for short-term improvement
and financial impact. Building a business case for making such an effort is done
next as the firm attempts to improve both efficiency and effectiveness across
the highlighted processes. The important considerations must be oriented around
taking a process view of running the business, a step often missed in early
efforts. With a high-level plan established, the firm can then begin working on
process redesign and process automation, where appropriate.
Starting on the inside requires some basic understanding. To begin, the need
for collaboration, or the ability to work jointly with others or together, especially
in an intellectual effort for the greater benefit of the overall business, is
crucial. Supply chain progress is not lacking because of an absence of tools,
brains, or effort. It lags in many firms because of a lack of cooperation between
parties that have the ability to help each other. Our advice is to begin by
selecting one of the more progressive business units or functions within the
business and build successful implementations, requiring some form of intra-
initiates a search for immediate improvement to areas that offer financial gain.
To assist this effort, process maps are drawn detailing the important process for
whatever is defined as the end-to-end business. Most of these maps are developed
on an individual business unit basis, which is very acceptable for early
efforts. Using current modeling tools, as described by Poirier (2004), the firm
can move forward to implementing the enhancements in the areas of greatest
importance. The early gains confirm the potential of a supply chain effort, but
eventually lead to the need for cross-organizational collaboration.
This effort generally gets off to a good start, because of the potential benefits
that can be achieved. The secret is to make certain the major cultural inhibitors
are overcome, so the progress can continue to higher levels. As mentioned, the
survey conducted by CSC and Supply Chain Management Review verifies that
most firms do make early gains and can document financial gains, but get
bogged down in the middle of the effort. As the recommended steps are discussed,
we will take care to point out the more salient inhibitors we have
encountered and the solutions that aid progress.
There we
see that the firm analyzes its business processes and begins an attempt to
improve those that have the greatest opportunity for short-term improvement
and financial impact. Building a business case for making such an effort is done
next as the firm attempts to improve both efficiency and effectiveness across
the highlighted processes. The important considerations must be oriented around
taking a process view of running the business, a step often missed in early
efforts. With a high-level plan established, the firm can then begin working on
process redesign and process automation, where appropriate.
Starting on the inside requires some basic understanding. To begin, the need
for collaboration, or the ability to work jointly with others or together, especially
in an intellectual effort for the greater benefit of the overall business, is
crucial. Supply chain progress is not lacking because of an absence of tools,
brains, or effort. It lags in many firms because of a lack of cooperation between
parties that have the ability to help each other. Our advice is to begin by
selecting one of the more progressive business units or functions within the
business and build successful implementations, requiring some form of intra-
SEGMENTING THE ORGANIZATION INTO ITS HORIZONTAL COMPONENTS
So how does this phase of the effort progress? Step 1 is to identify the horizontal
components of the organization, using a technique called supply chain mapping.
By mapping the product flows and assets used, self-contained product families
can be identified. These families will form the basis of the new organization
structure.
Each map proved to be a self-contained business within the
overall business. The products in each map used a unique set of assets and thus
could be managed in isolation from other product families. In this way, the firm
identified the organizational components of its new business model.
With the elements of the new organizational structure identified, the business
can establish the key metrics that govern each product family � a mixture
of financial and nonfinancial measures. Nonfinancial measures include such
elements as:
_ Lead time
_ On-time delivery and fill rate
_ Customer service measurements
_ Sales forecast accuracy
_ Stock record accuracy
The financial measures are, of course, the profit and loss account and balance
sheet for the product family, together with the return on net assets (RONA)
calculation that becomes possible. Figure 4.5 shows the product family �dashboard�
that became the governing reference for changes at Clarks. In this case,
the firm decided to segment its business by sectors and major product lines. The
key performance indicators were then arrayed against each major sector so that
performance could be easily monitored across the internal organization. Similar
dashboards could be constructed for other firms in other industries with the
pertinent metrics.
To effect real collaboration within a
business organization, the best practices attained by various business units or
functions must be shared across the firm, resulting in at least optimized internal
processing. The four key roles in the new horizontal organization are:
_ Product family owner � A determination of who holds responsibility
for the processes associated with each particular product within the
portfolio
_ Process owner � A further determination of who is responsible for the
key process steps across the end-to-end value chain associated with the
individual products
_ Skill owner � Identification of those people who possess the necessary
skills to reengineer the processes involved and collaborate with other
parties to bring the enhanced processes as close to optimization as
possible
_ Channel to market owner � An often overlooked role, in which the
people necessary to assure the efficient delivery of products and services
are identified and their channels to market explicitly identified, so that
optimized conditions can again be pursued
components of the organization, using a technique called supply chain mapping.
By mapping the product flows and assets used, self-contained product families
can be identified. These families will form the basis of the new organization
structure.
Each map proved to be a self-contained business within the
overall business. The products in each map used a unique set of assets and thus
could be managed in isolation from other product families. In this way, the firm
identified the organizational components of its new business model.
With the elements of the new organizational structure identified, the business
can establish the key metrics that govern each product family � a mixture
of financial and nonfinancial measures. Nonfinancial measures include such
elements as:
_ Lead time
_ On-time delivery and fill rate
_ Customer service measurements
_ Sales forecast accuracy
_ Stock record accuracy
The financial measures are, of course, the profit and loss account and balance
sheet for the product family, together with the return on net assets (RONA)
calculation that becomes possible. Figure 4.5 shows the product family �dashboard�
that became the governing reference for changes at Clarks. In this case,
the firm decided to segment its business by sectors and major product lines. The
key performance indicators were then arrayed against each major sector so that
performance could be easily monitored across the internal organization. Similar
dashboards could be constructed for other firms in other industries with the
pertinent metrics.
To effect real collaboration within a
business organization, the best practices attained by various business units or
functions must be shared across the firm, resulting in at least optimized internal
processing. The four key roles in the new horizontal organization are:
_ Product family owner � A determination of who holds responsibility
for the processes associated with each particular product within the
portfolio
_ Process owner � A further determination of who is responsible for the
key process steps across the end-to-end value chain associated with the
individual products
_ Skill owner � Identification of those people who possess the necessary
skills to reengineer the processes involved and collaborate with other
parties to bring the enhanced processes as close to optimization as
possible
_ Channel to market owner � An often overlooked role, in which the
people necessary to assure the efficient delivery of products and services
are identified and their channels to market explicitly identified, so that
optimized conditions can again be pursued
webhosting methos in business management
Multi-page, commercial Web sites are hosted at a very wide range of prices, and the customer's registered domain name is used. A single computer can hold dozens to hundreds of small Web sites, while a dedicated computer or multiple computers may be used for one large Web site.In IP-based virtual hosting each site points to a unique IP address. The web server is configured with multiple physical network interfaces, virtual network interfaces on the same physical interface or multiple IP addresses on one interface.The web server can obtain the address the TCP connection was intended for using a standard API and use this to determine which website to serve. The client is not involved in this process and therefore there are no compatibility issues.
The default port number for HTTP is 80. However, most webservers can be configured to operate on almost any port number, provided the port number is not in use by any other program on the server.
For instance, a server may host the website www.example.com. However, if they wish to operate a second site, do not have access to the domain name configuration for their domain name, and/or own no other IP addresses which they could use to serve the site from, they could instead use another port number, for example, www.example.com:81 for port 81, or www.example.com:8000 for port 8,000.
Virtual web hosting is often used on large scale in companies whose business model is to provide low cost website hosting for customers. The vast majority of such web hosting service customer websites worldwide are hosted on shared servers, using virtual hosting technology.Many businesses utilize virtual servers for internal purposes, where there is a technology or administrative reason to keep several separate websites such as customer extranet website, employee extranet, internal intranet, intranets for different departments If there are not security concerns in the website architectures, they can be merged into a single server using virtual hosting technology, which reduces management and administrative overhead and the number of separate servers required to support the business Making a Web site available on the Internet.
The default port number for HTTP is 80. However, most webservers can be configured to operate on almost any port number, provided the port number is not in use by any other program on the server.
For instance, a server may host the website www.example.com. However, if they wish to operate a second site, do not have access to the domain name configuration for their domain name, and/or own no other IP addresses which they could use to serve the site from, they could instead use another port number, for example, www.example.com:81 for port 81, or www.example.com:8000 for port 8,000.
Virtual web hosting is often used on large scale in companies whose business model is to provide low cost website hosting for customers. The vast majority of such web hosting service customer websites worldwide are hosted on shared servers, using virtual hosting technology.Many businesses utilize virtual servers for internal purposes, where there is a technology or administrative reason to keep several separate websites such as customer extranet website, employee extranet, internal intranet, intranets for different departments If there are not security concerns in the website architectures, they can be merged into a single server using virtual hosting technology, which reduces management and administrative overhead and the number of separate servers required to support the business Making a Web site available on the Internet.
OVERCOMING THE OBSTACLES
So what gets in the way of planning across the supply chain in this manner?
The first major issue is the existing organization and its traditional cultural
imperatives. Reporting lines into the old functional organization get in the way
of pan-supply-chain thinking. Putting together a change team, with a group
target that cuts across all existing reporting lines, requires careful selling to the
existing management, to achieve alignment toward execution. At Zeneca, at no
time during the exercise did that present any problem at all. Everyone was kept
fully aware of what we were doing and what the team�s objectives were, and
this was sufficient to free up the operation.
The second issue is that most of the information in the level 1 business is
held by function. There is no supply chain information collected together to give
an overview of what is happening to this whole piece of the business. Supply
chain maps help to overcome this, presenting information in an organized way
that people can readily understand, challenge, and work with. The initial reaction
to a supply chain map is often disbelief. Never having seen a picture of
an entire supply chain laid out like this, there is often a reluctance to accept
that there is that much inventory and the lead times are as long as the map
indicates!
Often, the first stage of the process of improvement is to go back into all
the numbers represented on the map and confirm that they really are accurate.
The more they are poked, the more robust the numbers prove to be � and so
we move from disbelief to acceptance! The more there is acceptance, the greater
the alignment behind the necessary process changes and business transformation
will be.
Moving Source from level 1 to level 2 is a similar exercise in pan-supply-chain
thinking. Again, the key is to run the Source process for the good of the whole
chain, not just the local performance of the purchasing department or a particular
business unit. Level 1 sourcing is characterized by such issues as a tactical
focus on price, fragmented spending, a decentralized procurement organization,
lack of knowledge for spend categorization, and minimal authority within the
procurement organization.
With a pan-supply-chain view, Source can begin to manage commodities
across the enterprise, unlocking economies of scale. This is often coupled with
a rationalization of the supplier base, so that more time can be devoted to
negotiations with individual suppliers, already beginning to look beyond level
2, to level 3 collaboration. The characteristics now change toward a focus on
total cost, the organization becoming a hybrid decentralized/centralized model,
an increasing knowledge of spend categorization throughout the organization,
and a move toward achieving some level of authority within the procurement
organization.
Boeing, following its acquisition of Rockwell and McDonnell Douglas,
formed a shared services group to manage $3.5 billion of nonproduction purchases.
A global e-procurement system to establish compliance was a feature
of this effort. Airbus is another example from the world of aerospace. Airbus
was created from a consortium of companies from four European countries. In
2004, it produced and delivered more commercial aircraft than any other company,
including Boeing. It is currently developing the world�s largest passenger
aircraft, the A380, due in service in 2006. In order to maintain its current
competitor advantage, it targeted a significant reduction in the total cost of
production. Key to achieving this intention is the effectiveness with which it
manages its suppliers. The Airbus Sup@irworld program and a single supplier
database and set of interfaces are a key part of this effort. In particular, Airbus
The first major issue is the existing organization and its traditional cultural
imperatives. Reporting lines into the old functional organization get in the way
of pan-supply-chain thinking. Putting together a change team, with a group
target that cuts across all existing reporting lines, requires careful selling to the
existing management, to achieve alignment toward execution. At Zeneca, at no
time during the exercise did that present any problem at all. Everyone was kept
fully aware of what we were doing and what the team�s objectives were, and
this was sufficient to free up the operation.
The second issue is that most of the information in the level 1 business is
held by function. There is no supply chain information collected together to give
an overview of what is happening to this whole piece of the business. Supply
chain maps help to overcome this, presenting information in an organized way
that people can readily understand, challenge, and work with. The initial reaction
to a supply chain map is often disbelief. Never having seen a picture of
an entire supply chain laid out like this, there is often a reluctance to accept
that there is that much inventory and the lead times are as long as the map
indicates!
Often, the first stage of the process of improvement is to go back into all
the numbers represented on the map and confirm that they really are accurate.
The more they are poked, the more robust the numbers prove to be � and so
we move from disbelief to acceptance! The more there is acceptance, the greater
the alignment behind the necessary process changes and business transformation
will be.
Moving Source from level 1 to level 2 is a similar exercise in pan-supply-chain
thinking. Again, the key is to run the Source process for the good of the whole
chain, not just the local performance of the purchasing department or a particular
business unit. Level 1 sourcing is characterized by such issues as a tactical
focus on price, fragmented spending, a decentralized procurement organization,
lack of knowledge for spend categorization, and minimal authority within the
procurement organization.
With a pan-supply-chain view, Source can begin to manage commodities
across the enterprise, unlocking economies of scale. This is often coupled with
a rationalization of the supplier base, so that more time can be devoted to
negotiations with individual suppliers, already beginning to look beyond level
2, to level 3 collaboration. The characteristics now change toward a focus on
total cost, the organization becoming a hybrid decentralized/centralized model,
an increasing knowledge of spend categorization throughout the organization,
and a move toward achieving some level of authority within the procurement
organization.
Boeing, following its acquisition of Rockwell and McDonnell Douglas,
formed a shared services group to manage $3.5 billion of nonproduction purchases.
A global e-procurement system to establish compliance was a feature
of this effort. Airbus is another example from the world of aerospace. Airbus
was created from a consortium of companies from four European countries. In
2004, it produced and delivered more commercial aircraft than any other company,
including Boeing. It is currently developing the world�s largest passenger
aircraft, the A380, due in service in 2006. In order to maintain its current
competitor advantage, it targeted a significant reduction in the total cost of
production. Key to achieving this intention is the effectiveness with which it
manages its suppliers. The Airbus Sup@irworld program and a single supplier
database and set of interfaces are a key part of this effort. In particular, Airbus
STARTING THE PROCESS OF CHANGE AND PLAN
With this background awareness, the firm can start to design the way it wants
the business to work � the new processes and supporting information technology
� with a set of metrics to judge the impact of the changes, not just on each
function but across the whole product family supply chain. No two companies
approach these changes in the same way, but the effects of moving from level
1 to level 2 are marked and produce similar results. We will look at each of
the major processes in turn, beginning with Plan.
The Plan process is perhaps the one that shows the most marked change from
level 1 to level 2. This is the first step along the integrated supply chain, as
functions begin to plan their activities jointly.
Specific functions and
business units, with few integrated processes, carry out demand and supply
planning at level 1 internally. Production plans and inventory plans, for example,
would be carried out plant by plant � based on local forecasts of
demand and buffered at each stage by inventory. Often, purchasing decisions
would be taken on the basis of local purchasing performance measures (least
unit cost, for example), with little consideration of the impact of that decision
on the overall performance of the internal supply chain.
Level 2 shows a marked difference. Now the upstream activities are planned
against the same demand forecasts as those produced through the downstreamside,
customer-facing activities. Inventory is planned strategically across the
whole chain, balancing holding costs against usability and lead time. Ideally,
inventory would be held as far upstream as possible, because that makes it most
flexible in its end use, and as far downstream as possible to meet customer lead
time targets. Somewhere in the middle is a balance point at which RONA is
maximized
The upstream processes were de-bottlenecked, by managing changeovers in
a more effective way. This change entailed some capital investment. It allowed
the team to move away from steady manufacture, in large batches sometimes
running for many weeks, toward short cycle manufacture, responsive to demand
in the rest of the chain. This change minimized the necessary stock build.
The team came up with preconceived ideas about what process changes
would and would not be allowed. The most significant of these concepts was
the belief that the board would not approve the capital expenditure needed to
de-bottleneck part of the active ingredient plant, at a cost of perhaps �500,000.
This disbelief was put aside by using the RONA model, which showed that the
payback from the investment would be cash positive throughout the effort and
would also have a positive impact on both the inventory and RONA in the
supply chain.
Inventory could now be managed across the whole supply chain, taking
account of the capacities and lead times throughout the linked processes. The
right levels of raw materials, upstream intermediate materials, and finished
goods could be held in the right balance and adjusted as the seasonal demand
changed. The overall level was reduced dramatically, resulting in a much leaner,
more responsive supply chain. Local initiatives were put into the context of the
whole chain to avoid double-counting stock and capacity buffers. Once again,
planning across the stages in the internal supply chain made a dramatic difference
in the way the operations were perceived, with a huge positive impact on
RONA for the product family.
the business to work � the new processes and supporting information technology
� with a set of metrics to judge the impact of the changes, not just on each
function but across the whole product family supply chain. No two companies
approach these changes in the same way, but the effects of moving from level
1 to level 2 are marked and produce similar results. We will look at each of
the major processes in turn, beginning with Plan.
The Plan process is perhaps the one that shows the most marked change from
level 1 to level 2. This is the first step along the integrated supply chain, as
functions begin to plan their activities jointly.
Specific functions and
business units, with few integrated processes, carry out demand and supply
planning at level 1 internally. Production plans and inventory plans, for example,
would be carried out plant by plant � based on local forecasts of
demand and buffered at each stage by inventory. Often, purchasing decisions
would be taken on the basis of local purchasing performance measures (least
unit cost, for example), with little consideration of the impact of that decision
on the overall performance of the internal supply chain.
Level 2 shows a marked difference. Now the upstream activities are planned
against the same demand forecasts as those produced through the downstreamside,
customer-facing activities. Inventory is planned strategically across the
whole chain, balancing holding costs against usability and lead time. Ideally,
inventory would be held as far upstream as possible, because that makes it most
flexible in its end use, and as far downstream as possible to meet customer lead
time targets. Somewhere in the middle is a balance point at which RONA is
maximized
The upstream processes were de-bottlenecked, by managing changeovers in
a more effective way. This change entailed some capital investment. It allowed
the team to move away from steady manufacture, in large batches sometimes
running for many weeks, toward short cycle manufacture, responsive to demand
in the rest of the chain. This change minimized the necessary stock build.
The team came up with preconceived ideas about what process changes
would and would not be allowed. The most significant of these concepts was
the belief that the board would not approve the capital expenditure needed to
de-bottleneck part of the active ingredient plant, at a cost of perhaps �500,000.
This disbelief was put aside by using the RONA model, which showed that the
payback from the investment would be cash positive throughout the effort and
would also have a positive impact on both the inventory and RONA in the
supply chain.
Inventory could now be managed across the whole supply chain, taking
account of the capacities and lead times throughout the linked processes. The
right levels of raw materials, upstream intermediate materials, and finished
goods could be held in the right balance and adjusted as the seasonal demand
changed. The overall level was reduced dramatically, resulting in a much leaner,
more responsive supply chain. Local initiatives were put into the context of the
whole chain to avoid double-counting stock and capacity buffers. Once again,
planning across the stages in the internal supply chain made a dramatic difference
in the way the operations were perceived, with a huge positive impact on
RONA for the product family.
MOVING EFFECTIVELY TO ADVANCED LEVELS OF PROGRESS
As the business firm overcomes the pitfalls encountered in the early levels of
its supply chain progress and has its internal house in order, in terms of its
ability to develop and share best processing electronically and on an intraenterprise
basis, the transition to higher levels can occur. Now the firm moves,
with the help of a few carefully selected business allies, into an extended
enterprise or network environment, in search of higher orders of improvement,
which can bring additional benefits/values to all participants. Mattel, Inc. found
higher values in its network, when that toy maker used the Internet with the help
of designers and licensees to collaborate on new product design. The firm
moved design on-line so that virtual models of new products could be transferred
electronically, instead of through the usual manual system. Development
time was reduced by 20%. By digitizing and automating the transfer of information
between Mattel and its licensees, the company found that approvals
could be accomplished in 5 five weeks, instead of the normal 14.
Unfortunately, the idea of network collaboration does not come easily for
most organizations, nor does the technical means to facilitate such cooperation.
Indeed, the concept of creating greater value through an intelligent value network
can be elusive. In today�s business environment, selling value is an extremely
difficult job, as there are few people who understand the idea or will
expend resources to develop these values. Those willing to do so generally
reside at high levels in a few firms and are opposed by an army of others with
an incentive to continuously cut costs and save money, generally at the expense
of willing suppliers. It takes a strong-willed business leader, and supportive
supply chain managers with the help of information technology, to forge ahead
in the face of such obstacles. Lockheed Martin pushed forward in this area and
linked 80 of its major global suppliers into a network for designing and building
a new stealth fighter plane. As part of a $225 billion project, the firm is linking
a global network with real-time access so the key suppliers can work simultaneously
with other global partners. The expected savings could reach $250
million over the ten-year life of the project.
its supply chain progress and has its internal house in order, in terms of its
ability to develop and share best processing electronically and on an intraenterprise
basis, the transition to higher levels can occur. Now the firm moves,
with the help of a few carefully selected business allies, into an extended
enterprise or network environment, in search of higher orders of improvement,
which can bring additional benefits/values to all participants. Mattel, Inc. found
higher values in its network, when that toy maker used the Internet with the help
of designers and licensees to collaborate on new product design. The firm
moved design on-line so that virtual models of new products could be transferred
electronically, instead of through the usual manual system. Development
time was reduced by 20%. By digitizing and automating the transfer of information
between Mattel and its licensees, the company found that approvals
could be accomplished in 5 five weeks, instead of the normal 14.
Unfortunately, the idea of network collaboration does not come easily for
most organizations, nor does the technical means to facilitate such cooperation.
Indeed, the concept of creating greater value through an intelligent value network
can be elusive. In today�s business environment, selling value is an extremely
difficult job, as there are few people who understand the idea or will
expend resources to develop these values. Those willing to do so generally
reside at high levels in a few firms and are opposed by an army of others with
an incentive to continuously cut costs and save money, generally at the expense
of willing suppliers. It takes a strong-willed business leader, and supportive
supply chain managers with the help of information technology, to forge ahead
in the face of such obstacles. Lockheed Martin pushed forward in this area and
linked 80 of its major global suppliers into a network for designing and building
a new stealth fighter plane. As part of a $225 billion project, the firm is linking
a global network with real-time access so the key suppliers can work simultaneously
with other global partners. The expected savings could reach $250
million over the ten-year life of the project.
MAKE, DELIVER, AND RETURN
A similar story unfolds as we look at the other key processes, as they move from
level 1 to level 2. In each case, we see the traditional isolation of functional
organization, driven by local performance measurement, giving way to activities
planned and executed in the full recognition of the impact they have on the
rest of the enterprise. This often benefits the traditional function more than
people would admit, as they are asked to give up what they often see as the
�right way to do things� or �the way it�s always been done.�
One of the most powerful measures in manufacturing has been utilization
� whether manpower or machine. It has taken decades and the concerted
efforts of many leading thinkers to replace this metric with more effective
measures such as schedule adherence. Of course, many now see the fallacy of
working assets even when there is no demand for their output � it just results
in inventory sitting in the system. But the old logic is still seductive!
Take the example of a U.K.-based automotive components manufacturer. It
had installed a new material requirements planning (MRP) system and processes
to provide sales forecasts for procurement and production. Success was
monitored by the level of finished goods inventory and on-time dispatches.
Unfortunately, inventory was higher than it had ever been, and the dispatch
success rate was falling behind dramatically. What went wrong? Analysis soon
revealed that the business had two distinct components � one that provided a
service to in-country customers, with regular, relatively small orders, and another
that provided infrequent, large replenishment orders to overseas agents.
As these order streams were for the same products, the sales forecasts, provided
in good faith by the sales department, always overestimated the regular demand
� causing stock levels to rise. But, of course, there was never enough stock
to cover one of the larger orders � so stock-outs resulted, the regular customers
were starved of stock, and the overseas order was late.
The underlying cause of the problem was level 1 thinking � sales providing
the forecast it thought manufacturing wanted, manufacturing trying to secondguess
the actual demand and playing catch-up to sort out the delivery shortages
at the last minute, and the warehouse showing poor dispatch performance at the
end of the internal supply chain.
Moving the whole situation to level 2 produced the right results and required
changes in the way processes worked across the three functions involved. The
company carried out a detailed root cause analysis of stock, the pattern of recent
sales, and the processes employed. The two separate demand patterns were
recognized through a reclassification of products and customer service goals.
Manufacturing lead times and minimum batch sizes were rebalanced to suit the
market demands that were now recognized. Most importantly, the business
processes for forecasting, production planning, and dispatch were redesigned
and the effects reflected in a reimplementation of the MRP planning tools. The
company realized an increase in product availability in one of its two major
product groups from 62% to 96% with no increase in stock and in the second
an increase from 86% to 96% while reducing stock by 34%. This situation
provides one more impressive result for a change in thinking from level 1 to
level 2.
level 1 to level 2. In each case, we see the traditional isolation of functional
organization, driven by local performance measurement, giving way to activities
planned and executed in the full recognition of the impact they have on the
rest of the enterprise. This often benefits the traditional function more than
people would admit, as they are asked to give up what they often see as the
�right way to do things� or �the way it�s always been done.�
One of the most powerful measures in manufacturing has been utilization
� whether manpower or machine. It has taken decades and the concerted
efforts of many leading thinkers to replace this metric with more effective
measures such as schedule adherence. Of course, many now see the fallacy of
working assets even when there is no demand for their output � it just results
in inventory sitting in the system. But the old logic is still seductive!
Take the example of a U.K.-based automotive components manufacturer. It
had installed a new material requirements planning (MRP) system and processes
to provide sales forecasts for procurement and production. Success was
monitored by the level of finished goods inventory and on-time dispatches.
Unfortunately, inventory was higher than it had ever been, and the dispatch
success rate was falling behind dramatically. What went wrong? Analysis soon
revealed that the business had two distinct components � one that provided a
service to in-country customers, with regular, relatively small orders, and another
that provided infrequent, large replenishment orders to overseas agents.
As these order streams were for the same products, the sales forecasts, provided
in good faith by the sales department, always overestimated the regular demand
� causing stock levels to rise. But, of course, there was never enough stock
to cover one of the larger orders � so stock-outs resulted, the regular customers
were starved of stock, and the overseas order was late.
The underlying cause of the problem was level 1 thinking � sales providing
the forecast it thought manufacturing wanted, manufacturing trying to secondguess
the actual demand and playing catch-up to sort out the delivery shortages
at the last minute, and the warehouse showing poor dispatch performance at the
end of the internal supply chain.
Moving the whole situation to level 2 produced the right results and required
changes in the way processes worked across the three functions involved. The
company carried out a detailed root cause analysis of stock, the pattern of recent
sales, and the processes employed. The two separate demand patterns were
recognized through a reclassification of products and customer service goals.
Manufacturing lead times and minimum batch sizes were rebalanced to suit the
market demands that were now recognized. Most importantly, the business
processes for forecasting, production planning, and dispatch were redesigned
and the effects reflected in a reimplementation of the MRP planning tools. The
company realized an increase in product availability in one of its two major
product groups from 62% to 96% with no increase in stock and in the second
an increase from 86% to 96% while reducing stock by 34%. This situation
provides one more impressive result for a change in thinking from level 1 to
level 2.
RESULTS ARE SIGNIFICANT
The careful sharing of data and knowledge, previously considered proprietary
or even sacrosanct, opens the way for the firm to work its relationships with
the most important and immediate supply chain neighbors � customers, distributors,
and suppliers � to find other hidden values within the extended
enterprise. Organizations willing to take the necessary steps with selected business
allies can reasonably expect to achieve the following results:
_ Shorter lead times and cycle times, often reduced by as much as 40 to
50%
_ Better, more accurate order entry and tracking, requiring far less
reconciliation
_ On-line visibility of raw materials, work in process, and finished goods
across the end-to-end supply chain � with the ability to divert goods
in transit
_ Less need for inventory and safety stocks, coupled with an increase in
inventory turns by as much as four to five times
_ Lower warehousing and transportation costs, resulting in a 5 to 10%
reduction in freight bills
_ New revenue opportunities, often in nontraditional areas
_ A reduction in general, selling, and administrative costs in the range of
5 to 10%
Using business process management (BPM) technology to facilitate this
careful sharing and to find the savings cited introduces a new avenue for process
improvement, typically at the point where most businesses are faced with diminishing
returns from their supply chain efforts.
Collaboration and technology are applied as the external cultural barriers are
subdued and together businesses improve processes and infrastructure in parallel,
as they seek the best possible cycle times for process execution, and the
means to generate new revenues, and better utilize collective assets, ensuring
that the best-able company performs the key process steps. Business process
transformation occurs then in an atmosphere where key customers and suppliers
are contributing directly to the process improvements that enhance performance
across the extended enterprise.
or even sacrosanct, opens the way for the firm to work its relationships with
the most important and immediate supply chain neighbors � customers, distributors,
and suppliers � to find other hidden values within the extended
enterprise. Organizations willing to take the necessary steps with selected business
allies can reasonably expect to achieve the following results:
_ Shorter lead times and cycle times, often reduced by as much as 40 to
50%
_ Better, more accurate order entry and tracking, requiring far less
reconciliation
_ On-line visibility of raw materials, work in process, and finished goods
across the end-to-end supply chain � with the ability to divert goods
in transit
_ Less need for inventory and safety stocks, coupled with an increase in
inventory turns by as much as four to five times
_ Lower warehousing and transportation costs, resulting in a 5 to 10%
reduction in freight bills
_ New revenue opportunities, often in nontraditional areas
_ A reduction in general, selling, and administrative costs in the range of
5 to 10%
Using business process management (BPM) technology to facilitate this
careful sharing and to find the savings cited introduces a new avenue for process
improvement, typically at the point where most businesses are faced with diminishing
returns from their supply chain efforts.
Collaboration and technology are applied as the external cultural barriers are
subdued and together businesses improve processes and infrastructure in parallel,
as they seek the best possible cycle times for process execution, and the
means to generate new revenues, and better utilize collective assets, ensuring
that the best-able company performs the key process steps. Business process
transformation occurs then in an atmosphere where key customers and suppliers
are contributing directly to the process improvements that enhance performance
across the extended enterprise.
COLLABORATION IS BEGINNING TO DEMONSTRATE ITS VALUE
We can see that in spite of the reluctance to work with external business
partners, collaboration can and does occur, as the firm moves through its maturity
model.
Beginning in the inform level, there are a series
of one-way communications set up, primarily to handle design changes, to enter
data through an electronic data interchange system, and to process electronic
funds transfer. In the interact level, the firm breaks down its internal resistance
to cooperation and begins to carefully exchange data important to optimizing
across the full organization with a select group of business allies, often on a
pilot or experimental basis.
As the chasm to level 3 is crossed, the firm enters the transact area and
begins conducting business with some of its external partners on an electronic
basis, usually by linking some part of its planning system with selected business
allies. Further progress becomes difficult, for the reasons cited, particularly the
reluctance to share information externally. Fortunately, some firms prove the
value by making customers, suppliers, and distributors a part of their supply
chain effort, providing services to each other as another means of reaching
optimum conditions across the end-to-end network that forms. In the fifth level,
a community environment is achieved, where the linked firms fully utilize a
collaborative business/operating model for interaction, with elements of
customization, personalization, and community building appearing.
While many firms resist this type of progression, a growing body of evidence
shows that more value is generated as enterprises overcome their normal
proclivity not to collaborate and do share vital information outside of the four
walls defining the firm�s business. Examples where business allies, such as
Tesco and Nestl� or Procter & Gamble and Wal-Mart, share database information
on consumer trends and current market conditions to improve the results
from special sales events form one such basis.
Using electronic collaboration is common practice within the four walls of
Barclays, and Swan intends to extend its use across the firm�s external network,
into the area he calls �the virtual space between [Barclays�] external and internal
firewalls.� The model being employed is one that blends applications ranging
from instant messaging to knowledge management, to introduce a �new breed
of collaboration software and a new level of communication.� The idea is to
allow real-time interaction for employees handling information that can change
in a matter of minutes. The most sophisticated companies, Kontzer reports,
�want to imbed presence awareness � the ability to detect the online status of
others on the network � throughout their networks, so employees can find
available experts without looking away from their screens� (Kontzer, 2003, pp.
29�30).
partners, collaboration can and does occur, as the firm moves through its maturity
model.
Beginning in the inform level, there are a series
of one-way communications set up, primarily to handle design changes, to enter
data through an electronic data interchange system, and to process electronic
funds transfer. In the interact level, the firm breaks down its internal resistance
to cooperation and begins to carefully exchange data important to optimizing
across the full organization with a select group of business allies, often on a
pilot or experimental basis.
As the chasm to level 3 is crossed, the firm enters the transact area and
begins conducting business with some of its external partners on an electronic
basis, usually by linking some part of its planning system with selected business
allies. Further progress becomes difficult, for the reasons cited, particularly the
reluctance to share information externally. Fortunately, some firms prove the
value by making customers, suppliers, and distributors a part of their supply
chain effort, providing services to each other as another means of reaching
optimum conditions across the end-to-end network that forms. In the fifth level,
a community environment is achieved, where the linked firms fully utilize a
collaborative business/operating model for interaction, with elements of
customization, personalization, and community building appearing.
While many firms resist this type of progression, a growing body of evidence
shows that more value is generated as enterprises overcome their normal
proclivity not to collaborate and do share vital information outside of the four
walls defining the firm�s business. Examples where business allies, such as
Tesco and Nestl� or Procter & Gamble and Wal-Mart, share database information
on consumer trends and current market conditions to improve the results
from special sales events form one such basis.
Using electronic collaboration is common practice within the four walls of
Barclays, and Swan intends to extend its use across the firm�s external network,
into the area he calls �the virtual space between [Barclays�] external and internal
firewalls.� The model being employed is one that blends applications ranging
from instant messaging to knowledge management, to introduce a �new breed
of collaboration software and a new level of communication.� The idea is to
allow real-time interaction for employees handling information that can change
in a matter of minutes. The most sophisticated companies, Kontzer reports,
�want to imbed presence awareness � the ability to detect the online status of
others on the network � throughout their networks, so employees can find
available experts without looking away from their screens� (Kontzer, 2003, pp.
29�30).
. BUSINESS PROCESS MANAGEMENT SYSTEMS UNLOCK THE REAL BENEFITS FOR THE SUPPLY CHAIN
Supply chain processes (along with other business processes) can be analyzed
in the context of the organization�s strategic imperatives and evaluated from the
perspective of both strategic importance and complexity and dynamism.
The strategic importance dimension relates to how crucial that process
is in achieving the organization�s competitive strategy. The higher the
rating, the more influence the process has on achieving the strategic
imperative.
_ Complexity is a measure of the number of steps and/or participants in
the process with reference to the number of organizational or departmental
boundaries the process crosses. The greater the number, the more
complex the process.
_ Dynamism is a measure of the frequency of changes to the process that
the organization would ideally want.
_ The complexity and dynamism axis is an aggregation of these two
factors.
The key strategic processes are those in which an enterprise would:
_ Invest most management time and resources
_ Reorganize around, to minimize handoffs and make the processes flow
most efficiently
_ Retain as core to its success and which should remain in-house at all
costs
The processes of least strategic importance are those that may be considered
for alternative sourcing. The processes to the left of the chart are those that
would typically be delivered through packaged solutions. Those in the middle
of the chart would be delivered through work flow and/or rules engines. The
most complex and dynamic processes, to the right of the chart, will, in the short
term, largely remain manual.
An examination of the current and desired future states of the cross-enterprise
processes reveals where the key opportunities lie and shows the prime
targets for joint investment.
Many of the legacy processes prove to be overly complex and receive too
little management attention compared to their strategic importance. The map
immediately shows the priorities for process transformation:
_ Investing in processes according to their strategic importance will ensure
the greatest return in that investment.
_ Eliminating unnecessary process complexity and dynamism will maximize
people�s productivity and reduce both the time to execute and the
number of errors that occur.
in the context of the organization�s strategic imperatives and evaluated from the
perspective of both strategic importance and complexity and dynamism.
The strategic importance dimension relates to how crucial that process
is in achieving the organization�s competitive strategy. The higher the
rating, the more influence the process has on achieving the strategic
imperative.
_ Complexity is a measure of the number of steps and/or participants in
the process with reference to the number of organizational or departmental
boundaries the process crosses. The greater the number, the more
complex the process.
_ Dynamism is a measure of the frequency of changes to the process that
the organization would ideally want.
_ The complexity and dynamism axis is an aggregation of these two
factors.
The key strategic processes are those in which an enterprise would:
_ Invest most management time and resources
_ Reorganize around, to minimize handoffs and make the processes flow
most efficiently
_ Retain as core to its success and which should remain in-house at all
costs
The processes of least strategic importance are those that may be considered
for alternative sourcing. The processes to the left of the chart are those that
would typically be delivered through packaged solutions. Those in the middle
of the chart would be delivered through work flow and/or rules engines. The
most complex and dynamic processes, to the right of the chart, will, in the short
term, largely remain manual.
An examination of the current and desired future states of the cross-enterprise
processes reveals where the key opportunities lie and shows the prime
targets for joint investment.
Many of the legacy processes prove to be overly complex and receive too
little management attention compared to their strategic importance. The map
immediately shows the priorities for process transformation:
_ Investing in processes according to their strategic importance will ensure
the greatest return in that investment.
_ Eliminating unnecessary process complexity and dynamism will maximize
people�s productivity and reduce both the time to execute and the
number of errors that occur.
BUSINESS PROCESS MANAGEMENT BECOMES THE KEY ENABLER AT THIS LEVEL
It is essential, as we describe how new values can be created and shared in level
3 and beyond efforts, that the reader appreciate that there must be an electronic
means of transferring data and knowledge between the collaborating businesses.
Until recently, such transfer was limited by the unwillingness of businesses to
share data externally and because of the disparate systems in which the knowledge
was stored, inhibiting easy access or transfer. BPM and business process
management systems (BPMS) enter this scenario, as firms find the value of
sharing previously secret information and analyzing the data and trends together
to define new business propositions. Connecting enterprise-wide resource planning
systems in a way that allows the participating firms to extract valuable
information, without violating security issues, becomes the breakthrough technique
for building a network response to market and customer needs.
Business agility develops as more than an interesting concept in this level,
when BPM creates the opportunity to quickly and accurately share information
between firms of any size, on a variety of subjects, and align these firms with
business objectives. Document transfer moves from days to seconds, trade
settlements are reduced from 5 days to an hour, build-to-order products are
completed in 24 hours rather than 5 to 6 weeks, and call center inquiries are
satisfied in 10 seconds instead of hours. These are just a few of the new
capabilities brought on as the firm moves to the advanced levels of supply chain
management and enhances its ability to communicate with selected business
allies in an electronic environment, through the use of BPM technologie
3 and beyond efforts, that the reader appreciate that there must be an electronic
means of transferring data and knowledge between the collaborating businesses.
Until recently, such transfer was limited by the unwillingness of businesses to
share data externally and because of the disparate systems in which the knowledge
was stored, inhibiting easy access or transfer. BPM and business process
management systems (BPMS) enter this scenario, as firms find the value of
sharing previously secret information and analyzing the data and trends together
to define new business propositions. Connecting enterprise-wide resource planning
systems in a way that allows the participating firms to extract valuable
information, without violating security issues, becomes the breakthrough technique
for building a network response to market and customer needs.
Business agility develops as more than an interesting concept in this level,
when BPM creates the opportunity to quickly and accurately share information
between firms of any size, on a variety of subjects, and align these firms with
business objectives. Document transfer moves from days to seconds, trade
settlements are reduced from 5 days to an hour, build-to-order products are
completed in 24 hours rather than 5 to 6 weeks, and call center inquiries are
satisfied in 10 seconds instead of hours. These are just a few of the new
capabilities brought on as the firm moves to the advanced levels of supply chain
management and enhances its ability to communicate with selected business
allies in an electronic environment, through the use of BPM technologie
Subscribe to:
Comments (Atom)