Digital Disruption in ERP – Time to think beyond graphic user interface

Ever since the likes of Uber became largest taxi operator without even owning a single taxi or AirBnB became largest hotel room space seller without owning a single hotel, the power of digitalization has become too evident to all.  These organizations (and there are much more like them such as Alibaba, Ola etc.) have utilized technology to their advantage and have disrupted the business models completely. The examples of digital disruptions in all business categories are only increasing and core IT applications like ERP or Supply Chain Management are going to get impacted very soon. Infact, one of the long pending demands from ERP users (all of them whether it is SAP, Oracle, Microsoft or others) is that the user interface is too complex and non-friendly and users need to remember lot of things, navigation etc. for their daily operations. This makes them take longer time to complete their work, is not fun to work in ERP and with new users coming in – there is a learning curve for them. There has been decent number of attempts by large ERP players to make the user interface more friendly but have met with little success. SAP has even tried to sell different UIs to user organizations but success has still eluded them.

Salesforce, Netsuite, Workday, Ramco etc. led the first wave of digital disruption in ERP space by introducing niche products but now is the time to think beyond that. With the advent of Google Play, Cortana and Siri, a new door is now open for the ERP players to try and integrate their products with either these or develop their own voice controlled user interface and do away with graphic user interface slowly. The users should be able to command an ERP on the transactions just by speaking to them either standing/sitting in front of their desktops/laptops or their mobile devices while traveling. The production users will get the ability to talk to ERP and take the production of items to next stage while making the transactions talking to their watch which will be integrated with ERP. Similarly, the sales team can book the orders while talking to customers onsite and ordering their mobile device or the watch to prepare an order in ERP and provide the available to promise” date to the customer right away. This way, the complaint of users that they have to run business operations as well as run ERP as two separate tasks and takes time, will fade away as they will be able to conduct normal business as well as run ERP, almost with single activity and there will be huge reduction in post business regularization of transactions in the applications. The application data will start matching with actual data (like inventory at all stages) as ERPs will help the users more in their business in real time. With all ERP products now available in Cloud models, integration with mobile devices like phones, watches have already become easier due to availability of internet connectivity almost everywhere, this idea may carry the ERP products through the next wave of innovation where they disrupt their business models themselves before somebody else comes with this digital disruption and these giants have to fight for their survival.

 

Leverage item level RFID tagging to achieve organizational objectives

Re-evolution of RFID (Radio Frequency Identification Device) lately as an enabling technology has prompted retailers to investigate the value of the technology across four major objectives: process efficiency, product and demand visibility, shrink management, and increasing profits. Due to this reason, most retailers across all segments of the industry are implementing RFID solutions, measuring the results of their initiatives, and searching for ways to leverage the technology in every part of their business. Retailers are now approaching RFID with confidence, seeking ways to minimize their risks while maximizing their returns and making core business processes, in-store operations, and customer-facing activities cheaper, faster, and more accurate.

Directly and indirectly, usages of RFID tagging of items help the retailers in:

• Reduction or Elimination of full manual inventory calculation
• Improve staff productivity
• Reduction in cost of labor
• Improve on shelf availability
• Smarter replenishment process
• Reduction in pilferage by customers and employees
• Obsolescence reduction
• Increased inventory accuracy which leads to lower safety stocks, better usage of working capital, more inventory turns per annum etc.
• Reduction in out of stock instances

As is the case with most technologies that enable business process transformation, the return on the investment is not limited to the obvious metrics, nor should it be. Often, the most beneficial returns from an RFID initiative are to be found in non-obvious or unanticipated areas. These areas can be Success of in-store product promotions, improved employee productivity and improved (reduced) customer wait time etc.

Recently, we have seen best in class organizations have started taking actions like below to achieve the organizational objectives very efficiently with the help of RFID technology:

• Monitor customer in-store purchase activity and correlate it with real-time inventory management. Having achieved customer behavior monitoring and real-time inventory visibility in the store, organizations are positioned to extend their competitive advantage through information integration and analytics
• Leverage automated alerting. To turn real-time merchandise visibility and real-time customer behavior monitoring into operational excellence, it is essential for personnel to have instantaneous detail information about what is happening in the store. This goes well beyond understanding when an item is leaving the premises without authorization; it includes proactive management of in-store promotions, redirection of staff to high-traffic services, and seamless interaction between online sales systems, in-store stock status, and service desk activity
• Deploy advanced customer-facing services. Much research has been done into the value and utility of interactive fitting rooms for the fashion and apparel segments; yet, very few instances of this technology are to be found in current use. Intelligent customer service applications are as applicable in hardware and furniture as they are in footwear and fast-fashion. Whether it is measured in customer wait-time reductions at the register or waiting for a sales associate to check the back room for a SKU, RFID-enabled advanced customer service improves the customer experience, increases sales, and improves job satisfaction. All retailers, from Best-in-Class to Laggard, must study the impact of RFID on the customer experience

CASH is KING: Preserve cash and reduce working capital by improving supply chain

Though the case of Greece and now Hungary debt is different, but it underlines the fact that CASH is, and will remain as, KING for at least the foreseeable future. This makes all the more important for the organizations to preserve cash and increase cash flow and the primary metrics that every organization needs to focus on, are average cash conversion cycle (derivative of cash to cash cycle that I wrote some time back), return on working capital and perfect order fulfillment. If we can keep a tab on above 3 metrics and try to improve then, we will have much better availability of cash in the system. Small measures like establishing and early payments discount structure with all the suppliers and setting up an online visibility capability into financial chain events can help increase the flow of cash as per the planned benefits of the organization. For example, if you have the option of exercising the discount for an early payment of a supplier, then you can use it you’re your benefit based on the your evaluation of the situation if paying early is more beneficial at this point of time or preserving cash is more important. This gives you additional flexibility in managing your cash to cash cycle and hence improves return on working capital. I understand that this strategy is completely opposite of the more popular “days payable outstanding extension” strategy which is a part of larger strategy that have five pillars of reducing working capital in system, but since it does not rob you of exercising the option of extending DPO or pay early to get a discount, this makes more sense in current scenario.

I mentioned above about the five pillar actions for reducing working capital, so let me pen them down here for everyone’s benefit:

• Reduce Inventory – Infact, it should be optimize inventory as reduction of inventory impacts perfect order fulfillment too which is a key metric in preserving cash
• Reduce days sales outstanding
• Extend days payables outstanding
• Utilize short term financing often
• Short term cash investment

Similar to the strategy discussed above on DPO extension or availing discounts from suppliers, we also need to look at reducing the DSO by offering early payment discounts to the customers, which ofcourse is a popular action these days.

I talked about DSO and DPO and there is another very important that needs a mention here in little detail, which is optimization of inventory as stated above. The drivers to optimize the inventory are your forecast accuracy, optimization of routes of inventory whether it is coming from supplier or shipping to a customer, level of collaboration between you, supplier and customers (this in turn, will again impact the forecast accuracy) and status of implementation of lean and just in time principles. Also, there is a need to implement an inventory optimization tool that talks to your ERP and your business intelligence system provides real time suggestions to deflate inflated inventory, reduce obsolescence, reduce stock outs and increase perfect order fulfillment, all of which will improve the cash flow within the organization and will keep the health of the organization much better.

Stop talking to your customers

The pressure on bottom-line is more than ever and all organizations are focusing on their cost cutting measures by removing non value added activities, services etc. and customer communication is one sensitive area where normally one will not tread for cutting costs. This is purely due to the fact that any small cost reduction in this area is perceived to bring larger reductions in customer satisfaction and rightly so. Customer satisfaction is one of the key business metrics for all organizations and communication with customers on their feedback, issue resolution, further sales opportunities etc. are treated as most important activities regarding this. Now, the time has come to change our approach a little bit – No, I am not saying that importance of customer satisfaction has reduced now – not at all, in fact it is at its highest peak now and will keep on scaling new heights with customers demanding more and more of your mind share. The change that we need to bring is to stop talking to customers for activities that have known resolutions and results.

Best in class companies have already started using intelligent IVRs for customer communication on their regular day-to-day issues and these are becoming popular with customers as they do not have to wait for longer hours for getting responses to their questions and organizations save on cost by utilizing the staff allocated for these activities for other productive work. Also, some businesses have extended their applications to their customers by providing access to their problem database, frequently asked questions and product suggestion options so that they can themselves resolve their issues, get suggestions on product options etc.

The above methods have brought good results so far and both customers and suppliers are not complaining. NVAs like credit disputes, claim processing issues etc. take away lot of staff efficiency and there is a strong need today to automate and streamline your client dispute resolution process and start spending more time listening to them on the REAL issues. Several workflow based solutions are available in market that enable the customers to see the status of their requests/order online on their own and we can save lot of time in doing something else for them.

Spending time with the customers like providing solutions for their business challenges, their growth and expansion plans as well as their business initiatives will make sure that we engage with them as business partners and the same objectives of making them succeed in their ventures and hence a stronger, longer and more fruitful bond between the supplier and customer.

So, stop talking to customer on activities that they will be ahppy handling themselves on the bais of pre-defined workflow/business logic and listen to them as well as work with them on the activities where a true win-win partnership can be built together. Always strive to work together so that you win together. 

Supply Chain Trend – Can this happen in near future?

The other day when I was travelling back from office to home, I saw a van belonging to a famous hotel chain carrying huge bunch of vegetables, fruits and milk and a thought came into my mind. Can this be an automated process driven by the historical as well as current demand pattern and managed by a system itself? I started thinking if an IT driven process can be deployed at hotels that not only tells them what material to procure, when to procure and how much to procure but also place orders directly with the vendors. Looks like an ideal supply chain in an manufacturing company but the days are not far, when hotels start using this as their chief methodology for procurement management.

 

Let me do a dissection of what exactly will they need to fulfill this:

• To start with, they will need multi bin refrigerators or deep freezers depending on their needs
  
• The bins needs to have a capability to store vegetables with level sensors so that an alert can be sent to the IT system in case of level of vegetables, fruits or milk changes
  
• An IT system that can be integrated with the refrigerator and have the ability to name the bins as well as define minimum and maximum required levels of eatables
  
• The IT system should also store the minimum and maximum shelf life of eatables which will help in calculating the size of batch of eatables that is going to be procured
  
• This IT system will store the contracts between the hotel and its vendors and will also be able to decide on prices base don historical patterns and logic defined in it
  
• The vendor either needs to have an IT system or a fax or a mail box or phone that can receive the automatic orders from the hotel system and have the capability to communicate the orders internally
  
• Finally a home delivery and logistics ability at the vendor’s end that can ensure delivery of the eatables as per need by date of hotel
  

Did I complicate this completely? Well, not completely but yes, it does not seem to be a simple way as lot of initial infrastructure and systems need to be in place for this to work. Now, let us go through the process taking milk as an example:

1. As soon as the level of milk goes down from the minimum level defined in the refrigerator, an alert will be triggered and will be sent to the IT system
   
2. Another validation of milk level will be done in the system and after this, an purchase release will be sent to the milk vendor with the pre-decided order quantity fed in the system
   
3. The prices will be decided by following options:
   
• Looking at the pre-identified websites and finding out milk prices on that day
  
• Using the contracted rates with the vendor
  
• Initiating an quick e-auction between couple of qualified vendors (too futuristic)
  
• Ordering at mean price for pre-decided period
  
4. This purchase release will go to the vendor(s) system of receiving orders and it will be processed at their end
   
5. In case vendor can not meet the need by date, their IT system will communicate back to the hotel IT system and a mail will be sent to the procurement in-charge for alternate planning
   
6. When vendor send milk to the hotel, it will be received at hotel’s end and the refrigerator milk bin is replenished
   

Multiple controls can be built in to make the above simple looking process foolproof and exceptions can be handled automatically with few logics defined in the system. So, what do you think now? Can this happen in near future or we will keep on doing manual buying of eatable for hotels for sometime to come?