The Role of ERP in Globalization

One would expect globalization efforts to be largely driven either by the desire to exploit new markets or the need to lower manufacturing costs. Which is the dominant business driver? The answer is ' both. A majority of companies (79%) view global markets as a growth opportunity, but of those companies half are also feeling pressures to reduce costs. Of those seeking to reduce costs either directly or by providing the necessary flexibility to ship from more cost effective locations, 74% are also seeking growth opportunities. We therefore conclude that profitable growth is the key consideration in globalization.

Key Business Value Findings

Globalization presents both business and technology challenges. Companies find there is no silver bullet when responding to the increased complexity of the supply chain resulting from globalization. Options range from balancing supply chain velocity with landed costs to relocating manufacturing operations. Enterprise Resource Planning (ERP) is a mission-critical component of any globalization strategy. The information made available through ERP is key to providing visibility to Key Performance Indicators (KPIs) and meeting corporate objectives. Yet this is often overlooked because companies focus only on supply chain issues. The lack of standardized world-wide ERP implementations plagues more than half of global manufacturers.

Implications & Analysis

Those companies that automate and streamline workflows across multiple sites including suppliers, partners, and manufacturing sites produced 66% more improvement in reducing total time from order to delivery. Yet, few companies take advantage of the technology available today that would support and sustain these collaborative efforts, leading Aberdeen to believe there is a huge opportunity for cost and productivity improvements.

Those that coordinate and collaborate between multiple sites, operating as a vertically integrated organization, have achieved more than a 10% gain in global market share. While global ERP may not be the panacea for market penetration, without a technologically sound architecture that supports global visibility and transactional interoperability a company's growth can be seriously stunted. Aberdeen research shows that integration technologies and Service Oriented Architectures (SOA) are often overlooked as software selection criteria, yet enterprises can't focus on gaining a competitive advantage if they struggle to integrate their own international operations. Internal operations must be integrated before inter-operability can be achieved on a global scale. The more seamless the integration, the easier it is to manage governance, risk and compliance.

Recommendations for Action

* Carefully evaluate the use of shared services both from a business process standpoint as well as a technologically. A "shared service" might be an accounting or administrative function such as purchasing or accounts payable, or a piece of technology shared across multiple enterprise applications.
* Automate and streamline workflows between suppliers, customers, and manufacturing sites.
* Standardize ERP implementations across the global enterprise.

Item Creation and Maintenance

A challenge in the fashion industry is the large number of stock-keeping units (SKU). As was described previously, a simple man's shirt could easily generate more than 300 items or SKUs. Entry and maintenance of these SKUs can be a time-consuming and expensive proposition. The application software not only needs to support a flexible structure but also to automate this process to minimize keystrokes.

Figure 1 below illustrates the structure supported by Movex. It is divided into two segments. The first segment contains information that is common to all items associated with a SKU. In figure 1 all items for SKU A122131-140 are women's wear, casual blouse. There would also be common descriptive information such as short sleeve, open collar. Differentiating items within a SKU are attributes such as size, color, style, and fabric. Movex supports an unlimited number of user-defined attributes. Furthermore, the software provides a translation from how a user would recognize at item (i.e., small, red cotton blouse) to an item number (i.e., A122131-140-111) needed for locating and picking the product in the warehouse.

Figure 1

While a flexible structure is important, users can be overwhelmed by the amount of data that has to be entered for a single SKU. Movex takes advantage of its structure to minimize the data entry workload. First, the common information such as description, supplier, and style need only be entered once. Then it is automatically inherited by the items within the structure. Figure 2 illustrates the data entry process. Once the template is established for style, color, and size, the quantities entered into the matrix and the necessary items are generated.

Figure 2

Movex supports style composition for labeling. These are those tags that scratch the back of your neck. Using previously entered data users can select information for inclusion on the label. Again, this feature not only reduces data entry but ensures consistency with the SKU description. As you would expect in distributing products to a worldwide market, Movex also supports full language handling capability of attributes, descriptions, and labeling information. In connection with the global impact of fashion, the software can automatically generate European article numbering (EAN) and universal product code (UPC) designations.

Intentia: Stepping Out With Fashion and Style Part Three: Movex, a Case Study of Fashion Industry Software

Intentia, based in Stockholm, Sweden, is one of the world's leading suppliers of collaborative solutions. Intentia has approximately 2,700 employees serving more than 3,400 customers in the manufacturing, maintenance, and distribution industries via a global network spanning some forty countries. After a strong performance through the 1990s, Intentia suffered a sudden drop in total revenues upon entering the new century. This was due in part to the soft market after the over-hyped Y2K phenomenon and followed up by the global economic downturn. Intentia's AS/400 platform-centric approach of its Movex software, which has since been redesigned as a Java-based product, made it less attractive to a wider range of hardware solutions.

Intentia's second quarter 2004 results show a 26 percent increase in license revenue and an 8 percent reduction in costs and expenses compared to the same period of 2003, resulting in an operating profit of $14 MM Swedish krona (SEK) ($1.8 MM USD).

Recent reports, however, have indicated that Intentia is still attempting to stem the tide, increase revenues, and return to profitability, while also developing the internal infrastructure to increase and measure efficiency (e.g., deployment of consultants' utilization system and sales lead tracking system) and reduce costs. Measures approved by Intentia's board include personnel reductions and facilities consolidation, which are expected to lower costs and expenses by an estimated $290 MM (SEK) ($37.8 MM USD), or 10 percent, on an annualized basis. The company will record a restructuring charge of approximately $250 MM (SEK) ($32.6 MM USD) in the third quarter, which is equal to the expected cash flow impact over the period Q3 2004 to Q1 2005.

Intentia: Stepping Out With Fashion and Style More Software Challenges

But the software challenges do not stop here. In fashion people think in terms of style, color, size, and fabric—not items. However, inventory records are maintained at the item level. The translation between these views must be transparent and simultaneous. When customers call to place an order, they are likely to say, "Give me a dozen blue pleated skirts in medium." However, when picking the order, the pick list will direct the warehouseman to go to location G120 and pick twelve of item 324B.

The software must be able to generate and handle an inordinate large number of stock keeping units (SKU). A man's button-down, long sleeve, Oxford shirt that comes in five colors could easily generate 300 distinct, pickable items (shirt x color x collar size x sleeve length). When you add such variations as plain collars, Egyptian cotton fabric, and French cuffs, the number of items expands geometrically and, even for very small suppliers, can easily exceed several thousands. And who said that women were the fashion plates of the species? A corollary to this challenge is that orders tend to be huge in terms of line entries and numbers.

Being at the beck and call and within easy reach of the consumers, the software must be able to accommodate and service a large number of stores, be it their own or those of a retailer. The only constant in the fashion industry is change, namely nothing stays the same. When compounded by the short life cycles of products, even shorter lead times for materials, and extended and complex supply chains, software catering to the fashion industry must be adaptive and serve to the needs of a three-headed master: suppliers, retailers, and consumers.

For software developers these challenges translate into features that must be incorporated in the design of the enterprise application. A common feature is the generation of item numbers based on a standard distribution of size and color ratios. For example, men and women shirts are sold in standard size and color combinations. To handle the challenge of the large number of SKUs a typical software feature is to automatically generate item master entries for this standard distribution. Figure 1 below translates this and other challenges into common features that must be included in the software design of any respectable application for the fashion industry.

Intentia: Stepping Out With Fashion and Style Part Two: Software Challenges in the Fashion Industry

So, what do challenges such as shortened time to market, reduced lead times, delivery performance, and frequent changes in customer demand place on enterprise-wide software? In the fashion industry product segmentations are many and frequent. Products tend to cater to the whims of the consumer and try to be all things to all people. Consequently, products are typically categorized by fashion lines. These lines are referred to as collections and appear multiple times per year, up to weekly. They are often one-shot events, implying a single buy of raw materials with small or no replenishments anticipated. Products aligned along fashion lines rely on retailer forecasts or best guesstimates under a make-to-order scenario, again with no repeat orders anticipated. Under the fashion line segmentation product setup, scheduling, and execution must be quick. It's not a case of "He who hesitates is lost." It's more a case of "He who hesitates never sees his product on a retailer's shelf."

Another type of product segmentation is seasonal, which places additional requirements on the software application. Seasonal items can also encompass some of the fashion line considerations discussed above. With some slight variations, styles of some seasonal items can span, in fact, several seasons. A popular summer shirt can be carried into the fall season by adding long sleeves. However, typically the product life cycle of a seasonal item is between three and six months. Follow-on orders will depend on initial sales. Under the seasonal segmentation software must be able to handle one-time products that may grow into repeat orders or can be easily modified to accommodate additional seasons. Dealing with the latter requirement can be accomplished with the ability to copy or combine a bill of material or formula with substitutions and modifications.

The last type of product segmentation is what is more commonly found in a stable manufacturing setting. This segmentation is the replenishment, never-out-stock (NOS) product lines. These include the men's white shirt; the women's black dress; the basic men's Oxford shoe; and women's black, mid-heel pump. These products have an extended product life. Of course, NOS products often undergo aesthetic changes in a two to three year period. However, such changes usually do not require major adjustments to the production lines and setups. This segmentation is as close as you can come to make-to-stock in the fashion industry.

The product segmentation in the fashion industry brings into play every type of manufacturing scenario imaginable. One-time orders are typical to those in the specialty chemical industry. The no-carb craze currently taking over in the food industry, which has lasted six months but is near its end, will surely have fallout products in the checkout lines. The V6 engine block will always be in the majority of cars. In the fashion industry, software must be able to handle any one or all of these scenarios.

Industry Characteristics and Trends

All successful companies cater to the needs of their customers. However, in fashion these needs may be more viewed as whims or temporary flights of fantasy than established trends on which you can base production and supply chain decisions. Case in point: how long has the Pentium IV computer chip has been placed on PC motherboards compared to double-breasted suits? Furthermore, in somewhat of a reversal, the requirements of fashion manufacturers are being driven more by the demands of the retailers that sell the clothes than the supplier.

A recent example between Levi's and Wal-Mart highlights a developing trend. Up until the early 1990s Levi's could pretty much deliver the merchandise and retailers would sell it. Now to do business with Wal-Mart, Levi's had to develop a new line of jeans to Wal-Mart specifications and meet very stringent guidelines regarding performance and cost control. While Levi's is still driving the car, Wal-Mart supplies the operating manual. This scenario is being repeated throughout the fashion industry as the balance of the scales shifts.

As you would expect in an industry with a diverse customer base, namely the general public, the life cycle of product is expressed in months, not years. To appease this public, a product is produced in every reasonable size and color combination. Consequently, the number of stock-keeping units (SKU) tends to be much larger than in other industries. Missing an opportunity window—that is short to begin with—may mean that you could be stuck with obsolete merchandise. Predicting the taste of the general public can, at best, be a crap shoot.

While outsourcing of production is not an unusual practice, in the fashion industry it has become a fine art. Shirt cuffs are made by one company; collars by another company; and buttons by a third company. The components are all brought together on the sewing floor to complete the finished product. Because operating and profit margins are meager, the outsourced companies can be spread throughout the world where labor and material costs are in cheap but plentiful supply. These factors create longer than usual lead times and constant managing of an extensive and far-flung supply chain. As a result, fashion is handicapped by a long time to market in the face of a narrow window of opportunity in which to attract the consumer's attention.

Illustrated in figure 1 is one of the simpler but common supply chains in fashion industry. Spread your suppliers across the Pacific Rim. Base your assembly operations in Europe. And, of course, there is a need for distributions facilities in the major population centers of the world. Accordingly, even a simple supply chain model grows in complexity as the channel partners grow in geographic distance.

Intentia: Stepping Out With Fashion and Style Part One: Characteristics and Trends of the Fashion Industry

So your software vendor says that they can do fashion. You better make sure that the software features go far beyond styles, colors, and sizes. The requirements for the fashion industry are some of the most demanding and unforgiving in the world of manufacturing. If you're not careful, you may find your profits falling on the cutting floor and money being swept out with the scraps. Read on to find out why running with a pair of scissors is not the only dangerous thing when selecting software for the fashion industry and why Intentia's offering bears investigation. And even if you're not into fashion, learn what hurdles another industry has to jump to remain competitive. You may feel fortunate to be in the industry you are.

We are surrounded by fashion. In fact we come into contact with it so often that we tend to take it for granted. However, if you are in the business of fashion, you know that people's tastes are extremely fickle and ever changing. Your enterprise-wide software has to be nimble enough to turn on a dime. It also must be able to anticipate more often than to simply react.

This research note explores industry characteristics and trends and resulting software challenges. After getting an understanding of the fashion marketplace and competition, we will look at Intentia's Movex software offering. Movex's functions and features that will allow you to cut, sew, and package your products efficiently before they are out of fashion.

And, while you may not be into haute couture or consider yourself a fashion plate, you may find how the fashion world solves problems similar to those found in your industry. For sure, you will have a better appreciation of what it takes to put that shirt or skirt on the shelves and not so quick to say it costs too much.

Executive Guide to Business and Software Requirements

The concept of getting business requirements right sounds straightforward. However, flawed requirements trigger 70 percent of project failures. The larger the number of stakeholder groups involved, and the more complex the processes, the more likely a project will fail. Success in large projects is not just about completeness, but also about getting complete requirements information early in the development process.

Related Topics: Consulting and Services, Help Desk or Support Services (Hardware), Project Management, Requirements Analysis and Definition, Project and Process Management

Related Industry: Information

Related Keywords: Digital Mosaic Inc., workflow analysis, flawed requirements, business requirements template, business requirements, IAG, project failures, requirements risk, functional requirements, requirement elicitation

Best Practice Approaches to Planning, Budgeting, and Forecasting

While every company takes a different approach to planning, budgeting, and forecasting, industry leaders consistently employ best practices that help their businesses succeed. Take a look at the techniques that ten best-in-class companies employ to improve performance, and consider how adopting these practices might significantly improve your company’s current planning, budgeting, and forecasting processes.

Related Topics: Accounting and Financial Management, Budgeting, Financial Planning, and Analysis, Consolidation Statements and Performance Reporting (CS-PR, Aggregation), Business Intelligence (BI), Business Performance Management (BPM)

Related Keywords: forecasting, budgeting forecasting, budgeting and forecasting software, budgeting, budgeting software, budgeting and forecasting, budgeting finance, budgeting planning, sales forecasting, financial budgeting

A Road Map for Growing Small Businesses

White Paper Description
The basic spreadsheet and accounting programs you’ve relied on ’til now won’t help your growing business eliminate decision-making bottlenecks, reduce IT costs, increase productivity, or improve the customer experience. To do all that requires an enterprise-wide, integrated software system. Learn how an integrated system can help take your business to the next level, and how to ensure you get the right system for you.

Related Topics: Accounting and Financial Management, Small Business Accounting, Enterprise Resource Planning (ERP), Inventory Management, Spreadsheet

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OdysseySuite Small Business Edition

Megasol Technologies KB has its headquarters, and programming and training divisions in Uppsala, Sweden, and a branch in the Cayman Islands. Megasol is a producer of multiple-currency software for private and offshore banks, trusts, companies and funds, and for small to medium businesses engaged in sales and distribution, and accounting and book-keeping practices.

Complete accounting system for small business/accounting practices including GL, assets, receivables, payables, inventory, purchase order, sales, time billing & web shop - multi currency & multi company options available. Advanced features include customer relations management (CRM) tools, contact diary, recurring invoicing, on-line document repository and payments gateway. Requires MSDE (free and included) or SQL Server.