Two major challenges are forcing manufacturers, particularly of consumer packed goods, to reexamine how they do business in an era of complex global outsourcing.
First, outdated information technology systems are hindering the ability of many mid-size companies to effectively manage complex global outsourcing relationships. Systems built for the old paradigm -- where manufacturers owned and operated plants and fleets and controlled the distribution channels -- simply do not provide the information required in an era of outsourced supply chains.
Second, for many organizations, information system solutions have been cobbled together over the years and fail in one critically important area: customer relationship management. Most companies that design products and then have them made, packaged and shipped by others have lost touch with the end user -- the key to long-term profitability.
How can you successfully deal with these challenges and build lasting and profitable customer relationships? Below are ideas to help your team evaluate the subtle, and not-so-subtle evolution of your organization's value chain, and how to create a flexible technology roadmap that continuously aligns with your business processes.
Future success depends on bringing more alignment between your ERP and CRM solution investments.
Most companies today have made significant investments in information technology systems -- whether they are operated and maintained in-house, or as software-as-a-service, or a combination of point solutions that have evolved into an interconnected system. Moreover, it's hard to imagine any organization where the global economy and the opportunity to partner with some level of outsourced support is not a factor in its value chain.
As a result, many mid-sized companies are at a crossroads: rethinking technology needs given an ever evolving global supply chain. Complicating matters is the fact that a revolution has occurred in the way companies actually take products to market during the past 10 to 15 years. The combination of technology and outsourcing have enabled, complicated, fragmented, and integrated the supply chain in such a way that everyone becomes someone else's customer, and the risk is high that key information relative to the ultimate end user of your product gets lost in the shuffle.
This is why, when it comes to considering the implementation or upgrade of your Enterprise Resource Planning (ERP) system, it is critical to get your system aligned with your Customer Relationship Management (CRM) strategy. In house, or outsourced, the classic challenge you confront is between the integration of information that the sales force needs relative to obtaining its pipeline and converting it into backlog, and the continual zigging and zagging that your operations organization must go through in order to accommodate the constant push and pull of your channel partners and end customers. Success requires a single organizational-wide view of profitability, and processes that are aligned with maximizing shareholder value.
While there has been a significant amount of work and proven practice around the development of Key Performance Indicators (KPIs), they normally reside at the functional level within many organizations. To be clear, KPIs are a good way of managing the efficacy of production systems, and today's ERP systems are excellent repositories of hundreds of points of data capture. KPIs can enable your organization to identify performance target areas based on objectives and goals, and then serve as a monitoring tool towards achieving those targets.
Key Risk Indicators: Tools to Make Strategic Decisions
When it comes to truly analyzing the long-term effects of decision-making, however, Key Risk Indicators (KRIs) are excellent tools for the job. KRIs complement KPIs and should be organized around the strategic objectives of an organization. KRIs and KPIs differ in that KRIs are used to address concerns around your organization's risk profile -- specifically, the impact or likelihood of achieving your overall objectives.
One of the best methods of defining KRIs is for your sales and operations team to implement a comprehensive Enterprise Risk Management (ERM) framework based on the Committee Of Sponsoring Organizations (COSO) framework. That may sound like a "compliance" exercise, but the COSO ERM model actually is a broad framework within which strategic, operational, financial and compliance objectives become integrated -- and this can pave the way to a single view of organizational profitability. ERM, if properly aligned with corporate strategy, and aligned from top to bottom in your organization can create real synergy for your teams and partners.
For instance, as an apparel retailer, part of your growth strategy may be to drive more sales of your private label brands in an effort to increase gross margin on product sales in the future. Assuming that you manufacture your private label products in the far east, you will need to ensure that your manufacturing partners help you achieve these objectives. While your KPI may help you manage the whether you will get on-time delivery from your vendor, your KRI may measure the frequency of production calendar changes over a period of time with a variety of manufacturing partners, giving you trend information as to the vendors who are more likely to yield on-time delivery. These are operational monitoring controls that your sourcing department may not have time to analyze, but as senior leadership, gives you the ability to guide your functional level employees to watch out for coming trends in the outsourced manufacturing relationships.
As previously mentioned, functional integration and a single view of how processes affect organizational performance is vital to the long-term performance and success of your company. Once implemented, your CRM and ERP systems can be properly organized to optimize the capture of data, which in turn you use to align with performance and risk to yield the best possible information to manage your business.
Creating a Technology Roadmap for Today's Value Chain
If you're like many mid-sized companies, it's been quite a while since you took a close look at your application portfolio relative to business model enablement. Consequently, your technology solution set has likely not evolved at the same rate that your business practices have had to change.
Outsourced manufacturing, channel partners, and other third party relationships are now key to your value chain, so the future design of your information systems need to be organized with those relationships in mind. Therefore, think of the next round of your IT spending as an investment in future flexibility and enablement rather than as a cost -- which, understandably, can be challenging given past the promises of large scale enterprise systems versus actual delivery.
Performing a functional "fit-gap" of your processes relative to your organizational objectives is an excellent start to developing a technology roadmap. This includes focusing on the key components of people, processes and technology required to determine best practices for your organization. Focusing specifically on technology, for example, a fit-gap exercise can play a vital role in identifying whether the current technology that you rely on to drive your business is either underutilized -- which is a common issue -- or whether the technology solution that you purchased years ago simply does not fit with your value chain given changes in your macro level business practices.
One main benefit of performing a fit-gap exercise is that, because it is oriented around technological support of business processes, it can provide your team with insight into whether you have actually "technologized" a process that in reality is no longer valuable to your customers, employees or stakeholders. Eliminating unnecessary waste, of course, is good.
Finally, a fit-gap exercise can identify those additional areas that may be outsourced from either a business process or systems perspective -- thereby further streamlining your production responsibilities. This of course could change your risk-profile, however vendor management would likely have been part of your ERM and governance analysis, and managing that risk would simply mean appropriately capturing the information relative to those relationships, setting performance tolerances, and managing them.
When you perform these exercises, you may need to engage your current information technology solution provider to discuss options of how your investment can be further leveraged to meet the changes that have occurred in your business over time. While your team is at it, this can be a good time to introduce new perspectives by inviting other vendors to discuss their solutions. Keep in mind that many solutions are available, some with lower overall total cost of ownership than what you have. Also remember that selecting systems means more than functionality -- the executive team, information technology department, and organizational culture all play roles in the best fit for your business.
Integrating ERP and CRM Creates a Single, 360-degree View of Organizational Profitability
CRM is the prism through which you view customer relationships. As a products company, however, you likely rely on many intermediaries these days to bring your product to market. Accordingly, your CRM system must be filled with useful information about end users so that you can effectively enable your channel partners to drive your product volume in the right places, which can be a real challenge if your business solely relies on the Channel for distribution. In this case it is likely that your channel partners' CRM systems are filled with information about your company (as you are their customer), and their customers (which are your end users).
The amount of data your channel partners may share with you will depend on your ability to build relationships, and help them drive more volume. The more effectively that your organization can integrate your marketing (CRM) and operations (ERP) departments, the information that you can share with your channel partners will be much more precise regarding the end customers, creating a win-win for both of you. This can make you more valuable to your channel partners by helping them understand where the buying trends are, setting more predictable lead times, better pricing arrangements, and ultimately more of your product getting into the hands of customers ahead of your competition's.
Integrating ERP and CRM will ultimately provide insight, creating a single, 360-degree view of organizational profitability. Sales and marketing will no longer be silos, but working hand-in-glove to anticipate customer demand rather than react to it. You'll also have a good foundation to build the roadmap for your future systems environment. As a result, you will be able to clarify the factors which may be affecting your supply chain, maintain the right levels of on-hand inventory and safety stock, manage lead times with your manufacturing partners, and optimize your pricing relationships with your channel partners.
Richard Davis is partner and practice leader for business advisory services based for Grant Thornton LLP http://www.grantthornton.com
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