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In all companies a close link exists between information technology and an organization’s ability to execute business efficiently and effectively. This is especially true for midsize organizations, which Ventana Research defines as those with 100 to 2,500 employees. Our research consistently shows that most chief financial officers and other senior finance executives in these companies fail to appreciate this link sufficiently, and therefore are not aware of – or, if they are, may resist – the need to make changes to their core financial systems.
Finance executives are understandably reluctant to make major changes to these critical systems because the process can be time-consuming and expensive. For this reason, they tend to delay any changes for as long as possible. Ostensibly, such a conservative approach reflects a reluctance to put the business at risk if the transition is less than smooth. But a thorough cost/benefit/risk assessment should reveal whether changes in core financial systems are warranted and what those changes may entail.
In both its client engagements and its research, Ventana Research has observed that well before financial systems become “broken” to the point where they threaten the orderly conduct of day-to-day business, they usually become increasingly costly and risky to the company. Usually, these growing problems are concealed by the hard work and clever adaptations of employees. Unfortunately, as a result of these well-meaning efforts, opportunities to maintain and perhaps even improve the company’s profitability and competitiveness are lost. In most instances it is only when a crisis develops that company management is able to see the risks and true costs of an aging financial system. Indeed, even with the red light flashing and the alarm sounding, the link between the emergency and the inadequacy of the organization’s core financial systems may not be evident to senior executives.
The supply chain is, of course, the primary processing mechanism of every manufacturing company. But in today’s competitive, cost-conscious global environment, it’s more than that: The multifaceted, multi-company, multinational structure of the supply chain makes it the most complex management challenge found in any enterprise. Supply chain management (SCM), a critical part of any enterprise resource planning (ERP) system, no longer means just making sure that the right materials and resources move to the right place at the right time. Today, it also means ensuring that the sequences of events involved in producing goods and distributing them to customers are tuned optimally to satisfy customers, minimize costs and maximize profit.
For these reasons, we believe CFOs must become actively involved in analyzing their ERP/SCM systems. They should investigate to determine if their core financial systems are adequate in three key areas to support their business. These areas are:
- Supporting a lean supply chain
- Enhancing supply chain visibility
- Enabling globalization of a company’s infrastructure.
Failure to address opportunities and gaps in the organization’s financial and operational IT systems has the potential to impact negatively a company’s costs, risk exposure and competitiveness.
© Ventana Research 2007 Page 3
Ventana Research – Tuning ERP and the Supply Chain
Supporting a Lean Supply Chain
Ventana Research defines a lean supply chain as a set of organizations and processes that are linked in a continuous flow of products and services, finances and information, and that interact collaboratively to reduce cost and waste. Most people in manufacturing are familiar with the idea of “lean” manufacturing. Its foundations are in the Toyota Production System (TPS), which helped turn Toyota into an industrial and automotive giant. Many manufacturing companies worldwide have imitated TPS and now use lean production techniques to pare costs and to speed delivery.
In its simplest form, lean supply chain means producing goods with less; it applies fewer resources to the production process without affecting the quantity or quality of the goods produced.
Demand management is easily the most critical component of the lean supply chain because inappropriate production of goods is the source of much waste and expense. The key to effective demand management is to define customer value. Customer value comes in the form of the physical product itself, as well as its location and the timing of its delivery. Once those three items are clearly determined, a company can begin to set up a signaling system that will inform the supply chain of the state of product demand, thereby pulling, rather than pushing, products through the supply chain.
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