Investment in e-business systems can bring innumerable benefits
Investment in e-business systems can bring innumerable benefits
Claims made for e-business technology projects suggest that enterprises prepared to bite the bullet will enjoy untold benefits. In many cases the gains are modest, incremental and sometimes surprising. One problem rests with the fact that many of these projects require significant investments in IT infrastructure designed to lay down a framework for integration between applications and businesses. This means the potential scope of an e-business project is much larger than the installation of a single packaged application.
Time and again, enterprises report concerns about opening up their systems to third parties citing issues around security, access to business-critical information and the sheer enormity of engaging with customers and suppliers who may not share the same business values and processes. And while projects may be ambitious in vision, the over-riding lesson is one of caution and the need to ensure one only bites off pieces that can be easily digested.
Renault VI is the truck division of the Renault Group. It holds 17.9% market share of Europe’s economic long haulage segment and 8.9% of the medium-duty segment. Last year, its revenue was EUR3.57bn (#2.18bn) and its head count was 18,130. Globally, Renault operates from 12 sites spread across Europe, Latin America, Africa and Asia/Pacific.
Although dwarfed in volume by car manufacture, the truck business is every bit as competitive but much more complex. Each sale is a custom manufacture and Renault can potentially supply as many as 150,000 option combinations. Getting the order process correct is critical to efficiency because mistakes in preparing a quotation are costly. Renault believes that in any one year, as many as 68,000 of 75,000 orders placed have some defect that affects manufacture and delivery.
Renault had been using a CD-based product configuration system supplied to its sales staff and dealers. But this was inefficient and did not allow customers the opportunity to check out options that meet specific needs.
It changed the system to Firepond’s web-based SalesPerformer Configurator.
The project took around six months at a cost of EUR1m and it is estimated the payback in scrapping paper-based technical specifications alone was sufficient justification. But the project will fully pay for itself within a year. According to Stefano Chmielewski: ‘We took the opportunity to provide customers with an easy way to solve problems rather than continue to act as a product-led truck maker.’
The project threw up an interesting issue. Placing an order directly over the web is much more efficient than using a field sales force and dealer network. At present, this capability is limited to major accounts. Renault is aware of this and is faced with the delicate problem of keeping the dealers happy whilst improving its direct relationship with the customer. ‘We believe that a differentiator is our ability to retain the customer relationship at the human level.
We cannot remove the dealers from the interaction because we would lose that warm human touch,’ says Chmielewski. How this will play out in the future remains to be seen, and is ‘under review’.
Ranked as number six in the global tyre manufacturing business, Pirelli racks up annual tyre sales of around $3bn from more than 120 countries.
In Europe, it has a complex and diverse distributor network that includes national players all the way down to the local garage. Marco Tronchetti Provera, the company’s chief executive, is a great believer in using IT to drive business. In the late 1990s, Pirelli embarked on an aggressive technology strategy designed to help it leapfrog competition and allocated $960m to using internet technology.
In Europe, it chose to bring its distributor network online, providing visibility into its systems so that distributors can see order progress, stock positions and obtain information that allows them to offer alternatives if there will be a delay in providing a tyre of choice. This is a huge integration project, requiring Pirelli to provide 3,300 distributors with varying forms of access. ‘Dealers need to order products, know if products are available and when those are in transit. That way they keep the end customer happy,’ says Andrea Pirondini, Pirelli’s e-business director.
In order to provide for the different needs of its distributors, Pirelli created three solutions. Each provides a different type of access depending on the extent to which the dealer wishes to gain visibility and is prepared to integrate into Pirelli’s systems. More important is the need to allow real-time access to information that is constantly changing. To solve these problems, Pirelli used Tibco’s Active Enterprise product suite.
This provides a framework into which applications can be inserted once and then made available to others without the need for custom integrations at each business touch point.
Pirondini believes the project allowed Pirelli to achieve deployment rates of up to 150 distributors per week. He believes this has given the business a significant competitive edge over its nearest rival. As a side effect, Pirelli found it should be able to use the Tibco framework to consolidate its five main instances of SAP’s R/3 system. This project should enable Pirelli to significantly reduce its systems maintenance costs and so enhance its return on investment.
Over the last three years, 3M has been working on a combined financials and procurement systems project code-named Esprit, designed to ensure the company meets its financial objective of having flat cost growth in the current year. Although the project includes many software elements, a key focus is indirect procurement. The three principal packages used are Lotus Notes for approvals, PeopleSoft for back office financials and GE eXchange Services’ (GEXS) Purchasing Expert, which provides the procure-to-pay functionality.
In Europe, which geographically accounted for 24% of last year’s global revenue, procurement spend was $1.6bn (#1.14bn) across 500,000 items that generated 450,000 orders to 50,000 suppliers and required the services of 140 staff, including around 80 people to settle payables.
Less than 10% of its suppliers are regarded as strategic. Each national location historically made its own choices regarding the systems it used.
Joachim Dietrich, 3M’s European procurement processes manager estimates that: ‘Each business had at least two systems in operation.’ This in a region where there are nine major operating companies and 32 business units. Esprit provided the company with the opportunity to consolidate its systems, providing a framework around which 3M expects to achieve considerable benefit from standardising processes across Europe.
But implementing a pan-European project is fraught with risk. Each country’s cultural norms directly impact on the way the project is handled and the way implementation proceeds. ‘In Holland, you have to address every employee in great detail whilst in France, change comes from management exercising direct power; even if it means the action is the most stupid thing to do,’ says Dietrich. He goes on to say the team learned a great deal and discovered limitations in the current crop of software.
Packaged procurement applications for enterprises as complex as 3M are relatively new and there is an inevitable risk. This contrasts sharply with the more mature financial applications.
3M found for instance that mass updates for data have proven difficult and the level of management information supplied as part of the package is limited. In the early days, the administration system proved unstable and the current version of Purchasing Expert does not have a ‘punch out’ capability to other electronic procurement solutions, although this will come ‘soon’ according to GEXS.
Holmes Place operates 50 fitness centres in the UK and 20 in Europe, has around 1500 suppliers and last year turned over #87.7m. Until recently, each operation functioned as a separate business, making the management of financials and procure-to-pay activity inefficient. It invested in Coda financials and procurement along with Cognos PowerPlay and Impromptu as a first step to reducing administration and providing operational managers with the information they need.
A central objective was to eliminate the process of matching goods received notes to orders and then to invoices. This was achieved by allowing the business units to create orders that flow through to invoicing. The system provides automatic matching of orders against invoice so the only data that has to be entered once the invoice is received is amount, date and tax.
‘The goods description carries all the way through to the general ledger so items like accruals are much easier and faster to manage,’ says Charles Baker, systems controller.
Holmes Place has instigated procedures that mean the business units can only choose suppliers over the web when placing orders. At present, each unit has to know the price it expects to pay and it may be some time before the company attempts to integrate supplier catalogue information. ‘There are many issues here. For instance, managing catalogue databases is time consuming,’ says Baker.
From a business perspective, unit managers get the kind of information they need without the requirement to reconcile back to financial records.
‘It was depressing not being able to give managers even simple benchmarking information like business comparisons,’ says Baker. That inefficiency has been consigned to the past with the effect that the finance function now enjoys a much better reputation for serving business needs.