Demand-driven Supply Networks for Small and Medium Business

In the last year or two there has been much talk about demand-driven supply networks (DDSN). A simple search on Google for "DDSN model" will return pages of information about DDSN. Despite this and all the noise about small and medium business (SMB) in the enterprise applications arena, information about DDSN for SMBs is virtually nonexistent. The irony of this is that SMBs constitute the majority of the supply chain and yet case studies and reports make little or no mention of them.

What does this mean? Is DDSN an IT strategy for large enterprises only, or can SMBs also take advantage of the benefits DDSN brings? In this article, we explore the concepts of DDSN in simple terms and discuss how SMBs have the possibility to employ DDSN as a strategic competitive direction, from which to cultivate new growth as apposed to just striving for lowered costs.

This article has been sponsored by SYSPRO�

DDSN Defined

Traditionally the supply chain has been driven from the back, by producers and manufacturers "driving products to market." The dominant action in a traditional supply chain was to push products downstream towards end customers. This model was linear in its approach. Businesses in the supply chain were merely acceptant of demand based on the orders received from businesses in front of them. They rarely had any visibility into the true market demand for a product. To maintain downstream momentum in order to reduce inventory investments, upstream businesses constantly had to exert pressure on the downstream businesses to place orders. In this environment, demand could often be erratic and therefore hard to predict. Items could go from a situation of under-stock to over-stock in very short spaces of time, and businesses across the supply chain did not have timely and accurate information in order to balance the turbulence.

In contrast, demand-driven supply networks are driven from the front by customer demand. Instead products being pushed to market, they are pulled to market by customers. Is the once dominant force of pushing, merely substituted for a dominant force of pulling? Not entirely. DDSN does not remove the ability of a company to push product to market. It merely defines that companies in a supply chain will work more closely to shape market demand by sharing and collaborating information. In doing so, they will have greater and more timely visibility into demand. The aim of this collaboration is to better position everyone with the ability to more closely follow market demand and produce, in tandem, with what the market wants. Rather than replace the force of pushing, product to market, the DDSN strategy is to match a pull from customers with an equal and opposite push from supply chain members. Instead of leading the market from a push and artificially inducing unsustainable market demand, the concept behind DDSN is to react in tandem with demand. The methodology behind DDSN is to bring the supply chain eco-system into balance.

There are three main advantages to DDSN as a supply chain strategy:

* Participants in the supply chain are all able to take part in shaping demand as apposed to merely accepting it. Where businesses traditionally had little or latent visibility into market demand, the collaborative technologies employed in implementing DDSN have the overall effect of reducing and even eliminating the gap between upstream businesses and the end customer. This gives them a more accurate and timely insight into market trends to increase the accuracy of their forecasts and hence their ability to interpret and respond to demand fluctuation.

This type of market intelligence impacts more than just a business' ability to plan operations; it translates directly into reduced inventory holdings across the supply chain, which, in turn, means an overall reduction in the amount of capital invested therein and the associated risks.

* The customer centric approach, as apposed to the factory-centric approach of DDSN accepts that product design and ongoing product innovation are key requirements in creating competitive advantage and shaping demand. Early feedback from customers can help product designers better understand what customers like and don't like about their products. In addition, product designers can also interface more readily with manufacturing facilities to assist in solving production problems that may arise, especially in the early stages of production setup.

* Deterministic optimization is replaced with probabilistic optimization that uses stochastic optimization methods to handle variability. Probabilistic models do a better job of accounting for the uncertainties that exist in the supply and demand equation. Probabilistic modeling also enables simulation of "what-if" scenarios so managers can randomly vary their initial conditions.

The combination of these three factors drives growth through the constant interaction between supply (push) and demand (pull). Research conducted by AMR Research, an American-based research organization, indicates that participation in DDSN directly translates into improved business performance. AMR shows that the main impact of DDSN participation is in the critical area of demand forecast accuracy, which directly impacts key metrics such as perfect-order fulfillment, supply chain cost and cash-to-cash cycle time.

AMR's Research shows that the improvements in demand forecast accuracy instill increased levels of responsiveness and cuts costs throughout those members of a supply chain who participate using the DDSN model.

"Companies that are best at demand forecasting average 15% less inventory, 17% stronger perfect-order fulfillment, and 35% shorter cash-to-cash cycle times, while having a tenth of the stockouts of their peers."

AMR Research


Most small and medium businesses do not have the budgets required to deploy all the IT systems needed to support a DDSN strategy. For this reason, especially in the early stages of a technological development, uptake is mostly led by enterprise-level early-adopters such as Wal-Mart. As with many technologies that are in the early stages of development, small and medium businesses have to wait for the time when adoption increases and costs come down. Being in this position often means that SMBS are rarely in a position to employ many technologies for their competitive advantage. In the case of DDSN this is not necessarily the case since it is possible for businesses to adopt a modular approach to building their DDSN infrastructures.

Eating the Elephant One Bite at a Time

For small and medium businesses, the best approach toward a DDSN strategy is to identify small targets that require small investments but have a much larger potential for return.

A recent article published in Harvard Business Review, "The 21st-Century Supply Chain," Hau L. Lee gives a hint on how large and small businesses can go about building a DDSN. Although Hau's article does not speak directly about DDSN, many of the tasks he recommends are directly inline with the process of building DDSN capabilities. Hau's article aligns the planning process into three objectives on which businesses should focus in their quest for DDSN capabilities:

* Agility - The ability to respond quickly to short-term change in the demand and supply equation and manage external disruptions more effectively.

* Adaptability - The ability to adjust the design of the supply chain to meet structural shifts in markets and modify supply network strategies, products, and technologies.

* Alignment - The ability to create shared incentives that aligns the interests of businesses across the supply chain.

When focusing on these objectives, small and medium businesses must research methods that will enable them to attain the objectives. For each objective, there are a number of methods that may serve the purpose. We discuss these in the Methods of this article. However, in a small and medium business scenario, the trick is to identify those methods that require the least investment but deliver the greatest returns.

Not all methods need to be implemented at once. Planning around methods with a low investment to return ratio enables the business to "eat the elephant one bite at a time"—in other words, tackle large problems manageably. As the project develops, savings from the implementation of these initial methods can be used to finance methods that require greater investment and have lesser returns. In this way, it is possible for small and medium businesses to capitalize early on DDSN and its technologies, while in their early stages, and gain competitive advantage.

In many instances methods that present a low investment to return ratio are easily identified by examining the most important supplier and customer relationships of the business.

In this section we discuss some of the methods small and medium businesses can investigate. It is important to note that there is no clear-cut formula to determine the best methods in every instance. Every business, being different, will need to investigate the pros and cons of each method. Businesses may discover scenarios particular to their special circumstances. These instances call for open and creative thinking between supply chain members and can often yield surprising results that are difficult to replicate by market competitors.

Agility

To foster agility, businesses must take a new look at their current supply chains. Where traditionally the main objective was to make life as streamlined as possible, they must now look to make the supply chain more agile. In doing so, management will often be faced with compromise situations. Introducing agility into a supply chain often requires some sacrifice.

However, agility is a most desirable attribute if one not only wants to smooth market fluctuations in demand and supply but, most importantly, eliminate many of the negative effects of certain external events. For example, a company making tubes for television sets, releases a new and much improved tube technology that provides better picture quality, has a longer lifespan, and guarantees fewer failures. It would be natural for all companies in the business of making television sets to want to incorporate the new tube in their products. In this case, the manufacturer with the shortest total time to market will stand a greater chance of winning market mindshare. The company with the most agile supply chain would be the first to release a product sporting the new tube technology. They would be able to make engineering and design changes faster and rapidly reduce their work-in-process inventory to ensure that they would not be left with dead-stock or have to release older models at distressed prices when the new model reaches the stores.

In reality, most businesses will have to discover a balance between speed and agility. The equation may be more or less balanced in either direction depending on the business and its supply chain.

Some of the methods businesses can use to promote agility include

1. Promoting information flow between themselves and their suppliers and customers. The faster information flows from end-to-end the better each business' visibility into the nature of actual demand and supply becomes.

2. Developing collaborative relationships with suppliers by defining tasks that each business does internally and then collaborating the resulting data with each other.

3. Designing for postponement.

4. Building inventory buffers by maintaining a minimal safety stock of inexpensive components and closely aligning safety stock quantities with customer service levels.

5. Having a dependable logistics system or partner.

6. Drawing up contingency plans and developing crisis management teams.

Adaptability

"Great companies don't stick to the same supply networks when markets or strategies change. Rather, such organizations keep adapting their supply chains so they can adjust to the changing needs."

"The 21st-Century Supply Chain"
- Hau L. Lee

All markets are susceptible to structural shifts that can impose dramatic long-term changes on customer needs. We do not have to look far back in history to see the impact such changes can have. An example is the recent trend toward outsourced manufacturing and then offshore manufacturing. Such shifts occur due to numerous reasons. The best defense businesses have is to constantly monitor economies to identify such shifts ahead of time and restructure their supply chains accordingly.

Some of the methods busineesses can use to promote adaptability include

1. Monitor economies all over the world to spot new supply bases and markets.

2. Create flexible product designs.

3. Use intermediaries to develop fresh suppliers and logistics infrastructure.

4. Evaluate the needs of ultimate consumers—not just immediate customers.

5. Determine where companies' products stand in terms of technology and product life cycles.

Alignment

One of the greatest challenges businesses face when embarking on the road to DDSN is that of alignment. After decades where each business took care only of its own affairs, maximizing its own interests, guarding its own data and sometimes spying to acquire the knowledge of competitors, collaborating and sharing is not something to which business owners take an immediate liking. Yet, by its very definition DDSN is not something one company can do in isolation.

A major motivator in getting individual businesses in a supply chain to collaborate is to get them to see a greater alignment. Most business owners are aware that aligning supply chain interests with their own is beneficial to their business. Business owners know first hand that a lack of alignment causes many problems. Here are some of the methods businesses can use to promote alignment:

1. Exchange information and knowledge freely with vendors and customers.

2. Lay down roles, tasks, and responsibilities clearly for suppliers and customers.

3. Equitably share risks, costs, and gains of improvement initiatives.

Conclusion

It is possible for small and medium businesses to implement demand-driven supply networks, although it is unlikely they will initially need to implement all the "bells and whistles." Selective implementation of high return methods can promote agility, adaptability, and alignment and enable SMBs to successfully implement and participate in DDSNs.

Joining the Sarbanes-Oxley Bandwagon; Meeting the Needs of Small and Medium Businesses

The need for solutions that can meet compliance regulations has grown. In 2004, finance executives around the world became increasingly sensitive to the need to improve reporting in relation to their corporate governance and regulatory compliance obligations. CODA Group, a United Kingdom-based finance management system specialist responded by launching CODA-Control, a task modeling tool (engine), which helps user companies control and audit business processes, and automate data collection for financial reporting. CODA-Control is one of CODA's recently unveiled collaborative solutions, and aids regulatory compliance, period-end financial closing, and automates financial procedures, thus possibly reducing escalating audit costs and lowering the risks of non-compliance. The product takes the organization's best practice model of a documented financial process and automatically generates a dedicated shared, secure, in-house team web site through which the execution of the entire process is controlled. CODA-Control helps transform the organization's processes into highly repeatable, auditable, and controllable events.

Part Two of the Composing Collaborative Financial Applications, CODA series.

As exemplified by CODA-Control, CODA views Microsoft technology as its primary development platform for its process control applications. This should help organizations manage and improve complex business processes, such as those geared towards enabling compliance with the Sarbanes-Oxley Act (SOX) of 2002 and towards facilitating month-end closing. CODA's decision to design a control application using the Microsoft SharePoint Products and Technologies platform has even been cited as a key factor in some customers' decisions to purchase CODA-Control.

To put this into context, SOX was passed by the US Congress in response to a number of high profile financial scandals, such as those at Enron, Tyco, and WorldCom, with the idea of making corporate accounting procedures more transparent to investors and regulators. Even before these fraudulent scandals, missed earnings announcements were often accompanied by chief executive officers (CFO) stating that financial expectations were not met due to a "lack of visibility" into corporate activities. These CFOs would frequently blame unforeseeable events, such as a key customer canceling a major order unexpectedly, or suppliers ramping up prices due to a shortage of raw materials. Regardless of the reason, CFOs are increasingly being called upon to give more accurate estimates of their earnings potential, and explanations as to why their company failed to meet these estimates.

Although the SOX law included a number of new mandates, two sections in particular have had clear implications for corporate information systems. Section 404 (Management Assessment of Internal Controls) requires management to assess, on a yearly basis, the effectiveness of its own internal controls and procedures for financial reporting. Section 409 (Real Time Disclosure) requires companies to disclose material changes in their financial condition or operations on a rapid and current basis. These two sections have prompted many predictions regarding how much must be spent on information technology (IT) in order to meet compliance needs (albeit, this may be at the cost of stalled projects in other areas that are now considered lower priority). Section 404 requires audits of internal controls, and has caused executives to reexamine, and possibly replace, operational systems that are not well integrated with financial systems. For example, an accounts payable (AP) system that does not systematically match purchase orders and receipts to vendor invoices, before the payment is made, might be vulnerable to fraud. Such a system may also be vulnerable to abuse by someone who creates fictitious employees and suppliers and then pockets the money. In addition, an invoicing system that is not integrated with shipping might allow a manager to improperly recognize revenue that was not yet earned.

Section 409 seems to call for a more transparent and integrated financial reporting system than many companies have. For example, companies that work on a ten day financial closing period seem to be at risk for non-compliance with real time disclosure, which currently demands the disclosure of material events within forty-eight hours. The problem is particularly acute for firms with multiple operating units and decentralized systems, because, in recent years, many enterprises have grown both organically and through acquisitions. As a result, accurately reporting on these business units requires a significant number of "manual" accounting processes and adjustments. Such companies will either need to adopt a common financial reporting system, perhaps by integrating multiple systems with a financial reporting layer at the corporate level, or by implementing a corporate performance management (CPM) solution to provide near real time analytics.

In any case, the requirements of SOX increase the amount of required manual processing, which, in turn, significantly increases the cost of compliance. The ongoing cost of testing manual financial controls to ensure SOX compliance, and the ongoing compliance risks associated with those controls are forcing companies to move towards financial systems that not only record transactions, but also manage the entire SOX 404 compliance process. Early adopters of SOX-compliance have reportedly learned some hard lessons by using SOX programs that highlight manual, paper-based processes. Such processes are very costly to audit as commpared to automated processes, and it is quite time-consuming to reconcile and correct errors. Such systems are also at higher risk for human errors and omissions.

In light of this, small or medium business faces a daunting task. It is no longer enough for a company to develop a strong business plan, have a breakthrough product or service, and build strong and effective distribution channels. The complexities of today's business world have created new risks, with a myriad of regulations and complex reporting requirements that can overwhelm a lean and focused organization, regardless of its size. The logical question is how a smaller organization, with limited resources, is supposed to cope with all of this, and, even more importantly, how it will stay abreast of the additional changes that are on the way. For instance, under existing (and soon to be outdated) accounting rules, a company might value its inventories at historic cost. For example, an electronics goods vendor might value unsold, months-old DVDs at the amount they could have been sold upon their initial release. However, under the forthcoming proposed International Accounting Standard (IAS-2), a company has to give an up-to-date net realizable value (NRV). In other words, it must give an accurate estimate of the products' market value at the time the report is published, with the idea that all corporate assets must be valued at their fair value, rather than at their problematic historic cost. Companies will also need to account for the cost of all employee compensation plans. In particular, this means that the cost of stock option plans or any shortfall in company pension funds must be recorded in the accounts.

Given the magnitude of tracking these types of nuanced accounts, the only sensible answer is to use technology, since many tools have been developed that can greatly simplify the process. Indeed, new versions of compliance software represent big improvements over earlier incarnations. Certainly, in addition to CODA-Control, recent releases from Axentis, ACL Services, Certus, Oversight Technology, Hummingbird, OpenPages, Virsa Systems, Precision Consulting, and Approva reflect a more realistic understanding of the compliance burdens. Some of these solutions compare a company's current controls to compliance "best practices", offering solutions on how to shore up weaknesses and better segregate duties. For example, the software can govern who has clearance to write checks to vendors, to pay employees, or to add revenue in a given quarter. Such software can also enforce the rules by, for example, alerting compliance watchdogs if an unauthorized person attempts to make changes, and can thus act as a mechanism to prevent fraud. Other solutions can help managers document policies and procedures, create electronic archives of those policies, or flag internal transactions that look suspicious.

Investment in CODA-Control-like financial systems might provide a cost-efficient solution that would allow business managers to focus more time on operations and less on compliance. Further, these systems might allow user enterprises to streamline the integration of new divisions into their financial systems and processes, ensuring that the business processes of the acquired units are SOX 404 compliant. Nonetheless, before they can benefit from this technology, small business managers must select the right tools. For more on the critical attributes of SOX tool sets, as well as a discussion on how to use them effectively to maximize payback on the investment of time and money, see Attributes of Sarbanes-Oxley Tool Sets.

Many SOX-compliant businesses will likely still spend many thousands of labor hours and millions of dollars in documenting their accounting processes. In addition, many companies will continue to incur significant annual audit fees for the ongoing testing of manual processes. CODA-Control might come in handy as a practical and affordable solution to this problem for medium to large companies, since CODA can transform manual processes into visible, repeatable, controllable, and auditable events. In other words, it might make auditing simpler, quicker, and cheaper, and thereby change CFOs and controllers back from being slaves to SOX to being masters of finance. In particular, the automation and centralization of manual processes should reduce both the risk and the associated costs of audits because the required checks and balances should be enforced by the system. In addition, processes in remote locations can be tested centrally, re-keying errors are eliminated (and reconciliation effort is thus reduced), and authorizations can be captured electronically and viewed on-line, because one can implement preventive controls to preempt errors before they occur. While there is no panacea for ensuring adherence to documented best practices, automated process management, such as the CODA-Control solution, still seems to be an essential part of first two years or so of any SOX compliance program.

The CODA-Control solution is available to all organizations, particularly those subject to SOX-compliance, and is independent of a company's financial accounting system. A Microsoft SharePoint web site powered by CODA can deliver tasks, forms, attachment, documents, etc. to business units' diverse transactional systems, and even include all necessary language translations. CODA expects demand for the solution to be extremely high in 2005 and 2006, and has specialist implementation resources available to support organizations worldwide. Still, while such software can help, it is not going to completely automate compliance, which will continue to be a huge manual effort, as there is no substitute for a manager's understanding of the business when it comes to assessing, designing, and implementing proper internal controls.

Recent Summer Acquisition Spree:Compliance is a major issue in the US, particularly as more organizations struggle with the provisions of SOX, but it is also rapidly becoming a key issue in many other countries as legislation is introduced around the world to improve corporate governance. Thus, in August 2005, to further bolster its financial control capabilities, CODA announced an acquisition agreement and partnership with Control Solutions International, a global provider of assurance, risk management, and compliance advisory services. Founded in 1991, Control Solutions was one of the first firms dedicated solely to providing support to internal audit functions and to helping companies realize the benefits of effective internal controls. Control Solutions' services include internal audit outsourcing and co-sourcing, SOX first-year compliance and annual recertification, technology audits and advisory services, quality assurance reviews, enterprise risk assessments, and internal audit start-up services. The firm has reportedly developed close and long-term relationships with a diverse client base of leading companies through flexibility, open communication, and a "value-added" project approach. It has over 800 experienced internal audit professionals and 21 directors in offices around the world.

Under the terms of the agreement, CODA acquired the Sarbanes-Oxley Controls Evaluation Tool (SOCET) product from Control Solutions. SOCET is a Web-based internal controls documentation, evaluation, monitoring, and project management application designed to facilitate SOX compliance, and is currently deployed at a number sites of Control Solutions' major customers. CODA pledges to take on the future development and marketing of the product, whereby existing customers will receive support through the US-based support desk of CODA Financials Inc., part of the company's global support operation. Also as part of the agreement, Control Solutions and CODA will jointly develop additional, comprehensive compliance software products to help customers comply with SOX and other regulations, such as the European Union's Basel II.

Control Solutions has leveraged its breadth and depth of internal audit experience to assist over 250 US-listed companies with SOX readiness and ongoing compliance. After achieving a quick compliance fix , the next challenge for companies is "making SOX stick" , turning the near-impossible project into a practical and sustainable process, where documented processes are transformed into systems that drive the finance function. Accordingly, SOCET adds effective management dashboard reporting to the features of CODA-Control. The combination should bring additional value to existing customers. With the addition of SOCET and the opportunity to capitalize on Control Solutions' SOX expertise, CODA hopes to soon be a one-stop software shop for the whole process compliance cycle.

Future versions of SOCET, now re-branded as CODA-Control Assessor will support compliance with international regulations, since, while Control Solutions will provide the internal controls experience, CODA will provide the software to deliver it. Additionally, CODA-Control currently provides a Web-based platform for defining, rolling out, monitoring, and executing a complete range of financial, human resource (HR), and IT processes, in order to provide the visibility, repeatability, and an audit trail that is required to drive ongoing adherence to a user company's defined compliance procedures. SOCET similarly provides a Web-based environment to facilitate the testing and evaluation of financial, HR, and IT processes by an organization's internal audit team. The tool also provides management information on the status project testing and presents the information in an executive dashboard. As such, CODA's existing compliance application and SOCET are functionally highly complementary. On the technology front, both leverage Microsoft .NET, Internet Information Server (IIS) Web Server, and Structured Query Language (SQL) Server databases.

Control Solutions' deep expertise and experience in running over 250 SOX compliance projects in the US have shaped the design of SOCET. By transferring ownership to CODA, existing users should benefit from both CODA's support infrastructure and ongoing development, while CODA can continue to draw on Control Solutions' domain experience for the product's ongoing design. The roadmap for SOCET shows that the solution will become integrated into the CODA compliance suite (whose footprint will thereby be extended), while retaining its current ability to run as a standalone application. CODA will shortly announce a solution to greatly accelerate the design of controls and thereby provide a more complete solution for designing, implementing, sustaining, and testing the controls for SOX and other existing and emerging compliance initiatives, globally.

At this stage, even without SOCET's additions, CODA-Control delivers a centralized management and document repository. This is a repository web site that pulls together the tasks, people, supporting documentation, and necessary choreography to ensure that the process is completed in a compliant and efficient manner. It will also offer reasonably quick deployment and adoption and will be an easy-to-use implementation of a best practice model for a given financial process. CODA-Control also has a minimal user learning curve that leverages existing Microsoft Office skills and existing back-office applications. The product will also foster consistency throughout the framework to implement preventive controls that ensure repeatability of process completion, and this will be done in a way that promotes continuous process improvement. It will also offer "Command Center" visibility of current process status, percentage of completion, current hold-ups, task assignments, etc., and an entire audit trail of tasks, documents, commentary, etc. These features will be accessible to users and their auditors via an intranet uniform resource locator (URL). However, the product is also an extensible platform that supports automated task completion using Web service interrogation and automated updates of back-office systems. It also associates electronic forms to their related tasks using Microsoft InfoPath, and ccontrols both recurring financials processes (such as period-end closing, internal audit programs, budgeting, planning cycles, etc.) and ad hoc processes (including new hires, new vendors, capital projects etc.). Last but not least, the product also controls business processes such as the opening of new locations, corporate responsibility programs, HR processes, and so on.

In July 2005, CODA announced that it had also acquired Simple Concepts AB, a financial consolidation software specialist for �3.25 million, plus incentive based payments. Simple Concepts' consolidation and treasury system, OCRA, will be made available worldwide as part of the CODA Financial Intelligence suite for all leading enterprise resource planning (ERP) and finance systems. Simple Concepts' offices have become the headquarters of CODA's new Nordic operation and Simple Concepts' office in Tallinn, Estonia is CODA's first directly owned operation in Eastern Europe and the Baltic states, and will continue to be the research and development center for OCRA. As part of the acquisition, CODA has retained the services of both of Simple Concepts' founders; Alar Lange is the managing director of CODA Nordic, while Lars Svensson retains responsibility for the development of OCRA.

The acquisition had apparently been in the works for a while, and when the announcement was made, CODA had already built CODA-Financials to integrate with the acquired product. The product, now branded OCRA: a CODA solution, will immediately be made available in a standalone form, and as an integral part of the CODA Financial Intelligence suite. OCRA will be available with CODA Dream, a product offering for the lower-end of the market. CODA Dream resulted from CODA's early 2003 acquisition of the former SquareSum, and will be made available to customers and prospects in the fourth quarter of 2005 or possibly earlier. OCRA is reportedly the number one consolidation product in Sweden. Over ninety client organizations in Scandinavia use the product as their core consolidation and reporting tool, and CODA has a number of CODA Financials customers who have multinational requirements, which should make OCRA appealing. OCRA has gained a reputation in Europe as being a functionally and technically superior solution, because it is Web-based and uses a powerful workflow (as will be detailed below). It also is only a fraction of the cost to implement when compared to current traditional market leaders which will likely be another incentive for users to adopt the tool.

Consolidation applications handle the process of analyzing, reporting, and reconciling the accounts from across a group of companies into a single "consolidated" group report. Financial analytics software works by consolidating data from disparate systems into one source, giving financial analysts—and, more crucially, decision makers in other departments—a consistent view of performance across the organization. Using simple queries, such as "What were our sales figures in a particular region this quarter?", through a browser or a client-server user interface (UI), managers can get a "single view of the truth" and significantly reduce the amount of time it takes to get the desired financial answers.

Unlike most of its rivals, OCRA delivers this capability via the Internet, and it combines operational financial control with statutory group accounting, and delivers multi-dimensional reporting with a whole range of options, via built-in reporting and analysis through its hybrid multi-dimensional and hierarchical database structure. Also, OCRA is designed around a workflow method with embedded rules, procedures, and techniques used and verified by auditors with years of experience. The product is currently available in English and Swedish, and is being translated into CODA's core languages. Other languages will be delivered according to customer demand.

A logical, intuitive UI provides a process view of the consolidation steps, making OCRA reasonably easy to use. Its Web-based architecture makes deployment relatively flexible, and also allows it to be used remotely, with up to hundreds of user. Thus, OCRA has the functional capability and implementation flexibility required to support management consolidation reporting requirements, regardless of geography. Culturally similar to CODA, its new parent, Simple Concepts built OCRA by focusing on software quality and with the need for minimal support in mind. By taking this approach, customers have reportedly needed only minimal support from the vendors. The product has also been optimized to allow an efficient software upgrade process. Simple Concepts has also enjoyed excellent input from clients and industry experts who sit on an advisory board, and CODA plans to continue this part of OCRA's development process with only minor modifications.

By adding consolidation and treasury capabilities that manage the inter-company processing of transactions and support in-house banking, CODA strives to become a one-stop shop for financial departments. It also provides functionality for financial accounting and procurement through to planning, budgeting, reporting, and analytics, and process control and compliance management. However, the vendor will continue to sell OCRA as a standalone module that can run across non-CODA financial and accounting management products. CODA's domain expertise in global financial accounting requirements, coupled with its implementation experience in over one hundred countries, better positions CODA to deliver consolidation and financial reporting tools than vendors who are not accounting specialists, touting generic reporting tools.

Profitable-to-promise: A New Exciting Era

You could be following make-to-stock, assemble-to-order, engineer-to-order, make-to-order, or any of the many other variant manufacturing environments that are available to fulfill your customer orders. In all cases, you are always faced with the perennial question of how to stick to the delivery dates you have promised to your clients. In the case of make-to-stock companies, the relationship between inventory and customer service levels (read: delivery date compliance) is always a tenuous one. Even if you keep surplus stocks at each distribution point, it may not help you to achieve desired customer service levels as the product mix may not be appropriate, there may be problems in transportation etc. In the case of make-to-order companies, any link in your supply chain may fail, and you can end up with poor service levels. Even worse, your manufacturing finite capacity calculations may be wrong making it simply impossible to deliver the goods on the promised dates.

On the one hand, you have to worry about the customer service level. On the other, you have to look after your bottom line. If you are providing desired customer service levels but your cost for this service level is too high (because some lower priority orders have been discarded, or optimization in your production process has been minimized or done away with, and so forth) then you will not be profitable. That is why you will have to make a balance between the bottom line and service levels.

There is one factor which can influence this balance substantially, though. What if you are able to provide the desired level of customer service, and at the same time, improve your bottom line? This sounds exciting but how it can be achieved?

The functionality required to calculate an accurate delivery date is dependent on many components of the supply chain system including material requirement planning (MRP), master production scheduling (MPS), advance planning and scheduling (APS), supplier management, transportation and distribution systems, etc. If these components do not work properly for you then you will not be able to calculate delivery dates accurately.

To see if you are able to keep your bottom line in check, you need to know what are your costs (such as material costs, inventory costs, production costs, stock out costs, transportation costs, etc.) for delivering the orders and what price you are getting for your products. Once again, these same components of your supply chain system along with your accounting system will give you the figures for your costs.

At least for these reasons, it is important that your supply chain system gives you proper results. Literature is available from many software vendors on how to achieve this using their software, but unfortunately, many of these software systems fail when actually put into operation. Even though systems may incorporate the functionality to calculate delivery dates and check your bottom lines, the foundation components upon which this functionality is built may be weak and so the systems will fail to deliver good results.

Here are some techniques to calculate delivery dates. These techniques also take into consideration your bottom lines, though the degree to which your profitability can be figured vary, depending on both capability of the software as well as the fitness of the software to your operating environment (this is the reason the software should fit 100% to your operating environment). The effectiveness of these techniques varies from industry to industry. Industries which benefit from the different types of delivery date calculations are included below.

Available-to-promise

If you are a make-to-stock manufacturer, then this technique will help you substantially. Many industries like chemicals, paints, pharmaceuticals, CPG, food, oil & gas follow the make-to-stock manufacturing strategy. Here the manufacturer makes products and distributes them to their distribution points. From distribution points, the customers buy the products. If available-to-promise functionality is implemented correctly, then these manufacturers will be able to save money by reducing inventory levels, reducing transportation costs. At the same time, they will be able to increase customer service levels. This is accomplished by reducing lead times and traveling distances in transportation, analyzing product mix at distribution points, and making sure that the products which sell more will have more quantity in hand compared to slow moving products. At the same time, optimal quantities of all finished products should be stocked so that there is neither stock-outs nor excess inventory at any distribution point at any point of time. This will make sure that your bottom lines are in check.

The weakness of this technique is that the profitability of your business can be measured only at the batch level, at, for example, the planning period level but not at any individual order level.

Capable-to-promise

If you are a make-to-order, engineer-to-order or assemble-to-order company then capable-to-promise functionality will be of immense help to you. In this case, you need to look into your manufacturing capabilities to see when incoming orders can be fulfilled. For this, the software looks into your bill of material and calculates work-in-order and raw material requirements. The software also looks into routing of materials through your work centers to determine the lead times required in production. Then the software looks into manufacturing constraints and optimizes by grouping, sequencing, and breaking orders. Many industries such as textiles, primary and secondary metals, furniture, automotive, semi-conductor materials, paper, packaging, and so forth follow this strategy.

The weakness of this technique is the same as described for available-to-promise. This technique is much more difficult to implement compared to available-to-promise because of the need to group and sequence orders against finite capacity of your manufacturing facility.

Profitable-to-promise

If you are a manufacturer and have a big product mix and many kinds of customers then you can prioritize individual orders based on the margins, preferred customer, preferred orders or any other criteria, which affects your bottom line. You can directly see the effect of any individual order on your bottom line and so you will be able to make decisions whether you will like to accept or reject the order. Sometimes urgent orders come and you will want to determine if shifting or canceling other, not-so-important orders will affect your bottom line.

If raw material availability, machine capacity, and production lead time are known at the time of order taking, then it is possible to give a definite delivery date to the customer. This is known as capable-to-promise. If we can also provide information about customer, production, inventory, stock out, material, and other overhead costs down to the item level, and then after comparing all costs which will be incurred for making and delivering the order to the selling price, it will be possible to decide at the time the order is being taken whether the incoming order should be taken and what priority it can be assigned.

In conjunction with above mentioned factors, a planning system that is also capable of grouping, breaking, and sequencing orders while it is doing total lead time calculations to determine a delivery date will solve many production planning problems. It will eliminate waste, reduce the generation of extra inventory, increase machine capacity utilization, increase customer service levels, eliminate stock out costs, and reduce production costs.

Profitable-to-promise is the exciting new idea, which has extended the benefits of capable-to-promise and available-to-promise to a new high level for customer to improve their bottom lines. Customers should look for these new features in the software they are evaluating but should also be cautious of the claims of the vendor. Profitable-to-promise can work well only when your order management system, supply chain system, and your ERP work well together to give accurate delivery dates as well as give your exact costs in making the orders.

Profitable-to-promise analysis allows the business to find out if the particular order will be profitable to make considering the raw material costs, process costs, inventory costs and other costs against the price the customer is willing to pay. Thus it can be seen that some orders will be a lot more profitable than other orders. This analysis is perfectly possible if you have the right software tool which can provide you with this kind of information.

A software system capable of profitable-to-promise ability must be having a solid base on which it can deliver this functionality. The major components of this base include good MRP, MPS, APS, distribution and transportation, supplier management, and in fact, most of the components of the supply chain management software. It will also need good manufacturing accounting software to provide crucial financial data. The order data information including the price of goods and value of orders will come from order information management software.

If all of these components are in place and are working in harmony then it is possible to achieve this feat.

Profitable-to-promise works well for all industries whether it is discrete, process, mill, or flow manufacturing. The only difference in how it works is on the basis of whether the manufacturing is in make-to-stock or make-to-order environment. In case of make-to-stock companies, profitable-to-promise works on the data from distribution planning. In case of make-to-order companies, profitable-to-promise works on data from production planning. Profitable-to-promise is well-suited for businesses who face the dilemma of sacrificing some orders to fulfill some particular orders. Using profitable-to-promise, businesses can have a strong hold on their service levels as well as their bottom lines even at the individual order level.

The manufacturing industry as a whole is going through a lot of changes. The most crucial change that is happening is the kind and size of orders that a manufacturing business receives. Variation in the size of orders, demand for early delivery dates, variation in range of products which are ordered are some examples that contribute to the manufacturer's headache. Total number of products, which a manufacturer produces, is on the rise. The other change is the way the manufacturer treats all incoming orders. In the fierce competition and slow economy scenario, no manufacturer would like to lose even small orders if the order is profitable.

Profitability and customer satisfaction are the two most important considerations for any company. Making timely decisions based on integrated information is critical to achieving your goals for profitability and customer satisfaction. Any of the above mentioned techniques, particularly the profitable-to-promise functionality allows you to have a total control of your manufacturing or distribution network.

It is not easy to calculate accurate delivery dates especially if your business requires grouping and sequencing of orders. Only software systems which are built on a strong foundation of underlying supply chain system can accomplish this. Similarly, it is difficult to get your total costs data accurately for individual orders and not many software systems can do it. So if you are evaluating any order promising system, make sure that the underlying supply chain system on which it is built meets your specific requirements and can deliver goods.

Tools and Practices that Deal with Waste

So, how can IT support lean manufacturing? For one, while complex packaged enterprise (ERP, SCM, etc.) systems may seem inconsistent with the simplicity of visual control, they actually work well together. In fact, although visual signals, such as kanbans and status indicator lights, are an effective way to trigger factory floor activities and the movement of materials, their inherent weakness is their lack of memory—visual signals cannot be recorded or tracked to determine historical performance or provide real time status for anyone that is not in direct view.

Yet, by coupling visual controls with real time collection of data from the factory floor, manufacturing enterprises should be able to capture the critical information behind the visual control signals for management oversight, planning, and accounting purposes. This information can be used for statistical analysis, to measure historical performance, and to monitor status—all of which are essential elements of the continuous improvement that lean manufacturing emphasizes. Lean aspiring manufacturers can also use enterprise systems to replace some visual controls, such as physical kanban card signals, with electronic ones, as a way to improve efficiency further and eliminate non-value adding activities.

Furthermore, these systems can play a critical role in establishing and ensuring standardized work. This is because they can serve as the central repository for critical engineering or product data management (PDM) information for standardized work, including BOMs, process routings or operations, valid product configurations, work instructions or SOPs, engineering change notices (ECN), schedule information, and costs. More robust solutions can even track as-designed, as-built, and historical actual product information, which can be analyzed to determine the impact that product changes have on efficiency and productivity.

Lean teams operate visually within the lean factory and move products as they determine necessary by visual signals on the shop floor. On the other hand, enterprise systems only send production information after such data has been entered into the software, which then activates triggers that move the information to the downstream recipient, letting them know it is their turn to work on the part. Even if this delay is not exactly in tune with lean principles, these lean teams still need data stored in enterprise systems, which contains information needed to perform their job (e.g., what to do with the part when they get it), understand the requirements of their customers (e.g., size, color, etc.), and understand the specifications of the job (e.g., quantities needed).

Enterprise systems also allow for this information to be organized, and, in some solutions with built-in workflow management capabilities, make this information easily accessible for employees to support engineering, production, regulatory, and customer needs. Some enterprise systems with constraint-based planning can help manufacturers reduce setup times, while those with strong enterprise asset management (EAM) capabilities can help implement total productive maintenance (TPM). These systems also allow for the near real time monitoring of factory floor activities, as they provide manufacturers with critical status information required to prepare for and execute changeovers. This status capability can be used to monitor machinery and equipment and communicate the completion of jobs or critical events such as breakdowns instantly.

Enterprise application systems, such as ERP, can also be used successfully to support lean enterprise transformations, especially for manufacturers that have highly variable demand for a large number of products and who operate in mixed-mode manufacturing environments. To apply lean principles to these new environments presents manufacturers with special challenges that the right ERP system can help overcome, such as the increased difficulty of calculating heijunka schedules, more frequent adjustment of kanban sizes, and increasingly smaller leveling periods. In these instances, the solution must have a planning system that can smooth demand for items with highly variable demand, and act as a shock absorber to maintain continuous flow and leveled production. The solution could also use a real time monitoring and feedback system to synchronize operations and trigger the movement of materials, as well as have automatic backflushing capabilities for demand-based inventory management and replenishment.

In fact, enterprise systems can even be used to support mistake proofing, thereby helping to prevent manufacturing defects from occurring in the first place and minimizing the impact that defects have on downstream activities. Computerized systems can prevent product defects by making standardized processes, critical documentation, and other quality information available to production personnel on an as-needed basis. Monitoring systems can also be used to flag defect-related issues instantly, alert downstream workers and activities, and record information for later analysis. On the other hand, rate-based scheduling applications can be used to stop production within manufacturing cells, allow workers to identify and correct defects, and then reschedule and restart production quickly to limit the impact on downstream processes. ERP systems can also allow manufacturers to backflush selectively for items and components affected by defects.

Total Productive Maintenance:Lean manufacturing further requires manufacturers to address equipment productivity issues through the adoption of total productive maintenance (TPM), which is a set of techniques, originally pioneered by Denso in the Toyota Group in Japan, that consists of corrective maintenance and maintenance prevention, plus continual efforts to adapt, modify, and refine equipment to increase flexibility, reduce material handling, and promote continuous flows (see Lean Asset Management—Is Preventive Maintenance Anti-lean?). TPM is operator-oriented maintenance that involves of all qualified employees in all maintenance activities. Its goal, hand in hand with the aforementioned five S's, is to ensure resource availability by eliminating machine-related accidents, defects, and breakdowns that sap efficiency and drain productivity on the factory floor. This includes setup and adjustment losses, idling and minor stoppages, reduced operating speeds, defects, rework, and startup yield losses.

Machine breakdown is a critical issue for the shop floor, as in a lean environment one machine going down can stop the entire production line or flow. Accordingly, TPM and other advanced enterprise asset management (EAM) options increase equipment reliability, and thus improve availability, reduce downtime, reduce product scrap (and wasted time managing that scrap), and increase machine tolerances (and consequently quality). As a further aid, diagnostics management features can automatically identify situations where the current maintenance strategy is not working and trigger a continuous improvement review. This often requires support for reliability driven maintenance (RDM), which can underpin the TPM strategy (see Reliability Driven Maintenance—Closing the CMMS Value Gap?). Finally, enterprise systems that can synchronize maintenance and production planning should maximize the available production time and contribute towards greater throughput and overall equipment effectiveness (OEE).

Simulation is another tool to help reduce maintenance-related waste. By supporting simulation, advanced service management systems typically include maintenance scheduling based on production plans, with automated update of the maintenance schedule based on actual finished production (with electronic links into the equipment's own runtime meters to schedule maintenance). The idea is to eliminate the following "big six" maintenance-related wastes.

1. Equipment downtime
2. Setup and adjustments
3. Minor stoppages or idleness
4. Unplanned breaks
5. Time spent making rejected product due to machine error
6. Rejects during start ups

Cellular Manufacturing

Moving from maintenance to manufacturing processes, the lean philosophy traditionally depends on cellular manufacturing, which is a manufacturing process that produces families of parts within a single line or cell of machines controlled by operators who work only within the line or cell. Manufacturing cells, arranged to ergonomically minimize workers' stretching and reaching for parts, supplies, or tools to accomplish the task, often replaced traditional, linear production lines to help companies prroduce products in smaller lot sizes, ensure a more continuous flow, and improve product quality. A related concept, nagara, is the Japanese term used to depict a production system where seemingly unrelated tasks can be produced by the same operator simultaneously. Nowadays, however, lean thinking is moving beyond pure cell- and product grouping-based production.

Single-digit Setup

Since lean manufacturing requires manufacturers to produce to customer demand only, it requires them to make products in ever smaller batches. This is opposed to the traditional long runs of equipment and the fallacy that it is more efficient to run a big, EOQ-based batch rather to run several shorter ones that include changeovers. Yet, long runs mean large inventories, which in turn tie up large sums of money and keep customers waiting longer for finished goods and services. This trend toward smaller batches has created a need to reduce setup and changeover times throughout the manufacturing process. This is accomplished via the various embodiments of the single-digit setup (SDS) idea of performing setups in less than ten minutes (e.g., through astute jigs, optimized sequencing of internal and external process activities, roller tables or conveyers, hydraulic clamps, knobs and quick, fasteners, etc.). Related to this is the single-minute exchange of die (SMED) concept of setup times of less than ten minutes, which was developed by Shigeo Shingo in 1970 at Toyota.

Pull System

A pull system is another key characteristic of lean, demand-driven manufacturing, since the ultimate goal here is to have the flow of materials controlled by replacing only what has been actually consumed. Pull systems, also known as kanban (coming from the Japanese words kan, which means "card", and ban which means "signal"), ensure that production and material requirements are based on actual customer demand rather than on inevitably inaccurate forecasting tools. A kanban signal, which can be a card, empty squares on the floor for bins, lights, or a computer software generated signal, triggers the movement, production, or supply of materials or components that are usually held in bins of a fixed size. The aim is to improve inventory control and shorten production cycle times by controlling the level of inventory and work by the number of kanbans in the system. Over time and with process improvements, the quantity of components in the kanban bin can be reduced or resized dynamically, on-the-fly, as required.

Pull systems and pull signals (i.e., any signal that indicates when to produce or transport items in a pull replenishment system) can be found in many operational departments. For example, in just-in-time (JIT) production control systems, a kanban card can be used as the pull signal to replenish parts for the using operation. In material control, the withdrawal of inventory can also be demanded by the using operation, with material not being issued until a signal comes from the user. Likewise, in distribution, there would be a pull system for replenishing field warehouse inventories, where replenishment decisions are made at the field warehouse itself, not at the central warehouse or plant.

Conversely, materials requirements planning (MRP) is a push system, which schedules production based on forecasts and customer orders. Thus, MRP creates plans to "push" materials through the production process based on forecasts that by nature cannot be accurate. That is to say, traditional MRP methods rely on the movement of materials through functionally-oriented work centers or production lines (rather than lean cells), and are designed to maximize efficiencies and lower unit cost by producing products in large lots. Production is planned, scheduled, and managed to meet a combination of actual and forecast demand. Thus, production orders stemming from the master production schedule (MPS) and MRP planned orders are "pushed" out to the factory floor and in stock.

Sequencing and Mixed-model Production:Another lean tool is sequencing, or determining the order in which a manufacturing facility will process a number of different jobs from one production line in order to achieve objectives (e.g., the quantities needed daily). This is also referred to as mixed-model production, as it makes several different parts or products in varying lot sizes so that a factory produces close to the same mix of products that will be sold that day. The mixed-model schedule or sequence governs the making and the delivery of component parts, including those provided by outside suppliers. Again, the goal is to build models according to daily demand. This is of paramount importance in the automotive industry, given that competition for a growing percentage of sophisticated consumers in the global marketplace is driving automotive original equipment manufacturers (OEM) to offer products with an ever-increasing number of features and options.

Today, from the perspective of pure functionality, cars and trucks are becoming a commodity, and competitive product differentiation can therefore be achieved mostly through offering unique colors, fabrics, styles, features, and option packages, which create thousands of potential combinations for any given type of vehicle. Stocking all of these combinations is price-prohibitive, while discovering whether a particular vehicle combination was produced is much too time-consuming, akin to finding the proverbial needle in a haystack. In addition, fastidious customers expect immediate availability of unique vehicle features and option sets. These factors create a conundrum—how to quickly and profitably deliver a customized, finished vehicle.

Allowing buyers to uniquely configure their own vehicle and delivering their "perfect order" within a reasonable timeframe requires a radical departure from the traditional methods of mass production. This new process identifies the unique, individual requirements of each vehicle and synchronizes its assembly with JIT delivery of specifically configured components from suppliers. These components are then delivered to the OEM assembly plant in the exact sequence that each car or truck goes down the final assembly line, which allows the OEMs to produce a tailored vehicle for each customer.

It boils down to the fact that suppliers today are confronted with the dilemma of guaranteeing high levels of customer satisfaction as measured in on-time deliveries and high product quality at reasonable costs, while simultaneously striving to maintain low levels of inventory. For instance, if a car buyer selects or modifies the color of leather seats in the vehicle he orders just one week before that vehicle starts production, how can the supplier provide it if it takes the supplier twelve weeks to buy the leather that goes onto the seats? Furthermore, within the supply chain itself actual requirements and projected demand for component parts are typically out of sync.

Historically, these problems have been overcome by maintaining additional quantities of raw or finished material as a "buffer" against requirements that exceed projected amounts. This extra downstream inventory, along with the attendant time lags and postponements in delivery caused by spikes in demand, conspire to add to the overall levels of inventory carried by suppliers. However, these practices seem to be changing since the advent of solutions, such as QAD JIT Sequencing Module (JIT/S), which help suppliers execute the JIT delivery of configured components while simultaneously coordinating supply and demand to minimize inventory levels and reduce the amount of extra costs caused by expediting activities in the supply chain. To do this, the JIT/S module integrates the mid-range or long-term planning and supply chain communication functions of MRP processes with its execution processes, which are focused on manufacturing configured products that are delivered to the customer at the exact time they are needed.

Such solutions illustrate the difference between kanban and other lean manufacturing techniques and JIT sequencing. Both are execution-oriented, since both respond to demand in near real time. However, lean manufacturing customarily tends to focus on the replenishment and supply of commodity parts (i.e., parts that are shipped in standard packs by the dozen or as case lots), while JIT sequencing concentrates on unique (or configured) parts, which are shipped individually or shipped with other configured parts of the same kind. In practice, kanban communicates a fixed quantity of demand over a variable time frame, or a variable quantity of demand over a fixed time frame. Neither of these processes adequately address the configuration requirements seen in sequencing. In other words, while kanban systems typically manage the supply or production of items with low variability, sequencing manages the production of highly configured, variable items. Therefore, in a JIT sequence, the statement of demand expresses the exact configuration of the needed item. For example a requirement for a seat would be to "deliver tan, leather, left front seat, with heater and electronic motor lumbar support mechanism, by 14:15 for Vehicle Number 12345".

Activity-based Costing

Another waste reduction practice is the allocation of overhead costs on a more realistic basis than direct labor or machine hours. The tool that achieves this is an activity-based cost (ABC) accounting system, which accumulates costs based on activities performed and then uses cost drivers to allocate these costs to products or other bases, such as customers, markets, or projects. The ABC information about cost pools and drivers, activity analysis, and business processes is then used for activity-based management (ABM) to identify business strategies; improve product design, manufacturing, and distribution; and ultimately remove waste from operations. The system is considered to provide a truer reflection of actual revenues and costs than traditional ccost accounting, in which the focus is generally placed on reducing costs in all the various accounts, leveraging the traditional absorption costing approach to inventory valuation in which variable costs and a portion of fixed costs are assigned to each unit of production (whereas the fixed costs are usually allocated to units of output on the basis of direct labor hours, machine hours, or material costs).Leveled production, known in Japanese as heijunka, involves producing products in a specific uniform cycle to overcome the queuing and line stoppage problems associated with traditional manufacturing and to match the planned rate of end product sales. Leveled production means that production cycle times at individual work stations or production cells are coordinated based on the customer demand, so that work moves continuously and smoothly throughout the entire manufacturing process.

One way to achieve leveled production is by implementing takt time (the term is based on the German word for an orchestra conductor's baton, used to regulate the speed, beat, and timing at which musicians play), which means basing the production rate on an estimate of how many units per hour must be processed at each work canter in order to meet market demand. Takt time sets the pace of production to match the rate of customer demand, and becomes the heartbeat of any lean production system. As the "pacemaker" of a lean system, takt time is essential to the smooth flow of work through production cells, and is a key factor in planning and scheduling work. It is computed as the available production time per day divided by the rate of daily customer demand. For example, if one assumes demand is 10,000 units per month, or 500 units per day, and planned available capacity is 420 minutes per day, the takt time would then equal 420 minutes per day divided by 500 units per day, or 0.84 minutes per unit, which means that a unit should be planned to exit the production system on average every 0.84 minutes.

By using takt time, production can be leveled to either a set level or to between a minimum and maximum level. These levels can be set in a computer system for any date and any period length, from a day upwards. Leveled production results in a steady demand pattern, which ensures a predictable, smooth schedule and avoids capacity bottlenecks. This simplifies planning and control (since every day in the plan within the leveled period is basically the same), creates stability in production, and gives operators a far better understanding of what they have to do each day and how they are performing against goals and targets. It also makes life easier for upstream suppliers who can be passed stable schedules.

Closely related to the above concept is line balancing, which can be used in two ways. On the one hand, it can be used to identify the number of workers and the duties each worker should accomplish to meet the changing demands. This requires the balancing of the assignment of the tasks to workstations in a manner that minimizes the number of workstations and minimizes the total amount of idle time at all stations for a given output level. In balancing these tasks, the specified time requirement per unit of product for each task and its sequential relationship with the other tasks must be considered. On the other hand, the technique can be used for determining the product mix that can be run down an assembly line to provide a fairly consistent flow of work through that assembly line at the planned line rate (i.e., takt time).

Flow Manufacturing

In fact, traditionally, lean manufacturing always has kept such a continuous flow of materials in mind. Properly designed manufacturing lines or cells are planned and loaded according to takt time and operate smoothly through the use of the aforementioned visual controls and mistake-proof procedures. Flow manufacturing pulls materials from external supplier or internal feeder operations through a synchronized manufacturing process in order to satisfy customer demand. The term flow manufacturing is closely related to, and thus often confused with, other demand-driven manufacturing strategies that streamline processes and eliminate waste, such as agile, JIT, and lean manufacturing, given that all of these use pull signals to replenish supplies and are subject to continuous improvement. However, flow manufacturing leverages some additional algorithmic techniques to help manufacturers create any product on any given day, and in any given quantity including the "quantity of one" (i.e., EOQ = 1), while keeping inventories to a minimum and shortening cycle times to fill customer orders ever more quickly.

Manual versus Information Technology Enabled Lean Manufacturing

Manual versus Information Technology:It is easy enough to grasp the potential benefits of lean manufacturing (see Lean Manufacturing: A Primer, Lean Tools and Practices that Eliminate Manufacturing Waste, and How to Achieve Lean Manufacturing), but selecting the most appropriate lean techniques or tools and the accompanying packaged enterprise software for an individual enterprise has never been that simple. In fact, it is a major exercise for an enterprise to initially identify the most appropriate tools for eliminating different types of waste. For instance, overproduction could be mitigated by improved changeover times and balanced lines, whereas defects and rework could be curbed by improving visual controls, initiating more complete standard operation procedures (SOP) or operation method sheets (OMS), and implementing mistake proofing techniques at the source of error. Furthermore, waste of excessive inventory could be reduced by implementing kanbans and other similar pull systems, while waiting time could be handled by using takt times, and so on.

This is Part Four of a multipart note.

The trouble is further compounded by the army of software providers (including enterprise resource planning [ERP], supply chain management [SCM], manufacturing execution systems [MES], and product lifecycle management [PLM] providers, as well as best-of-breed, bolt-on lean specialists) that have been hyping their lean capabilities, despite the fact that most of them still support mere nuggets of pseudo-just-in-time (JIT) ways of accommodating mass customization. Providing only support for kanbans, order-less repetitive scheduling, or vendor managed inventory (VMI) or supermarkets, so as to push inventory elsewhere (e.g., onto suppliers) rather than to reduce it across the entire supply chain, is a far cry from true support for lean or demand-driven manufacturing. Where most of these flow manufacturing, lean ERP, or repetitive manufacturing systems fall short is that they have simply automated the most basic of tasks within a lean environment, without addressing larger issues of how to implement lean and pull practices in environments that are not easily amenable to these.

Then again, some people question whether computer systems are even needed for achieving lean manufacturing. After all, some lean tools entail merely physical processes and best practices on the shop floor, where transactional enterprise systems have little to offer. Also, given that computers were not widely available when lean manufacturing and kanbans first emerged, many enterprises have stuck with manually-driven lean methods. For such methods, an evolutionary step forward entails the use of custom spreadsheets and reports to support lean functions such as kanban management and heijunka calculations (see Lean and World Class Manufacturing and the Information Technology Dilemma—The Loss of Corporate Consciousness). It is interesting to note, however, that even in such cases, material requirements planninng (MRP) systems still can be used to hold core master data on items and bills of material (BOM), though these records have to be tweaked with an eye toward lead time-oriented information.
Some lean purists go even further, and believe that lean manufacturing does not mesh well with information technology (IT) systems. For some, the only appropriate technology is Microsoft Excel spreadsheets. Others claim that the best scheduling method is "no schedule at all", giving the lean enterprise the utmost agility to react to any unpredictable event. On the other extreme, many people have become so accustomed to the use of enterprise systems, that they believe we can no longer return to manual procedures (see Run your Business with No Software!).

As usual, the truth might be somewhere in a middle—lean manufacturing and IT are not in opposition, and all good lean systems have both physical systems in the plant and near real time IT backbones that centralize data, especially if there is an automatic data entry and capture function. In fact, some people say that the whole point of the lean philosophy is to simplify the physical processes so that one does not need to manage overly complex data systems, though it is still necessary to manage the relevant data at the points where corrections are needed. To that end, many IT systems are designed to bring from the field only the data that management or decision-makers can do something about.

The reality is that most companies operate in a hybrid, mixed-mode environment where flow or lean and traditional batch or push manufacturing models coexist within the same facility, and where production and demand requirements can change throughout the different stages of a product's life cycle. Manufacturers can produce both high-volume goods with steady demand and low-volume goods with fluctuating demand, and their product mix may include engineer-to-order (ETO), make-to-order (MTO), and make-to-stock (MTS) items.

To successfully operate in this mixed-model environment, one has to take advantage of the strengths of each model and apply them where best suited. Thus, one should use traditional ERP systems for handling long lead-time items, one-of-a-kind production, and products with long production cycles, and for long-term budgeting and planning. On the other hand, lean manufacturing is often more easily applied to manufacturing operations with low-mix, high-volume, make-to-demand products. Moreover, one should not necessarily preclude pull-based execution processes from being implemented in to-order or highly configured operations, where it has also occasionally been done with great success.

Also, as lean spreads beyond the relatively stable manufacturing environment it was originally designed to support, companies realize that IT can play a vital role in streamlining the supply chain (see Moving Beyond Lean Manufacturing to a Lean Supply Chain). Namely, while the lean factory may use kanban pull signals to move product more efficiently through the manufacturing process and out of the door, it is missing the feedback loop from the factory to other functional departments within the organization or to the entire supply chain. That information is primarily transmitted and received via enterprise systems.
How Can IT Support Lean Manufacturing?:So, how can IT support lean manufacturing? For one, while complex packaged enterprise (ERP, SCM, etc.) systems may seem inconsistent with the simplicity of visual control, they actually work well together. In fact, although visual signals, such as kanbans and status indicator lights, are an effective way to trigger factory floor activities and the movement of materials, their inherent weakness is their lack of memory—visual signals cannot be recorded or tracked to determine historical performance or provide real time status for anyone that is not in direct view.

Yet, by coupling visual controls with real time collection of data from the factory floor, manufacturing enterprises should be able to capture the critical information behind the visual control signals for management oversight, planning, and accounting purposes. This information can be used for statistical analysis, to measure historical performance, and to monitor status—all of which are essential elements of the continuous improvement that lean manufacturing emphasizes. Lean aspiring manufacturers can also use enterprise systems to replace some visual controls, such as physical kanban card signals, with electronic ones, as a way to improve efficiency further and eliminate non-value adding activities.

Furthermore, these systems can play a critical role in establishing and ensuring standardized work. This is because they can serve as the central repository for critical engineering or product data management (PDM) information for standardized work, including BOMs, process routings or operations, valid product configurations, work instructions or SOPs, engineering change notices (ECN), schedule information, and costs. More robust solutions can even track as-designed, as-built, and historical actual product information, which can be analyzed to determine the impact that product changes have on efficiency and productivity.

Lean teams operate visually within the lean factory and move products as they determine necessary by visual signals on the shop floor. On the other hand, enterprise systems only send production information after such data has been entered into the software, which then activates triggers that move the information to the downstream recipient, letting them know it is their turn to work on the part. Even if this delay is not exactly in tune with lean principles, these lean teams still need data stored in enterprise systems, which contains information needed to perform their job (e.g., what to do with the part when they get it), understand the requirements of their customers (e.g., size, color, etc.), and understand the specifications of the job (e.g., quantities needed).

Enterprise systems also allow for this information to be organized, and, in some solutions with built-in workflow management capabilities, make this information easily accessible for employees to support engineering, production, regulatory, and customer needs. Some enterprise systems with constraint-based planning can help manufacturers reduce setup times, while those with strong enterprise asset management (EAM) capabilities can help implement total productive maintenance (TPM). These systems also allow for the near real time monitoring of factory floor activities, as they provide manufacturers with critical status information required to prepare for and execute changeovers. This status capability can be used to monitor machinery and equipment and communicate the completion of jobs or critical events such as breakdowns instantly.

Enterprise application systems, such as ERP, can also be used successfully to support lean enterprise transformations, especially for manufacturers that have highly variable demand for a large number of products and who operate in mixed-mode manufacturing environments. To apply lean principles to these new environments presents manufacturers with special challenges that the right ERP system can help overcome, such as the increased difficulty of calculating heijunka schedules, more frequent adjustment of kanban sizes, and increasingly smaller leveling periods. In these instances, the solution must have a planning system that can smooth demand for items with highly variable demand, and act as a shock absorber to maintain continuous flow and leveled production. The solution could also use a real time monitoring and feedback system to synchronize operations and trigger the movement of materials, as well as have automatic backflushing capabilities for demand-based inventory management and replenishment.

In fact, enterprise systems can even be used to support mistake proofing, thereby helping to prevent manufacturing defects from occurring in the first place and minimizing the impact that defects have on downstream activities. Computerized systems can prevent product defects by making standardized processes, critical documentation, and other quality information available to production personnel on an as-needed basis. Monitoring systems can also be used to flag defect-related issues instantly, alert downstream workers and activities, and record information for later analysis. On the other hand, rate-based scheduling applications can be used to stop production within manufacturing cells, allow workers to identify and correct defects, and then reschedule and restart production quickly to limit the impact on downstream processes. ERP systems can also allow manufacturers to backflush selectively for items and components affected by defects.

Software as a Service beyond Customer Relationship Management and Sales

Despite the fact that this seems to be the focus of Microsoft's, SAP's, and even Salesforce.com's software as a service (SaaS) initiatives, surveys conducted by renowned analyst houses suggest that the more widespread use of technology accessible services through a Web browser is not necessarily centered on customer relationship management (CRM) or sales force automation (SFA) solutions, which focus on sales leads and customer targeting. Rather the technology is being used to share information and collaborate. The fact is that most enterprises have thus far invested tremendously in information technology (IT) support for administrative processes, whereas there has hardly been any investment in support for non-routine, cognitive information, which is of paramount importance for business decision makers, service and product innovators, and other staff members, who increasingly create the competitive advantage for the business. The tasks performed by these people require a mix of technologies, not just new technology. Users need access to unstructured data, unstructured content, and collaboration support. Yet, most collaborative teams have e-mail as the only mechanism of information exchange among knowledge workers. This is incredibly inefficient and can become increasingly overwhelming—to the point of becoming a negative productivity tool. For example, for anyone trying to collaboratively design a new aircraft and source its parts and assemblies, or manage a thousand scientists around the world working on a new drug, e-mail is a far cry from being an ideal tool for knowledge worker collaboration. Also, many smaller enterprises may need as much functionality as their larger brethren, making offering enterprise-level functionality via the SaaS model necessary, but also even more challenging. Given their enterprise resource planning (ERP) or accounting origins, the recent successes in the market of NetSuite and Intacct might vouch for this need.

In fact, applications are more often outsourced than infrastructure, and this is increasingly done through SaaS. These applications include travel services, human resources (HR) management (personnel, benefits, and payroll, from vendors like Taleo, Employease, Kronos, Ultimate Software, etc.), and billing and payment processing. Business to consumer (B2C) e-commerce and product catalogs are also delivered through SaaS. This includes dynamic pricing models, customer loyalty groups, targeted sales promotions, and other sophisticated sales tactics, as well as integration with other supply chain applications, those which do not necessarily need a large internal team of sales support people. Financial, tax, procurement, and customer service management have also followed suit. Companies are choosing to promote SaaS-based strategic sourcing and procurement applications ahead of well-publicized CRM deployments for a number of reasons, including, globalization, Web-based collaboration, manufacturing outsourcing in far-flung regions, and distributed order management (DOM).

Quiet SaaS Leaders :Given this focus on information and collaboration, WebEx may very well be a leader in SaaS. Many of us have used the services of this on-line conferencing pioneer many times, but would not identify it as an SaaS leader. However, it should be straightforward to see how the multiple aspects of Web conferencing lend themselves well to the SaaS model. It moves well beyond shared presentations, workspace, and applications, and is supplemented by instant messaging (IM) and integrated with video and audio conferencing, often using voice over Internet protocol (VoIP) technology to bring the whole experience to the personal computer (PC). All of these features and benefits are available without purchasing, implementing, or managing a stack of hardware and software that is only used on occasion. Aside from e-meetings and presentations, another important use of WebEx is remote training, for example for regulatory compliance or IT support, as this reduces travel and increases business productivity.

WebEx uses a multi-tenant architecture, and the same core application serves every customer. Consequently, it is a far more stable business model than first-generation application service providers (ASP), which hosted specific instances of applications for each customer. The vendor also lets partners self-brand its WebOffice collaboration service, which offers group calendaring and scheduling, bundled with messaging, white boarding, and IM. WebOffice can also be billed directly from WebEx, typically for $10 (USD) per user, per month. It is thus not surprising that WebEx reportedly served its 14,000 customers with 2.2 billion on-line minutes in 2004. Moreover, approximately 60 percent of those conferences involved people from more than one organization.

While the market might have heard of Arena Solutions, which has long been offering an on-demand product lifecycle management (PLM) solution (see On-demand Product Life Cycle Management: Not Just for Small to Medium Businesses Anymore), a lesser known SaaS provider is Webcom, Inc. Webcom offers software solutions that simplify the quote-to-order process for the sale of complex products and services, such as those offered by Rockwell Automation, Motion Computing, Cray Computer, General Electric Industrial Systems, and ABB. Requiring only a browser, its solution, WebSource CPQ, allows customers to configure, price, quote, and ultimately propose their offerings across multiple sales and distribution channels, including customer self-service in a B2C setup, virtually at any time and anywhere. The software not only handles the traditional bill of material (BOM), routing, and diagram generation tasks frequently associated with product or engineering configurators, but also addresses the guided selling, proposal generation, and multilevel channel management tasks associated with sales configurators (for more information, see CRM for Complex Manufacturers Revolves Around Configuration Software).

Webcom touts that its software solutions provide the same level of depth as the on-premise peer products from Cincom Systems, Oracle, Trilogy, Selectica, Firepond, Big Machines, Access Commerce, etc., but without the highly involved and lengthy implementations typically associated with implementing these products on the customer site. One should, however, note that some of these competitors have been AppExchange participants, which indicates they also have SaaS prowess. The CPQ product, nevertheless, represents one of over thirty new partner-developed applications available via Salesforce.com's AppExchange (and linked by Web services), and it lets customers augment the base Salesforce.com functionality for more complex configurable product sales processes. Earlier in 2005, Webcom also joined the Siebel Alliance Program as a CRM On Demand Software Partner.

The Apple of the SaaS Market?:Another vendor has also caught our eye recently. MCA Solutions, the provider of the Service Planning and Optimization (SPO) suite of solutions, which helps companies in industries ranging from aerospace and defense (A&D) and semiconductors to industrial and medical equipment improve asset utilization and customer support, made a notable announcement in November 2005. It announced the availability of its SPO On-Demand solution, offering user companies one more way to gain access to its best-of-breed service parts planning solution. Generally available, the on-demand version is reportedly already helping some MCA customers across the high technology, telecommunications, and semiconductor industries reduce inventory, increase fill rates, and improve customer satisfaction.

As MCA recently closed a couple of hosted deals, interest in the vendor does not appear to be waning, as it has for many other prospects. This is no surprise, given the hosted software is faster to implement (in several weeks only), reduces the upfront hardware and software capital expense, and minimizes IT resistance to new software solutions. The announcement also means that smaller companies like Tellabs can now enjoy the benefits of software capabilities that larger companies like Cisco Systems are also using.

MCA's original, on-premise SPO suite is a Web-based suite of advanced inventory planning, forecasting, and execution solutions that gives companies the ability to manage and monitor inventory levels of mission-critical materials by providing global, real time visibility throughout the extended service supply chain. As commercial software devised to optimize assets in a multi-echelon service supply chain network, it supports these collaborative processes by linking the ERP and CRM systems of a user's company.

Simply put, the software supplies inventory forecasts based on the customer installed base, provides contract coverage analysis, and determines where to position spare parts most effectively to meet customer service requirements (i.e., it suggests the optimum stock levels and location for spare parts while balancing the required level of customer service with the allowed inventory investment). SPO is able to provide that level of information by using sophisticated risk-based algorithms specifically designed to handle the uncertainty inherent in knowing when or where a particular piece of equipment may fail, and a spare part will be needed. For more information, see Lucrative but "Risky" Aftermarket Business—Service and Replacement Parts SCM.

Filling the Execution Gap:The SPO suite has two major modules, including SPO Strategy for longer-term forecasting and positioning of service inventory levels. In addition to forecasting and optimization, the module has a what-if capability that can be used as a decision support tool to analyze service network scenarios, such as expected inventory growth from new stocking locations and increased service levels, and the cost per service impact of differentiated service strategies. However, once the strategic inventory levels are set, user enterprises have to maintain the planned stock levels for all individual items and locations that were required to close the gap between the actual fill rate and the target one. This tactical execution gap is often a direct result of a traditional ERP or legacy planning system's inability to prioritize supply chain decisions based on the predicted service impact of each decision. This requires excessive supply chain rebalancing in the form of non-value-added order change or cancellation and inventory movement transactions, resulting in so-called system nervousness. However, the objective of a service supply chain tactical planning system is to achieve the optimal deployment of resources throughout the network on an ongoing basis to meet the target investment levels established through strategic inventory optimization.

The traditional approach to this problem has been to establish business rules that prioritize locations or customers and define fair share logic. This is adequate when a sufficient supply exists, but in a more dynamic supply chain with constrained supply resulting in frequent temporary shortage situations, business rules typically lose out to customer commitments. This leads to frequent exception management, special expediting, higher logistics costs, and most detrimentally, unhappy customers. To that end, SPO Tactics approaches the allocation, replenishment, and transshipment (ART) problem by calculating the service impact for each below level part-location stock target. SPO Tactics can recommend and prioritize supply chain decisions to optimize the balance between service impact and supply chain cost, thereby achieving a minimum gap between the theoretical and actual fill rate and a reduction in emergency freight costs, yet it is not dependent on static user-defined business rules or manual prioritization of orders.

MCA Solutions and some of its peers like Baxter Planning Systems deserve praise for realizing that user companies are demanding greater flexibility and fewer up-front costs. Other vendors, like Click Commerce, which recently acquired Xelus, will likely soon follow suit, especially given Click Commerce's SaaS pedigree in other areas like trading partner relationship management.

SaaS offerings enable companies to add capacity as needed, and only pay for the resources and functionality that they need and use. In addition, companies can concentrate IT resources on vital projects, instead of on mundane application maintenance and support. Nonetheless, looking at the MCA SPO On-Demand solution, one again realizes that the notion of SaaS and on-demand is still evolving, and that these terms are still open to different interpretations. SaaS is a model of software delivery rather than a market segment. In fact, many types of software can be delivered to many different market segments, including home consumers and small, medium, and large businesses.

For instance, SPO OnDemand features some of the key characteristics of SaaS software, such as Internet-based access to, and management of, commercially available software. Activities are managed from central locations rather than at each customer's site, enabling customers to access applications remotely via the Web. Still, its application delivery is not a pure SaaS model, given that it is a one-to-one or single-tenant model, including architecture, pricing, partnering, and management characteristics. MCA also illustrates the possible variations of multi-tenancy. For example, the vendor could have multiple customers running on the same physical servers, but it would be a separate software instance of SPO. Thus, there are some hardware efficiencies, but not the risk of mingling databases, and for such application, there are really not efficiencies in sharing an instance of the software. In other words, MCA's solution is still closer to the ASP model, where a customer purchases and brings to a hosting company a copy of software (or the hosting company offers widely available software for use by customers). The hosting company then makes it available across the Internet to the customer who pays a fee per month for access to the software. Although users do not necessarily realize it, a licensing fee and a monthly fee in an ASP arrangement are separate, as fees are paid to the maker of the software and the hosting party as appropriate (unless the vendor is the ASP too). In the SaaS model, however, there is no division between licensing and hosting fees, but there is also little to no customization of software for each customer.
Again, no one is trying to imply that one method of hosting is better than the other. Each customer will have to conduct its own value analysis. What matters is that MCA's SPO On-Demand can be up-and-running in as little as four weeks, with minimal configuration. There is no IT infrastructure required (other than the Internet connection), and, in the case of MCA, the hosting service provides the hardware (though there are talks about SunGuard taking over if a critical mass of customers is reached). Also, fewer IT resources are required, since setup, administration, and upgrades are part of the service. A monthly subscription fee allows companies to access SPO and related services over the Internet, and leverage all of SPO's features and functionality without the added investment in IT infrastructure. But, the MCA SPO On-Demand pricing is still not necessarily uniform across-the-board, but rather emulates the on-premise model, where each customer gets a specific deal based on its inventory-level situation, or based on what MCA projects its products can provide to the customer.

This method nonetheless lowers the upfront cost. Users can also consider the pay as you go (PAYG) model, which can help justify a new implementation from a budget perspective and can reduce IT resistance. At the end of the day, hosting can be converted to a perpetual, on-premise licensed arrangement. As a matter of fact, the complex nature of the product still requires some user involvement and thought processes to determine inventory policies for all the items and stock locations. So far, only the SPO Strategy module has been hosted, given that it takes fewer customizations and user interactions than the tactical component. Namely, the module "spits out" the recommended stock level figures, every week or so. Users can then integrate these numbers with the back-office via extensible markup language (XML) or flat files, or even just manually re-key the suggestions into the system. Conversely, the SPO Tactics module requires much more system tweaking, frequent rules-based process orchestration, and user interaction or intervention. While this is doable as a hosted solution, it will likely require much more thinking and preparation.

Last but not least, Ariba, the e-commerce pioneer, has lately been developing spend management solutions to help companies optimize the money they spend, and it now makes all of its technology and services available over the Internet on a subscription basis via an on-demand delivery model. The vendor's specialty is spend management, for which it provides a suite of pre-integrated solutions, such as spend visibility, strategic sourcing, and procurement, to ensure effective management of the full procurement process from analysis to pay.

While still likely trailing the traditional on-demand supplier relationship management (SRM) vendors like Perfect Commerce (in terms of the on-demand functional scope or install base) or Frictionless Commerce and Ketera Technologies, Ariba, for its part, started down the on-demand path about four years ago when users increasingly said they wanted access to individual components in the Ariba eProcurement module. Over the past year and a half, Ariba has gone to a single instance, multi-tenant architecture for all of its solutions. This option has been optimized for the lowest possible total cost of ownership (TCO) and for the quickest time to go-live and get results. Nonetheless, there is a trade off—configurability versus customization. On the other hand, the hosted (dedicated instance) deployments have been optimized to deliver maximum value to the customer's bottom line, since the integration and customization approaches are in the "behind the firewall" model so as to gain control and customized fit, but with inevitable trade off of time to results and cost.

Recognizing that successful spend management requires more than just technology or tools, Ariba's solutions combine technology with the expertise and knowledge of its more than 30 category managers, 400 sourcing professionals, and 700 spend management global experts and process engineers, with the supporting services needed to ensure spend management savings get to the bottom line. Offered on a subscription basis and delivered in flexible packages, Ariba's on-demand offerings make spend management more affordable, easier to get started, and scalable for companies of all sizes. Namely, a company of any size can broadly deploy the basic on-demand package for an entry-level price per user per month. For large enterprises that prefer a perpetual license relationship, Ariba maintains its traditional license pricing model as well.

The three on-demand Ariba Spend Management solution packages are as follows.

1. Ariba Spend Management Basic Package. This package aims at enabling small and mid-sized companies to rapidly, easily, and cost effectively begin to benefit from the software, domain expertise, and best practices the world's leading companies have been using for years. Ariba Spend Management Basic Package solutions include all of the Ariba Spend Management core functionality, such as basic support and basic empowerment, delivered through an on-demand shared, multi-tenant delivery model.

2. Ariba Spend Management Professional Package. This package will deliver more sophisticated spend management capabilities in an on-demand delivery model. Professional Package solutions include all the capabilities of the Ariba Spend Management Basic Package option, with the addition of advanced functionality and flexible configuration capabilities, advanced support, project support, and training services.

3. Ariba Spend Management Enterprise Package. Also with on-demand delivery, this package aims at opening the full power of spend management to large enterprises that wish to achieve competitive advantage through comprehensive spend management. This level should logically deliver the maximum value from Ariba Spend Management solutions, and it includes prioritized support twenty-four hours a day, sevens day a week; interactive training; expert services; and extensive customization capabilities.


As issues of Internet security, privacy, and multi-vendor product interfaces are addressed, the number of vendors adopting SaaS and other business models will undoubtedly grow. In fact, while security is often mentioned as an issue, as far as we know, there have been no security problems with the Salesforce.com models, and sales data is certainly an area of high risk. In addition to requiring user sign on, there could be virtual private network (VPN) access, which is as protective as internal security. For diverse mash-up deployments, Jamcracker Service Delivery Network provides an array of related services, like single sign-on, provisioning, billing, support, etc.

Prospective SaaS customers should not be overly concerned with semantics and the vendors' marketing gimmicks, but rather view their SaaS or on-demand needs as part of the long-term strategy, bearing in mind requirements like mobility, collaboration, cross-functional process integration, compliance, etc. After identifying which parts of a business could be served well by on-premise, traditional hosting or outsourcing, or SaaS or on demand applications, SaaS should be piloted in an isolated part of the operation to test the features and identify any possible flaws. Where uptime is the issue, users might want to check out whether off-line replicating product versions can do the job while Internet service is down.

In general, using hosted arrangements will make sense, both as a solution and as a cost reduction exercise, for manufacturers in high technology and electronics, and similar, complex manufacturing segments that are already outsourcing portions of their manufacturing operations or are dispersed geographically with their own manufacturing and distribution centers.

As with any decision of strategic importance, the decision to use a hosted applications service requires due diligence. This is pertinent to both providers and potential customers. The promise of reduced implementation risk and time, lower upfront costs, etc. may justify the hosting model, but there is also an entirely new set of issues that a mid-market organization has to consider. Some of the issues that need to be considered include the technical capability of the provider to administer the program, its industry focus, applications customizability, the ability of the ASP to guarantee connectivity, the pricing model chosen, and the negotiation of the service level agreement (SLA). These issues need to be addressed in conjunction with evaluating the capabilities of the software package, and understanding whether the hosted offering differs from the traditional licensed offering at all. Clients should diligently and comprehensively evaluate the benefits, as well as the potential business constraints of the hosted option, and they should make assessments based on references.

Generally, the following types of enterprises should consider using hosting or ASP services.

* Those with limited investment capital and those that do not have an IT department
* Those that do not anticipate a high rate of change in the way they do business
* Those investing in an application to streamline costs rather than to enhance revenue
* Those that can jettison most of the organization's aged legacy infrastructure
* Those that lack resources for the rapid implementation of a distinct project that possibly does not require complex integration with existing applications (e.g., HR or payroll administration, e-mail, etc.)

Look for the following characteristics among the hosting vendor or ASP candidates.

* Amenability to reasonable customization and interfacing to legacy systems
* Service-oriented architecture (SOA) annd Internet-based architecture, and standards-based interfaces
* Support for specific vertical industries or business processes
* Hybrid services that can coexist with on-site systems
* Sound policies for privacy and security
* A sound track record of SLA maintenance at originally quoted price levels and a quick payback
* Sound financial viability and geographic coverage
* The ability to track and provide key metrics for application and network availability