Reengineerin Sd


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Reengineerin Sd

  1. 1. Re-engineering Re-engineering in sales and in sales and distribution – creating a distribution flexible and integrated 23 operation Jan Holmström Helsinki University of Technology, Helsinki, Finland, and Anders Drejer Aalborg University, Aalborg, Denmark Introduction For quite some time now, it has been common knowledge that industrial firms all over the world are competing harder, decreasing product life cycles, fulfilling faster and faster delivery requirements, and lowering prices – and that many firms need to reorganize themselves dramatically. However, the issue is not to define and describe new ways of organizing, but rather how to implement these. Based on this recognition, the paper will discuss in practical terms how to re- engineer business processes by means of integrated information software. First, let us take a look at some of the definitions of the so-called new organization, i.e. in what direction are we heading as far as organization is concerned? Table I offers a few quotations regarding this question. These different perceptions[1-9] of the new organization seem to have a lot in common, e.g. decentralization, view of employees as a source of advantage, cross-functionality, integration and flexibility. And, in fact, this is less than new! For example Ways[10] discusses “tomorrow’s management”, in terms such as “beyond efficiency lie the human qualities”, and “Farewell to the white space between the boxes”. It seems that this 1966 article could have been written three decades later and still fitted into the rhetoric surrounding the organizational forms. While comforting for us, this should be worrying: if everyone seems to agree on what the new organization is, then, why is it so difficult to implement the new organization that academics have written about for decades without any trace of its widespread adoption and implementation in industry? The major problem is how to create and implement a flexible, yet integrated, organization. In this task business process re-engineering (BPR) can offer us some help. BPR is one of the most recent stars to appear on the management scene, launched by Michael Hammer[11], and later adopted very quickly by consultants all over the world. The aim of BPR is radical improvements, where 10 per cent is seen as a minor improvement in performance. In fact, Hammer and Champy[12] advises us to choose a “kaizen”-approach if we merely desire Business Process Re-engineering 10 per cent better performance. In other words, “... at the heart of business & Management Journal Vol. 2 No. 2, 1996, pp. 23-38. re-engineering lies the notion of discontinuous thinking – identifying and © MCB University Press, 1355-2503
  2. 2. BPR&MJ The lean/flexible The Fifth Generation/post 2,2 organization The learning organization industrial organization Skyrme[7] Pedler et al.[4] Savage[1] “…moves towards flatter, “An organisation that Peer-to-peer networking, less hierarchical structures, facilitates the learning of all integrative processes, work increased use of … its members and as dialogue, human time, and 24 outsourcing, more use of continuously transforms virtual teams. alternatives to full-time itself” employment” Christensen[2] Senge[5] Focus on quality and time, Drejer and Gertsen[8] “…where people continually increased performance Lean management = flat expand their capacity to through CI, identification and decentralized organization create the results they truly optimizing of tasks and based on employee desire, where new and business processes, well involvement. expansive patterns of developed supplier relations, Lean administration = cross thinking are nurtured, where employees as sources of functional/ processual view collective aspiration is set knowledge and experience, of the organization including free, and where people are and a flat organization customers, supplier, etc. continually learning how to Lean manufacturing = JIT. learn together” Hastings[3] Radical decentralization, Kidd[9] Garvin[6] intense interdependence, “Many of our corporations, to “An organisation skilled at demanding expectations, varying degrees, resemble creating, acquiring, and transparent performance Sumo wrestlers, tied together, transferring knowledge and standards, distributed Table I. but all pulling in different modifying its behaviour to leadership, boundary Different perceptions of directions. That is not agile!” reflect new knowledge and busting, networking and the new organization insights” reciprocity abandoning the outdated rules and fundamental assumptions that underlie current business operations…”[12, p. 3]. In their 1993 book , Hammer and Champy define BPR as “…the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance, such as cost, quality, service, and speed…”[12, p. 32]. At a first glance, BPR seems to be just the kind of management tool to guide us towards the new organization. But how do we actually do it? Regarding the methods of such “fundamental rethinking”, Hammer and Champy are not specific. They note that “... we have written only a little about how organizations can make reengineering actually happen. A methodology for conducting a re-engineering effort, the orchestration of the change campaign, the design and timing of releases of newly-redesigned processes, and tactics for dealing with the most common problems that arise in implementation are issues that go beyond the scope of a single book…”[12, p. 32]. It has, therefore, been up to practitioners and consultants to formulate their own specific methods for BPR. This paper presents such an approach for re-engineering a sales and distribution operation.
  3. 3. Re-engineering Case study – using an integrated software application for reducing process to function in sales and Background and research design distribution The case firm is an international marketing and sales operation, which in itself is only a small part of a worldwide packaged goods enterprise. The major problem of the case operation is to integrate three previously independent 25 national operations into a regional one. The paper is based on findings and experiences from a SAP R/3 implementation in three previously independent sales and distribution operations. SAP R/3 is a standard software application that covers all the operational business functions from production planning, sales and distribution, materials management, financial accounting to human resources and quality management. The software application can be customized according to the requirements of highly diverse operations. The same basic application is used in customer oriented one-of-a-kind operations as well as mass marketing operations. The operations discussed in the paper are pure sales and distribution operations. There is no local production capacity. The supply is sourced from factories around Europe. The goods are distributed to local wholesalers and retailers either directly from the supplying factories or from local warehouses. The products are packaged goods sold in supermarkets. The products are not seasonal, i.e. demand is basically stable. The only major factor affecting demand is competition from suppliers of similar goods. The objective of the case study is to present findings on how to use the integrated client/server information systems when the aim is to improve business performance in the domain of sales and distribution. The issue of research design is important in every case study. As Fowler[13] notes, every researcher has the obligation to offer a full description of his/her research design. There are quite a few reasons for this. However, repeatability is a primary concern[14]. The research design of this case study is action research. The author participated as a team member in the development project described. In the course of the project, daily interviews and prototype testing and evaluations shaped the formal, structured understanding of the implementation process presented in the paper. Introduction to case experiences The integration of different functional tasks enables a focus on the core business processes. From an information system perspective the client/server technology enables a reduction in the number of systems interfaces cutting across the core business processes. However, the complexity of integrated information systems is a formidable obstacle to the implementation of simple effective business processes. The case study shows how to overcome complexity and utilize the full benefit of a flexible integrated information system.
  4. 4. BPR&MJ The problem of finding the core process The integration of application areas in integrated information systems offers a 2,2 great opportunity to focus on the core business process. In business systems with a low level of integration implementations are complex by default. Integration can only be achieved by building interfaces. In an integrated system, however, time and place can easily be traversed. This opens up the 26 opportunity to focus on the business processes, rather than the individual tasks and complex interfaces between tasks. The ability to rethink work across functional and system boundaries was found to be the key to successful re- engineering in a detailed study of 20 re-engineering projects[15] The use of third party logistics services has traditionally required interfacing business systems in sales and distribution. However, with the introduction of client/server solutions this is no longer necessary. Furthermore, interfacing systems in the core business process can be avoided. In the design of information systems it is important to understand that interfacing in the core business process should be avoided. The basic argument is that if the core is kept intact then changing business requirements can quickly be mirrored in the business system. System interfaces that traverse the main business process will always be affected by changing requirements, and consequently reduce the possibilities to adapt quickly to changes. Advanced integrated business systems offer a wide range of functions. The problem with extensive functionality is that it makes it difficult to keep the focus on the core business process. The SAP R/3 system is a good example of an integrated system where abundant functionality easily obscures the core processes. The customization of a simple and straightforward business process in R/3 requires the configuration of the same range of functions as a complex business process. The consequence is that implementation projects get bogged down in details, and the implementations taken into production are excessively complex and difficult to change. The case implementations The case R/3 implementations are in three local sales and distribution operations of a multinational company. The initial approach was to define a detailed scope incorporating local requirements and implementing the same system in sequence in the local organizations. The problem with this approach is that the core process is easily obscured by the detailed requirements. The two first implementations could not be finished according to plan and with the originally allocated resources. The reason was that attention was focused on detailed requirements rather than common tasks. The detailed requirements of the local organizations were modelled as processes and the requirements of the first implementation were incorporated in the structure of the system. Consequently, the system was difficult to adapt in the other local organizations. This illustrates how difficult it is to work with the concept of “process”, even when the actual business processes in each organization are the same, if a distinction cannot be made between detail and structure.
  5. 5. In situations like this there is a need for methodology to help avoid the pitfall Re-engineering of complex process structures. Detailed requirements have to be separated out in sales and and ways explored to treat them as functions. This way complexity is not distribution allowed to affect the basic structure of the work flow. To achieve this a practical approach was developed in the case company. The approach consists of the following steps: 27 • identify the business processes; • reduce flexibility requirements into functions; • implement system with focus on the core process; • describe the flexibility of the system configuration in business terms (this is the basis for later development and enhancement of the system); • follow up with enhanced development. The case implementation is presented according to the above steps. Identifying the business processes General advice on how to identify the business processes is quite often difficult to apply in practice. Hammer[11] recommends looking at the fundamental processes of the business from a cross-functional perspective. The objective is to piece together the fragmented pieces of business processes. This advice is sound, but rather too general for practical application. Davenport[16] is somewhat more specific when he points out that a process is a specific ordering of work activities across time and place, with a beginning and an end, and clearly identified inputs and outputs. Simply, a business process is the structure of action for producing a specified output for a particular customer or market. Figure 1 shows the attempt at describing the sales and distribution process in the case company addressing the specific requirements of all local organizations. The intention with the diagram was to define a detailed scope of all three implementations in the information system project. Even though Figure 1 does not reveal the details of the case company’s operations, several shortcomings of the process description used initially are evident: it does not have a clear beginning and end; it does not show the ordering of work across time and place; it lacks clear outputs and inputs. Due to a lack of focus the detailed requirements of the first operation got priority and was allowed to affect the structure of how the sales and distribution process was defined. This made it difficult to use the first implementation as the basis for the sales and distribution information system in the following two organizations. An alternative to the detailed approach is to identify the sales and distribution process by considering potential process inputs and outputs. This step was taken when it became clear that the first implementation could not be adopted without changes in the second organization. The most obvious candidate as input is the order and for the output the delivery and the invoice. Other inputs to consider are customer credit limits from accounts receivable, sales inputs such as promotions, and sourcing inputs such as supply plans.
  6. 6. 2,2 28 process Figure 1. BPR&MJ sales and distribution Initial definition of the MSO Repacking Direct delivery/ planning buffer receipt receipts Automatic generation 12 of material codes and Quarterly upate customer codes. NB: Elida 12 (initially manual) 04 05 SU>MSO Plant Sf01 12 File extraction Credit sub-contract PO (in-transits) Enter 05 Dir. deliv: Plant Sf02 (for repacking) Master Material purchase data SU>MSO Plant Sf03 12 “cost” price order Transfer posting Repacking Dispatches (stock to “vendor”) (in-transits) Dir. deliv Plant Sf04 05 Discrepancy 04 Receive Receipt against PO handling stock 04 Receipt A/P from SU 12 12 File Invoice (linked to PO by Received/open extraction verification container no/date) 04 PO's report 06 08 06 Manual update Order Stock List/release 10 confirmation shortage blocked Planned (ie. changes) Supply File 06 handling orders direct delivery extraction request Third-party report warehousing 15 Customer 06 NB: EDI New entry order 06 Actual 04 screen 06/08 Only Sfo1 NB: Truck Availabiltiy Standards Credit Create picking and Enter 06 11 Credit check 06 terminals? order check deliveries memo dispatching Direct 06 delivery NB: Invoices are currently not Returns 11 04 delayed until actual issue (this Returns Pick and 06 practice creates problems with EDI 07 Correction as customers do not acknowledge issue 06/07 credits/debits Receipt of the invoice until goods receipt Pricing 08 Bonus returns Free of charge goods 06 07 settlements NB: VAT List/release blocked Create NB: Pay up front customers need to be credited for non Credit requests invoices/ Other stock deliverable order items Sap Raw Data 08 credits 08 movements 12 Payments Reports? Sales Purchasing 08 orders order Stock Delivery 12 Stock Accounts 11 Reporting 10 NB: EDI notes receivable 09 Create Own- ‘On- Format/print 09 accounting written line’ invoices DRP Invoices General document 10 ledger 04 13 Stock reconciliation File extract? Stock Interface SIS/LIS Master data reporting movements Manugistics 11 forecasting 11 Key 09 FI/CO Financial 04 Stock management Missing functionality Difference FIN 10 Reports print outs 12 accounting 05 P/ing scope 11 Loc interface Non-standard reports Automatic interfaces 06 Order management 12 Euro interfaces 07 Price management 13 Statistic Customer Incomplete design 08 Access re 15 Missing functions service monitor Interface exists (now only A/P costs)
  7. 7. There are also more potential outputs, e.g. purchase orders and accounting Re-engineering documents. in sales and Supply plans may be the primary input of the sales and delivery process in distribution situations where demand exceeds supply. However, in the case company the conclusion was that the core process in a sales and distribution operation is best defined by the input order and the outputs delivery and invoice. This may 29 appear self-evident, but the wide range of functional requirements easily distracts focus (e.g. a logistics perspective puts focus on procurement and distribution, while an accounting focus emphasizes credit control and accounts receivable). The order, delivery, invoice transaction sequence traverses the functions of sales, logistics and accounting and provides a clear beginning and end of the core process. Sourcing, and accounts receivable are supporting the core process of sales and distribution. The next step is to clarify the scope of the information system from a process viewpoint. The task is to define in detail the sales and distribution process in terms of time and place. This can be done by a quite simple actor/sequence modelling technique when the core process has been defined by a clear start and end. In all three local organizations the core sales and distribution process starts with the placement of the order and ends with invoicing. The goal is to design a fast and accurate core process, i.e. a process that ensures that we invoice what we deliver and that orders placed today can be delivered tomorrow. Figure 2 shows the actor/sequence model of the sales and distribution process in the second implementation. In the actor/sequence model time is Order office Warehouse Accounting Customer order Order entry Credit check Process delivery due list Availability check Full pallets Edit moved data in WM system Print picking list (marks order at the same time) Picked pallets Actual picking Adjust differences E-mail Correct stock level Post goods issue Figure 2. Print delivery document Standard sales and Create invoice Accounting document distribution process in the second implementation Output and delivery invoice Archive invoices
  8. 8. BPR&MJ shown from top to bottom. Place is shown from left to right. The model shows how the core process cuts across the functions of sales, logistics and accounting. 2,2 Orders are received and checked by the order office. The orders are placed by wholesale customers over EDI and telephone or by sales representatives visiting retailers. The delivery is made from the local warehouse. Availability is always checked before a delivery request is made to the warehouse, but usually 30 not at the time of order placement. The goods are commodities and customers always reorder in case full delivery cannot be made. If for some reason the stock situation is not correct in the system, the warehouse corrects the delivery quantity after picking. Invoicing is done after the warehouse has completed its task. The accuracy of the process was considered very important, as the customers do not accept EDI invoices with discrepancies between delivery and invoice. Additionally, this robust design reduces substantially the need for credit invoices. A second core process was identified through the actor/sequence modelling. This was the sales and distribution process where delivery is made from the supplying factory. The important difference to the standard process is that delivery is not based on individual orders, but on delivery agreements with a wholesaler, and that the delivery is made directly from the supplying factory (Figure 3). The order and the invoice is produced based on a delivery that has already taken place. In other words the order-delivery-invoicing transaction sequence in the information system does not describe a process in its real sense anymore. Since there is no difference in time and place anymore, it is only a supporting function to the direct delivery process. The direct delivery process takes place mainly outside the information system. The other business activities relating to sales and distribution were also analysed, but could all be covered as variations of the two core processes or as supporting functions. It is also important to note that related processes may not always benefit from integration. In the case study company, purchasing does not need to be Customer Warehouse Log planner Order office Customer order Request to SU (business manager) Make supply requisition Confirmation from SU Arrange transportation Receive stock Freight document with customer order number (forwarding agency) Receive goods Signed freight document by Order entry fax from forwarding agency Post goods issue Accounting Create invoice document Figure 3. Direct sales and Output and deliver distribution process invoice Archive invoices
  9. 9. integrated with sales and distribution to immediate customers. Future Re-engineering requirements cannot be determined reliably from sales to wholesalers. There is in sales and a strong distortion of demand due to sales promotion activities and buffering in distribution the supply chain. Figure 4 illustrates how a buffered distribution chain distorts demand as seen from the order office. Consumer out-take is stable, but the order volume varies radically due to supply chain dynamics. The conclusion is that 31 the sourcing process is integrated more appropriately with the monitoring of actual retail sales and the planning of promotional activities. The purchasing process is defined by the inputs retailer sales and promotion action and output supply requests (not the input orders or invoices!). Quantity Key Input to distribution channel Consumer take out Figure 4. Demand distortion in the distribution chain Weeks Reduce flexibility requirements into functions The core process covers the sales and delivery to all customers of all products in the three local organizations. The local organizations operate in different countries. Naturally, the trade structure and customer practices vary, and have to be accommodated. For example, one operation has several hundred medium- sized customers, while three-quarters of sales for the others are to a few large customers. The consequence is that in one case the number of orders is high, while in the others individual orders are large. In one case customers come and pick up the goods from the warehouse themselves, in another shipping has to be handled by the company. Additionally, the requirements for credit control and EDI are different depending on the trade structure. Depending on the customer and the product there are certain requirements for flexibility in all local organizations. However, these requirements are common, almost without exception. The most obvious are: terms of delivery/ shipping; dealing with non-availability; terms of trade/ pricing; credit control; output formats (e.g. EDI, paper invoice) and timing. These demands on flexibility are well accommodated in integrated information systems such as the R/3 system. Note that shipping, electronic data
  10. 10. BPR&MJ interchange, credit control and pricing can be handled as functions, i.e. the action can be reduced either in time or place. The objective of process re- 2,2 engineering could be seen as the reduction of processes into functions, i.e. the necessary action can be performed in one place in one moment. This is also the leverage of an integrated information system. In the case company the majority of differences and demands for flexibility 32 could be dealt with effectively by the functionality of the information system. Credit control can be reduced in time through an integrated information system. The value of outstanding invoices can be made available at order entry. Dealing with non-availability can also be reduced in time and place with an information system that keeps track of all requirements and stock movements. Dealing with differing shipping requirements can also be reduced to an automated function by an information system capable of determining load sizes and transportation routes at order entry. An example of a task that proved difficult to reduce in time and place is backorder handling. Backorder handling is delivering later, if you cannot deliver according to customer requirements. However, backorder handling is complex precisely because it is a process. Note also that backorders duplicate the core process around which the information system in the case operations was designed. The order office, warehouse, accounts receivable and the customer have to co-operate from order entry to the delivery and payment of the last ordered items. This places high demands on process flexibility in the information system and increases complexity. Therefore, this practice should be avoided if possible. The need for backorders can be reduced by fast delivery and agreeing on reorder procedures with customers. Implement core process Implementing a sales and distribution process for an operation in SAP R/3 requires configuring the software. This task is quite intricate, since R/3 is an integrated system, and the links to materials management and accounting have to be defined as well. Implementing a rough outline of the core process modelled in Figure 2 requires the following setups: • organizational structure; • master records for customers and materials; • order types and copying rules for the transaction sequence; • pricing procedure, discounts and taxes; • goods movements; • outputs and timing of outputs; • scope and timing for check of availability of goods; • accounts receivable. Setting up the organizational structure means deciding how the operations are best described. We need to decide whether we need several companies for
  11. 11. accounting purposes, or whether business areas are enough. It is also necessary Re-engineering to determine whether sales are divided up in distinct sales organizations or just in sales and in divisions of the same sales organization. Finally, the number of warehouses distribution or plants has to be determined. The organizational structure is very important. For example, orders are placed in a sales organization, i.e. an order can only belong to one sales organization. Similarly, an account booking can only be 33 made to one company and a delivery can only be made from one plant. Decisions made on the organizational structure are very difficult to change later. If two plants are defined, it will later be impossible to include products from both plants in one delivery. If two sales organizations are defined, an order cannot be shared by the two organizations. There already exist standard solutions in the R/3 system for alternative core process and supporting functions. These standard solutions can quickly be adopted for the organizational structure of the operation. This is how you choose what standard parts of the system to use and how to use them. The advantage of relying on the standard solutions is that the core process in the information system can be kept simple. By first focusing on the bare minimum of steps and actors necessary to perform the sale and delivery a working system is available quickly. This way there will be more time to test, train and improve before putting the system in production. A working test system, even if it lacks the details, is useful because operational users of information systems take the development more seriously when it is possible to work with familiar customers, materials, and correctly named parts of the organization. Expanding from the core process, solutions for key functionality can be identified and tested during implementation. Additionally, what is not connected to the core process automatically falls outside the scope of the project. These tasks can then be scrutinized effectively and maybe eliminated. The criterion for elimination is that the task is not essential for any other business process either. Flexibility is a big advantage of a simple process. In the second implementation it was possible to make a change of warehouse with very short notice thanks to the new information process. The change of warehouse was not entirely unexpected, but the system was designed to be used in the original operational setting. However, by designing a robust and simple core process for sales and distribution in the information system and by utilizing the full potential of the client/server technology it was possible to change warehouse operator with no need to reconfigure or alter the design. The new warehouse operator was connected to the company-wide network. The warehouse operator receives the picking lists (as flat files) and makes any necessary corrections in the delivery quantities after physical picking. The goods issue and output of freight documents is the last task performed by the warehouse operator. After this the delivery is invoiced in the order office. The picking list is a one-way interface to the warehouse system. Thanks to the robust design of the core process it is only seldom that the warehouse needs to make corrections or enter the information system. Goods receipts and stock movements are input directly
  12. 12. BPR&MJ in the case company’s information system by the third-party warehouse operator. An automatic two-way interface with the warehouse system would in 2,2 this case have been a waste of flexibility. This way the whole transaction sequence from order entry to invoicing is kept within the sales and distribution system. It is also possible to add quickly new warehouse operators and to leave existing ones if need be. 34 Describe the flexibility of the system configuration in business terms Often managers do not realize that in order to unleash the potential of information technology a detailed understanding of the software is necessary. This is certainly the case of integrated business systems such as the R/3. To close the gap between system capability and management’s process redesign capability it is beneficial to make a detailed map of how business requirements link to system configuration. With the help of this description the information system personnel and business management can start creating a common ground for business process innovation. In the R/3 sales and distribution system the flexibility to support business change is considerable. The major source of flexibility is that the core operational process can be controlled extensively through the customer and material master. However, to have this flexibility it is essential that the system configuration is kept simple and standard. When introducing an R/3 system it is, therefore, necessary to first translate the business concepts of the company to R/3 terminology. For example, if discounts are given to certain customer groups it is necessary to understand that these are pricing groups in the system terminology. Customer groups are used for statistical purposes in the standard solution. It is possible to use any criteria for pricing, but by not using standard solutions complexity increases. In the case operations the key areas for linking requirements and system configuration are: pricing (price lists and discounts); timing of checking availability of stock; output timing; delivery handling and shipping. Figure 5 shows an example from the case company of how to link business requirements to system configuration. A key feature of the business is that all contacts and agreements with the customers are the responsibility of business managers. The task of the business manager is to ensure that the products of the company are in the customer’s assortment. To perform this task it is necessary to discuss prices and terms of trade on a regular basis. Since the packaged goods business is very competitive it is essential that the company can respond quickly to price competition. It is imperative that the flexibility of configuration in this area is very clear. In the R/3 system the preferred configuration is to classify customers in pricing groups and price list type groups. Materials are classified in material pricing groups. With the help of this grouping and the condition technique it is possible to define a very sophisticated pricing and discount structure based on only a few fields. Dealing with availability is the other key area where it is important to have a clear understanding of the potential flexibility of the system. Many products and customers have to be dealt with in particular ways. For example, some
  13. 13. Process Support processes Enter order Create delivery Pick goods Issue goods and Invoice Accounts Materials despatch receivable management Business requirement Customer service Define partial Do not allow zero – introduce back delivery in delivery quantity order scheduling customer master on item category – prompt order Define availability Create confirmation Check at order requirements of entry and output open orders and order confirmation deliveries Different shipping Book freight costs Create cost – freight inclusive Define special Different shipping point to FI account shipping condition point for customer and incoterms Correct – error-free Pricing based on differences if invoices delivered required quantity quantities; quantity is not available discounts based on ordered quantity configuration map in sales and flexibility/system Business Figure 5. 35 distribution Re-engineering
  14. 14. BPR&MJ products may be delivered from stock while others are delivered straight from the factory. Some customers may accept that orders are split on several 2,2 deliveries, while others demand complete delivery. In the R/3 system this is also controlled from the customer and material master. The customer can be defined as a customer demanding complete and on-time delivery, or a customer accepting incomplete delivery split up on several deliveries. In the material 36 master an availability checking rule is defined. This rule determines whether the availability of the material is checked at order entry or delivery scheduling. This rule also controls how requirements are determined if the company uses MRP. The formal definition of the system’s scope of flexibility is the basis for later re-engineering and business process innovation. Only a management with a proper understanding of systems flexibility has the opportunity to introduce new practices which improve service and reduce cost. Without systems understanding many opportunities to improve will go undetected, and the redesign attempts made may actually increase cost or make service worse. Systems managers and analysts alone seldom have the required understanding of business requirements to make full use of the flexibility potential of integrated business systems. Radical process innovation must come from the people responsible for the business. Describing the flexibility of the information system in terms of business practices is the first step towards providing business management with the tool for process innovation. Enhanced development It is expensive and time consuming to introduce an integrated business system in one go. The main reason is that without operational experiences it is difficult to understand how the system can be used for the benefit of the business. A phased introduction has many advantages in a situation where the organization does not have experience with integrated information systems. By expanding on the core system it is possible simultaneously to gain experience and focus development on the areas where the biggest advantages appear. The R/3 system gives the opportunity to create complete copies of the system in productive use, develop and test new processes and functions in the copy and finally transport the new developments back into production. This feature of the system supports a phased introduction and reduces the risk of taking inadequate solutions into production. The opportunity to separate development from production means that the system can continuously be enhanced, even altered radically if needed. In the case company the actual redesign of business process starts once the core process for all three operations is realized in the information system. The first round of enhancement is to implement new functionality that significantly improves the performance of the core process. In the initial implementation only a few key customers were communicating by EDI. The next step is to expand the number of customers within the scope of EDI and to increase the number of transactions that can be handled by EDI. Other potential enhancements are to simplify the terms of trade, try out new approaches for pricing products that are
  15. 15. introduced on the market, and to explore the alternatives for creating an Re-engineering international sales and distribution operation supplying local customers. In an in sales and integrated systems environment it is possible to move sales gradually to a distribution common sales organization and reduce the number of customers and products supplied from local warehouses. 37 Conclusions and implications This article deals with the issue of how to create a flexible, yet integrated organization. The objective is to secure the simultaneous improvement of external responsiveness to customer demands and internal productivity. One way – but not the only way to do so – is described based on the experiences of the case company. The case study illustrates that by focusing on core processes it is possible to improve performance radically with the help of integrated information systems. The improved performance derives from the ability to do work, which has previously been done in different locations at different times, in one place at one time. The structured implementation approach provided a clear understanding of the core processes in the case operations. The benefits of the approach can be seen in improvements in the operational work flow, in increased flexibility of the business process and in the effectiveness of configuration in the last of the three local implementations of the case company. Specifically, reducing process to function enabled: elimination of tasks; automation of tasks; flexibility in executing tasks; creation of a common information system for three distinctly different operations. Elimination and automation of tasks The improvements in the work flow are essentially that manual processing has been eliminated to key decision points, e.g. prioritizing customers in the situation of supply disruptions and following up on inventory errors. A big effect can also be seen from eliminating pre-invoicing. This practice was previously an obstacle to automating ordering and invoicing with key customers. Pre-invoicing led to too many mistakes for the customer EDI systems. Eliminating pre-invoicing also eliminated the need for crediting customers for undelivered goods. Flexibility The main benefit is, however, the increased flexibility of the business process. The solution found with the methodology enables outsourcing or centralizing key activities without changing the core processes in the information system. In one operation the company-operated warehouse was replaced by a third-party warehouse without any affect on the core process in the information system. The third-party warehouse operation uses the same R/3 system over the company network.
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