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Business case channel financing ver 1.5

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Business Case - To set up Channel Financing through Product Re-engineering

Business Case - To set up Channel Financing through Product Re-engineering

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  • 1. BUSINESS CASECHANNEL FINANCING USING SOA by: Partho H. Chakraborty
  • 2. Business Case: CHANNEL FINANCING USING SOA TABLE OF CONTENTSINTRODUCTION /BACKGROUND .................................................................................................................. 4 BANKS INVOLVED ................................................................................................................................................ 4OVERVIEW ........................................................................................................................................................... 4 VISION ................................................................................................................................................................. 4 OBJECTIVES ......................................................................................................................................................... 4SITUATIONAL ASSESSMENT AND PROBLEM STATEMENT.................................................................. 5 CURRENT SITUATION ........................................................................................................................................... 5 PROBLEM ............................................................................................................................................................. 5 OPPORTUNITY ...................................................................................................................................................... 5IMPLEMENTATION STRATEGY .................................................................................................................... 6 PROJECT TITLE ..................................................................................................................................................... 6 TARGET BENEFITS FOR ALL THE CHANNEL MEMBERS .......................................................................................... 6 Benefits to Dealers/Distributors ..................................................................................................................... 6 Benefits to Supplier ........................................................................................................................................ 6 Benefits to Manufacturer / Principal customer .............................................................................................. 7 Benefits to Bank.............................................................................................................................................. 7OUTPUT................................................................................................................................................................. 8 PHASE 1: .............................................................................................................................................................. 8 PHASE 2: .............................................................................................................................................................. 8SAP AND INTELLIGROUP ................................................................................................................................ 8MODULES INVOLVED IN PROJECT .............................................................................................................. 9SAP ENTERPRISE SERVICE ORIENTED ARCHITECTURE (SOA) ......................................................... 9 INTRODUCTION .................................................................................................................................................... 9 ROLE OF SOA IN CHANNEL FINANCING PROCESS.............................................................................................. 10 SPECIFYING COMPOSITE APPLICATION .............................................................................................................. 11 DESIGNING COMPOSITE APPLICATION ............................................................................................................... 12 DEVELOPING COMPOSITE APPLICATION ............................................................................................................ 12 CONFIGURING COMPOSITE APPLICATION .......................................................................................................... 12 TRANSPORTING & PACKAGING COMPOSITE APPLICATION ................................................................................ 12 ARCHITECTURE LAYERS -- TECHNOLOGY COMPONENTS ................................................................................. 12WORK PLAN ...................................................................................................................................................... 13SALES................................................................................................................................................................... 13 TARGET CUSTOMERS ......................................................................................................................................... 13 SAP BUSINESS SUITE......................................................................................................................................... 13 MARKET SIZE .................................................................................................................................................... 14 SAVINGS/EARNINGS VIS-À-VIS INVESTMENT FROM THE CUSTOMER................................................................... 14 SAP REVENUE COMMITMENT THAT THEY WILL GET US .................................................................................... 14 TYPICAL IMPLEMENTATION SIZE & DURATION .................................................................................................. 14FINANCIALS ...................................................................................................................................................... 15Author: Partho H. Chakraborty 2
  • 3. Business Case: CHANNEL FINANCING USING SOA Resources required: (For setting up the in-house box) ............................................................................... 15 HW, SW required ......................................................................................................................................... 15 Duration to build .......................................................................................................................................... 15 Ongoing costs ............................................................................................................................................... 15 Other Costs .................................................................................................................................................. 16 Costing Summary ......................................................................................................................................... 16REVENUE ............................................................................................................................................................ 16 ANNUAL MAINTENANCE CONTRACT (AMC) ..................................................................................................... 17 ROYALTY ........................................................................................................................................................... 17 UPGRADE REVENUE ........................................................................................................................................... 17 Benefits derived ............................................................................................................................................ 17 Value Addition .............................................................................................................................................. 17PROJECT MANAGEMENT FRAMEWORK ................................................................................................. 18 GOVERNANCE .................................................................................................................................................... 18 QUALITY MANAGEMENT .................................................................................................................................... 18PROJECT RESPONSIBILITY .......................................................................................................................... 18Author: Partho H. Chakraborty 3
  • 4. Business Case: CHANNEL FINANCING USING SOAIntroduction /BackgroundSAP has an integrated suite of products catering to various domains such asManufacturing, Logistics, Discreet Manufacturing, Banking, Insurance, etc.In banking one of the requirements of banks are to finance the Supply Chain calledas Channel Financing. Channel Financing covers both the legs of financing. The firstleg covers payments to vendors and the second leg covers the payments to thedealers.Channel Financing covers the end-to-end financing in this supply chain factoring a lotof components such as limits, regulations, crystallization of bills, documents, netbanking, etc.Banks involvedTwo Banks (AXIS Bank and SBI) have shown interest towards this project. We aregoing to develop a prototype and showcase it to the Banks.OverviewVision To provide a solution on SAP for Channel Financing process.Objectives  The core objective of Channel Finance is to provide integrated commercial and financial solutions to the supply and distribution channels of a given industry.  To draw out the end-to-process of Channel Financing.  To map it to the existing SAP Landscape. This means taking modules working on diverse applications, including SAP, and integrating them all using SOA, to have Channel Financing in place.Author: Partho H. Chakraborty 4
  • 5. Business Case: CHANNEL FINANCING USING SOA  To fill up the missing links or White Spaces in SAP in this Process with Composites to be developed by Intelligroup.  To allocate resources to work on this project.Situational assessment and problem statementCurrent situation Banks are currently using the “conventional lending” method, but this method is not concerned about suppliers & dealers’ financing activity. Here, independent activity is focused upon and the lending is backed by collaterals.Problem The conventional lending method leads to weak financials of the supplier or the dealers may adversely affect the top & bottom line of the financed firm (Company) due to reasons like delay in supply, non-availability of credit, and delay in receipt of payment.Opportunity Channel Financing involves financing supplier, manufacturing unit, buyer (distribution unit) – entire supply chain mostly discounting bills. It extends market determined credit to supplier (vendor) & dealer (distributor). It meets funds required for purchase & sales besides production. It helps in sustaining seamless business flow and avoids working capital related difficulties. Channel financing opens up manifold opportunities due to which the banks can make conscious efforts at popularizing this credit delivery mechanism. Most banks require Channel Financing in full if not in parts; i.e. some specific modules such as Dispute Management, Net Banking, etc.Note: This solution can be given to NBFC’s alsoAuthor: Partho H. Chakraborty 5
  • 6. Business Case: CHANNEL FINANCING USING SOAImplementation StrategyProject title Channel Financing Using SOA.Target Benefits for all the channel membersBenefits to Dealers/Distributors a) Steady and cheaper source of Working Capital financing. b) Channel partners can increase Sales through higher purchasing power. c) Clean facility up to certain limits. d) Simplicity of documentation and approval procedures. e) High service and delivery standards compared to current neighborhood Banker / Moneylender. f) Channel partners may be able to increase profitability by availing of cash discounts from Corporate. Benefits to Supplier a) This involves the liquidity position by availing finance at cheaper rate based on the credit assessment of manufacturer. b) There is no risk of non-payment by the buyer (manufacturer). c) No documentation or formality. d) Cost effective due to finer rate of interest.Author: Partho H. Chakraborty 6
  • 7. Business Case: CHANNEL FINANCING USING SOA e) Supplier saves time & human resources for receivable management.Benefits to Manufacturer / Principal customer a) Pre sale working capital requirement shall come down. b) Assured availability of Working Capital finance to their channel partners at lower than current cost of credit. c) Corporate can use Channel Finance as a marketing tool and strengthen their relationship / reward loyalty of their Channel Partners. d) Release of funds from the Balance Sheet resulting in improvement in financial Ratios. e) Conversion of Balance Sheet into an Off Balance Sheet liability. f) Greater efficiencies in the Corporate’ receivable management and cash management process. g) Ability to introduce payment discipline with their Channel Partners. h) Firm can concentrate more on their core competence i.e., area of production & marketing their products besides saving time & cost involved in arranging creditors.Benefits to Bank a) Bank will have increased data & customer base. b) Bank can understand purchaser profile and payment history of borrower. c) Simple monitoring of end use. d) Risk is diversified & credit exposure norms are better observed. e) In case of liquidity crisis these bills can be rediscounted with RBI.Author: Partho H. Chakraborty 7
  • 8. Business Case: CHANNEL FINANCING USING SOA f) Easy tracking for performance of banks at each leg of the channel financing. g) Need not to retrieve data and report from heterogeneous applicationOutputRobust tested Channel Financing solution which will be the part of overall CashManagement.Phase 1: Cash Management Collection Payments Liquidity Trade Finance Channel FinancingPhase 2: a) Net Banking b) Mobile AlertsSAP and Intelligroup a) SAP will take us to various banks to market this product. b) Marketing will be handled by Intelligroup. c) License fee will be given to SAP. d) Intelligroup gets: i. Implementation revenue. ii. Support process revenue.Author: Partho H. Chakraborty 8
  • 9. Business Case: CHANNEL FINANCING USING SOA iii. Annual Maintenance Contract (AMC). iv. Royalty for any process / objects developed by Intelligroup.Modules involved in project a) BCA: Customer Account Management. b) FS-CMS: Collateral Management. c) FS-CML: Loan Management / Risk Assessment. d) FSCM: Dispute Management. e) RBD: Reserve for Bad Debts. f) GRC: Governance and Risk compliance.SAP Enterprise Service Oriented Architecture (SOA)Introduction Enterprise SOA revolutionizes the design of business applications, enabling the rapid composition of business solutions. With enterprise SOA, you can encapsulate business logic and expose it as enterprise services -- smaller functionality components that can be reassembled quickly to form newAuthor: Partho H. Chakraborty 9
  • 10. Business Case: CHANNEL FINANCING USING SOA innovative business solutions that meet changing business requirements. Based on SAP Net Weaver’s SOA platform, enterprise SOA provides you with business and industry-specific context views through enterprise services and safeguards scalability, robustness, and governance for your IT. Enterprise SOA is therefore your blueprint for an adaptable, flexible, and open IT architecture for developing services-based, enterprise-scale business solutions.Role of SOA in Channel Financing Process i. To create new applications on top of existing enterprise solutions. ii. To automate new or existing business processes. iii. To increase the value of your current systems. iv. To achieve greater flexibility while controlling technology costs. v. To deploy innovative solutions to extend our business partner networks. vi. To improve our ability to link other applications to SAP solutions through SOA. The Main Use of SOA is “Enterprise service bus”, where it will work as a communication channel like spoke and hub as shown in below diagram:  Designing services via an ESB paradigm makes services modeled according to a harmonized data model before implementation takes place. This is called Outside-in approach, as the model that is developed outside an application context is afterwards propagated to the application systems for implementation.  This approach will eventually result in no or only few data mapping requirements on the ESB as the semantically data model is harmonizedAuthor: Partho H. Chakraborty 10
  • 11. Business Case: CHANNEL FINANCING USING SOA across various provider and consumer applications based on a commonly shared service model.  This is in fact one of the main differentiating factors between a classical EAI and an ESB approach: EAI will heavily depend on data transformations (mappings) on the middleware component; in a service oriented architecture, the ESB ideally does not perform tremendous amounts of data mappings ESB ideally does not perform tremendous amounts of data mappings.Here is the process of building this composite solution, explaining all the artifactsfrom the Channel Financing Process:Specifying Composite Application • Define the Business Process • Define the Process User Roles • Define the Process Steps and Define the User InterfacesAuthor: Partho H. Chakraborty 11
  • 12. Business Case: CHANNEL FINANCING USING SOADesigning Composite Application • Service Identification • Service Decomposition • Service Mapping • Defining the Business Objects • Designing the Process for NTW BPMDeveloping Composite Application • Developing the Service Layer Service Provision Layer • Developing the User Interface Layer • Developing the Process Layer • Integrating in Enterprise PortalConfiguring Composite Application • Configuring CAF • Configuring Enterprise PortalTransporting & Packaging Composite Application Transporting CE (UI, BPM, CAF), EP artifacts.Architecture layers -- Technology ComponentsPortal / Internet access point - NTW EPComposite - NTW CE (UI, CAF, BPM)Author: Partho H. Chakraborty 12
  • 13. Business Case: CHANNEL FINANCING USING SOAService Provisioning - IS-Banking and other Backend applications,Service Bus and Repository - PI / SOA Middleware / ESRWork plan i. Map end to end Business process to SAP. ii. Test the entire Business process end to end. iii. Customize NPAS to Indian scenario. iv. Design/Develop the GUI (Graphical User Interface) v. Go To market Strategy – PPT & Brochures vi. Training Note: i & vi have been completed. We are now working on ii to v. In v the PPT is ready, we have to fine tune it and develop the brochures A sample of NPA’s to be developed is embedded below: C:ParthoIntelli NPAs.xlsSalesTarget Customers: It can be targeted to Banks and NBFC’s.. Most of the Banksare potential customers but NBFC will not need the end to end scenario as thebouquet of products/services is limited on this front.SAP Business Suite: The customer does not require the full business suite.They can take only those modules that required. For example if the customer has allthe required modules excepting CML, then the customer can go for CML only.New customers would get ECC 6.0, but if the customer is already running on an olderSAP version, it is better to have ECC 6.0 with EHP 4.0 (entry level to Business suite)Here the user will take IS-Banking and GRC, which comes with ECC 6.0.Author: Partho H. Chakraborty 13
  • 14. Business Case: CHANNEL FINANCING USING SOAThe customer would have to take User Licenses. We would need to hard sell toSAP to get a fine price for the License Costs.Market Size: The market size is global. We can take this solution to probably eachand every bank in the world. This can be target to any geographical location. Oncebeing tested successfully in India, we can release the country version by addingcountry specific features as well as regulatory provisions.Asia and Africa are soft targets and we can pick up good business here.Savings/Earnings vis-à-vis investment from the customer a. By consolidating all the functions under one head banks save on time, improve efficiency and can respond to customer very fast as they know under what transaction the customer is interacting with them. By having access to all the relevant information in one place, the bank is better place to take critical decisions on the risk to take on any of its clients and this being dynamic and net based, the access to this information is available to the decision makers and stakeholders from multiple places and not just the intranet. b. As the entire business process can be mapped, the same business users under Cash Management can monitor the transactions, thus saving on manpower. Good for analysis and will be planning. c. Banks earn from commissions and penalties such as limit burst, cheque bounce, etc. Can design reports/queries that can access information from multiple databases/applications now. This ensures better control on Revenues and helps plug leakages. Proper use or event triggered messages and transactions will ensure better compliance and incomes.SAP Revenue Commitment that they will get us: This has not beenquantified. SAP wants to take this product globally as another solution offering. Weneed to factor with SAP of being the natural choice of implementing this solution andhaving the first right of refusal in case we cannot handle any specific project.We also need to factor with SAP on marketing other SAP solutions and implementingit such as a customer may want us to implement a HR Solution, which is not linked toChannel Financing.Typical implementation size & Duration: 4 functional and 4 TechnicalConsultants. It would take maximum 6 months as for a complete End-to-Endimplementation of Channel Finance.Author: Partho H. Chakraborty 14
  • 15. Business Case: CHANNEL FINANCING USING SOANote: From a functional perspective, 6 months is OK as an average timeline for anyimplementation. The solution combinations are many. Mainly eSOA and patchinglegacy systems together with some part of SAP Banking & the other Modules;implementing the whole of IS Banking and other parts of SAP, etc. A full blown ISbanking implementation will take close to a year. Blueprinting itself will take 3 monthsat least in this case. Any other combination of solution will take approximately 6months.FinancialsResources required: (For setting up the in-house box) Field of expertise Level Resources Man Months Functional Senior Consultant FICO (configuration F4 and 1 4 solution testing) FICO F3, 2 4 (SAP Banking, FSCM, DMS L2 1 2 GRC Consultant SolMan F3 1 3 Basis Consultant - Basis TE4 1 2 ABAP Consultant - (TE3) ABAP NTW 1 4 Net weaver (Java Workflow L3 1 2 expert to design the web portal) Developer L2 1 2HW, SW required: SAP IDES ECC 6.0, IS-Banking and SAP Solution ManagerNote: We presume that this section is for the SOLMAN for in-house box configurationand testing only. We are not looking at using only standard reports for demo. In casewe need any custom reports, we may need more ABAP effort.Duration to build this and hence the total cost of implementation: 4monthsOngoing costs: This is for further development such as in Phase II where we willadd mobile alerts, etc. • Resource Cost – Salaries • Establishment CostAuthor: Partho H. Chakraborty 15
  • 16. Business Case: CHANNEL FINANCING USING SOAOther Costs: Travel Cost – Client VisitCosting SummaryNote: 1. Exchange Rate is taken as 1 US$ = Rs. 50.72 2. If we exclude the license cost, then all other costs are Rs. 3,456,568Financial constraints: No financial constraints as there is no development exceptfor GUI and the whole project would be over in maximum 4 monthsPayback period and return on investment (ROI): 2 implementations wouldpayback our investment if we look at an ad hoc figure of minimum Rs. 50 lakhs perimplementation.Risks: Need to be compatible with the existing application. The major risk factor isthat we do not have prior experience to validate our expectations using eSOA inChannel Financing as we will not have any other financial application systems towork with in-house while developing the product.RevenueRevenue can be broken up as per the following:Implementation revenue: As this application looks standard with all SAP Modules, anend-to-end implementation would take around 960 man hours. The consultants onthe job would be:1 FICO Consultant (L4) – 480 man hours1 FICO Consultant (L3) – 480 man hoursAny other work would have to be estimated such as customization of NPAs.Author: Partho H. Chakraborty 16
  • 17. Business Case: CHANNEL FINANCING USING SOAAnnual Maintenance Contract (AMC): 1 functional and 1 TechnicalConsultant would suffice. This can be done offsite.Royalty: This needs to be worked out with SAPUpgrade revenue: The next version would include mobile alerts and Net Bankingapart from improving the feel and look of the standard features in the GUI. This wouldhave to be estimated when we chalk out next version.Benefits derivedIncreased customer satisfactionBest partners of SAP and leveraging SAP ModulesValue AdditionThis process helps to know the missing details or link between Risk and Credit, forexample; Bank Statement does not tell when the loan would be over nor there anyprovision for the customer to intimate about the completion of loan.Let’s Take a Simple case study: Month Earnings ExpensesFeb’09 1000 100 (Savings) 200 (Expenses) 500 (Car Loan) 150 (Consumer Loan) 50 (Personal Loan)Total 1000Here, Consumer loan last installment is on Feb’09 and the customer will have surplusamount of 150/-. So he wants to take new loan from Mar’09.But this information about 150/- Surplus is not reflected anywhere in the Bankstatement. Thus prima facie, the entire loan gets rejected and customer is notintimated why the loan is rejected.The above issue was detected while studying the various modules and this issuethough not a part of Channel Financing, can be easily resolved.Author: Partho H. Chakraborty 17
  • 18. Business Case: CHANNEL FINANCING USING SOAProject Management FrameworkGovernance The governance structure is as follows: a) Partho Hemendra Chakraborty (Project Manager) b) Sameer Rahim Shadab (SOA) c) Geetha Pilli (GUI)Quality management a) Methodologies and standards as followed by Intelligroup. b) Change, issue, and problem management as followed by Intelligroup. c) Review and acceptance procedures as followed by Intelligroup.Project Responsibility Partho H. Chakraborty.Author: Partho H. Chakraborty 18
  • 19. Business Case: CHANNEL FINANCING USING SOANote: Names if any, are Suggestive only and without any relation to any real entity whatsoever. It is only to give a feel and touch of how transactions can be structured and names are indicative This article is meant for education purposes only and it is not be reproduced for any commercial purpose by print or electronic medium whatsoeverThis case study is written by:Partho H. ChakrabortyA - 305, DSR Spring Beauty Apts., 124/1, ITPL Main Road, Brookefields, Kundalahalli, Bangalore -560 037, IndiaTel: +91 80 420 50293, Cell: +91 99863 22504email: parthohc@airtelmail.in; parthohc@rediffmail.comSkype: parthohc01Author: Partho H. Chakraborty 19