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Realising Enhanced Value Due To Business Network Redesign Through Extended Erp Systems

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  • 1. The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at www.emeraldinsight.com/researchregister www.emeraldinsight.com/1463-7154.htm Business Realising enhanced value due to network redesign business network redesign through extended ERP systems 171 Case study of HLLNet M.P. Jaiswal and Anjali Kaushik Management Development Institute, Gurgaon, India Abstract Purpose – To examine and measure the effectiveness of enterprise systems at business network level. The paper presents the best practice case highlighting how business network systems (BNS) can be redesigned using enterprise systems to strengthen relationships with business partners and to enhance value to consumers. Design/methodology/approach – The paper examines the business potential of BNS redesign at the relationship level through a case study of one of the largest fast-moving consumer goods (FMCG) networks, HLLNet. Findings – HLLNet has uniquely extended its ERP system to establish transactional and relationship-oriented BNS and has achieved significant improvement in business performance for all partners in the network. It has achieved significant reductions in inventory, improvements in cash management and a negative working capital due to improved information flows across the network and the implementation of policies such as vendor-managed inventory (VMI). Simultaneously it has improved its telecoms infrastructure and redesigned its inter-organizational processes to support these information flows. This paper examines how the adoption of enterprise systems across the network, along with a redesign of BNS, can improve and contribute significantly to value to end consumers. Originality/value – The findings are quite useful to enterprises in terms of deploying enterprise systems across their value chain. They need not only to re-engineer business processes, but also to innovate new business policies while deploying enterprise systems in order to create value out of IT investment. Keywords Manufacturing resource planning, Supply chain management, Consumer goods, India Paper type Case study Introduction The emergence of information and communication technology (ICT) is not only reshaping business models but is also intensely interlining enterprises across their internal and external value chains. In other words, business enterprises are in the process of major transformation in order to meet the challenges of the network economy (Porter and Millar, 1985; Rayport and Sviokla, 1995). It has been well established that as the number of nodes in the network increases arithmetically, the value of the network increases exponentially (Kelly, 1998; Shapiro and Varian, 1999). In the past, much of thinking about and research on IT applications has focused on how individual companies can manage their information system assets. However, extensive Business Process Management work is now being done to develop inter-organizational information system (IOS) links Journal Vol. 11 No. 2, 2005 between companies and their customers and suppliers. Through an information pp. 171-184 q Emerald Group Publishing Limited partnership, diverse companies can offer novel incentives and services or participate in 1463-7154 joint business development programs (Konsynski and McFarlan, 1990). IOSs are DOI 10.1108/14637150510591165
  • 2. BPMJ systems based on ICT linking different organizations to facilitate the exchange of products and services. IOSs can create economic value as well as being used as 11,2 strategic weapons in industrial competition (Bakos, 1991). The role of ICT is redefined as a fundamental enabler in creating and maintaining a flexible business network of inter-organizational arrangements – joint ventures, alliances and partnerships, long-term contracts, technology licensing, and marketing agreements (Venkatraman, 172 1994). A business network is defined as a structure of interdependent relationships between the activities of a given firm and those of other firms in its competitive environment that influence each other’s strategies (Kambil and Short, 1994). Competitive success, to a large extent, now depends on how well the entire business network delivers value to its ultimate consumers, relative to its competing business networks (Christiaanse and Kumar, 2000). Business network systems are backpack inter-organizational information systems with the potential of data sharing, forecasting and transaction processing capabilities. Traditionally EDI has been used to enhance business networking, and now extended enterprise resource planning (ERP) systems, supply chain management systems, customer relationship management systems (CRM) and e-business portals are being used to establish BNSs (Alt and Fleisch, 2001). BNSs are usually closely linked to ERP systems, are owned and managed by a focal company and perform more complex transactions than classical inter-organizational information systems. Their development path starts with internal integration via ERP systems. However, it invariably involves more than one organisational unit and often integrates business partners such as customers, suppliers, and service providers with a company’s information infrastructure (Alt and Fleisch, 2001). A BNS is further defined as a system supporting the relationships between multiple organizational units that can be either internal or external. BNSs have been described as transaction-oriented and knowledge-oriented (Venkatraman, 1994; Alt and Fleisch, 2001). However, they may be classified into three categories (Table I): (1) transaction-oriented; (2) relationship-oriented; and (3) knowledge-oriented. Scope of business exchange amongst BNS types partners in the network Enterprise systems Business impact Transaction-oriented Exchange of structured Extended ERP, EDI, Enhancing coordination BNS data on transactions supply chain amongst business management partners in the network Relationship-oriented Exchange and sharing Customer relationship Enhancing collaboration BNS of enterprise resources management and amongst business and analytical data partner relationship partners in the network management Knowledge-oriented Exchange of Knowledge management Enhancing knowledge BNS unstructured data on systems management amongst business intelligence the business partners in Table I. and sharing of expertise the network BNS classification and skills
  • 3. Transaction-oriented BNSs Business Transaction-oriented BNSs are concerned with the exchange of structured data on network redesign transactions such as purchase orders, sales orders, invoices, billing, delivery schedules, payments, etc., among business partners, resulting in improved administrative and operational efficiency in the network (Venkatraman, 1994; Alt and Fleisch, 2001). Enterprise resource planning (ERP) systems are fast emerging as the information systems backbone of organizations across the globe (Nah et al., 2001). ERP systems 173 promise benefits that range from increased efficiency to the transformation of quality, productivity, and profitability. However, their implementation poses some unexpected organizational challenges and changes that can be structural as well as cultural in nature. ERP helps to establish world-class best business practices and brings transparency to an organization, but also demands empowerment and flexibility in the decision-making process (Davenport, 1998). Norris et al. (2000) state that an ERP system can easily be enhanced as a business network system by combining it with web technology using standards such as XML. The most promising argument is that to thrive in the e-commerce world, companies need to transform their internal business processes with the deployment of ERP systems (Norris et al., 2000). Slooten and Yap (1999) define ERP as an integrated, multi-dimensional system for all functions based on a business model for planning, control, and global resource optimization of the entire supply chain by using state of the art IS/IT technology that supplies value-added services to all internal and external parties. Buxman and Konig (2000) elaborate that ERP can be extended as an inter-organizational system across supply chain management. Baxter’s business network for managing hospital supply in the USA, TradeNet in Singapore and SABRE in the airline industry are some of the best known transaction-oriented business network systems (Short and Venkatraman, 1992; Teo et al., 1997; Hopper, 1990). Relationship-oriented BNSs A relationship-oriented BNS is an ICT-enabled business strategy to select and manage business partners to optimise long-term value to an enterprise. It means picking the right partners, working with them to help them be successful in dealing with mutual customers and ensuring that partners and the ultimate end-customers are satisfied and successful. Relationship-oriented BNS enables companies to make better collaborative efforts with partners by way of sharing business processes and resources. Previously, to increase sales, most companies focused on optimizing the efforts of their direct sales forces, primarily through customer relationship management (CRM) and sales force automation (SFA) applications. With the advent of the internet, communications opportunities expanded and became cost-effective. As a result, companies started to communicate outside their organizations and are now directing more of their efforts toward managing their indirect sales relationships as well. A large number of companies such as Unilever, P&G, Nestle, Pepsi, IBM, etc., conduct their business with indirect sales channels to serve their customers. Knowledge-oriented BNSs Knowledge oriented BNSs focus on the exchange of expertise such as product design, R&D, market research, etc., within the business network through ICT. In contrast to structured documents and transactional data exchanged in transactional BNSs,
  • 4. BPMJ knowledge-oriented BNSs are capable of exchanging unstructured documents and 11,2 analytical business intelligence data within a network that cuts across physical, organizational, and geographical boundaries (Venkatraman, 1994). Knowledge-oriented BNSs are still an evolving concept and not many examples exist in practice. However, community service models through knowledge portals such as www.mySAP.com provide a platform for the exchange of knowledge and expertise 174 among SAP users and consultants. The objective of this paper is to analyse the needs of business network redesign in order to achieve enhanced business value while implementing a BNS in a large business network such as HLL. The concepts of business network redesign and business process re-engineering are largely the same, except that the former encompasses changes in business policy and relationships in addition to changes in business processes. Research methodology BNS is a new concept and not much work has so far been done on this. In such situation case study research method is often employed (Eisenhardt, 1989; Lee, 1989; Benbasat et al., 1987). We intend to examine the BNS potential of enterprise systems using a case study research methodology. We have selected HLLNet for the study mainly due to its size and uniqueness in terms of having established transaction-oriented as well as relationship-oriented BNSs. In this study the first set of data about the case company’s structure and business performance was collected from its published documents and web site (www.hll.com). The second set of data about its ERP and BNS initiative was collected through interviews and discussions with its CIO and senior executives from its finance, marketing and operation functions. The third set of data on the post-ERP scenario was collected from various published documents and industry analysis reports (see www.indiainfoline.com). A case study of HLLNet HLL, a 51.6 percent subsidiary of Unilever, is the largest fast-moving consumer goods (FMCG) company in India, with a turnover of US$23 billion. The company’s business ranges from personal and household care products to foods, beverages, specialty chemicals and animal feeds. The company has a dominant market share in most categories that it operates in, such as toilet soaps, detergents, skin care, hair care, color cosmetics, etc. It is also the leading player in food products such as branded packaged tea, coffee, ice cream, and other culinary products. The fast-moving consumer goods business requires strong brand equity and a wide distribution network. Brand equities are built over a period of time by technological innovations, consistent high quality, and aggressive advertising and marketing. Availability near the consumer through a wide distribution network is another crucial success factor, as products are of small value and are frequently purchased items. HLL is the market leader in the detergent and soap industry. HLL has about 130 brands and over 1,200 SKUs in its portfolio, over 1,000 suppliers and 7,000 stockists filling up shelves in over one million retail outlets. HLL has 100 factories, 13 sales branches and 121 warehouse depots, along with 93 third-party manufacturing sites, all of which provide HLL with data that is used in the company’s planning systems. The existing supply chain of HLL is shown in Figure 1.
  • 5. Business network redesign 175 Figure 1. The existing distribution network Presently, HLL has 23 central offices, two research centers and other locations. It has five tea-buying units and two of its major offices are in Mumbai and Bangalore. Procter & Gamble, despite being the global leader in this segment, has been unable to achieve a critical mass in India. In the oral care segment, HLL has emerged as a strong no. 2 player, giving stiff competition to the market leader Colgate. In the skin care market, where several leading global players have entered, HLL has strengthened its position with the acquisition of the Ponds’ and Lakme brands. It has also been launching international cosmetics and perfumes in the domestic market. Tata Tea in packed tea and Nestle in coffee and culinary products are its main competitors in the foods business. Nirma and AMUL have eaten away its major market share in the detergent and ice cream segments, respectively. FMCG is a low-technology market and product differentiation is not easy. Imitators move swiftly to negate any product advantage. Association with the parent company Unilever helps HLL in launching new products through technological innovation. For a company like HLL the challenge is obviously to manage the differing supply chain needs of its often vastly different businesses. It needs to have strong distribution channels to achieve a high level of penetration. On the other hand, there are many manufacturing compulsions: while some products can be manufactured daily, others like detergents are only be manufactured periodically because of bulk processing requirements. In the case of HLL, increases in the prices of raw materials (oil, soda ash, LAB, etc.) cannot be immediately passed on, due to the branded nature of the products. On the other hand, savings from falls in the prices of raw materials can be retained. Traditionally, HLL used to plan its production and distribution based on feedback from C&F agents. C&F agents used to plan distribution based on demand raised by stockists. C&F agents as well as stockists were given 60-90 days credit for the goods stocked by them. With a time lag, they ended up pushing stock until they realized that they were dumping. HLL’s supply chain had chronic inventory problems. In 1995, HLL’s net current assets as a percentage of capital employed was 44 percent, and inventory was 20 percent of divisional turnover for detergent and 24 percent of divisional turnover for personal products[1].
  • 6. BPMJ Business-driven enterprise systems at HLL 11,2 Most business enterprises in developing countries such as India are in the process of implementing enterprise systems, particularly ERP, in alignment with organizational transformation and process re-engineering initiatives. A very few of these enterprises have been able to use the BNS capability of its ERP information systems. HLLNet is a unique case of how far an ERP package can help in optimizing the resource across the 176 supply chain of an organization. In case of HLL, the selection and implementation of ERP systems itself was driven by the strategic requirements of integrating the supply chain with the clean-slate re-engineering approach. HLL was amongst the pioneers in realizing the importance of optimizing its entire supply chain functions along with functions internal to the organization. Based on the categorization of ERP products on BNS capability, HLL selected MFG/PRO from QAD. MFG/PRO belongs to the low-end of the market and yet was selected by a top-tier company in India. In case of HLL, the entire effect of the change in information technology coupled with the changes in the business processes and policy was transformational and yielded magnificent results for the company as well for its business network partners. In 1997, HLL implemented the MFG/PRO ERP package across its 234 sites (100 manufacturing sites, 13 sales branches and 121 warehouse depots). The objective was to integrate manufacturing, financial and distribution processes to improve working capital management and reduce channel inventory across its business network. Also, it standardizes business processes across different business units and establishes BNS. MFG/PRO was not a market leader in ERP, but was preferred by HLL as the package has good supply-chain management tools, and hence can provide a BNS capability. It can be implemented at multiple sites and it easily scales to meet changing business requirements. It optimizes the enterprise functions by increasing the speed of internal processes and by synchronizing distributed operations. It is appropriate for continuous process, batch process, made-to-stock, configure-to-order and repetitive manufacturing environments. HLL’s vision is “Connect, Attract and Fulfil” on a massive scale. In the supply chain, for example, the vision is to link in Phase I with some 3,000 stockists, 30,000 retailers and 100 suppliers spread over some 1,000 locations. The size of the ambition is based on HLL’s unique ability to leverage on scale and technology and development in its telecoms infrastructure. Transportation and telecommunications infrastructures are really not up to the mark in India. This deficiency interferes with the smooth transfer of information and goods to and from the company’s far-flung manufacturing sites and distribution centers, all of which tend to be in rural areas, and many of which are owned by third parties. Without good communication facilities, there is no point in having ERP. So HLL had to install a VSAT system for reliable communication system. HLL has 128 VSATs installed in this network. A network of manufacturing facilities in remote corners of India, with little or no communication facilities, forced HLL to look towards VSATs. Satellite networks provide connections for a wide range of applications such as databases, ERP, messaging, intranet, voice and video. It also provides intranet applications like information warehousing, database connectivity, training, etc. VSAT systems were initially developed to provide cost-effective networking solutions bypassing terrestrial systems, but they have found greater applications for HLL in reaching the rural consumer. The company has identified the rural market as a future growth engine. When the company moves to an online environment, it will derive other
  • 7. benefits like enterprise-wide finite capacity scheduling and online optimization of stock Business levels, costs and manufacturing schedules. The one drawback with the VSAT system network redesign is that it supports only batch data transfer (via FTP). The delays on the line can be significant, up to one and a half seconds per keystroke. This is not acceptable for online transactions. ERP extended as a transactional BNS 177 HLL’s e-commerce initiative uses the ERP infrastructure to extend the company through the web, to its partners, suppliers, vendors, and customers. This system spans 240 supply-chain related sites at HLL to begin with. The system handles order processing, planning, purchasing, invoicing, and financial tasks throughout the enterprise. Distribution resource planning (DRP) is accomplished through a rules-based, finite-availability plan that takes Lever’s many manufacturing and transportation constraints into account. ERP integrates manufacturing and distribution operations through the DRP module. Distribution centers give the demand to the factories. The DRP module helps Lever to compute demand dynamically based on daily sales orders. Forward sales orders likewise provide the basis for a dynamic calculation of inventory norms at the company’s regional and local distribution centers. For the factories, both those owned by Lever and by third parties, the new system represents a strategic shift. The factories are responsible for maintaining the stock level at the distribution centers. The system has helped HLL take its initial steps toward workflow automation of the supply chain. It handles exceptions involving dispatching, wildly variable truck capacities, lead-time variances, and changes in both demand and sourcing. Meanwhile, there are other improvements in supply chain management that have minimized inventory levels. HLL’s supply chain is off-take driven rather than forecasting driven. This means that stocks are replenished as soon as they move off the shelves. This is not to discount forecasting completely, however, because this is essential at the procurement end of the supply chain, especially when it comes to importing raw materials like oils. Transaction-oriented enterprise systems using an EDI network were used as a tool to link 40-odd raw material suppliers, 60-odd finished goods suppliers and 500-600 larger stockists. HLL also implemented vendor managed inventory (VMI) systems at 750 of its larger stockists (50 percent of sales) and many of its major suppliers of raw materials to improve visibility and information flow, and to integrate the entire the supply chain. At the end of each day, HLL’s factories and four buffer depots know exactly what needs to be dispatched based on the sales that evening. The company has categorized its products into A, B and C, based on the frequency of replenishment. While the factories despatch category A products directly, category B and C items are stocked in buffer depots. So each depot gets stocks from either a factory or a buffer depot on a daily basis. Apart from linking all these points with its ERP software, HLL has also connected some of its large third-party manufacturers through VSAT. Redesigning BNS In HLLNet, suppliers are able to know the company’s production plans and plan delivery action. For instance, a packaging vendor will stock material at his factory. The vendor must keep tabs of what has been consumed. The company will share its
  • 8. BPMJ production plans with the vendor but the onus is on the vendor to maintain enough 11,2 stocks to keep the factory going. That means dealing with variables like demand surges or even rejections. This is one step ahead of “just-in-time”, and it will be done through collaborative software. Now, instead of having a man on hand, the vendor now only needs to have a virtual presence on the factory floor, courtesy of the network. The concept of vendor management was always present but could not be given this thrust 178 previously because of poor communication links. Post-ERP, the company has greater information at every point, which allows it to look at data warehousing. ERP implementation was accompanied with initiatives on the VMI concept. It took HLL approximately one year to implement the concept and to realize benefits. The starting point of VMI implementation was the collection of daily sales data from the retailer and feeding it to HLL’s distribution centers for the area. The data collected from all the retailers through stockists, fed to respective distributor centers, was aggregated for the week. The data is sent back to 60-odd factories and they in turn inform their suppliers of the requirements. With the forecasting process in place, HLL was in a position to aggregate daily demand. The factories interact with the suppliers directly for delivery, scheduling and quality issues. The stockists’ sales for the day would be replenished at the distribution center next day and at the same time, the packing material supplier would have to keep equivalent packing material ready for delivery to the factory. Information integration across the supply chain is the most effective way to counter the problem of demand distortion in the supply chain – the well-known “bullwhip effect”. Improved information sharing among business partners reduces the potential of the harmful bullwhip effect. Better information sharing was followed by co-ordination across the supply chain to pursue programs like VMI, which further dampened the bullwhip effect and improved forecasting and replenishment decisions. Apart from major business processes and policies such as sales and distribution, payment and stock replenishments were revamped across the supply chain. The results were evident in terms of significant reductions in inventory levels, reduced stock levels and lower working capital requirements while improving the response time and customer service levels. The redesigned network is based on a collaborative business model, as shown in Figure 2. HLLNet uses an extranet covering its key stockists and retailers to optimize the supply chain right up to the front end. Similarly, an extranet has also been created covering the suppliers, factories and purchases, with the aim of achieving real-time vendor managed inventory. The gains for the company have been tremendous, with close to US$280 million in receivables at any given point, and if we add the receivables down the chain to this, the figure could well exceed US$1,200 million. Analysts opine that even if the company manages to free 10 percent of this, the saving could be tremendous. The web may give any corporate reach, but what is also important is the capability to deliver the product to the customer. Here HLL has a tremendous advantage because of its huge network. The company could also archive consumer behavior and get a better fix on its product profile and consumer behavior, which can be used for its marketing initiatives. HLLNet has a formidable network connecting all its suppliers and has now started a project to wire up its 7,500 stockists. The next step would be to connect its top retailers and use the internet as a platform for transactions. Among the first growth engines already under implementation is a unique rural business system.
  • 9. Business network redesign 179 Figure 2. The future networked distribution chain Its rural business system is unique in not only developing specific product for the Indian rural market, but also in embarking on exclusive rural communication and infotech to take products right to the doors of consumers. The information systems architecture of HLLNet is shown in Figure 3. Business impact of redesigned BNS The performance indicator variables of HLL, such as net current assets, net sales to inventory ratio, credit days as sales days, response time and customer services index, are examined based on the data from its published balance sheets for a period of five years (1995-2000). HLL previously had a stock replenishment cycle time of two weeks. After ERP implementation, it came down by three and half days, which translates into substantial savings in inventory costs. HLL’s supply chain had chronic inventory problems before the implementation of ERP. In 1995, HLL’s net current assets as a Figure 3. Systems schematics of HLLNet
  • 10. BPMJ percentage of capital employed was 44 percent, inventory was 20 percent of divisional turnover for detergent, and 24 percent of divisional turnover for personal products. In 11,2 1996/7, net current assets as a percentage of capital employed was down to 8 percent, and inventory in key divisions was down to 5-6 percent of turnover[1]. These results are depicted in Figures 4 and 5. 180 BNS and enterprise systems Enterprise systems, particularly ERP, play a critical role in establishing BNSs. ERP enables the standardization and streamlining of business processes. ERP systems have been widely implemented by a large number of organizations worldwide to create value-oriented internal BNSs. However, many of these organizations are enhancing their ERP systems with inter-organizational modules known as external BNSs (Alt and Fleisch, 2001; Mashari and Zairi, 2000). HLL has extended its ERP systems over an extranet covering its suppliers, factories, and key stockists to optimize the supply chain right up to the front end with the aim of achieving real-time, vendor-managed inventory. The fast transfer of funds across its business partners is achieved through relationship networks. HLL collects 25-30 blank and signed cheques from its stockists at the beginning of each month and fills in the amount after the respective stocks have been delivered. Based on the above discussion we propose: P1. ERP systems can be extended as a transaction-oriented BNS across the supply chain. BNS and coordination The information distortion known as the bullwhip effect adversely impacts coordination among various members in the business network. The bullwhip Figure 4. Trends in net current assets as a percentage of capital employed Figure 5. Trends in net sales to inventory ratios, 1996-2000
  • 11. phenomenon is well recognized across industry, and has been widely researched (e.g. Business Lee et al., 1997; Chen et al., 2000). IT enhances the coordination of economic activities by reducing coordination costs, and can therefore improve firm performance and network redesign productivity (Shin, 1999). The redesign of inter-organizational processes with the use of ICT plays a leading role in improving coordination among the various partners in the business network (Christiaanse and Kumar, 2000). HLL introduced the concept of VMI to overcome the inventory problem in addition to the implementation of ERP. The 181 planning cycle of HLL used to be monthly, and this has now become daily. The improved planning has paid off, mostly in stock reduction. For example, the stock levels in the detergent business alone dropped from 105,000 tons to less than 55,000 tons. Measured in days, stock levels fell from six weeks of sales to less than three weeks. The volume of finished goods languishing in distribution centers fell from three weeks to less than one week. In the factories, HLL now keeps a one-day inventory, while at the buffer depot it is four to five days. Supplier inventory levels are at three days, down from the previous seven days. Analysts say that HLL’s inventory management is among the best in the world, and is on a par with the likes of Wal-Mart or Campbell. This enables us to propose: P2. The BNS improves the coordination among the business partners in the business network. Improving consumer value through BNS redesign The various research and case studies show that adoption of enterprise systems across the network, along with channel transformation, leads to improving the value to end consumers (Clark and Mckenney, 1995). In the case of Procter & Gamble, redesign of the BNS resulted in dramatic improvements in its retailers’ effectiveness in delivering value to the end consumer (Clark and McKenney, 1995). Historically, HLL used to finance its business with its supplier’s money and provide 60-90 days credit to its distributors. This used to result in high channel inventory and low value to consumers. HLL changed the policy of credit sales to its stockists. HLL stockists who used to get 60-90 days of credit from HLL are now offered a special discount if they pay in advance. As a result, stockists place orders only for stocks that can be replenished quickly. This has drastically reduced the channel inventory in the entire network. HLL also reversed the policy of buying on credit from its suppliers. It now prefers to pay suppliers in cash rather than ask for credit, and hence negotiates price discounts from them. As a result, in 1997 HLL’s net current assets as a percentage of sales was 2 4.9 percent. In the same year, its parent company Unilever’s net current assets as percentage of sales was 11.5 percent[1]. Also in the case of HLLNet it has been possible to improve consumer value through improved flow of demand and supply information by redesigning the business relationship across the channel by exploiting the power of business network systems. Interest costs continue to decline, with repayment of debt and effective working capital management. Despite the reduction in inventory, HLL simultaneously improved its customer service. Before, 25 percent of SKUs were not available on any given day. Now this figure is less than 5 percent and still improving. Response times have also improved dramatically. HLL’s response time was cut from 14 days to two days, which means that if there is an out of stock problem, it responds within 24 hours. On the basis of the above we propose:
  • 12. BPMJ P3. In order to improve consumer value, the business network may need to be 11,2 redesigned while exploiting the power of enterprise systems. Conclusion The previous research reveals that the deployment of IT aligns with the radical 182 redesign of business processes dramatically improve a firm’s performance in terms of productivity (Barua et al., 1995; Hitt and Brynjolfsson, 1996; Ragowsky et al., 1996). It has also been established that IT improves intra- as well as inter-organisational coordination, resulting in improved business performance (Shin, 1999; Christiaanse and Kumar, 2000). Earlier research also shows that the implementation of ERP systems across the supply chain in alignment with process reengineering may result in improved business performance across the business network (Mashari and Zairi, 2000; Hicks, 1997). However, there is less research demonstrating the impact of redesigning business policy or relationships while establishing enterprise systems across the network. Most of the earlier research mainly focused on the need for business process reengineering across networks. Through an empirical case study, this research has presented evidence that if an extended enterprise system is accompanied by redesign of the business policy and relationship apart from process reengineering across the business network, it further enhances the business value of network. The case study of HLLNet demonstrates the successful use of enterprise systems to enhance business value across the business network. HLL has linked its suppliers, stockists and retailers through an extended enterprise system to form a BNS called HLLNet, which has resulted in tremendous cost savings for the company. HLLNet has shifted its strategic decision-making powers to those points in the network that are closest to the customer while using the corporate center to generate the resources and create the infrastructure that frontline people need through policies like VMI, advance payment from sales and cash payment to suppliers, etc. It now discourages credit and maintains a regimented cash management system. The normal practice in the company is to collect 25-30 blank cheques at the beginning of the month from stockists and fill in the amounts after the respective stocks have been delivered. Historically, HLL had the reputation of financing its working capital with suppliers’ money and pumping its stock to distributors on credit. However, with implementation of an extended enterprise system across its network, it has revised its strategy. HLL’s stockists, who used to get 60-90 days of credit from HLL, are now offered special discounts if they pay in advance. As a result, stockists place orders only for the stocks that can be replenished quickly. This has drastically reduced the channel inventory in the entire network. Suppliers are paid in advance, and in return they pass on the cash discount to HLL, resulting in reduced costs of raw materials. All this has been made possible due to the smooth flow of information across the network. Note 1. Source: HLL Annual Reports (1996-2002), available at: www.hll.com References Alt, R. and Fleisch, E. (2001), “Business networking systems: characteristics and lessons learned”, International Journal of Electronic Commerce, Vol. 5 No. 2, pp. 7-27.
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