08a S5


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08a S5

  1. 1. IS5600 - 5 IT Based Organisational Transformation: BPR and Organisational Structures
  2. 2. Business Process Re-engineering <ul><li>“ The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance...”. </li></ul><ul><li>Hammer and Champy (1993) </li></ul>
  3. 3. A Generic Model for BPR 8 7 6 5 4 3 2 1 4. Identify IT Levers 5. Pilot/Trial New Process 1. Develop Vision & Objectives 8. Ongoing Continuous Improvement 2. Identify Process for Redesign 3. Understand & Measure Existing Process 6. Develop Support Solutions 7. Make New Process Operational
  4. 4. IT as an Enabler of BPR <ul><li>1. Automation: Elimination of human labour </li></ul><ul><li>2. Informational: Capturing/tracking process information </li></ul><ul><li>3. Sequential: Changing process sequence, or enabling parallel processing </li></ul><ul><li>4. Analytical: Improving analysis of information and decision making </li></ul>
  5. 5. IT as an Enabler of BPR <ul><li>5. Geographical: Coordinating processes across time and space </li></ul><ul><li>6. Integrating: Coordination between tasks and processes </li></ul><ul><li>7. Learning: Capturing and distributing intellectual assets </li></ul><ul><li>8. Disintermediating: Eliminating intermediaries from a process </li></ul>(adapted from Davenport, 1993)
  6. 6. Choosing the Processes to Re-engineer <ul><li>Symptom - Extensive information exchange, data redundancy, rekeying </li></ul><ul><li>Disease - Arbitrary fragmentation of a natural process </li></ul><ul><li>Symptom - Inventory, buffers, and other assets </li></ul><ul><li>Disease - System slack to cope with uncertainty and mistakes </li></ul><ul><li>Symptom - High ratio of checking and control to value-adding </li></ul><ul><li>Disease - Fragmentation, confusion, and mistakes </li></ul>
  7. 7. Example: AA + Sabre 1970s <ul><li>Symptom – Data redundancy, rekeying of data, double bookings, telephone calls to confirm seat availability </li></ul><ul><li>Disease – the process is fragmented across multiple systems, multiple technologies </li></ul><ul><li>Solution - Sabre, a Reservation System for Travel Agents </li></ul><ul><ul><li>For all airlines, but AA flights came up first </li></ul></ul><ul><ul><li>50% of agents select 1st or 2nd choice on the screen </li></ul></ul><ul><li>What was the role of IT in coordinating & integrating? </li></ul>
  8. 8. Example: Freq Flier Progs – 1990s <ul><li>Symptom – Flights are not always full; passengers fly based on cost, convenience. </li></ul><ul><li>Disease – (our) passengers are fragmented across multiple airlines </li></ul><ul><li>Solution – A Frequent Flier System </li></ul><ul><ul><li>For airlines in our team, with bonus points, check-in and luggage privileges, occasional upgrades </li></ul></ul><ul><ul><li>If your airline is not part of a major team (e.g. Star Alliance, Sky Team, OneWorld, Asia Miles), then what? </li></ul></ul><ul><li>What was the role of IT here? </li></ul>
  9. 9. Example: Outsourcing – 2000s <ul><li>Symptom – We lose money on packaging, logistics, even R&D. </li></ul><ul><li>Disease – we are doing many things that are not our core competence </li></ul><ul><li>Solution – Stick to what we are best at and outsource everything else </li></ul><ul><ul><li>UPS/FedEx are no longer just transport companies. </li></ul></ul><ul><ul><li>They do warehousing, logistics, customer delivery. </li></ul></ul>
  10. 10. Common IT Problems in BPR Projects <ul><li>1. Team members unfamiliar with IT possibilities. </li></ul><ul><li>2. IT professionals not part of BPR teams. </li></ul><ul><li>3. IT people don’t understand the business. </li></ul><ul><li>4. IT professionals not knowledgeable about how IT can support BPR. </li></ul><ul><li>5. IT consultants brought in too late to have any major impact on process redesign. </li></ul><ul><li>6. BPR team members too preoccupied with process analysis and redesign to explore IT applications. </li></ul>
  11. 11. IT Lessons Learned <ul><li>IT is not a solution </li></ul><ul><ul><li>It must be applied sensitively </li></ul></ul><ul><li>IT-enabled BPR should be part of the corporate agenda </li></ul><ul><li>IT people must be involved from the beginning </li></ul><ul><ul><li>But BPR is about business processes, so… </li></ul></ul><ul><ul><li>Business people should lead the effort </li></ul></ul><ul><li>Processes should be redesigned with IT in mind </li></ul><ul><li>Targets should be realistic </li></ul><ul><li>BPR is not trivial. It requires creative thinking. </li></ul>
  12. 12. Getting Serious about BPR <ul><li>1. What is likely to be the hardest part of reengineering for our company? </li></ul><ul><li>2. How can we develop our people so that they can do the jobs that re-engineering will create, and use the IT appropriately? </li></ul><ul><li>3. Are we prepared to adapt our HR policies to the needs of a reengineered environment? </li></ul><ul><li>4. How may we have to adapt our organizational structure for the aftermath of re-engineering? </li></ul>
  13. 13. Will Re-engineering work in China? <ul><li>Does anyone have experience of process improvement in China? </li></ul>
  14. 14. Changes to the Organisational Structure <ul><li>The extension of organisational boundaries </li></ul><ul><ul><li>Including customers, suppliers & partners </li></ul></ul><ul><li>Not just process redesign, but structural redesign </li></ul><ul><ul><li>X-engineering (BPR-II)(Champy, 2002) </li></ul></ul><ul><li>Realisation that success involves managing dependencies (with IT), and perhaps changing our culture </li></ul>
  15. 15. WalMart <ul><li>US$4B investment in IT to develop the “Retail Link” private exchange </li></ul><ul><li>All manufacturers/suppliers wishing to do business with WalMart must buy and use it </li></ul><ul><li>Top 100 suppliers must use RFID as well. </li></ul><ul><li>Huge cost advantage over competitors – because they integrate with IT. </li></ul>
  16. 16. But IT is not just for the big <ul><li>Anyone can leverage IT to their advantage </li></ul><ul><li>IT is for both radical & incremental change </li></ul><ul><li>IT can be used to transform an industry </li></ul><ul><li>IT can be used to drive up the competitive advantage of the traditionally small and weak. </li></ul>
  17. 17. Case: TAL Group (talgroup.com) <ul><li>Founded in 1947, HQ in Hong Kong </li></ul><ul><li>Turnover of US$590M in 02/03 </li></ul><ul><li>11 factories </li></ul><ul><li>23,000 employees </li></ul><ul><li>50M garments a year </li></ul><ul><li>78% of sales in the US market </li></ul>
  18. 18. TAL’s IT Investments <ul><li>Integrating ERP + SCM systems (US$10M) </li></ul><ul><li>End-to-end fully integrated system for </li></ul><ul><ul><li>Capacity planning </li></ul></ul><ul><ul><li>Production scheduling </li></ul></ul><ul><ul><li>Inventory management </li></ul></ul><ul><ul><li>Raw material purchases </li></ul></ul><ul><ul><li>Finished garment sales </li></ul></ul><ul><li>Extensive R&D > manufacturing patents </li></ul>
  19. 19. Vendor Managed Inventory <ul><li>Persuade the customers (retailers) to let TAL control the Inventory Management. </li></ul><ul><li>TAL is the sole supplier for those goods </li></ul><ul><li>TAL has total control of inventory monitoring & replenishment; no more ‘purchase orders’ </li></ul><ul><li>TAL’s systems constantly monitor inventories at the store level </li></ul><ul><ul><li>Reduce stock levels (and wastage); On-demand production; Rapid stock replacement </li></ul></ul>
  20. 20. From Linear and Sequential to Integrated and Synchronised <ul><li>Traditional information flows are linear and sequential. </li></ul><ul><li>Information quality degrades down the value chain </li></ul><ul><li>Coordination problems are frequent </li></ul><ul><li>TAL have an integrated & synchronised hub arrangement </li></ul><ul><li>This connects all their suppliers, customers and partners seamlessly and enforces mutual dependence. </li></ul><ul><li>Collaboration & information exchange are routine. </li></ul>
  21. 21. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Manufacturer's Value Chain (TAL) Retailer’s Value Chain (J.C. Penney) Purchase & receive raw materials (natural / synthetic fibre, yarn, etc.) Manufacture according to customer specs (cut fibre, sew, buttonhole, & iron) Package & ship to retailer’s warehouse Receive consumer feedback for product enhancement/ new product Marketing, merchandizing, and selling to end consumers Re-pack & distribute to retail outlets Perform inventory control, sales monitoring & forecast; place replenishment orders Purchase & receive garment from manufacturer at central warehouse A Sequential/Linear Value Chain for Apparel Manufacturing and Retailing Lee et al., 2004
  22. 22. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Manufacturer's Value Chain (TAL) Retailer’s Value Chain (J.C. Penney) Select & order raw materials according to sales patterns & new design requirements Design product according to sales pattern; manufacture according to design specs Distribute orders directly to customer’s retail outlets Focus on after - sales service to end consumers Focus on marketing & sales service to end consumers Streamlined product delivery & vendor-managed inventory at the store level Perform test marketing of new products at retail stores An Integrated and Synchronized Value Network for Apparel Manufacturing and Retailin g Monitor retail sales, replenish inventory, and design new products Hub (shared data and processes) Lee et al., 2004
  23. 23. Impacts? <ul><li>US$2M in annual savings for J.C. Penney </li></ul><ul><li>35% increase in inventory turnover </li></ul><ul><li>19% increase in sales </li></ul><ul><li>5% increase in gross margin </li></ul><ul><li>Reduced ‘out of stock’ situations and zero local (warehouse) inventory </li></ul>
  24. 24. Implications? <ul><li>Radically transformed industry structure & new rules of competition </li></ul><ul><li>Much higher switching costs for customers. </li></ul><ul><li>Access to real-time sales data at the store level </li></ul><ul><ul><li>Useful for TAL as it seeks new customers. </li></ul></ul>
  25. 25. Lessons <ul><li>Innovation can be driven by a weak member </li></ul><ul><ul><li>Strong networks, manufacturing expertise </li></ul></ul><ul><ul><li>Use IT to leverage strengths </li></ul></ul><ul><li>IT changes the value chain </li></ul><ul><ul><li>Develop an integrated and synchronised value network </li></ul></ul><ul><ul><li>Shared data, systems, processes and performance indicators </li></ul></ul>
  26. 26. Lessons for IT Based Org Change <ul><li>Top Management must be the change architects </li></ul><ul><li>IT cannot transform an organisation – IT enables transformation </li></ul><ul><li>Enterprise-wide business-IT Partnerships are needed </li></ul><ul><li>The pace of change must match the rate of acceptance </li></ul><ul><li>Individual transformation is as important as organisational transformation </li></ul><ul><li>Change champions must be diverse, yet work together </li></ul><ul><li>Offshoring IT development sounds attractive, but it is not just an IT project. </li></ul>
  27. 27. Consequences of Transformation <ul><li>Organisational culture and identity </li></ul><ul><ul><li>There will be pressure for change here too </li></ul></ul><ul><ul><li>People who support ‘the old way’ will feel left out, marginalised or discriminated against </li></ul></ul><ul><li>A new, more flexible set of cultural norms may be necessary </li></ul><ul><ul><li>Guided by new principles, new values, … and perhaps new managers? </li></ul></ul><ul><ul><li>A Culture of Blogging? The CEO’s blog-desk? </li></ul></ul>
  28. 28. The Value of IT? <ul><li>IT can enable transformation </li></ul><ul><li>But IT is not cost-free </li></ul><ul><ul><li>The price is the price of change, the acceptability of change </li></ul></ul><ul><li>If management doesn’t want change, then handle IT carefully </li></ul><ul><li>IT is only IT, but IT enables people to do things that were previously impossible </li></ul><ul><ul><li>Even email can produce radical changes in organisations </li></ul></ul>
  29. 29. Whiteboard Questions <ul><li>What kinds of barriers would normally exist to hinder companies like TAL to leverage and re-engineer the supply chain? </li></ul><ul><li>What is the strategic advantage for TAL? </li></ul><ul><li>Why should JC Penney trust TAL? </li></ul><ul><li>Can TAL replicate its success in other industries? </li></ul><ul><li>Imagine you are an IT consultant. How would you try to persuade CEOs to make more of their IT investments? </li></ul>