Accueil
Envoyer
Imprimer
Partager
The Development of ERP
ERP was perhaps the major application movement of the last two decades in enterprise computing, implemented by 85 percent of Fortune 1000 companies, representing almost all major companies whose business model matched the proposition. Its origins were in Manufacturing Resource Planning (MRP), a system used by manufacturing companies to optimize materials, purchasing, run lengths and inventories with the aim of reducing the total variable costs of manufacturing.
ERP broadened this to cover the whole manufacturing enterprise and, critically in the mid-80s, to go beyond the boundaries of the company to communicate with the supply chain. This additional information being collected from the broadest possible view of the enterprise, including its suppliers and customers, continued to reduce uncertainty and thereby enable inventory reducation.
To put this in financial terms, the cost of financing the inventories of the Fortune 1000 companies in the early 90s is estimated at $150 billion. Big savings in financing costs were available if inventories could be reduced — the U.S. Department of Commerce estimated a reducation in the inventory/sales ratio from 4.8 turns to 5.4 turns over the period 1980-90.
The final component that made ERP so successful was the evolution of technology. Over the 15-year period that witnessed the growth of ERP, computing changed from central mainframes with a few application-specific dumb terminals to one-per-desk PC usage for all administrative tasks. There is no doubt that these technical developments were an important enabling backdrop to the success of ERP.
Let us now draw a parallel between the inventory reducation levels that prompted ERP implementation and the issue of cash management — maintaining stocks of cash. Both inventory and cash holdings need to be kept higher if there is lack of visibility into its sources or uses. In both cases, uncertainty can be reduced by managing and taking information from the relevant supply chain (namely the materials and services supply chain in the case of inventory, and the financial supply chain in the case of cash), and making it visible quickly and accurately. Estimates set the cost of the cash holdings of the Fortune 1000 companies at $90 billion.
The Financial Supply Chain
Can the concept of Financial Supply Chain Management reduce the amount of cash corporations need to hold? Is the parallel with ERP useful?
There are two facets of the comparison that are particularly pertinent. First, there is no doubt that one of the keys to successful cash management is accurate information on what the future outgoing cash requirements will be and of incoming cash. Second, the enabling technology base is now in place. In the last three years, the Internet has become a truly cost effective solution for interorganization communications and a trusted infrastructure for business processes, secure enough to carry forward the technical advances being made in e-payment systems.
The heavy investment in e-procurement in recent years has not fed through into automation of the payment process and there remains currently a lack of progress in the automation of payment systems. Problems include:
- Fragmented point solutions with very limited integration
- Limited interorganizational integration and automation
- Manual processes of dispute resolution, reconciliation and payments
But the biggest impediment most solutions fail to address is that 80 percent of the processes today are still paper driven. So automation solutions have to start by:
- Digitizing paper where possible so paper intensive processes do not slow down the processes, and
- Doing so without getting bogged down in complexity of business process re-engineering.
To address the needs of the marketplace, the fragmented point solutions available today must address both these weaknesses and re-invent themselves.
As many observe, although e-ordering now takes seconds and goods can be delivered next day, it still takes months for the money to be moved. The good news is that now money can be moved swiftly, and the processes of invoice receipt, tax calculation, invoice approval, payment and cash management are ripe for automation.
Some visionary companies are building systems to address these issues, automating the entire billing and payments process and enabling contact down the supply chain with resultant benefits in:
Cash Flow: ability to take early discounts and improved price terms for e-payments
Operating efficiencies: self-service vendor management and reduced cost of invoice processing and reconciliation
Internal controls and visibility: improved period-end accruals and elimination of payment duplication.
Implementing Financial Supply Chain management
So, how are these benefits achieved, and what are the processes of implementing Financial Supply Chain management?
The implementation can be seen in four stages :
Convert paper documents to electronic. This can be achieved with a high degree of automation, including OCR, and does not involve extensive keying. Electronic invoices can be more easily reconciled with purchase orders, circulated for approval and swiftly passed through the system using standard workflow processes, devoting time only to the exceptions containing errors that involve resolution of disputes. For the percentage of instances where OCR does not work, it needs to be augmented by manual approaches for exception management located out of low-cost geographies like India.
Automate financial transactions. The move from manual to e-payments gives full control over the payment process, paying when you want to pay. E-payment does not necessarily shorten your payment cycle; if you want to maintain 30-day payment terms, then e-payment enables you to pay on exactly that last day. However, with e-payments, companies can negotiate improved terms for shorter payment periods based on their newfound ability to meet payment dates with full reliability. E-payments can be made precisely on time. The biggest myth that needs to be debunked here is the perceived benefit of float built into the delays caused by paper processes. For most companies, the benefits derived from operational efficiencies when paired with the capability of scheduling payments at-will more than compensates for any real loss in float revenue. Also, with automation it is more practical to implement strategies like controlled disbursements to optimize cash positions.
Automate liability management. Sarbanes-Oxley has imposed new compliance burdens onto an already onerous area of operation. Requirements for accurate, rapid and transparent reporting cannot be realistically achieved without end-to-end automation solutions. Furthermore, the thousands of sales/use tax jurisdictions and rates, and the hundreds of changes each year, make tax compliance an increased cost and an increased worry. Again the benefits of automation can provide savings and, just as important, corporate confidence in compliance.
Implement working capital management. Once the processes are automated, contact with the supply chain financial departments is improved and most of the uncertainties are taken out of the payment chain, companies can begin to optimize their cash management. This may be a purely internal process, managing cash against precise knowledge of daily payables and receivables, and improving credit decisions. There is also the option to explore external finance sources, such as factoring, which can be obtained at advantageous rates once the evidence of the effectiveness of the financial supply chain can be presented.
A recent implementation of Financial Supply Chain management at a top U.S. company showed impressive improvements. Data entry has been eliminated from 85 percent of transactions; the cost of invoice handling has more than halved to $1.27 each; and operational cost base has improved by 30 percent (direct impact of reducation in full time equivalents). Strategic benefits now being negotiated include trade and payment terms improvements and reducation in the IT resources require to support multiple payment systems.
It is ironic that the department most conscious of the need to make savings, the finance function, has been left behind in gaining the cost savings through automation that other functions have been routinely delivering. The emergence of these new Financial Supply Chain concepts, products and services signal the start of the next major corporate paradigm post-ERP, bringing financial and operational benefits to the very heart of the business.
BY TODD M. BARNHART
Todd M. Barnhart is Senior Vice President at Velosant, where he is responsible for product marketing including the development of new products and the company's go-to-market strategy
ERP was perhaps the major application movement of the last two decades in enterprise computing, implemented by 85 percent of Fortune 1000 companies, representing almost all major companies whose business model matched the proposition. Its origins were in Manufacturing Resource Planning (MRP), a system used by manufacturing companies to optimize materials, purchasing, run lengths and inventories with the aim of reducing the total variable costs of manufacturing.
ERP broadened this to cover the whole manufacturing enterprise and, critically in the mid-80s, to go beyond the boundaries of the company to communicate with the supply chain. This additional information being collected from the broadest possible view of the enterprise, including its suppliers and customers, continued to reduce uncertainty and thereby enable inventory reducation.
To put this in financial terms, the cost of financing the inventories of the Fortune 1000 companies in the early 90s is estimated at $150 billion. Big savings in financing costs were available if inventories could be reduced — the U.S. Department of Commerce estimated a reducation in the inventory/sales ratio from 4.8 turns to 5.4 turns over the period 1980-90.
The final component that made ERP so successful was the evolution of technology. Over the 15-year period that witnessed the growth of ERP, computing changed from central mainframes with a few application-specific dumb terminals to one-per-desk PC usage for all administrative tasks. There is no doubt that these technical developments were an important enabling backdrop to the success of ERP.
Let us now draw a parallel between the inventory reducation levels that prompted ERP implementation and the issue of cash management — maintaining stocks of cash. Both inventory and cash holdings need to be kept higher if there is lack of visibility into its sources or uses. In both cases, uncertainty can be reduced by managing and taking information from the relevant supply chain (namely the materials and services supply chain in the case of inventory, and the financial supply chain in the case of cash), and making it visible quickly and accurately. Estimates set the cost of the cash holdings of the Fortune 1000 companies at $90 billion.
The Financial Supply Chain
Can the concept of Financial Supply Chain Management reduce the amount of cash corporations need to hold? Is the parallel with ERP useful?
There are two facets of the comparison that are particularly pertinent. First, there is no doubt that one of the keys to successful cash management is accurate information on what the future outgoing cash requirements will be and of incoming cash. Second, the enabling technology base is now in place. In the last three years, the Internet has become a truly cost effective solution for interorganization communications and a trusted infrastructure for business processes, secure enough to carry forward the technical advances being made in e-payment systems.
The heavy investment in e-procurement in recent years has not fed through into automation of the payment process and there remains currently a lack of progress in the automation of payment systems. Problems include:
- Fragmented point solutions with very limited integration
- Limited interorganizational integration and automation
- Manual processes of dispute resolution, reconciliation and payments
But the biggest impediment most solutions fail to address is that 80 percent of the processes today are still paper driven. So automation solutions have to start by:
- Digitizing paper where possible so paper intensive processes do not slow down the processes, and
- Doing so without getting bogged down in complexity of business process re-engineering.
To address the needs of the marketplace, the fragmented point solutions available today must address both these weaknesses and re-invent themselves.
As many observe, although e-ordering now takes seconds and goods can be delivered next day, it still takes months for the money to be moved. The good news is that now money can be moved swiftly, and the processes of invoice receipt, tax calculation, invoice approval, payment and cash management are ripe for automation.
Some visionary companies are building systems to address these issues, automating the entire billing and payments process and enabling contact down the supply chain with resultant benefits in:
Cash Flow: ability to take early discounts and improved price terms for e-payments
Operating efficiencies: self-service vendor management and reduced cost of invoice processing and reconciliation
Internal controls and visibility: improved period-end accruals and elimination of payment duplication.
Implementing Financial Supply Chain management
So, how are these benefits achieved, and what are the processes of implementing Financial Supply Chain management?
The implementation can be seen in four stages :
Convert paper documents to electronic. This can be achieved with a high degree of automation, including OCR, and does not involve extensive keying. Electronic invoices can be more easily reconciled with purchase orders, circulated for approval and swiftly passed through the system using standard workflow processes, devoting time only to the exceptions containing errors that involve resolution of disputes. For the percentage of instances where OCR does not work, it needs to be augmented by manual approaches for exception management located out of low-cost geographies like India.
Automate financial transactions. The move from manual to e-payments gives full control over the payment process, paying when you want to pay. E-payment does not necessarily shorten your payment cycle; if you want to maintain 30-day payment terms, then e-payment enables you to pay on exactly that last day. However, with e-payments, companies can negotiate improved terms for shorter payment periods based on their newfound ability to meet payment dates with full reliability. E-payments can be made precisely on time. The biggest myth that needs to be debunked here is the perceived benefit of float built into the delays caused by paper processes. For most companies, the benefits derived from operational efficiencies when paired with the capability of scheduling payments at-will more than compensates for any real loss in float revenue. Also, with automation it is more practical to implement strategies like controlled disbursements to optimize cash positions.
Automate liability management. Sarbanes-Oxley has imposed new compliance burdens onto an already onerous area of operation. Requirements for accurate, rapid and transparent reporting cannot be realistically achieved without end-to-end automation solutions. Furthermore, the thousands of sales/use tax jurisdictions and rates, and the hundreds of changes each year, make tax compliance an increased cost and an increased worry. Again the benefits of automation can provide savings and, just as important, corporate confidence in compliance.
Implement working capital management. Once the processes are automated, contact with the supply chain financial departments is improved and most of the uncertainties are taken out of the payment chain, companies can begin to optimize their cash management. This may be a purely internal process, managing cash against precise knowledge of daily payables and receivables, and improving credit decisions. There is also the option to explore external finance sources, such as factoring, which can be obtained at advantageous rates once the evidence of the effectiveness of the financial supply chain can be presented.
A recent implementation of Financial Supply Chain management at a top U.S. company showed impressive improvements. Data entry has been eliminated from 85 percent of transactions; the cost of invoice handling has more than halved to $1.27 each; and operational cost base has improved by 30 percent (direct impact of reducation in full time equivalents). Strategic benefits now being negotiated include trade and payment terms improvements and reducation in the IT resources require to support multiple payment systems.
It is ironic that the department most conscious of the need to make savings, the finance function, has been left behind in gaining the cost savings through automation that other functions have been routinely delivering. The emergence of these new Financial Supply Chain concepts, products and services signal the start of the next major corporate paradigm post-ERP, bringing financial and operational benefits to the very heart of the business.
BY TODD M. BARNHART
Todd M. Barnhart is Senior Vice President at Velosant, where he is responsible for product marketing including the development of new products and the company's go-to-market strategy
