Financial Daily from THE HINDU group of publications
Wednesday, Aug 07, 2002
Enterprise Resource Planning
Info-Tech - Enterprise Resource Planning
Columns - User Watch
Info is the real dough
WHEN eWorld first started out to meet users of technology, the most common response it got for the query on return on investment (RoI) was "It is difficult to measure RoI". Over time, the response changed to "Sure we can measure RoI. Here's how we do it..."
This time around, we were in for a surprise. eWorld bumped into a company that says, "RoI is a certainty as long as technology allows you access to information, not possible earlier. We haven't even measured RoI." And bingo. It struck us that information is money. If at all they do check what the returns are, it may be only to know how much benefit they have raked in, not if. Intrigued, we went over to see what they are up to.
CavinKare has brands that you would have bumped into doing your weekly shopping - such as Chic, Meera and Tulsi. With 29 stocking points across the country, focussed predominantly in the South, the company was often in a quandary when it came to having real-time information. Some time ago, it decided to implement an ERP solution. But our query was, the company is not into manufacturing. So, is an ERP system as crucial to a marketing and distribution company as it is to one into manufacturing? We got our answers. And how!
Do's before ERP
Shyamala Srinivasan, Vice-President, Information Systems, took us through the exercise. The company first had three options: developing a system in-house, developing systems through external consultants and of buying and implementing packaged software. She says SAP was the choice of ERP software since the vendor had earlier implemented successfully for consumer marketing companies. So, there was a certain comfort level, she says.
Importantly, the next step after choosing the software was putting together a team from inside comprising people from departments such as sales, finance, sourcing and the like.
According to Srinivasan, "It is very easy for an ERP implementation to go awry if there is no commitment from users. We ensured at the beginning that heads of departments that comprised the cross-functional team would own up the project and it was their responsibility to get it done."
CavinKare had about nine (yes, nine), rounds of discussions with the heads of departments. Srinivasan says, "This was to primarily introduce the heads to the concept of ERP and ensure that they had a fair idea of what to expect from it and what not to. This was also an opportunity to know what they wanted to get out of the implementation."
S. Jagadish, executive assistant to the managing director at CavinKare and core member of the SAP team explains why information was critical to the business. "Marketing and distribution is our core. We aren't a manufacturing company. We had set ourselves a target of 100 times topline growth in 15 years' time. Depending on how demand spurts in different places, we have to place our stocks. This has to be done while ensuring minimum lock-up of capital in idle inventory and ensure availability of stocks where required."
For this, the company set about dictating stock norms and replenishment models for each of its products in each of its depots. "To estimate how much of say, Chik Shampoo I need to stock in an area, I need to know its sales pattern and sensitivity to inputs, the lead time for transit, the load building time and the inputs being planned. Typically, the stock moves from a third-party manufacturing unit to the mother depot, to the regional depot, to the retail stockist, to the retailer and to the consumer.
Let us take this example. At a point in time, assume I have 10 days' sales stock for a product and the lead time is 15 days. If a truck has a capacity for 650 cases, and currently has orders for 400 cases, it is going to wait to ensure full capacity so that margins are protected. If that is going to take 5 days to fill and reach a particular point where stock is needed, I will have to have 20 days' of stock to cover all scenarios. In which case, I cannot afford to come down to 10 days' sales stock for that depot, if I want to avoid opportunity costs."
"Again, if a particular unit is going to take 10 days to ship to the mother depot but will cost me Rs 203 per case, and another unit will take 12 days but will only cost me Rs 200 per case, for one lakh cases, I will save about Rs 3 lakh!! It may be easy to co-ordinate manually among depots or third-party units on a case-by-case basis but when you have to handle them simultaneously, you need an automated system."
Savings have been immense for the company, despite the fact that it did not particularly set targets before the ERP exercise. When we pushed for the information, Jagadish told eWorld, "Earlier, information collation was difficult. The status report on product transit was most crucial to us. By the way, our inventory days went down by a week to about 19 days. That itself translates to a release of Rs 5-6 crore. Interest savings on those speak for themselves. We are able to supply more quantities because our planning has become better. That is certainly a direct contribution to the topline."
Srinivasan is clear when we ask her how differently she would do this, if she were do it all over again: "We would train our team to know what exactly would be the benefits of the solution so that we could have bargained for more features or facilities. Since we were fresh users, we had to take their word as to what possibilities lay before us."
Being more prepared than the consultant is the key here.
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