Can your eCommerce business afford to not have a ERP system?

Enterprise Resource Planning (ERP) can be simplified to the core functions of managing an infinite number of multiple-complex scenarios, having precise multi-tasking skills whilst exhibiting the most detailed time management, all at the same time. You would agree, that if it was a person holding these credentials, then they would be a game changer in the organisation and worth a lot of money.

If you were to try and imagine an ERP system in an alternative context, then imagine that you were holding a birthday party for around 30 people and you decided to hire an external venue and provide food and drinks for the guests.  Planning of an event like this requires you to immediately perform interrelated decisions that involve volume (quantity) and timing of materials.   By estimating how many people are likely to attend, how much food and drinks will be needed, minus the amount of current food & drink (stock) that you already have, the proportion of frozen food and when exactly the frozen food needs to come out. Estimation of any food that needs to be cooked from a recipe and the calculation of multiplying by 30 to meet the demand and the timing of when to shop.  When the invitations need to be prepared and sent out for RSVP’s, the availability of suitable venues and not to mention all the communication from the potential guests that have any questions.

In business, especially e-commerce, the ERP system is the latest and most significant development that has been built on the predating philosophy of the Materials Requirement Planning (MRP) system.  The MRP system was originally devised in the mid-1960s to support the British Nuclear power efforts and subsequently developed further to match the integrated socio-technical system that Toyota car production had developed.  The general concept around MRP was the use of calculating the product information or ‘component structure’ with the demand information to precisely form a ‘Master Production Schedule’ that was the basis of controlling and planning the perfect execution of materials arriving at the very point of manufacture, with built-in consequence factors, that saw avoiding delays in production and benefitted cashflow as stock was only called upon, on precise demand.  In the 1970s the MRP system witnessed a radically overhaul that changed the basic planning and control mathematics of MRP with a turbo injected boost of ‘computer power’ as the ERP system became part of the early game changers that kicked starting the digital revolution.

Figure 1: The Holistic view of an organisational ERP system.

Through development, the ERP system is now widely acknowledged as a sophisticated tool that integrates all departments and all functions within a whole organisation into one single computer system that can serve all departments and all personnel.  By housing all departments into a single network of communication allows transparency across the whole spectrum, as figure 1 shows the from sales and marketing, multiple warehousing, inventory control, supply chain management, manufacturing, human resources, accounts, finance and strategic reporting with all levels of management control that meets the needs for every department without duplication of information.

An unlikely benefit of allowing the transparency of an integrated system and database manipulation is the immediate reflection of any consequences of decisions that are taken in one part of the organisation that will always be shown in the planning and control system of another part of the business.  This is recognised with multiple warehousing and stock control that may be on different continents or the accounts position of a customer before dispatching of goods and the transparency of a CRM system that can traverse across the world to ensure that information is accurate and up to date as all information is updated in real time by those who use it.  However, the real clever abilities are the streamlining of processes that reduces errors and saves money with the wider integration with other ERP systems of supply chains that can work in collaboration to organise an effective stock movement, logistics and purchasing ordering efficiencies all of which save time and money and reduce mistakes. This, of course, will only ever be truly effective when more and more businesses accept the benefits of ERP and trust the collaboration.

By its very nature, an ERP system directly addresses organisational fragmentation and therefore the process of integration can take a period of time to achieve as it is a difficult system to meet the needs and expectations of cross organisational boundaries,  that have to ensure the correct functionality of the overall business. Furthermore with the concept of moving everybody into a single integrated system that operates within a single database will invariably create resistance to change, which management will need to manage carefully by articulating a clear business vision, outlining achievable goals and timeframes, build a positive user acceptance through comprehensive training and clear communication.  Concluding in a requirement for owner/managers to not only understand the amazing benefits an ERP system can bring to a business but equally to understand the levels of complexities that are also associated with the implementation and that a full and comprehensive consultation is required before embarking on an ERP project.

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Clay Cowie is an eCommerce specialist at business management consultancy S.M.A.R.T Turnaround Ltd. He often writes blogs on topics designed to help businesses thrive and grow online.

Operational Costs

Cost saving in your eCommerce business using the 5 Performance Objectives

There’s more to running a successful eCommerce business than just selling products online. Get your back-end operations wrong and you could be losing money unnecessarily.

There are really only two options when it comes to growing an eCommerce business – increase revenue and/or decrease the operating costs. Managers often focus too heavily on cutting costs to increase profits. They fail to see that severe cuts to operating costs can often hinder productivity and may actually reduce profit.  An alternative way to reduce costs is to review the business using the five performance objectives of quality, speed, dependability, flexibility and cost. This method can be applied to any business that considers operational management as a core priority within their business. It allows management to highlight areas of poor performance and identify opportunities to reduce costs.

This is especially true in eCommerce where profit margins are tight and unnecessary costs can make or break a business. To thrive online, try applying these five performance objectives to reduce costs logically without a reduction in productivity.

  • Quality – Look at ways to improve the quality of your processes to improve customer satisfaction and drive down costs. One thing you can do is to make each warehouse packer responsible for the quality of their own packing in order to reduce the number of mis-packs. This would save substantially on the operational costs of returns and re-packing.
  • Speed – When selling online speed is of utmost importance especially when competing against the retail giants who have this down to a fine art. Make sure your products can be ordered, processed and delivered with as little friction and overhead as possible to keep a cap on costs. This could be addressed by negotiating ‘just in time’ delivery of goods with suppliers to reduce inventory value and storage costs, thereby improving cashflow and the pressure on finances.
  • Dependability – Dependability is vital for the success of an eCommerce store. Customers need to know they will receive their order when the store says it will arrive. Miss the delivery date too often and you will see customer satisfaction and sales dwindle. One way to save costs through improved dependability is to tighten the warning controls on the dispatch system to alert management if the expected number of parcels are not sent out by the end of the day. This will reduce the number of parcels that incur an extra charge when they need to be upgraded to express deliveries the following day.
  • Flexibility – There are significant service improvements and cost savings to be made by introducing flexibility into your business. The ability to change and adapt to market forces, competition and demand from customers can help you win in the eCommerce game. This can be anything from the ability to easily introduce new products, to flexibility in delivery schedules. One way to tackle operational costs is to adopt a flexible working scheme so that busy periods can be covered without reliance on overtime.
  • Cost – This is perhaps the simplest of the five performance objectives and an amalgamation of the previous four. Look at the cost of suppliers, the cost of warehousing, the cost of staff and the cost of deliveries to see if there are any savings to be made in the management of your business. An efficient ecommerce team should constantly look at new partnerships and ways of working to minimise base costs and maximise profits.

Case Study Analysis

To illustrate the potential savings to be made by adopting the five performance objectives, we’ll look at the hypothetical case of www.example.com. This is an online retailer that sells approximately five million items per year, which are typically sold individually.  They purchase their products from a selection of suppliers all around the UK, receive goods into their warehouse for storage until they pick orders that contain the widgets and dispatch them through a distribution company. Despite the business posting modest profits each year, the management now wishes to turn its attention to reducing its operating costs.  Following a brainstorming exercise, a few changes were made which resulted in a reduction in costs.

  • Making each warehouse packer responsible for their own packing quality reduced mis-packs from 0.5% – to zero (or very close), thus saving £4 per item in re-packing costs. With five million parcels a year, this quality improvement prevented 25,000 re-packs and realised the company £100,000 in cost savings.
  • Tightening the warning controls on the end of day dispatch system eliminated the 1% of parcels which required express delivery at an extra cost of £3 per item. This meant 50,000 parcels were sent out on time, saving £150,000 saving per year thanks to improved dependability.
  • Negotiating ‘just in time’ delivery of goods with suppliers significantly reduced overheads. As well as a £2,000,000 reduction in stock, this speed improvement netted additional savings of £200,000 in storage fees charged at 10% of inventory value.
  • By adopting a flexible working scheme that meets demand in busy periods in exchange for hours off in the low periods, the company made further savings. Despite making an extra payment of £100,000 per year to compensate workers for less work in low periods, the company eliminated an overtime bill of £300,000, making a net gain of £200,000 per year through workforce flexibility.

Conclusion of savings to be made

By viewing the hypothetical scenario of an eCommerce business through the paradigm of the five performance objectives, we have demonstrated a total cost saving to the business of £650,000 and an additional inventory stock reduction of £2,000,000.

The beauty of all of these actions above is that they are sensible, logical and significant operating savings that also maintain the ability for the business to continue to increase sales revenues and therefore profitability.

Put the five performance objectives into practice to see how your eCommerce business can combat costs to continue to succeed and grow online.

If you would like to see if there are any ‘performance  objective’ cost savings that can be made in your business to increase profitability then don’t hesitate to contact Clay Cowie from  S.M.A.R.T Turnaround team on 01752 68 38 68 or email hello@smartturnaround.co.uk

Ways to develop Innovation in your business

The rate at which globalisation is constantly changing the external landscape has underlined the strategic importance within organisations to develop capabilities that ensure the continued process of seeking out all forms of innovation to keep the competitive advantage in the commercial marketplace because when innovation is created and implemented, marketplace needs are met and when met successfully, value is created.

Innovation falls into two types of collaborations, ‘formal’ and ‘informal’. Informal is the wider range of common participation in problem-solving and can be extended to a very wide audience, whilst it is argued that formal collaboration brings about a greater concentration in the transfer of knowledge and also results in greater leaps in solutions. Equally another characteristic of innovation looks at the incremental or radical rate of change needed. Incremental refers to the small steps needed to improve a product or service to remain competitive, whilst radical implies a more turnaround model where the product or service has to be significantly changed.

All sources of innovation are insightful and progressive in their nature and here we look at just a few of the different types that have a huge persuasion in organisations whilst equally having some of the biggest impacts on the world.

Open Innovation
The importance of open innovation is widely accepted as being the main component to create business value. The popularity of open innovation has transpired due to the great importance that social, economic, and environmental factors have greatly contributed to a company’s objectives. A concept moving away from traditional thinking that once considered that innovation is an exclusively an internal process and work towards and acknowledging that ideas and creativity can equally come from outside the organisation and bring alternative fruitful thinking. Open innovation has had to engage in activities that include learning by interacting and learning from each other from both internal and external sources. An amazing example of open innovation is the company Openideo that has created an open innovation platform (similar to crowdfunding) that reaches out to global audiences, addressing innovation in global challenges for social good. A platform we can all contribute to encapsulates innovation in specific projects making a difference around the world, proving the point of diverse open collaboration working on innovating projects that make a positive impact.

Lead User Innovation

Considers the idea that it is often the user/s of innovative products and services that provide the greatest feedback for organisations to further research and develop until the final product or service is achieved. A concept coined in 1998, acknowledged that there will always be more users of innovation than there are testers and developers and therefore the most obvious place for feedback and innovation improvement will reside with the user. As an example of this, is to consider the development of a piece of ‘software’ or ‘equipment’ process that will really benefit from feedback from the actual users that have deep experience in older, previous models and really knows the ‘special element’ that would bring about a ‘light bulb’ moment and potentially revolutionise that particular industry………..

Now, this all sounds very simple, yes?

No – There is a flaw with this source of innovation because on one hand, manufacturers and organisations need to keep their innovations broadly available in the marketplace in order to remain viable, get thoroughly tested and to receive the greatest range of feedback, yet this subsequently means that they are unable to keep their innovations secretive to competition and with exposure to the world, ideas are likely to be stolen. When all organisations are focussed on gaining a competitive advantage, this mode of user feedback provides a challenging conundrum.

Disruptive Innovation
Understanding disruptive innovation is when there is an introduction into the marketplace of alternative new forms of products and services with slow incremental changes, challenge the incumbent’s expensive option. History suggests that disruptive innovation occurs in marketplaces that have been often ignored by the incumbent leaders.

As the disruptors gain a foothold in the market, by simplifying, generating affordable alternatives then marketing the incumbent’s target market, they can potentially result in the erosion of share price of the incumbent business as the new rivals proposition eventually reshapes the market. This can be witnessed in the airline industry as low-cost flights disrupted and shaped that industry, equally in the mobile phone industry that has seen aggressive-disruptive product innovation consistently challenge the status quo.

One of the cycles of product disruptive innovation, that demonstrates the process of elimination can be shown here in these three steps:

1. The era of ferment: When there is a flood of businesses ideas and entrepreneurial ventures into the marketplace, that results in a fermentation process of several prototypes with wide-ranging degrees in stages of development.
2. The shakeout: Is traction in the marketplace, as the most prominent designs emerge on top. The results in the ‘shakeout’ of designs witnesses a series of mergers and acquisitions to reduce the number in competitors whilst other designs phase out or step aside.
3. End of growth: As saturation eventually occurs in the marketplace, designs mature and become difficult to make incremental changes and growth become slow. This stage typically generates a fresh breed of entrepreneurial spirit that looks forward to the next generation of concepts with fresh and radical innovation.

And so the cycle continues to evolve and as a business, you have to weigh up if you are prepared to……disrupt or run the risk of being disrupted…………………..

Service Innovation
Whilst most people think of innovation being focussed on products ie, mobile phones, computer software, hybrid cars, all that have immeasurably changed the way we operate our lives, innovation is not exclusive to products and is as important in the service sector. However, unlike products, services depend on customers engaging with and encountering differing levels of experience and as services are intangible, they, therefore, are more difficult to innovate than products, for example reading emails or listening to the radio, both supplied by service providers.

Alternatively, the concept of creating joint ventures between the local authorities and the private sector has been exposed by the UK government as a perfect example of service innovation as collaborative initiatives have allowed local authorities to raise additional revenue by being both housing developers as well as land vendors. Cormac in Cornwall is an example of this hybrid mix that witnesses service innovation initiatives between the local authority and their own private company.

The Bottom Line
Regardless of the range or level of service or product innovation provided a business, this out-looking approach creates value for the company. There is a strategic need for leaders of organisations to encourage and develop innovation in all forms. If you are struggling to see the way forward in development or need help identifying these opportunities, S.M.A.R.T Turnaround are leading experts in extracting value and aligning innovation with the long-term health of the organisation. To see how we can reshape your business with the latest innovative thinking by contacting us today!

Are you wearing S.W.O.T goggles?

S.W.O.T analysis will help you better understand how to diagnose your business. Read here to learn how to do a S.W.O.T analysis and improve business.

What if there was an easy technique to make your business stronger every month? As it turns out, S.W.O.T analysis is the perfect tool to help your business achieve its goals. However, many people do not know enough about what S.W.O.T is and how it works. Keep reading to discover our S.W.O.T analysis example and definition!

What Is S.W.O.T Analysis?

S.W.O.T is actually an acronym. It stands for Strengths, Weaknesses, Opportunities, and Threats.

S.W.O.T analysis is an honest evaluation of what your business does well and what it could stand to improve. The goal is to use this analysis to develop a business strategy that emphasises your strengths while finding ways to address your potential weaknesses and acts as a visual aid to evaluate the holistic dimensions of your business.

Benefits of S.W.O.T Analysis

The S.W.O.T analysis remains popular because it has a number of benefits. The first is the simplicity of it: you can present analysis findings in a single image, making it easy for anyone and everyone to process. A good S.W.O.T analysis is also thorough. By looking at opportunities and threats in addition to strengths and weaknesses, you are able to create both short and long-term plans for success. A S.W.O.T analysis is very versatile. You can apply it at the macro level to your entire business or on a micro level to a smaller team, division, or individual within the company. Finally, a S.W.O.T provides insight into the external changing environment and provides management with the tools to gain or sustain the competitive advantage.

Drawbacks of S.W.O.T Analysis

The S.W.O.T analysis is still widely used because of its many benefits. However, this form of analysis is not without its drawbacks. First, a good S.W.O.T analysis is only as good as your information collected. If you put together analysis without very much detailed data and research, then you will come out with flawed results. Second, it can sometimes be difficult to categorise certain things. Sometimes, changing external factors, such as customer attitudes, means something could be a threat or an opportunity. Finally, for all the S.W.O.T analysis opportunities, there is the risk of oversimplification. By reducing complex data into a handful of talking points, you risk overlooking the need for complex solutions.

SWOT Analysis Example

Now you know a bit about what a S.W.O.T analysis is. Now, the big question: how to do a SWOT analysis? We’ll answer this by way of example.

For example, if you managed a Chinese Fusion restaurant. Your strengths might include that you offer customers a convenient location and that you are a fast and affordable alternative to going to a drive through. Your primary weakness might be that your business is new. As such, you might be struggling to pay back some of your start-up loans. Opportunities might represent factors such as the city population increasing and/or visitors increasing. This means opportunities for greater profit. Finally, your threats might be other nearby restaurants targeting your demographic. In this way, they are the primary obstacle to your success.

The Bottom Line

Now you have a good S.W.O.T analysis example. But do you know who can help you analyse your business? At S.M.A.R.T. Turnaround, we are experts at business strategy. With our analysis, you get all the benefits and none of the drawbacks.

To see how we can reshape your business, contact us today!

The Four V’s

The main characteristics of the processes that transform the resources into outputs are generally categorised, into four dimensions Volume, Variety, Variation and Visibility.

The heartbeat of operations management lays in the ability to manage core activities that transform key resources into deliverable products or services.  The process of creating the products and services are based fundamentally on converting original input resources through a conversion process that creates value by eventually outputting transformational products and services.

Volume

Denotes the process of managing volume output dimensions.  If the volume of an operation demands it, a streamlining of the processes to create a uniform system will provide the quality of goods being common and offers an opportunity for an increase in the speed of production.  If significant volumes can be met, with bespoke equipment, will produce a uniformed result, the operation ultimately will lead to lower unit costs. A biscuit factory is a perfect example of this.

Variety

Denotes the dimension that clarifies the differences between standardised goods and services V’s non-standardised, providing flexibility.  Providing services that are standardised, attracts the lower costs and creation of profitability as, flexibility and additional goods and services increase the core transformational costs.

Variation

Variation dimension addresses the contrasts in the business model and the impact on costs and volume as the businesses address the variation. The advantages of a low variation of business allow predictability as a strong consideration for lowering costs.

Visibility

Allows the amount of visibility to the customer, of its operations, as most manufacturing operations have very little visibility to the customer.

The role of operations is to transform the original resources to goods and services that create value.  The characteristics of the four V’s confirm that there are many clear principles to monitor processes.  By understanding the holistic processes this opens up opportunities for management to address and change the operation, to become a far more efficient business that gains lower unit costs and more profitability, which goes some way to claw back the advantage over the competition.

Five Performance Objectives

 

The Five Performance Objectives of quality, speed, dependability, flexibility, and cost can be grouped together to play a pivotal role in business. Interwoven through every aspect of operations allows management to draw attention to areas within an organisation that is not performing well and provides opportunities to address them.  The characteristics of each objective allow management to assess operations both internally and externally to benefit the business by gaining and creating the competitive advantage.

 QUALITY

Quality is the most visible part of what an operation does and acts as a consistent indicator of customers’ expectations, in other words, ‘doing things right’, but the things which the operation needs to do right will vary according to the kind of operation. All operations regard quality as a particularly important objective. Quality is something that a customer finds relatively easy to judge about the operation. Is the product or service as it is supposed to be? Is it right or is it wrong? There is something fundamental about quality. Because of this, it is clearly a major influence on customer satisfaction or dissatisfaction. A customer perception of high-quality products and services means customer satisfaction and therefore the likelihood that the customer will return.

When quality means consistently producing services and products to specification it not only leads to external customer satisfaction but makes life easier inside the operation as well.

Quality reduces costs – The fewer mistakes made by each process in the operation, the less time will be needed to correct the mistakes and the less confusion and irritation will be spread.

Operation principle
Quality can give the potential for better services and products and save costs.

SPEED

Speed means the elapsed time between customers requesting products or services and them receiving them. The main benefit to the operation’s (external) customers of speedy delivery of goods and services is that the faster they can have the product or service, the more likely they are to buy it, or the more they will pay for it, or the greater the benefit they receive.

Fast response to external customers is greatly helped by speedy decision making and speedy movement of materials and information inside the operation.

Speed reduces inventories – The material’s journey time is far longer than the time needed to make and fit the product. It actually spends most of its time waiting as stocks (inventories) of parts and products. The longer items take to move through a process, the more time they will be waiting, and the higher inventory will be.

Operation principle

Operations principle is that speed can give the potential for faster delivery of services and products and save costs.

DEPENDABILITY

Dependability means doing things in time for customers to receive their goods or services exactly when they are needed, or at least when they were promised. Customers might only judge the dependability of an operation after the product or service has been delivered. Initially, this may not affect the likelihood that customers will select the service – they have already ‘consumed’ it. Over time, however, dependability can override all other criteria. No matter how cheap or fast a car mechanic garage is, if it always later than promised to finish or the same parts continue to fail, the customer will go elsewhere.

Dependability saves time –  Managers and workers spending time firefighting chaos, simply waste time!  If they had machinery and services that they could depend on, much valuable time would be saved to concentrate on other aspects of the business.

Dependability saves money – Ineffective use of time will translate into extra costs.

Dependability gives stability – The disruption caused to operations by a lack of dependability goes beyond time and cost. It affects the ‘quality’ of the operation’s time.

Operations principle
Dependability can give the potential for more reliable delivery of services and products and save costs.

FLEXIBILITY

Flexibility means being able to change the operation in some way. This may mean changing what the operation does, how it is doing it, or when it is doing it. Specifically, customers will need the operation to change so that it can provide four types of requirement:

product/service flexibility – the operation’s ability to introduce new or modified products and services.

mix flexibility – the operation’s ability to produce a wide range or mix of products and services.

volume flexibility – the operation’s ability to change its level of output or activity to produce different quantities or volumes of products and services over time.

delivery flexibility – the operation’s ability to change the timing of the delivery of its services or products.

Holding the flexibility to change and adapt quickly to market conditions provides the business with a competitive edge, as larger centralised companies that do not have that flexibility will at times take weeks and months to adapt, meanwhile the more flexibility can capitalise.

Operations principle
Flexibility can give the potential to create new services and products, in a wider variety and with different volumes and with different delivery dates, as well as save costs.

COST

To the companies which compete directly on price, the cost will clearly be their major operations objective. The lower the cost of producing their goods and services, the lower can be the price to their customers. Even those companies which do not compete on price will be interested in keeping costs low. Every pound removed from an operation’s cost base is a further pound added to its profits. Therefore, low cost is a universally attractive objective.

All operations have an interest in keeping their costs as low as is compatible with the levels of quality, speed, dependability, and flexibility that their customers require. The measure that is most frequently used to indicate how successful an operation is at doing this is productivity. Productivity is the ratio of what is produced by an operation to what is required to produce it.

Both the reduction of cost through internal effectiveness is as important as the focus on making improvements to all the other operational objectives.

Cost operation principle
Cost is always an important objective for operations management, even if the organisation does not compete directly on price.

Figure 1.0 shows the internal and external effects of which objective influences the other and their nett outcome. Despite the various nett effects that each has on each other, the one common effect is on cost, so it is fair to state that the quickest and most efficient way to improve the cost performance would be to improve all of the other elements.

Figure 1.0 The performance objectives and their effects.