Value Chain & IT

Transformation at DESKO (B)

 CASE SYNOPSIS

 This case describes in detail Desko’s customer order

process.
 It highlights the importance of this key business
process and how its inefficiencies can significantly
diminish the SME’s performance.
 Aim

 To map and analyze a complex business process

 To provide recommendations to improve it
 To identify key indicators to monitor its performance
 Index: Flow of Presentation

 Problem Statement
 Meeting and Agenda
I. Customer Service: Process & Deficiencies
II. Credit: Process & Deficiencies
III. Production: Process & Deficiencies
IV. Distribution & Shipping: : Process & Deficiencies
V. Invoicing: Process
 Problem Statement

 DESKO is on the verge of

loosing one of its major
customer because of the
unacceptable delays linked to
the order processing.
 Olson (CEO of DESKO),
therefore eagerly waiting for
report from Douglas Moore, a
consultant at Efficient
Information Technology
Reengineering, in order to get
in-depth and unbiased picture
of DESKO’s order process.
 Meeting

 In order to help Moore, a meeting, headed by Olson is being

called with following attendees.

John Olson
(CEO)

Douglas Moore:
Consultant, EITR

Denise McMaster: Yves Tremblay:

Derek Sanders: Guy Leforet: David Pitt:
Director of Credit & Director of Distribution
VP of Operations Director of Production Director of IT Dept.
Invoicing & Shipping
 Meeting: Agenda

 Activities tied to the order process identified by the mangers

during the meeting were presented with following 5 major areas,
simultaneously deficiencies in the process flow were also
discussed in order to narrow down to the problem.
1) Customer Services
2) Credit
3) Production
4) Distribution & Shipping
5) Invoicing
 Customer Service: Process

Printing and
Creation Item
Stock
Order Receipt 2
of Order
Allocation
Confirmation
log

 Order is being  After getting a  After creating

 Customer printed and an official order,
copy of order,
Orders are order number, a confirmation
credit dept.
received receipt date, number is
allocate stock to
through mails, quantity etc. are generated and
that order
faxes or EDI entered in a log book is
through ERP
ERP maintained
for that
 Customer Service: Deficiencies

 According to Sanders, there are 5 deficiencies in the customer

service activities related to the order process, as per following:
I. Various errors can occur while creating a customer order like
pricing error, product code error, order duplication error etc.
II. Some orders get lost during allocation of orders to account
manager.
III.Manual allocation of order (which is being followed sometimes
to prioritize the order) is only a temporary solution.
IV. ERP system doesn’t take order cancellation date into account,
which sidesteps the allocation of stocks.
V. ERP system supports a maximum of two delivery points per
customer only.
 Credit: Process

Passing / Auto- Rechecking of

cancelledItem
order2by
Clearance
Blocking of order by
ERP Clerk/ McMaster

 ERP
 Autocancelled
automatically
orders(ERP) are  All cleared orders
blocks the orders
checked once on stage one and
which do not
again by clerk or two are further
meet
by McMaster, processed
requirements,
if found justified,
otherwise pass
are cleared
them
 Credit: Deficiencies

 According to McMaster, there is only one problem in the credit

activities tied to the order process. The return of items, entails
the issuing of replace order, and thus requires creation of a
second invoice. Yet the credit, corresponding to the amount of
the order returned is issued only on reception of items
associated.
Unfortunately, DESKO is able to recover the
returned items at the customer’s site only when the delivery
route is favorable. Therefore time required to collect returned
items can be very long. Because of this time lag, replaced orders
may appear on the “List of Past Dues” and launch unjustified
collection process.
Production for MTS(Make to Stock) Products:
Process

Production Modification &

Production ERP entry and
Planning Item&2
Scheduling
simulation
Schedule
Validation Freezing
 Sales  Necessary
Forecasting,  SKU wise plan  Plan is entered modifications
annual budget, is scheduled into ERP and are made
required and validated simulated for according to
production rate and then stock allocation priority and
are used to rechecked at
schedule is
plan the the end of
freezed
production supervisor
thereafter
 Production : Deficiencies

 According to Laforet, the MTS production planning itself is

flawed as per following:
1) Production schedule is not flexible enough. Only minor changes
can be accepted such as replacing some products with other
ones.
2) One planner uses ERP system forecast management report
while other uses the excel file to forecast the number of units to
be produced. There is lack of uniformity.
3) While, some of the major customers can send their order
forecasts, the balance of the reserved inventory remains
unchanged in the ERP, if this forecast exceeds actual orders.
The planners have to check and correct if necessary the level of
reserved inventory each week.
4) Order forecasts are made only once an year.
 Production : Deficiencies

The annual sales forecast is based on the sales of the last 13

months, it does not take into account the current market trend or
the manufacturer’s MTO production.

 MTO strategy is also flawed according to Laforet as per

following:
1) Planners do not have access to information regarding
production of MTO units.
2) Inventory of pre-assembled parts is still managed by Kanban,
which is based on constant production volume, sales
variability can generate out-of-stock problems.
3) Stock allocation algorithm in ERP system has to be analyzed
and improved.
 Distribution: Process

Routing and Finalizing for

Sorting for Order for
Dispatch Item 2
Distribution Booking Sheet Shipping
preparation
 If transportation  Route is  Status of
 The produced cost is less than finalized using related order
goods are 10% of the total PC Miler and changes to
sorted “TENDER” in
cost, order is booking sheet
according to assigned for is created ERP system
geographic distribution, according to
location. otherwise customer
wait. availability.
 Loading & Shipping: Process

Item
Preparatory
Step Item 2
Item Collection assignment to Loading
loading door
 Shipping clerk  Items  Items are put  Items are
starts by associated with on the assigned loaded in
consolidating order are door for pick reverse order of
‘Load Tenders’. collected using up. Item labels unloading.
A loading door a forklift, are scanned Shipping
is assigned to shipping labels and are cleared documents are
each order. are put on the from created and
items. inventory. hand over.
 Distribution & Shipping: Deficiencies

 According to Tremblay, there are two deficiencies in distribution

and shipping activities tied up with order process as follows:
1) There is large volume of items in inventory in the distribution
center, in the warehouse and even sometimes in trailers. This
excess of inventory makes inventory management complicated.
2) Numerous storage sites, the difficulty to locate items, and/or
numerous useless manipulations make the collection method
long and laborious.
 Invoicing and Payment: Process

Check of Check for credit Dispute

Invoice generation
in ERP Item
payment 2 application
Resolving
Process
 Every night a  For every  The accounts
 If the request is clerk in
script in ERP cheque, for credit then guidance of
creates invoice received by pre McMaster and
for all orders company, it is requirements VP-finance
with ‘Complete’ being checked are checked issues the
status. Next day for payment vs against the notification
invoices are credit present one. needed.
sent to possibility.
customers
 Invoicing and Payment: Process

 Customer who wishes to return the order must first send a

credit application.
 The customer service clerk then issues a replace order that will
be processed like a regular order. This order consists of the
items that will replace those that will be returned. The
associated labels and a return form are then printed and mailed
to the customer.
 Product returns are gathered the next time an order is
delivered to the customer. Once in DESKO’s warehouse, the
items returned are checked by an inspector.
 BPR DEFINITIONS

Definitions Source
The fundamental rethinking and radical Hammer (1990)
redesign of business Process to achieve
dramatic improvements in critical
contemporary measures of
performance, such as cost, quality,
service and speed
Analysis and design of workflows and Davenport and Short (1990)
processes within and between
organizations
The critical Analysis and radical Teng et al. (1994)
redesign of existing business processes
to achieve breakthrough improvements
in performance measures.
 BPR DEFINITIONS

Definitions Source
BPR Projects frequently attempt Stoddard and Jarvenppa(1995)
“revolutionary” (radical0 change but
because of political, organizational and
resource constraints, they take on
“evolutionary” (incremental)
implementations.
BPR continues to evolve, with more Davenport (1995)
emaphasis being placed on strategic
linkages, smaller projects, fast-cycle
methods and active “bottom-up
participation.
BPR is increasingly recognized as a Kettinger et al. (1997)
form of organizational change
characterized by strategic
transformation of interrelated
organizational subsystems producing
varied levels of impact.
 BPR CRITICAL SUCCCESS FACTORS

 Top Management Sponsorship (strong and consistent

involvement)
 Strategic Alignment (with company’s strategic direction)
 Compelling Business Case for Change (with measurable
objectives)
 Proven Methodology (that includes a vision process)
 Effective Change Management ( address cultural
transformation)
 Line ownership ( pair ownership and accountability)
 Reengineering Team Composition (in both breadth and
knowledge)
 BPR DIAGNOSTIC PRINCIPLES

 Identify non-value activities

 Identify sequential and independent activities
 Identify activities conducted in batch mode
 Identify lack of information and/or feedback
 Identify manual transfer of information/documents
 MAIN BPR IMPROVEMENT
PRINCIPLES(Process Improvement Guidelines)

 Capture information once and at the source

 Organize around outcomes and not tasks
 Put the decision point where the work is performed and
build control into the process
 Conduct sequential activities in parallel when feasible
 Link parallel activities instead of integrating their results
 Build (immediate) feedback mechanisms within the
process
 Eliminate batch activities
 Make information visible throughout the process
 KEY PERFORMANCE INDICATORS
Sample Performance Indicators for the Credit
Verification Sub-Process
 Percentage of orders blocked
 Ratio of the value of blocked orders/value of all
orders per period
 Average time for unblocking orders
 A Stage-Activity Framework for BPR

 Envision (S1)
 This stage typically involves a BPR Project champion
engendering the support of top management

 A Task force, including senior executives and individuals

knowledgeable about a firm’s processes, is authorized to target
a business process for improvement based on a review of
business strategy and IT opportunities in the hope of firms
overall performance
 Initiate (S2)
 This stage encompasses the assignment of a reengineering
project team, setting of performance goals, project planning,
and stakeholder/employee notification and “buy-in”.

 This is frequently achieved by developing a business case for

reengineering via bench-marking, identifying external
customer needs, and cost benefit analysis
 Diagnose (S3)
 This stage is classified as the documentation of the current
process and sub-processes in terms of process attributes such
as activities, resources, communication, roles, IT, and cost.

 In identifying process requirements and assigning customers

value, root causes for problems are surfaced, and non-value-
adding activities are identified.
 Redesign (S4)
 In the redesign stage a new process design is developed.

 This accomplished by devising process design alternatives

through brainstorming and creativity techniques.
 The new design should meet strategic objectives and fit with
the human resource and IT architectures.
 Documentation and prototyping of the new process is typically
conducted, and a design of new information systems to
support the new process is completed.
 Reconstruct (S4)
 This stage relies heavily on change management techniques to
ensure smooth migration to new process responsibilities and
human resource roles.

 During this stage, the IT platform and systems are

implemented, and the users go through training and
transition.
 Evaluate (S6)
 The last stage of a BPR methodology requires monitoring of
the new process to determine if it met its goals and often
involves linkages to a firm’s total quality programs.
Mapping of Techniques
Mapping of Techniques
Mapping of Techniques
Mapping of Techniques
Stage-Activity Framework for BPR
 DESKO’s Order Process (Level 1)
Customer Credit & Invoicing Distribution
Production
Service & Shipping

1.
Order
Receipt 5.
MTS
Planning 7. 10.
Production US Route
2. 3. Planning
Errors Credit
Verification Verification

6. 8. 9.
MTO Stock Distribution
Planning Allocation Planning

12. 11.
Billing Shipping

4.
13.
Debt
Receipt
Collection
THANK YOU….