Whether you are an Account Executive that is engaged with a prospect or customer; a Marketing Associate developing sales/marketing documents; a Product Engineer determining how to provide advantage in our products; a Services Consultant, Business/Solutions Consultant or Pre-Sales Consultant engaged in Visions, Q-Scans, or Implementations for customers – eventually all QAD personnel will need to translate a technological solution or business process change into the Value to the stakeholders.

Value-pedia should be viewed as a resource for anyone involved in discussions that are intended to focus on “how does the business application or process change impact the respective stakeholder?”. This is an open forum where people can contribute ideas, suggestion, or complete facts or factoids* on topics that are relevant to Value. As such, this continuously evolving forum may be re-organized over time. Initially, the following categories (folders) are used, with many of the facts and factoids linked to multiple folders:

· Most Recent... - Links to the most recent fact or factoid submittals

· Value Perspective - Various stakeholders' perspectives on what Value means

· Green Clouds - Topics on Sustainability and Cloud Technology

· Value Basics & Misc. - Facts or Factoids on assessment of value, and other topics

· Alignment to Business Objectives - Series on Alignment of QAD Solutions to Business Objectives

· Operations and Supply Chain - Facts or Factoids on various aspects of operations and supply chain

· Product and Demand - Various facts or factoids on product evolution and demand creation

· Rethinking Metrics - Series on the probable change in the way we approach metrics

· QAD Value Cards - The potential value range (improvement) of QAD Applications

Value-pedia will complement other resources, tools, and processes that we deploy such as Customer Engagement (including Discovery, Visions, Value Assessments, and Q-Scans), and the Q-Advantage process (capture baseline and measure progress/audit). Ideally, this will be accessed by other business functions within QAD as well.

So What? – Value-pedia is a resource to elevate the conversation to the stakeholder level – whether it is Earnings per Share, Return On Investment, Carbon Emissions per Item, or even intangibles such as Value of Intellectual Capital. In times where “feature and function” or “bits and bytes” are not of interest – then translate to Value!!

* factoid - "...becomes a fact when it appears in print", or "looks like a fact, smells like a fact, could be a fact, but isn't necessarily a fact", or (from Compact Oxford English Dictionary) "an item of unreliable information that is repeated so often that it becomes accepted as fact". We are interested in factoids in this forum, especially if they are leading-edge opinions - waiting to be proven!

Design Drives >75% of Product Costs

As companies continue to emphasize innovation for competitive advantage, and when ensuring demand-driven requirements based on the customers' expectations, it is essential to understand that more than 75% of the product cost is "baked-in" during design. The configuration, material specification, tolerances, supply requirements, manufacturability, serviceability, durability, etc. are determined before the product is released to production. Collaboration between all business functions is essential to ensure the optimum design. Conversely, if production is not involved until after the product is released with a committed Bill of Material - there's less chance to have significant cost reduction impact.

A great example is the comparison of an existing shaft sleeve (industrial pump) that requires 7 operations including multiple turning operations, heat treating and grinding, in which Production negotiates a 5% material price reduction. Now compare that to a redesigned shaft sleeve that requires only 1 operation! Do you think the 5% price reduction had the biggest impact OR the single operation?

So What? When looking for opportunities to have a significant impact on product cost, you need to look upstream to Design. Afterall, you have a greater result if you "design it out" rather than try to "grind it out"!!

Cost Of Complexity

Businesses must compete in a world of function-rich products with shorter life cycles and customer service expectations approaching perfection. Competitors gain leverage through web-enabled international marketing, sourcing, and distribution. Customers can shop instantaneously. Now the paradox - all of this complexity, yet the market prices are generally being driven down! The cost of complexity threatens our margins. So - should we accommodate - or eliminate?

The drivers of complexity are obvious:

Demand driven economy spawns product SKU proliferation (configuration, packaging, etc.)
Product design drives >75% of the cost (determines specifications, materials, manufacturability, supply, number of SKUs, etc)
Supply chain design drives >50% of the delivery costs (location, mode, distance) as well as inventory, lead times, and level of service

The results of complexity are significant:

Up to 70% of the overhead budget (procurement, materials, production, shipping)
Up to 40% of the inventory (safety stock, # of locations)
>50% of the lead time (scheduling conflicts, change-over, re-work, returns)
Additional impact on Customer Service, Distribution, Field Service, IT....

How to eliminate? - Standardization (sell 100 of 1 SKU VS. 1 of 100 SKUs, Design out complexity)

How to accommodate? - Flexible processes, Postponement (generic until last operation), Personnel development, Outsource

So What? - No easy answer on complexity. The fact is the customers are driving increased complexity. If elimination of complexity is not an option, then you must accommodate it. But, at least, recognize that it is driving up the costs!!

Demand Driven Value

Competing successfully as a customer-centric, demand-driven business requires a change in fundamental methods and measurements as enabled by Demand Driven Supply Network strategies (DDSN). Companies can no longer prosper by supply-based principles of “sell what you make,” with a pre-structured, one-size-fits-all approach. DDSN strategies require comprehension and fulfillment of the customer’s business value – as they define it. Today’s customers, with heightened shopping intelligence and expectations for “near perfection,” enjoy an ever increasing selection of alternative solutions. Satisfy their needs or they will easily “surf” elsewhere.

Meeting the potential proliferation of demand SKUs requires agile, predictive, effective, efficient and innovative processes – from initial demand signals, to product development, to final delivery. Strategies must align to the company’s business objectives, accommodate the influential external factors (such as regulatory, economical, environmental, technological and competitors) and synchronize all processes, people, and technologies.

So What? - DDSN can actually be a positive impact to company performance. What initially would seem to be a detriment has proven to increase Revenue by 10%, increase Gross Margin 3 to 8 points, increase Net Operating Profit by 5 to 10 points, and reduced Cash-to-Cash Cycles by 20-40%

Value To QAD Customers – Not Just Efficiency

Over the years, as I’ve developed the techniques for Value Assessments, I classified the benefits as efficiency (reduced time, number of steps, waste within the respective process), and effectiveness (benefit leverage upstream and/or downstream from the respective process). Examples included:

Cellular manufacturing – Efficiency (faster cycle time, less direct labor); Effectiveness (lower inventory, improved on-time delivery, improved customer service)
e-Sales BOM generation – Efficiency (faster BOM creation); Effectiveness (improved accuracy, reduced rework, reduced inventory, reduced field returns)
Demand management/S&OP – Efficiency (reduced forecasting effort, reduced inventory planning effort); Effectiveness (reduced inventory, improved capacity utilization, increased profitability)

Expect that the Effectiveness will be worth 5 to 10 times the business benefits of the Efficiency!! While you may reduce a few FTE's (full time equivalent people) due to the improved productivity (efficiency of a process) - you potentially can Avoid Lost Orders/Customers, Eliminate Penalties, Reduce Scrap/Rework, Reduce Inventory....and even capture New Business!!

So What? When implementing a technology or a specific business process - look beyond the respective process to the impact upstream and downstream

Don't Automate a Mess! - Technology alone falls short!

IT spend provided little productivity gain in the 70s and 80s (from Wired For Innovation). This is primarily attributed to the failure to change processes, organizational structure, and enterprise-wide linkages…the failure to integrate and transform. Many companies “automated a mess”! In fact, General Motors spent $650M in the 80s, but had little quality or productivity improvement.

As companies increased their organizational capital (developed processes, people…), productivity increased dramatically. Where the physical capital of $1 produces $1 market value in companies that implement “islands of automation”, the market value grows to $10 in companies that integrate the technologies, transform the processes, and develop their people. Thus, IT value is more than just computers, and software, and physical capital - it includes the organizational capital. In the US, the organizational capital (intangible) is estimated at >$1 Trillion – equivalent to the tangible assets.

So What?- Don't just increase "feeds and speeds" or "automate individual processes". Wired For Innovation suggests that you need to go further than even these “islands” – and ensure that the entire business process is transformed for the evolving business model (and, presumably, aligned to the business objectives). Thus, Order-To-Cash, rather than just “automating order entry”, etc.

QAD Usability – More than just efficiency

Business applications are enablers to the respective business processes. They provide simplification, automation, and enhance the ability of the users to be effective in their roles. Effective means doing the right thing at the right time!

The business environment confronts individuals with thousands of actions that need attention. Thousands of SKUs need ordering, managing, picking. Hundreds of inquiries need answers, and orders need entering, fulfilling. The optimum way to deal with this proliferation of tasks is by "exception" - which ones need attention first!

QAD's approach to Usability (.Net UI, Operational Metrics, Process Maps, Reporting Framework) is to enable the user to winnow to priorities through focused queries, alerts, workflow, etc. Time is precious, thus the user needs to ensure that they are working on the things that will impact Revenue, Cost, and Capital in alignment with the business goals.

So What? - QAD Usability should not be thought of as just an efficiency tool. Not only can you do your work faster - you can do the RIGHT work faster!

Evolving from physical to digital products

The trend for products to be more “knowledge-based”, as opposed to material based will have a direct impact on how a company develops, creates demand, and delivers, as well as its impact on the environment. Consider the example of buying Frank Sinatra’s Greatest Hits in CD format vs. downloading. The CD (traditional example) requires raw materials transformed and embedded with the music, with the respective processing equipment. Then the CD is packed in a cardboard and laminated cover, then wrapped, then bundled, then stored, then shipped, then stored several more times, and transported several more time, ultimately arriving at the retail store. And, don’t forget that the consumer needs to drive to the store to purchase it.

Now, compare that to the alternative of MP3 downloading. Other than creating the music initially, the music resides in its raw form (digital) until consumed. Then it is instantaneously distributed to point of consumption, thus bypassing most of the physical steps. The organizational impact will be significant, with increasing knowledge-based processes, and intangible assets. The once “friction-based” physical processes transforms to a digital, frictionless “no cost, not time” process.

So What? - Well, where did the Supply Chain go? QAD's role evolves to more about managing information - and less about managing physical parts. Does ERP become IRP (Information Requirements Planning)?

Customer Market Value- declining impact of Tangible Assets

As companies’ products evolve from physical to more digital and service, and as they outsource processes that are not directly within their distinctive competencies, their Market Value is less related to Tangible Assets. In North America, the Tangible Assets/Market Value ratio has gone from 62% in 1982, to <10% in 2010 (per Robert Kaplan-Harvard). A possible comparison might be a company that produces physical products vs. a company that “produces” a service (that also enables considerable non-market transactions):

· General Electric’s (GE) Market Value in 2008 was $139B, while revenue was $177B, tangible assets $700B

· Google’s Market Value $125B, while revenue was $22B, tangible assets $30B

· Thus, similar Market Value, but Google was 1/8 the rev. and <5% tangible assets of GE

· In Google’s case, the intangible assets were >$70B (goodwill, organization, brand…)

So What? – Traditional metrics such as Return On Assets will lose their meaningfulness, while there is a need to recognize Intangibles such as Intellectual Property, Branding, People/Talent, Training, and Business Processes. We need to measure Return on Intangible Assets.

Inventory Dynamics (Part 1) – Drivers of Inventory

Inventory is a necessary evil. It is used to buffer against imperfect supply and complex processes, while attempting to satisfy demand variability, unpredictability, and customer contractual requirements. For most businesses, the current level of inventory is excessive due to faulty planning, scheduling and execution, as well as life cycle effects (startup, obsolescence). Companies typically have 30 to 50% more inventory than is needed (target).

Inventory is usually the second or third largest asset, and is ripe for attention. The level of inventory is based on numerous variables, including level of service (LOS), categories of critical parts, variance of supply and demand, number of part numbers, volume of parts, leadtime, part costs, complexity of Bill of Materials (BOM), and number of stocking locations. A significant percent of the target inventory (70% or more) is determined during the design of the supply chain. Based on sources of supply, locations of customers, and contractual requirements, the supply chain's attributes of stocking levels, locations, replenishment policies, service levels, and part populations are defined. The remaining proportion of target inventory (up to 30%) results from variables of the suppliers, planners, distribution network, and other aspects of infrastructure during the implementation and execution of the supply chain. (See Inventory Dynamics (Part 2) - Cost of Inventory)

So What? - The resultant investment is an expensive insurance policy against the business dynamics. While metrics such as Economic Value Added, Return On Assets, and Inventory Turns will motivate a business to reduce inventory, it must be done with a thorough understanding of what drives inventory, and how inventory affects the business results. Although it is good business to improve inventory turns and to reduce inventory dollars, there are various approaches. The dynamics of inventory must be understood when managing the level of investment. Otherwise, you may reduce the inventory on a part - and it's still not enough! (get the humor?)

Inventory Dynamics (Part 2) – Cost of Inventory

Inventory $ indicates the level of investment, while the velocity of inventory, as measured by Inventory Turns (12 mos. COGS/Ave. Inventory $), indicates how effectively a company plans and executes its investment. In addition to the capital tied up, there are additional operating expenses (annual) to support the inventory – which are the inventory carrying costs. It is not unusual that a company may spend an additional 20-25% of the inventory investment in annual fixed and variable expenses, including:

· 6-10% = Opportunity Cost of Capital (the return if you used the money in other investments)

· 2-4% = Storage

· 1-2% = Handling

· 2-3% = Obsolescence

· 2-3% = Damage

· 1-3% = Administrative, 3rd party

· .5-1% = Loss (pilferage etc)

· 4-6% = Insurance

· 6-8% = Taxes

This does not include the impact of incorrect inventory – not having the right part at the right place at the right time. The ramifications can be premium costs due to expediting, scrap/rework, premium freight, or reduced customer service and damage to image, or even lost sales.

So What? – Reducing inventory not only releases cash for other investments – it has a positive effect on Net Operating Profit. And, the methods used to optimize inventory will likely result in right part at right place at right time, which can lead to incremental sales and competitive advantage.

Varying Impact On Profit - Depends On Which Program

Business process projects impact one or multiple cost centers, and are generally projected as a % improvement. Those % projections, however, are on varying sizes of cost centers – different pieces of the “pie”. It can be misleading unless you recognize their actual contribution to the bottom line (and top line).

For example, a simplified company’s P&L may be represented as:

Revenue $100M

COGS $75M, of which Direct Labor $5M, Material $50M, Burden $20M

Gross Margin = $25M (or 25%)

SG&A $10M

R&D $10M

Net Profit (before Tax) = $5M

Also, if their Inventory Turns are 5, then they have an Inventory of $15M ($75/5); The inventory carrying costs annually would be $3M (if 20% carrying costs).

Now, in order to improve the bottom line by $1M, it would require:

· Increase Revenue by 4% (assume only COGS is variable; SG&A, R&D are fixed)

· Decrease Direct Labor by 20%

· Decrease Direct Materials by 2%

· Decrease Inventory 33%

· Decrease SG&A or R&D by 10%

However, rather than decrease these expenditures, some improvements in Selling or Design may actually drive much greater impact to the top and bottom lines. For example, since 75+% of the product cost is baked-in during design – there is an opportunity to have a great impact through effective design processes; Similarly, effective planning and other operational support can have a greater impact – than just cutting expense in those departments. (See the Value-Pedia entry on “Where To Find Cost Drivers”)

So What? – Be careful when projecting % improvements in the respective projects. First, just cutting expenses will have varying impact on the top and bottom lines. Secondly, the drivers may be upstream or downstream from where you first look.

Understanding the Cost Lever Effect

As mentioned in Design Drives >75% of Product Costs, it is essential to understand that, while product costs are reflected in Cost Of Goods Sold (e.g. materials, labor, burden), the drivers of cost are upstream from where that money is spent. Similarly, when analyzing any business process, you should look upstream to leverage the greatest impact. You need to recognize the “cost lever” effect.

A good example is, conversely, how expensive it would be to make a product design change at various stages in its lifecycle. A design change while the product is still in Engineering would cost $X (engineer’s time). That same change once a product’s BOM is released to production would cost $10X (tooling and system impact). Once the product is in full production and tooled, it would cost $100X (inventory, retooling, capacity, system impact). And, if the product is installed at the customer, it would be $1000X (customer downtime, re-implementation).

So What? – There is a significant difference between fixing the symptoms vs. fixing the source. Once you identify the cost drivers upstream you can leverage your way to profitability.

QAD On Demand -More than just another way to finance software

QAD On Demand (On Demand) is a QAD hosted software as a service (SaaS) approach which relieves IT management of uncertainty, risk, and often unpredictable expense associated with an expanded suite of mission-critical applications. On Demand provides QAD customers with infrastructure, operations, integration, and application management support alternatives.

The business case to justify utilizing an On Demand business model is best developed based on a thorough analysis of total cost of ownership as compared to the traditional On Premise approach. The total costs associated with an On Premise approach, when considering the supporting infrastructure and personnel (which can be 60% of the total costs of ownership), in addition to the perpetual license, maintenance, and implementation services, can be 30% higher to several times greater than the annual expense of On Demand! There are considerable efficiencies and economies of scale afforded the business through On Demand, which not only improves the bottom line and customer service, but also supports the company’s “greening” or drive to sustainability.

Additionally, the On Demand benefits realized from increased availability, more rapid usability and assimilation of new businesses, and added functionality further impact the bottom line through increased revenue, further reduced costs, and higher return on assets. The business case for On Demand can be very lucrative!

So What? – Do not shortchange the comparison of On Demand to On Premise. It isn’t just another way of financing software. It also enables a company to focus on its core business, and provide a greater return to its stakeholders.

Sustainability Overview - Green actually increases value

Sustainability is generally defined as, “The continued improvement of business operations to ensure long-term resource availability through environmental, socially sensitive, and transparent performance as it relates to consumers, business partners and the community.” In addition, it should be recognized that sustainability must be accomplished in a manner that is positive to profitability, intangible assets, and risk.

When reviewing any company’s website today, the words “green” and “sustainability” are prominent on their landing page. The extra regulations, process controls, and more expensive alternatives of sustainability or “green” initiatives would seem to be a burden on performance. However, evidence shows that these initiatives are not only having a positive effect on the bottom line, but are driving value in other ways, too.

There is substantial evidence that companies committed to sustainability outperformed industry averages by 15% over the six months from May through November 2008. From a market capitalization perspective, this superior performance averages out to $650 million in protected market capitalization per company.”

A February 2008 survey of international business executives by The Economist Intelligence Unit Survey said that 57% of executives surveyed agree that the benefits of a corporate sustainability program outweigh the costs. It went on to say that companies who had effective programs were on average 16% more profitable than competitors and had a share price that averaged 45% higher. According to The Economist, implementation of green initiatives can have immediate, as well as long-term, benefits. The most frequently cited benefits that firms expect from sustainability policies relate to improved business results, including the ability to attract and retain customers (37% of respondents), improved shareholder value (34%) and increased profits (31%). Additional benefits include energy savings, productivity, building appreciation, and brand/product value (in the eyes of the customer).

In future Value-Pedia factoids – Sustainability Lifecycle, and Sustainability Changes The Strategies – we will discuss other aspects on the Value impact of going “Green”.

So What? – Evidence suggests that the net effect of evolving to a sustainable enterprise and supply chain is positive for all stakeholders, especially as they evolve their definition of value. “Going green” is not just a slogan, or an obligation – it is a value creator!

Value of Enterprise Upgrade - Strategic, Tactical

Competitiveness in a demand driven business requires agility to respond to changing demand and supply signals, while adhering to internal and external stakeholder expectations. Global competition, political and economic volatility, regulation, technological advances, and sustainability are factors that increasingly affect a company’s performance. It’s resources, people, products, infrastructure, and systems must be positioned to meet this challenge.

A company’s Enterprise Resource Planning system should be viewed as part of their strategy to compete. And, the job is not done when you finish the implementation. Training, performance monitoring, and institutionalizing and embracing the respective business processes are essential. As such, it is imperative to ensure that the system enables the business model as it evolves over time. This may include additional functionality and/or upgrading existing functionality.

The value created by upgrading the ERP system extends across the enterprise and to collaborative partner relationships throughout the supply and demand network. Implementing new core functionality helps support process improvements and enables current best business practices, as well as increased use of existing functionality. And, upgrading enables access to new software modules with which older versions may not be compatible.

Upgrading also supports business model evolution including globalization, mergers and acquisitions, reorganization, harmonization, governance and compliance, sustainability, and risk avoidance. Alternatives to upgrade include: Maintain current version, Perform a technical upgrade, Move to an On Demand SaaS model, Drive a full business process and technical upgrade, Do a complete re-implementation of an ERP system.

The Value of ERP Upgrade includes benefits in the following:

· Strategic – Most Current, Best Practices, Enable business changes and assimilation (M.A.D.)….

· Business Model Re-Engineering – Enable global planning, standardization, harmonize data….

· Productivity – Usability, integration, lean

· Profit and Capital Optimization – Reinvigorate usage, add functionality

· Governance, Risk, Compliance, Sustainability – Enable external expectations

· Technology – Infrastructure, customization, SOA.

So What? – Upgrading ERP can enable assimilation of new businesses/products, optimization of supply chain delivery performance and working capital, streamlining of IT, achievement of sustainability goals, compliance to external expectations, as well as attainment of business goals. Rather than viewing the upgrading as a technical project, it should be viewed as a strategy for competitive advantage.

Value of Forecast Accuracy – Driving Profitability and Return on Assets

Demand drives the supply chain in terms of what to produce and when to produce it. In a perfect world, as demand is first identified (e.g. customer order), the supply chain could instantaneously fulfill the demand perfectly – with no buffers of inventory, no wasted capacity, no premium freight or labor… Oops – was I dreaming!?

The reality is that there are considerable dynamics and competition for precious resources (money, people, assets, time…). It is imperative that a company matches supply to demand within its constraints – else risk not meeting their customer expectations. However, even when capacity and resources are abundant, there is another challenge when the lead time to supply (cycle time of consecutive "stages") is greater than the lead time required by demand. At minimum, the supply chain must provide raw materials, semi-finished products, and/or finished products within the demand lead time by producing "stages" within that lead time, or in the form of inventory. Similarly, capacities and labor must be available as needed.

So, if the supply lead time is greater than demand lead time, rather than drive the supply chain by orders, a company will drive by forecast. And the accuracy of the forecast will determine how much waste you drive into the supply chain – and how much risk to your demand.

The cost of forecast inaccuracy (FA) is complex, but is measured in terms of inventory, premium freight, capacity utilization, lost revenue, downtime, expedited labor, returns, scrap, etc. The actual costs are particular to each company, and depend also on the current forecast accuracy and the current level of service (LOS) requirement. The benefit of improving FA will also depend on the current FA, projected FA, current LOS, and projected LOS – vs. – the costs to make the improvement.

There has been research and anecdotal evidence to show the following:

· FA has exponential impact on costs – going from 90% to 99% FA is 75% less impact to downstream errors, than going from 60% to 69% (based on inverse of standard normal distribution)

· Cost to improve FA is exponential – going from 60% to 69% is 75% less capital and expense vs. going from 90% to 99% (law of diminishing returns)

· Investment (e.g. inventory) to achieve LOS is exponential

So What? – Forecast Accuracy is not just a measure to reflect skills at “hitting a target” – it is a driver of performance downstream through the supply chain, and ultimately impacts how well you meet your customer needs. Be careful when someone says “I have one hand in boiling water and one hand in ice – on average I’m doing fairly well”!!!

Benefits & Investments (Part 1) – Basics of Business Case

Companies require a justification for any capital project. Commonly referred to as Return On Investment (ROI), the objective is to compare the time-phased investments (their project capital and expense) for enabling a business change (e.g. process, equipment, software) vs. the time-phased benefits, or impact to their revenue, costs, and capital.

This comparison is reflected in numerous financial ratios, including:

Return On Investment (ROI) – (Benefit – Investment)/Investment, expressed as %, where the higher the ratio (when compared to alternatives), the better the investment. Caveat: Ratio does not consider the time span, and can be manipulated (what is considered benefit or investment)

Payback Period – Investment/Annual Benefits, expressed in months or years, where the lower the ratio (when compared to alternatives) the better. It is not uncommon for companies to have a requirement for a 12 or 18 month payback or less. Caveat: Ratio does not consider the time span, and can be manipulated (what is considered benefit or investment)

Net Present Value (NPV) – The present value of future investments and benefits, expressed in currency, where the higher the value (when compared to alternatives), the better the investment. Companies may use the actual capital investment, or use the annual depreciation of that capital, which reflex the actual tax implications as well. Similarly, they may use the actual capital reduced as benefits (e.g. inventory), or the annual carrying costs, or both. Each year is discounted to the present value using a discount rate (subject to inflation and returns). Caveat: Potential of double-counting (e.g. capital vs. depreciation), compounding effect (% reduction when the base decreases annually), incorrect discount rate (distorts the later years), and comparison of projects with different duration

Internal Rate of Return (IRR) – Similar to NPV, except that it is calculating the discount rate that results in a NPV of 0, expressed as % – using the NPV rules for investments and benefits. When comparing alternatives, the higher the IRR % the better. Caveat: Potential of double-counting (e.g. capital vs. depreciation), compounding effect (% reduction when the base decreases annually), and comparison of projects with different duration

There may be other metrics highlighted in the business case such as impact on their business objectives (e.g. % revenue growth, increased gross margin, increased inventory turns, etc.), but these do not necessarily reflect the investment needed to achieve the improvement. Conversely, companies may have restricted budgets for projects with a cap on expenditures, but these limits will not necessarily reflect the potential business benefits.

So What? – The customer will typically identify which financial ratio is needed for their business case. The key will be to understand their formula, their treatment of the investments (capital or depreciation) and benefits (especially the capital benefits), and their requirements for going forward with the project.

Benefits & Investments (Part 2) – Benefits Overview

When quantifying the benefits in a business case, we project the value of closing the gap between current processes and “to-be” processes. The time-phasing of the benefits will compare the annual impact of the changes vs. what would happen if you didn’t make the changes. The gap is evaluated based on the impact on Revenue, Cost, and Capital. For example:

· Will closing the gap impact Revenue through increased pricing, increased volume (due to improved customer service, self-service, campaigns), new markets and channels, avoidance of lost orders, increased value-add, new services, improved management of rebates and promotions, etc.?

· Will closing the gap decrease costs such as material spend, operational productivity, SG&A, IT, R&D, premiums, penalties, 3^rd party, waste, transportation, inventory carrying costs, asset downtime, asset depreciation, cash flow collection/payment…?

· Will closing the gap increase the velocity of working capital (inventory, receivables, payables), and reduce the investments fixed assets (process equipment, MR&O, tooling, facilities), etc.

So What? – Any process change has the potential of impacting Revenue, Costs and/or Capital. A complete business case requires the evaluation of the respective process, and the upstream and downstream effects. And, the benefits are always calculated as the gap between “doing nothing” and “implementing the change”.

Benefits & Investments (Part 3) – Investments Overview

The Business Case analysis requires quantification of all investments, associated “costs” for implementing and maintaining the respective project. These investments should be aligned with each alternative, and time-phased with the roll-out plan. Some of the investments are external, where the customer pays QAD or other service providers. Some of the investments are internal, which are further segmented as directly incremental due to the project and indirectly related. The customer will determine which investments to include.

External

· License For New Functionality

· SaaS, Lease fees

· Subscriptions

· New 3rd Party Services Vs. Eliminated Services

· Legacy sunsetting (eliminating applications replaced)

· Annual Maintenance

· Software upgrade

Internal (or Both)

· Internal IT services

· Business Process Modeling

· Customization

· Interfaces, Integration

· Data Conversion

· Infrastructure

· Ongoing support

· Change management

· Internal staffing, etc...

So What? – The business case is a time-phased comparison of investments and benefits. The customer will determine which investments to consider in the analysis, and it is not unusual that the Internal investments are equal or more than the external benefits. Rule of thumb – whatever QAD quotes in license, maintenance, subscriptions, and services – “Double it” for the business case!

Alignment of Business Objectives to Actions

Establishing the value of any technology and process change requires an understanding of how the initiatives support the overall business objectives – which establishes the true value. Generally, the business objectives are rooted in optimizing measures of revenue, cost, and capital. QAD solutions may have varying impact on all three measures, subject to current capabilities and scope of deployment.

Some high level business objectives such as Improve Earnings Per Share, Increase Customer Service Levels, etc. are not directly calculated from changes in Revenue, Cost, and/or Capital, although they either directly affect or are affected by such changes. However, the following business objectives are examples that can be directly aligned to QAD solutions:

· Revenue Growth - (Price, Volume, New Business, Campaigns, etc)

· Reduced Cost of Goods Sold (COGS) – (Direct Material, Labor, Burden)

· Reduced Selling, General & Admin. (SG&A) – (Sales, IT, Admin/Executive)

· Increased Operating Income Margin - (Higher Revenue, Lower COGS, R&D, Transportation, and SG&A Costs)

· Reduced Days Sales Outstanding (DSO) – (Receivables visibility, analysis, and management)

· Reduced Days of Supply (DOS) – (Visibility, Planning, Lead Time reduction, Sourcing, etc.)

· Increased Days Payables Outstanding (DPO) – (Payables visibility, analysis, and management)

· Increased Fixed Asset Effectiveness – (Visibility, Planning, Lead Time reduction, sourcing, asset maintenance and scheduling, etc.)

So What? – Executives will ultimately approve projects and judge success. Their valuation is less related to “bits and bytes” nor “feature and function”. They speak the language of “how are you driving value for our stakeholders?” as defined by the business objectives and goals. Rather than promoting new forecasting techniques, inventory planning collaboration, or .Net usability – we should promote Days of Supply (Inventory) reduction and higher Net Operating Income Margin.

Sustainability Lifecycle - Impact across the organization

Striving for a sustainable enterprise and supply chain requires an understanding of the upstream and downstream factors that impact natural resources (e.g. air, water, non-renewable, soil, etc.). From a business perspective it includes how you create demand (customer, market), how you design (products, services), and how you deliver (transform and transport, as well as retirement). One company’s approach (Interface Carpet) was to establish initiatives based on:

1. Eliminate Waste – redesign to ensure elimination of waste (minimize or remanufacture)

2. Benign Emissions - Eliminate toxic substances from products, vehicles and facilities.

3. Renewable Energy - Operate facilities with renewable energy sources – solar, wind, landfill gas, biomass, geothermal, tidal and low impact/small scale hydroelectric or non-petroleum-based hydrogen.

4. Closing the Loop - Redesign processes and products to close the technical loop through re-use or keeping organic materials uncontaminated so they may be returned to their natural systems.

5. Resource-Efficient Transportation - Transport people and products efficiently to eliminate waste and emissions.

6. Sensitizing Stakeholders - Create a culture that uses sustainability principles to improve the lives and livelihoods of all of our stakeholders – employees, partners, suppliers, customers, investors and communities.

7. Redesign Commerce - Create a new business model that demonstrates and supports the value of sustainability-based commerce.

These initiatives ultimately can be measured by basic trends in electricity, oil, water, landfill, and pollution. While there may seem to be imposing challenges in re-designing product and processes to achieve a sustainable enterprise and supply chain, there are actually significant benefits:

· Reduced consumption of natural resources

· Reduced waste in process steps, time, incorrect actions, premium freight, penalties

· Reduced overall product and services costs, while meeting or exceeding customer requirements

· Increased Value from a customer perspective, especially ones that are focused on sustainability themselves (increase volume and/or price)

· Improved image with employees and community

· Improved return on assets due to reduced inventory, higher profits, and increased property values (green buildings command a premium)

· And more….

So What? – The value of sustainability is maximized when you reach upstream to how the products, services, and demand are created, as well as downstream through delivery and retirement. Just as companies have realized value in “cleaning up their processes” when complying with Sarbanes Oxley, they are also realizing significant competitive advantage as they truly become green. Not just green on their website – but green in their blood!

Logistics Impact On Value

Logistic strategies are driven by customer requirements, product characteristics, participant locations, business model changes, and company business objectives. Consumer expectations are heightened through expanding alternatives for accelerated gratification, resulting in an evolution of Demand Driven Supply Networks where you “make what the customer wants, when they want it”. Product evolution, from purely physical products, to physical, digital, and service components, result in a changing context for “logistics”, including mode, timing, costs, etc. And, flexible business models for design, sourcing, production, final differentiation, distribution, and take-back or disposal have significant impact on how companies meet expected Service Level Agreements (SLA), compliance to regulation, and sustainability expectations. These trends will influence logistics requirements through reduced lead-times, increased status visibility, additional convenience throughout the order lifecycle, increased regulation, and products/services that meet the ever-increasing discrimination and expectations for uniqueness and quality.

Additionally, the growing recognition of a company’s role in society, especially as it pertains to natural resources, will require further considerations as to the logistics factors. It is very possible that there will be alternatives that trade off lower material and labor costs vs. carbon emissions plus lead time, inventory, and transportation costs.

Since optimum logistics decisions are affected by the dynamics of factors such as raw materials, politics, economics, distance, lead-times, intellectual property, environmental impact, technological advances, compliance and regulatory requirements, business model morphing, etc., questions may be asked such as:

• Was our rush to source in China the correct move?

• How vertically integrated should I be?

• What determines whether to manufacture in the local markets?

• When should I use premium transportation services?

• Should I have an internal fleet vs. external transportation services?

• What is the true cost of customer rejections – and should I scavenge the returns?

• How strategic are logistics to my Competitive Advantage?

Understanding the influencing factors and having the agility to respond to the continuous and inevitable changes can ensure that logistics is a key enabler for competitive advantage.

So What? – Ultimately, value will be judged by the customer, as well as other stakeholders (e.g. stockholders, employees, community, suppliers). Value, not just in products and services, but also in how you deliver to the customer. While logistics costs may range from 3-10% of revenue (best in class is about 3%, depending on the type of industry, of course!), the service provided may determine whether a customer remains a customer.

Rethinking Metrics (Part 1) - Why traditional metrics are misleading

Companies establish business objectives and goals, as mentioned in Alignment of Business Objectives to Actions, in order to align the people (employees, customers, suppliers), materials, and infrastructure. The business goals are rooted in optimizing measures of revenue, cost, and capital, and are further cascaded through the organization in the form of performance metrics.

Metrics are typically ratios rather than single factors, which negate other variables, and provides a more normalized view of performance. For example, rather than measure inventory $, which will vary due to business levels as well as “good inventory management”, a company will use inventory turns (12 mo. Cost of Goods/average inventory during the 12 months) – which accommodates the business level fluctuations.

However, traditional metrics may be losing their effectiveness – especially as companies rethink their strategies in light of:

· Business model morphing – level of vertical integration vs. outsourcing based on distinctive competencies

· Technology – level of automation, re-design, and virtualization

· Demand-driven, customer-centric – different expectations vs. supply-driven economies

· Sustainability – valuing the productivity of natural resources (vs. labor, processes)

Each one of these topics will be explored in subsequent factoids, and will establish how we will want to modify some of the metrics to motivate the desired behavior as the company strives for competitive advantage.

So What? Sales per employee takes on a different meaning as companies outsource; Return on Assets changes as companies outsource and/or provide more services vs. physical products. Measures can be misleading - or at least need to be re-positioned subject to the role of their numerator and/or denominator (ratio metrics) in the new business climate. Changing Metrics - of course!!

Rethinking Metrics (Part 2) – Business Model Morphing

Companies are morphing based on their distinctive competencies and profit objectives (insourcing, outsourcing, increased value-add, impact of politics, economic conditions, intellectual property, infrastructure on sourcing locations, stakeholder needs, sustainability issues):

· The consumer is skipping steps, by-passing the retailer and distributor -buying direct from the manufacturer on-line

· The retailer is providing on-line services to offer alternatives to in-store sales, while using direct ship from the manufacturer, thus by-passing the distribution

· The distributor is competing with 3rd party logistics companies, with on-line shopping, or with direct ship – squeezing further their already slim net profits. Conversely, they are adding value through assembly and/or service, thus overlapping with their suppliers/manufacturers

· The manufacturer is morphing through various ‘vertical integration’ decisions and sourcing decisions, as well as serving multiple channels (on-line, direct ship, distribution, direct store delivery….) necessitating the need to fully understand end-user requirements.

· The supplier is considering higher value-add products and services to differentiate and provide higher margins, thus competing with the manufacturers (and the respective supply, demand considerations) and/or competing globally with commodities.

Even within the same industry, the relative level of people, inventory, and fixed assets to support sales, customer service, etc. may vary widely due to this reshaping of the supply chain. One company could be very vertically integrated, thus carrying considerable inventory at the successive stages, while another company could be “assembly only” with minimal inventory.

Conversely, dissimilar companies may be compared when one has a Best-In-Class process that could be applicable to the dissimilar company. For example:

· A company may want to compare its Transportation to Federal Express

· A company may want to compare its Supply Chain to JCI

· A company may want to compare its web-sales channel to Amazon.com

So What? Sales per employee is directly impacted as a company reduces the people through outsourcing, change of value-add, price increases; Inventory Turns rises dramatically as a company outsources the lower level Raw Materials and WIP transformation; Return on Assets increases as the company removes its transformation process equipment. These metrics must be recalibrated when the company morphs.

Rethinking Metrics (Part 3) – Technology

Technology is changing how customers access products, changing the nature of the products (more service, value-add, digital), and changing the supply chain and transformation, for example:

· From driving to retail stores…to shopping on-line

· From CDs to… MP3s

· From internal combustion, mechanical to… hybrid electrical

· From driving the industrial machine by oil to… driving by renewables such as solar, wind, landfill methane

· From congregating at an office to… telecommuting

· From buying a pump, to… buying volume and pressure controlled liquid transfer

· From buying perpetual license and maintenance to… Software as a Service, On Demand, Cloud

· From buying a "buggy whip"...to...well....???

So What? Metrics that are used to motivate correct behavior will need to properly align to the business transactions and infrastructure that evolves with technological changes. One- time sales evolves to annuities; inventory evolves to intellectual property and knowledge management; capital investments evolve to periodic expenses; tangible assets such as equipment evolve to intangibles such as processes, employee knowledge; productivity of people and equipment evolves to productivity of natural resources. Think of the impact on Transportation costs/Revenue – when you are merely shipping “electrons”!

Rethinking Metrics (Part 4) – Demand-driven, Customer-centric

The customer is “king”, as mentioned in Demand Driven Value factoid. A plethora of alternative sources and methods (channels) to acquire enables them to demand “I want – what I want – when I want it”! In fact, the customer is skipping steps in the supply chain (e.g. buying direct from the factory). And, there is an expectation of immediate gratification, perfect reliability, and customization to specific needs. Add to this, the technological and business model changes that are transforming what the customer buys from a physical product to a digital product and/or service.

The resultant proliferation of SKUs, increased supply chain paths, reduced lead time, and expectations for perfection are being met by lean practices, integration, technological advances, outsourcing, training, design for manufacturability and for environment, and a host of other attempts to ensure competitiveness and profitability.

So What? Metrics that attempt to capture the effectiveness and efficiency of the sales process will have “order of magnitude” changes. For example, where the former methods included a sales person calling on the customer, taking an order in person, tracking and expediting the order – the customer now may shop and order directly on-line, and track their own order. The salesperson productivity measures, the total cost of sales, the Sales/salesperson, the Sales/total employees, etc. will change dramatically. Similarly, the proliferation of SKUs will have an impact on most of the downstream metrics – although most companies are striving to negate the impact of this complexity through flexibility and agility.

Rethinking Metrics (Part 5) – Sustainability

There is an increasing awareness (or opinion) that a company’s duty is drive its business model, not only to meet financial expectations of the stakeholders, but to also enrich the community and to minimize its carbon footprint (increase productivity of the natural resources) in order to ensure sustainability for future generations. The industrial revolution enhanced the standard of living by increasing productivity of people and by condensing the population (urban movement), with the assumption that natural resources were almost infinite. Today, however, we know that “people” are plentiful, but the natural resources are exhaustible – at least the non-renewables. Companies are now striving for competitive advantage through the merits of sustainability – lower waste, improved branding, and stewardship of future resources. In many cases, their customers are demanding it.

Sustainability is also motivating a rethinking of the metrics to motivate behavior. Productivity of natural resources such as oil, water, other raw materials, as well as output measures of emissions, landfill volume are factors of these metrics. And companies are not just concerned about the activities within their four walls, thus are looking up and down the supply chain for similar motivation. For example, what is the carbon footprint of their supplier of servers – as well as the servers themselves?

So What? Companies are only now developing proper metrics that reflect performance in a sustainable model. Productivity of labor and assets is still important, but so is the productivity of water. Output per person is still important, but so is emissions/person. Ultimately, the metrics will be in the form of (Value of product or service)/(unit of natural resource employed). Guess there’s a new meaning to Green Stamps!

QAD Value Card - Enterprise Asset Management (EAM)

Manufacturing companies are searching for ways to increase production output and improve product quality while reducing cost. A manufacturing company’s most important assets are its manufacturing equipment, and the costs associated with managing and maintaining this equipment can be significant.

Enterprise Asset Management (EAM) is an integrated plant operation solution that enables companies to operate plants more smoothly by keeping equipment running and ensuring that a plat is consistently able to meet production requirements at the lowest cost possible. EAM manages assets from inception through operations and replacement.

EAM impacts Revenue, Cost, and Capital as follows:

· Reduction in Maintenance Expense 10% to 30% (Preventive vs. Reactive)

· Increase in Production Yield 3% to 5% (Uptime)

· Reduced Maintenance Downtime 20% to 40% (Preventive schedule, MR&O availability)

· Reduced Scrap / Rework 5% to 10% (Equipment performance)

· Reduction in Annual Purchases 5% to 15% (MR&O, Preventive schedule)

· Improved Labor Utilization 10% to 30% (Preventive schedule)

· Increased Equipment Service Life 2 years (Preventive)

· Optimized MRO inventory (MR&O Inventory Management)

· Reduced capital expenditure (Equipment Service Life)

· Increased revenue potential due to improved customer service (production predictability)

So What? An ounce of prevention is worth a pound of cure!

QAD Value Card – Transportation Management System (TMS)

QAD Transportation Management System (QAD TMS) is an integrated system that streamlines transportation processes, manages international trade and ensures global compliance. With an embedded workflow tool, organizations can easily control the flow of transactions for transportation, trade and compliance business processes from one system.

The solution provides global support by offering multi-carrier, multi-currency, and multi-language support for international operations.

The three components of QAD TMS — QAD Freight Management, QAD Global Trade Management and QAD Trade Compliance —all share the same database, rules, workflows, and user interface.

· Freight Management provides a transportation execution system that will automatically select the lowest cost carrier, consolidate loads, and provide carrier-approved labels and electronic manifesting for all modes of shipment, from parcel deliveries to ocean containers.

· Global Trade Management creates all of the international documentation required to execute import and export shipments, including the new e-reporting functions now required by the U.S. and European Union. It provides an option for attaching any electronic file to the documentation of any shipment and storing these documents for audit purposes.

· Trade Compliance ensures that shipments are not made to any individual, corporate entity, or country that has been listed by the various trade and customs agencies of the governments of the U.S., the European Union and the United Nations. It provides an audit trail of all activities relevant to compliance issues, and ensures that corporate policies and procedures are followed by all shippers, regardless of their location within the company.

TMS impacts Revenue, Cost, and Capital as follows:

· Reduction of Freight Costs by 1-10% (Consolidation, Carrier/mode selection, Negotiation)

· Reduction of carrier selection time 50-90% (automated routing guide)

· Reduction of shipment labor and cycle time 50-75% (documentation automation)

· Improved transit times (proper documentation)

· Improved customer service (entire customer experience)

· Avoidance of penalties, fines (compliance, customer service)

So What? The job isn’t done when the product is ready – you need to get it to the customer! In an increasingly complex global supply chain, TMS can meet the challenge of logistics and regulation requirements with a competitive advantage.

QAD Value Card – Warehouse Management System (WMS)

QAD Warehouse Management System is a flexible, highly configurable warehouse management system that supports simple to complex warehousing operations in virtually any configuration.

QAD Warehouse Management System provides comprehensive coverage for various processes within a warehouse and is seamlessly integrated with QAD Enterprise Applications. In conjunction with QAD Enterprise Applications, QAD Warehouse Management System provides automated task management, RF based picking, wave management, batch picking, location find/audit, put-away, picking, cross docking, quality control, replenishment, transfers and advanced cycle counting activities. One central inventory repository between enterprise applications and warehouse management system provides non-redundant, highly accurate view of the resources within the logistics network. QAD Warehouse Management System provides full support for multiple domains allowing a single instance to cover multiple physical warehouses thus providing a global inventory overview.

WMS impacts Revenue, Cost, and Capital as follows:

· Improved inventory accuracy (up to 99.9%)

· Lower inventory levels (by 15 – 30%)

· Improved shipping Accuracy (up to 99.9%)

· Lower inventory search time (by 50-100%)

· Reduced labor costs (by 20-30%)

· Reduce or eliminate the need for physical inventory

· Reduce picking errors

· Eliminate charge-backs

So What? Although Inventory is a necessary evil, if you need to store it – then make sure you are as efficient and responsive as possible.

Design, Lean, and Sustainability

Competitive Advantage is gained through demand driven design and delivery while meeting or exceeding stakeholder expectations. Although this traditionally will be defined through financial, operational and supply chain metrics, there is an increasing expectation of compliance to regulatory requirements and community values. Design, Lean, and Sustainability initiatives are significant contributors to ensure alignment to these objectives.

Design for Manufacturability and Sustainability – As noted in Design Drives >75% of Product Costs the design stage locks in a substantial portion of the downstream delivery requirements. Collaboration between Engineering, Procurement, Supply Chain, Finance, etc. can synchronize the customer’s requirements for functionality, quality, service, and cost.

Lean practices will strive to reduce/eliminate all waste in terms of time, labor, material, purchased materials, etc. As product SKUs proliferate, there is incentive to standardize on base components and sub-assemblies, and delay differentiation (Postponement) until the final steps. This approach keeps the earlier stages generic and reduces the complexity that then drives inventory and overhead.

Sustainability also strives to reduce/eliminate all waste, with a recognition that natural capital is precious and must be weighed against labor, time, etc. This may seem like a subtle difference from Lean, but it emphasizes the need to understand the carbon footprint throughout the supply chain. Near net shape gains priority, even over postponement, as it minimizes the energy required to transform raw materials to finished parts.

So What? The journey to Lean and Sustainability can be a slow sojourn unless you recognize that the origin is during design. Capture the customer requirements, and align your approach based on the company objectives and defined initiatives. Lean and Sustainability can be complimentary.

QAD Value Card – Demand Management

QAD Demand Management – with its Demand Management Engine, Collaborative Portal, Inventory Optimization, and Rough Cut Capacity Planning components – enables virtually all aspects of demand management, including forecasting, error tracking, inventory optimization, supply chain collaboration and flexible reporting.

Collaboration is allowed with all demand sources, leveraging sophisticated forecasting methods, and detecting fluctuations in forecasts and demand as soon as they happen. Exceptions can be communicated instantly, enabling the optimization of production and fulfillment.

The Collaborative Portal provides a platform for Collaborative Planning Forecasting and Replenishment (CPFR), which is commonly required in consumer products supply chains.

Demand Management impacts Revenue, Cost, and Capital as follows:

· Inventory can be reduced 8-10% in short term (6months), 12-70% over a 2-3 year period

· Fill rates can be increased 10-15%

· Customer service levels increased by 4-5%

· Distribution and transport savings 5-30%

· On-time delivery to customers of 10-40%

· Reduced obsolescence and inventory write offs 30-50%

· Reduced service parts inventory 30-60%

· Total cost reductions 1-2%

· Plant efficiency improved 2-33%

· Improved forecast accuracy 5-20% (short term return)

· Improved Profit: 1-3%

· Reduced Transport costs 30-50%

So What? In the demand driven economy, whether make-to-order, or build to stock, the supply chain costs are driven by factors such as the capacities, flexibility, methods of transportation, customer expectations, etc. – as well as the resultant inventory that buffers and binds it together. Competitive advantage is gained through how well you can synchronize demand with supply.

QAD Value Card – Supply Chain Portal

QAD Supply Chain Portal (QAD SCP) is an inventory visibility tool, provided on a hosted Internet site that allows customers and their authorized suppliers to share information about inventory, scheduling, purchase orders, shipments, Kanbans, invoices, bills of material and much more.

QAD SCP facilitates real-time communication across the entire supply chain by extracting key inventory information from enterprise applications and making it visible to suppliers via the Web. This secure solution provides more current information, is easier to use, and is more reliable than methods that depend on paper or e-mails.

This paperless collaboration allows suppliers to enter shipments and communicate electronically with the customer. Data can be imported, exported and received with or without EDI. QAD SCP offers everything suppliers need for shipment processing, including entering ASNs electronically, and printing bar code labels.

Integration to the QAD Transportation Management System (TMS) gives long-distance trading partners visibility into the location of their shipments while they are en route to their destination, and sends “alert” messages when milestones are met or shipments are late.

Additional features include invoice visibility, where suppliers can retrieve information about payments, vouchers and settlement arrangements, and a document management system integration that makes Bills of Materials (BOMs) and other documents accessible to authorized suppliers.

Supply Chain Portal impacts Revenue, Cost, and Capital as follows:

· Reduction in Inventory (Raw & WIP) 25 – 50%

· Reduction in material spend 2-5%

· Improved Buyer/Planner Productivity 5-30%

· Reduced administrative costs 5-50%

· Reduced downtime due to stockouts 25-90%

· Reduction in Premium Freight 15 - 60%

· Reduction in Expedites 10 - 70%

· Reduces Floor Space 20 - 60%

So What? The suppliers are a virtual extension of operations, and will benefit greatly through collaboration as they are able to synchronize their supply networks with the demand triggers and production status, as well as product design and transportation. Almost as if they are within the four walls!

Reverse Logistics Goldmine – planning for the return

One aspect of business that is significant in some industries is the planning and execution on returns - whether due to impulsive buying, incorrect shipments, quality issues, other terms, etc. Some businesses, where there is considerable impulse buying, may experience a high proportion of returns relative to sales (such as Brookstone, which has as much as 20%). In other businesses, such as industrial products, the returns may be scavenged for parts, which are put back into inventory and re-used at 35% of the cost of a new part. Also, companies have used incentives and promotions to move product, only to have the product returned – thus causing false demand signals on the supply network.

Reverse logistics comprises the planning as well as execution of returning product. Planning includes consideration of the returns and repair, where the finished goods may be further dis-assembled for scavenging of components, as part of an overall inventory strategy/plan. Execution, of course, would be the scheduling, documentation (return material authorization, commercial and legal documents), etc.

Reverse Logistics impacts Revenue, Cost, and Capital as follows:

· Cost of Goods – utilization of used parts at 35% of the cost of a new part

· Inventory – recognition of returned components, thus avoidance of stocking new components

So What? Properly planning for returns can impact inventory levels, as well as Cost of Goods. As sustainability becomes highlighted, there is more of a focus on the disposition of returns (e.g. electronics, haz-mat, and/or where re-use is desirable due to costs). It is not just an economical decision – it is a practical decision in the spirit of reducing the carbon footprint.

QAD Value Card - Service & Support Management

Comprehensive service and support strategies enable the ability to provide superior customer care after the sale, providing a key opportunity for businesses to differentiate themselves from the competition.

QAD Service and Support (QAD SSM) enables exceptional customer service and support. Designed to ensure customer satisfaction, QAD SSM resolves service calls, manages service queues, and organizes mobile field resources. Combined with extensive project management support, organizations can track materials and labor against warranty and service work, compare actual costs to budget, and generate appropriate invoicing.

QAD Service and Support functions include:

· QAD Service and Support Management coordinates all interactions related to the support, installation, maintenance and repair of products, to improve customer satisfaction levels, to grow revenue, and to better manage service costs

· QAD Mobile Field Service extends QAD Service and Support Management to mobile field service employees so they can receive assignments, record activities, capture proof of service and order parts from their handheld devices or laptops

· QAD Field Service Scheduler provides a graphical scheduling/dispatching tool for field service organizations to improve SLA compliance, better first time fix rates and reduce service costs by getting right people at the right place at the right time with right parts

· QAD Project Realization Management provides a sophisticated set of tools for creating detailed schedule plans with resource requirements

Service and Support impacts Revenue, Cost, and Capital as follows:

· Increased Customer Satisfaction 10-25%

· Improved service revenue 10-15%

· Reduced service operational costs 15-25%

· Warranty cost reduction 10-15%

· Improved workforce productivity 10-25%

· Reduced service inventory 5-20%

· Improved service scheduling productivity 50-75%

· Reduced mean time to repair 5-10%

· Improved first time fix rates 10-15%

So What? Increasing pressures related with global competition, continue to push companies to differentiate themselves with the quality of their service operations in addition to the uniqueness of their products and their cost effectiveness. More and more businesses are looking at ways to increase revenues, profits and customer royalty not only by initial product sales but by after-sales service and support. And – service parts (as well as service labor) are profit generators!

QAD Value Card – Business Intelligence

Business Intelligence (BI) is a practice and toolset that helps people make better decisions, beyond the use of specific applications for workflow and transaction processing. BI generally consists of:

· Data Warehousing & ELT (Extract Load Transform) tools

· Querying & Reporting Tools

· Dashboards and Metrics

· Portals and Alerts to manage access to and distribution of information

The general use of the term may vary, but BI provides the ability to analyze historical, current, and predictive aspects of performance. It is common to extract data from multiple systems, and to enable the user to “slice and dice” data (in many cases, the data is “near real-time”) in relationship to various parameters, dimensions, and views (data, graphic). The data is maintained at a granular level and can be aggregated, then dis-aggregated for analysis – based on the user’s investigative interests. The on-line analysis will typically obsolete many of the former static reports.

The value of BI is realized in efficiency and effectiveness:

Efficiency – provides an expedient approach to collecting data for analysis and business decisions. BI may obsolete the former tedious data extraction that users or IT developed (multiple static reports and Excel worksheets from multiple sources).

· Increased user productivity

· Reduced IT development and maintenance

Effectiveness – provides the ability to focus attention on the priorities that need attention. Similar to exception reports with MRP, the user can be directed to rules-based priorities – rather than need to manually winnow their way through piles of data. The value is in the business impact upstream and downstream, including examples such as:

· Increased sales due to recognition of sales trends, channel performance, promotion profitability, salesperson performance, etc.

· Reduced operational costs due to recognition of issues associated with personnel, suppliers, transportation modes/carriers, product quality, etc.

· Improved capital utilization due to inventory turns analysis at the SKU level, process equipment performance

Another important philosophy that is supported by BI is the understanding that people perform based on how they are motivated. BI provides a method to track performance of individuals, as well as educate them on how they impact the corporate business objectives. Incentive systems, performance reviews, and real-time updates provide a robust approach to this performance management.

So What? What if someone gave you a phone book – but it wasn’t in alphabetical order! At least, if it was in a database with easy access user interface – then I could make some sense out of it. Similarly, Business Intelligence is not just a fancy graphical way of collecting data. BI allows individuals to “mine” the relevant data about their respective challenges and responsibilities – in time to make a difference. It turns data into intelligence.

QAD Value Card – Product Lifecycle Management

Product Lifecycle Management (PLM) manages interdependencies across all forms of product information, so that everyone on the team can easily understand how their input impacts the overall product. Fast, secure, and requiring only a Web browser to access, this business collaboration software enables companies to streamline product development processes and deliver superior physical goods and information products.

PLM compliments enterprise manufacturing solutions and directly integrates with them, allowing customers to realize shortened project cycles, significant cost savings, improved product quality, increased customer satisfaction and enhanced market positioning.

The Value of PLM

· Single source of product information/content enables development efficiencies, reduces errors and rework

· Complete product definition and collaboration capabilities expertly drive cross-enterprise understanding of information - regardless of source

· Repeatable, end-to-end process support and automation speeds time-to-market and reduces development cost

· Secure, industry-standard Internet architecture delivers a safe, high-performing technology platform

· Automatic product data sharing with downstream manufacturing systems and engineers reduces scrap and rework

Product Lifecycle Management impacts Revenue, Cost, and Capital as follows:

· Reduced time to market 10-20%, with positive impact to revenue capture, window of opportunity, and competitiveness

· Reduced product cost 20-50%, including materials and production costs

· Improved parts rationalization and re-use, with reduced parts number 20-30%

· Inventory optimization, with reduced inventory 5-10%

· Reduced engineering costs 10-20%, with automation through workflow and improved accuracy

· Reduced engineering change 10-25%

· Reduced document retrieval time 20-50%

So What? Product design drives 75+% of the product costs, and much of the company’s true market value is premised on its “intelligence” that is captured during the conception, design, and production stages. In order to preserve this intangible asset, a company requires collaboration with all business partners, well managed documentation and workflow, and ease of maintenance once the product is in production. Much like the fasteners that hold the product together – PLM is the glue that holds the “design and product intelligence” together.

Balanced Scorecard – Measuring Intangibles

Balanced Scorecard is the concept advanced by Robert S. Kaplan (of Activity Based Management fame) and David P. Norton that recognizes achieving a comprehensive view of an organization's performance requires the monitoring of future potential, as well as the past performance. This is consistent with a growing interest and focus on intangible assets, as well as the tangible assets, and is imperative because the value of sustainability is not just in the financials.

As the products and organizations evolve with sustainable consciousness, it is important to recognize the changing drivers. Although financial KPIs formerly provided the necessary performance monitoring and measurement, the evolving organization requires the reporting and analysis of non-financial aspects of the organization including the customer, the internal processes, and the learning and growth of personnel. The Balanced Scorecard includes the following four focuses:

Financial perspective - This perspective contains the financial results such as profit, return on capital, cash flow, and margins. As mentioned, these KPIs are primarily looking backwards. The financial measurement of sustainability will be through revenue, cost, and capital results from reductions in waste, reductions in energy usage, through lifecycle extensions of capital, through reduced inventories, etc.
Customer perspective - The customer’s requirements are especially accentuated in Demand Driven Supply Network (DDSN) and customer driven strategies. Value as defined by the customer is a mix of commodity, quality, time, price, service, relationship, carbon effects, etc. Ultimately, the customer will judge, or measure, in terms of cost, innovation, partnership, image, customer service, durability, form/fit/function, and sustainability. The customer’s sensitivity and awareness of sustainability will be measured based on how the company’s products, services, and relationship meet their sustainability KPIs. Packaging, distribution, product lifecycle, disposal impact, energy consumption (in operating the product) will be such indicators.
Internal perspective - The internal perspective includes how a company creates demand and products, how it delivers to the customers, and its affects socially on the community (environment, safety and health, employment). The resultant processes that foster sustainability from a financial and customer perspective, will embed sustainability. The materials consumed (direct, packaging, MR&O, office, other indirect), the processes utilized, the energy consumed throughout the supply chain, the waste and excesses, the buildings, the transportation, the implementation requirements (at the customer), and finally the disposition (return, disposal) will have direct impact and consequence on the company’s success in building a sustainable enterprise and supply chain.
Learning and growth perspective - Ever increasing focus on the intangible assets of an organization includes human, information and organizational capital or capacities. Human capital (knowledge, experience, competencies, readiness), organization capital (culture, leadership, alignment, teamwork), information capital (transactions, analytics, transformation of business) are fundamental to the evolution of the organization and its intangible assets, and have a direct correlation to sustainability.

So What? As a company evolves its products and organization with a sustainable enterprise and supply chain, it becomes imperative to recognize that success will not always be immediately defined by “historical” financial measures. The Balanced Scorecard is an approach to align all initiatives in an organization, in recognition of forward-looking and external factors. The monitoring and displaying of the influential KPIs will ultimately motivate the desired behavior of the organization. A company’s success in attaining a sustainable enterprise and supply chain is ultimately dependent on the processes and systems in place to enable, monitor, and manage commerce, capital, and infrastructure accordingly.

On Demand Total Cost of Ownership – Infrastructure

As mentioned in the previous factoid QAD On Demand -More than just another way to finance software, it is imperative to include the infrastructure and personnel costs of supporting an application when comparing On Premise to On Demand. Infrastructure costs include:

• Servers, Networking

• 3rd Party Data Center

• Disaster Recovery, Redundancy Datacenters

• Network Connect

• Building Preparation

In cases where a company is currently using an On Premise approach, many of these costs will be “sunk costs” that may or may not support other applications. As such, it is important to consider whether they are fixed costs or variable costs. Will On Demand really reduce the building costs? How will the utilities be affected by moving the application off premise? Do the other applications still require some or all of the networking, datacenter, etc.? In cases where a company is starting from a “green field” approach, it is fair to recognize the total costs of establishing this infrastructure.

Another phenomenon to be recognized is the dramatic reduction in footprint and energy consumption of the latest technology. Servers that are only four years old may consume 8 times the wattage and six times the footprint of today’s models. Thus, the new technology will have a direct impact on the infrastructure (data center footprint, utilities costs). This actually works in the favor of On Premise – especially as companies consider upgrading in addition to determining whether to go On Premise or On Demand.

So What? Companies will start from various positions – current customers on current versions; current customers on older versions; new customers, etc. The comparison of On Premise to On Demand should shake out the “real” costs associated with each approach, subject to the company’s starting point. In particular, the Infrastructure costs may be semi-fixed, AND the evolution of technology is reducing the impact of Infrastructure through smaller footprints and lower utility costs. On the other hand, as we’ll see in other On Demand Total Cost of Ownership - Personnel, the total cost of ownership for On Premise is heavily impacted by personnel costs. The story is still very enticing for On Demand.

On Demand Total Cost of Ownership – Personnel

· Management, Super Users, Business Analysts, Training

· Support 24/7 – Software, Hardware

· Turn Over premiums

· Customization, Integration, Harmonization, Consolidation

· Version control

· Availability, Roll-out

Personnel costs are always a sensitive issue when considering downsizing, elimination, etc. Many times it is more politically correct to refer to productivity gains or outsourcing as an opportunity to move those people affected into other, more value-added roles. On the other hand, many companies will not consider a productivity-related quantified “benefit” unless it results in elimination from the payroll.

When comparing On Premise to On Demand, some of the people may serve multiple roles across multiple applications (including non-QAD), thus may only have part of their responsibilities relieved. In those cases, it is correct to show “fractions of a full time equivalent (FTE)”. Also, in this comparison, it is not necessary to show every role – especially if the role remains in either scenario. For determining a comparison of total cost of ownership, we are only striving to show the differences.

So What? Whether personnel are eliminated or repositioned, there are true costs differences of On Premise vs. On Demand. Even though it may be a sensitive issue – make sure you fairly represent the different scenarios.

On Demand – Business Benefits beyond TCO

As mentioned in the previous factoid QAD On Demand -More than just another way to finance software, On Demand benefits extend beyond the Total Cost of Ownership improvement (vs. On Premise). There are significant business benefits realized from increased availability, more rapid deployment and assimilation of new businesses, upgraded applications, improved usability features, and added functionality.

· Increased Availability - On Demand provides a 99.9% uptime SLA, which is considerably higher than many On Premise capabilities. Even when IT commits to “system availability” of 99+%, the end-user availability of the application may be significantly lower due to application maintenance and support availability. The impact on business can be (at best) reduced business efficiency – or worst, lost revenue/orders.

· Rapid Deployment - The On Demand application and resources include standardized functionality, templates, and process maps for rapid implementation. This not only reduces the cost of planning and executing implementation, it also results in faster realization of business benefits (speed to benefits) associated with the application and faster assimilation of new businesses.

· Upgraded Applications - Valuing the business case for core ERP applications upgrades may be challenging. However, there are significant benefits due to reduced customizations, improved productivity, reinvigoration (usage) of current applications, risk reduction, and overall technology enhancement. (see factoid Value of Enterprise Upgrade - Strategic, Tactical)

· Improved Usability - Usability is all about winnowing from the many to the few in order to focus on the things that need focus. An analogy is the use of the MRP exception report (rather than review every part number in ascending order, the exceptions are prioritized automatically). QAD’s usability enhancements provide efficiency, and also result in increased revenue opportunities, reduced costs, and optimized working capital and fixed assets. (see factoid QAD Usability Benefits)

· Added Functionality - Many times, when utilizing the latest QAD ERP application, other QAD applications are available also. Each one has associated business benefits that impact revenue, cost, and capital. Specifically, the impact may result as follows:

o Revenue – Increase in volume, pricing, promotion, new product introduction, new business assimilation, etc.

o Cost – Increased productivity, premium/penalty avoidance, waste reduction, freight spend reduction, inventory carrying costs reduction, distribution costs reduction, etc.

o Capital – Inventory optimization, accounts receivables velocity, accounts payables velocity/supplier negotiation, fixed asset lifecycle enhancement and utilization, cash-to-cash cycle reduction, etc.

So What? On Demand is more than just a move from capital expenditures to an annual expenditure. It is also more than a reduction in internal IT expenditures. On Demand brings Value through enhanced systems capability to enable business processes that are essential for achieving corporate objectives.

Activity Based Costing Revisited

Manufacturing has evolved from highly manual, low capital processes, to a much more capital intensive, automated approach that requires significant support processes (e.g. manufacturing engineering, materials scheduling, operations planning, inventory planning, etc.). While product costing was fairly easy in the early 20^th Century, with assignment of direct labor and direct materials costs, companies began to rethink their costing approach as overhead through integration, automation, and inventory became a larger percent of the expenditures. Formerly they were able to apply overhead as an allocated cost based on the proportion of direct labor consumed (standard burden allocated based on standard hours), but it became inappropriate and even misleading to use this method when the overhead became a significant portion of the product cost. In many cases the overhead was inversely related to direct labor (some of the most automated processes required significant support).

During the last two decades of the 20^th Century companies developed new rules for allocating the overhead in order to properly affix the costs to the products that were actually driving the overhead. Rather than only using direct labor, the companies identified “activity drivers” such as square feet, units of capacity, % of a support person’s time, etc. which were more fairly representative of how the overhead was being consumed (and driven). The products that required the most support in terms of engineering, operations support, material scheduling, etc. would properly be assessed more overhead. This would Not have happened if direct labor was the basis for allocation – as some of these products may have very little direct labor (especially as they are automated). Activity Based Costing (ABC) became the “campaign slogan” and new method for allocating overhead.

Two phenomena subsequently occurred. First, it was found that ABC could also be used to identify the cost drivers and, therefore, prioritize cost reduction initiatives. Not only was the product costing more accurate (it was not unusual to find that many high volume, standard products were over-costed by 30+%, while other more complex products were under-costed by more than 100%!), but there was a very good tool for driving process improvement.

Secondly, it was found that many of the financial systems were not adequate to capture the activity history. Setting up the activity drivers and new allocation rules was cumbersome, and many companies decided to use ABC as a one-off analysis tool – rather than institutionalize in their costing systems.

So What? After all these years, ABC continues to be, at least, the right philosophy on how to properly cost products – even if it isn’t, by name, the system of choice. This will continue to be an interesting topic as: Overhead explodes, outsourcing morphs the business model, and products evolve to digital and services. How will we allocate intellectual property, branding, and company image to the product?

CAPEX vs. OPEX – Which is preferred?

Companies enable commerce through the development of their infrastructure as a means to an end - the end being to generate profit and a return for their stakeholders. The infrastructure may be a combination of buildings, process equipment, people, and business processes, and can be internal to the company and/or external (e.g. 3rd party outsourcing, customers, suppliers). The decision on whether internal or external is based on a combination of factors, including:

· Distinctive Competencies

· Security, Intellectual Property

· Total Costs of Ownership (TCO)

· Capital availability (finite capital, budgeting/seasonality period)

· Company strategy

· Deployment ability

· Scalability

· Tax ramifications

· Technical issues (e.g. complexity, customization, Moore's law*)

· Volume flexibility, volatility

· Physical location

· ...any many other factors....

In a similar vein, but not necessarily synonymous, is the discussion of CAPEX (capital expenditure) vs. OPEX (operational expense). Traditionally, CAPEX implies making an upfront commitment to capital (owning and depreciating the capital over time), while OPEX represents the ongoing expense associated with transacting your business and generating profit and returns for the stakeholders. But, to be sure, CAPEX is not exactly the decision to maintain a process internally, or to insource, or to acquire capital equipment, or a decision to make an upfront investment (leasing equipment is a periodic payment, although you own the capital). Also, OPEX is not exactly the decision to outsource, nor lease internal equipment, nor "pay by the slice"...

So What? It is important to NOT confuse method of financing with the strategic decision to insource or outsource. Case in point is the decision to go On Premise with software vs. On Demand. It is Not just a decision to avoid a capital expenditure, or to spread out the expense over time. We've discussed the benefits of On Demand vs On Premise, and the method of financing is only one aspect. CAPEX is not synonymous with On Premise, OPEX is not synonymous with On Demand.

*Moore's law reflects the dramatic reduction in cost associated with computers, semiconductors where there is a doubling of capability every two years, and a proportional reduction in cost. The net effect on capitalization is that replacement costs may be lower than the depreciated book value at any given time (e.g. server square footage, energy consumption, and price has decreased >75% in the last four years). This impacts the analysis of whether a capital investment is worthwhile, or else you might choose to outsource the process rather than do it internally, while letting the third party suffer the capital value erosion.

Usability – Getting at the Benefits

QAD Enterprise Applications are designed to be easy to use, quick to implement and intuitive for users to learn. The solution includes QAD’s signature process maps, flexible workflows, metrics, flexible report framework, and automation – enabling the users to focus efforts based on priorities that align to the business objectives.

5 .NET UI productivity through focused browses, configurable screens, flexible reporting framework

5 QAD Reporting Framework – browse-based, customizable

5 Metrics for optimizing implementation, data integrity, and performance management

5 Process Maps for company specific business processes, navigation, training, document management

5 Workflow for streamlined synchronization of the business processes

The Usability features have reduced the time spent retrieving, analyzing, and reporting by 50-75% for personnel in an analytical role (order commitment, schedule analysis, planning, etc.), and less if the person is heavy data-entry. A large QAD customer estimated a 2.5% productivity improvement (1/2 day per month) for all personnel.

However, as mentioned in QAD Usability – More than just efficiency, significant benefits beyond productivity are realized by focusing on Right opportunity, Right place, Right time:

5 Increased Revenue – improved Customer Service, faster assimilation of new products, new markets

5 Decreased Costs – improved productivity, and reduced waste, penalties, training, turnover, and material spend

5 Optimized Capital Utilization – reduced inventory, improved cash efficiency, improved fixed capital utilization

So What? Although a time study may be difficult, there is no doubt that the user productivity improves with QAD Usability. Even more difficult to prove, but intuitive, is the significant business benefit by enabling the personnel to winnow down to the absolute critical tasks. Efficiency may be worth $X, but Effectiveness is worth $10X!!

Alignment to Business Objectives (Part 1) - Overview

A company will establish business objectives based on its strategic direction and shareholder interests. While MBA 101 for public companies suggests that “profit” or “shareholder value” is the key motivator, there is a multitude of approaches on how to establish the competitive advantage.

For example, a company may state: “ABC Company provides unparalleled customer responsiveness with products and services, while achieving operational excellence and competitive advantage. Our 2010 business objectives:

Be the top-ranked supplier to our customers.
Grow our earnings per share by x% per year, from $X to $Y.
Achieve an average return on capital (ROC) of Y%, vs. current X%.
Attain Z% of sales from products that are 3 years old or less, vs. current X%.
Increase output per employee by at least 5% per year, from $X/employee to $Y/employee.”

ABC will then identify strategies and initiatives to achieve those objectives, as well as enablers such as QAD solutions:

“ABC’s [project name] initiative is aligned through improved efficiencies, error reduction, risk avoidance, asset effectiveness and faster introduction to new customers, with increased velocity of cash. The QAD solution provides a robust, proven capability to enable this achievement.”

Revenue Growth
Reduced Cost of Goods Sold (COGS)
Reduced Selling, General & Admin. (SG&A)
Increased Operating Income Margin
Reduced Days Sales Outstanding (DSO)
Reduced Days of Supply (DOS)
Increased Days Payables Outstanding (DPO)
Increased Fixed Asset Effectiveness

In subsequent factoids we will explore each objective, including how QAD solutions are enablers.

So What? Alignment is essential to ensuring that the organization (people, processes, assets) are focused on achieving the shareholder interests. Conversely, keeping inventory that isn’t usable, or producing products that aren’t sellable, or running equipment that merely makes scrap – are all efforts in futility!

Alignment to Business Objectives (Part 2) – Revenue Growth

Top-line revenue is one of the most important financial items a company manages. Investors analyze not just the dollar amount of revenue but, even more important, the percentage growth in revenue. Revenue growth simply measures the year-over-year percentage change in revenue. It's calculated as: (Revenue this period - Revenue last period) / Revenue last period

The period for measuring revenue growth can vary. But typically, it's for a 12-month period ending in the company's most recent fiscal quarter.

Example:

• A company has $10 million in revenue this year.

• $9 million the previous year.

• Revenue growth is 11.0% ([$10m - $9m]/$9m).

The business objective Revenue Growth is achieved through specific strategies to grow volume, increase price, expand new products and markets, etc. QAD solutions are enablers to those strategies, including:

Business Strategies	QAD Solutions
Sell to new channels	CSS, SSM, PIM, CRM
Introduce new products	PIM, Configurator, SSM, CRM
Mass customization of products	Configurator, CSS
Sell add-on services and warranties	SSM, FSS, MFS, CRM
Improve customer service	CRM, CSS, SSM,
Enable customer self service	CSS
Match product to market demand	DM, Lean, Configurator
Marketing campaign management	CRM
Manage rebates & trade promotions	TRM

So What? Top line revenue growth, whether organic or through new products and markets, is a significant driver to bottom line profitability and shareholder value. As they say, “It all begins with the sale”.

Alignment to Business Objectives (Part 3) – Reduced Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) is comprised of expenses directly related to the provision of the products or services reflected in revenues. To that end:

• For manufacturing companies, major categories are raw materials, direct labor costs and factory overhead.

• For distribution and retail companies, the main category is the purchase cost of the products sold.

• For service companies, Cost of Services Sold primarily includes people-related expenses and payments to third parties for products and services utilized in the provision of the service.

Comparing a company's COGS over time or to that of other companies using only dollar amounts is challenging because as a company grows, so does the COGS. This doesn't mean that larger - or growing - companies are less effective at managing these costs. In fact, it doesn't say much at all!

However, COGS expressed as a percentage of revenue, or Gross Margin % ((Revenue – COGS)/Revenue), provides a more relevant measurement. For example, a company that has $10 million in revenue and $6.0 million in COGS, has a COGS as a Percentage of Revenue of 60.0% ($6m/$10m) and a Gross Margin % (Revenue-COGS)/Revenue of 40%.

Gross Margin $ can be driven purely by volume, as well as product mix, increased price, and reduced COGS. Gross Margin % is typically driven by increased price, reduced COGS, and product mix (volume alone does not necessarily increase Gross Margin %).

The business objective Reduced Cost of Goods Sold is achieved through specific strategies to grow volume, reduce purchase price, improve efficiency and effectiveness of processes, re-design products, etc. QAD solutions are enablers to those strategies, including:

Business Strategies	QAD Solutions
Reduce Purchasing Cost	Lean, SCP, Consignment, DRP, Pro/Plus, EDI, BI, PLM
Run plant more effectively	Lean, QPS, EAM, WMS, SCP, JITS, Pro/Plus
Improve efficiency of customer relations	JIT, MEW, configurator, crm, consignment, TMS, WMS
Reduce landed cost of raw & component materials (material spend)	SCP, TMS, Logistics Accounting

So What? Cost of Goods Sold (COGS) is reflective of product design, volume, sourcing leverage, operations effectiveness, etc., and, when subtracted from Revenue, determines the Gross Margin. Although reduced COGS can be analyzed in $, a more reflective measure is COGS % of Revenue – which suggests how effective a company can deliver its products.

Alignment to Business Objectives (Part 4) – Reduced Selling, General & Admin. (SG&A)

Selling, General and Administrative (SG&A) includes expenses related to marketing, promoting and distributing products and services. Other major items are corporate administrative expenses such as accounting and finance, planning, human resources, research and development, IT, and maintenance of administrative facilities.

Just like cost of goods sold or operating income, analyzing a company's SG&A over time or comparing it to the SG&A of other companies using only dollar amounts is challenging because:

• As a company grows, so does SG&A.

• Larger companies typically have higher SG&A than smaller organizations.

SG&A is expressed as a percentage of revenue to mitigate the impact of a company's size. For example, in company that has $10 million in revenue, and $1.0 million in selling, general and administrative expense, the SG&A as a Percentage of Revenue is 10.0% ($1m/$10m).

The business objective Reduced SG&A is achieved through specific strategies to improve efficiency and effectiveness of processes, and outsource of functions that are not distinctive competencies. QAD solutions are enablers to those strategies, including:

Business Strategies	QAD Solutions
Reduce reliance on Spreadsheets	.NetUI and Usability (operational metrics, reporting framework, process maps), Browse and Reporting, BI
Eliminate non-value-add processes	Financials, CRM, SV, Consignment, TMS, EAM, EDI, PIM, PLM, CSS, SSM, Configurator, eRMS
Process Re-engineering	Process Maps, Services
Consolidate and Simplify functions like AR & AP	Financial Shared Services, Pro/Plus (Self Billing)
Implement more efficient sales & marketing processes	CRM, CSS, Pro/Plus, Consignment, SSM
Reduce or Outsource IT, other processes	AMS, On Demand, Upgrade Core, .NetUI and Usability, BillTrust

So What? You not only have to design and produce the product/service – you have to establish the business processes that facilitate the commerce with your customers. Sales, General & Administrative (SG&A) is reflective of support costs required to ensure that commerce. Whether conducted internally or outsourced, SG&A expenses are critical infrastructure enablers.

Alignment to Business Objectives (Part 5) - Increased Operating Income Margin

Operating Income is Revenue minus COGS, SG&A, R&D, and Depreciation/Amortization. Analyzing a company's operating income over time or comparing it to other companies using only dollar amounts is challenging because:

• As a company grows, so generally does operating income.

• Larger companies typically have higher operating income than smaller organizations.

Expressing operating income as a percentage of revenue, which in finance is called the "Operating Income Margin," mitigates the impact of a company's size and facilities comparison over time and across companies. For example, in company that has $10 million in revenue, and $.8 million in operating income, the Operating Income Margin as a Percentage of Revenue is 8% ($.8m/$10m).

The business objective Increase Operating Income Margin is impacted by business model factors such as product mix, pricing, design, operational efficiencies, supply chain rationalization, outsourcing, pre-production/design complexity, capital intensity, volume/turn over, etc. Performance by industry ranges from low end for distributors, computers, semi conductors to high end pharmaceutical, as the following table shows (source: 2010 FinListics)

Industry	Median Operating Income Margin	1^st Quartile Operating Income Margin
Semiconductors N.AM. (SIC:3674)	-1.4%	9.2%
Computer and Office Equip. (SIC:357X)	1.2%	6.7%
Motor Vehicles & Equip. (SIC:371X)	1.5%	4.3%
Industrial Mach. & Equip. (SIC:35XX)	4.2%	10.5%
Medical Instr. & Supplies (SIC:384X)	5.8%	16.0%
Construction & Related Mach (SIC:353X)	7.6%	14.8%
Pharmaceutical Prep. (SIC:2834)	8.6%	22.5%

So What? As in most metrics, Operating Income Margin should be put into context of the type of business and the business model factors. And, in order to determine true progress in this metric, it should be calculated as a ratio relative to Revenue. Ultimately, this comprehensive metric reflects how efficient and effective an organization is with its sales (revenue), design & delivery (COGS, R&D), and infrastructure (SG&A, Depreciation/Amortization).

Alignment to Business Objectives (Part 6) - Reduced Days Sales Outstanding (DSO)

Accounts Receivable (AR) are moneys owed to a company by its customers for products and services they've purchased. AR typically grows if revenues are increasing - and shrink if they're decreasing. With this in mind, the key question is: Has the relationship between accounts receivable and revenue changed?

Insights into this question are provided by examining Days Sales Outstanding (DSO) - the number of days it takes to collect sales. It's calculated as: Accounts Receivable / Revenue per Day where Revenue per Day = Revenue / 365 Days. For example, a company that has $10.0 million in revenue and $1.5 million in accounts receivable, would have a DSO of 55 days ($1.5m / ($10m / 365 days). The level of DSO is an indicator of the velocity of cash – from sale to collection. Also, the age of the receivable and the credit worthiness of the customer is an indicator of the probability that a company will collect the funds since a certain % of its customers will default for various reasons. A receivable that is 90 days old owed by a customer that has questionable credit history is less likely to be collected than a receivable owed by a very good customer that is 30 days old.

The business objective Reduced DSO is achieved through specific strategies to improve efficiency of the collection of funds once a sale exists. QAD solutions are enablers to those strategies, including:

Business Strategies	QAD Solutions
Improve accuracy of sales pricing and discounts	QAD TRM/APM, SSM, Logistics Accounting
Accelerate visibility & distribution of sales invoices	CSS, EDI-Ecommerce, CRM, SSM
Enable customer initiated payment systems	Pro/Plus Self-Billing
Consolidate functions between AR & AP	QAD Enterprise Financials, COP

So What? Companies are in business to generate a profit and increase shareholder value. Even if they have the best products and fulfillment, supply processes, it is a moot point unless they can collect from their customers! And, not only collect – but to collect it in a reasonably short cycle from when they commit funds for the commerce transaction. As they say -Time is money.

Alignment to Business Objectives (Part 7) - Reduced Days of Supply (DOS)

Inventory is measured as the value at cost of products a company's purchased or produced, but not yet sold. It consists of funds invested in:

• Raw Material (manufacturer only).

• Work-In-Process (manufacturer only).

• Finished Goods.

Inventory primarily exists because of imbalances in the rates products are produced and sold. You can't tell how effectively inventory is managed simply by looking at the dollars invested in it. Inventory typically varies with revenue and the resultant Cost of Goods Sold. However, clues as to how well inventory is managed are provided by Days In Inventory or Days of Supply (DOS) - the number of days money is invested in inventory. DOS measures the average number of days it takes a company to sell its products – starting with raw materials (if applicable) through finished goods, and is calculated as (Inventory / Cost per Day), where Cost per Day = Cost of Goods Sold / 365 Days. Cost of goods sold is used in the cost per day calculation since inventory typically is valued utilizing cost of goods sold. For example, a company has $1.0 million in inventory, and $6.0 million in cost of goods sold, thus DOS is 61 days ($1.0m / ($6.0m / 365 days).

The business objective Reduced DOS is achieved through specific strategies to balance inventory positions relative to the business demand and processes. QAD solutions are enablers to those strategies, including:

Business Strategies	QAD Solutions
Revise Inventory Planning Processes	Supply Chain Planning – Distribution Requirements Planning & Enterprise Operations Planning
Revise Sales Forecasting Processes	Demand Management
Lean Processes in Manufacturing & Supply Chain	Lean, Just in Time Sequencing, Supply Visualization, Production Scheduler, DRP, TMS, Warehousing
24x7 Supply Chain Collaboration	Supply Visualization
Rationalize Product Range	PLM, PIM

So What? In an ideal world, all demand requirements would be perfectly satisfied by fulfillment processes that meet the service level and lead time expectations. However, the imperfections of the real world result in necessary buffers of capacity and inventory. Although inventory requires an investment of capital and additional carrying costs, the alternative is a potential loss of revenue and/or customers.

Alignment to Business Objectives (Part 8) - Optimized Days Payables Outstanding (DPO)

Accounts payable are moneys a company owes suppliers for services provided and components bought but not yet paid for. Accounts payable typically don't bear an explicit rate of interest. There is, however, an implicit rate in the prices suppliers charge. These implicit charges show up in:

• Cost of Goods Sold for direct procurement.

• Selling, General and Administrative expenses for indirect procurement.

Clues into how effectively accounts payable are managed are provided by examining Days Payables Outstanding - the average number of days it takes a company to pay suppliers. In the language of finance, days payables outstanding is referred to by the acronym "DPO." DPO also provide valuable insights into whether or not a company will pay on time.

DPO is calculated as Accounts Payable / Purchases Per Day, where Purchases Per Day = Purchases / 365 Days. Cost of goods sold is often used in the calculation as a proxy for purchases since companies typically don't provide public information on purchases. Using cost of goods sold, therefore, overstates the true purchases per day and, in turn, understates DPO. However, since DPO is calculated for all companies using cost of goods sold, this helps facilitate comparison across companies. For example, a company that has $0.5 million in accounts payable and $6.0 million in costs of goods sold (COGS), would have a DPO of 30 days ($0.5m / ($6.0m / 365 days).

The business objective Reduced DPS is achieved through specific strategies to increase process efficiency while taking advantage of time-value of money and adhering to contractual arrangements with suppliers. QAD solutions are enablers to those strategies, including:

Business Strategies	QAD Solutions
Reduce reliance on Spreadsheets	.NetUI, Browse, Reporting, BI
Eliminate non-value-add processes	Financials, BI, SV, Release Management, Purchasing, Requisitions, EAM, EDI Ecommerce
Delay Payment	Consignment, AP, TrM, APM
Increase and automate supplier communication	SV, EDI-ECommerce
Order what is needed and ensure delivery of when it is needed	DM, Forecasting, MRP, Purchasing, SV, Lean

So What? Don’t assume that extending Payables is an advantage! Even though extending Payables provides a theoretical savings due to the time value of money, a true partnering with suppliers should include timely settlement of the Payables (based on contractual agreements). Also, while the calculation of Cash-To-Cash actually improves as you extend out Payables (Cash-To-Cash cycle = DSO+DOS-DPO), the increased cycle of payment only penalizes the supplier – who likely would increase their prices to pay for financing. In other words, a streamlined supply chain should consider the overall efficiency and effectiveness of the entire supply chain.

Alignment to Business Objectives (Part 9) - Increased Fixed Asset Effectiveness

For many companies, Net Property, Plant & Equipment (PP&E) (Gross Property, Plant & Equipment less Accumulated Depreciation) represents a significant part of the investment in the business. It's difficult to develop clues regarding the performance of net PP&E simply by looking at the dollars invested. But, you can find clues as to how effectively fixed assets are managed by examining Fixed Asset Effectiveness (Utilization). Fixed asset utilization (or Fixed Asset Turnover) is measured by: Revenue / Net Property, Plant & Equipment

Fixed asset utilization measures how many dollars of revenue are generated for each dollar invested in net PP&E. For example, a company that has $10 million in revenue, and $5 million in net fixed assets, would have a fixed asset utilization of 2.00 ($10 million / $5 million).

This means the company generates $2.00 for $1.00 invested in net fixed assets. The higher the fixed asset utilization the better, holding all else the same (which hardly ever happens). You would much rather generate $2.00 than $1.50 in revenue for a dollar invested in net fixed assets.

The business objective Increased Fixed Asset Effectiveness (utilization) is achieved through specific strategies to increase revenue, increase capacity utilization, increase lifecycle of assets, and/or outsource. Of course, while outsourcing improves this measure, it is only a good strategy if it meets other objectives for quality, cost, timeliness, etc. QAD solutions are enablers to those strategies, including:

Business Strategies	QAD Solutions
Improved Scheduling Across Assets	QPS, Lean, DM, SV, JITS, Manufacturing Planning, Manufacturing Execution
Timely Preventative Maintenance	EAM- Plant Maintenance
Better Tracking of Asset Depreciation & Useful Life	Fixed Assets
Tighter controls on MRO Inventory	EAM- MRO Inventory, MRO Purchasing
Improved handling of new asset Start-up	EAM- Project Management

So What? The infrastructure of a company is established by investments in fixed assets, as well as working capital and people. Traditionally, the fixed assets established competitive advantage, especially in capital intensive manufacturing companies that required proprietary processes. As companies evolve their distinctive competencies to intellectual property, sales and marketing, engineering, and distribution – the fixed assets become a less significant factor. As mentioned in “Customer Market Value- declining impact of Tangible Assets”, the tangible assets are declining as an indicator of market value. However, for any investment – the objective of increasing its utilization is beneficial.

PLM Value in a Digital World

Manufacturing companies are evolving their business model, including the outsourcing of manufacturing, growth through considerable mergers & acquisitions, expanding their products with value added services and software, etc. No matter where the "delivery" processes end up - the "design, development, and product intelligence" will be a fundamental competency AND a key differentiator and competitive advantage. This is recognizing that much of the value will be digital.

In fact, as mentioned in the factoid Customer Market Value- declining impact of Tangible Assets, the general trend in industry is that Market Value is driven much more by the intangible assets (including product intelligence, software, branding...) as opposed to tangible assets. In North America, the Tangible Assets/Market Value ratio has gone from 62% in 1982, to <10% in 2010 (per Robert Kaplan-Harvard). This morphing of the business model, AND the evolution of products from physical to digital, software, and service, accelerates the need to have a management system that moves data as well as parts. Product Lifecycle Management is fundamental to how companies will manage their business through collaboration, workflow, and document management. And, its value is in faster time to market, reduced cost of engineering changes, decreased part administration costs, and reduced design costs – not to mention the increased market value when you properly manage the digital assets.

So What? Imagine a factory where, instead of metal parts moving and transforming into a delivered product, you move data. Each step of the way, value is added digitally – either dimensionally or through added software – or just due to progressive authorizations. And, much like an inventory system for parts, the document management retrieval system delivers the “digital part” as needed. The only difference? When you use a metal part, it is used up. When you use a digital part, it is still there! Infinite supply!!!

Beyond ERP - Transforming With a Paradigm Shift

Companies have implemented and institutionalized the integrated processes of ERP, first as a main frame application, and in the late 20^th Century – as a client-server approach. User interfaces, functionality, footprint of applications, infrastructure and technology have evolved along the way. And, the IT personnel requirements continued to try and keep pace. Of course, there have been numerous challenges such as cost overruns for implementation, delays, maintenance and support issues, difficulties in alignment to the business objectives and evolving business models, to mention a few. Even after initial implementation, companies continue to evolve their requirements due to changes in business processes, changes in financial management policies and practices, reorganization, M&A, regulatory requirements, etc. Add to this the fact that 80% (from a survey titled The High Cost of Change for ERP: What Does It Cost to Keep Up to Date? by CFO Publishing Corp.) of the companies have customized standard applications to meet their specific business requirements, there is understandably a concern about the complexity of sustaining the ERP solutions.

So, with this complexity, companies are considering how to best position their ERP approach for competitive advantage. A question that should be continually asked: How do we change the paradigm on how to run our business? This should include a drill down further to:

· Do we go vanilla?, Do we customize?

· Is my distinctive competency IT? And, even if I do some of the IT functions well – which ones could I easily outsource?

· Should new applications of ERP just mimic the old processes – or are there new ways of approaching each business process?

Regardless of conventional thinking, companies are embracing Software As A Service (such as QAD’s On Demand) and user-configurable interfaces as a flexible approach to meeting the dynamic requirements of their business. On Demand offers a low cost of ownership, rapid implementation, high availability, and leading-edge expertise to fend off most of the challenges that confront the internal IT departments. This is a paradigm shift from “IT must own the processes and keep the data behind our firewalls” – to “IT is an enabler of our business processes”.

Another paradigm shift is in how the user approaches their work. A great example is, rather than duplicating custom reports and spreadsheets that were developed to fill a gap, a company can implement applications such as Business Intelligence (BI) and QAD’s .Net UI/Usability features. They are replacing static reports with on-line analytics. The user can drill-down to the root causes of underperformance, and manage by exception. The user focuses on the things that need attention.

So What? The business environment continues to accelerate in complexity. A rush to low cost approaches that appear to provide efficiencies may miss a much more significant opportunity to transform the way you do business. Rather than compromise how to run your business in this environment – embrace it with approaches that accommodate that complexity. Know your distinctive competencies and unique business requirements – then meet that challenge. It may require a paradigm shift from the old way of doing business.

Value – What Is It?

A company serves many masters, or stakeholders, who must be satisfied based on their respective requirements for participating with that company. Ultimately, Value is the degree at which those stakeholders are satisfied – and is not necessarily the same metrics or even conclusions. Specifically,

· Owners are looking for a good return on their investment, and possibly an enduring investment stream as measured ultimately by market value

· Executives are looking for whatever drives their compensation, and accomplishes the business objectives as measured by the P&L, Balance Sheet, Balanced Scorecard, and other metrics

· Customers are looking for meeting and exceeding their requirements in products and services that enable them to meet their own business or personal objectives

· Employees are looking for whatever provides them with desired employment (i.e. fulfillment, career progression, happiness, etc.) and compensation

· Suppliers are looking for whatever drives consistent, profitable business to them

· Communities are looking for tax revenue, as well as positive environmental and resource impact

· Society is looking for a sustainable contribution by everyone, and ??

We will explore the varied topics that relate to Value through an evolving entry of “factoids” called Value-Pedia. The intention is to provide a mix of leading edge concepts, changing dynamics, as well as probable mechanics to evaluate a company’s success in meeting the challenges. Due to the constant evolution of technology and business models, it is reasonable to expect that these factoids will be sensitive to timing – and could morph or be obsolete down the road.

So What? A company will engage in commerce in order to meet the needs of the many stakeholders. A “widget” manufacturer isn’t in business only to make the best widget – it is in business to ensure that the commerce of widgets brings Value to everyone involved. And Value is in the eye of the beholder!

Green Clouds – A Double Entendre

It certainly isn’t business as usual. During the 20^th Century, companies conducted business in order to make a profit, and were fueled by resources as if inexhaustible. Oil, air, water, land, minerals – just get more in order to grow the business. However, there was a growing awareness along the way that these resources certainly weren’t infinite, and the manner in which they were used not only consumed them, but created additional problems in the form of pollution and landfill. Thus, the campaigns AND change in the business model towards sustainability. The new mantra was Green.

Green has impact through the entire supply chain and lifecyle, including:

· Suppliers – are they providing a sustainable product (energy efficient, re-use of materials, non-pollutant, and recyclable and/or disposable in a sustainable fashion) – and did they use sustainable processes, materials (their own internal approach to supply, production, design, and transportation/packaging)? Are they providing digital or physical products and services?

· Internal – are the processes lean, energy and resource efficient, with proper handling of any offal, waste, returns, and end-of-life items? How much is handled digitally vs. physically?

· Customers – is the distribution, transportation, packaging, documentation, product dissemination, and product usage conducive to sustainable practices? Will the products be used by the customer with the same considerations as Internal and Suppliers? Are the products digital or physical?

Another change to the business model is considerable outsourcing of noncore functions – where it makes sense. Companies realize their distinctive competencies are around product development, or sales/marketing, or certain operations and supply chain functions, etc. Many of the support functions are up for grabs, including IT. Once they alleviate the fear of allowing their data beyond the firewalls, and in the hands of a 3^rd party, all aspects of IT are candidates for outsourcing. Thus, the Cloud Computing approach to life!

We’ll explore the definition of Cloud Computing in future factoids, but it is enabling companies to evolve from the On Premise inefficient architecture to a much more risk adverse, efficient approach of outsourcing to 3^rd party experts. At the same time, a company is reducing its internal IT (applications, infrastructure, and personnel).

Cloud Computing includes:

· Storage-as-a-service (disk space on demand)

· Database-as-a-service (leverage database technology, multitenant)

· Information-as-a-service (e.g. stock price information, address validation, credit reporting)

· Process-as-a-service (binds resources together such as services and data)

· Application-as-a-service (software-as-a-service such as Salesforce, Google Docs, Gmail, Google Calendar)

· Platform-as-a-service (application development, interface development, database development, storage, testing)

· Integration-as-a-service (interfacing with applications, semantic mediation, flow control, integration design – similar to Enterprise Application Integration EAI)

· Security-as-a-service, Management/governance-as-a-service, Testing-as-a-service – offers security, management and testing as outsourced services

· Infrastructure-as-a-service – (datacenter-as-a-service)

It is not unusual for a company to suffer from extreme underutilization of its hardware (<10% in many cases), which necessitates excess capital expenditure, and the associated electricity for power and cooling, as well as the added datacenter footprint. By outsourcing, this excess is dramatically reduced through more efficient approaches by the 3^rd party experts (optimization of the infrastructure through Virtualization, Load Balancing, and various Offload techniques, as well as multitenant efficiencies). Additionally, the personnel to support are better balanced. Other advantages include faster deployment, higher availability, current/best in breed applications and technology, risk reduction – and more.

Future factoids will explore how Value is created through sustainability (Green) and cloud computing. The reason these are discussed together in this factoid is due to their prominence. While automation, cellular manufacturing, ERP, internet, and mobile communications drove changes in the late 20^th Century – sustainability and cloud computing are drivers of the early 21^st century. Check out companies’ websites and the periodicals!

So What? The movement towards Green and Cloud Computing are complimentary in many ways. They are strategies that drive towards competitive advantage, and they drive profitability to the bottom line. And thus a double entendre. Green Clouds – sustainable and cloud computing, AND very profitable!

Value Perspective - Owner

For a publicly traded company, Shareholder Value (SV) is the part of its capitalization that is equity as opposed to long-term debt. In the case of only one type of stock, this would roughly be the number of outstanding shares times current shareprice. Things like dividends augment shareholder value while issuing of shares (stock options) lower it. This Shareholder value added should be compared to average/required increase in value, aka cost of capital. Shareholder value is a business buzz term, which implies that the ultimate measure of a company's success is to enrich shareholders.

For a privately held company, the value of the firm after debt must be estimated using one of several valuation methods, s.a. discounted cash flow or others.

The term SV is used in several ways:

· To refer to the market capitalization of a company (rarely used)

· To refer to the concept that the primary goal for a company is to increase the wealth of its shareholders (owners) by paying dividends and/or causing the stock price to increase

· To refer to the more specific concept that planned actions by management and the returns to shareholders should outperform certain bench-marks such as the cost of capital concept. In essence, the idea that shareholders' money should be used to earn a higher return than they could earn themselves by investing in other assets having the same amount of risk. The term in this sense was introduced by Alfred Rappaport in 1986.

Maximizing shareholder value, also known under value based management, states that management should first and foremost consider the interests of shareholders in its business decisions. Although this is built into the legal premise of a publicly traded company, this concept is usually highlighted in opposition to alleged examples of CEO's and other management actions which enrich themselves at the expense of shareholders. Examples of this include acquisitions which are dilutive to shareholders, that is, they may cause the combined company to have twice the profits for example but these might have to be split amongst three times the shareholders.

As shareholder value is difficult to influence directly by any manager, it is usually broken down in components, so called value drivers. A widely used model comprises 7 drivers of shareholder value, giving some guidance to managers:

1. Revenue

2. Operating Margin

3. Cash Tax Rate

4. Incremental Capital Expenditure

5. Investment in Working Capital

6. Cost of Capital

7. Competitive Advantage Period

Based on these 7 components, all functions of a business plan and show how they influence shareholder value. Looking at some of these elements also makes it clear that short term profit maximization doesn't necessarily increase shareholder value. Most notably, the competitive advantage period takes care of this: if a business sells sub-standard products to reduce cost and make a quick profit, it damages its reputation and therefore destroys competitive advantage in the future. The same holds true for businesses that neglect research or investment in motivated and well-trained employees. Shareholders, analysts and the media will usually find out about these issues and therefore reduce the price they are prepared to pay for shares of this business. This more detailed concept therefore gets rid of some of the issues (though not all of them) indicated by critiques.

The sole concentration on shareholder value has been widely criticized, particularly after the financial meltdown of 2009. While a focus on shareholder value can benefit the owners of a corporation financially, it does not provide a clear measure of social issues like employment, environmental issues, or ethical business practices. A management decision can maximize shareholder value while lowering the welfare of third parties.

It can also disadvantage other stakeholders such as customers. For example, a company may, in the interests of enhancing shareholder value, cease to provide support for old, or even relatively new, products. Additionally, short term focus on shareholder value can be detrimental to long term shareholder value; the expense of gimmicks that briefly boost a stocks value can have negative impacts on its long term value.

An alternative definition based upon this criticism is Stakeholder Value - The intrinsic or extrinsic worth of a business measured by a combination of financial success, usefulness to society, and satisfaction of employees, the priorities determined by the makeup of the individuals and entities that together own the shares and direct the company.

However, this concept is difficult to implement in practice because of the difficulty of determining equivalent measures for usefulness to society and satisfaction of employees. To give an example: how much additional "usefulness to society" should shareholders expect if they were to give up $100 million in shareholder return? In response to this criticism, defenders of the shareholder value concept argue that employee satisfaction and usefulness to society will ultimately translate into shareholder value.

So What? Although Shareholder Value had prominence during the 20^th Century, it is reasonable to expect a shift towards Stakeholder Value or some other measure that captures longer term interests of other parties (in addition to the shareholders). The single motivation of increasing the stock price may meet the needs of the owner (public company), but be detrimental to others that have a stake! What good is growing the stock price in the short term, when I’m growing the carbon emissions in the long term?

Value Perspective - Executive

While the Shareholders finance the company, and the Board of Directors have decision-making authority, voting authority, and specific responsibilities separate and distinct from the authority and responsibilities of owners, the Executives “execute” the business strategies and plan. As such, the executives are looking for whatever drives their compensation, and accomplishes the business objectives as measured by the P&L, Balance Sheet, Balanced Scorecard, and other metrics.

We’ve discussed in other factoids some of the business objectives that are fundamentals. In the Alignment to Business Objectives series, the entire organization is orchestrated to drive towards metrics that are directly related to the P&L and Balance Sheet (e.g. Increase Operating Income Margin, Reduced Days of Supply). It is very common that, not only will the Executive be evaluated based on achievement of those objectives, but they will also be compensated accordingly. An example, in addition to the business objectives identified, are measures such as:

· Economic Value Added (EVA) - measured as Net Operating Profit After Taxes (or NOPAT) less the money cost of capital, and is a good measure of remaining cash after a company finances its operations (all capital – debt and equity). The EVA is a registered trademark by its developer, Stern Stewart & Co. Many time EVA is a measure that is cascaded through the organization in terms of a bonus to each employee (or by group).

· Earnings Before Interest, Taxes, Depreciation, Amortization (EBITDA) – an approximation of cash flow from the operations, and is especially of interest for large companies with significant assets, and/or for companies with a significant amount of debt financing. It is rarely a useful measure for evaluating a small company with no significant loans.

Most measures, today, may motivate actions that maximize the measures for the short term, at the sacrifice of longer term. However, the trends are changing to include recognition of impact to society and environment (sustainability). Also, while the tangible assets have been easy to measure and significant, trends towards the intangibles (digital, intellectual capital) will require new methods of consideration.

So What? The Executives lead the day to day activities that generate commerce for the business. Although the Shareholders and Board of Directors are providing expectations and guidance, the Executives are paid to “execute”. And, they speak in a language that ultimately must be translated to the actions of the organization. Not “bits and bytes” or “feature/function”, but EVA, EBITDA, and a bunch of other acronyms!

Value Perspective - Customers

Customers determine the Value based on how well the company’s products and services enable them (customer) to meet their own business or personal objectives. A company will compete for the customer’s business through collaborative design, marketing, and sales. While the 20^th century was generally “supplier driven” where a company could produce products and then sell them, the 21^st century is evolving to a much more customer-driven focus. Refer to the factoid on Demand Driven Value.

Ultimately, the Customer Retention measure reflects whether the customer perceives value in terms of Price, On Time Performance, and Quality (form, fit, function), etc. The underlying factors that a company must endure such as material costs, labor costs, expediting costs, premium freight, working capital, fixed assets, etc. are only of interest to the customer in so much that it determines the “stability and future” of their “supplier”. The customer primarily cares whether you meet their needs, but also wants reassurance that you’ll stay in business as their partner.

So What? The customer’s view of value is based on the price they’ll pay – and whether they’ll stay your customer!

Value Perspective - Employees

The employees’ perspective of value may be whatever provides them with desired employment (i.e. fulfillment, career progression, happiness, etc.) and compensation. Although they may strive to do their best in whatever task assigned, and/or work as a team player to help the organization meet its objectives, ultimately the employees’ decisions to continue with a company are based on how well the company is meeting their needs.

Those needs will vary, depending on the employee’s stage in life. As Maslow said (in Maslow’s Hierarchy of Needs), a person could be climbing the ladder of life – from physiological (food, shelter) to self-actualization.

So What? An employee may find their company a “cool” place to work; or they may have “fallen” into a job based on what was available; or they may have aggressively sought out a particular company to fulfill their career aspirations; etc. However, while they may strive to produce the most competitive product, or meet their own metrics at a performance review, they really are motivated by their needs in life.

Value Perspective - Suppliers

Suppliers will value their relationship with the company (their customer), based on ability to capture on-going business at a profitable price, and in a partnership manner. On-going provides an ability for them to plan their strategies and tactics, including capacities, processes, personnel, and the subsequent supply chain. Profitable price enables them to meet their objectives relative to revenue, cost, and capital. And, partnership manner suggests a collaborative approach in the way that orders are processed and monitored, as well as how products and services are developed.

So What? The value that a company provides to the suppliers is enhanced through a partnership that provides profitability and sustained potential. The effort (and cost) to develop new customers is 4X or more than it takes to keep a customer.

Value Perspective - Communities, Societies

The value that a company gives to communities, and society as a whole, is related to financial impact and environmental. Communities are looking for tax revenue, and for employment of its citizens. Society, as well, depends on the ability for commerce to drive its economic engine.

From an environmental standpoint, the communities and society are increasingly dependent on a sustainable approach where finite resources are conserved with reduced waste and carbon emissions as an output. This is requiring innovation in products and processes to ensure efficient use of raw materials, trends towards renewable energy, and contained or reduced waste in the form of scrap, exhaust, pollution, etc.

So What? While the 20^th century proceeded with a pretentious attitude that resources were inexhaustible – or in no need of consideration, companies must now make trade-offs in their approach to material transformation. They can no longer disregard their impact on the environment. It isn’t “business as usual”!

Inventory Management for Retail

Consumers drive continual innovation, whether it is fashion, food, personal items, etc. This necessitates a high velocity in inventory turnover, less the inventory becomes obsolete. Whereas in some industries inventory is used for production of finished goods, and then service parts for repair, much of the retail inventory is consumed as finished goods. Initially, the inventory commands near list, or retail prices, but soon after, it is relegated to sales with heavy discounting. And, the less accurate you are with your forecast and buying – the more expensive it is in terms of excess.

So, what do you do? Run a sale, or avoid buying? The trade-offs seem to be “leaving profit on the table” or “missing a sale, thus losing the entire profit”. Rather than panicking, the following ten steps are rational approaches to managing the inventory:

1. Damn the river - Stop orders that are optional, and cut oout marginal items

2. Take it back - return unnecessary products to the supplier, although you’ll probably pay freight and maybe not get full credit

3. Accelerate charge backs for returned goods (defective merchandise, or substitutions not authorized)

4. Slash internal processing time – apply Lean

5. Sell to other retailers (overstock) outside of trade area - offer lower price, faster delivery

6. Pair up old and new (get old out at cost)

7. Move the merchandise based on traffic patterns. Move slow moving to most visited areas, and move high velocity to other areas. Check lighting and signage.

8. Pay incentives to staff (based on KPIs such as highest sales per...., largest increase...)

9. Move up mark downs right before sales peak (especially seasonal goods_) >30%

10. Make the most of tax deductions - if marked down a few times, donate for write-offs.

So What? – Consumer goods are especially vulnerable to fast lifecycles and obsolescence. Whether your products are susceptible to fashion, technology, perish-ability, or other factors that impact the how long it remains desirable, it is critical to the bottom line that you manage the inventory. It frees up cash, and saves carrying costs.

Sustainability at QAD - Internal and External positioning

QAD will increasingly be asked to provide guidance and solutions on aspects of sustainability. Certainly our products will enable our customers to operate in a more carbon neutral or green approach as we help them eliminate waste throughout their processes. Also our methods of communicating and delivering product will demonstrate leading edge methods.

As well, QAD’s participation with its suppliers, as well as internal activities can demonstrate sustainable practices. Examples might include:

Suppliers

– Are the supplied products produced in a sustainable method? (e.g. is the manufacturing process efficient?)

– Do the products enable sustainable practices at QAD (e.g. are the servers efficient? Are they recyclable?)

– Are the products delivered efficiently (transportation?); Are there digital alternatives?

– Is the documentation on-line and/or embedded?

– Is the communication with the supplier collaborative and electronic?, etc.

Internal to QAD

– Are our office practices efficient and carbon neutral (Do we need hard copies? How do we dispose of waste?)

– Are we telecommuting, home office, car pooling where applicable?

– Are our business applications in the clouds (e.g. Concur, Share Point) and supportive of lean practices?, etc.

Customer

– How we deliver our product to the customer (digital download, On Demand, SCP)

– Enabling of Lean practices (minimize waste in their operations, manage disposal/returns, monitor/measure…..), etc.

So What? – In many ways QAD is leading the way in sustainable methods. A large % of personnel work from home; our products are delivered digitally or in the clouds; our solutions drive lean practices; the servers that we use and recommend are increasingly efficient (electricity, cooling, and processing capacity). The Value of a Green QAD is subject to which stakeholder – but, regardless, it carries a lot of weight! Maybe the competition will be “green” with envy!

QAD On Demand – New Customers

QAD’s On Demand reduces Total Cost of Ownership vs. On Premise, as already presented in previous factoids. The reduction of infrastructure (hardware, backup, data center, utilities, failover, disaster recovery, 3^rd party, etc) and personnel (sys. admin, db abmin, support, management, disaster recovery, implementation, 3^rd party, etc), and the trade-off of capital and maintenance with an annual fee (On Demand) can be significant.

Additionally, there are On Demand business benefits associated with uptime, faster implementation, value of the upgraded functionality, risk reduction (SLA, penalties, loss of business, volume fluctuations), preservation of Capital (use for other revenue generation, cost reduction, capital optimization), infrastructure optimization (enables QAD’s lower On Demand fees), and agility (scaling, business assimilation, business model changes).

In addition, new customer benefit from QAD’s core functionality vs. the competitors:

· Reduced Total Cost of Ownership for QAD vs Competitors – as demonstrated in the Aberdeen study that shows QAD’s total cost of ownership (license, services, maintenance) was 24% lower than Mid-Size ERP average

· QAD Core Benefits – as demonstrated in the Aberdeen study that shows QAD’s cost per % of improvement (inventory, operational costs, OTP, manufacturing schedule compliance) was 19% lower than the Mid-Size ERP average.

· Additional functionality (e.g. Demand Management, Supply Chain Portal, Transportation Management, etc) impact on Revenue, Cost, and Capital

So What? – Don’t shortchange the business case of QAD On-Demand vs. the competitors. Start with the advantages of QAD as a solution provider to manufacturers. Rich functionality, rapid implementation and realization of benefits resulting in the lowest total cost of ownership and greatest benefits for the money. Then add the even greater advantages of On Demand, and you have competitive advantage!

More on Transportation, Logistics Value

A recent Aberdeen Group article, International Transportation: Optimize Cost and Service in a Global Market provides a concise overview of Pressures, Metrics, and Actions from a survey of 181 respondents that included enterprises of all sizes, with global and domestic transportation. The companies were segmented as Best-In-Class (top 20%), Average, and Laggards (bottom 30%). We’ll focus on the Best-In-Class.

Top pressures driving a focus on transportation management

· Cost and service impact on overall supply chain performance

· Government regulations (security, import/export, C-TPAT, customs compliance,...)

· Supply Chain volatility (shifts in leadtimes, inventory, volume by mode/lane)

· Increased customer demands (shorter cycle times, high on-time delivery performance)

Metrics of Best-In-Class

· Trans Spend/Sales - 2.38% (Average= 8.75%, Laggards=16.35%)

· Spend improvement – (-) 8.71% vs. previous year (Average= .97% increase, Laggards= 5.03% increase)

· On-Time and complete - 97.2% (Average= 94.7%, Laggard = 87.3%)

· 74% have visibility into local/global flows

· 39% respond in near real-time across multiple channels

· 2.5 times more likely to be able to optimize mode

· 1.91 times more likely to consolidate

· 56% transportation cost relative to supply chain costs

Actions

· Collaborate with internal and external groups to gain visibility and share the global inbound and outbound supply chain

· Leverage current and future technologies/tools to automate and streamline transportation and global trade management processes

· Employ near real-time dynamic optimization to enhance cost/service

· Renegotiate with carriers

· Rationalize number of trading partners

· Implement Event management to reroute, rebalance

· Increase B2B, EDI connectivity

· Fully integrate internally to other functions/systems

· Automate Global Trade Mgt Strategies

So What? – QAD is positioned with TMS to meet the needs of customers striving for Best-In-Class. Reference the Aberdeen Group study further insight. Transportation is not only a sizeable cost, it is also a differentiator and can be a competitive advantage.

Increasing revenue through QAD - New Customer

When assessing the value of QAD solutions, there is a temptation to focus on Cost reduction and Capital optimization, which is somewhat easy to defend and to quantify. Conversely, a projection of increased revenue requires confidence that a company will increase its competitiveness, perceived value, effectiveness in channels – or ensure that prospects/customers are aware of their offerings. However, even if it is difficult, revenue growth should still be recognized as Value.

A great example of potential revenue increase is a prospect that considered replacing legacy systems with QAD. They specifically wanted to:

· Improve systems, processes and people capabilities to continue to serve existing customers

· Expand in Automotive Sector

o Geographic footprint expansion with existing customers
(from local/regional supplier to global supplier)

o Expand to new customers in this sector, including OEMs

o Partner with customers for product innovation

· Expand to other sectors using experience in automotive best practices and systems as a competitive advantage

o E.g. customers in durables sector that demand APQP, EDI, Lean

QAD offers solutions that enable best practices with best of breed systems for the automotive industry, providing a competitive advantage for winning new business in and outside the automotive industry. Also, our standard systems and processes enable customers to achieve expansion into new markets and geographies more easily. The key is that, by utilizing QAD’s automotive experience and enablers, the customer is positioned to capture new business, resulting in increased revenue.

So What? – Customers are driven to increase profitability and return on assets. Although revenue growth is difficult to project, any solution that positions the customer to be more competitive and knowledgeable about their markets should be assessed for its revenue impact. QAD isn’t just about “wringing the cost out” – it’s about competitive advantage, which may mean increased Sales! So, not just the bottom line, but also the top line.

Reversing Outsourcing To China - Value Has Changed

Companies chased low labor and material costs around the world, with a significant transfer of manufacturing from North America to Asia. This was especially advantageous for products that had high labor composition, and were relatively high volume for each SKU. However, the results have not always been to their advantage, and in some cases, companies are reconsidering this strategy.

Factors to be considered

· Labor content of product cost

· Lead time requirements

· Weight and volume of products

· Product lifecycles

· Quality, Engineering requirements

· Intellectual capital, Security, Risk

Trends that impact outsourcing, off-shoring decisions

· Labor costs are increasing as developing countries seek a growing middle-class

· Focus on customer, demand-driven economy motivates manufacturing closer to consumption

· Higher value-add, engineered, and/or software and digital products require more developed support and manufacturing/transformation capabilities, as well as collaboration between engineering, suppliers, customers, and manufacturing

· Rapid lifecycles require reduced supply chain pipelines and inventory (risk of obsolescence)

· Some products benefit from Industrial Commons (consortium of industry and academia) such as Silicon Valley, electro-mechanical-engineering in Germany, drugs in Boston

· Transportation costs (up about 71% the past four years as a result of higher oil prices and cutbacks in ships and containers) and lead time requirements are motivating local manufacturing (to consumption)

· Political, economical, monetary fluctuations may change the direction of strategies

Examples of reversal

From USAToday (http://www.usatoday.com/money/economy/2010-08-06-manufacturing04_CV_N.htm) GE plans to make advanced products in the U.S., noting a 30% Chinese cost advantage likely has tilted to roughly a 6% U.S. edge when figuring lower inventory expenses and fewer delivery snafus.

Another scenario tested (my former consulting days with a Supply Chain Management consulting company) showed what appeared to be 11% product cost reduction, was actually 33% premium because of lost sales due to service issues, additional headcount for inspection, procurement, engineering, and premium freight (ocean, air...) and inventory.

So What? – Strategic decisions are based on facts and expected trends, and should always be open to adjustments. Customers, products, external factors and company business objectives should drive sourcing decisions. The general trend to source in developing nations may make sense for high labor content, high volume products, and if those local economies can consume some of the products. However, as you move up the ladder in sophistication and customer differentiation – “a slow boat from China may NOT be the answer!”

Green Cloud Factors (Part 2) – Trend in Hardware

Headline: Startup SeaMicro is unveiling its SM10000 server, which takes advantage of the small and highly energy-efficient Intel Atom processors and its own I/O virtualization technology to create a computing architecture that is highly scalable and drives down server power and space costs by as much as 75 percent over traditional systems. The SeaMicro server is aimed at Internet companies and HPC organizations. SeaMicro officials saw that the highly power-efficient chips could be used in servers targeting the burgeoning cloud computing and Internet workloads.

This suggests virtualization in the hardware (rather than software, middleware), and even VMWare (virtualization king!) is suggesting that current approaches in software virtualization will be obsolete as technology advances. The advantages are numerous, including the ability to reduce energy consumption and floorspace in datacenters, and even enabling datacenter locations with less reliance on “energy generation centers such as rivers, etc.”.

So What? – Enabling datacenters with technology that consumes significantly less energy and floorspace is directly supportive of sustainability initiatives, as well as empowering cloud providers, whether it is Software-As-A-Service, Platform-As-A-Service, etc. Of course, the hardware trends are also lessening the load on internal, On Premise approaches as well. However, whether a company “stays internal”, moves into the clouds, or drives their business with a “hybrid” – everyone benefits.

QAD Value Card - Logistics Accounting

QAD Logistics Accounting provides greater visibility and control over costs and payments to third-party suppliers providing transportation of goods received into, shipped from and moved between sites. These charges, such as freight and duty, are known as "logistics charges."

QAD Logistics Accounting supports the entry and tracking of all individual costs associated with the transportation of goods into and out of company sites. This includes Inbound Logistics Accounting to track inbound transportation costs, and Freight Accrual Accounting to track outbound transportation costs. Inbound transportation costs include third-party logistics charges for transporting items purchased from a supplier to a company location, and for shipments of items from a company location to a customer or another company location. QAD Logistics Accounting helps control a company’s logistics costs and automates administration, for savings that go straight to the bottom line.

Logistics Accounting impacts Revenue, Cost, and Capital as follows:

· Improves efficiency through complete tracking, monitoring, accruing and invoicing all costs associated with freight – 10 to 20%

· Improves margin visibility by including all transportation-related expenses in standard cost of product, ensuring margin management and price management – 5 to 10%

· Improves planning and budgeting by providing planned vs. actual performance analysis of logistics providers – 20 to 25% efficiency

· Ensure accurate payments to carriers by matching freight accruals with invoices – 10 to 20% reduced freight costs

So What? As transportation costs become an increasingly important factor in decisions on pricing, sourcing locations, and business model strategies, it is essential to understand the true impact to product and order margins. Rather than absorb transportation costs and “spread” them over all products like peanut butter, it is much more prudent to itemize them directly to the root causes and drivers.

QAD Value Card – Customer Relationship Management

In competitive and volatile markets, maintaining strong customer relations is tantamount to continued success. Challenged to both sustain and expand the customer base, businesses need industry strength tools to acquire, service, and support their most important asset.

Increasing profits by improving customer acquisition and retention, Customer Relationship Management (CRM) provides a 360-degree view of your customer, integrating customer information at every touch point. A sound CRM strategy enables your business to be efficient, productive and responsive to the demands of your customers

CRM impacts Revenue, Cost, and Capital as follows:

· Increase sales productivity – 10 to 20%

· Increase customer contact time – 5 to 10%

· Increase attention to winnable opportunities – 5 to 10%

· Improve sales forecasting - 5 to 10%

· Lower costs while attracting and retaining customers – 10 to 20%

· Generate greater customer loyalty, satisfaction, response time – 5 to 10%

· Increase cross-sell and up-sell successes – 5 to 10%

· Improve customer responsiveness with access to relevant and timely data – 10 to 20%

· Reduce negative revenue campaigns – 1 to 5%

So What? In a customer-centric business, it is essential to understand all aspects of your customers’ requirements. This affords an opportunity to improve efficiency and effectiveness through the entire enterprise by understanding, and even predicting their demand, while also recognizing any negative factors that influence their decisions to “stay a customer”. Generally, it costs 3 to 5 times more to find a new customer than to retain a customer. And, unless your business is driven by “infinite demand” –you’ll always “value” existing customers.

QAD Value Card – Trade Management

Competition for retail floor space is intense, making it extremely difficult for new or small manufacturers to compete with global manufacturers. Major retailers are using their tremendous buying and IT power to squeeze out higher margins and extract the maximum benefit from expected trade funds received.

To further complicate matters, the introduction of Sarbanes-Oxley regulations has placed even greater reporting and tracking requirements on all areas of the business, including pressure on the Sales and Finance areas to implement tighter control of Trade Management processes. These need to be automated, easily audited, and well documented.

QAD Trade Management (QAD TrM) allows manufacturers and distributors to more effectively plan, manage and track trade (promotional) spending activities. QAD TrM provides the information to analyze and monitor promotional programs, track revenue and costs, compare them to budget and last year, track sales by customers and products, plus process and track claims and rebates.

The following facts should be recognized, highlighting the significance of trade management:

· Trade promotion management is responsible for 20% of a company’s profits and comprises as much as 70% of marketing budgets

· Trade funding ranks as the 2nd highest cost for manufacturers behind the cost of goods

· Estimated $8B wasted every year in deduction management across industries

· Deduction investigation costs $260 per event

· Deductions less than $1,000 usually not investigated --- automatically granted

TrM impacts Revenue, Cost, and Capital as follows:

· Effective planning and analysis can reduce trade spending without compromising returns – 10 to 30%

· Reduce payments to customers for invalid deduction claims - $000s

· Reduction in time required by Accounts Payable and Accounts Receivable personnel – 10 to 50%

· More accurate resolution of claims and deductions – 20 to 50%

· Reduce the number of outstanding claims and rebates – 20 to 50%

· Provide management with improved visibility into the level of promotional spend and exposure - $000s in additional revenue, reduced costs

· Shorten the promotional planning cycle – 10 to 30%

· Improve product pricing, invoicing, and accounting accuracy - $000s

· Create more accurate sales forecasts - $000s

So What? Proactive selling of products through promotion is significant in some industries, especially retail, but is susceptible to risk. How effective are promotions and price strategies? How can trade spend be managed and/or reduced? How can you manage deductions against improper deduction claims? The “trade-off” is considerable expense to promote products vs. the opportunity to increase revenue and margin.

QAD Value Card – Enterprise Financials

QAD Enterprise Financials is a powerful and efficient financial solution providing the ability to manage and control businesses at a local, regional and global level, and supports multi-company, multi-currency, multi-language, multi-tax capabilities, as well as consolidated reporting.

QAD Enterprise Financials ensures regulatory, governmental and SOX/IFRS compliance. It provides flexible and robust reporting, giving decision makers multiple views of their company’s financial position.

QAD Enterprise Financials is seamlessly integrated with the sales and distribution, planning, and manufacturing modules to report the financial implications of the company’s activities.

Enterprise Financials impacts Revenue, Cost, and Capital as follows:

· Productivity associated with streamlined processes, faster closings, collaborative budgeting, regulatory compliance efficiency, ability to model scenarios, consolidation, shared services, etc.

· Improved capital flow in terms of Accounts Receivables (visibility, tighter controls)

· Faster revenue recognition

The quantification of benefits due to Enterprise Financials may be difficult, but there are obvious and intuitive business improvements.

So What? As companies evolve globally, it is essential that their business systems support the assimilation of new business units, as well as disparate languages, currencies, country practices, etc.

QAD Value Card – Configurator

Configuring orders to customer specifications can be a time consuming, error prone process. With QAD Configurator, your customers can have it their way, allowing order entry personnel to easily, quickly and accurately configure complex products based on pre-approved engineering and sales business rules.

Part of the Customer Management suite within QAD Enterprise Applications, QAD Configurator simplifies and streamlines product customization in a Configure-to-Order (CTO) or Assemble-to-Order (ATO) environment. Sales personnel work from a pre-defined questionnaire to rapidly and accurately customize products based on customer need, generating a new variant item, complete with pricing.

Configurator impacts Revenue, Cost, and Capital as follows:

· Reduces sales cycle cost by lowering quotation and order entry time and effort – 10 to 50%

· Improves customer satisfaction, retention and loyalty by quickly configuring products they specific to their needs – 10 to 20%

· Increases revenue by attracting customers with custom configuration needs – 5 to 10%

· Improves efficiency by allowing engineering to focus on design and innovation – 10 to 50%

· Reduces product lead times through rules-based translations into actual items, products structures, and routings – 10 to 50%

· Reduced Cost of Goods through efficient selection and accuracy, enabling supply chain efficiencies – 5 to 10%

So What? Configurable products are susceptible to complexity and errors due to the proliferation of combinations and options. A rule-based approach to automate the order entry process and that ensures proper selection of options provides efficiency through the entire supply chain, and avoids potential risk and error. This is especially invaluable in a demand-driven world where customers are requiring even greater differentiation.

QAD Value Card – Customer Self Service

QAD Customer Self-Service (CSS) is a complete Web storefront and self service portal that can be tailored to integrate directly into a company web site, supporting 7x24 order management and customer self service (tracking order status, availability etc).

QAD CSS offers a personalized, secure order management system, with browser-based order entry and visibility. Features and functionality within QAD CSS enables optimized end-to-end order fulfillment and improved response throughout the supply chain.

Items, customer information and pricing can be accessed directly from existing QAD Enterprise Applications records and can be easily tailored to any corporate appearance and content. Personalized screens can be individually designed for each customer or each user type, with customer-specific messaging and promotional content added to maximize sales and customer service.

CSS impacts Revenue, Cost, and Capital as follows:

· Increases revenue opportunities through an expanded sales channel, expanded market, improved customer satisfaction – 10 to 20%

· Reduces costs through reduced reliance on call center resources, reduced order entry, reduced invoice costs – 20 to 50%

· Reduced errors in order processing – up to 90%

· Reduced Days Sales Outstanding (Accounts Receivables) – 5 to 10%

So What? Customers are increasingly discriminating on how they work with their suppliers. In the customer-centric economy, where they have a multitude of options, the customer will require ease of “shopping” for products and services that meet their requirements. As well, in a global economy, this means 24 hours access, not only for shopping and ordering products – but also to track status. And, this experience, along with accuracy and quality of products received, will determine whether the customer “stays” as a customer for their next purchase. So, it impacts the bottom line AND the top line!

QAD Value Card – QAD SE on Oracle

QAD Enterprise Applications Standard Edition is the core QAD solutions suite. It includes Standard Financials, as well as a number of other key functional areas, such as Distribution (sales and purchasing elements), Manufacturing (including Kanban), Supply Chain, and Service and Support, among others. The applications available in Standard Edition are written in traditional procedural client-server Progress 4GL code. The .NET UI for these applications is rendered, and does not contain application code on the .NET client side. QAD SE is certified for use on both Progress and Oracle databases. The features and functionality of QAD SE are the same on both database types.

Although QAD offers SE on Progress database as a standard, customers who choose to run SE on Oracle typically do so to achieve the following business benefits:

· Customers already using Oracle databases for other business applications can maintain a single database skill set within their organization (no need to hire or train Progress DBAs in an otherwise Oracle-based company).

· There are many third-party vendors who supply products for Oracle. There are far fewer third-party vendors for Progress. This means that customers have a wide variety (in price and features) of products available available for Oracle. Such products include data warehousing, reporting and business intelligence tools as well as system administration, customization and management tools. Customers already running other Oracle-based products or planning to implement them do not wish to incur the expense of replacing or eliminating them.

· Experienced Oracle DBAs and developers are in greater demand and so are more abundant and available in the marketplace than are Progress personnel, so employee recruitment is easier and less costly for Oracle.

· Most of the cost of ownership advantage that Progress enjoyed in the past was due to the lower salaries Progress DBAs commanded in the marketplace. This goes back to market demand for experienced DBAs, and this pay disparity remains today. If you look at cost of ownership studies, the greatest disparity between Progrress and Oracle lay in the DBA salary. Recent cost studies by the Aberdeen group and others show there is now very little difference between Progress and Oracle in all other costs (licensing, tools, training, support, etc.).

· Oracle provides a more robust and detailed system management, tuning and troubleshooting tool set than does Progress which affords Oracle administrators greater opportunity to monitor and control their system.

So What? With other Oracle-based products already planned or in use at their sites, customers are interested in QAD products which run on Oracle and also provide QAD's functionality, ease of use, fast implementation and low ROI. Customers can be assured that QAD SE contains the same features on Oracle as it does on Progress, that QAD continually designs and updates SE for optimal performance, and that purchase and license costs of QAD products are the same regardless if Oracle or Progress databases are used.