Several years back, 2003 to be exact, I wrote a series of columns examining the real benefits that companies were experiencing as they moved forward with business performance management (BPM). A lot has changed since then, and I thought it was time to update my information. My updated research has found that while there are companies clearly taking advantage of some of the newer aspects of BPM 2.0, others are just beginning to enjoy some of the BPM basics. This column looks at one example of each of these.
One of the benefits that has been mentioned for BPM from the very beginning is simply to get more information out to more users. This includes sharing more data with more people as well as updating it with greater frequency. The primary goal is to ensure that more decision-makers have more current information so they will be able to make better-informed decisions.
Case Study Number One: UPS and Khalix
The United Parcel Service (UPS) utilized Longview's solution, Khalix, to achieve their BPM goals along these lines. They originally had a standalone planning system at headquarters, and the field users would send a disk to the regional offices for cleanup (validate they were within targets) and rollup. This approach also necessitated a bottom-up budgeting methodology. In the end, it took about seven months to complete the planning cycle. The end result was stale data that was not distributed widely.
With their new BPM system, they were able to dramatically change all of that. They are now able to easily communicate top-down targets and initiatives. With everyone involved in planning on a single system, they were able to reduce the seven-month cycle to three to four weeks. The ability to do top-down planning removed most of the back-and-forth iterations of the previous approach. Thanks to the greatly reduced cycle times, UPS has been able to move from an annual plan to quarterly planning, looking out three quarters. Coming back to more information to more users: they now have 400 active planners and 9,000 people viewing a package of 200 standardized reports on a daily basis. Cost center managers have a Web page with all of their cost statements and goals, updated in near real time. UPS uses Oracle Financials for their source data (actuals). They had previously used Oracle Financial Analyzer (OFA) but no longer had a need once they moved to Khalix.
What's next for UPS? They are looking to do more detailed profit planning and to focus on key operational groups such as marketing. Both of those areas are considered part of BPM 2.0, and they are following a pretty standard track here: get the basics in place (planning and reporting, primarily) and move on to broader (operational analytics) and deeper (product and customer profitability) analysis. Which brings us to the second company I am looking at in this column.
Another long-discussed benefit of BPM is to enable companies to tie execution to strategy. In the BPM 2.0 world, part of that strategy may be to price your products to maximize customer profitability. To execute on this strategy, you would need a solution that enables you to fully understand your costs so you can optimize profitability.
Case Study Number Two: Chemtura and SAS
Chemtura, a global chemical supplier, had this desire and needed to improve the accuracy and availability of its cost information. They had been using cost-plus pricing strategies, but without detailed activity-based costing analysis, this could lead to selling for less or more than the market can bear or wants and potentially damage customer relationships. They chose SAS as their BPM supplier primarily because of their activity-based management module.
Why is detailed costing analysis so important to Chemtura? An example of the issues they (and many other manufacturers face) is that the requirements of mega customers drastically alter the profitability picture. A customer that wants split pallets and drop-ships to each store is much less profitable unless these costs are taken into account and pricing is adjusted for that situation. Now, with a better understanding of profitability, they can change how their operations are run. They can point sales and marketing to focus on higher-margin products. With customer profitability data in hand, they can adjust pricing and services for their key customers so that everyone remains whole.
With all of this new information available, there has been a side benefit: a greater dialog between sales, operations and finance. Beyond the costing capabilities, they also use their BPM system to support key operational strategies. For example, they looked at sourcing options using the system and determined that outsourcing manufacturing would have been a big mistake for them.
Chemtura utilizes multiple source systems for its data and uses SAS data extraction and analysis capabilities to pull it all together. Now that they are confident in their data, next year they expect to expand their use of the system by adding 100 to 150 users who will be able to view reports on the Web and drill down into costing details.
These are two very different uses of BPM and two different products, but both provide tremendous value to the end users. In both cases, they are delivering on long-touted benefits of BPM, which, as we can see here, are much more than overhyped marketing messages.
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