Infosys’ blog on industry solutions, trends, business process transformation and global implementation in Oracle.

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January 24, 2009

Demystifying Merchandise Accounts Payable

Merchandise Accounts Payable, a mouthful isnt it? This blog explains and simplifies the complex area of Merchandise Accounts Payable, often seen in Retailers or Wholesalers. It also presents a point of view on various Oracle Products and their fitment to this business area.

Retailers are companies that engage in sale of goods and/or services through established store fronts, physical or virtual. The key aspects of any retail business is having a wide variety of merchandise available through consumer friendly store fronts using mutiple channels of sales, online, physical store, Phone etc. Given this core aspect of merchandising, Retailers typically have thousands and thousands of suppliers that they source the merchandise from. In addition to the large number of suppliers, Retailers also have wide variety of supplying relationships, let us take a look at some common ones.

1. Manufacturers - Procuring directly from the manufacturer of goods/service.

2. Supplier - Often suppliers are engaged when sourcing internationally, these suppliers in turn have factories/agents through whom the actual merchandise is produced.

3. Exporters/Expeditors - These are accelerating entities within the supply chain, which retailers use to move the merchandise across geographies in a quick manner.

4. Raw Material Suppliers - These suppliers provided raw materials which then are routed through factories into finished merchandise.

A typical manufacturing unit would engage with a selected/approved vendor list, which makes managing the supplier base easy. But for retailers, who offer a wide variety be it Apparal, Electronics, Grocery or a mix of all, the complexity is multifold.

Not only is the supplier base large, the amount of Purchase orders and receipts created often run into millions per day! Given this huge volume, it is challenging to track what was ordered and what was received and hence decide what needs to be paid. This in summary is the core problem with Merchandise Accounts Payable!

Typically retailers go through a very complicated Invoice Matching process, wherein the Purchase Orders, Receipts and Invoices are iterated in a complex rules based matching process, and often five or six iterations are carried out before an Invoices is approved. Some of the rules are based on Payment Terms, Item quantities and Items.

Most retailers utilize custom applications for procuring merchandise, because of the high volume and store specific nature of the purchases, Oracle Retail Management System is often a system of choice for this procurement.  Inventory management is often the strength of Manhattan systems and other WMS systems.

This means that the eBusiness modules has to deal with the GL and AP processes, typically Invoices are imported after the Invoices matching is done, this matching is either done again in custom applications or using the Oracle Retail Invoice Matching solution, this is a new offering from Oracle.

Oracle AP is best suited to import the invoices and carry out the check printing/payment processing and post to GL.

Several retailers are trying to bring in the procurement and invoice matching solutions into Oracle eBusiness suite, but in my opinion the jury is still out in terms of proving this solution's effectiveness.

What is your take on Merch AP, have you seen similar challenges in other industries?

January 2, 2009

ERP for SME – why and why now?

For many the word ‘ERP’ conjures up an image of an extremely high priced and complicated set of applications that only a few understand and whose services only big organizations can avail. Over the last many years that I have been working as an ERP consultant I have come across many such instances wherein the managers of SME company are wary of ERP and ask ‘Can it be implemented for a small company like ours?’

With the present economic recessionary environment Small and Medium Enterprises (SMEs) which have been running on very thin bottomline must look at various avenues to reduce their costs and increase the operational efficiencies. The business applications provided by various ERP packages have over the last few decades evolved from just being a transactional system to one that provides functionalities built around industry specific best practices and standards. Notwithstanding the benefits an ERP may provide the IT and business executives of SMEs face the challenge of convincing the stakeholders that this is an investment towards an ability that provides better productivity which would help lead to better profitability, market share and / or customer service.

The cost of implementing ERP; which has traditionally been assumed to be highly exorbitant, is being driven to lower levels based on newer implementation approaches being evolved by seasoned Implementation Partners or System Integrators. Also the investment from various ERP product vendors to include industry specific best practices has made the advantages of implementing ERP far outweigh the expense, and ERP decisions can now be considered to be are a ''lower-risk high return'' option.

Inspite of the present economic scenario mandating SMEs to adopt packages driven by best practices and low risk high returns possibility to increase their productivity SMEs are reluctant to invest in an ERP package as they are not too sure about the following: Implementation Time, Ease of usage by its Employees, Flexible for changes and ofcourse Total cost of ownership (TCO).

Implementation Time:

Over the last two decades where more and more large scale companies; especially in developed markets, have implemented one or the other ERP package, the experience and insight gained by both Implementation partner and system integrators has made them focus on reducing the total implementation time of the ERP solution. The industry specific process templates; which are the outcome of the extensive experience gained by seasoned implementation partners and developed by their synergic partnership with product vendors, help to greatly reduce the time required to evolve the baseline processes which translates to significant reduction in the overall implementation timelines. To be able to leverage the templates the SME should be flexible to change its present processes and adapt to the best practices offered by the standard processes. The benefit to be gained would be squandered if the SME chooses to customize the package based on its present processes.
This reminds me of a simile which one of my professors at b-school used to quote: He said that ERP is like a Jet Airplane leveraging which companies can fly instead of driving an old worn out car. But most of the companies after buying the Jet want to add headlights just the way they have in the present ‘car’, want to add indicators, horn, brake etc. and finally they turn a Jet into the same old car. This similie aptly sums the pitfall that SMEs must avoid while to not only have the best practices but also have a significant reduction in the overall implementation timelines.
I will be touching upon the other points which bother SME in my future posts to this blog.

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