Thursday 22 November 2007

Geneva ERP implimentation

Introduction
Geneva Pharmaceuticals Inc., a subsidiary of the 'Novartis' life sciences company, is one of the leading generic drug manufacturers in the world. Geneva produces over 200 products in 500 package sizes resulting in a huge number of operating procedures. In the past, each of Geneva's business functions were carried out using separate systems many of which were incompatible with one another. By 1996 the company had begun to search for a solution in order to integrate each process, ultimately increasing accuracy, value and ease of use while reducing maintenance costs. Geneva's requirements were best covered by an Enterprise Resource Planning (ERP) system. It was decided that the R/3 system from SAP would be the most effective. Application of R/3 was designed in three phases, the first of which began by 1997.
Phase 1
The execution of phase 1 of R/3 began on November 1st 1997. The aim of the process was to incorporate all of Geneva’s supply functions onto the SAP system. Previously these functions had been carried out by individual systems and involved a high input of manual labour.
The purpose of phase 1 was to transfer the functions already computerised by the Macpac system onto R/3 and encompass all supply-side data into a specific, synchronized database. The implementation was also expected to reduce manufacturing costs and the expenses involved in cataloguing stock. ASAP, a methodology of accelerated SAP application was undertaken. The execution of R/3 required around ten information systems staff, ten full-time and ten part-time users all of whom had to be removed from their usual positions within Geneva.
Within four months it had become clear that installation had not progressed as planned, even although substantial investments in hardware, software and consultants had been made. The ASAP ideology, although rapid in installation, was not adept enough to take into account the more delicate programming issues. Supervision of the project was overtaken by Randy Weldon who was employed as Geneva's new CIO in February 1998. Weldon intended to make up for lost time and from his his previous R/3 management experience, understood the requirement of a strong project management team.
A team of R/3 experts were brought in to aid the progression of the project and a new management system was adopted. Although Weldon did not approve of ASAP, to take on a new approach at this stage would only have held the project back further. By February 1999, phase 1 was "up and running". The only remaining problem was, as of yet, it would not be compatible with phase 2.
Phase 2
Phase 2 was primarily concerned within improving "demand-side" functions as existing applications were unable to keep up with the transformations that the company was going through. Recognising that "Phase I was somewhat of a disaster" they put steps in place to ensure Phase 2 would not be a repeat. The system was designed “Top Down” so that it was refined into smaller modules. The design was mapped out on post it notes, open to critique and modification, and evolved into a better model that met its objective of providing more efficient technology. The process also identified existing problems which meant that process changes could be made to coincide and enhance effects of system changes.Many major company-wide projects fail due to staff being unaware of their own responsibilities and the complexities of a new system. However, Geneva managed the change very well; key measures where initiated to ensure staff was going to embrace the new systems, these included publicising the change, provided support to answer any queries and training - provided in advance. Trust in the system was important and influential members were selected to be “Super Users” which prevented any problems of staff revolting against the transformation. Resistance to change was handled by altering training approach, moving away from teaching staff to change their jobs to how to do their jobs on the R/3 system.
Phase 3
Phase 3's main requirement was to deal with sales and production planning problems that the existing system had. Main areas that were tackled included data Entry, time taken to make up production schedules, ability to cope with orders placed less than a month in advance and dealing with both expected and unexpected orders. This ultimately aimed to satisfy main performance indicators such as customer service and reducing costs.
A 'Just in Time' approach was adopted reducing holding costs of raw materials and finished goods. Customer service improvements were managed by developing new software, ATP (Availability To Promise) had the "intelligence" to reduce time needed to generate an "optimal" production plan by 80%, giving a better estimate of delivery date and prevented customer dissatisfaction when orders were not fulfilled. ATP was developed by drawing data from many databases to ascertain volume available, volume required, and earliest possible fulfilment date considering many different influencing factors.
We can learn from this that in order to effectively make judgements it is important to consider all factors that may influence or have an effect on the outcome. Also, in this case production plan time was reduced and we can see that in order to be efficient, the planning process must be quick reliable and hence relevant.
Lessons
From the Geneva process of R/3 implementation there are a number of lessons to be learnt. Below, the most important points are highlighted:
  • A solid design reflecting system requirements is important. The more resources spent at this stage may reduce costs further into development.
  • The design process should highlight existing problems within an organisation. Parallel improvements with policy changes will ultimately help the organisations efficiency beyond that of the system capability.
  • Manage change effectively to avoid resistance.
  • Establish predefined KPIs to test the system’s effectiveness.

Conclusion
The implementation of the R/3 SAP system by Geneva Pharmaceuticals Inc., although highly effective still indicated an explicit requirement for in-depth planning and maintenance of resources. Through the use of such management processes Geneva successfully improved the main business functions by incorporating a suitable, efficient ERP system.

Monday 19 November 2007

How will offshoring affect UK accountants?

With technology now so advanced that information can be transferred to the other side of the world within a matter of seconds, there are no longer any communication barriers between an accountant in Bangalore and his colleague in London or Glasgow. Offshoring of business functions from the UK to developing countries is becoming increasing common and growing at an exponential rate. With this in mind, what will the effect be on UK accountants?

“Offshoring describes the relocation of business processes from one country to another. This includes any business process such as production, manufacturing, or services.” http://en.wikipedia.org/wiki/Offshoring

Offshoring in the accounting industry is an example of the offshoring of services. Only recently has this begun to have a remarkable effect on UK accounting. During this short time it has become clear the rate at which firms are prepared to outsource so many of their business functions is greatly increasing.

There are a number of reasons for the sudden growth of this ‘white-collar’ offshoring. For several years, offshoring in the manufacturing industry has been well established and highly successful. Business processes have been transferred from factories in Europe to factories in China resulting in reduced costs and increased productivity. The accounting industry has taken note of the accomplishment of its neighbour, realising the same potential lies within its own realms.

In terms of accounting it is not offshoring to China, but to India, that is taking place. In the last 15 years, spending on education in India has more than quadrupled. As a result, India is producing some of the finest educated university graduates in the world. Even if the quality of education in India was not any better than that in the UK, due to an ever increasing birth rate, the quantity of Indian graduates is higher. As a result, professionals in India are forced to work for salaries far smaller than those in the UK. This is exploited by multinational firms who realise that offshoring can greatly reduce expenses, ultimately increasing profits.

The accounting industry has not been slow to consider the extent to which offshoring can take place. A large proportion of all accounting functions can and will be outsourced. To date, activities which have been effectively offshored are typically simple to conduct, labour intensive and time consuming. However there are some tasks which still require interaction with clients on a more personal level. Tasks requiring a greater level of skill or interaction with clients as yet remain based in the UK. For as long as client relationships are such an influential factor in accounting, these services will always be required and therefore a number of jobs in the UK will continue. However it is more likely that eventually most clients will favour a less personal service at a greatly reduced cost. In due course, the accountants who provided this service will be struck off and replaced by equally competent individuals in India. Then only a small number of jobs will remain, for tasks such as audit, which will always require a physical presence in the UK.

Distance is no longer the obstacle that it used to be. Using fairly simple computer systems, information can be transferred from one country to another cheaply, quickly and effortlessly. It is as easy for accountants at opposite sides of the world to transfer information to one another as it is to pass a sheet of paper to the desk opposite your own. The accounting profession has now become truly global. For companies with employees in London, Bangalore is merely a stone’s throw away. In effect, for larger companies, the world is now their office and is operational 24 hours a day.

Offshoring in itself has become an industry in the UK over the last few years. Companies who operate solely in the in advising clients of the potential benefits of offshoring and assisting them in restructuring are plentiful. The effect of offshoring on the IT and manufacturing industries has by now been well documented. The media already recognises a shift in the accounting job market as graduate jobs become increasingly more difficult to come by. In coming months and years, this trend will continue. PricewaterhouseCoopers recognised in 2005 that within 3 years, offshoring would double, the consequence of this has now begun to show.

The issue of offshoring in the accounting sector can no longer be ignored. In years to come, it is evident that accounting jobs will be greatly reduced. Employers simply favour the cheap, effective labour available in developing nations. In the short term, this shift will be welcomed. It will allow UK accountants more time to perform difficult business processes more effectively and possibly gain further contracts. In the long term however, those who initially embraced such change may find that it becomes a challenge to their livelihood.

References

http://en.wikipedia.org/wiki/Offshoring

PricewaterhouseCoopers - Offshoring in the financial servicies industry: Risks and Rewards.

http://www.academics-india.com/
http://www.offshorexperts.com/index.cfm/fa/buyer.outsourcing_category_directory/c/1400

Sunday 4 November 2007

TAURUS and CREST - The hazards of technology

A phenomenon called the “Big Bang” occurred when multinational corporations gained control of age-old investor businesses. For the London Stock Exchange (LSE), the main effect was a massive structural change to their trading methods. The open trading floor gave way to new electronic trading rooms. This lay the foundations for modern processes of exchange and the requirement for a complex, forward-looking computer system.

By 1989, the development of such a system was announced in the form of TAURUS - a program of automated transaction settlement which would accomplish dematerialisation of stock certificates. However, by March 1993 TAURUS had yet to be completed, and termination was announced by LSE chief executive Peter Rawlins.

There are many reasons for the failure of TAURUS which can ultimately be reduced to three - management, policy and accountability. As the TAURUS system was mandatory for all members of the LSE, those in charge felt that it was necessary to create a system which was both standardized for general use and individualized for each group concerned. As member groups had different interests and functions each demanded TAURUS managed their specific tasks. A problem arisen because these functions were extremely diverse and often complicated. Against better advice, the management team tried to please each party, some of which continually ‘moved the goalposts’ as far their needs were concerned. This continued into the developmental stage of the system meaning no progression could really be made as structural changes occurred so frequently.

Another problem in the management of the TAURUS system was that the LSE attempted to develop it, rather than employing another company to do so. As a result, TAURUS was part of the LSE, not just an investment and was ran in an inappropriate way, via a committee. Due to this, the press were very interested in the scale and size of the project, many already presumed that it would fail long before any evidence of this became available. Driven by fear of failure the TAURUS team continued the project for longer than it should have, spending more and more money on an impossible goal in an unworkable timescale. This further heightened press and public interest, while disrupting public relations and creating more pressure.

Policy resulted in a 150 page document of legislation to which TAURUS had to comply. As the Treasury had agreed to waive stamp duty following the implication of the system (estimated as £800million per year) more parties became involved. Stakeholders such as the Bank of England and the Department of Trade and Industry were concerned by the dematerialisation of stock certificates. This resulted in further set backs.

In accountability terms, there was an imbalance in the relationship of power and responsibility in the development of TAURUS. The LSE bore all the responsibility yet had no authority to stop other parties interfering with the design process. As a result, those who were least accountable had the greatest influence. Against the odds, the TAURUS team continued until 1993 when the system was put to rest at an estimated cost of £75million to the LSE and £400million to the City of London.

Within months, a new development process had begun. The proposed CREST system was controlled by a not for profit company CRESTCo through the Bank of England. CRESTCo had learnt from the mistakes of the TAURUS team and because the implication of the system was voluntary it ignored the demands of LSE members and initiated the development of a very simple system. CRESTCo recognised that a small number of features could cover the majority of the LSE’s transactions. It maintained good press relations through regular information updates end encountered very few design faults.

CREST’s main setback occurred through the assumption that the Treasury would not claim stamp duty (as with TAURUS) however as CREST was not an enforced system, this was not the case. After launching, CREST encountered two separate operational faults but these were quickly overcome through skilled supervision and the system was operational within nine months.

CREST was simple and well managed where TAURUS was complex and poorly handled. These are the main differences between the two systems and the reason one remains so successful while the other failed miserably.