business case - item master enrichment

A Business Case

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Item Master Enrichment

he benefits of economy of scale and Lower Total

Cost of Ownership (TCO) are driving enterprises Tto rationalize and consolidate their enterprise

application across the enterprise into a single

common instance.

While multi-million dollar funds are allocated for ERP

consolidation, Item Master Enrichment is an oft ignored

step. The damaging aspects of which are only visible after

the ERP consolidations/implementations when the

enterprises continue to reel under the same process

inefficiencies and fail to realize the expected ROI. This

assumes a greater significance when the enterprise

application space is facing market dynamics as SAP ends

support of R/3 4.6c in 2006 in favor of R/3 Enterprise or

my SAP ERP, Oracle-People soft combine. Users of these

enterprise applications have to protect their interest and

investment by building solid and sustainable cleansed

item master foundation. Thus it becomes imperative to

allocate a fraction of the ERP deployment/consolidation

budget to Item Master Enrichment project.

Summary

1©Zycus Inc.

WHITE PAPER Item Master Enrichment-A Business Case

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ERP solutions are focused towards optimizing productivity by focusing on planning

and executive reporting of the Enterprise as an integrated unit. Item / Material Master

are considered core functionality for any ERP system using distribution or manufacturing

type functions.

Item master serves as a central repository to define the characteristics of a company's

inventory items. The item master database (often referred to simply as the "material

master", comprising all the individual material master records stored in the system)

contains descriptions and a variety of data elements including: part number, description,

stocking codes, and much more, that an enterprise procures, produces, and keeps in stock.

A unique number is assigned to each material master record. Material master numbers

are assigned to uniquely identify each stock keeping unit (SKU) within an enterprise.

The integration of all material data in a single materials database eliminates the problem

of data redundancy and permits the data to be used not only by Purchasing, but by other

applications (such as Inventory Management, Materials Planning and Control, Invoice

Verification, and so on) across a global enterprise.

Accounting - Valuation and costing/price calculation information. Examples: standard

price, past and future price, and current valuation.

Materials planning and control - Information for material requirements planning

(MRP) and consumption-based planning/inventory control. Examples: safety stock level,

planned delivery time, and reorder level for a material.

Purchasing - Data provided by Purchasing for a material. Examples: purchasing group

(group of buyers) responsible for a material, over- and under delivery tolerances,

and the order unit.

Engineering - Engineering and design data on a material. Examples: CAD drawings, basic

dimensions, and design specifications.

Storage/ warehousing - Information relating to the storage/warehousing of a material.

Examples: unit of issue, storage conditions, and packaging dimensions.

Forecasting - Information for predicting material requirements. Examples: how the

material is procured, forecasting period, and past consumption/usage.

Sales and distribution - Information for sales orders and pricing. Examples: sales price,

minimum order quantity, and the name of the sales department responsible for

a certain material.

©Zycus Inc.


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Most of the global enterprises today are built over decades through both the organic and

inorganic route. In the process, enterprises kept on adopting best of breed Business

process automation applications / MRP / ERP available at that that instant along with

the evolution of the available ERP applications.

In the process today's global enterprises have amassed multiple application platforms,

legacy systems, ERP applications (different versions and vendor). As illustrated above,

almost all of the business applications talk with each other through a common thread

of master data. Item master data would exist in multiple ERP / legacy applications,

multiple data forms, languages, varying degree of details, associated attribute

information etc rendering consolidation of item master information for multi location,

global enterprises a humongous task.

Challenges

©Zycus Inc.

Bruce Hudson META Group

“Unfortunately, attributes in the item record may be left blank, be cryptic,

or be inaccurate. In particular, ERP master records are full of cryptic

attributes, due to poor validations and limited text-field lengths.”

This emphasizes the need to tie all systems together and enable enterprise vide resource

optimization and enhanced executive decision making capability through a harmonized,

accurately classified, attribute enriched material master data.

Cost advantage associated with running and maintaining a single common backbone

of ERP across an enterprise, is driving everyone to embrace a consolidated, single,

common ERP instance.


4

Customer Experience (SAP Implementation)

An international forest products company with annual sales of $19.9 billion undertook

master data rationalization across 42 plants as part of their SAP implementation. Process

1.1 Million line items for classification, extraction of attributes, manufacturer

information, rationalization and enrichment of item master data. Key drivers for the

master data rationalization project were to

1. Increased spend leverage fuelled by cleansed, consistently and granularly

classified item descriptions.

2. Better intra plant inventory optimization powered by accurate search of item

descriptions based on key attributes.

3. Improved supply relationships due to accurate requisitioning, invoicing

and payment.

4. Reduce P2P cycle time with accurate requisitioning, sourcing, ordering

and payment.

Last but not the least master data rationalization was undertaken to build a strong data

foundation for SAP implementation which helps yield expected ROI out of the large

enterprise wide SAP implementation.

Customers Experience(SAP Implementation)

SAP Customers

An item master record format and classification scheme in SAP system #1 is typically not

the same as in SAP system #2. SAP customers facing the need to upgrade as SAP ends

support of R/3 4.6c in 2006 in favor of R/3 Enterprise or mySAP ERP are using

this opportunity to consolidate and upgrade. Before the systems can be consolidated,

the master data must be rationalized according to agreed-upon format, classification

scheme, and attribute definitions. Otherwise, companies risk contaminating their

upgraded and consolidated ERP systems with even more bad data.

To sum it all there never was a better time than now to launch a master data enrichment

initiative which may be an independent initiative or a must do integrated, first priority

component of an ERP/SAP consolidation project.

©Zycus Inc.


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Integrated business processes in a global enterprise make use of a number of enterprise

applications cutting across multiple ERP/legacy applications with their own material

master repository. Unless a business process application talks about the same item master

record through integrated applications, the resultant analysis and the strategy thereof

would fail to generate promised improvements. Business initiatives such as ERP system

consolidation, enterprise spend management, total productivity management (TPM),

improving overall equipment efficiency (OEE) all have one thing in common, and that

is a dependency on a clean, classified, and attribute enriched material master data.

Master data that is correctly classified with a common taxonomy and that has normalized

and enriched attributes yields a granular level of visibility that is critical to search and

reporting functions. Thus it is important to have processes and tools in place yielding

a consistent and enriched master data before undertaking any of these efforts and similar

business initiatives.

Instead of having an item master which is full of cryptic wrongly classified item records,

incomplete attributes and item description, duplicates, an enterprise may choose

to transform the Item master data into a source of competitive strength.

©Zycus Inc.

Enriched Item Master = Richer Enterprise

Creation of a centralized

enriched Item Master.

Accurately, granularly

classified, De-duplicated,

Attribute rich item records.

Supported Business Initiatives Competitive Edge

n Improved Cross-plant inventory visibility

Higher OEE (Overall Equipment

Efficiency).

Increased supply chain fulfillment.

Increased requisitioning, sourcing and usage efficiency and accuracy.

n

n

n

n Faster and Efficient supply Chain.

Superior relationship among partners in supply chain network.

n Higher OEE (Overall

Equipment Efficiency).

n Increased supply chain

n

n

n

Lesser new part introduction.

Better utilization of Design and

development resources (Design

engineer, testing, trials and

equipment).

n

n

Faster time to market.

Increased number of product

variants.

Item Master Enrichment - Common Glue and Source of Competitive Edge


6©Zycus Inc.

Creation of a centralized

enriched Item Master.

Accurately, granularly

classified, De-duplicated,

Attribute rich item records.

Supported Business Initiatives Competitive Edge

n Reduction in supply management, payment, reconciliation costs.

n Focus on building strategic long-term supply base.

n

n

n

ERP consolidation, Increased ROI on existing IT investment.

Facilitate enterprise wide standards

adoption.

Faster integration of process and data in M&A activity.

n

n

Higher returns to the investor community.

Increased Investors confidence.

n

n

n

n

n

Accountability Under Sarbanes-Oxley

Sections 302 and 906: CEO/CFO

Sign-Off

Degree and efficiency of financial / ERP consolidation and integration

Availability and quality of financial

data marts/data warehouses

Section 404: Internal Controls

Capability to comprehensively aggregate financial data

Capability to segment reporting into

material or significant elements.

n

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Superior Corporate governance.

Superior and accurate financial

reporting.

Visibility into corporate spending.

Excellent rapport with investor

community and SEC.


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Item master data consolidation and enrichment is a multi-step iterative process involving

data extraction and aggregation, cleansing, classification followed by attribute

enrichment.

The deliverable of an Item Master enrichment exercise would a single unified view of Item

master with following quality aspects

1. Each item record is accurately and granularly classified to a standard /

custom taxonomy.

2. Each item master record uniquely identifies a stock keeping unit (SKU)

of an enterprise.

3. Every item master record has associated attributes which contain clean,

normalized parametric values for the set of attributes adequately representing that

category of items.

4. The naming convention for the attributes follows industry standard for that

category of items and is appropriately normalized across the data set.

5. Each item master record contains an item description following a description

convention (short text / long description), sequencing of nouns and noun modifiers,

free from abbreviations, junk characters, incomplete manufacturer / vendor

information.

6. Each item master record contains normalized, standard manufacturer / vendor

information (name and number), unit of measure (UOM).

To accomplish this for global enterprises which have millions of item master records

amassed over decades, existing in multiple source systems and multiple forms, a manual

approach may not be adequate.

Item Master Enrichment - Process andTools


©Zycus Inc.

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Approach

One of the approaches to consolidate, rationalize and enrich item master database could

be with the help of experts/consultants working onsite with the client's resources

(users, commodity experts) to manually classify, cleanse, extract attributes and enrich

records with attribute values. To do this information that might exists apart from human

knowledge base in specification sheets, MSDS (material specification data sheets),

equipment manuals, quality documents, vendor invoices, vendor catalogs etc.

Often this exercise becomes a nightmare and for enterprises having even thousands

of item master records, it is discovered very early in the project that a manual exercise

is futile given the time and cost involved.

Zycus's Automated Solution

Zycus Spend Data Management™ V2.5 software tools (AutoSpec) enable cleansing,

classification and enrichment of Item and Material Master Data to facilitate enhanced

De-duplication and reconstruction of Item & Material Masters.

Using a combination of AutoClass and AutoSpec, organizations can build automated data

classification & cleansing functionalities that is a key to creation of one unique and

cleansed item master data set.

The AutoClass and AutoSpec software tools are deployed in a managed solution framework,

delivering de-duplicated enriched and harmonized item master data set for further

syndication within an enterprise IT framework.

Item Master Enrichment

Classified

Enriched

Standardized

DATA

De-duplicatedETL

AutoSpecAutoClass

ClassificationAttributeExtraction

SAP ERP

Non-SAP ERP

Legacy

Maximo

©Zycus Inc.


ROI calculation for IME (Item Master Enrichment)

Inventory Control Benefits

1. Purchase Avoidance through Increased Asset utilization

enabled by Intra/inter Plant Inv Sharing

Duplicates which can be identified through IME process as% of Inventory Value (IV)

% of Identified Duplicates which can be shared across sites

avoiding re-purchase

Annual Procurement Savings due to cross plant inventory sharing

Saving (Yr1)

30%

20%

$ 6,000,000

Saving (Yr2)

25%

$ 7,500,000

Saving (Yr3)

25%

$ 7,500,000

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Leading research agencies have published a number of success stories around material

master data enrichment and the associated hard dollar savings and soft savings

to an enterprise.

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Greater and quicker ROI realization form ERP Investments

Increased Leverage of the existing systems

Increased Contract Compliance

Spend Leverage through supplier consolidation

Global Inventory optimization

Reduction of Inventory Carrying costs

Increased Plant Uptime

Increased Worker productivity

Reduced Mean Time to Delivery of Products

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“Although the problem is big, so is the potential payback”. The best part of a Data

Rationalization project is the demonstrable ROI in the following areas:

AMR Research

Few of the quick and big hit areas of potential cost savings that Zycus has came across

at enterprises embarking on item master enrichment initiatives are enumerated below.

Although the possible savings would defer from case to case basis, but the potential is such

that one possible area of cost savings could pay for the entire project itself.

©Zycus Inc.


ROI calculation for IME (Item Master Enrichment)

Inventory Control Benefits

2. Reduced Obsolecense due to improved search and

Attribute visibility

% of Inventory spend rendered as obsolete

Annual savings due to obsolecense avoidance

Saving (Yr1)

2%

$ 2,100,000

Saving (Yr2)

$ 1,500,000

Saving (Yr3)

$ 1,000,000

3. Reduction in Inventory Carrying Costs

Annual Inventory Carrying Costs Savings (On Spend reduction

due to purchase avoidance + Obsolecense reduction)

$ 2,000,000 $ 2,250,000 $ 2,125,000

2% 1%

Strategic Procurement Benefits

4. Improved Volume Discounts due to Supplier Consolidation

% of Annual Spend where Supplier Consolidation / creationof spend buckets is possible for strategic sourcing

Annual savings due to strategic sourcing

Saving (Yr1)

20%

$ 2,000,000

Saving (Yr2)

$ 2,000,000

Saving (Yr3)

$ 2,500,000

20% 25%

% Spend Leverage / Negotiated Price Reduction due to detailed

spend visibility

10% 10% 10%

Operational Efficiency Benefits

5. Reduction in Production Downtime due to enhanced search

for items based on attribute

Normal Plant Downtime (hrs/annum) due to item unavailability

Annual savings due to reduced production down time

Saving (Yr1)

100

$ 20,000

Saving (Yr2)

$ 8,000

Saving (Yr3)

$ 8,000

40 30

% of Plant Downtime saved due to item master data enrichment 20% 20% 10%

Cost of Plant Downtime/hr $ 1,000 $ 1,000 $ 1,000

6. Improvement in Employee Productivity enabled by

enhanced search for items based on attribute

Cost of Manpower $/hr

Annual savings due to increased man productivity

$ 25

$ 1,250 $ 1,000 $ 1,500

$ 25 $ 25

% of Search Time saved due to Improved Search 50% 40% 30%

Annual Total Work Time (hrs) spent on Searching Itemsof desired specifications

100 100 200

Total Additional Savings realization $ 12,021,250 $ 13,259,000 $ 13,129,500

Cumulative additional savings realization

Assumptions

Total inventory value, across all units considered for Item

Master Enrichment

Cost of Capital for Inventory Carrying Cost (ICC) calculation 25%

Enter Assumed % (For specific prospect scenario)

10

100000000

$ 12,021,250 $ 25,280,250 $ 38,409,750

©Zycus Inc.


©Zycus Inc.

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As organizations consolidate ERP systems or go in for an M&A activity or launch other

enterprise spend management initiatives, they find that the efficiency and accuracy

of their business processes and reporting are dependent on the item master data.

More than just good housekeeping, a methodical and automated approach

to cleanse, classify and enrich item master data lays the foundation for a continued

success of enterprise initiatives.

Users should ensure that their systems integrators understand the value and power

of Item Master Enrichment and that y have experience in laying the foundation

for a successful ERP consolidation.

The industry is littered with IME projects that have failed. There are a number

of examples where ETL/Catalogue Management/Asset Management. Manual Service

providers failed on the promise of expected returns due to time and cost over-runs

in Item Master enrichment projects.

Zycus has brought both processes and automation to ensure predictability and success

into the IME process. Automation of the hitherto manual data enrichment process

through Artificial Intelligence based software tools. This brings down the project

timeline from years to months and also makes Data Rationalization affordable.

Best practices like IME-LC that can be leveraged for proactive management of item

master data.

Item Master Enrichment is the least anticipated evil which organizations often fail

to recognize while undertaking ERP consolidation projects involving multi-million dollar

investments. The effects are visible when enterprises realize that expected benefits out

of ERP deployment-consolidation are no where in sight. Thus it is prudent to allocate

a fraction of the ERP deployment/consolidation budget to Item Master Enrichment project

on which depends the success of ERP initiative.

11

For more information about Zycus Spend Data Management™ Software suite mail us

at [email protected]. www.zycus.com


business case - item master enrichment

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