Orange County Convention Center Orlando, Florida June 3-5, 2014 A Business Capabilities Model for Retail & Wholesale and Its Benefits Pat Sarkar, Head of Architecture & Strategy, Levi Strauss Steve Rothman, Managing Partner, IT Renaissance
LEARNING POINTS Learn a practical Business Capabilities Framework to define and document business capabilities for retail/wholesale/e Commerce Establish an Enterprise Architecture & Strategy Function that Aligns Business & IT Completely Reap Benefits From the Business Capabilities Model: Perform Application Portfolio Rationalization, Develop IT Roadmaps, Standardize Processes Globally, Transform SAP Landscape, etc.
RETURN ON INVESTMENT Some examples are presented from real life implementations that yielded significant ROI High Velocity Supply Chain Application Portfolio Rationalization SAP Landscape Transformation
BEST PRACTICES As a best practice, there must be a pre defined common language that both the business leaders and IT leaders speak when discussing business and IT strategies and roadmaps. The Business Capabilities Model provides that common understanding which may be unique to an enterprise s business models, culture, history, products, customers and markets.
Helping organizations succeed with Information Technology A Business Capability Model for Wholesalers and Retailers Pat Sarkar. VP, Architecture & Strategy, Levi Strauss & Company and Steve Rothman, Managing Partner, IT Renaissance Copyright 2014 IT Renaissance
Table of Contents What is a Business Capability? An Apparel Company Business Capability Model A Firearms Distribution Company Business Capability Model Benefits and Uses of a Business Capability Model Conclusion Questions 6
What is a Business Capability? 7
Enterprise Architecture An organization s Enterprise Architecture includes it s Business and IT Architectures. Mission Products Services Information Business Capabilities Business Architecture Suppliers Channels Inputs Outputs Outputs Customers IT Architecture Products Services Information Products Services Information IT Savvy companies* have figured out how to align their Business and IT Architectures. IT can be a powerful enabler of an organization s future Business Architecture. * IT Savvy - What Top Executives Must Know to Go From Pain to Gain, Peter Weill & Jeanne W. Ross 8
Business Architecture Perspectives An organization s Business Architecture needs to be viewed from two different perspectives The Outside In Extended Enterprise Perspective Suppliers Inputs Products Services Information Company Operations Core Capabilities Supporting Capabilities Outputs Products Services Information Outputs Channels Outputs Products Services Information Consumers The Inside Out Business Capability Perspective Business Capabilities Business Capability Framework Core Capabilities Supporting Capabilities Described By 9
Business Capability Framework At the core of a company s Business Architecture is its Business Capability Model. We define a Business Capability as the People, Processes, Technology, Assets and Suppliers (Business Partners ) that provide outputs of value to customers. Customers and Suppliers can be external, internal or other capabilities. Mission People Inputs People Processes Outputs Technology Assets Assets External Suppliers Internal Suppliers Other Capabilities Metrics External Customers Internal Customers Other Capabilities 10
Business Capability Dimensions Each Business Capability has four internal Dimensions. The contents of each Dimension are identified below: Leadership Organization Structure Governance Competencies, Skills, Experience Compensation Measurements and Rewards Culture and Morale People Processes Physical Processes Information Processes Policies Information Technology - Applications - Information - Infrastructure Process Technology e.g. Automatic Storage & Retrieval Systems Technology Assets Cash! Facilities Equipment Inventory Brands Intellectual Capital 11
Metrics We have adopted the Norton and Kaplan Balanced Scorecard to define our approach to Metrics Revenue Margin ROCC Financial Throughput Efficiency Speed Quality Customer Process Customer Satisfaction Customer Retention Product Penetration Market Share Innovation New Products New Services New Processes New Systems 12
Business Capability Framework The IT Renaissance approach to defining a Business Capability Framework started with the concept of a Value Chain introduced by Michael Porter Supplier Facing Processes Internal Operational Processes Customer Facing Processes Supporting Processes Although there are common patterns of Business Capability Frameworks within an industry, there are often substantive differences between companies in the same industry due to different Business Strategies, Geographies, Channels and Sourcing Strategies We start to define an organization s Business Capability Framework from the Outside In and Top Down It is important to keep in mind that a Business Capability Framework is not just an Organization or Process Model of a company There is a little engineering and a little art to defining an organization s Business Capabilities the key is understanding what is the same and what is different Capabilities are typically different if they have different customers, different inputs, different outputs or completely different types of automation support e.g. Picking is a process done as part of Warehouse Operations. If the picking is done manually, that would be a different process and a different capability than if it was done by Automated Material Handling technology 13
Business Capability Process Decompositions Business Capabilities are the Container for all of the other dimensions Business Capabilities are decomposed along the Process dimension The Business Capabilities use the name of the Process that they contain Additional dimensions (e.g. People and Technology) are defined and tied to the Business Capability at the appropriate level Business Capability A Level 1 Organization Process A Application X Information Level 2 Department Process A.1 Infrastructure People Business Capability A.1 Technology 14
Defining Business Capabilities Defining an organization s Business Capability Model is an Iterative Process The first step is to define the Extended Enterprise Supply Chain within which the company operates. Next define the organization s Supporting Capabilities. Most organizations have the following four Supporting Capabilities Leadership/ Management Information Technology Human Resource, or Talent, Management Financial Management Create a first cut at identifying the organization s Core Capabilities by identifying the Customer Facing, Supplier Facing, and Internal Operations Capabilities Create a definition for each Capability and then decompose each Capability along the Process dimension to Level 2 or 3 The processes that support the capability/sub capabilities provide a clear definition of what is included in the capability Iterate on the Level 1 Capability Model as you learn more about the details of each of the individual Capabilities SIPOC charts that define the Suppliers > Inputs > Process > Outputs > Customers can be helpful in further defining a Business Capability Additional dimensions (People, Technology and Assets) are defined and tied to the Processes 15
Sample Business Capability Process Decomposition The Processes in each Business Capability are decomposed to level 2, 3 or 4 depending on the complexity of the Business Capability and what the organization plans to do with the information PBS Process Name Description Comments/Questions 1.0 Brand Management & Merchandising Understand and increase the awareness and value of Levi's brands in all of our markets. Includes Brand Market Research, Brand Planning and Merchandising 1.1 Market Insights Provide outside 3rd Party insights into Brand Planning 1.1.1 Long Term Trends 1.1.2 Competitor Intelligence 1.1.3 Understand Brand Awareness and Positioning 1.2 Brand Planning 1.2.1 Merchandise Financial Plan 1.2.2 Assortment Strategy 1.2.3 Global and Regional Assortment Plan 1.3 Merchandising 1.3.1 Long Term Trends 1.3.2 Sub Category Strategy 1.3.4 Core Merchandising 1.3.5 Seasonal Merchandising 1.3.6 Assortment Planning 1.3.6.1 Box Line Plan 1.3.6.2 Initial Line Assortment 1.3.6.3 Detailed Segment Assortments 1.3.6.4 Seasonal Assortment Planning Sample 16
Sample SIPOC Diagram Retail Store Operations SIPOC (Supplier, Input, Process, Output, Customer) diagrams are created at Level 3 or 4 as a precursor to completing analyzes of current processes other capability underscored Brand Mgmt Suppliers In-Store Sales Distribution Center Distrib/Warehouse Mgmt Enterprise Retail Mgmt In-Store Sales Merchandise Mgmt Inputs Merchandise Plan* Assortment Plan* Sales Transactions Shipped Product s Receiving Docs Store Goals Sales History Space Plan Sub-Process Merchandise Management Inventory Management Store Management Space Plan Outputs Store Merchandise Plan* Store Assortment Plan* Sales Forecast Inventory Adjustments Replenishment Order Inventory Analysis Organized, Appealing Store Store Operating Plan Store Perform. Reports Customers Store Management Brand Mgmt Brand Mgmt Supply Chain Mgmt Financial Mgmt Distrib/Warehouse Mgmt Distrib/Warehouse Mgmt Consumer Enterprise Retail Mgmt Enterprise Retail Mgmt Local Market In-Store Sales Store Operating Plan Candidate Employees Sales History Seasonal Adjustments Workforce Management Trained Store Employees Shift Schedules Employee Performance Store Mgmt Store Mgmt Store Mgmt Inventory Mgmt Consumer Consumer On-Hand Product Returned Product Consumer Data In Store Sales Sold Product Sale Transactions/History Returned Transaction Captured Consumer Data Consumer Inventory Mgt, Brand Mgt. Inventory Mgt Consumer Relation Mgt Consumer Consumer Request Consumer Relationship Mgmt (in store) Consumer Service Consumer 17 * seasonally adjusted
An Apparel Company Business Capability Model 18
Levi Strauss Extended Enterprise Perspective Levi Strauss deals with end consumers directly as well as through tens of thousands of independent and franchised Retail Outlets. 95% of Levi s finished products are produced by Contract Manufacturers, but Levi s also deals with suppliers directly to support in house manufacturing operations. Suppliers Raw Materials Marketing/CRM E-Commerce Levi Retail Stores Shop-in-Shops Consumers Raw Materials Finished Goods Contract Manufacturers Licensees Distributors Retailers Chains Department Stores Specialty Franchisees Levi s VMI 19
Levi s Business Capability Model 1. Brand Management 2. Merchandise Management 4. Marketing 3. Product Development 9. Contract Manufacturer Management 10. Company Manufacturing 8. Distribution Center Management 5. Omni-Channel Retail Operations 6. Franchise Management 11. Logistics 12. Supply Chain Management 7. Wholesale Operations 13. Financial Management 14. Talent Management 15. Information Technology 16. Leadership/Management 20
An Firearms Distributor Business Capability Model 21
Firearms Industry Supply Chain The Firearms Industry Supply Chain is complex and convoluted RETAIL DISTRIBUTION CHANNELS BIG BOX STORES INDEPENDENT RETAILERS OTHER DISTRIBUTORS Not Brick & Mortar TIER 1 SUPPLIERS MANUFACTURERS ABC Firearms Distributor Brick & Mortar New Used BUYING GROUPS Internet Sites 22
A Firearms Distributor Business Capability Framework Merchandise Management Procurement Product Data Management Order Management Marketing Core Capabilities Manufacturer Relationship Management Distribution Center Operations Solution Management Service Management Retailer Relationship Management Logistics Supply Chain Management Regulatory Compliance Supporting Capabilities Financial Management Talent Management Information Technology Leadership & Management 23
Benefits and Uses of a Business Capability Model 24
The Benefits of Defining a Business Capability Model The initial, and probably the most important, benefit of defining a Business Capability Model is establishing a common language within a business that defines and describes everything that the business does This is especially important for organizations that are undergoing a lot of change, have added a lot of outside people or are trying to standardize operations that had not previously been standardized At one of our clients, there were three different terms used to define a Warehouse in different parts of the world A Warehouse, A Distribution Center or A Customer Service Center A Business Capability Model is the heart of an organization s Business Architecture which can be used to drive and align the organization s IT Architecture and Strategy A well defined Business Capability Model is an excellent starting point for future Business Transformation and Solution Delivery projects 25
Uses of a Business Capability Framework In addition to the benefits defined on the prior slide, there are also a lot of practical uses for a Business Capability Framework, some of which are identified below: Define and Prioritize Business Transformation Efforts Create a High Velocity Supply Chain Support the Establishment of an Enterprise Architecture & Strategy function Develop an Application Decommissioning Plan 26
Business Transformation Prioritization This framework was used to prioritize the Business Transformation efforts for the Firearms Distributor on page 20 Strategic Importance High Product Data Management Supply Chain Management Distribution Center Management Human Resources Information Technology Service Management Order Management Finance Procurement Merchandise Management Solution Management Retailer Relationship Management Logistics Manufacturer Relationship Management Low Marketing Competitive Disadvantage Average Relative Performance Competitive Advantage
t e n d e d E n t e r p r TIER 1 SUPPLIERS This schematic depicts ABC s Extended Enterprise Model from the original suppliers in the Supply Chain to the end consumer that purchases products and services from their Retailers RM MANUFACTURERS RM FG ABC Firearms Distributor FG 28 INDEPENDENT RETAILERS Brick & Mortar Retail Stores FG
Creating a Lean, High Velocity Supply Chain Procurement Manufacturer Relationship Management Product Data Management Distribution Center Operations Order Management Retailer Relationship Management TIER 1 SUPPLIERS? MANUFACTURERS < 7 day s ABC Firearms Distributor 2 days INDEPENDENT RETAILERS Brick & Mortar Retail Stores RM RM FG FG FG Logistics Supply Chain Management 29
Establishment of an Enterprise Architecture & Strategy Function The Business Capability Model, and a robust Information Technology Architecture Framework, were used as the foundation for establishing an Enterprise Architecture & Strategy function at Levi s Business Capability Model Business/IT Strategy Alignment IT Strategy & Roadmap Enterprise Architecture & Strategy Functions Standardization of Non Differentiating Business Processes Rationalization of Application Portfolio Master Data Architecture & Governance Integration & Interoperability Standards Emerging, Core & Declining Standards Architecture Review Board IT Vendor Review & Selection Solution Review & Selection Project Architecture & Design Reviews IT Procurement Sign off IT Architecture Framework 30
LS&Co Enterprise Architecture Major and Minor Layers (DRAFT May 2013) Business Architecture Business Model (Global v Regional) Back-office Processes Customer Processes Go To Market PLM Commercial Wholesale Brand Management Commercial Retail Supply Chain ECommerce Finance Multi-Channel/Omni-Channel HR & Legal Vendor Managed Inventory Manufacturing Sales & Customer Operations Business Organization (Global v Regional) Corporate Shared Services Americas EU APD Strategic Partner Organizations Key Business Partners Outsourced Processes SWOT Analysis Results Information Architecture Information Model Enterprise Model Business Owner Views Enterprise Data Model Conceptual Data Model Enterprise Process Model Business Process Model Information Boundaries Integration Model Logical Data Models Product Master Data Customer Master Data (B2B) Vendor Master Data Customer Master Data (Consumer) Information Management Database Servers Document Management Data Warehouse BI Tools Relational Engine Information / Knowledge Retrieval Extract Transform & Load Metadata Management Reporting Data Access Services Data Mining Tools Data Visualization Information Security Information Capabilities Data Science Big Data Predictive Analytics Dashboards Data Visualization Machine Data Cloud BI Mobility, BYOD and Social Media Application Architecture Presentation Portal Terminal Emulation Personalization / Customization View Transformation Web Browser /Viewers Globalization Handheld Web Caching Content Management Personal Productivity Email Collaboration Conferencing/IM Project Management Application Functionality ERP SCM Retail POS CRM HR SRM PLM P2P MES FP&A O2C GRC Interoperability & Integration Business Process Orchestration Business rules Engine Managed Asynch. Messaging Service Interface Registry Connector Toolkit Web Services/SOA/ESA Software As A Service (SaaS) Application Platforms Application Servers Web Servers Integration Servers Programming Languages Development IDE Source Control, Build, Deploy Testing Tools Modeling Tools Platform As A Service (PaaS) Mobility, BYOD and Social Media Infrastructure Architecture Security Authentication Virus Protection Authorization Signing Rights Management Intrusion Detection Access Control Directory Services Encryption Log Integrity Firewalls Audit/Compliance Tools Storage / Backup Network Attached Virtualization Storage Tape Backup Units Direct Attached Backup SW Storage Storage Area Network Mobility, BYOD and Social Media Systems Management Change Management Remote Control Performance Mgmt Configuration Mgmt Capacity Planning Host Management Storage Management DB Management Monitoring Application Mgmt Software Distribution Automation Asset Management Network Management Help Desk Service Level Computer Platforms Handheld Hardware/SW Unix Client and Servers Mainframe Hardware Unix Server Hardware Mainframe Systems Software Unix Server Systems Software Manufacturing Devices x86 Clients and Servers Network WAN Extranet LAN Load Balancing Wireless Data Routing Switches Wireless Voice Caching Voice Structured Cabling Remote Access IP Services & Protocols Internet Infrastructure As A Service Amazon Web Services
Levi s Application Decommissioning Plan An initial evaluation of Levi s 500+ applications by Business Capability # Capability Name Use Decom 1.0 Brand Management 2.0 Merchandise Management 3.0 Product Development 4.0 Marketing 5.0 Omni-Channel Retail Ops 6.0 Franchise Management 7.0 Commercial Operations 8.0 Distribution Center Mgmt 12.0 Supply Chain Management 13.0 Financial Management 14.0 Human Resource Management 15.0 Information Technology 16.0 Leadership/Management o o o Each of these 16 Business Capabilities were analyzed in additional detail to: Identify the potential to standardize the Business Capability across regions and channels, and To develop a target application migration strategy For example, Demand Planning is a Level 2 Sub-Capability within Supply Chain Management The Capability Standardization and Potential Application Migration Strategy for Demand Planning is illustrated on the next page 33
12.2 Demand Planning Decommissioning Strategy Business Capability Standardization Potential LSA LSE APD LSA M L LSE M H APD L H Current Applications POP-Prelim Order Processing (Global) (CommOps) ForecastX PI (LSA) (GSC) Linx ERP (Brazil) (CommOps) 1C ERP (Russia) (CommOps) SAP APO DP(LSE) (GSC) MarketMax (Global) (CommOps) Target Applications POP-Prelim Order Processing (Global) (CommOps) ForecastX PI (LSA) (GSC) Linx ERP (Brazil) (CommOps) 1C ERP (Russia) (CommOps) SAP APO DP(LSE) (GSC) MarketMax (Global) (CommOps) Retail Comm ecomm Just Enough DP (APD) (GSC) Retail Stores Stores Ops M H efcst(global) (GSC) Boardwalk SP/DP (Global) (GSC) PAR-Product Availability Report (LSA,LSE,APD) JDA Manugistics (LSA,LSE,APD) SAP APO DP(Global) (GSC, CommOps, Retail) Comm Ops M M Navision (LSE) (CommOps) XP-Erience (LSE) (LFA) LDS (Can) (CommOps) ecomm H M SAP Business One (LSE) (LFA)
Conclusion A Business Capability Model can be a powerful tool to help an organization: Establish a Common Language for describing its operations; Develop and execute a Business Transformation Strategy and Plan; Define an effective, efficient and agile Enterprise Architecture; Business Architecture and IT Architecture Develop a value creating Information Technology Strategy; Rationalize their application portfolio; and many others However, it is time consuming and; doing it right requires the right amount of time from the right people For these reasons we recommend that: Companies do not treat this as a boil the ocean paper generation exercise The right people are assigned to work on it You treat this as a collaborative, iterative process; and finally You only do this if doing it directly supports something that will create value for the organization Creating a Business Transformation or IT Strategy Supporting a Business Transformation Project 35
Questions? What questions do you have? 36
KEY LEARNINGS Learn a practical Business Capabilities Framework to define and document business capabilities for retail/wholesale/e Commerce Establish an Enterprise Architecture & Strategy Function that Aligns Business & IT Completely Reap Benefits From the Business Capabilities Model: Perform Application Portfolio Rationalization, Develop IT Roadmaps, Standardize Processes Globally, etc.
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