Item Master Enrichment

A Business Case

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Item Master Enrichment-A Business Case

Summary

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.

he benefits of economy of scale and Lower Total

Cost of Ownership (TCO) are driving enterprises

to rationalize and consolidate their enterprise

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Item Master Enrichment-A Business Case

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.

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Item Master Enrichment-A Business Case

Challenges
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.

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.
Bruce Hudson META Group

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.

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Item Master Enrichment-A Business Case

Customers Experience (SAP Implementation)

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.

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.

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Item Master Enrichment-A Business Case

Item Master Enrichment - Common Glue and Source of Competitive Edge

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.

Enriched Item Master = Richer Enterprise

Creation of a centralized enriched Item Master.
n

Supported Business Initiatives

Competitive Edge

Accurately, granularly classified, De-duplicated, Attribute rich item records.

n n n

Improved Cross-plant inventory visibility Higher OEE (Overall Equipment Efficiency). Increased supply chain fulfillment. Increased requisitioning, sourcing and usage efficiency and accuracy.

Faster and Efficient supply Chain.

Higher OEE (Overall Equipment Efficiency).

n n n

Increased supply chain Superior relationship among partners in supply chain network. Faster time to market. Increased number of product variants.

n n

Lesser new part introduction. Better utilization of Design and development resources (Design engineer, testing, trials and equipment).

n n

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Item Master Enrichment-A Business Case

Creation of a centralized enriched Item Master.

Supported Business Initiatives Reduction in supply management, payment, reconciliation costs.

Competitive Edge Focus on building strategic long-term supply base.

Accurately, granularly classified, De-duplicated, Attribute rich item records.

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

Higher returns to the investor community. Increased Investors confidence.

Accountability Under Sarbanes-Oxley Sections 302 and 906: CEO/CFO Sign-Off

n n

Superior Corporate governance. Superior and accurate financial reporting. Visibility into corporate spending. Excellent rapport with investor community and SEC.

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.

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Item Master Enrichment-A Business Case

Item Master Enrichment - Process and Tools

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.

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Item Master Enrichment-A Business Case

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

SAP ERP
Classified Enriched

Non-SAP ERP

Maximo Legacy

E T L

Standardized

AutoClass

AutoSpec

De-duplicated

Classification

Attribute Extraction

DATA

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Item Master Enrichment-A Business Case

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.

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:
n n n n n n n n n

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

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.

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 Saving (Yr1) Saving (Yr2) Saving (Yr3)

30% 20% 25%

$ 7,500,000

25%
$ 7,500,000

Annual Procurement Savings due to cross plant inventory sharing $ 6,000,000

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Item Master Enrichment-A Business Case

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)

Saving (Yr2)

Saving (Yr3)

2%
$ 2,100,000

2%
$ 1,500,000

1%
$ 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

Strategic Procurement Benefits 4. Improved Volume Discounts due to Supplier Consolidation % of Annual Spend where Supplier Consolidation / creation of spend buckets is possible for strategic sourcing % Spend Leverage / Negotiated Price Reduction due to detailed spend visibility
Annual savings due to strategic sourcing

Saving (Yr1)

Saving (Yr2)

Saving (Yr3)

20% 10%
$ 2,000,000

20% 10%
$ 2,000,000

25% 10%
$ 2,500,000

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 Cost of Plant Downtime/hr % of Plant Downtime saved due to item master data enrichment
Annual savings due to reduced production down time

Saving (Yr1)

Saving (Yr2)

Saving (Yr3)

100 $ 1,000 20%

$ 20,000

40 $ 1,000 20%
$ 8,000

30 $ 1,000 10%
$ 8,000

6. Improvement in Employee Productivity enabled by enhanced search for items based on attribute Cost of Manpower $/hr Annual Total Work Time (hrs) spent on Searching Items of desired specifications % of Search Time saved due to Improved Search
Annual savings due to increased man productivity

$ 25 100 50%
$ 1,250

$ 25 100 40%
$ 1,000

$ 25 200 30%
$ 1,500

Total Additional Savings realization 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 Enter Assumed % (For specific prospect scenario)

$ 12,021,250

$ 13,259,000

$ 13,129,500

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

100000000 25%

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Item Master Enrichment-A Business Case

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. For more information about Zycus Spend Data Management Software suite mail us at information@zycus.com. www.zycus.com

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