Process Analysis Document re-written

Contents

Executive Summary 3

Viability of Information Technology Systems Expansion 3

Viability of Implementing Cloud Computing 3

Current Situation 4

SWOT Analysis 4

Strengths 4

Weaknesses 4

Opportunities 4

Threats 4

Porter’s Five Force Analysis 5

Industry Competitors 5

Power of Buyers 6

Power of Suppliers 6

Substitutes 7

Potential Entrants 7

Overview of Recommended System 8

ERP Implementation 8

Advanced Process Management 8

Organization Performance Management 8

IT Overview AS-IS 10

Service Oriented Architecture (SOA) 10

Investing in a New System (Hardware and Software) 10

Business Process Design AS-IS and TO-BE 12

Preparing the Business Proposal 14

New E-Commerce Platform Design 15

ERP Manufacturing Software 15

Implementing the ERP 16

Off-The-Shelf ERP Solution 17

Stakeholder Buy-In and Internal Politics 18

ERP Project Failures and Lessons Learned 19

Return of Investment and Total Cost of Ownership 21

Total Cost of Ownership Analysis 21

Acquisition Costs 21

Conclusion 22

Bibliography 23

SAI Toys currently has in production four different systems for the following:

• Public Website

• Manufacturing Support System (MSS)

• Human Resources System (HRS)

• Sales and Marketing System (SMS)

The process of inter-relating all four systems using new software can create some issues because of the legacy factor associated to hardware, these issues can be difficult if not impossible to solve, adding to the overall cost of the effort. The organization needs to avoid the possibility of downtime associated to system failure and it is required that key systems are fully operative with not downtime at all.

Due to the nature of the enterprise, it is in the best interest of the organization to implement a cloud computing environment. This will result in the utilization of only key IT personnel to provide support, this change can translate into more financial resources to be diverted to different areas that are critical for the company.

Experienced Marketing Department

Brand recognition

IT department with 25 team members

Quality controls set in place

Marketplace saturated with competition

Continuous research and development of new products

IT department payroll costs

Marketing and sales through website

Internet opens the possibility of international markets

IT payroll reduction by implementing cloud computing

Changes in technology will require re-engineering costs

Competitors implementing same Internet approach

The strategy set in place by SAI Toys includes the integration of the whole operation and adding retail sales to consumers using company operated websites.

There are two major competitors for SAI Toys in the United States when it comes to US based manufacturers:

Mattel is the world’s largest manufacturer of traditional toys in the world; they carry well known brands like Barbie, Matchbox, Fischer Price and Hot Wheels.

Hasbro is the second largest toy company in the United States and they produce popular board games like Clue, Monopoly and Scrabble. Other products are the Transformers franchise, Mr. Potato Head, Play Doh, Milton Bradley, Parker Brothers and licensing agreements with Star Wars and Marvel.

SAI Toys requires heavy investment in research and development on a continuous basis as well as a qualified engineering team to stay ahead of the competition. Because of the heavy competition with two worldwide giants as well as other companies, the market can be crowded with similar products but with different features depending, the ability of other companies to offer a product for a lower price can easily affect revenue for the company.

In order to be a contender in the market, SAI Toys needs to invest in IT systems that allows for the company to incur in significant savings, this cost savings can provide additional funds to allow SAI Toys to invest in research and development to ensure the competitive advantage in the market.

The power of buyers can be considered a benefit and a threat to the organization. The success of previous products can help the SAI Toys enter the market with new products. But there needs to be considered as a threat the fact that competitors can re-engineer similar products and reach a greater audience faster when marketed online. There is a need to change strategies to build a relationship with new customers while strengthening the loyalty with current ones. To do this it is necessary to have the necessary tools to have concise and accurate data to help analyze consumer behavior.

Suppliers have a critical impact on any organization and can help or deter growth. SAI Toys has an upper hand because they are a manufacturer of their own products, but they also depend on raw materials that are subject to market fluctuations, this is the case of plastic, a main material for toys; the change in the prices of international oil can increase or decrease the price of such raw material, this will eventually have an impact on profitability. Also, chips and circuit boards, a main part for electronic toys can be affected if international manufacturers either stop their production or discontinue exportation for whatever reason.

Technology is in continual advancement, any technological development can shift the interest of the public toward different products thanks to the use of search engines. SAI Toys needs to develop a substitute strategy to reach potential markets via the Internet, the company could complement their manufacturing effort with distribution of similar products lines, this will allow consumers to be able to choose from different products from the SAI Toys thus building loyalty and increasing their visibility in the market.

A weak economy can affect the level of consumer loyalty; this will increase the competition as new entrants try to build their own niche in the market. SAI Toys can be threatened by new entrants only if investment in the research and development department is not strong enough. There also needs to be a strategy to market the new products developed by the company before the interest in the new technology shifts overtime and favors new entrants.

If SAI Toys decides to revamp their hardware and software taking advantage of their current systems as legacy for the project, the approach needs to take into consideration the higher risk of failure linked to legacy systems being upgraded; this can cause a direct negative impact in the business operations.

If SAI Toys decides to revamp their hardware and software taking advantage of their current systems as legacy for the project but expanding the interoperability of four different systems, the development of an Organizational Process Performance evaluation is in order to determine the objectives and the processes involved. After these processes are properly analyzed to come up with data that will shed light about the performance, this will help determine what standards need to set for the processes and the organization.

The process performance models are analyzed; this will provide a better understanding about the ability the company has to meet its objectives. After this analysis the organization will be able to select what changes need to be made in order to improve the performance; the changes made based on the possible benefits in correlation with the costs associated with such changes.

SAI Toys currently has in place four different computer systems, one for each area of operation: Public Website, Manufacturing Support, Human Resources and Sales and Marketing. This separation between systems does not allow for management to have full control of the daily operations of the company, having prompt access to accurate reporting is essential to the organization.

If SAI Toys decides to revamp their hardware and software taking advantage of their current systems with the intention of integrate all four systems, the organization should use the SOA approach during the systems development and integration. Having the foundation of the project based on the SOA principles will add functionality and interoperability of the different services. The use of SOA also provides web based applications to be available. The integration of many different applications through SOA allows for different functions under different services, which are available by the developers over the network; this is done in such way to allow for the constant communication between different services.

If SAI Toys decides to invest in a brand new hardware and software system, and at the same time keeping the in-house IT department, management will have to conduct an evaluation of the Advanced Process Management and Organizational Process Performance so criteria can be established to apply the following steps:

• Review the state of the current IT systems to identify issues and determine opportunities for improvement that will contribute to the organization in the long run.

• Establish new procedures to align the systems with the vision and core values of the organization.

• Analyze risk associated with environmental, health and safety issues.

• Analyze the performance of the management system.

• Create a methodology to handle projects in the management system.

• Elaborate action plans that are related to employee involvement in projects.

• Determine how reliable the management system is with respect with the regulations and compliance, and also in evaluating and identifying process improvements that can help with the reduction of waste related to excess inventory, over-production, product defects, etc.

• Calculation of the return on investment and implement a balanced scorecard to manage results.

• Conduction of management system audits of suppliers.

• Take advantage of real options to monetize the intangible benefits available.

Using the criteria mentioned above, SAI Toys will greatly benefit because:

• Customer satisfaction will improve.

• Profitability will increase.

• Costs will be reduced.

• Quality and processing times will improve.

• Bridging production line and management will improve the business culture.

• Business performance will improve because most waste will be eliminated across business processes.

IT personnel along with management can implement the use of checklists to help with the business design. It is important to consider how the management of records are handled and kept during the design of information systems; without the proper record management the organization will face performance difficulties.

The use of the checklists to the business processes will help embed the records management in the system being developed. Using the AS-IS checklist will help identify the current location of the records, the TO-BE list can provide assistance in informing where they will be located once the new system is in place. The application of the checklists requires for the business workflow to be thoroughly analyzed because they will be the link between management, IT, program managers and staff; ultimately they all will be a part on identifying the business requirements for the project.

SAI Toys systems analysts need to approach the project in a systematic way to identify all the hardware and software needs. This is done following these steps:

• Software and hardware inventory already available to the organization.

• Evaluation of the performance of the software and hardware currently available.

• Selection of a vendor of software and hardware.

• Evaluation of vendors based on hardware/software support, training and maintenance support.

• Forecasting costs and benefits using data from different trends (linear, seasonal and cyclical).

• Using tangible and intangible costs as well as tangible and intangible benefits to identify the real costs and benefits of the system being considered.

• Comparing costs and benefits with the possible alternatives using the break-even analysis, cash flow analysis and present value methods.

Comparing alternatives should be done considering these specific guidelines:

• Use-break analysis in order to determine if the project has justification based on cost but not benefits.

• Use a payback analysis to make the case when the tangible benefits are strong.

• Use cash flow analysis when the cost of the project is high compared to the size of the organization.

• Use present value when the payback period is lengthy.

E-business platforms not only serve as a way to sale goods via the Internet, it should actually be considered as some sort of mail-order but with an electronic component to process payments and settlements. Another purpose for the e-commerce platform can include advertisement, contracts, billing and orders.

Because of the market in which SAI Toys is involved, the implementation of ERP manufacturing software is a good idea. The ideal ERP solution will allow SAI Toys to integrate other critical business area of the organization with the manufacturing segment, allowing for reporting, real-time inventory control, payroll, human resources, document management and customer management to be available for faster and accurate decisions.

Besides all the functionality provided by the ERP, it usually has low cost of ownership due to the flexibility related to configuration versus customization, this allows for easier integration. ERP implementation has the advantage of allowing product scalability for companies in the process of growing like SAI Toys, who can choose the technology that better fits its IT infrastructure. ERP delivers return on investment fairly fast, which is why it should be encouraged its early adoption.

ERP can help optimize business processes by supporting the organization’s management and governance, along with risk and compliance processes. The solution offered by the ERP implementation is the interconnection of different areas of the organization network allowing for SAI Toys to be more competitive in the ever-changing business environment.

It is recommended that the implementation is made in an incremental way to prevent interruption of the normal business process at SAI Toys. Just like with any other IT changes, it is normal to encounter issues during the implementation; as a best practice, in order to avoid higher impact to the normal business operation, the implementation should be scheduled during the gap between product design and launches. It is important for the implementation to be done one application at a time to avoid disruption and to continue with the normal revenue stream and not incurring in any loss.

SAI Toys can choose from many different vendors who offer ERP solutions that can be easily configurable based on the company’s needs; Oracle, Microsoft, SAP are some of the most used in the market. All of them have the possibility to develop the e-business platform and to integrate it with the production and supply chain, this will allow for management to have real-time reports and information necessary to make decisions based on facts. The inclusion of CMMI and ISO certifications are embedded in the off-the-shelf solutions, providing the peace of mind of knowing that the software counts with the necessary industry standards.

The in-house development of the software solution poses some risks, the uncertainty of industry standards while developing the software is one of many; it is highly recommended for in-house development to be avoided. Off-the-shelve solutions are thoroughly tested and its implementation will decrease the chances of downtime associated with issues related to design and installation.

Another reason to decide for the off-the-shelve solution versus the in-house development resides in the cost benefits associated with purchased software; in-house design is considerably more expensive than an off-the-shelve solution, if we add the impact of possible downtime and system inoperability in case of the in-house software fails, we can see how the pre-designed ERP is a better option. Another key point is the ability of the software vendor to debug the application, this can be done by the vendor much faster than if the software is developed in-house.

The identification of the stakeholders by SAI Toys can be done by determining the parts that have a vested interest in the end result of the effort and work its way back in steps. The identification of the stakeholder using this method consists on focusing on the individuals whose efforts result in the production of the product; the consumer is placed in the center of the concentric circles, the next outward circle represented by the product; working its way back to identify each of the individuals that had a contribution in the final consumer purchase.

It is very often that many system development projects have issues due to the failure in properly take into consideration the stakeholder’s ideas an inputs; this is definitely an issue because when that happens, many important requirements are missed. The same issue can happen when stakeholders have different ideas or scopes for the project; it is necessary to make sure that all parts involved are in the same page. If the developer assumes a certain deadline but the purchaser has another in mind, there will certainly be an issue; it is imperative that all points of view, from the developer, purchaser, trainers and operators are made explicit.

SAI Toys needs to thoroughly evaluate each stakeholder to avoid or minimize internal politics affecting in a negative way the end result of the project. Each stakeholder needs to become an active part of the project and they need to be included in team meetings, in this way they all have a vested interest in ensuring the success of the enterprise. The stakeholder’s participation at all levels ensures their acknowledgment that they are all equally important within their own area of expertise.

The practice of studying ERP failures is very important for any project success, by doing so it is possible to identify similar issues present that lead to other companies to implementation failures. There are a myriad of case studies that can be used to foresee any kind of problems during ERP implementation, management should use this information to develop a contingency plan should these issue arise.

Taking into consideration the ERP implementation at Hershey’s Chocolate; the learned lessons from that case study show that Hershey’s failed to do the implementation using an incremental method but they proceeded with the implementation during peak periods of business, many bugs glitches caused the systems to fail resulting in not only the inoperability of the software but it also caused dramatic sales and revenue losses. Higher management and IT automatically developed a dislike for the ERP; this could have been avoided by performing the deployment in a step-by-step basis during less busy seasons. Hershey’s also made the mistake of implementing multiple solutions at the same time which added to an already disastrous implementation.

Lessons learned from cases like the Hershey’s one is that ERP implementation should always be done in a step-by-step fashion; failing to fully realize the complexity of an ERP implementation can lead make the same mistakes made by Hershey’s.

The TCO analysis is very important during the acquisition and planning phases, understanding the operating costs and maintenance costs over the usable life of the implementation needs to be determined.

Acquisition costs include system hardware purchase, adding the ownership costs which at the same time includes the IT labor costs, contractor labor and continuous training.

When comparing the total costs of the perceived useful life of the system with the cost of business as usual operation we are able to determine the actual cost that SAI Toys would accrue with the current IT system in place over the same period of time. There is a marked difference between a new IT implementation along with software purchase compared with the cost of SAI Toys IT system assuming that there are no changes over a five year period. These calculations provide an internal rate of return and a simple return of investment over the payback period.

SAI Toys, in order to remain competitive in the market needs to invest on an IT system that will allow the organization to have the necessary support to achieve its long term goals. SAI Toys cannot ignore the advantages of implementing an ERP system that can integrate in a vertical fashion all of its four currently separate IT systems.

Factoring the cost of ownership and maintenance into the cost of production for the products SAI Toys sells, there will be a substantial margin of profitability; SAI Toys can greatly benefit from the real-time reporting and reduce costs associated with purchase and inventory of raw materials, productions costs and warranty claims.

It is critical for SAI Toys to be able to properly invest in their research and development programs to ensure the continued innovation of its products so the organization can maintain the production of high tech products while making sure that the associated costs are contained. The implementation of an e-business platform can also help maximize sales and revenue thought the company’s websites while at the same time engaging the consumer in loyalty programs designed specifically for the correct demographics.

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