2012 Learning About
Inventory from ERP
Implementations
WIS Customer Forum Oct 2012
KPMG LLP
Why are Retailers Moving to ERP Systems?
‒
Importance of one source of truth for both financial and management reporting
‒
Enhanced receivable/billing process and matching
‒
A unified and single reporting system to analyze the statistics/ numbers/ status etc
in real-time, across all the functions / departments
‒
Automatic and coherent work-flow from one department / function to another to
ensure smooth transition/ completion of processes
‒
ERP systems are more secure as centralized security policies can be applied to
them and all the transactions happening via the ERP systems can be tracked
‒
Single Database is implemented on the back-end to store all the information
required by the ERP system and that enables centralized storage / back-up of all
enterprise data.
‒
ERP systems make it easier for order tracking, inventory tracking, revenue
tracking, sales forecasting and related activities
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
1
ERP Challenges
‒
‒
‒
‒
‒
‒
‒
‒
‒
‒
‒
Cost
IT or Finance Led rather than business
IT resources not sufficient to deploy and maintain
Data Governance
It is hard to customize
Very few companies can effectively use ERP right out of the box
It must be modified to suit their needs, and this process can be both expensive and
tedious.
Even when a company does begin changing the system, they are limited in what
they can do
Can’t undo your conversion
Disruptions to transaction flows
Interface failures between SAP and other systems
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
2
ERP Challenges
Challenges our clients have faced:
‒
Ensuring you leverage all of the ERP functionality
‒
Importance of accurate process, system and accounting flows
‒
Master data and department hierarchy
‒
There is not “standard definition” of cost in Retail
‒
Organizations often define cost differently for domestic vs. globally sourced
product
‒
ERP conversion planning – physical Inventories, accuracy of item files, open
PO’s
‒
Chart of account mapping & testing
‒
Perpetual inventory management (negatives, dept rings)
‒
3 way match and associated issues
‒
Inventory shortage and of inventory adjustments tracking
‒
Importance of receiving accuracy
‒
Bill of material items
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
3
Discussion – Converting to Cost
Challenges our clients have faced:
‒
Communicating the advantages
‒
Challenges of change management
‒
Organizations often focus on financial reporting when converting to cost rather
than management reporting
‒
Payables- accuracy & matching issues, import reconciliation, level of matching
(summary, line item)
‒
Payables -practice of paying the lower of invoice
‒
Merchants - discipline of master item files accuracy
‒
Merchants – vendor compliance and enforcement
‒
Merchants – new management reporting – margin reporting in particular
‒
Importance of receiving – DC & Store
‒
Store Operations – cycle counts, mark-outs, inventory processes, reporting, POS
discipline, finish goods, unidentified inventory, dept rings, RTV
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
4
Financial Considerations
‒
Which method of accounting?
‒
Assess the financial impacts of moving to cost and outline mitigation strategies
‒
Assess any tax impacts related to moving to cost and outline mitigation
strategies
‒
Provide a summary of recommendations related to key themes (definition of
cost, inventory adjustments, cycle counting, master data management, etc)
‒
Inventory movement tracking and accounting
‒
3 Way Match
‒
Map and test chart of accounts
‒
Project ROI and cost management
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
5
Process Considerations
‒
Set up cross functional meeting to discuss and map end to end business
processes
‒
Identify key stakeholders impacted by the project and will be responsible for
implementing and communicating key business process changes
‒
Store Operations – cycle counts, mark-outs, inventory processes, reporting, POS
discipline, finish goods, unidentified inventory, dept rings, RTV
‒
Estimate the level of difficulty using three dimensions (time, cost, and resources)
‒
Assess overall organizational readiness for change
‒
Assess roles, responsibilities and job impact
‒
Conversion planning and the potential impacts on the organization
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
6
System Considerations
‒
ERP is often too focused on technology
‒
ERP conversion planning – physical Inventories, accuracy of item files, open PO’
‒
Integration with WMS systems
‒
Has your organization completed transaction testing?
‒
Are automated balancing routines established between systems?
‒
Who is responsible and are error logs worked daily?
‒
Do business owners have to sign off on all system design changes?
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
7
Reporting Considerations
Complete a reporting impact analysis
‒
Importance of establishing one source of truth for reporting
‒
Assess master data clean-up and maintenance
‒
Document key current operational and financial reporting related to margin, shrink
and inventory adjustments
‒
Assess shrink and waste calculations
‒
Assess inventory adjustments, cost adjustments, and other top level adjustments
impacting margin, shrink and inventory adjustments
‒
How effective is your reporting related to:
 Inventory Adjustments
 PO, Receipt, Invoice & Payment
 ASN Exception Reporting
 Vendor Compliance
 Non-match reporting (RTV, PO Order Qty, Receipts, Wrong or missing PO)
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
8
Shrink Framework
Stores
In-transit
Physical Shrink
Distribution Center
Vendor
Warehouse
Transaction Processing
Systems
Shrink
Interfaces
Conversions
Master Data
Inventory Management
Paper Shrink
Processes
Global Imports
DC, Cross Docks and Stores
Returns
Account Payables
Accounting
Inventory Accounting
Inventory Control
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
9
Tools
Tool
What is it and why?
Project Benefits
A facilitated cross functional approach
to documenting and identifying key
gaps, controls and risks associated
with key business processes.
Process, system and account mapping is
a critical step in planning and executing a
successful new systems implementation.
This step will help identify process
improvement, and alignment issues prior
to implementation. It will also highlight
potential areas requiring system
modifications or process changes to
avoid custom modules when
implementing new systems. It also is a
important input for the job impact
analysis.
A set of tools to identify and manage
specific impacts to job roles and
responsibilities within the organization
associated with the specific change
effort.
All too often organizations do not focus
enough on the job roles, impacts, and
related capability gap questions
associated with a change that need to be
proactively addressed. Company X
benefits by having a disciplined approach
to both defining job roles in the future
state but also doing a fact-based analysis
of what activities will need to start, stop
and continue in the new environment.
Process
Documentation
Organization and
Job Impact
Analysis
Changes in reporting relationships,
levels and spans of control
Process
Changes to processes associated
with current role and responsibilities
Systems
Changes to current systems being
used by impacted roles
Roles &
Responsibilities
Changes in role and responsibility
for performing specific activities
Accountability
& Decision
Making
Changes in who is accountable for
results of specific activities and the
process for defining who is involved
and approves decisions
Performance
Measures
Changes in the key indicators of
success for individuals, groups and
overall business
Skills &
Competencies
Changes to skills and competencies
required to support new processes
& leverage new technology
Behaviors
Changes in behavior require to
support new processes & carry out
new roles & responsibilities
Mindset
Changes in the employee mindset
required to perform the new process
& adopt new role & responsibilities
Information
Access to and management of
information for managing the
business
ice
)
FA
s)
ps)
n-O
s (C
ors
Ve
nd
nts
(no
ance
Fin
Clie
(CO
O
Op
ance
Fin
on-P
L)
(Pra
ct
Ma
nag
ers
CC
ers
(n
Ma
nag
ers
CC
ers
(PL
s)
ana
g
cia
tes
ana
g
PC
M
PC
M
Pro
je
Not Applicable
Structure
All
Ass
o
Major change expected
ct M
ana
Some change expected
gers
Acc
oun
tE
xecs
)
Minimal change expected
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
10
Deliverables - Benefits
Tool
Leadership Summary
CRM Leader:
Achievement Criteria
HIGH
Leaders Mapping
Leader #1
Leader #2
Ability to Influence Success
Leader #3
Leader #4
Review the Integrated Change Management Strategy and the Communication
Strategy and the Short-Term Communication Plan

Work with Management Team to establish a guiding coalition (or other
appropriate forum) and to identify a membership that has a broad, diverse
perspective to direct and guide the transformation process
June

Participate in a meeting to develop the Guiding Coalition’s roadmap of
activities with criteria and measures for success. Provide a corporate
perspective, as well as provide the Sales and Marketing viewpoint to the
transformational change
June

Participate in CDI/CDRT Leadership work session to help identify
appropriate roles and responsibilities for Corporate and CDRT in order to
begin bridging the gap between the two organizations
June

Work with Change Team to develop compelling CRM messages on:
o
Business drivers for change
o
CRM vision
o
Expectations and accountability for leaders in the new customer-centric
environment (“What’s in it for me”)
June – July

Conduct small group meetings to engage Corporate and Race Track
leadership (i.e., Department Heads, managers, and supervisors) so they
understand the business case for change, the CRM vision and principles, and
their roles in leading employees through the transformation process
Leader #5
Leader #10
Leader #6
Leader #9
Leader $7
Leader #8
Leader #12
Leadership Action Plan
LOW
Stakeholder
Analysis

Champions
Engage and Involve (Risk)
Return
Leading
Practice
Business Case
Leader
Leader #11
Reg’l HRD
Leader #13
Keep Informed
Functional
Area
(Communication Network)
Involve as Needed
Name
PurchasingHIGH

Conduct one-on-one sessions to coach and guide down-the-line leadership on
new customer-facing values and behaviors

Travel to Arlington Park Race Track and other Race Tracks as needed to
communicate vision and objectives, exhibiting leadership support of CRM
initiative

Participate in monthly Executive Steering Committee meeting for CRM
initiative

Provide guidance, strategic direction, and accountability for Event Planning,
Customer Intelligence, and Transformational Change initiatives
Support Demonstrated
Current state
Desired state
Action
LAP
– Continue to emphasize the benefits and gains
– Show enthusiasm and support for the project
Timing
– Immediately &
continuously
– Help the organization understand why this is strategic and aligns to the
success/vision of Severstal
Communicate
– Conduct frequent and consistent Leadership staff meetings and include a
section on project updates – ask Leaders to cascade information
throughout their respective groups
– Immediately &
continuously
– Attend all Steering Committee meetings and provide updates to your
Leadership Team
– Walk around to solicit and address any questions; ASK for opinions, use
them when appropriate, or explain why not
– Leverage your Change Agent & Communications Network
– Celebrate functional project successes and milestones
– Attend monthly project update sessions with your organization
Engage the
Organization
– Walk around to solicit and address any questions
– Identify support and back up for Project Lead
– Immediately &
continuously
– Ensure the right resources are involved and supported; backfill where
appropriate
– Involve as many as possible in the CRPs
Leadership
Action Plans
Timing
May – June
– During CRPs
June – August as needed
June – August as needed
June – August
June – September
June and ongoing
What is it and why?
Project and Company X Benefits
A Stakeholder Analysis identifies who
the stakeholders are and evaluates
their current commitment and what
level of commitment is required from
them in order for the project to
succeed. Stakeholders can be defined
as any person / group of individuals,
internal or external to the organization
who will be impacted by the changes,
or who could have an impact on the
success of the project.
A Stakeholder Analysis helps Company X
and the program team by identifying and
understanding who are the most
powerful/influential stakeholders and
where the change team needs to spend
time managing stakeholders to achieve
effective support for the project.
Achieving this insight early on in the
project enables active stakeholder
management to achieve sustainable
commitment
A series of plans for key stakeholders
and leaders to help drive change
management efforts for the initiative.
Leadership action plans provide a
blueprint of key activities necessary
from leadership to executive change
activities and communications
associated with the transformation.
Leaders' values and behaviors are
aligned with the business vision and there
are actionable plans for those leaders to
spearhead the change.
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
11
Deliverables - Benefits
Tool
Change Risk
Analysis
Executive
Summary
What is it and why?
Project and Company X Benefits
Practical approach and statistical
diagnostics to help identify, quantify,
qualify, prioritize, and mitigate the
organization change readiness and risk
factors in implementing the change.
The CRA articulates the specific
recommended actions required to
proactively manage the change effort
and provides key input to downstream
change management deliverables by
identifying the situational enablers and
barriers.
This diagnostic will shed light on
organizational capacity for change and
will allow Company X to develop the right
solution while also creating a roadmap to
move the Banners and impacted
individuals through the Change to drive
sustainability. The key benefit here is to
understand what unique risks Company X
is facing and how to deal with them.
A summary of our finding, observations
and recommendations related to
project topics including – financial
impacts, tax implications, Inventory
valuation methods, roll-out approach,
store operations impacts, etc.
Practical approach and advice related to
key issues and challenges that other
retailers have faced when converting to
cost and in implementing key retail
systems. This approach will assist in
evaluating the benefits, cost and difficulty
related to operational, financial and
system changes and process
improvements.
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
12
Contact Information
Al Voels
Retail Practice Leader
KPMG Canada
Telephone: (206) 979-7654
Email: arvoels@kpmg.ca
© 2012 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
13
© 2012 KPMG LLP, a Canadian limited liability partnership and
a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.
.