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Preparing for the Future: The Case for Business Transformation

Preparing for the Future: The Case for Business Transformation. March / April 2007. Agenda. Determine Exception Dispositions. Determine Exception Dispositions. Update Flows. Update Flows. Update Procedures. Update Procedures. Update Setups. Update Setups. Update Test Script.

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Preparing for the Future: The Case for Business Transformation

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  1. Preparing for the Future:The Case for Business Transformation March / April 2007

  2. Agenda

  3. Determine Exception Dispositions Determine Exception Dispositions Update Flows Update Flows Update Procedures Update Procedures Update Setups Update Setups Update Test Script Update Test Script Prepare CRP 2.0 Environment Prepare CRP 3.0 Environment Conduct CRP 3.0 Conduct CRP 2.0 Identify Exceptions Identify Exceptions Business Process Transformation Approach Initiation Definition Elaboration Build Transition Production Prepare Production Environment Create Need for Change Project Planning Shape the Vision Conduct CRP 1.1 (Familiarization) Convert and Verify Data Mobilize Commitment Conduct CRP 1.2 (Mapping) Perform Acceptance Test Build the Team Build the Business Case Begin Production Maintain System Identify Exceptions Design Extensions Perform Systems Integration Test Obtain Approval Propose Future Direction Create and test Custom Extensions Conduct Business Architecture Workshops Prepare Custom Test Scripts Q4 2006 – Q1 2007 Q2 2007 Q3 2007 Q4 2007 - TBD We are here

  4. Emphasis on one face to the customer Aligning people around one organization and one culture Support for business acquisition and expansion Positioned for growth of existing brands Metric driven, quantifiable business opportunities Cross-functional processes Builds upon existing leading practices Support for multiple manufacturing models Improved information visibility and reliability Integrated systems, processes, and people Common, world class information systems Support of BCG Strategy The Business Transformation strategy firmly supports Builder Cabinet Group’s Strategy. Replace

  5. The BCG – Business Transformation Strategy Our Vision BCG Cabinetry in one out of every two homes built in the United States BCG & MCS Partnership MASCO • Discrete Model • 400K End Items • KAAT Assemble to Order • 5 day delivery • Legacy/JDE Future Masco Synergy Future State BCG: One Consolidated Company Lack of Visibility E Manufacturing Inflexibility L C We don’t want that! Integrated Systems A High Complexity JDE BCG BCG Scalable Organic Growth SalesForce.com R Limited Acquisition Capability Legacy Merillat Manual Control Environment O Current Technology Environment Flexible Manufacturing Model Quality Cabinets Friedman Quality Cabinets Automated Controls Present State BCG: Two Combined Companies • Attribute Model • 2 Mil. End Items • Finish to Order • Value Brand • Friedman BTT Competition

  6. working on a visual with these themes • Ordering process • Different contact points by brand • Systems not connected • Product nomenclature is not common • Attribute Model • Faster BOM Creation • 1.2 million end items Quality combinations – 300K for Merillat • Production Options • Complexity shifts from person based to system controlled • Flexible Manufacturing model • Ability to bring in outside products • Focus on vertical integration as a component of complexity • Multi-brand plants • Regional products • Ability to execute strategic sourcing from soup to nuts • Ability to acquire business • Cabs • Complementary • Real Time Visibility • Masco Leverage – partner with MCS • Use service offering from MCS • Platform for growth • SOX • Why now? • Downturn – could not execute in upswing • Using A players from the business

  7. Business Divisions 4 Locations 32 Countries 1 Site Operations 45 Functional Process Groups Information Technology Function Areas 13 Business Processes 146 Process Instances 611 BCG Users 1,700 Supported Instances 826 Unique Apps 100+ External Users 1,300 Portal (Est.) 2,500 BCG Transformation: Current View The business and IS model currently at BCG operates as two unique companies with two distinct brands. • Multiple operating models • Corporate - Adrian and Duncanville • Component – Merillat and Quality • Assembly – Merillat and Quality • Branch – Merillat, Quality, Both • Multiple Application Instances • 100+ Applications • 800+ supported instances of applications • Process instances are localized versions of processes

  8. AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy Oracle Applications/Tech Other Office Apps Custom Developed App Business Systems Architecture – As-Is “ Our business model has evolved but systems have not caught up ” Market to Prospect Quote to Cash 20 / 20 MS Access JD Edwards Friedman Metreo Excel Friedman Q20E M2OE JD Edwards PlanIT Fusion MS Access MS Excel Data Warehouse MapInfo MBIZ EZ- CAB txnotes Pre Order Management EZPrint DocLink Masco MBA RightFax Design to Release Intelli-Quote AOC Friedman Istatus Friedman-Parrish Friedman JD Edwards Pro Engineer Macro Express Demand to Ship Procure to Pay AutoCAD Inventor Excel Excel UNIX Shipping Friedman Concur EPM Auto EDMS APC – Flex Automation JD Edwards Built To Track Time & Attendance MS Access Masco-SRM Excel BTT Minitab Yield Optimization Forecast to Plan Data Warehouse Friedman MS Access Micro Main/MP2 Bar Code Scanning Data Pak Data Warehouse MRP Spreadsheet Server MBIZ CAR Works Active Pay Transportation / Logistics Mini MRP XES Excel Schedule to Install Friedman At Road Williams Excel Quick Book Rform Rfile SAM Track-IT Finance / Human Resources JD Edwards Friedman FAS Global CAR Dataware House MS Access Spreadsheet Server PeopleSoft Hyperion Legacy or Package High Cost – High Risk!

  9. Design to Market to Quote to Procure to Forecast Release Prospect Cash Pay To Plan Key Business Process Areas Demand Schedule Financials Transportation to Ship /Logistics to Install /HR BCG Transformation: Future View The future enables BCG to operate a “One Model” concept with common business and Information System models. External External Future Future BCG BCG Focus Focus Synergies Synergies New New Merillat Merillat Quality Quality Businesses Businesses New New Acquisitions Acquisitions Design to Design to Market to Market to Quote to Quote to Procure to Procure to Forecast Forecast CABINET & CABINET & Release Release Prospect Prospect Cash Cash Pay Pay To Plan To Plan Customers Customers RELATED RELATED PRODUCTS PRODUCTS Key Business Process Areas Key Business Process Areas PLATFORM PLATFORM Demand Demand Schedule Schedule Financials Financials Common Common Transportation Transport. Suppliers Suppliers to Ship to Ship /Logistics /Logistics to Install to Install /HR /HR Process Process Vision Vision Portal Portal Common Application Platform Common Application Platform Carriers Suppliers (Oracle + Few Key Applications) (Oracle + Few Key Applications) Masco Masco Corporate Corporate Other Other IS Vision IS Vision One Technology Platform One Technology Platform External External (High Availability) (High Availability) Users Users • Common Operating Model • Easier integration of new businesses • Support growth • Ability to support the current manufacturing models for Merillat and Quality brands • Common System Platform • One application platform • Key supporting applications • “High Availability” infrastructure

  10. Market to Prospect Quote to Cash 20 / 20 MS Access JD Edwards Friedman Metreo Excel Friedman Q20E M2OE JD Edwards PlanIT Fusion MS Access MS Excel Data Warehouse MapInfo MBIZ EZ- CAB txnotes Pre Order Management EZPrint DocLink Masco MBA RightFax Design to Release Intelli-Quote AOC Friedman Istatus Friedman-Parrish Friedman JD Edwards Pro Engineer Macro Express Demand to Ship Procure to Pay AutoCAD Inventor Excel Excel UNIX Shipping Friedman Concur EPM Auto EDMS APC – Flex Automation JD Edwards Built To Track Time & Attendance MS Access Masco-SRM Excel BTT Minitab Yield Optimization Forecast to Plan Data Warehouse Friedman MS Access Micro Main/MP2 Bar Code Scanning Data Pak Data Warehouse MRP Spreadsheet Server MBIZ CAR Works Active Pay Transportation / Logistics Mini MRP XES Excel Schedule to Install Friedman At Road Williams Excel Quick Book Rform Rfile SAM Track-IT Finance / Human Resources JD Edwards Friedman AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy AS/400 - Legacy FAS Global CAR Dataware House MS Access Spreadsheet Server PeopleSoft Hyperion High Cost – High Risk! Oracle Applications/Tech Oracle Applications/Tech Other Office Apps Other Office Apps Legacy or Package) Legacy or Package) Custom Developed App Custom Developed App Business Systems Architecture – As-Is Business Systems Architecture – To-Be Market to Prospect Quote to Cash 20 / 20 Metreo PlanIT Fusion MapInfo MBIZ DocLink Design to Release Demand to Ship Procure to Pay AutoCAD Auto EDMS Yield Optimization Forecast to Plan Micro Main/MP2 Transportation / Logistics Schedule to Install Rfile Finance / Human Resources PeopleSoft Hyperion High Value – Low Risk!

  11. Understanding Business Benefits and Costs Rigorous process used to identify benefit opportunities and gain executive commitment 11 Executive Interviews 150 Personnel 10 Workshops • Key Strategies • Quick To Market • Eye Of The Customer • Common Platform • Vertical Integration • Operational Efficiencies Opportunity Validation Meetings • 100+ Opportunities • Scope By Process Area touching 100% of the business • “Top 18” Identified • Nine Key Process Areas • Functionality verification BUSINESS CASE Payback: 6 Years • “Fact Finding” • Brainstorm Sessions • Additional Benefit areas not fully quantified $145 Million + Other Key Benefits • XXX Benefits Analysis Cost Validation Meetings Identify Detailed Costs Costs Analysis Define Detailed Cost Categories • Program Structure • Deployment Approach • Future Architecture • Cost Validation • Program Structure • Vendor Meetings for Hardware/ Software • Training Plans • Detailed Current IS Analysis • Capital Vs. Expense • Resources • Software/Hardware • Hosting vs. in-house • Training/Other Costs

  12. BCG Business Process Flow Design to Release Market to Prospect Quote to Cash Procure to Pay Forecast to Plan Demand to Ship Schedule to Install Information Services Finance & HR Transportation and Logistics

  13. Benefit Opportunities - $145M “ We need to reach $2B revenue with the same people we have today ”

  14. Benefit Opportunities - Continued “ We ‘muscle’ our process today. We are dependent on people – a ‘culture of heroes’ ”

  15. Benefits Not Quantified in Base Business Case “ If we acquire a new business today we have to decide ‘what bad system do we put them on?’ ”

  16. Benefit Opportunity – SOX Compliance “ Our current compliance environment is a massive challenge “ A key benefit of the Business Transformation will be automation of key controls and a strengthened control environment. Some of the enablers will be: • Move from two ERP systems to one will allow the BCG to reduce key controls • Extensive use of workflow tools within control processes • Highly automated processes and controls • Improvement of audit trails • Enhanced security capabilities from an IT perspective

  17. Opportunities: BCG’s Cross Division/Platform/Enterprise The Business Transformation Project at BCG has the opportunity to serve as an “incubator” for components of Masco’s overall IS direction.

  18. Pilot & Deploy Design, Build & Test PILOT & STABILIZE ROLLOUT ANALYZE & DESIGN BUILD & TEST 20 MONTHS 4 MONTHS 4 MONTHS 8 MONTHS • Global Design • End-To-End Process Driven • Cross Functional Internal Resource Teams • Best Practice – Internal & External • Design Outcomes: Performance measurement • Policy and procedures • Roles and responsibilities • Data design standards • Rollout • Alternate plans compared • Will be accomplished using primarily BCG resources • Knowledge Transfer • Partner BCG and External Experts from the onset • Roll Off external as soon as possible Implementation Strategy Guiding Principles Project Duration of 36-39 months

  19. The Case for Business Transformation The results of the Business Transformation will yield: Business Case Potential • 3-Year Project Costs: $57M $57M • Capital $40M $40M • Non Recurring Expense $17M $17M • 10-Year Benefits: $145M $209M • 18 improvement opportunities were quantified for Business Case • Additional benefits included in Potential • Status-quo IS strategy (cost avoidance) • Potential leverage from acquisitions • Cross Selling of Masterpiece – improvement through better integration • Audit savings due to automated controls • 51+ additional benefits identified, but not valued • IRR: 20.2% 38.9% • Payback: 6.1 Years 4.3 Years Conservative Business Case Assumptions Upside Potential!

  20. Non-recurring Cost Summary

  21. Status-Quo IS Strategy – the Cost of “Doing Nothing” Status-Quo will Drive Significant IS Investments with Limited Benefits

  22. BT2 IS Operating Expense Forecast – Steady State BT2 Increases IS Operating Expense by $1.3M excluding depreciation

  23. Financial Analysis

  24. Financial Impact

  25. Summary – Next Steps and Timing Ready to Move to Execution Phase

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