DQ CIO SERIES: Bare Essentials...

It’s that slowdown thing again... and it’s hurting everyone–budgets are
being slashed, IT investments are being reassessed and return on investment (ROI)
is becoming the key factor in management decisions on IT projects. But there are
segments like ERP, SCM and CRM where investments are still hot and happening.
However, a lot more needs to be done. Sentiment across enterprises–lack of
standardization and compatibility when connecting across the supply chain is a
continuing problem; suppliers who are original enterprise manufacturers for
multiple vendors and have to tweak and tune their systems to suit those of the
vendors are feeling the pinch of incompatibility; it is perhaps public
marketplaces with standardization that hold the answer, especially if issues of
security can be dealt with.

These were some of the findings of the ‘DATAQUEST-Citrix CIO Panel
Discussion’ in New Delhi last month. The meet featured several panelists from
key enterprises on the forefront of deploying IT in their manufacturing setups.
The panelists (from left)–Sanjay Govil, IT director at Eicher Tractors;
Rohit Sehgal, senior consultant at Accenture; Rajiv Shankar, manager
for systems at DCM Benetton; Sandeep Parikh, IT manager at Perfetti
India; Prasanto K Roy, chief editor of the DATAQUEST Group and the
moderator of the discussion; RN Mathur, chief manager (systems) at
Escorts; Ravi Parasuram, GM (MIS Planning and Control) at Sony India; Yogesh
K Agrawal of Escosoft Technologies; and Hilal Ishar Khan, IT manager
at Honda Siel Cars India. Excerpts from the discussion:

Prasanto K Roy (Dataquest): What has the single-largest impact of the
economic slowdown been on IT deployment?

Rohit Sehgal (Accenture): The slowdown has been both a hurdle and an
opportunity. Investment in core activities takes a beating in times like these.
However, if companies realize the opportunity and continue to deploy their IT
infrastructure effectively, they will surely benefit when the upturn happens.

Sanjay Govil (Eicher): While investments are under closer scrutiny as
capital that can be invested is limited and needs to be allocated to other
departments as well, there is a greater focus on return on investment. So the
projects getting the green signal are ones which can give much faster and higher
returns. For example, in Eicher, we are investing in CRM, e-commerce, auctions
and reverse auctions and are getting good returns from them.

YK Aggrawal (Escosoft Technologies): Slowdown or not, IT investments
are necessary. In the past too, we had invested in IT and we have seen that it
has paid off. We will continue to invest in IT even during the slowdown.

Ravi Parsuram (Sony India): The slowdown did not have much affect on
our IT spending or the budget per se. After September 11, Sony Corporation
worldwide took a decision of having a very stringent mid range plan to contain a
possible recession scenario.

And like in any other company MIS is treated as a support function and we are
the first to get a hit. We have taken almost a 60% dip in budgets. We have also
been told that the 2001 or 2002 budget has to be less than 2000 budget. The key
plan hit by the directive is the proposed VPN deployment next year. Currently,
we are spending about Rs 1.8 crore on VSAT bandwidth. We were banking on the VPN
to bring down costs.

RN Mathur (Escorts): While we had been very liberal in giving
facilities like a PC per user, now we are more cautious. We are looking at how
PCs can be redeployed at various locations. While hardware is a one time capital
cost, we are trying to plug recurring costs like cartridges and other
peripherals.

HI Khan (Honda SIEL): Thanks to the slowdown, we are delaying certain
initiatives like ecommerce and focussing on streamlining and cutting down
non-productive internal tasks.

Dataquest: A majority of companies have deployed or are in the process
of deploying SCM. How do you define standards, which let your systems talk to
other systems?

Eicher: I am not aware of any standards in this area. It is tough for
suppliers since they are dealing with multiple vendors, each on a different
system. A supplier could actually conclude he was better off printing a challan
instead of now seeking compatibility with different formats, codification and
structures. Undoubtedly, there is a great need for standards.

Escosoft: Before defining standards we have to address the issue of
connectivity.

Sandeep Parikh (Perfetti): In a country like India and especially in a
business like ours, which has a low value and high volume, we work with
distributors who cannot even think of purchasing a PC, let alone connecting to
the net. There is a problem when dealing with large suppliers like Amul and
Nestle who have their own standards, so there is a clash of interests. While we
talk of information sharing, it is questionable whether organizations really
believe in it. For instance, Nestle is a raw materials supplier as well as a
competitor. So, whether Nestle would like to connect up to Perfetti or vice
versa is doubtful.

Sony India: In Sony, we have the eight-digit part number code, which
is the standard worldwide, so that is not an issue when you are connecting to
another Sony Company. When it comes to dealer’s distributors, we do it with
the part numbers.

Accenture: An important parameter of being competitive is the use of
SCM. Of course, there is no one solution to the complexities when we do
linkages. The level of SCM deployment will depend on the type of industry. For
example, if you are in a very competitive industry, it is important to get an
order quickly, book it and deliver the goods fast. In such a kind of situation,
it becomes very important to build efficient linkages.

I think the ideal would be that as soon as the order comes, it is booked, the
inventory gets updated and the order gets dispatched through the ERP system. But
accomplishing this is a complex task. I think the investment in attempting such
linkages would differ across items, customers and suppliers. Rather, it would
depend on how important that integration is. Only if it is strategically
important, then one should build on those linkages.

investmentS based on ROI...

Sony India: Three years ago, when we were deploying the SAP ERP
package, I was asked to quantify the return on investment of the entire project.
However, given the current competition, it is becoming difficult to quantify and
justify the same. You cannot do without ERP in any manufacturing setup and hence
there is no point in trying to quantify ROI with respect to exterprise resource
planning packages. Today, your procurement cycles and other cycles cannot
function without an ERP package. Therefore, despite the drop in budgets for
information technology purchases, investment in areas such as an ERP package is
a necessity.

Accenture: That is an important point. Today no one asks the ROI for
having an air conditioner in the office! We need to ask for ROI in terms of
processes rather than numbers. We need to ask how the benefits are going to come
in, what is the criticality to sales and how it will impact inventories. Just
because information is coming faster does not mean that we should spend a crore
of rupees on it. So, if a company is only going in for an ERP just because
everyone else is doing it, it are unlikely to get a benefit, primarily because
it does not know how to derive a benefit from it.

importance of online marketplace or B2B exchangeS

Eicher: We have been involved in setting up an
e-procurement system through a public market place. I think that the experience
has been pretty interesting and the key difference is that instead of having
your own item code, you have a catalogue based item code. So, suppliers have to
put in the item code based on the catalogue based item codes. So far, suppliers
have been pretty responsive. Even though just has about 30—40 suppliers are
connected, the response has been encouraging as it frees up time for procurement
rather than transaction processing. It also enables buyers to buy items from a
catalogue where we have prices and item rates that have been agreed upon
earlier.

Moreover, a public marketplace may be a more cost-effective
option rather than actually trying to buy all the software to set up a private
market place, like the industry consortia. If it is large Rs 1000 crore company
it makes sense to so a private market place, but not for a smaller Rs 300 crore
company.

Sony India: While private marketplaces will give you
some benefits, public market places haven’t really taken off. The biggest
problem here is the mindset. If one looks at the information exchange paradigm
of a large company owning a private market place, there is no considerable
benefit to a supplier. As a tier one or two supplier, one has to transact or
connect to each of these market places. This will result in lot of time and
transaction wastage for suppliers. Public market places are not succeeding and
are still struggling with the key issue of "how can I go to bed with my
competition."

When we talk of marketplaces, chief executives would
naturally like to know which competitors are participating in the same market
place and if yes how one can make sure that confidential data like pricing is
secure. Public marketplaces will catch up only after such issues are tackled and
done away with, and not before.

Accenture: This is an absolutely valid point. I think
that the company buys a host of different types of materials for which it would
not like to share information. So the paranoia is understandable. If I
categorize public market places in two types, horizontals that allow you to buy
a standard material in the market place, versus strategic direct material, those
are probably

the ones where the people would like to maintain confidentiality. However there
is a whole lot of generic material that people buy, which may not be large in
terms of value.

DATAQUEST Report