Entity Level Business Model - Example Part 2

Consumer Products Core Business Processes

Core business processes are the processes that develop, produce, sell, and distribute an entity’s products and services. These processes do not follow traditional organisational or functional lines, but reflect the grouping of related business activities.

The model is structured in a simplified supply chain format, with six core processes, four of which are subdivided into two sub-processes.

The linear nature of the graphics should not imply that these processes always take place sequentially.  Indeed many of the activities detailed within the model occur on a continuous basis, with many operating in parallel.  The model is designed to provide examples, at a high level, of the activities you are likely to find in a consumer products company.  The way in which that a company operates will of course be unique, and you will need to understand, and be able to group, their specific processes in a way which is relevant to the company.

The selling process is placed towards the front of the model for a specific reason.  Although the activities of receiving a customer’s order, assembling and delivering the goods, and invoicing the customer, will often take place towards the end of the chain, the selling process itself, is continuous, focused on good customer account management.  As more consumer products manufacturers improve their flexibility and responsiveness to their customers, the ultimate goal, of making to-order, becomes more relevant.  Putting selling at the front of the manufacturer’s supply chain, emphasizes this fundamental shift, from producing for-stock, towards producing to-meet demand.

Manage Product Portfolio

This process manages the portfolio of products offered by the entity and develops new products or improves existing products as markets and customers needs change. It has  two sub-process Components:

• Portfolio/ Brand Management
• New Product Development

Portfolio/ Brand Management

Process Objectives

1. Focused product portfolio
2. Growth opportunities
3. Increased share of market
4. Product differentiation (brands)
5. Increased sales (volume and value)

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Development of product/brand recognition  (1,2,3,4,5) Maintenance of retail customer support (3,4,5) Promotion/deal effectiveness (3,4,5) Awareness of products with the most potential for increasing sales (1,2,3,5)	Promotional spending, market share (A) Trade spending/customer paid promotions (B,C) Incremental net revenue; incremental market share; promotional redemption vs category norms (A,C,D)

Classes of Transactions

Routine Advertising (brands) Promotional / direct marketing costs

Non-Routine Barter transactions

Accounting Estimates Accruals (coupons, mailers, displays) Deferred promotions Intangible assets (brands)

Risks Which Threaten Objectives	Management Responses Linked to Risks
Noncompetitive pricing (3,5) Low brand awareness (brands) (2,3,5) Ineffective promotion (brands) (2,3,5) Lack of vision/description when assembling portfolio (1) Lack of creative product development team that understands market (4)	Monitor sales gains, losses and competitor activity (A,D) Regular consumer research and dialogue (A,B,C,D,E) Tracking of promotion/advertising results (A,B,C,D)

Other Symptoms of Poor Performance

Long trail of low volume, low profits

Low redemption of consumer promotions

Overlap of product positioning

Performance Improvement Observations

Promotional effectiveness analysis Promotional modeling

Database marketing Accounting method review

Executive information systems Strategic review of brands (positioning, pricing)

New Product Development

Process Objectives

1. Improve sales and profit
2. Deliver customer satisfaction
3. Refresh product mix
4. Expand existing market

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Effective use of market research (1,2,3,4) Ability to respond quickly to market opportunities or   competitive threats (1,3) Meeting consumer/customer requirements on price and performance of new products (1,2,3,4) Effective use of all resources dedicated to introducing new products (1,3)	Internal failure rate; impact of internal failures (A,D) Product development cycle time (B) Percentage of revenue from new products; market share of new products (B,C,D) Introduction return on investment (D)

Classes of Transactions

Routine Costs for designing and developing prototypes, including wage costs and capital additions

Non-Routine Third-party alliances / royalty arrangements Research and development funding arrangements

Accounting Estimates Reserve for obsolete products

Risks Which Threaten Objectives	Management Responses Linked to Risks
Too slow to market with new products (1,3,4) Failure to get trial of new products (1,3) Failure to get sustained sales of new products (1,2,3,4)	Use of cross-functional teams to ensure accurate product costing, manufacturability and customer/consumer acceptance (A,B,C) Obtain feedback from customers/consumers to advertising and promotional concepts (B,C) Approval of market research, product development and product introduction plans by senior management (A,C)

Other Symptoms of Poor Performance

Low production efficiencies New products only cannibalise own business

New products are copies of other products

Inability to service marketplace

Performance Improvement Observations

Competitive market and product analysis Research & experiment-ation credit analysis (US)

Product development design process Capitalisation review

Cost re-structuring, re-allocation

Sell Products

This process manages the entity’s customers and the interaction with them.

• Account Management
• Customer Order Management

Account Management

Process Objectives

1. Maximise profitable sales
2. Ensure all sales opportunities are realised
3. Maintain appropriate in-store presence
4. Seek collaborative development opportunities
5. Establish points of differentiation vs competitors

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Quality of account sales managers (1,2,3) Acceptance of trade programmes (1,3,4) Clear understanding of customers current needs and   future strategy (1,3,5)	Net sales per salesperson; customer profitability (A) Trade promotion spending (B) Customer satisfaction survey results (C)

Risks Which Threaten Objectives	Management Responses Linked to Risks
Poor communication with customers (2,4) B.    Rejection of trade Programmes (2,3,4) Better perception of competitors by customer (5) Poor customer service (1,2) Unwillingness to pursue alliances (4) Lack of gross profit by customer/product line information (1)	Regular feedback from customers (A,D) Comprehensive category and market analysis (B,E) Monitoring of competitors trade programmes (C) Maintain strong customer service department (D) Providing gross profit by customer/product line Information to account sales managers (F)

Other Symptoms of Poor Performance

Account managers have no responsibility for profit

No central coordination of account managers

Large number of credit queries

Performance Improvement Observations

Sales force automation “Best practice" promotions

Category management Customer / competitive analysis

Analysis of trade programme performance Cost-to-service analysis

Customer Order Management

Process Objectives

1. Communicate product demand to distribution
2. Establish warehouse, transport, invoice cycle
3. Confirm price and delivery terms

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Efficient and accurate entry of customer orders into system (1) Accurate product pricing, promotions database (3) Efficient communications links in responding to customer issues (1,3) Effective, integrated IT system that is easily understood executed by employees (2)	Percentage of orders accepted via EDI; customer order error rate (A,D) Number of deductions, credit notes (B) Number of unresolved customer issues (C) Order to delivery time (D)

Classes of Transactions

Routine Sell products Invoicing customers Receive payments Accrual of rebates

Non-Routine Unusual collection problems Sales of accounts receivable

Accounting Estimates Reserve for bad debts Reserve for product returns

Risks Which Threaten Objectives	Management Responses Linked to Risks
Inaccurate order entry (1) Poor internal communication (1,2) High level of deductions; unresolved customer order / invoice issues (3)	Efficient order entry procedures (for example, EDI) (A) Use of integrated systems for order management (order entry, inventory management, logistics / transportation) (B) Simplified pricing / promotion policies; single point of contact for customer regardless of issue (C)

Other Symptoms of Poor Performance

High activity levels involved in sales order processing

Long time-span between receipt of customer order and dispatch

Performance Improvement Observations

Sales force automation Activity-based costing (cost-to-serve analysis)

Business process re-engineering Foreign sales corporation tax planning (US)

Enterprise package software implementation

Procure Materials

Description

This process manages the entity’s supplier and the entity’s interaction with its suppliers.

• Supplier Management
• Purchase Order Management

Supplier Management

Process Objectives

1. Appropriate mix of suppliers
2. Quality assured supply
3. A supply base committed to continuous improvement
4. Enhanced margin through cost reduction

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Suppliers provide superior delivery performance (1,2) Clarity of specification (of materials and performance) (1,2) Proactive management of supplier relationships (3,4)	Supplier on-time delivery performance (A) Supplier quality performance (B) Ratio of materials to suppliers; material unit cost trends (C)

Classes of Transactions

Routine Accrual of vendor rebates / discounts

Non-Routine Long-term contracts / commitments with suppliers

Accounting Estimates

Risks Which Threaten Objectives	Management Responses Linked to Risks
Poor quality suppliers (2,3) Ineffective supplier selection process (1,2,3) Lack of focus on value-added purchasing (3,4) Long delivery lead time (2) Lack of secondary (backup) suppliers (1,2)	Supplier assessment and selection procedures (A,B) Robust supplier performance measurement system (A,B,E) Purchase price analysis systems (C) Just-in-time inventory strategy (D)

Other Symptoms of Poor Performance

Growing number of suppliers Cost savings not delivered

Conversion difficulties

High turnover of suppliers

Performance Improvement Observations

Supply base rationalisation Vendor partnering strategy

Procurement process improvement Supply chain integration

Procurement team training / development

Purchase Order Management

Process Objectives

1. Communicate material demands to suppliers
2. Establish procurement; receipt; payment cycle
3. Establish requirements and prices with suppliers

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Efficient communications links with suppliers and internal customers (1,3) Use of just-in-time purchasing (2,3)	Purchase order error rate; percentage of purchase orders transmitted via EDI; percentage of invoices received via EDI (A) Suppliers continuous replenishment programme (CRP) performance; raw material CRP performance, raw material turnover ratio (B)

Classes of Transactions

Routine Purchase orders Invoices Cash disbursements

Non-Routine Bill and hold transactions Consignment stock contracts

Accounting Estimates Commodity hedging valuation Vendor return allowance

Risks Which Threaten Objectives	Management Responses Linked to Risks
Inefficient purchase order system workflow (1,2) Too many people in the process, poor communications Suppliers invoicing for appropriate price, quantity (1,3)	Use of integrated systems (e.g., manufacturing, procurement, accounts payable) (A,B) Extensive use of electronic data interchange (EDI) transactions (A,B) Monitor purchase order, material receipt, invoice clearance/payment cycle (C)

Other Symptoms of Poor Performance

High level of activity surrounding purchase order processing

Inordinate time between order commitment and purchase order usable by accounts payable

Performance Improvement Observations

EDI application installation Enterprise package solution implementation

Business process re-engineering

Duty draw-back service

Manufacture Products

This process manages the activities that are used to produce the entity’s products.  The planning and materials management aspects are included in this process.

• Production Planning & Materials Management
• Conversion

Production Planning and Materials Management

Process Objectives

1. Efficient use of resources
2. Smooth supply chain flow
3. Minimal stock in supply chain
4. Plans which can meet customer needs
5. Maximisation  of capacity

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Efficient delivery of raw materials (1,2,3) Optimal raw material stocks (1,2,3) Accuracy of management data and forecasts (3,4,5) Integrated approach to planning (2,3,4,5)	Supplier on-time delivery percentage (A) Raw material inventory turns (B) Actual sales vs forecasts (C) Material usage vs planned (D)

Classes of Transactions

Routine Receipt of materials

Non-Routine

Accounting Estimates Reserve for obsolete inventory Inventory valuation (commodities businesses that record at market)

Risks Which Threaten Objectives	Management Responses Linked to Risks
Sales forecasting and planning tools not integrated (1,2,3,4,5) Poor communication internally and with suppliers (1,2,3,5) Inaccurate BOM files (1,3) Unresponsive suppliers (1,2,3)	Use of cross-functional production planning process (A) Continuously monitor actual vs plan and communicate changes (A,B) Frequently update/check BOM file accuracy (C) Monitor supplier performance (D)

Other Symptoms of Poor Performance

Long lead time High inventory levels

Improper delivery quantities

Key drivers not included in planning

Performance Improvement Observations

Enterprise package solution Activity-based costing

Supply chain integration

Business process re-engineering

Conversion

Process Objectives

1. High quality products
2. Low unit costs
3. Customer responsiveness
4. Minimal inventory in supply chain
5. Production effectiveness

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Optimum use of manufacturing resources (1,2,4,5) Use of quality assurance and preventative maintenance programmes (1,2,3,4) Use of good manufacturing practice (1,5) Productive workforce (2,5)	Capacity utilisation; changeover time; overall equipment effectiveness rate (A,B,C) Scrap rate; percentage of overhead (burden) rates and variances spending on preventative maintenance (B,C) Government/industry ratings (C) Labour efficiency rates (D)

Classes of Transactions

Routine Production of inventory Movement of inventory (transfer pricing)

Non-Routine Bill and hold transactions

Accounting Estimates

Risks Which Threaten Objectives	Management Responses Linked to Risks
Poor material flow and quality (1,2,4,5) Production capability does not match production needs (2,3,4,5) Badly maintained production equipment (2,4,5) Workforce that is not committed to producing high quality goods (1,3)	Use of effective preventative maintenance programmes (A,C) Use of modular manufacturing systems or contract manufacturing (B) Monitor production/maintenance costs (C) Employee awareness programs which emphasize quality (A,D) Incentive pay base on performance (D)

Other Symptoms of Poor Performance

Sub-optimal capacity utilisation Lost time accidents

Absenteeism rates

Poor labour utilisation

Performance Improvement Observations

Activity-based costing Transfer pricing studies

Business process re-engineering Production facilities optimization

ISO 9000 programme

Distribute Products

Process Objectives

1. Improve on-time delivery of products
2. Improve order fill rate
3. Provide excellent customer service at optimal cost
4. Finished goods assets secured
5. Product quality maintained
6. Reduce order fulfillment cycle

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Good understanding of customer delivery requirements (1,2,3,5) Accurate stock recording and rotation (1,2,6) Accurate order picking (2,3,6) Performance-based contracts with transport providers (1,6) Maintain goods in a protected, secure environment (4,5)	On-time delivery rate; order fill rate; order fulfillment cycle time (A,B,C,D) Days supply; distribution inventory turnover (A,B,C) Order picking accuracy (C) Total logistics cost per case (D) Number of cases lost or damaged in the warehouse (E)

Classes of Transactions

Routine Inventory movements Invoicing

Non-Routine

Accounting Estimates Reserve for obsolete inventory

Risks Which Threaten Objectives	Management Responses Linked to Risks
Incomplete/inaccurate customer orders (1,2,3,6) Non-competitive distribution services (1,2,3,5,6) Poor stock rotation/management (4,5,6) Unreliable transportation providers (1,2,3,6) Inadequate warehouse facilities (4,5)	Monitor on-time performance and accuracy of shipments to customers orders (A,B,D) Monitor distribution costs vs budget and service against “best practices” and competition (A,B,D) Measure inventory turnover and days supply in warehouse (C,E) Use performance-based contracts with carriers (D)

Other Symptoms of Poor Performance

No delivery performance data No transport/order picking schedules

Untidy warehouse High level of back orders

Poor stock records

Performance Improvement Observations

Continuous replenishment programmes Logistics studies

Cross-docking programmes Distribution facility network optimisation

Activity-based costing (cost-to-serve analysis) Cost re-structuring models

Serve Customers

Process Objectives

1. Expedite resolution of customer problems
2. Improve feedback quality and timeliness to allow product and process improvements
3. Reduce time to reimburse customer claims
4. Reduce time to repair/service product

Critical Success Factors (CSF’s)	KPI’s Linked to CSF’s
Train and empower employees to resolve issues to customer satisfaction (1,3,4) Provide access to all parties needed to resolve issues (1,3,4) Maintain on-line, in-depth database of problems and resolutions (1,2,3,4)	Time from initial customer contact to response (A,B,C) Time from initial customer contact to time reported to applicable parties (B) Number of repeat customer complaints; results of customer satisfaction surveys (A,B,C)

Classes of Transactions

Routine Customer returns/claims Sale of service agreements

Non-Routine Product recalls

Accounting Estimates Determination of warranty liability Product recall liability estimates

Risks Which Threaten Objectives	Management Responses Linked to Risks
Databases/systems that do not allow in-depth and timely knowledge and resolution (1,2,3) Employees not properly trained and empowered (1,3,4) Claims are not fed back to process owners in a timely manner (2)	Monitor resolution times and follow up slow responses (A) Use of high-performance work groups, formal policies and procedures (B) Regular review of unresolved or open claims (A,C)

Other Symptoms of Poor Performance

Unprofitable service contract business High warranty costs compared to budget and industry norms

High number of abandoned calls

Complaint system not linked to payment

Performance Improvement Observations

Benchmarking Call response analysis

Data warehousing Automated data transfer system

Accounting methods review