PeopleSoft Building Muscles To Overcome The Rough Patch

Recently, on May 28, PeopleSoft announced the general availability of PeopleSoft eSettlements, an integrated, comprehensive solution for electronic invoice presentation and payment (EIPP) for global enterprises. As a part of PeopleSoft's Financial Management Solutions, the application was devised to optimize the source-to-settle' process by providing a common platform for buyers and sellers to exchange and match transactions, such as purchase orders, receipts, and invoices.

For many companies, the settlements process is still primarily manual and paper driven and essentially one-way, resulting in expensive, inefficient, and error prone business processes. With PeopleSoft's eSettlements, companies would receive invoices electronically, send alerts and notifications, and resolve disputes online. In addition, buyers are able to extend their procurement and payment rules, such as matching and payment selection criteria, whereas sellers can improve customer relationships and reduce days of sales outstanding (DSO) through on-line tracking and resolution of payment issues. The result should consequently be lower costs, shorter cycle times, fewer errors, and higher productivity.

On May 14, PeopleSoft announced the general availability of PeopleSoft Enterprise Service Automation (ESA) 8.4. The product reportedly continues to gain strong market acceptance, with more than 180 customers licensing the product since its introduction in Q3 2001. PeopleSoft ESA was devised to provide real-time visibility and control to manage spending on services as well as internal projects to reduce costs associated with securing contractors and managing resources, and streamlining the execution of projects across the enterprise. The release of PeopleSoft ESA 8.4 includes new functionality especially designed to meet the unique requirements of global customers and customers in the public sector. To that end, the key functionality to meet the specific needs of the Education and Government sector includes commitment control, fund accounting and services procurement.

As for Global Customers, PeopleSoft ESA 8.4 introduces European country-specific functionality. The solution now supports Value Added Tax (VAT) in Contracts and European Expenses, including Per Diem, Mileage Reimbursement, and VAT configuration by expense type and country. This new functionality should increase efficiencies for global organizations that operate and manage projects across multiple countries.

In addition, PeopleSoft ESA 8.4 delivers expanded integration with Microsoft Project 2002 to provide enhanced project control functionality that includes project level budgeting, work breakdown structure (WBS) support and activity level integration. PeopleSoft ESA includes the following applications: Services Procurement; Resource Management; Contracts; Projects; Expenses; Mobile Time and Expense; Mobile Time and Expense - Palm and Travel.

Further, at the PeopleSoft Leadership Summit 2002 at the end of April, PeopleSoft unveiled a number of new applications that should extend its already broad applications portfolio. First of all, building on 14 years of leadership in the human resources management systems (HRMS) industry, the company announced touted breakthrough Human Capital Management (HCM) solutions that should align and leverage workforce contribution with corporate objectives. PeopleSoft announced three new modules with a view towards extending its proverbial lead in the HRMS industry providing solutions from managing traditional HR and payroll, to connecting employees and managers through self-service. PeopleSoft's new HCM solutions include:

* PeopleSoft Sales Incentive Management (SIM) should enable organizations to design and implement incentive plans that align sales force behavior with enterprise objectives in real time. The solution should also reduce the complexity and repetitive, error-prone nature of today's incentive compensation systtems, as the entire sales incentive process from planning through payment will be provided online.

* PeopleSoft Performance Management should enable a company to overlay and enforce corporate objectives all the way from the boardroom to the storeroom, as every employee can be aligned with the management by objectives (MBO's) of the company, and any employee not aligned can be easily identified to ensure that valuable resources are not wasted.

* PeopleSoft Enterprise Learning Management should enable organizations to dynamically deliver training where it is needed, both inside and outside the enterprise, with learning systems being integrated with both performance and incentive management applications.

Following up on this strategy, on June 11, PeopleSoft announced Enterprise Incentive Management (EIM), a product suite to be included in the above-introduced HCM solutions. PeopleSoft's EIM suite will also provide organizations with the capability to model, manage, communicate, and measure incentive compensation in alignment with specific business objectives across departmental boundaries. PeopleSoft Sales Incentive Management (SIM) is the first product to be introduced in the EIM suite.

Also during the same event, PeopleSoft announced that organizations around the world are rapidly adopting its Supply Chain Management (SCM) solution, which includes Supplier Relationship Management (SRM), Manufacturing, Supply Chain Planning (SCP), Customer Fulfillment Management and PeopleSoft Supply Chain Analytics solutions, and provides more than 450 embedded performance indicators for the management of real-time business processes. During the first quarter of 2002, more than 50 organizations reportedly went live on PeopleSoft SCM. The company also announced the general availability of two new supply chain solutions, Strategic Sourcing and Trading Partner Management (TPM).

With the announcement of PeopleSoft Strategic Sourcing, PeopleSoft claims to offer the only solution that manages the entire source-to-settle process for all goods and services, as companies can directly generate contracts and purchase orders from bid evaluation screens, and thereby significantly reduce processing time. In addition, with PeopleSoft Strategic Sourcing, companies should identify and measure suppliers on numerous criteria driving more profitable supplier relationships. PeopleSoft Trading Partner Management (TPM) provides a unified interface to manage any type of electronic trading relationship. Companies can choose from multiple communication methods, including FAX, EDI, XML, Portal or Web Services, which should enable them to remove barriers associated with supplier enablement.

Additionally, PeopleSoft announced the general availability of its next generation Enterprise Portal. PeopleSoft believes it has raised the bar for enterprise portal solutions with functionality such as Intelligent Context Manager and Web Services integration. Intelligent Context Manager proactively prompts users with relevant information when they initiate transactions within the portal. Information is automatically displayed enabling users to navigate through the business process in an informed manner.

For example, using a traditional portal approach, an accounts payable clerk would see that a customer is overdue on a payment. The clerk would typically send the account to a collections department or agency -- never knowing there is a large sales opportunity in the pipeline from the same delinquent payer. With Intelligent Context Manager, the clerk is directly notified of the sales opportunity at the same time he or she is accessing the receivables information.

PeopleSoft also touts to be the only enterprise portal vendor to utilize Web Services standards as its primary integration method, as the Enterprise Portal enables customers to directly syndicate Web Services content into the portal, with a prospect of reducing costly programming and maintenance, and lowering the total cost of ownership (TCO).

Last but not least, PeopleSoft announced new industry solutions for Customer Relationship Management (CRM), expected to be available later this year. In addition to existing solutions for Financial Services and Communications, PeopleSoft announced CRM solutions for Government, Insurance, Energy and High Technology.

* PeopleSoft CRM for Government should give government organizations the ability to provide fast, effective service through multiple channels. For example, state and local governments will have the capability now to be able to: manage non-emergency "311" communication between government organizations and their constituents; automatically assign constituent inquiries to the right department; graphically display the location of reported problems and work crews; and reduce administration costs by providing self-service access to online support services.

* PeopleSoft CRM for Insurance should deliver functionality to manage all lines of insurance including property and casualty, life and health. The solution will model insurance policy relationships, providing a comprehensive view of a customer's insurance portfolio — from claim to billing to payment, while self-service capabilities will give customers online access to product information, policy quick quotes and the ability to file claims in real time.

* PeopleSoft CRM for Energy should provide a comprehensive solution designed specifically for energy retailers and distributors. The functionality will include: premise management support to administer service points and assets; service management support for move and transfer of service transactions; tracking and resolution of power outages, gas leaks and other emergency and non-emergency services; comprehensive account billing and management functionality; and loyalty and retention analysis for up-selling and cross-selling products and services.

Better Management of Contracts

Furthermore, whether it’s purchasing a new car or a new server, companies often encounter a disconnect between sales and operations, since much service business is now done on long term contracts. So, when the salesperson throws in a discounted service contract with that new office phone system, for instance, the company cannot determine if it is losing money or making money from that service contract, as it includes not only the price of the service parts, but also the cost of the field technician’s time and expertise.

Historically, companies have not tracked whether these contracts have been profitable or based on hard data. With a service parts pricing solution like Servigistics’, companies can track previous contracts and then forecast over the life of future contracts, including data on breakage rates, locations with higher usage, seasonality, and other customer requests to determine the profitability of the contract.

Finally, pricing also goes hand in hand with service parts management (planning and inventory optimization), since maximizing pricing profitability while reducing inventory is a significant boost to the bottom line. The business can not only save money, but also make money by optimizing the service parts. Servigistics is currently the only global provider that provides both capabilities. Well, to be fair, Syncron does both too, but currently mainly for small-to-medium companies and only in certain regions (e.g., Europe).

Part II of this blog post will analyze the pricing software market’s current state of affairs and also report on the current pricing approaches and findings of retailers. Your views, comments, opinions, etc. about any above-mentioned pricing solution and about the software category per se are welcome in the meantime.

Pricing Management in a Down Economy — Part 1

Not long ago, I wrote about the pricing management and optimization software market, and in particular depth about two bullish vendors and fierce competitors in the business-to-business (B2B) manufacturing and distribution segments: Zilliant and Vendavo. Look for similar write-ups down the track on DemandTec, Symphony Metreo, and on the Servigistics pricing solution (whereby the last will focus solely on spare parts pricing and planning).

While I do not plan to cover the esoteric pricing solutions used by airlines or hospitality companies (e.g., Rapt or PROS), there is also a vibrant pricing market in the retail sector, as seen with SAP’s acquisition of former KhiMetrics and Oracle’s similar acquisition of ProfitLogic. In addition to TEC’s article entitled “The Retail Battleground for Pricing Management”, you can find more information about SAP’s perspective on the pricing market here, and Oracle’s pricing offering here.

But, the dates of all these articles will indicate that they were done during a still-solid economic milieu worldwide. It doesn’t take a genius to realize that we are now in quite a down economy. Given the dreaded “R” world hovering over us, are there any trends (or hunches) on how manufacturing, distribution and retail organizations use pricing solutions? Namely, do the enterprises have different pricing approaches in good vs. bad economic times?

On one hand, soaring gas prices force (or at least tempt) everyone to instinctively raise their prices too, but, on the other hand, the buying power of (soon to be) unemployed and/or disconcerted consumers and enterprises is quite limited. No one can just get carried away with increasing prices to compensate for costs given that folks have less and less buying power (plus the pervading belt-tightening psychosis).

This is certainly too complicated an issue to have a single correct answer. While luxury consumer goods like caviar or Rolex watches are not really impacted (i.e., their demand is inelastic, since rich folks always have money), for most consumer goods that are discretionary, price is a big deal and demand is elastic.

We can see even more discounting and promotions here, since the base price doesn’t do a lot, whereas promotional discounting lets consumers know that the price is lower and that it is a limited time offer. For necessities (food and over the counter [OTC] and generic drugs) we can see a change in buying patterns — people still need the product, but will likely switch to a lower price-point offering.

Thus, for example, the profitability pictures of large food manufacturing and distribution companies do not really suffer, since these giants sell fewer of the higher price-point items but will compensate with the higher volume of the lower price-point items in a downturn. If a food (or a specialty retail) company only has a premium brand (e.g., Ben & Jerry’s ice cream or Starbucks‘ coffee drinks), it will likely suffer, as seen in recently announced closures of 600 Starbucks stores in the United States –US (luckily, none of them in my neighborhood). Conversely, if companies mainly have low price-point brands, they might even gain sales these days, as is the case with many discounters.

Spare Parts Pricing

Spare parts are somewhat like food and drugs — in most cases, the customer must have the part but may want to buy a lower priced alternative. Yet the healthy margins on parts (usually around 25 percent) can absorb even some price reductions if necessary (or simply not raising the prices) as the suppliers’ prices go up. Hence, I suspect the spare parts’ prices will not go up as fast as some might expect.

Servigistics claims that while a down economy certainly curtails the purchase, and hence, the production of new products, the demand for service actually increases. That is because businesses want to save money and get more out of their initial investments. Consider the airline industry as an example. Many embattled airline companies are deferring the purchase of the newer, more expensive planes, which forces them to fly the cheaper and aging planes (and which might be a disconcerting thought to us flyers).

This means more service work is needed, hence more service parts are required. So it goes with the heavy industrial, high-tech, motor vehicle, medical equipment, and, especially, consumer durables sectors. Trying to sell new products in a down market is difficult, but selling service (and accompanying parts) is much easier.

At the same time, more and more companies are realizing that service has shifted from being a cost center to becoming a profit center. While products have become commoditized, service is difficult to replicate and can be a competitive differentiator. In fact, field service is quite a different business model story, with profit margins as high as 50-60 percent. Plus, while service providers can be more flexible towards absorbing suppliers’ price increases, it is also often harder for the customer to get a lower priced option for service in many cases.

So how can companies capture more of the service business? Well, one way is through optimizing business processes using well-attuned software packages, and the service parts pricing ones would be a great example. Maximizing profitability on every part is a strategic way to boost profit.

Many service parts have an elasticity curve: bring a part price down a bit and it should sell more, thereby increasing volume and profit. Or, maybe a business is leaving money on the table because a part is priced unnecessarily too low? So, logically, raise the price, and once again, capture more profit. In a nutshell, service parts pricing is all about intelligently pricing yourself in the market.

For example, one world leader in the agricultural and construction equipment businesses relied on the outdated and manual cost-plus method to determine the price for service parts on its construction equipment. The formula was simple: every quarter the company increased the service parts prices; however, over time, the managers noticed that demand began to drop considerably.

After a corporate mandate to increase service revenue, this original equipment manufacturer (OEM) conducted in-depth market research to discover the source of decreasing demand. The managers found that the vast majority of their service parts were priced well-above the market averages across all categories. This overpricing attracted competitors to the market. And the competitors were beating the OEM out because of the lower prices. Why buy an OEM part if there’s one that’s cheaper, while the quality goes without saying?

In order to increase demand for their parts, the OEM set up a program for market research to be conducted on a quarterly basis in order to bring prices back into the competitive zone. However, research was along the “set (prices) and forget” theme, since there was no tracking of competitive response over time. Therefore, the complex spreadsheets were left to collect dust after just one use.

With a new pricing software solution in place, the construction equipment manufacturer could now systematically measure and calculate price sensitivity on a regular basis. This is especially important when new product orders are down and service orders are up.

The pricing solution also enables differentiated market strategies, since without it, companies may end up competing against themselves. For example, some buyers might purchase parts in North America where the price is lower than in Europe. Since exchange rates change all the time (and the current weak US dollar doesn’t help either), buyers can then re-sell these parts in the European market for even less than what the OEM is charging.

ERP System Constraints in the Process Industry

For lack of an available solution designed for their needs, some process manufacturers have attempted to implement an ERP system for discrete manufacturing. As there are several fundamental differences between the operations and practices of process and discrete manufacturing, opting for such a stop-gap measure is not always effective. Process manufacturers have no doubt noted the constraints that are placed on their operations as a result of using a system that was not designed for their needs.

The nature of the process manufacturing business is such that it is difficult to manage inventories and profits. Process manufacturers experience large quantities of finished product in transit and of raw inventory. The products often have low yields with substantial scrap (fine chemicals, pharmaceuticals, or plastics).

Business dynamics is putting demands on ERP systems to help with

* maintaining a lead over competition
* simplifying the product lines
* responding to shorter product life cycles
* providing mass customizations (car options, computer system accessories, etc.)
* complying with regulations compliances

In an attempt to meet these demands, many manufacturers have looked at ways to improve supply chain optimization by re-examining manufacturing processes, relocating closer to markets, and looking at cheaper energy, transportation, and labor. The businesses' needs are such that an ERP system must be powerful enough and diverse enough in functionality to do more than simple process manufacturing.