Reprogramming the High-Tech Supply Chain
Written by Jonathan Oomrigar, Vice President Global High Technology Business Unit, Oracle
The most successful technologies often mask complexity, but in the case of the high technology industry, business operations are anything but simple. In fact, the rapid rate of technology innovation, complex integration challenges and intense global competition have forced original equipment manufacturers (OEMs) to fundamentally transform their business models to meet the increasing demands of their customers.
Faced with a world of constant innovation, high technology customers are demanding that OEMs offer turnkey (single contract) installation and implementation services required to help them quickly and efficiently absorb innovations into their existing operations. This subtle, but significant change, fundamentally transforms the relationship between the OEM and their customers. As to compete in a hyper-competitive global market, OEMs are forced to redesign their business processes.
Aside from managing the complexity of integrating new products and services into their customers’ existing operations, this new world order creates a delicate financial balancing act for OEMs. While they previously realized revenues upon the delivery of a product or service, the payment model has shifted with installation services now being required. The new financial reality for OEMs is that payments are spread into distinct stages that need to be carefully managed. Here is a typical example of what those stages or tasks look like:
1) Staging: An OEM receives a small percentage of the overall payment once the equipment is delivered. While it is difficult to put an exact figure on the payment, it typically ranges from seven to 15 percent. It is worth nothing that prior to recent changes, this would have been the point when the OEM received the full payment.
2) Site Delivery: An OEM receives another small percentage of the overall payment, typically between 10 and 20 percent, when the equipment is verified onsite.
3) Preliminary Acceptance Test: An OEM receives a further payment once it has proved that the new equipment is working. This typically ranges from 15 to 25 percent.
4) Final Acceptance Test: An OEM receives the remaining payment when the new equipment is fully integrated into the customer’s existing systems. In some cases this stage can also include making sure the new equipment works with all third-party products, further compounding the project complexity and extending the time before final payment is made.
The reality of this new business model is that the billing structure for the OEM cannot fully recognize revenue until the project is 100 percent complete. For the enterprise and specifically the CFO, this exponentially increases the complexity and risk involved in every single customer relationship. To compound matters further, OEMs will manage tens if not hundreds of projects (installation services) simultaneously. To date, most have relied on manual processes to manage the end-to-end project lifecycle.
To manage this complexity and achieve the project execution and control capabilities needed to successfully deliver projects on time, within budget and with the intended quality and design, OEMs need a unified platform that combines world-class supply and project management capabilities. By automating and integrating multiple operational layers, OEMs are better able to:
· Reduce project-related inventory by helping ensure parts and components are delivered to project sites and clients at the right place and time
· Improve financial forecast accuracy through real-time billing execution for supply revenue recognition and predictable revenue planning for reliable cash flow
· Increase installation project efficiencies through increased visibility into global resources, streamlining the management and project scheduling
· Automate complex billing processes, thereby improving financial forecast accuracy
· Integrate project management and supply management to provide real-time “what if” scenarios that promote the efficient use of materials and installation resources
While the financial management, operational efficiency and customer service benefits that a unified supply and project management solution are clear, it also delivers a more subtle, but hugely important benefit. As by managing the complexity presented by the rapid rate of technology innovation, complex integration challenges and intense global competition, it will create new service revenue opportunities and stronger customer relationships. That’s a powerful proposition that can transform a potential nightmare into an exciting new opportunity.
ABOUT THE AUTHOR
Vice President Global High Technology Business Unit
Jonathan Oomrigar is vice president of Oracle’s global high technology business unit. In this role, Mr. Oomrigar is responsible for business development, sales enablement and the strategy for bringing Oracle Applications and technology to the high technology market. Today, he works closely with customers who are adopting service-oriented architectures to gain a competitive edge and prepare for growth.