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Riordan Manufacturing - Outsourcing Plan

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Riordan Manufacturing - Outsourcing Plan
Riordan Manufacturing, Inc. leads the industry in plastic injection molding. Riordan has six manufacturing locations in the United States, and one location in China. Riordan creates innovative plastic designs using state-of-the-art technologies that have earned them international acclaim. The various business entities of Riordan Manufacturing are using different Financial and Accounting applications and their incompatibility is causing many issues in the day to day operations of the company. In order to improve the productivity and efficiency of the business entities, Riordan management is considering outsourcing the Financial and Accounting Application for all the business entities. Outsourcing this application can provide specialized support, can increase the speed for a quick turnaround, and can reduce costs for maximized profits. This document provides the business context, implementation plan, performance measures and review of the costs and benefits of the proposed solution.
Business Context Riordan Manufacturing has three operating entities, and a joint venture with their own Finance & Accounting Systems. These F&A systems are not compatible with each other, and they are from different vendors, and on different hardware and software platforms. Consolidated financial reports are generated monthly at the corporate office based on the input received from the business entities. Due to compatibility issues, Riordan is experiencing many operational difficulties when generating the consolidated financial reports. Business entities submit the input in different formats and types. Data input received in the form of hardcopy reports needs to be re-entered, some data needs to be converted or redirected to the proper account codes and because of all of these factors, generating the consolidated F&A reports have become a labor intensive and time consuming process. Monthly auditing has become very costly and compliance with government regulations has become a challenge. Riordan management has recognized the need for a solution or other alternatives to resolve these operational issues. This solution needs to meet all of the requirements of the business and users as well as being a cost effective solution.
Business Requirements

The existing F&A systems implemented at the operating entities of Riordan Manufacturing have the following modules; General Ledger, Accounts Payable, Accounts Receivable, Order Entry, Procurement, Sales and Purchasing History, Invoicing and Shipping, Payroll, and Financial Reporting. F&A systems implemented at the corporate office also include the modules for EDI, Bar Code Reading, and EDSS (Executive Decision Support System). The proposed solution should provide all of these modules, and more. Since the operating entities are in different time zones and countries, the new application should provide the features like multi-currency, multi-time zones, etc. to support a global implementation. The proposed application should be compatible with the existing applications implemented at Riordan Manufacturing while performance, scalability, and modularity are also deciding factors in the selection of the new application. The expectation is that the process of consolidating the close of the general ledger and subsequently the income statement and balance sheet report generation will be straight forward and it can support the requirements of the external auditors. The effective management of the general ledger can provide greater control over the accounts receivables, accounts payable, payroll expenses and much more. At present each entity is maintaining invoicing, payments, etc. for their customers and suppliers. The new application also should support this business process, so that the entities can continue to manage invoicing and payments for their customers and suppliers. These types of tools provide a much more accurate time and cost accounting as well as a better management of departmental budgets. The cost of the proposed solution should be reasonable and the return of investment (ROI) should be attractive so that the Riordan Manufacturing Executive Committee approves the project.

Implementation Plan The implementation of a financing and accounting software package is an important step in the Riordan Manufacturing outsourcing plan. Many factors go into properly implementing a new software package including company budgets, available support and software package reputation. One key factor to consider with such an implementation plan is the level of interruption this may cause for the daily financial activities that take place in the company. It is important that new financial management software be implemented as quickly as possible with minimal training since financial processes cannot allow much time for disruption. Rolling out a new financial software package can either slow operations down significantly due to ongoing training, troubleshooting or data migration issues. This makes it important to consider an off-hours implementation to limit down time for the users. Management should be in agreement as to the scheduling of the inplementation. Each manager needs to be able to communicate this schedule to his or her direct reports. Proper communication should be used with users detailing the timeframe of the implementation plan. For these reasons alone, it would be deemed more effective if the roll out took place in phases. Phased deployment can minimize the interruptions caused by a new system implementation. Furthermore, a phased deployment plan can allow more time for last minute corrections to take place or further testing to be conducted before the software is rolled out across the entire business. Extensive testing will need to take place before full software production rollout and is a vital aspect of the implementation process. Simulating the typical business day using the newly developed software will expose any flaws and help to avoid any types of disruptions after the implementation process. It is important that the IT department along with the finance or accounting department work together to properly implement the accounting software as this will ensure that the proper level of understanding of the software exists between the two departments. This will also allow the Riordan Manufacturing IT department to understand the accounting department goals for this software so that they can provide the proper level of support. Additionally, in order to properly implement new software, Riordan Manufacturing must ensure that the appropriate amount of training is provided for its users. Proper training is needed to ensure that employees are able to perform administrative duties effectively and efficiently. It is likely that a separate specialized team will assist in the implementation process by devoting its efforts to the training process. Taking this approach can maximize training efforts while allowing other personnel to focus on other aspects of the implementation process. Considering the training requirements for the various entities and the future training requirements, it is recommended to develop Web Based Training (WBT) system. WBT will help train more users in short period of time and also helps to save on training expenses. End users will be able to attend training sessions as per their work schedule and they can learn the new application at their own pace. WBT helps to provide training to new employees without any additional investment for training materials or travelling expenses. When there are changes to business requirements, or new business processes are introduced in the application, WBT provides the flexibility to train employees at all entities efficient and effectively. Lastly, management needs to provide the proper level of communication to all parties involved in the implementation. Lack of communication will lead to missed tasks and misunderstandings. It is better to over communicate than to not communicate enough. In the end everyone involved will know what is going on every step of the way.
Metric and Non-Metric Performance
Collaborating and pairing with an outsourced finance and accounting provider will benefit the organization in many ways. Some of these benefits include cost savings, improved efficiency, and streamlined processes. In an effort to maximize the potential benefit of outsourcing finance and accounting responsibilities, providers require the establishment of appropriate performance metrics. Performance metrics for outsourcing providers are typically one of few essential components outlined in the Service Level Agreement (SLA), which includes many pre-established measurable contract obligations. These metrics will be used to measure the performance of the service provider and determine whether they are meeting the commitments during the course of the outsourcing project (Hayes,2009, p.1. para 4).
Performance Metrics
In establishing the performance metrics, importance is drawn to understanding what is considered tangible or measurable and intangible or immeasurable non-metric performance evaluations and challenges. Some of the tangible performance metrics include important elements such as volume of work produced and requested, quality of work, responsiveness, and efficiency, which require some inputting factors based on the organization and the outsourced finance and accounting provider selected. Based on the fact that non-metric performance is not easily measurable, scalable, or quantifiable, some non-metric elements include pre-existing work to be taken on by the outsourced provider and unofficial work requests that are not part of the standard process within the accounting and finance department (Hayes 2009). For these reasons it is important to have an effective forecasting tool that can help accurately predict future profits and losses based on the acquisition of the outsourced company.
Volume of Work
Volume of work is a key component to determining the need for outsourcing any aspect of business. The volume of work impacts the cost, the ability to execute quality, and the ability to maintain efficiency among other elements. Some simple productivity measurements can include measuring input and output of any financial gain or loss and real time reporting and analysis of fluctuation in cost for any specified time period such as weekly, monthly, or quarterly. Keeping the service level agreement simply as it related to measuring the volume of work is essential.
Quality of Work
Quality of work is also an important metric that is outlined for a service level agreement for outsourcing. Quality metrics cover a wide range of work products, deliverables, and requirements, and measure the conformance of those items to certain specifications or standards (Hayes, 2009, p71. para 2). Some quality metrics include defect rate or inaccurate deliverables; standard compliance including elements such as documents and reporting; service availability including the amount of time for the required service to be available; and service satisfaction (Hayes 2009).
Responsiveness and Efficiency
Responsiveness and efficiency are also important metrics. Responsiveness relates to how much time and the timeline the outsourcing provider take for responding to the request of the client. Efficiency relates to the effectiveness in providing the service at a reasonable cost. Important specific efficiency metrics include cost per unit produced, appropriate use of resources with team utilization, and rework efforts based on the implementation of quality improvement (Hayes 2009). A well-oiled outsourcing agreement can provide cohesive accounting practices with more frequent proactive reporting structures, for which the demand is much higher during a volatile economy (Becker, 2009, p.1. para 4).
Costs and Benefits
While researching different accounting software providers, one provider continuously comes up on web searches and verbal recommendations. The software solution that is currently being evaluated is Microsoft Dynamics Axapta. The Nucleus Research, Inc (2004) website discusses the multiple types of applications compiled and available within Dynamics AX. Some of the applications available include analytical tools, distribution and supply chain management, manufacturing management, questionnaire tools, human resource management tools, sales and marketing tools and support tools to test and debug Dynamics AX. These ERP applications are available but can be complex to develop and deploy. While they might be somewhat difficult to deploy, the variety of applications available is one of the benefits of this program. There are also several other benefits of utilizing Microsoft AX. One benefit is that it integrates really well with Microsoft Windows and utilizes the appearance of the users interface. Another benefit is that it has multiple language and currency capabilities so your company can stay connected with its’ satellite offices across the world (Advanced Systems Integrations, n.d.).
While there are a lot of benefits, the costs associated with Microsoft Dynamics can definitely be a determining factor when deciding on the costs associated with the benefits of the software. The key cost areas associated with Axapta include the software itself, consultation fees, hardware costs, personnel costs, and training. The Nucleus Research, Inc (2004) website describes each of these costs in detail. First, we will discuss the software costs. Depending on the amount of applications selected, the average initial price of a license for Microsoft Dynamics Axapta was approximately $571,234. The average price of a license for each individual user was $3,000. Next, the consultation fees definitely vary depending on the amount of customization you need for your software program. The consultation fees range from $50,000 to $6.8 million with an average fee of approximately $1.1 million. As for the hardware costs, it definitely depends on decisions made by each individual company. If a company decides to utilize their own hardware, then the associated costs are minimal. On average a company spends around $85,000 to upgrade their hardware for the Axapta software. Next, the personnel required to implement and maintain Axapta and the costs associated with those employees are approximately $346,000 for the initial investment and then approximately $192,000 for each year afterwards. Finally, there are the costs associated with training employees to use the software properly. Depending on the company, most utilize approximately 29 hours of training for each employee. On average, that costs around $141,000. The total costs associated with implementing and maintaining Axapta over a 3-year period is around $3.25 million.
ROI
Even though the costs associated with the implementation of Microsoft Axapta might sound quite high, after reviewing the research supplied by The Nucleus Company (2004), it becomes evident that many companies meet their ROI within a year or two. There are several ways where Axapta affects the company in a positive manner. First, it reduces the costs of staffing. The Nucleus Company states “Fifty-six percent of Microsoft Dynamics AX customers were able to directly reduce staffing costs as a result of their Microsoft Dynamics AX deployment” (2004). Some of the companies that have utilized Axapta state they were able to decrease their staff because of the integrated views, an increase in productivity and an increase in the automation of processes and procedures. Another cost-savings due to Axapta is a reduction in IT costs. “Forty-four percent of Microsoft Dynamics AX customers were able to reduce IT costs as a result of their Microsoft Dynamics AX deployment” (The Nucleus Company, 2004). These reductions came due to a decrease in the amount of work running on the mainframe, decreasing the need for larger systems to manage multiple accounting systems. The next savings comes from improved operations and visibility. “Seventy-five percent of Microsoft Dynamics AX customers reported improved operations and visibility as a result of their Microsoft Dynamics AX deployment” (The Nucleus Company, 2004). These improved operations and visibility allows for streamlined operations and greater methodology to identifying and solving any problems or issues that might arise. There is also a significant increase in customer and partner satisfaction. Due to the e-commerce component, customers are able to have more visibility to the company’s products and their customer invoices and account information. The ROI benefits listed above are definitely attractive to Riordan Manufacturing due to their multi-platform capabilities and Axapta should be definitely considered as the sole accounting software for the company. Conclusion Riordan Manufacturing Inc. has recognized the need for a new Financial & Accounting System to be implemented across their business entities and they are considering outsourcing this project. Cost efficiencies along with access to advanced technologies play a major role in this outsourcing initiative. This document provides the business context, implementation plan, performance measures, and review of the costs and benefits of the proposed solution. The expected goals are improvements in productivity and efficiency and the costs savings realized by purchasing a vendor solution. By providing not only a solution but also a strategy for financial management, the proposed finance and accounting system will permit a thorough examination of business processes in order to properly provide effective support. Metrics will give management a means of measuring the success of the vendor solution. Metrics explored include quality of work, responsiveness and effectiveness of service level agreements. Software costs are also explored including initial purchase, personnel and training. The company must achieve their ROI goals in the time agreed upon by management. For the long term, the result will be a product that can better serve the needs of the customers and provide a more robust soultion for the employees. The benefits realized by this initiative will enhance worker productivity and move towards increasing the bottom line. References
Advanced Systems Integrations. (n.d.). MICROSOFT DYNAMICS AX FEATURES & BENEFITS BY COMPANY ROLE. Retrieved from http://www.advancedsystemsintegration.com/innerCategory.aspx?menu_id=24&id=464 Becker, J. (2009). Increasing Control through Outsourcing: Measuring the Effectiveness of Finance and Accounting Solutions: Xerox Corporation and ACS.
Hayes, Ian, S. (2009). Metrics for IT Outsourcing Service Level Agreements.Beverly ,Massachusetts: Clarity Consulting, Inc.
Nucleus Research, Inc. (2004). The Real ROI from Microsoft Dynamics AX. Retrieved from http://nucleusresearch.com/library/microsoft-roi/e116.pdf
Riordan Manufacturing. (). Retrieved from http://ecampus.phoenix.edu/secure/aapd/cist/vop/Business/Riordan/Internet/Ind exPort.htm…...

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