Chip Industry: Operation Streamline

How Russia's largest distributor of electronics components Chip Industry cut costs and increased market penetration at the same time.

Beyond the breaking point

While superb sales management and an entrepreneurial spirit helped fuel the company's impressive top line, cracks were beginning to appear in the back office. The problem was they had never updated their accounting systems, and were still operating with the same DOS-based technologies they started with -- until it was bursting at the seams trying to cope with the quantity of transactions they were handling every day.

“Like other more progressive retailers, we're always looking for ways to provide our customers with more products and greater variety of products. But with our old IT infrastructure, it simply wasn't possible -- it was maxed out. To continue to grow and to provide better value to our customers, we needed greater control over the distribution and logistics, and a clearer view of all the transactions taking place within our system,” explains Stanislav Mihajlov, General Director of Chip Industry.

For an operational standpoint, the old system was clearly inefficient. For example, it took as long as ten minutes to generate a single invoice for goods shipped internally from the warehouse to a store.

What's more, store sales data were transferred by a file exchange, and then manually processed in Microsoft Excel and Access. This created enormous challenges for accounting, and making even small modifications to the systems was an extremely complicated ordeal.

And, because of the lag between actual results and reports, timely analysis of inventory turnover was virtually impossible.

The wish list

Reliability, staffing costs and timeliness of key business data weren't the only factors that made Stanislav and others in the company realize that an overhaul of their systems was long overdue.

Together with marketing director Ivan Mezhevikin, they saw an opportunity to go beyond simply replacing the accounting system – they saw this as an opportunity to combine basic accounting functions, stock and warehousing management, and human resources in a single system, thereby providing a complete picture of business inputs and outputs.

The four primary goals of a new system were:

•  Automate all accounting related data collection from all stores and warehouses.
• Enable the company to better manage inventory, thereby increasing return on investment in stock by increasing turnover.
• Give them a better handle on accounts receivables, allowing the company to reduce settlement times and improve cashflow.
• Finally, with CRM, as an integrated component, they could strengthen relationship with key customers and identify unprofitable accounts.
• While several ERP systems held the promise of being able to deliver on one or more of these goals, Stanislav and Ivan evaluated all the systems against three additional criteria:
• How closely matched was the system's core feature set with the company's needs and business processes
• How easy would it be to add functionality to the system as the company continues its growth
• How straight-forward would the implementation and migration to the new system

After a thorough review of the different systems Stanlislav and Ivan were convinced that Microsoft Dynamics AX (formerly called Microsoft Axapta) provided 90% of what they needed right out of the box. Because they understood the critical role of the implementation partner in the process, the Chip Industry team was just as careful in selecting an IT partner with proven experience and references.

2 months ahead of schedule

By all accounts the implementation went extremely smoothly. The project was originally projected to take six months, but Columbus IT Partner completed it in four. They accomplished this by adhering to the Diamond process, which was developed by Columbus as a practical workflow methodology.

Pavel Zakorukin and Dmitry Davidov were the Columbus project manager and account manager handling Chip Industry. They used Diamond not only to scope and manage the implementation, but also to gain consensus within the Chip Company team on key decisions and involve staff in all the stages of implementation.

Pavel explains: “Rather than simply automating manual processes, we were looking for ways to streamline accounting operations according to best practices in the industry. Diamond enabled us to work through both the people and technical challenges much quicker.”

While Dmitry kept a firm grip on the myriad of details and tasks of such a large implementation, Pavel's deep knowledge and experience in implementing Microsoft Dynamics AX for high volume distribution companies proved to be a key asset for Chip Industry.

Chip Industry management readily acknowledges that the combination of big picture vision and objectives coupled with tight management on the ground is what allowed them to ensure the new system would be as efficient as possible.

Training staff on the new system was another area where Columbus experience proved to be a major advantage. Rather than design and build the system separately, and then train staff after it's complete – which is how most IT implementations are done -- Columbus IT involved staff, including front-line personnel from the very beginning.

Pavel and Dmitry went to great lengths to involve Chip Industry staff in the initial design of the new system. As many as 100 Chip & Dip employees were actively consulted and engaged in the design process.

Training was also integrated into the implementation schedule in parallel with the actual development. This meant that when the company was ready to migrate to the new system, front line staff was already familiar with the new policies and procedures. More importantly, they felt fully engaged in the process all along, and as a resulted supported the migration completely.

Benefits beyond the numbers

To say that Microsoft Dynamics ERP speeded up operations would be an understatement.

In terms of basic operations, the company is light-years ahead of where it was before the new system was implemented.

To begin with, the company achieved its objective of consolidating and capturing all key business metrics within a single system. Equally important is that the collection of all relevant data related business processes have been automated, from purchasing and settlements with suppliers to distribution and logistical processes to sales and delivery to end customers.

What's more, the system is now capable of generating reports that give an accurate snapshot of company performance almost in real time.

For example, the time to make invoices from company's warehouse to its stores was reduced from ten minutes down to just three. And whereas before the implementation it took the company fifteen minutes to generate a sales report for just one store, now management can see a consolidated sales report across all its stores in under ten minutes.

While these time and labor savings amount to hundreds of man-hours every day, the benefit to Chip Industry extends beyond the numbers and improving the bottom line.

The transition to the system that Columbus IT Partner has implemented makes the activities of the company more transparent. Management now has the tools to analyze company performance of separate divisions: purchasing, sales and distribution to name a few. Now at any time they can see the real situation with inventory in a warehouse. As result, the quality and confidence of decisions amongst company leadership is higher.

“We used to guess. Now we know,” says Stanislav Mihajlov.

Full Speed Ahead

Microsoft Dynamics AX already has exceptional built-in flexibility, allowing management to adjust and refine business processes quicker and easier than ever before. This in turn allows Chip Industry to be more nimble in its ability to stay ahead of its competitors.

For example, currently 20% of orders are delivered to customers by mail or express-mail. In the future, this figure is expected to increase, and by staying on top of this trend, management can allocate resources and shift personnel accordingly.

Chip Industry continues to work with Columbus IT to add even more functionality to the ERP system.

Here again, Diamond supports the process of continuous improvement by providing a framework for developing a business case for any proposed modifications.

Now, as Chip Industry looks ahead, there's no question that Columbus IT and Microsoft Dynamics AX will continue to play an important supporting role in the company's ongoing success.