At times the question arises of how to best manage inventory cost.  In manufacturing operations, the role of finance is usually a partnership with operations related to inventory – cost reduction and management, inventory valuation, and appropriate inventory levels to maintain.  The partnership works best where each team’s feedback matches responsibility in the partnership.

At Tensoft, we are strong believers in the benefits of standard costing (compared to actual costing).  Standard cost is commonly associated with a swift inventory value that streamlines transaction processing and at times is viewed as ignoring the reality of inventory value as it changes.  However, we believe this is the result of a lower level of engagement that is required in any organization actively trying to manage inventory value.

When manufacturing and finance partner over inventory costing (and cost reduction) using a standard cost model, you can think of standard cost as a plan.  You are setting goals for what inventory cost should be based on the inputs and manufacturing requirements.  Variances identify reasons for moving away from the plan – such as yield hits, productivity (units absorbed for throughput), PPV variances, rework variances, and so on.  Correctly identifying and categorizing the variances allows manufacturing operations and finance to review why the goals were not met, and what the specific variances tell you about not meeting the goals.  Approached in this way, standard costing plus variance analysis actually requires the most active engagement in cost modeling and results management – setting a plan and measuring performance against the plan. 

Years ago I met with the VP of Operations of a high volume electronics component company who told me their inventory cost reduction committee met weekly – a finance and operations partnership.  Their stated goal was to reduce the cost of inventory value by $.01 each week, which achieved a $0.52 cost per unit reduction annually.  For them this amounted to millions of dollars in additional margin each year.  Results like that aren't possible unless you have an active engagement through standards (plan) and measurement (partnership review).

 One of the highlights of this year's MOMENTUM 2011 was guest presenter Charlotte Diener's session entitled "Planning Rhythm."  Diener has created an excellent Slideshare version of this that's available now to anyone who's interested.  You can link to it here, or search for "The Planning Rhythm: Managing Risk Through Marching to the Same Drum" on Slideshare. 

This brief description of Diener's presentation from the conference agenda applies to the revised slides on Slideshare as well: "Just as world-class manufacturing operates to the drum beat of critical equipment, the excellent supply chain operates to a regular rhythm of processes. The use of a process rhythm is critical to the performance of supply chain planning, irrespective of software. This presentation will explore the critical processes necessary in semiconductor planning, their frequency and duration."

Ms. Diener is an independent consultant with extensive supply chain, turn-around, M&A integration and international experience. Ms. Diener has completed several global multi-million dollar M&A integration projects and the re-engineering of several corporate processes, including a complete re-work of both the supply chains and new product development processes at ON Semiconductor.  Her contact information is included on the slides. 

 In case you missed this recent announcement, Tensoft Revenue Cycle Management (RCM) recently passed Microsoft's highest standard for partner-developed software and is now "Certified for Microsoft Dynamics" (CfMD).  This certification consists of a rigorous testing process performed by VeriTest, to demonstrate product development quality and compatibility, as well as at least 10 confirmed references.  (Many thanks to our customers who helped with this requirement - we were done in well under the average time for completion because of your help!)

Those were basically the same requirements for the CfMD that we had the last time that we went through this process, when we certified Tensoft Multi-National Consolidation.  This time there was one key difference though - the addition of a requirement to have a Source Code Escrow Account. 

This new requirement seems to get short shrift in discussions/articles about CfMD, but we see it as one of the key benefit to customers of CfMD products.  Without it, the CfMD benefits have the potential of being short-lived, providing cold comfort to unlucky customers.

A source code escrow account isn't something new for Tensoft - we've had an Iron Mountain account for years.  Having weathered two significant economic downturns since we started business in 1996, we've counted our blessings as we watched much larger companies fail.  While we feel pretty good about surviving, it would be foolishly arrogant to believe that we're now somehow "immune." 

We buy insurance to protect against adversity, and our Iron Mountain account is insurance that we buy for our customers.  We see it as a great investment in customer service!

Thinking the other day about our annual FSM User Conference, Momentum 2011, which wrapped up last month, I was struck by how absolutely energizing this yearly event is – not only for attendees, but also for everyone on the Tensoft side as well.  

Everyone has the opportunity to discuss ideas, meet with their counterparts in other companies and get away from day-to-day interruptions to simply work on productivity and improvement. It’s a chance to think about doing your job better with people who are of like mind, discussing topics that facilitate creative thinking and problem-solving.

We stretched the Momentum envelope a bit this year by inviting some suppliers and outside experts into our discussions.  We asked questions like: “What does the demand model look like for your end-customers?” and “What do the suppliers look like from your production side?” and “What does your planning rhythm look like, or what does your input to executive management from the operations perspective look like?”

Attendees and Tensoft staff were able to coalesce their own ideas, learn from other people and take this all back to their companies to make what they do better.  I think that’s why so many good things come out of Momentum every year, and this year was no exception.

 This year at Tensoft FSM's annual user conference, we had the privilege of hearing from several really terrific guest presenters and panelists.  Semiconductor supply chain consultant Charlotte Diener kicked things off on the first day with her presentation on "Planning Rhythm."  Here's a brief description of what she covered: "Just as world-class manufacturing operates to the drum beat of critical equipment, the excellent supply chain operates to a regular rhythm of processes.  The use of a process rhythm is critical to the performance of supply chain planning, irrespective of software."  This presentation explored the critical processes necessary in semiconductor planning, their frequency and duration. A great session and a very warm response from MOMENTUM 2011 attendees! 

On Day 2, Ron Jones of the N-Able Group provided some fascinating - and very sobering - insight into "The Tragedy in Japan and the Semiconductor Supply Chain."  He covered how the immediate and subsequent events of the recent earthquake and tsunami in Japan are impacting products and markets around the world, and discussed both possible recovery scenarios and implications to supply chain management in the future.  Ron has been doing a great job covering this topic in his newsletter too, so be sure to sign up for that on www.n-ablegroup.com if you're interested.

Following that, Ron moderated a panel discussion on supplier integration.  The conference agenda described this session as follows: "Supply chain execution is about the fabless company managing the process.  It is also about partnering with your suppliers, exchanging data across your production flow, and communicating the right information to all parties on a timely basis.  Our supplier panel brings together leading industry suppliers (UMC, AMKOR) with fabless companies and an electronics supply chain experts to discuss relevant and current topics important to the semiconductor Industry.  Panelist presentations and a moderated Q&A session provide interesting and helpful insights for all participants."  The guest panelists were Amkor's Trisha Giacopazzi, UMC's K.T.Goh, Dean Strausl from V-Case (and the former Executive Director of the Electronics Supply Chain Association), and the VP of Operations at iWatt, Alex Sinar.  Apologies to our attendees that we didn't plan more time for this distinguished group - this session could easily have stretched to half a day or more!

One small world observation during the conference this year: unbeknownst to us, 2 of the guest presenters had worked together some years ago, and had a chance to catch up over lunch.  Great to see such a strong degree of collegiality among both guest presenters and conference attendees!

Outsourcing some or all of your manufacturing is old news for technology companies. The focus on core competencies, the need to scale quickly while managing cash, and the availability of high quality suppliers have all helped to drive this trend. At the same time technology companies retain the ultimate responsibility for production and on-time delivery to customers. Supply Chain Management (SCM) systems help tech companies manage their supply and demand, and integrating and consolidating information from the distributed suppliers is often an important part of this process.

Advancements have been made in SCM systems and technology support data integration – yet the reality of SCM data integration eludes many. Technical Standards Committees, including RosettaNet, have tried to improve this process by developing data dictionaries and transfer protocols. Recently I’ve partnered with semiconductor industry veteran Ron Jones ( n-Able Group CEO) on a white paper that looks at data integration in the fabless semiconductor industry. If you’d like to review our insights, this paper is now available by clicking here.

We’ve recently posted a great new customer case study to the Tensoft website that beautifully illustrates the benefits of cloud deployment. Focusing on our customer, Syndiant, the four-page case study describes how this technology industry start-up has been able to leverage Tensoft’s industry-specific solutions in the cloud to quickly gain better visibility, control, and efficiency.  .

 Syndiant’s V.P. of Operations, Tupper Patnode, provided much of the commentary in the document, discussing in detail how Tensoft FSM and Microsoft Dynamics GP, running on a cloud platform provided by Tensoft partner SaaSplaza, enabled the company to comfortably plan and scale their growth from a $1 million company to $20 and up to a $60 million enterprise. Take a look at the Syndiant case study and tell us what you think by responding to this blog.

And, if you’re planning to attend Microsoft Dynamics Convergence in Atlanta on April 10-13, discuss the particulars of the Syndiant project or your own future project with our own Michael Chadwick and Sonam Thandi in the SaaSplaza booth #1316. They will only be at the booth part of the time, so contact me ASAP if you’d like to arrange a time to meet.

See you in the Cloud!

It seems that even SaaS skeptics are now finding it hard to deny that cloud deployment is a trend.  A February 21, 2011 article published on MSDynamicsWorld.com cites a recent study that found an overall increase in SaaS adoption from 6% in 2009 to 17% in 2010.   Results like that are tough to attribute to just “marketing hype.”

With Tensoft’s focus on the technology industry – and with that industry’s natural tendency to constantly create new companies – perhaps we’ve seen more than the national average’s share of SaaS converts.  We certainly began to see strong interest in the SaaS model from our customers and prospective customers earlier than our colleagues’ who specialize in other industry segments (or those who have no particular industry focus). 

In fact, demand was strong enough that we announced the release of our end-to-end cloud ERP solution for the fabless semiconductor industry in 2007.  By the third quarter of 2009, the majority of our new customers were choosing to deploy in the cloud.   

One of Tensoft’s customers was interviewed for the article, so I thought the excerpt below might be of interest to Technology Insider readers:

Most of the companies that decide on a SaaS model don't have an ERP system in place.... That was exactly the case for Syndiant, a manufacturer of small and high-resolution light modulating chips used in ultra-portable projectors.

"We're an early-stage company that started in 2004 and we didn't do product manufacturing until late October 2009," said Syndiant Controller Cory Johnson. "In December 2009 the executives of the corporation made a decision that it would be wise to go from QuickBooks to an ERP system. And they decided since we didn't have an onsite IT staff it would be better and more cost efficient to run it as a SaaS hosted model."

After looking at a number of vendors, the company chose Tensoft Inc.'s Fabless Semiconductor Management solution (FSM) and Microsoft Dynamics GP using Tensoft's hosted subscription model.

"It went live April 15 2010 and, for the most part, it went pretty smooth," he said. "The full ERP system was to help us manage from cradle to grave from procurement of raw materials to the maintaining and monitoring of our manufacturing that was outsourced to a third party. We had to have vendor integration so they could send us inventory status reports that we can automatically import and it will update and move our inventory from one manufacturing step to another and update the general ledger and accounting system on a more timely basis so we can be more efficient."

For Syndiant, the executive team didn't really have any concerns when they were considering a SaaS ERP implementation, Johnson said.

"Considering the people who made the decision weren't accountants there weren't any concerns," he said. "But one caution should be around security measures. But the security measures set up by Tensoft and the way they it set up for us to access the hosted solution is pretty safe and secure. It's working well and when we run across an issue we e-mail Tensoft and we usually hear back within an hour or so."

Please note the system live date of April 15, 2010 above.  Then take a look at the January 18, 2010 press release when Tensoft announced that Syndiant had just signed.  That’s a three month implementation for what the customer has described as “cradle to grave” ERP, with no onsite IT staff - a ringing endorsement both for everyone involved, including Syndiant’s hard-working team, and for the SaaS deployment model.   

By the way, if you’re interested in more details about Tensoft’s cloud deployment at Syndiant, please stay tuned for the case study that will be available soon.

In software development, “retrospective” has a specialized meaning – it’s a post-implementation review, or “post-mortem.”  Over the years, this practice has helped Tensoft continue to improve both our products and implementation services.  In celebration of the ten year anniversary of Tensoft Fabless Semiconductor Management (FSM), a thoughtful retrospective of Tensoft’s work with semiconductor companies seems in order. 

When Tensoft first developed FSM, we became involved with the Global Semiconductor Association (GSA), which was then called the Fabless Semiconductor Association (FSA).  At that time, the GSA sponsored quarterly forums, and Tensoft presented at every Supply Chain and ERP Forum until they were discontinued, and exhibited annually at the association’s tradeshows.  This led to introductions to many of Tensoft’s early customers, and broadened our understanding of the semiconductor industry. 

During what many consider the harshest downturn in the history of the technology industry, Tensoft launched FSM 2.0.  The upside for us was that even $500M fabless semiconductor companies were conserving cash, so FSM’s low total cost of ownership was very attractive.   By 2006, there were enough Tensoft customers to start a quarterly user group, as well as an annual user conference.  These events boosted the collaboration between Tensoft developers and customers to a new level, and solidified the industry best practices that are now built into every Tensoft FSM release and enhancement. 

A true retrospective must take a hard look at “lessons learned,” as well as “hurdles overcome.”   Working with semiconductor companies for a decade taught us that understanding the needs of their operations, customer service, planning, finance and other departments wasn’t enough  - we had to be able to handle and support  the types of organizational change that our semiconductor customers grapple with.   We’ve seen companies go through three CFOs in two years, growth by a factor of ten in a six month period, or drastic reversals of fortune – or business models – as well.  We learned to adapt our support model and sometimes even step in and offer help before the customer was even aware of the need for it.  I think it’s one of our proudest accomplishments that we’ve been able to support customers going through some extraordinary stress during periods of really chaotic change. 

I think that going through this crucible together has formed some remarkable long-term relationships.  The community aspect of this relationship has changed the dynamics of our R&D and market approach, so that taking care of existing customers is the first priority, and bringing in new customers is actually the result of taking care of that first priority.   The level of involvement with some of our customers and their involvement with being part of our product development and with the rest of the user community is the really fun and fulfilling part of Tensoft’s business – we’re a living, breathing part of this dynamic organism, which is people using our software to achieve their business objectives.