Table 1: SOA Framework Results by Area of KPI Measurement
Areas of Measurement
Baseline: What to Measure
SOA Performance Evidence
Project costs and expenses
Use as a baseline for defining ROI
Number of orders per year
Determine configuration's impact on inventory turns
Current inventory and costs
Inventory turn savings
Lifetime cost per customer; avg. deal size by customer
Order cycle time
Order cycle times reduction of 65% or more recorded with mftrs contacted
Cost of Sales
Days Sales Outstanding reduction from 60 to 29 days on average
Cross-sell and up-sell revenue
Increase of 33% on aggregate
Average sales price per order
Increase from 9% to 26%
Quoting and Ordering
Average costs to complete an order
95% reduction in cost per order
Special Pricing Requests
Over 100% ROI on automating Special Pricing Requests
Bad or incomplete orders
Incomplete order reductions of 20%
Number of customer complaints
98% reduction in cost of simple requests
Revenue lost to churn
60% when cross-selling is used with quote-to-order
Number of calls on order status
Median level of 500 per week to 70
Warranty and Returns
Reduction in warranty cost on customized products
10% reduction at a minimum
Labor cost reductions
Decrease order re-work from 15% to 2%
Evaluation of SOA in Manufacturing
Based on an analysis of the secondary research used for the completion of this paper, approximately 40% of all companies today with SOA frameworks which serve as the foundation of their strategies are actively tracking the ROI of these activities according to Gaughan, Gannon and Swanton (2006). The development of transaction-based APIs is necessary for many manufacturers, as their order management systems are significantly different than their trading partners, distribution channel partners, service and support third-party organizations as well. This aspect of SOA adoption in manufacturing is comparable to the development of transaction-based private trading exchanges (PTX), where transactions were the only element everyone could agree on (AMR Research 2001). The use of these APIs to enable transactions has however become much more pervasive and agile compared to their previous-era PTX counterparts. Transaction-based APIs require the use of XML to ensure pervasive synchronization of all systems using the communication protocol according to Alonso, Kuno, Casati, and Machiraju, (2004). Abrams and Andrews (2005) also make the point that ERP system integration is increasingly be completed to ensure real-time transaction data as a result of XML's growth and the use of transaction-based APIs. The highly transaction-oriented approach to integration is a catalyst for the adoption of Web Services throughout manufacturing today, as the majority has multiple sourcing, production and fulfillment locations, and further increasing adoption of SOA frameworks throughout manufacturing companies. SOA's reliance on XML, EDA, and Web Services in conjunction with composite applications is what makes this strategy differentiated and agile, according to Andrews (2005).
From the research completed within this paper, there is evidence on the greater the maturity of the SOA framework within a manufacturer the more precisely Web Services align to customer-facing strategies. In the case of the objective of Increasing Revenues for example, it's clear that to attain the metrics defined in Figure 3 there must be tight process integration across, Sales, Engineering, Manufacturing, Pricing, Service and Management. This is also supported by the extensive work of Austvold, Carrillo, Preslan (2003).
Sources: LWC Research Study on the Quote-to-Order Process; Siemens NEMA Quote-to-Cash Process; Results from AMR Research Surveys (2003-2006)
Based on the research completed to define the KPis and their results in Figure 3 it was found that a manufacturer's ability to capture and re-define processes is just as important as the build-out of an SOA architecture including its many components. The results of Forrester's Business Technographics Survey (2005) also support this assertion. For those manufacturers that has started measuring the financial impact of their SOA strategies, the role of business process re-engineering in conjunction with EDA and the selective use of Web Services has made this task more aligned with business objectives, supported by research by Gibbins, Nicholas and Harris, Stephen and Shadbolt, Nigel (2003).
Order capture, one of the critical steps in the overall quote-to-order process profiled in this paper, has seen significant improvements through the use of SOA frameworks. This specific research finding is supported by research from the Aberdeen Group, AMR Research, Gartner Group and others who have quantified the gains of SOA integration in the context of order capture. These research and advisory firms report that the net effect has been a drop of order cycle times from, worst case 33 hours, to less than 1 hour, also supported by research by Baghdadi (2005). In aggregate the order cycle times dropped significantly as a result of the combined effects of integration, creating an EDA-based structure for exception handling (which is the part of any process that takes the majority of time to complete manually in an order capture and order management system), and the development of business process exception handling using BPEL-based applications. It is also a significant finding from this research that integrating the quote workflows to reflect both Available-to-Promise (ATP) and Capable-to-Promise (CTP) on each customers' quote and order minimizes follow-on order inquiries while increasing the likelihood of a customer ordering again. Giving supply chain visibility to customers alleviates uncertainty while increasing trust and re-purchase, especially when the orders, however complex, are delivered on time (Manes 2003), (Columbus 2003).
Manufacturers are embracing SOA architectures and strategies to revolutionize and make more efficient the most complex processes in fulfilling customer requirements. Globalization, increasing pressure on pricing, and the need for increasing the speed of new product introductions are all macroeconomic factors that are forcing manufacturers to embrace SOA frameworks to unify, synchronize and ultimately strengthen their ability to attract, sell, serve and retain customers. From the research completed for this paper, a significant finding emerges that the majority of manufacturers are moving to SOA frameworks to streamline their customer-facing processes first. The quote-to-order process has been critically analyzed in this paper to illustrate the quantifiable gains manufacturers are making to one of their most complex customer-facing processes. From this analysis another key finding emerged from the research, and that was that the greater the complexity of customer-facing processes the greater the need for process and system integration, the higher the Return on Investment (ROI) as a result.
From this research it was also ascertained that the majority of manufacturing companies, nearly all of which have a highly-oriented metric-driven culture already, are measuring the performance gains to the process level when an SOA framework is introduced to support sell-side processes. A key conclusion is the evolving trend within manufacturers of measuring the impact of their SOA strategies has been an increasing focus on the Key Performance Indicators (KPIs) that signal financial performance increases as a result of greater collaboration and integration internally. Specifically the role of DSO (Days Sales Outstanding) as a measure of customer satisfaction as a result of tighter SOA integration is critical, as are many measures specific to the quote-to-order processes manufacturers are targeting with EDA and Web Service components of their SOA architectures and strategies.
Table 3, Summary Table of SOA Performance by Manufacturing Vertical, illustrates the order time reduction, Days Sales Outstanding (DSO) reduction, quote creation time savings shown as a percentage of the entire quoting process, reduction in incorrect orders as a percentage of all orders, and the percentage increase in cross-sell, up-sell strategies using quotes as the foundation for this selling strategy.
Summary Table of SOA Performance by Manufacturing Vertical
Manufacturers Order cycle time reduction (%) Days Sales Outstanding reduction (%) Quote creation (%) time savings (%) Reduction incorrect orders (%) increase in cross-sell, up-sell with quotes Elevators
High Tech Peripherals
PCs and servers
Industrial Distributor (channel assembly)
Network and LAN equipment
Sources: LWC Research Study on the Quote-to-Order Process; Siemens NEMA Quote-to-Cash Process
In addition to the empirical evidence collected from secondary research illustrating SOA frameworks' performance over time, this study illustrates how pervasive the use of BPEL-based applications are becoming to re-align critical, revenue generating processes throughout manufacturing companies. The emergence of XML as the integration standard between BPEL-based applications, Web Services, analytics applications, and business strategies is clearly illustrated throughout the examples shown in this paper as well. Underscoring the convergence of business process re-engineering, Web Services, XML and the analytics applications used to measure performance is the redefinition of the role of the Chief Information Officer (CIO) as well. While the scope of this paper has specifically been on the adoption of SOA frameworks into manufacturing, during the research the trend of CIOs becoming more responsible for process redefinition over simply maintaining Information Technologies' (it) assets in a company. The need for greater research into the transforming role of the CIO as business process owner and enabler of strategic change through the use of SOA frameworks is an…