The business challenges faced by Kaon Media, a digital multimedia devices manufacturer headquartered in Korea, are typical of an innovative young company with aggressive plans to distinguish itself and grow its market share in the digital broadcast receivers industry. Established in May 2001, Kaon Media wants to be the number one set-top box provider by 2005 in an intensely crowded marketplace of approximately 100 domestic set-top box companies, with overseas competition from Chinese manufacturers heating up as they introduce lower-priced set-top boxes to market. On top of the price pressures it faces, customers are also getting increasingly more demanding, requiring manufacturers to develop multifunctional devices that are a convergence of communications and broadcasting technologies.
Getting rid of inefficiencies
But in order to be a market leader, Kaon Media discovered that it needed to get its house in order first. “As a relatively young venture company, we were lacking in the area of [process] management and needed a management or control tool,” says Jin Kyo Lee, Director of Planning and Human Resources Management, Kaon Media. For instance, the company found that the general lack of communication between departments was causing confusion in the manufacturing, delivery and billing processes. This lack of interoperability and data integration between departments was the result of each department using different software tools to conduct its business.
“Due to the lack of information sharing between departments, production errors occurred, which led to dead stock and a frequent need to remanufacture,” says Jin. Furthermore, the old system did not have materials cost analysis capabilities, resulting in the need to manually calculate the cost of materials at the end of each month. “We had to manually create order, sales and inventory reports, which led to inaccurate reports that were insufficient for decision making,” Jin adds.
This had heavy consequences as it took nearly 20 days after its monthly manufacturing period ended for Kaon Media to assess the material costs for that month. As a result, the company concluded that it needed an IT system that could improve its operational efficiency, as well as an integrated logistics and accounting system to reduce the time needed to assess material costs. And with shrinking profit margins, Jin adds that a new IT system was seen as critical in helping Kaon Media conduct profitability analysis, analyze problems and make informed, strategic decisions. Furthermore, the company was planning on expanding its foreign sales offices and manufacturing facilities. The IT tool Kaon Media was looking for also had to allow it to achieve global operational excellence.
Effective process management
In November 2003, Kaon Media found the solution it was looking for in mySAP All-in-One. “We chose SAP’s solution firstly because of its ability to integrate logistics and accounting functions,” says Jin. “Secondly, with our expansion plans, SAP’s experience in providing global support in multiple languages played an important role in our decision.” With the help of SAP, Kaon Media established an internal control system that allows it to effectively manage its budgets, costs and various business processes. After four project phases starting from project preparation, business blueprinting where solution results were shared during workshops, realization and integration testing, and final preparation works, the system finally went live in April 2004.
With the new system up and running, the company is now able to obtain detailed cost information. This allows it to track and manage operating costs more efficiently, which then enables it to analyze profitability for each business sector. For example, the company previously had to manually create order, sales and inventory reports. However, human errors sometimes led to inaccurate reporting and this affected its business decision-making process. But now, it can effectively share order, inventory, inventory on route, sales and receivables information through various reports that are provided by the SAP solution. Furthermore, through the integration of logistics and accounting systems, the amount of time it takes to assess costs was also reduced significantly from 20 to just three days.
In addition, with the sales and manufacturing systems now talking to each other, Kaon Media is able to provide a more realistic product delivery timeline to customers and increase their satisfaction level. “With the new SAP solution, we are able to compose an optimum product mix through profitability analysis of each [business] sector,” says Jin. “It also allows us to analyze profitability from various angles, enabling us to make improvements in this area.” Kaon Media is now well on its way with its global expansion plans, with the SAP solution serving as the global operations backbone. Says Jin: “Not only are we able to improve our price competitiveness by managing our costs, we have established a foundation for expanding our overseas sales offices and manufacturing facilities.”
With so many benefits rolling in, Kaon Media expects the return on investment within one year from the implementation of the system. The digital multimedia devices manufacturer is not going to stop with this SAP implementation. Kaon Media intends to continue on its road to enhancing operational efficiency with the help of technology and is thinking about implementing mySAP Supply Chain Management and mySAP Product Lifecycle Management in the future.