Visualizing your business model before system design
A good system design cannot be accomplished without a solid understanding of the business model. This is especially true for large-scale systems that touch many functions, like ERP systems.
Several aspects of your business must be looked at carefully before you build a new system design. The legal entity structure, where the inventory exists, which legal entity owns what inventory, how the product flows through these inventory points should be considered. For example, inventory movement can be a simple transfer with no financial consequence if both source and target points reside within the same legal entity. Yet, the same movement can be a complex inter-company transaction if these two points belong to two different legal entities. The fastest and most effective way to communicate these key business requirements and constraints is the visualization of the business model.
Humans are visual beings. We all know the saying - a picture is worth a thousand words. We can describe concepts and help others understand the significance of the data, patterns, and correlations in a visual form that might go undetected in verbal or text forms.
Over the years, I have developed a system to visualize these business models with their integrated financial and supply chains in simple diagrams. It takes about one to two hours to draw. It is an intense exercise but also an insightful one. Most of my customers are surprised to see their models at the end. A few begin to see the flaws in their models and what they need to do before we even start the project.
Let me take you through a typical exercise. Start with legal entities. Draw them as big, blank bubbles. Next, identify inventory points (such as plants, 3PMs, DCs, 3PLs, stores, consignments, etc.) and draw them inside the legal entity bubbles as circles. Move on to the right side and start drawing your demand channels for both B2B and B2C businesses. These can be a wholesale, distributor, retail, e-commerce, etc. Then, draw your vendor categories on the left side which can be raw material, components, full package, etc. To make the visualization pop, pick different colors for each type. My favorites are red for customers (demand), green for vendors (supply), blue for legal entities, and yellow for inventory points. Next, draw the product flow from left to right (thus supply to demand). Start with how the inventory is received at each point (thus your purchase orders). Then move on to how inventory is transferred within the legal entities (thus your transfer orders). Some goods will be produced (thus your production orders). Finish with how the inventory is delivered to your customers (thus your sales orders). During this exercise, you will realize inter-company buy/sell transactions as well. Distinguish them with a different color as they are the most complex ones. For these arrows (product flows) that represent core transactions, I use green for purchase orders, yellow for transfer orders, black for production orders, red for sales orders, and purple for inter-company orders.
If you can collaborate with the business while drawing these diagrams, this can be a very powerful and eye-opening exercise for all. You can visually identify financial and supply chain issues when some flows do not make sense. You now have established a visual framework that you can go back to verify critical transactions during the project. In some cases, you may end up drawing as-is and to-be business models.
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My name is Cem and this has been another gem.
