As Published In February 2007

Small and Medium Business

Trading Up
By Marta Bright

Biciclo improves operations and grows in the face of global competition.

The North American Free Trade Agreement (NAFTA) held great promise for helping Mexico gain a more significant international advantage by attracting global investments and increasing job creation. What NAFTA didn't necessarily account for was positioning Mexico to keep pace with the ultramodern and IT-driven manufacturing practices countries like China have become so famous for. So, how do companies go about regaining enough traction in the world marketplace to compete against countries with state-of-the-art facilities and inexpensive labor? By taking a chapter from their competitors' own book of success—operational and technology improvements that grow, change, and adapt to any situation.

Celso González Ramírez and Emma Bocanegra, who serve as administrative director and IT manager, respectively, at Biciclo, a San Luis Potosi, Mexico-based manufacturer, have been readying their company for a leaner and more modern approach to process manufacturing. Specializing in the fabrication of high-tech parts and accessories for sporting and recreational products, including high-end bicycles, Biciclo's operating costs are continually affected by price fluctuations in the raw materials market. "One of the main raw materials we use is steel," González-Ramírez explains. "We have seen a price increase of close to 110 percent over what it cost two years ago. If we don't react quickly, improve our processes, and speed manufacturing, the international market will be transferred to the Chinese," he says.

How Mexico Stacks Up Annual growth rate of population: (2006 estimate): 1.16% Nominal gross domestic product (GDP) in 2005: US$769 billion (rank in world: 13). GDP in 2005 using purchasing-power-parity method: US$1.07 trillion (rank in world: 13) Natural resources: Petroleum, silver, copper, gold, lead, zinc, natural gas, timber Agriculture: Corn, beans, oilseeds, feed grains, fruit, cotton, coffee, sugarcane, and winter vegetables, accounting for 4% of GDP Industries: Manufacturing, energy, and construction, accounting for 26% of GDP Services: 70% of GDP, including commerce and tourism (21%), financial services (13%), and transportation and communications (11%) Trade of goods in 2005: US$214 billion worth of exports; US$222 billion worth of imports. US$183 billion worth of exports to the U.S., accounting for 86% of total exports; US$118 billion worth of imports from the U.S., accounting for 53% of total imports Major markets for exporting goods: U.S., European Union, Canada, Colombia, and Japan Source: The U.S. Department of State, Bureau of Public Affairs, Electronic Information and Publications Office; www.state.gov/r/pa/ei/bgn/35749.htm

Ultimately, prices on raw materials are beyond the control of midsize manufacturers like Biciclo. Still, in order to compensate for potential increases, particularly during slower sales cycles, it is critical that this type of manufacturer drives costs and waste out of internal processes. But while taking steps to curb costs, the risk of being left even farther behind grows greater. In fact, China pushed Mexico from second to third place as a supplier of imported goods to the United States. And some trade experts predict that the Asian country will replace Canada as the No. 1 supplier to the United States by 2007. China also became Mexico's second-largest trading partner after the United States in 2003—though the two nations maintain one of the most unequal trade relationships in the world, with China sending $US14 billion worth of goods to Mexico in 2004 while buying a mere $US400 million of Mexican goods.

Greater Expectations

Characterizing the company's process of investigating its new IT solution as studied and methodical, Biciclo's Bocanegra explains how this approach to IT for the twenty-first century had them carefully weighing their options, looking intently for a vendor/solution mix that was appropriate for both cost reduction and process optimization. "Within the process of strategic planning, we considered what factors could help with the growth of the company," she says. "We then evaluated different solutions for nearly one year, considering those vendors offering solutions for relatively low cost against those vendors offering solutions with a much more elevated cost. We filtered it down from approximately 20 solutions to 2 [Oracle's enterprise software solutions versus QAD's MFG/PRO], considering things such as quality of technology, involvement in the metallurgical market on a worldwide scale, what impact the solutions were going to have on our processes, and—obviously—how they could improve those processes."

Snapshot Biciclo S.A. de C.V. www.turbo.com.mx Location: San Luis Potosi, Mexico Annual revenue: US$40 million Employees: 650 Oracle products and services: Oracle E-Business Suite, including Financials, Purchasing, Manufacturing, Order Management, Enterprise Asset Management, Project Costing; Oracle Internet Developer; Oracle Application Server Standard Edition Other products and services: Services from Appteck

The implementation took approximately eight months. "It was a successful process because we entered into production with the modules [Oracle Financials, Oracle Order Management, and Oracle Purchasing] that we evaluated and identified as those that would have an impact on the most important areas of business." González-Ramírez explains that the company was focusing on ways to immediately begin increasing productivity and reduce costs through automation and simplification. Another one of his team's goals was to provide management with reliable information on project and manufacturing time and expenditures. "Bringing better processes into place would support our vision of improving our current business," González-Ramírez says. "It also helped guarantee the growth and development of the business in the face of future trade opportunities and uncertain price fluctuations."

According to González-Ramírez the overall impact of the improvements was, surprisingly, as much cultural as it was technological and process-oriented. "When we first started to look for the solutions that could work for Biciclo, we were looking for a tool, a software package. We had no idea that what we would end up with was a shift in attitudes and philosophy, which means working closely with technology in order to have access to information in real time. We were training users who didn't have much computer know-how or didn't necessarily understand some of the basic processes. It took us by surprise along the way that we had the ability and the capacity to be able to transform not only the technology, but also the resistance to change exhibited by many of our people."

Raw Material Benefits

Two and a half years after its implementation, Biciclo is now running on Oracle Database and Oracle E-Business Suite applications. "We are a company that has two distinct sales periods. We have a period of low sales during the first seven months of the year, and the last five months is a period of high sales," says Bocanegra. She further explains that the difference between the first and second sales periods amounts to the quantity of sales based on the market. "Our sales increase during the first period, April and May, because of Children's Day [an international holiday celebrated in Mexico on April 30] and Mother's Day," she says. "Our product then has more demand between August and January, the Christmas season."

Throughout both the high and low cycles, when efficiencies must, as always, run at an absolute maximum, Biciclo has been able to increase their administrative efficiency by 95 percent while lowering administrative costs by 25 percent through Oracle Financials, González-Ramírez explains. The company has also been able to reduce logistics-response time by 30 percent and order-processing time by 25 percent with Oracle Purchasing and Oracle Manufacturing. Previously Biciclo had a payment cycle of approximately 150 days. This has since been reduced to 104 days, which, emphasizes González-Ramírez, "equates to an inventory reduction of approximately 18 percent."

The Right Solution

For More Information Oracle solutions for SMBs Oracle Applications

As for the "why" behind ultimately selecting Oracle, there are four priorities that Bocanegra identified. One was that Oracle offered truly complete solutions. "Our choice also had to do with the fact that Oracle is a leading solution for e-business; it is a solution that uses 100 percent Web technology." Thousands of medium-sized businesses like Biciclo have selected Oracle Applications to streamline processes and consolidate operational and financial data. Regaining export and manufacturing prominence in an increasingly global economy requires modernizing business processes. Through comprehensive business solutions that are low-cost, low-risk, built on open standards, and provide industry-specific functionality and faster time-to-value, Oracle is consistently helping companies like Biciclo gain a competitive advantage.

"More than ever it is important to keep information about key processes up to date, including managing our inventories and our accounts," says González-Ramírez. "When we started this project we didn't have software that integrated all of these processes for us. Today we've got that software and we definitively have a better outlook on our business. We are now able to count on the quality and accessibility of our financial and inventory information. We're also able to count on being able to use these tools to allow us to develop and incorporate our own adjustments as necessary."

Q&A Coming of Age in Latin America Karen Bitran oversees IDC's research practices in Latin America for software covering enterprise applications, analytics applications, infrastructure software and development, and integration tools. Prior to managing IDC's software practices, Bitran analyzed software and services markets in Mexico and Brazil. Through her detailed market and customer knowledge of both the software and IT services areas, Bitran is frequently asked to present at customer and industry events about the solutions market in Latin America and the evolving requirements of the leading data centers in Latin America for software and services solutions. Profit asked Bitran about challenges specific to the manufacturing industry throughout Latin America. PROFIT: How can small and medium manufacturers in Latin America better prepare themselves to compete globally? BITRAN: We see a lot of manufacturers going to Asia, including China, Korea, and Taiwan. If Latin American companies want to compete in this market, they have to be faster; they have to have better IT systems, and they have to be able to make decisions much faster than they are accustomed to. In Mexico, for example, small and medium businesses [SMBs] are beginning to consider adopting technology to help them react faster to their markets. These companies are realizing that they need to make decisions quickly and precisely to be able to compete in this market in the coming years. PROFIT: What are some of the pressures that keep growth from moving at a more rapid pace? BITRAN: I'm definitely seeing accelerated growth in IT in Latin America among SMBs; however, these companies don't necessarily have the same kind of economies of scale or the same kind of power to negotiate high-volume purchases as large businesses do. And that is probably one of the main challenges SMB companies face nowadays. Naturally, small and medium businesses can be very cost-sensitive. It's not uncommon for a company in a smaller town or city in Latin America to lack the US$20,000 or US$30,000 necessary to make an initial technology investment. This is the first time that Latin America is actually going through a period of steady growth economy, which allows countries to further develop their SMB sector. Many times when we've tried to develop channels, we've had a crisis and then we have to stop that area of progress because the priorities change. The Argentine economic crisis, for instance, had a devastating effect on the country's economy during the early 2000s. It has been a little more than two years since Argentina began recovering, and now the SMB sector is also starting to invest more strongly in IT. PROFIT: Are there any cultural differences that make SMBs in Latin America unique? BITRAN: One difference is that in Latin America there are a certain percentage of companies that have been family-owned and operated for one or more generations. Within a family-owned business, people are sometimes used to thinking that the way the business has worked up until now is clearly the way that it's going to work in the future, which is not necessarily true. Sometimes they maintain a false belief that they can sidestep technology and still optimally grow their business. Today, they're changing their attitude, but within a family business there may not always be somebody who has studied purchasing or manufacturing practices, so the person who makes the decisions might not necessarily be the best person for making forward-thinking decisions about technology.