Information Systems

College of Business Administration
University of Missouri - St. Louis

Business Technology
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November 8, 1998

Software That Can Make a Grown Company Cry


Corporate root canal.

It's an apt phrase for the pain of installing those monster, run-the-whole-show software packages that coordinate a manufacturer's entire business from the time raw materials come in the door to the time the customer pays the invoice.

The New York Times

Yet companies find the software's promises of slashed costs and supercharged productivity irresistible, so the programs, known as enterprise resource planning software, or ERP, are spreading fast. AMR Research, a research firm in Boston, estimates that worldwide sales of enterprise software and related services like maintenance and training totaled $10.9 billion last year. And the Gartner Group, a research firm in Stamford, Conn., expects sales to keep growing by at least 20 percent a year.

ERP programs are pricey, costing a minimum of $300,000 for a tiny shop and rising into the hundreds of millions for a global giant like Coca-Cola or General Motors. But analysts say that nearly every sizable manufacturer in the United States and Europe either has ERP, is getting it or is considering getting it soon.

The boom has meant big business for consultants like Arthur Andersen and for software vendors like Peoplesoft and Oracle from the United States and Baan of the Netherlands. And it has been a bonanza for the German giant SAP AG, which owns more than a third of the enterprise software market. Its sales of ERP products ballooned to $3.35 billion last year, from just $633.6 million in 1993.

But popularity does not mean painlessness. Like oral surgery, the process of installing enterprise software is never quick or easy and can often be a scary mess. Whole departments must be retrained, jobs redefined, and procedures discarded or rebuilt from scratch. The inevitable glitches and unforeseen consequences can drive workers crazy for months. And no two installations are exactly alike.

Though its core is packaged, off-the-shelf computer coding, an ERP program lets a company choose from a myriad of preset configurations and options. Should customers be tracked by name, location or account number? Should sales reports be generated weekly, daily or hourly? Should labor costs be aggregated plant by plant or apportioned among product lines?

"There are 8,000 switches that you can flip to manipulate the software to handle business processes your way," said Mark Gulling, ERP program manager for Eastman Kodak, which began installing ERP software from SAP in September 1997 and does not expect to be finished until 2001.

SAP is trying to make the process easier for its customers. It now offers a product called Asap -- officially, Accelerated SAP, but the pun on "as soon as possible" is quite intentional -- that uses a methodical question-and-answer format to guide customers through the software's many options. "The big goal is to have no surprises," said Werner Dilzer, SAP's global director of implementations.

But that goal is still some distance off, as can be seen in the experiences of three SAP customers in the ERP front lines. One made just about every mistake in the book; another succeeded from the start, and the third is only starting -- but trying to learn from predecessors' mistakes.

Brother Industries: Learning the Ropes, The Hard Way

Back in early 1996, Brother Industries in Memphis, the American typewriter- and word processor-making arm of Brother Industries Ltd. of Japan, figured that installing SAP's enterprise software in eight months, tops, would be a snap.

Rollin A. Riggs for The New York Times
At first, Brother Industries moved too fast in its switch to enterprise resource planning software. Samuel A. Cox, who talked with employees last week at Brother's Memphis plant, is the chief information officer who helped straighten things out.
Brother would simply dump all the data from its existing software systems into the new data base. And while the company was at it, why not simultaneously change over from a big mainframe computer to a client-server system, based on desktop computers, that nobody in the company had yet been trained to use? And of course, the information technology people could run most of the project.

Yeah, right.

"They figured, it's packaged software, they didn't have to train anyone -- four information systems folks could easily teach 250 users how to run it," said Samuel A. Cox, the chief information officer hired by Brother in mid-1997 to clean up the resulting mess.

Everything that could go wrong did.

Plants chronically ran low on raw materials because no one had fed vital data to the new system about how long it took to get parts from Brother's suppliers in mainland China -- often six weeks or longer by the proverbial slow boat. Emergency air-freight shipments, though expensive, might have been a solution, except that all the pertinent vendor information was now locked up in new computers that no one had thought to equip with surge protectors; they kept crashing with every thunderstorm.

"This was a real case of garbage in, garbage out," Cox said.

The project team was made up almost entirely of technologists who did not really understand what the system was supposed to accomplish.

For example, the team added up how many people worked on each assembly line and the volume of parts and materials ordered by each plant, figuring that the arithmetic was nuanced enough to account for costs.

But the numbers proved far too broad-brush for operations executives who needed an accurate gauge of the cost of making each product. They needed to know how employees' time was divided over work on the line, coffee breaks and training; how many parts were actually used and how many wound up as scrap. Safety glasses, work gloves and other general-use materials needed to be factored out.

So did a lot of obsolete data. For years, employees had added new parts numbers to the data base but never bothered to delete the out-of-date ones. When the time came to switch to the SAP system, half the 10,000 capacitors, screws, resistors, and such listed in the data base were inactive. But the information was still dumped into the new system.

The huge amount of deadwood data slowed down everything from checking for duplicate parts orders to analyzing the supplier list. Even worse, when Brother's employees started adding the additional information that the SAP software required -- the time that each part sits in inventory before it is used, say, or the ratio of bad to usable parts in each shipment -- they labored to find data for twice as many parts as necessary.

By the time Cox arrived, the new system was far over budget and months behind schedule. He immediately joined forces with Douglas Price, who at the time was Brother's vice president for manufacturing, to figure out what the company's operations people actually needed. "Sam understood that SAP is not about hardware or systems or software, but about the user community and its needs," said Price, who was later wooed away from Brother to become a consultant on SAP software for Pricewaterhouse Coopers.

Together, Cox and Price did the groundwork that should have been done at the outset, analyzing labor and unit costs and waste rates at each plant and feeding the data into the system. Finally, Cox said, the program began doing what it was meant to do: keeping materials flowing, logging orders in, sending bills out, highlighting the most efficient operations and red-flagging the least.

Once the system was debugged, Brother found, for example, an inefficiency in its keyboard assembly line that it could correct by giving line workers a simple insertion tool. And it learned that productivity was greater in areas of its plants that did not arbitrarily shift workers from line to line, so it now keeps teams of people working together on the same models.

Now that it has tamed manufacturing control functions, Brother is expanding the program. Starting in November, a sales and distribution module will rapidly convert sales orders to production orders. Next on the agenda are production planning and warehouse management.

Cultor Food Science: Getting It Right The First Time

In a sense, Cultor Food Science in Ardsley, N.Y., a subsidiary of Cultor Ltd. of Finland, was a shoo-in for getting a workable ERP program up and running in just six months. In early 1996, the company acquired the food ingredient division of Pfizer Inc., sending Cultor Food's annual sales from $150 million to $400 million in one big jump and challenging it to integrate a much larger operation into its own.

Susan Farley for The New York Times
Richard J. Baratta, director of finance for Cultor Food Science in Ardsley, N.Y., says Cultor did not choose an E.R.P. program until the vendor, the German software maker SAP, showed how its products could meet the company's specific needs.

"Sure, there's always resistance to change, but it helps when there's no entrenched system to replace," said Richard Baratta, the company's director of finance.

Still, the biggest factor in Cultor's successful adoption of enterprise software was probably its extensive preparation. Cultor's management began by figuring out which specific sorts of data, reports and control systems it needed and then challenged software program vendors with a kind of test: Show us how your program processes orders overseas, prove that it can track our product from our shipping dock through a European middleman to an ultimate user, and show us how you account for on-paper profit transfers among plants.

"We knew what information we needed, and we weren't buying any program until we were sure it could provide it," Baratta said.

SAP got the highest marks on the test, so in mid-1996, Cultor assumed the role of student: It bought the SAP package and became one of the first companies to try its Asap product.

The company assembled a team of six, drawn from both the newly acquired Pfizer division and the old Cultor and including both technical and operations managers. Cultor gave the team a separate project room and established 48-hour deadlines to make decisions. Team members talked frequently with operations people to see whether the evolving program was really meeting their needs.

It didn't always. The human resources department dropped out of the project when it became clear that the system could provide only 40 percent of the data it needed. Manufacturing, on the other hand, signed up for the program late in the game. "If you're already setting up systems to track raw materials coming in and product going out, it makes no sense to have this production planning gap in the middle," Baratta said.

Other departments made bad choices and had to backpedal. Sales initially insisted that the system account separately for orders to each of Cultor's three product divisions, even if the orders came from the same customer. Within a few weeks, sales managers saw that this method caused duplication and made the company miss chances to combine orders into one shipment. Cultor returned to accounting for orders by customer, not by division.

Then came a training blitz that did not stop with just a few department heads. It reached, for example, to the quality manager who for years had set aside Friday afternoons to enter a week's worth of quality test results but now would have to enter them as soon as the tests were completed. "The SAP program won't add product to the inventory list unless it's passed inspection, so our inventory records wouldn't make sense otherwise," Baratta explained.

Cultor also learned the importance of keeping all its plants and divisions in the loop. Many Cultor plants use one another's products as ingredients and were accustomed to faxing orders back and forth. When the North American plants became the first to implement the new software, they stopped the practice, assuming that the system would handle internal order processing electronically. It does -- but the European plants, not yet on the new system, weren't alerted to check for incoming electronic orders. "We didn't do a great job of communicating," Baratta acknowledged.

Even so, Cultor managed to get five plants in three countries running on ERP software in just six months.

Its advice to others? "Remember that time is money with SAP," Baratta said. "So get it up, get it running, tweak it if you have to, but don't discuss, discuss, discuss. If you make a wrong decision, you can always change it later."

Visteon Automotive: Taking It Slowly, to Dodge Pitfalls

Most veterans of ERP installations say two important ingredients for success are narrowing scope and bringing users on board. If so, Visteon Automotive Systems should do just fine.

Visteon, the $17 billion, 80,000-employee automotive components unit of Ford Motor Co., started installing SAP enterprise software only in late August and is early in the process.

Peter Yates for The New York Times
Visteon Automotive Systems, a subsidiary of Ford, is in no hurry as it installs its enterprise software. Stephen Delaney, in tie, a vice president who has headed the project, worked with Dave Bent, left, Emmerich Christiansen and Charlotte Decker.
But for a year now, Stephen Delaney, Visteon's vice president for supply and process leadership, has eaten, breathed and slept ERP He and his project team built an extensive wish list by interviewing every employee who would use the new software. Then they drafted 50 specific goals related to speeding up the order-to-shipment process, cutting costs and increasing productivity. They dropped any request that did not directly advance those goals.

For now, Visteon's system will not bother with data about tariffs and customs procedures, nor will it include manufacturing data. Why? Feeding those masses of information into the system might distract attention from the need to improve the handling of costs, materials planning and order processing. "Manufacturing is not a weak area for us," Delaney said. "We know we have to fix up our transaction analysis first."

Users made 115 requests for data reported in ways that deviated from the program's standard formats, but the project team whittled those down to a handful. The accounting department wanted to stick with software it had grown to love; the ERP team said no. "Accounting transactions are the blood cells running through the veins of the business transactions, and doing it outside SAP would take away from the business process," Delaney said.

Once the company bought the SAP package, Delaney assembled 60 people from Visteon operations and 40 from information technology and set them to configuring the software full-time. He sequestered them in a leased building across the street from Visteon's Dearborn, Mich., headquarters and declared it off-limits to their old bosses and colleagues, except for ERP business. The group reports to Delaney, who in turn reports to Visteon's president.

The team is setting what Delaney calls "inchstones" instead of milestones. The team sets weekly goals for configuring the system and tracks the hours spent on each goal. As each portion of the program is installed, the productivity gains or cost savings are measured against expectations. "We will be able to see, almost person by person, what we are doing right and what we have to rethink," said Dave Bent, director of processes and systems. In the works is a bonus system for team members who consistently meet their inchstones.

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For now, Visteon is installing SAP software only in its smallest division, a $700 million glass unit that employs about 400 people, does most of its business in North America and does not have thousands of permutations and combinations of its product to account for. But representatives from other plants are participating in the glass project to make sure it incorporates functions that their operations will need.

The glass division is scheduled to switch to the new system next July, and Delaney wants it to run for at least six months before he starts rolling out the SAP software to other units.

Will it work? Ask him in 2002, when the whole company is supposed to be up and running.

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