SAP Case Study


                                                              GROWTH BY ENHANCING
characteristic of business cycle downturns. Moreover, the            enabled the company to offer homes that satisfied con...
requirements. Moreover, the company had no perpetual inven-        IMPLEMENTATION
tory process implemented: Therefore, a l...
The company also streamlined business processes for order          traversed by these vehicles. Cavalier Homes also lowere...
Upcoming SlideShare
Loading in …5

SAP Cavalier Case Study 2002


Published on

This case study was developed and published in 2002 after our successful SAP implementation. Cavalier was a public company at the time falling under all SEC disclosure rules associated with publication of financial and performance data.

Published in: Business, Technology
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

SAP Cavalier Case Study 2002

  2. 2. FUELING MARKET SHARE GROWTH BY ENHANCING PRODUCT VALUE SUMMARY AT A GLANCE: mySAP ENGINEERING AND TM CONSTRUCTION AT CAVALIER HOMES Cavalier Homes is a leader in the manufactured homes industry. The company engages in the production, sale, finance, and Strategic Goals: insurance of manufactured homes. Its homes are completely • Increase market share, particularly in the high pre-built at the factory and deployed at individual sites, ready value segment for occupancy. • Become the lowest cost producer for all value points served by achieving economies of scale across diverse Cavalier Homes was founded in 1984 as a manufactured home operations builder in Alabama. Over the subsequent thirteen years, the • Enhance revenue opportunities in existing customer company realized a high rate of growth, driven by acquisitions base and increased demand for its core products. Cavalier Homes is • Improve efficiency of service operations publicly traded on the New York Stock Exchange under the symbol “CAV,” and in 2001 had revenues of more than $360 Approach: million and about 2500 employees. The company builds homes Cavalier Homes analyzed the full cost of each finished under eleven brand names at fourteen manufacturing facilities. model sold and conducted customer focus groups to priori- Homes are sold through a network of over 800 dealers in the tize requirements. The company thereby developed simplified South Central and South Atlantic regions of the United States. product offerings that provide greater value and decreased manufacturing costs by rationalizing raw material parts and Cavalier Homes operates in a highly competitive industry. streamlining operations. This approach was enabled by mySAP™ Engineering and Construction (mySAP™ E&C) The company must compete on price, quality, and service to win solution capabilities in sales and distribution, service customers. Cavalier Homes competes with others in the manu- management, materials management, production planning, factured home industry as well as with companies that provide procurement, and accounting. substitute offerings such as apartments and condominiums. Results achieved over the period 4Q99 to 1Q02 The manufactured housing industry is influenced by many of include: the same economic factors that affect the housing market as a • Reduced number of home models sold from over 800 whole. In particular, the industry is cyclical. During much of to 140 and achieved prices of $4000+ lower than the the 1990s, the manufactured home industry saw substantial competition in key segments growth, which was driven by favorable lending arrangements • Improved market share from 4.6% to 7.6%; increased and a proliferation of retail outlets. This led to many new home shipments by 15% while industry shipments entrants into the home manufacturing business, an increase in declined by 21% production capacity, and an expansion of wholesale shipments. • Lowered raw material inventory levels from $4.2 to Ultimately, these trends led to the slower retail turnover, higher $2.1 million and improved turns from 1.0 to 4.7 per month at a key manufacturing facility; reduced dealer retail inventory levels, and increased price competition that are inventory by 10.4% to $171 million • Lowered production hours per home by 20% and reduced production and administrative workforce by 40% • Positioned the company for more efficient collaboration with suppliers
  3. 3. characteristic of business cycle downturns. Moreover, the enabled the company to offer homes that satisfied consumers, industry had also been affected by an increase in dealer failures, were priced lower, and thus sold well. In order to execute order- a reduction in consumer credit, and an increased repossession to-delivery, procurement, and other processes in its new of homes that, in due course, reentered distribution channels. business model – and manage the associated data for decision- The net result was that the number of industry home ship- making purposes – Cavalier Homes selected mySAP™ E&C as ments declined by 44% from 1998 to 2001. the solution which had the most robust capabilities to meet its needs. In the mid-1990s, as the market continued to grow, Cavalier Homes realized that its business operations were costly relative “The SAP solution gives us the ability to view costs all the way to the competition, preventing the company from adapting through the value chain,” said Jay Wilson, chief information quickly to emerging consumer demands. The company’s officer, Cavalier Homes. “That information, combined with growth through acquisitions and a decentralized management after-sale data, has enabled us to simplify our product offering. structure had left each manufacturing facility operating inde- We have been able to make configuration changes to reduce the pendently. Each plant designed floor plans, procured raw mate- number of raw material parts, lower service costs, and improve rials, manufactured and sold homes on its own and did not cash flow. We are producing products that have far superior coordinate with other areas of the company. Each facility had standards and options than before – and our customers pay less independent processes and information systems, and business than they would to competitors whose products offer less.” decisions at the corporate level could not be made easily. OBJECTIVES To compete effectively, Cavalier Homes realized it must achieve In the late 1990s, Cavalier Homes foresaw that it could have lower operating costs and the ability to better satisfy demand. future difficulties in achieving market share growth and sustain- Addressing these requirements became more critical as the ing a competitive cost structure. The company was unable to industry experienced a downturn in the late 1990s. The com- adapt production processes cost-effectively according to chang- pany charted a course that started with understanding ing customer demand, due to a lack of standardization of busi- customer needs and creating high-value products that would ness processes and raw material parts across the company. most effectively serve consumer demand. Through this Cavalier Homes’ market share began declining gradually in 1996. approach, Cavalier Homes was able to reduce the number of The company was designing and producing homes quickly, but standard items and options in its homes and eliminate the cost largely on an ad hoc basis as demand for specific floor plans sur- and complexity of maintaining a high number of raw materials faced from retailers and end-consumers. This business approach across its brands. across its brands led to a proliferation of more than 800 unique home models and more than 12,000 raw material parts. The While the product development cycle became more deliberate company’s balance sheet assets and retail distribution channel and lengthened from a few days (during which ad hoc require- inventory levels were growing, and operating costs for both ments had been met) to several months, the new approach manufacturing and service were not in line with competitive
  4. 4. requirements. Moreover, the company had no perpetual inven- IMPLEMENTATION tory process implemented: Therefore, a lack of visibility into In 1998, Cavalier Homes initiated a detailed evaluation of its operations and poor accuracy of data inhibited Cavalier Homes’ current operations to determine how to best satisfy customer ability to operate cost-effectively. needs, reduce costs across its diverse operations, and grow market share. Even though Cavalier Homes wished to retain Given the market share decline, increasing operating expenses, its many brands, the company recognized that process and emerging downturn in the manufactured homes market, standardization, data-based decision making, and reduced Cavalier Homes’ objective was both to reduce costs and improve variation of home models and raw materials would be key to the value that the company provided to customers. The com- realizing its goals. In the fall of 1998, the company selected pany sought to increase the value of its home models by reduc- SAP® R/3® (which was subsequently licensed as mySAP E&C) ing the variety in its product offerings. That is, through an to enable standardization of business practices, provide visibility understanding of the demands that were most common to all into operations, and enable a clear view of performance customers for floor plans, cabinets, fixtures, drapes, and so metrics. The plan called for a phased, sequential rollout to forth, Cavalier Homes could reduce overall costs by settling on each manufacturing facility. the most valued – and generally the highest quality – standards and options. In 1999, implementation at the first two manufacturing plants began, and these initial efforts highlighted the need for cus- In this way, the company could simplify its operations, stan- tomer input regarding finished home model configurations. dardize processes across brands to the extent appropriate, and Cavalier Homes thus created a more deliberate product devel- minimize its raw materials inventory. Moreover, this approach opment process, soliciting customer input through focus would enable Cavalier Homes to collect meaningful data that groups to understand the most valued home attributes. would support continual improvements in its efforts to reduce Customer input, coupled with data from the mySAP E&C manufacturing and service costs while effectively serving its sales and distribution database, enabled the company to customer base. The company’s goal was to be well positioned determine which were the most popular floor plans. The SAP for the next cyclical upturn and achieve a measure of profitable variant configuration capability was used to further analyze growth as long as current business conditions continued. the bills of material (BOM) covering these home configura- tions. Using this information, the company limited the home models and options offered to those that were expected to be in the greatest demand. Cavalier Homes was thereby able to reduce the number of raw material parts from more than 12,000 to less than 1,800 and reduce the associated cost of these raw materials.
  5. 5. The company also streamlined business processes for order traversed by these vehicles. Cavalier Homes also lowered the fulfillment, manufacturing, and procurement. Use of average service cost from $1,150 to $250 per home for one mySAP E&C production planning capabilities has been model in the initial implementation covering this service cost central to improving execution of these processes. Each house reduction approach. Also, the company is using the data in has an associated BOM with as many as six levels: One level is BOMs to compare and analyze the efficiency of its manufactur- assigned to rooms in the house and other levels are assigned to ing facilities. The company is identifying differences in raw specific subassemblies such as the roof, kitchen cabinets, and material usage and engineering specifications in order to work electrical system. The materials and quantities required for toward even more standardized products and processes and to building the portions of the house are entered into the BOM further reduce the cost of its homes. The company is using data from the diagrams drawn by the engineering divisions for each in mySAP E&C for many other purposes, including reducing model. When a sales order is entered, the SAP variant configu- order backlogs and evaluating profitability at the customer ration capability is used to select materials according to the level. specifications in the BOM and the options selected in the order. This approach has enabled a reduction in the time required to By early 2002, the implementation of mySAP E&C had been determine the cost of a home from about two days to a few completed for all of the company’s financial operations and minutes. Moreover, this system enables visibility into material at four key manufacturing plants, representing 60% of the requirements for scheduled orders, facilitates procurement company’s production capacity. Upon completion of the planning, and ensures greater inventory accuracy through mySAP E&C implementation at the remaining ten manufac- relief of materials in the system following production turing facilities, Cavalier Homes will have a solid foundation (backflushing). As a result of more precise operational data, for further business process enhancements. Cavalier Homes has reduced its financial closing cycle time from seven to two days. In the future, Cavalier Homes expects to implement collabora- tive processes with its suppliers. This initiative will provide it As the implementation progressed, Cavalier Homes created with opportunities to further reduce raw material parts costs databases that enable ongoing process analysis and lead to and offer better value to its customers. Also, the company expects to install mySAP™ Customer Relationship Management continual performance improvements. For example, the com- (mySAP™ CRM). This will allow the company to market new pany used data from the mySAP E&C service management capability to analyze post-sales service operations in a key home service, financial, and insurance products to its installed region. The company reduced administrative cost of service base of home owners. Such an initiative will increase high operations by $2.2 million in this region by consolidating margin service and financial product sales, and will better service warehouses from four to one, reducing the number position Cavalier Homes as a full service provider of of service vehicles deployed by 42%, and reducing the mileage manufactured homes.
  6. 6. SAP AG Neurottstraße 16 69190 Walldorf Germany T +49/18 05/34 34 24 * F +49/18 05/34 34 20 * * Subject to charge 50 057 903s (02/08) © 2002 by SAP AG. All rights reserved. SAP, mySAP,, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. MarketSet and Enterprise Buyer are jointly owned trademarks of SAP AG and Commerce One. All other product and service names mentioned are the trademarks of their respective companies. Printed on environmentally friendly paper.