Case Analysis Project – Why ERP?Read the book Why ERP? By Jacobs and Whybark and prepare written answers to the followingten questions.1. What is the objective Dan Bragg has in mind for the implementation of SAP R/3 atMcDougles Furniture in North Carolina?Dan Bragg is the IT person in the Ohio plant and likemost IT people believe SAP is an ITsolution, not a management solution. His expectation is the system in Ohio can just be“transplanted” to the North Carolina system. But the plants are not the same. The business inOhio is considerably less complicated than the North Carolina plant. See the Figure below for acomparison between the two plants. Topic North Carolina Ohio Products Custom Furniture Standardized Models Time to Completion Up to 8 Months Less than 8 hours Current System MRP + Tweaked Add-ons ERP Flexibility Required Immense None Processes Immature-Not documented Mature-Well documented Employees Stable High Turnover Salaries Above Market Below Market Talent Artisans Minimum Training Wood Custom Hardwoods Plywood, Composition Type of Customer Upscale, Custom Wal-Mart; Kmart Type of Plant Creative Assembly Forecasts Multiple by Department Tied to Vendors Time of Forecasts Nothing Concrete Several Months in Advance2. What is Mr. McDougles objective for the implementation of SAP R/3 in his furniture factoryin North Carolina?Initially, Billy thought Mr. McDougle only wanted to integrate the financial portion of the twoplants but now his objective is to be able to have consolidated systems for both plants.Financially this would be much more economical from a cost standpoint. He believes it is easyand simple to implement SAP for both plants.3. Does Billy want to implement SAP R/3 at the North Carolina furniture plant?Not really! Billy does not believe the SAP R/3 is the correct system for the North Caroline plant. The North Carolina plant has been in the McDougle family for several generations and produces a line of very fine handcrafted furniture for residences and offices. Located in the Smoky Mountains, they were able to take advantage of the local hard woods from the area but they also have to order materials from overseas. Those items have a much longer lead- time. Their customers are both residential and commercial with high quality and custom designs. The company has grown slowly but they have managed their growth to keep a constant work force. Their employees are local labor, very experienced and highly skilled.
They treat their employees well and pay better than market wages to their people. They use the “apprentice” system, hiring local students from shop classes to see if they will work into permanent employees. The atmosphere of the plant is one of informality with everyone helping each other out when needed. The system is flexible to match their way of doing business.The SAP system has a huge number of details just to handle the day-to-day transactions, it is not very flexible, and the installation is also difficult. He is overwhelmed by the amount of decisions required just to “program” the system with all the options. It would require changing how they do business. His concern centers on starting the implementation only to discover the system does not fit their circumstances. The Ohio plant set up is very different from the North Carolina plant. The system “integration” is the reason for the complexity. Data is only entered once but used by many people so everyone has to agree on what data is entered, how it is entered, and how it is used. The North Carolina plant has added “tweaks” to their current program to allow for customization and changes during the production sequence. These changes would be difficult with and ERP system and Billy does not see how the ERP software will fit with their way of doing business. For an ERP implementation to be successful, a business must change their way of doing business, recognizing the new business processes using a cross functional approach.The consultant Billy spoke with described plants where R/3 implementation would not be recommended. Companies with very little experience with formal information systems, lacking discipline and training to develop people to use R/3, had changing information system requirements, and/or were dependent on a great deal of flexibility for success would not be good candidates for a successful implementation. The North Carolina plant is “0 for 4” for success.4. What would his objectives be if he did want to do so?Flexibility was his top concern. His objective would be to start small, with just one module tobegin with. Consolidating the accounting programs would force the North Carolina plant toclean up their data, get good processes in place, and have good definitions to work with. Also,keep the current MRP system so business is not adversely affected.5. Why was the implementation of SAP R/3 successful in Ohio?From the wording of the question, it seems the consensus is the ERP implementation in Ohio was asuccess and from a monetary standpoint, this would appear to be true. However, there are other factorsto consider when labeling an implementation “successful”. Based on an article “The 12 Cardinal Sins ofERP Implementation”http://rockfordconsulting.com/the-12-cardinal-sins-of-erp-implementation.htm thereare issues, sins, and time-proven approaches for implementations. First is High Employee Involvement,workers know their jobs and should be involved in the implementation phase as much as possible, thisfosters ownership and buy-in. Second is a Comprehensive and Systematic Approach, which addresses allparts of the ERP system. This includes the development of an IT strategy, requirements, definitions,proper research of software and hardware, education and training of all employees, and resistance tochange to name a few. Third is Adequate Resources in terms of technical and administrative resources toallow employees breathing room. Be sure to understand the entire cost of implementation. Fourth isExtensive Education and Training at all Levels. This includes all employees involved with the new system,including upper and middle management.
The first approach of employee involvement was a miss.Few of the Ohio employees knew the systeminside and out. It was an “IT” and management implementation. This can be seen from the high turnover,the employees were “told” what to do, and with the high turnover, there were few employees left from the“old” way of doing business. It was a comprehensive system but it was an IT implementation with littleeducation and less training, along with no effort to eliminate any resistance to the new system. Onadequate resources, the company did make sure to choose the right system and so far, the company hasbenefited monetarily with improved production and shorter cycle times. The fourth approach of extensiveeducation and training only happened for high-level management. Additionally, once the AccountingManager left, their “success” began to falter.Employees were not included in the training except for theirspecific tasks. Given these results, I am not sure I would conclude the Ohio plant was a success.However, from a business standpoint, it might be considered successful because of shorter cycle timesand increased business.From this standpoint, in order to see why the implementation of SAP R/3 was successful in Ohio,a review of the operation of the Ohio plant helps. The Ohio plant operates on a “just-in-time”basis. Trucks unload raw material almost all day long at one end of the plant and trucks aretaking away completed orders at the other end of the plant by close of business. Most of theorders go through the plant in hours. Their goal is to use the same truck that delivered the rawmaterials to pick up the finished goods at the other end of the plant.Their plant uses mostly plywood, composition board, some solid wood, hardware, and a little bitof finishing material. Almost all material comes in pre-finished, cut to standard lengths andwidths. This makes assembly fast, with little custom work required. They have approximately 30vendors and ship between 450 – 500 standard desk models a day. The same goes for the shelvingunits. The vendors do all the cutting and finishing. Packaging is done with cardboard, strapping,and boxing for shipment. Also included are assembly instructions. Only a couple of days’ worthof inventory are kept on hand. Ohio McDougle uses computer controlled machines andautomated conveyors in production. Billy also noticed there were few workers on the floor, sincemost of the work was programed by the back office.Customers provide forecasts several months into the future, broken down by model. They areeven tied into some of the vendors systems. The product lines only change by about 15 to 20% ayear. Their biggest accounts are with Wal-Mart, Kmart, and Office Depot. However, they have avery high turnover in personnel, there are no master artisans. They learn the job quickly andwork for lower wages but once they get some training, other companies hire them. This accountsfor the high turnover. Additionally they have mature processes in place, with documentationavailable throughout the plant. Larry McDougle does not use the system except on rareoccasions and all questions are referred to senior management, not to any of the line workers.However, the plant moves like a well-oiled machine, on schedule, using materials just in time,and shipping products as quickly as they are made. The company had mature, static processesthat lent themselves well to automation.6. Identify specific examples of other companies where SAP was successful and explainwhy. Alternatively, give some general characteristics of firms where SAP might be successful.
One example where SAP was successful is Staples Office Supply. They wanted to install anonline kiosk, installed in all 1400 stores. This required connecting the company’s e-commercewebsite,, Staples.com with its point of sale (POS) system, order management system, distributionsystem and supply chain. This new process came from their strategic plan, using IT to advancethe companies mission. They have mature processes and want to implement additionalcapabilities to keep their customers coming back by providing a full range of online services.Another characteristic, according to Staples is standardization. This makes implementation costless. Part of this standardization for Staples is development one common platform.Another example is Dow Chemical where the SAP implementation was ultimately successful.They were willing to change, focused on small wins and adjusted their scope when projectdifficulties occurred. Additionally they had strong, internal leadership who was vested in makingthe project successful. They relied on internal people to design the processes and configure thesystem rather than turning this crucial step over to an outside consultant. Use of consultants isbeneficial in explaining what, when, how, and where to install the system but they are not areplacement for employees who will use this system everyday.General characteristics where SAP might be successful arefirms with mature processes,everythingis documented, and everyone knows what to do. Another characteristic is a firm withsubstantial computer experience. In addition, when management believes the SAP is a “not asilver bullet” that will magically fix all their problems but will help them improve theirprocesses, making them more competitive. They understand training is important and are willingto do it “right”.7. What are some specific examples of companies where SAP R/3 was not successful andexplain why?Alternatively, give some general characteristics of firms where SAP might not besuccessful.One example where SAP was not successful is FoxMeyer, a wholesale drug distributionbusiness. They did not have sufficient management support, inadequate planning bymanagement, and used an external consultant. Management had unrealistic expectationsconcerning the return on the SAP implementation and the culture was not open to change.Additionally, employees did not express their concerns to management. In reviewing all theissues the main characteristic they lacked was complete and realistic management support. Italso does not appear there were any strategic goals for this implementation. At the same time,FoxMeyer tried to install an automated warehouse system, which was an extremely poordecision by management. Taking on one major implementation is difficult, but two at once issuicidal. Ultimately not only was the implementation not successful, but FoxMeyer wentbankrupt.Another example where SAP was unsuccessful was Nike. From all indications, it appears themajor characteristic missing for Nike is management’s buy-in. Nike tried to implement a riskyand difficult strategy by creating a single, giant, integrated database within its SAP ERP systemfor every employee in North American and EMEA. This meant getting everyone to agree onbusiness practices and common data definitions before the software went in. This is an extremelydifficult integration and has contributed to more failures than not. (Koch, 2004) Thecharacteristic lacking in this example is management understanding and realistic expectations.
They did provide support but their expectations were so unrealistic the chance of successfulimplementation was very slim. They did not allow sufficient time for the implementation and theinternal training was low. Lack of training leads to individuals who are ill-prepared tosuccessfully implement and use the system.Even though Nike touts the system as a success, theirproduction time did not decrease (according to their vendors) and gross margins have onlyincreased slightly, not significantly for the six year, $500 million dollar implementation.General characteristics where SAP might not be successful are firms with immature processes,and little is documentedandonly one person knows the entire system. Another characteristic is afirm with little or no computer experience. In addition, when management believes the SAP is a“silver bullet” that will magically fix all their problems but they want it “now” and do not wantto spend the money to do it “right”.8. What would you have done differently if you had been Billy in this situation?I am not sure I would have done anything differently in the research portion of the problem. Hetried to gather all pertinent information. However, I do not believe Billy understood the realquestion Mr. McDougle was asking in the beginning. Billy thought he was on a fact findingmission when in fact he was really only doing lip service. Mr. McDougle’s mind was alreadymade up; he was going to implement the system regardless of what Billy found out. Given this,Billy was in a no win situation.The first thing I would have done differently would have been to determine Mr. McDougle’s trueobjective before starting on the project. Billy did not ask nearly enough questions, plus he was alittle jaded with regards to the system before he began his research. Another thing I would havedone differently would have been to put together a presentation with all the information gatheredand bring in a consultant to help “sell” the right answer. Since Billy had preconceived notionsabout the SAP system, his data was probably viewed as “suspect”; where data from adisinterested third party might have carried more weight.9. Is it possible to install a commercial ERP system and still get a competitive advantage fromyour information system? Why or why not?It is possible to install a commercial ERP system and have an operational competitiveadvantage. The reason is companies are made of people. The machines assist but they cannottake the place of individuals who make the final decisions. Even though the systems are the samewhen they leave the vendor, a company can choose different modules, different options (there are8,000 to choose from), and still apply their own business knowledge which is unique to eachbusiness. A firm cannot get a competitive advantage from and ERP system but they can get someoperational efficiencies. Eventually they may be the “norm”, like having email. It is like twopeople opening a restaurant, both are excellent chefs, both have a good location, but one issuccessful and the other is not. Somehow, one maintained a competitive advantage, while theother did not. People make the difference!Companies must define a business strategy that will give them a competitive advantage or, at thevery least, make them competitively equal. Then, analyze their current business processes anddevelop their objectives. This will make them successful, not the software itself.
10. What were the three best and three worst things about the implementation of SAP at the North Carolina plant?Actually, the three worst things happened more than once,first before the implementation and second after it. Before the implementation the three worse things were they tried to do the implementation in a hurry; they did not hire any outside help with the technical decisions; lastly it was an IT implementation not a business implementation.The three worst things that happened after the implementation was, the worst thing was what happened to the people. They were all demoralized and many left the company. Manufacturing is going crazy; they no longer have the flexibility to make changes like in the past so costs are going up. Customer service is down because they cannot get any information from the system.The three best things about the implementation were Billy got a new job, came to realize there are situations when ERP will work and he was called back as a consultant to try and get the implementation back on track. In reality, there were no “three best”, the implementation was a disaster and the company may not survive.