ERP CIS3009

ERP

Introduction

Economic globalization and internationalization of operations by the organizations are the essential factors which require integration among suppliers, vendors and partners across the borders in order to achieve integrated and effective supply chain (Yusuf, Gunasekaran, & Abthorpe, 2003). Increased competition has forced organizations to move their operations across the globe in order to reduce their costs and explore the emerging markets. The emergence of the information technology has helped the organizations in achieving truly integrated supply chain and being responsive in meeting changing market requirements. Enterprise Resource Planning is business software package that allows integration of information and seamless transfer of data across various business functions. ERP is a collection of enterprise-wide management tools that balances demand and supply, links customers and suppliers into a complete supply chain and helps the organization in business level decision making (Wallace & Kremzar, 2001). An Industry-oriented ERP system is a specific business packages designed and developed to meet the business needs of a specific sector which cannot be met by general purpose systems (Xu, 2011). ERP implementation requires lots of investment and support from top-management as well as the employees.    

NIBCO is U.S. based manufacturer of valves and pipe fittings having revenues of $460 million. The company wanted to implement SAP R/3 across all their 10 plants and 4 new distribution centers. NIBCO’s top management brought in the Boston Consulting Group (BCG) as the strategic information systems development partner. It was the responsibility of the Boston consulting group to replace the existing legacy system with the new strategic information system that would meet the business objectives. The existing information systems were outdated and there was no integration among the reporting tools. The need was to build an integrative information system that would help the organization to grow and become more global. The Boston Consulting Group recommended a common integrated system for finance, materials management, production, sales and distribution and human resources offered by the major ERP vendors. Many of the consultants they adopted did not recommend a Big Bang approach for implementation, but the company went ahead with simultaneous implementation at all the places. The length of the project was 15-monts with the budget of $17 million. The company dedicated top-management team to make sure the ERP implementation was on time and successful. The project was headed by former VP of Operations Beutler, the information services director Wilson and a former quality management director Davis.

Implementation Strategy

NIBCO’s existing IT systems included four major legacy systems which supported order entry, manufacturing, distribution and accounting functions. Individual business units had purchased their own packages based on their requirements, while plants were having their own manufacturing software packages with their own separate databases. There was no integration -among the legacy system and no data movement across the different packages. The legacy system had too many databases and multiple access points; as a result development staff had to create custom interfaces between the different systems. Most of the users were not happy with the performance of the legacy system. NIBCO’s project consultant BCG recommended replacing the existing legacy system with the new integrated system which would support different functions such as production, supply-chain, distribution and finance. Former VP Operations Beutler was selected as the head of project implementation team along with the information services director Wilson and former quality chief Davis. Selection of the right ERP packages should be done on the basis of proposed functionality cost of ownership and ease of implementation (Fenn, Sulcas, & Neves, 2004). Beutler decided to create a cross-functional team to evaluate different ERP packages based on business requirements. Seven different ERP packages were evaluated in depth based on the business requirements. Members from different business functions evaluated theses ERP packages based on the deliverables for each of the functions. They mapped strengths and weaknesses of each module into an evaluation matrix. The challenge they faced was to select different best-in-class ERP modules from functions like finance, supply-chain and production or to select a single ERP package that would integrate all the modules.             

Now, in order to successfully implement the ERP system in the specified time, NIBCO needed a team of dedicated individuals who would make sure the project achieves all the deadlines Beutler began the implementation of R/3 project along with Wilson who had previously work in a project involving major platform change and it was successful. Beutler was the overall head for the project, while Wilson contributed to the project and also maintained IS implementation. Davis was also brought in as the third co-leader for the project management. The ERP implementation team was known as the TIGER team and their work place was called as TIGER’s den. Achieving business coordination among the different functions was the responsibility of Beutler, taking care of the change management initiatives was the responsibility of Davis and Wilson handled the IT infrastructure requirements. To select the best people for the TIGER team, three co-leaders identified a list of 50-60 NIBCO associates   who possessed the required skills and competencies. Four director-level leaders were chosen for business review roles including two from sales and distribution. It ensured that project team has representatives from all the business functions. Each business process team had two business analysts and they were responsible for converting business requirements into technical specifications. During the initial months, the cost, scope and magnitude of the project was discussed with the IBM project leaders to set the clear guidelines for ERP implementation. Project report was presented to the board-of-directors with the budget of $17million and go live date of 12months later. The project report also included initiatives for change management, trainings and infrastructure setup. Initial project scope included ERP implementation at all the 17 distribution centers which would increase the cost very significantly. As a result company decided to consolidate 17 small distribution centers into 4 large centers to reduce the technology cost and implementation complexity.  

NIBCO was keen to implement the ERP successfully at all the centers using the Big Bang approach. To make sure they implement it successfully, they took care of all the small details for project management. They started from the basic technology infrastructure and decided to upgrade it. They selected a single ERP vendor for all the modules to ensure integration among all the modules. They created a project management team which included top-managers from different functions and three co-leaders who would take care of the entire project. Members of the team were also selected on the basis of their skills and competencies. Project scope was changed and redefined to reduce the cost and eliminate complexities in implementation. NIBCO took care of all the necessary requirements to ensure the project is completed successfully on the given timeline.

Implementation Organization and Approaches

NIBCO appointed BCG as their strategic information systems partners for successfully implementing ERP. Based on the study of existing legacy system, BCG recommended replacing the legacy system with one integrated system which supported data transfer among different modules such as production, distribution, material management and finance. BCG recommended 3-to-5 years phased wise implementation approach for NIBCO. But the NIBCO were having some reservations about the phased implementation approach as they felt that most of the organizations who adopted phase wise implementation were unsuccessful. They felt that business requirements were such that they had to implement the whole plan at the same time and most of the users were demanding quicker implementation. So the company decided to take on Big Bang approach for ERP implementation. The company needed to find an appropriate implementation partner who would support and help in carrying out Big Bang approach. The organization short listed two companies: IBM and Cap Gemini. IBM was short listed because NIBCO already had hardware support from IBM, while Cap Gemini was short listed because of their superior change management initiatives. They finally selected IBM for implementation consulting services, change management, infrastructure management and technical consulting. Though IBM had never done a Big Bang approach successfully in past, NIBCO hired them on the basis that they would help in successfully implementing ERP with Big Bang approach.

NIBCO wanted Big Bang approach because they felt implementing ERP at all the locations at the same time would give them an advantage and an opportunity to grow faster. For them the advantage of the Big Bang approach would be that all the users would move to the new integrated ERP system at a specified date which would improve the business efficiency. NIBCO did not need to mange two different systems at the same time which would require lots of resources and costs. The entire organization moves forward at the same time using the same system. So the consistency is maintained across different business functions. As per the implementation plan developed by NIBCO, the time frame for successfully implementing ERP would require 15-months, which is very short time compared to phased approach. BCG recommended them 3-to-5 years phased implementation program compared to which Big Bag approach would only take 15-months. The shorter implementation time would help the organization to move to the new integrated ERP system early and improve their supply-chain which was a requirement for their customers. The project budget was set at $17 million which is very low compared to the phased approach which would require more resources and more funding. The phased approach would require lots of fixes and cutover before the organization can move to the new system. Another advantage for NIBCO was to train the users only on the new systems, while the phased approach would require them conduct training on the new as well the existing system. But there were some disadvantages of the Big Bang approach. It involved high risk as the implementation would be carried out at all the locations at the same time. If the new system failed to deliver the desired objectives then the organization would suffer the most. The legacy system would have already been shut down and the new system not functioning to the desired level, it would have direct impact on the business processes of the organizations. As a result the organization may lose out on existing customers and face a decline in revenues. In the Big Bang approach for ERP implementation, small details and requirements may be missed as a result the new system may not deliver the desired results. Patches or upgrades may be required to include the small details or remove the bugs from the existing system.  

Go-Live Stage

Once the final project report was presented, the go live date was set for 29^th November, 1997 with the grace period of 30dyas. The decision to consolidate 17 small distribution centers into 4 large centers was taken to ensure that the implementation could be done within the time frame. Change management initiatives such as documentation of the new ERP system and communicating the benefits of the new system were taken. Detailed training plan was developed and users were mandated to attend the classroom training and “hands-on” session. In order to implement the project within the given timeline, the organization adopted a special incentive bonus pay for every salaried NIBCO associate.

Provision of Training

For successful implementation of ERP system the critical factors identified are top management support, change management and end user trainings and job design (Svejvig, 2011). NIBCO adopted the Big Bang approach to implement ERP system at their all the centers simultaneously. As a result they decided that on 29^th November, 1997 the organization would move to the new system. The users were unhappy with the functionality of the existing system and as a result demanded new integrated ERP system. NIBCO decided to implement SAP R/3 modules of FI/CO, MM, PP, SD and HR modules with over 620 licenses taken. IBM was selected as the implementation partner who provides ABAP training and technical training to the NIBCO consultants. Steve Hall, an environmental engineer was given the responsibility to ensure that all the team members and users receive the training for the new ERP system. For creating initial awareness about the new ERP system, trainings on SAP R/3 modules were held on-site. Team members were sent to various training centers in USA for 2-to-5 day courses. All together the team received training of more than 800 days. All the associates for the NIBCO had to compulsorily attend the training with minimum 95% attendance at the training required for the training classes. The project team created a detailed schedule for the training programs and their durations. Detailed training materials were also created for the future reference for the organization and it would help in knowledge transfer for any new employee joining the organization. Trainings were given on the basis of different modules such as SD, PP, MM and FI/CO. Every NIBCO associate had to attend a certain level of trainings in order to achieve their R/3 license and get familiar with new ERP system. Detailed training plan was created and over 1200 hours of training was given to the users at 3 NIBCO training centers over the 4-months time period before the system goes live. Trainings were given based on the job level of the employees and the trainings were based on new processes and not just the individual tasks. A testing serve “sandbox” was created and user-ids were given to the associates during the training so that they could try out various transactions and scenarios to get familiar with the new ERP system. Attendance of the associates during the trainings was tracked as a part of organization incentive scheme.

End user training plays an important role in successful implementation of the ERP system. As the organization moves from the legacy system to the new integrated ERP system, each and every user must be aware of the processes. NIBCO adopted the Big Bang approach, so they needed to train the users directly for the new ERP system. NIBCO created a detailed training plan for every associate based on their roles and made sure that every user attends training by linking it with the incentive program. They also created sandbox server for users to gain practical knowledge by trying out various transactions.  

Overall Effectiveness of the Implementation Process

Right from selecting the strategic partner to selecting the members of the project implementation team, NIBCO ensured everything was done carefully. Different project teams were created to ensure they carry out their task. Master data teams were created who looked after data maintenance and data cleanup. Customization team was created who looked after customizations required based on the business objectives. Implementation infrastructure team addressed the existing hardware issues and implements the new system. To ensure the regular updates and flow of information among different units, internal communication plan was developed. There were regular updates in the monthly “Tiger Talk”. NIBCO emphasized on user training so that users get the feel of the new system. The Big Bang approach used by NIBCO helped them in successfully implementing the new ERP system.      

Lessons Learned     

Most of the ERP implementation projects fail because of user resistance and lack of clarity of perceived benefits received from the new system (Kim, 2011). Successful ERP implementation requires huge investment, top management support, experienced implementation partner and a project management team who would take care of the daily activities. NIBCO made the right decision by bringing in BCG as their strategic IT partner who helped them in replacing their IT infrastructure and recommended an integrated ERP system. Having an experienced ERP implementation partner is a must who can guide the organization for selecting the ERP packages, developing IT infrastructure and conducting change management. NIBCO appointed IBM as the implementation partner which helped them in every phase of ERP implementation. Top management support and a dedicated project management team is a must for successful ERP implementation, NIBCO had a dedicated project implementation team called TIGER team which constituted of members from top management. Taking care of change management will ensure the smooth transition from the existing system to the new system and will avoid any kind of users’ resistance. Training plays an important role in successful ERP implementation as the organizations need to give specific funds for end user trainings and develop a detailed training program for the end users so they can get the idea of the new ERP system.

References

Fenn, D., Sulcas, P., & Neves, D. D. (2004). Selection of Enterprise Resource Planning Systems. 45-54.

Kim, H.-W. (2011). The Effects of Switching Costs on User Resistance to Enterprise Systems Implementation. IEEE Transactions on Engineering Management .

Svejvig, P. (2011). A Successful Enterprise System Re-Implementation Against All Odds. JITCAR , 13.

Wallace, T., & Kremzar, M. (2001). ERP: Making It Happen. John Wiley & Son, Inc.

Xu, L. D. (2011). Enterprise Systems: State-of-the-art and Future Trends. IEEE Transactions on Industrial Informatics , 7 (4).

Yusuf, Y., Gunasekaran, A., & Abthorpe, M. (2003). Enterprise Information Systems Project Implementation: A Case Study of ERP in Rolls-Royce. 2-16.