EXPERT
ADVICE - New Ideas and Lessons Learned
ERP
One letter at a time
Transforming
your enterprise and supply chain? Better get the business case down, goal
markers set up and everyone on board to make it happen.
BY
BILL JEFFERY AND JIM MORRISON
Bill
Jeffery and Jim Morrison are vice president and principal,
respectively,
with global management consultancy A.T. Kearney.
IN SEPTEMBER 1998, when
Juan Sanchez took over as CIO of Delphi Automotive Systems Europe in Villepinte,
France (north of Paris), the company was in the midst of an enterprise resource
planning (ERP) project with straightforward targets and a dizzying array of
challenges. As the project got under way, the stakes for a successful
implementation increased. At the end of the day, Sanchez and his team learned
that such a project took a lot more than careful planning. It took vigilant
monitoring of detailed goals, the committed involvement of executives and
workers alike, a focus on customer needs and the careful building of a business
case for the endeavor.
At the time, Delphi was organized on a geographic basis with
different systems in each European country. Where divisions crossed geographic
borders, systems support was not consistent. A major implementation of ERP
software, with a planned expenditure of more than $50 million, had begun more
than three years previously at what was then a European subsidiary of General
Motors. The project's ambitious goal: to replace dozens of aging—and
incompatible—manufacturing and distribution legacy systems scattered
throughout the 58 Delphi sites in eight European countries with a single
enterprisewide system.
It wasn't simply the technical aspects of the ERP
implementation that made the work difficult. It was the complex business
scenario at Delphi that made the new system an imperative and heightened the
risk of failure. Possible complications included:
Systems
across borders. The new ERP system needed to cross multiple geographic,
cultural and linguistic boundaries. More than 3,500 employees would depend on it
to get their daily jobs done. Each country had developed business practices
independently, and some could not be reconciled because of the varying legal and
regulatory requirements—despite the efforts of the European Union to resolve
some of the cross-border inconsistencies.
Date-rollovers.
Delphi was using the project to help solve its Y2K compliance issues. The
project also had to help the company support the new euro currency; managers
wanted it to provide Delphi's various country locations a single conversion from
one system, rather than one conversion for each different system.
Changes
at the corporate level. The June 1999 spinoff of Delphi Europe from General
Motors occurred in the middle of the project.
A lack
of in-house IT staff. Delphi itself had no IT staff or systems independent
of its soon-to-be-ex-parent, General Motors. Its in-house IT expertise was
minimal.
More than two years into the project (at the end of 1997)
Delphi engaged our company, A.T. Kearney, to ensure on-time, on-budget
completion of the project and a tangible ROI, while EDS Corp. took
responsibility for the technical aspects of the rollout of the new SAP R/3
system.
Mindful of Mistakes
A.T. Kearney viewed this as an opportunity to drive the implementation from a
financial and operational perspective, something we felt other companies
implementing ERP projects had not done.
You don't have to go far to bump into lots of evidence that
shows how ERP software has not delivered on the promises of vendors. Some recent
cases where ERP has had publicly disastrous results include Whirlpool, where an
ERP implementation crippled
You don't have to go
far to bump into lots of evidence that shows how ERP software has not
delivered on the promises of vendors.
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the shipping system, leaving appliances stacked on
loading docks—and therefore not delivered to paying customers—for a full
eight weeks in 1999. Hershey Foods (also in 1999) claimed that a 19 percent drop
in earnings was caused by an incompetent ERP implementation that wreaked
distribution havoc during one of its most profitable seasons: Halloween. And
according to Computerworld (Jan. 3, 2000), a new ERP system at Volkswagen
resulted in significant delays in parts shipments, causing product inventories
to build up to costly levels. While these high-profile failures were not
top-of-mind when Delphi made its decision to implement ERP, they later served as
reminders that such projects can easily get out of control.
Attempting a large-scale ERP project (including
implementation and operations) is an expensive proposition for any organization.
A recent Meta Group report measuring the net present value of ERP implementation
projects found that approximately 60 percent of respondents indicated a negative
return on investment. That number climbed as high as 80 percent depending on the
specific software implemented. And because many of these first-generation
implementations were internally focused with no associated business case (for
example, emphasizing cost reductions, technology and process improvements rather
than external benefits like extending ERP systems to players in the supply
chain) quantifiable benefits were virtually nonexistent.
A Highly Structured Implementation
The process we employed on Delphi's behalf focused on six major initiatives:
Developing a quantifiable business case. Delphi executives first established
concrete goals for the business processes they wanted to improve, such as
increasing service levels, and calculated the expected benefits to be realized
from these improvements.
Defining
best practices. Functional teams defined best practices, such as
standardizing accounting procedures across Europe and standardizing logistics
processes. These teams, composed of key Delphi executives from affected areas
(in this case, logistics and finance), included representatives from a broad
range of nationalities and cultures. These executives identified "key
migration points" and the precise type and timing of a change.
Planning
prior to implementation. Planning for actual rollout of the new system at
each site began very early in the project cycle. An implementation readiness
assessment was used to determine if the necessary IT infrastructure was in place
and to make sure each site was capable of handling the transition to the new ERP
system.
Strict
monitoring of implementation schedules and costs. Once the actual rollout
began, a strict, deliverable plan was imposed on each local site. All milestones
were carefully tracked, measured and rechecked to ensure that scheduled changes
were made on time and on budget.
Cross-cultural training. To make sure that all affected people (targeted
users of the new system as well as consultants and managers) were on the same
page in terms of goals and priorities, a project "university" was
established in a central location (Paris) to provide training to everyone
involved in the project.
Rigorous
tracking of deliverables. Identifying and then relentlessly tracking the
complex web of incremental milestones was critical to the success of the
project. The methods used were grounded in A.T. Kearney's deliverables
philosophy and capitalized on A.T. Kearney's strength and experience in managing
large-scale programs.
Lessons Learned
After Delphi executives established their goals and expected benefits when the
program was initiated, A.T. Kearney used its benefit assessment framework,
Implementation Value Capture, to strictly monitor all deliverables and identify
additional revenue-generating or cost-cutting opportunities that Delphi could
achieve as a result of implementing the new system.
The highly structured implementation plan put into motion by
Delphi and A.T. Kearney set the stage for success. Among some of the valuable
lessons learned along the way:
Define
the business value you hope to receive, such as reduction in lead times, in
concrete and easily measurable terms.
Set up
regular review measures to make sure you are achieving your goals.
Don't
underestimate the art of "change management." Establishing a
training hub (such as Delphi's "university" in Paris) helps ensure
that all participants in the project—no matter where they are or what language
they speak—understand the goals of the project.
Make
sure that every vendor involved in the project has "skin in the game"—sharing
in the risks of the venture. In the case of Delphi, both consulting
partners—A.T. Kearney and EDS—agreed to share in the risk that the project
might not succeed by adhering to a fixed time frame at a fixed price. Any cost
or time overruns were the responsibility of the consulting partners, not Delphi.
A.T. Kearney had to excel at planning the program, managing risk and delivering
results.
Don't
lose sight of the impact on the customer. During any major transformation of
a company's core business processes, all changes must be absolutely transparent
to customers. In Delphi's case, with a technically sophisticated clientele such
as BMW, Ford, GM, Mercedes and Volkswagen, the slightest hiccup in manufacturing
plans could have an enormous financial impact on a customer's business. Notes
Sanchez, "We not only had to make many more changes than we originally
planned but also had to change how we had originally planned them."
Thinking Ahead
Conventional wisdom says that business is changing so fast that a single
Internet year is worth four calendar years; this means that the formerly
standard five-year corporate strategic plan needs to take into account the
equivalent of 20 years of radical change in a given industry. It's the challenge
that many companies face these days. Although the business case for Delphi's ERP
project was originally completed in 1996, Delphi's earlier decision to implement
SAP clearly helped the company achieve specific strategic objectives, such as
establishing common systems and standardized internal processes, creating fast
and accurate information flows across the supply chain that are customer driven
and supplier supported, enabling the swift integration of any acquisitions,
improving productivity of the finance function and working capital utilization,
and reducing the cost of legacy systems by more than 30 percent.
About the decisions made so long ago, in a different business
climate, Sanchez agrees it was the right thing to do at the right time.
"The team made a number of very wise decisions early on in the process. We
are a completely different company now," he says.