vandelay case analysis

CASE STUDYVandelay Industries, Inc

Group:9

Submitted By

Prince SoniSampreet Kirandeep

Randeep

Vandelay Industries Inc.

Why and how they went for ERP implementation

•Vandelay Industries, a global, multi-billion dollar corporation that manufactured industrial rubber and latex process equipment, was being ran on out-dated, fragmented, manufacturing and order fulfillment systems.

• Each manufacturing facility had purchased its own manufacturing resource planning (MRP) software and customized both their software programs and business processes specifically to their own plant’s needs.

• The diverse MRP solutions being used throughout the company were then integrated as best as they could be into the corporate financial systems but that was the extent of information systems compatibility throughout Vandelay.

Problem Statement

•As market conditions changed drastically in the 1980’s new, cheaper competitors emerged in the industry and forced Vandelay executive management to realize that they had to seek more efficient, streamlined, manufacturing systems and processes to be able to drive down costs and price their products more competitively to survive

•The company decided to purchase SAP R/3 Enterprise Resource System (ERP) and contract with Deloitte to implement the new system.

• The new software implementation would be a failure if executive management and Deloitte did not make the right decisions about the level of configurations allowed by the various user groups as well as identify what level of business process re-engineering, if any, would be needed to support the new solution

Problem Statement

Company Background

• About Us

– Past: Founded in Minnesota during World War II.

– Manufactured and distributed industrial process equipment used in production of rubber and latex.

– Quality: Known for design quality, innovative engineering and feature rich products

– At best: US $8 billion in terms of revenues and had 30000 employees at its peak.

Market Shift

• Mid 1980’s (Loss era)

– Severe competition from 3 strong foreign competitor

• Cheaper machines

• Machines with lesser quality and lesser features

– Vandelay took series of steps:

• lean production

• rationalization of product line,

• introduction of simpler and cheap machines

• closed 3 plants

• layoff reduced strength to 20,000

• Mid 1990’s (back to profit)

– Important learning regarding further driving down cost, from this exercise were:

• Give higher priority to manufacturing process

• Give higher priority to order fulfillment

Information systems status

• Fragmented

– Each plant (currently 8), had its own• MRP

• Specialized software for – Forecasting

– Capacity planning

– Human resource management at some of these sites.

– Though company had central corporate financial info system with connectivity to each site (it shows the need for integration of systems).

– Fragmented systems added time and cost to production cycle:

• Scheduling: Because of no connectivity between different MRP across plants, the manufacturing plant production plan had to be manually entered into the assembly plant systems. It had be done manually each week such that no other inputs were allowed during the week. (lesser responsive)

Information systems status Cont..

• Fragmented systems added time and cost to production cycle:

• Forecasting & planning: Forecasting was done in form of monthly buckets while the customer orders requested delivery within a week. If request do not line up with months production plan, late shipments resulted. (not aligned with actual customer demands)

• Order management: Orders taken manually and sent through fax and hence keyed into site’s order entry system (prone to lose orders, errors, time delays in fax etc)

• Human resource: When employee transferred from one location to other, whole data need to be manually entered at new location (confidentiality, redundant, time consuming)

• Financial and accounting: manufacturing S/W used were not linked to financial package, hence info. like labor hours charged per job etc had to be entered manually in both systems. (redundant, time consuming, potential for error, periodic reconciliation)

Action-Solution

• 1995

– Decided to implement SAP R/3 to end the existing fragmentation through process standardization and integration.

– Enormous efforts in terms of:

• Technical details for H/W and S/W

• Business practices changes

– Experts involved:

• Deloitte & Touche Consulting Group

• ICS

– Project Leader – Kramer

– George Hall, plant manager excited about getting R/3 implemented . He assumed that kramer would be free to modify the system at will.

– Kramer is confused about:

• How to respond to his request for training

• How to let him and other plant managers know that all decision about R/3 were not under their control.

Business Practices at Vandelay

• Varied Operations Practices

– No uniform Invoicing

– No Defined process

• raw material quantity verification

• Quality inspection

• Prioritization of work-orders

• Tracking of backlogs




Business Practices at Vandelay

• Varied Operations Practices

– No uniform Invoicing

– No Defined process

• raw material quantity verification

• Quality inspection

• Prioritization of work-orders

• Tracking of backlogs




Business Practices at Vandelay cont..

– Experts involved:• Deloitte & Touche Consulting Group

• ICS

– Project Leader – Kramer

– George Hall, plant manager excited about getting R/3 implemented . He assumed that kramer would be free to modify the system at will.

– Kramer is confused about:

• How to respond to his request for training

• How to let him and other plant managers know that all decision about R/3 were not under their control.

The Software Vendor - SAP

• Company Background– One of first ERP vendors (Est. 1972)

– 3rd Largest software company in the world

– Successful predecessor R/2 for mainframe systems

– $710 M sales in 1995 in N. America

• SAP R/3 capitalized on Client-Server architecture• World’s largest provider of Integrated Business Solutions

software

• Company stock trades on the Frankfurt and New York exchanges

The Software Vendor - SAP

R/3 Capitalized on many of the advantages of client server computing including.

• Powerful and flexible computing technology• Better GUI• Ease of Use• Ease of Integration• Scalability• More – Open standards

SAP R/3 Architecture

• SAP R/3 is one of the main product of SAP where R stands for Real Time and the number 3 relates to three tier application architecture(Data base ,Application Server and Client).

• Most of the business in today world runs on SAP R/3 system .About 80% of the companies implemented this software.

– The SAP R/3 System consists of application modules that support all of a company’s business transactions and are integrated interactively.

• Because of the integration, a change in one application module will result in an automatic update of the data in the other application modules involved.

– Application Modules• Financials

– Financial Accounting (FI)

– Controlling (CO)

– Asset Management (AM)

– Project System (PS)

SAP R/3 Application Modules

R/3R/3Client / ServerClient / Server

ABAP/4ABAP/4

FIFI

COCO

AMAM

PSPS

WFWF

ISIS

MMMM

HRHR

SDSD

PPPP

QMQM

PMPM


Financial Accounting (FI)Financial Accounting (FI)

SAP R/3 Application Modulesss


Success factors of SAP R/3

• Client – Server technology– Large firms moved from Mainframe to Client-Server architecture – R/3

was made for Client Server architecture

• Modularity, Functionality and Integration– Included financials, order management, manufacturing, logistics, and HR

– Integrated all the modules

– Centralized database accessible by all the modules

• Marketing Strategy– Partnership with most large consulting firms

– Marketed as broader business strategy

SAP Growth

R/3 Usage: System configuration

Configuration Tables:– To meet company’s specific requirement, settings of R/3 configuration tables were

changed.

– 8000 tables of R/3 define the looks and working of transaction screen.

– Table configuration activity had to be replicated for all relevant processes which needed time and expertise, which created dependency on a few people who were experts in it.

Added functionality: – R/3 system could only satisfy 80-95% of a large company’s specific business

requirements.

– Remaining functionalities can be obtained in four ways:

1. Interfacing R/3 to existing legacy system.

2. Interfacing R/3 to other packaged software serving as ‘point solution’ for specific tasks.

3. Developing custom software that extends R/3’s functionalities and was accessed through standard application program interface.

4. Modifying the R/3 source code directly.

The Consultants: Deloitte & Touche consulting group / ICS

Company Backgroung:

– The consulting group has been into consulting since 1950’s and accounted for over 15% of Deloitte & Touche revenue by mid 1990’s.

– It became $1Billion in 1995 and employed 8000 professionals in more than 100 countries.

– Deloitte & Touche group/ ICS was subsidiary of group which specialized in SAP implementation offering complementary software, Education & training and consulting in BPR and change management.

– ICS has won SAP’s award of excellence and had most of employees over two years experience. .

The Consultants: Deloitte & Touche consulting group / ICS

SAP had named ICS as an R/3 Global logo partner.– To maintain the partnership, SAP offers the following

to ICS:• R/3 system for internal training.• Regular R/3 logo partner forums and workshop.• Access to SAP infoline.• Second level support from SAP consulting

(consultant hotline).

Technology enabled change

According to Kramer there are two approaches to handle changes at strategy, process, people and technology level:

– 1) Clean sheet – all 4 dimensions of change are explored without constraints.

– 2) technology enabled change – primary technology is selected early and more strongly influences other three dimensions and still enables overall business change.

As the Vandelay is going with SAP implementation , ICS used a structured approach as per the client’s situation. The approach is shown in figure below:

Cont…

THE VANDELAY PROJECT

• Time Estimate

– The Vandelay Project’s implementation would require 18 months.

• R/3 software to be implemented at Vandelay 's 8 mfg sites, 4 order entry locations and at corporate headquarters in Minnesota.

• Plant installations would require a lengthy preparation period to align ops with the new business practices.

• Two-thirds of employees would need training on how to use new system

THE VANDELAY PROJECT cont…

• Effort Estimate

– Full time effort of 50 people including consultants( process re-designers and SAP specialists) and employees

– Part time involvement of many employee at each site.

• Initially, the project team would focus about 80% of its effort on designing the “to be” process model of the organization, and 20% on issues related to system implementation.

• In the later phases, during the activities of system configuration, testing, and delivery, the emphasis would be reversed: 80% concentration on SAP implementation and 20% on process design.

• Budget Estimate

– $20 million, including hardware, software, consulting fees, and salaries.

Team Structure

• Two team for managing the project– Steering committee

– Project team

• Steering Committee, 8 member team, consisting of Division VPs. The team would meet monthly. This team would address issues related to Business Strategy like sequence of site installations, planned change in mfg. strategy.

• Project team, 20 member team, consisting of operations employees, e.g. planner/buyers, financial accountants. This team would address implementation specifics.

Team structure contd…

According to Kramer, participants for the project team could be selected on any of the following basis:

• Present a list of required skills and characteristics for team members to the senior-level management and ask them to nominate people.

• Or, mandate that the team contain at least one representative from each of Vandelay’s implementation sites around the world.

Managing Change

Kramer placed the challenges, involved in assisting a large organization as it attempted to change and standardize its practices, into following categories:

• Centralization vs. Autonomy

Challenges– Strong tradition of encouraging innovation and

autonomy.– So should tinkering be encouraged or should

systems and processes be locked down as much as possible?

Managing Change

– The implementation team would ve to ensure that any universal processes did not run a foul of local ones.

– Standardization on externally defined best practices be incorporated into the project as a starting point or final word.

– R/3 required each item to have a single, unique part number across all sites. Each plant however had developed its own internal part numbering system over time. Replacing them would be major task

Managing Change Cont..

• Change agents and Organizational inertia

– Early leaders: People who are enthusiastic about the work of change and are respected within the company.

– Inevitability: Even with committed change agents in place, most people did not completely accept a new system until they really believed that it was inevitable.

• Companies committed substantial resources upfront and stated clearly that the new system was a given; but most employees remained skeptical for a long time.

• Kramer had to tackle this and decide on what she and early movers could do about it.

Managing Change Cont..

• SoftwareAlthough R/3 had broad capability, there would be situations

where it would not exactly fit the desired Vandelay process design.

Three primary alternatives to addressing this situation:

1. Change the business process to match the capabilities of the software.

2. Interfere R/3 to another package or custom solution.

3. Extend the R/3 system to precisely match the business requirements.