Case Study: Information Systems SAP Project at NIBCO, Inc.

Three years before NIBCO initiated the SAP implementation, the company held a strategic planning effort. One of the key conclusions that resulted was that the organization could not move forward with the existing information systems. The current systems that were in place as shown in Figure 4-4 were in-house grown legacy systems. As NIBCO expanded, it became more and more difficult to integrate new systems with current information systems. The accounting general ledger system, payroll system, and manufacturing resource planning system were all disparate with separate databases. The business units had purchased their own software applications and plants were running their own versions of the same manufacturing software package with separate databases. Any integration attempted to these systems was complex, and reporting and data collection was impossible. Dennis Parker, chief financial officer, explained that the systems blew up on a regular basis because they made lots of ad hoc changes. The lack of information integration would certainly prevent NIBCO from going global. After several discussions with several consulting firms, NIBCOs top management hired the services of the Boston Consulting Group (BCG). The consensus among NIBCOs management team was that the company was information poor and needed to be cut loose from its existing systems.

Figure 4-4 Legacy Systems in NIBCO

NIBCO wanted to replace its legacy systems with a common, integrated system. The organizational strategy suggested by BCG was eloquently described by Scott Beutler, project co-lead, Business Process, who said integration was a major factor. 31 NIBCO also needed the ability to have common systems with common communication for the manufacturing area, the distribution area, across the enterprise. This organizational strategy was acknowledged by NIBCO and was set forth to be accomplished. To bring the strategy to fruition, NIBCO planned the following actions:

Implement SAP using a big bang approach;

All in-scope business systems will be simultaneously replaced by SAP without interface to legacy environments;

Some of the major business operations will be centralized, while others will be distributed yet standardized; and

Processes will be organized cross-functionally and horizontally as well as linked to common processes.

Big Bang Approach

Because of their complex nature, SAP implementations can be accomplished in many ways. Three types of implementations are usually adopted in MIS projects: parallel, phase, and big bang. In the big bang approach, the new system is activated on a particular date and time with other old systems turned off simultaneously. In a phased adoption, the implementation will happen in several phases so that after each phase, the system will be a little closer to the full implementation of the system throughout the organization. A slower, phased approach may be accomplished either by functional business area or geography. The advantage here is to allow project teams to take their time in the planning, customization, and testing of the system while continuing with day-to-day jobs. The main disadvantage of the phased implementation is the lack of urgency, which can cause employees to become burned out on constant changes to complete the project. In the parallel type of adoption, both the old and the new systems run parallel for some time so that while users become accustomed to the new system, they can still do their work using the old system. The main disadvantage is the cost of running both the old and the new systems.

A big bang approach involves accomplishing implementation quickly rather than a slow phasing in of new processes and technology. The appeal of the big bang implementation strategy is that the organization goes through an intense and relatively shorter period of adjustment time compared with the phased-out or parallel adoption. This approach has emerged as the most cost-effective solution because of the shorter time period. The disadvantage of the big bang implementation approach is that the arduous implementation is often painful due to the hectic nature of the approach. The implementation poses many risks and may result in disaster and dissatisfaction with the performance of the implemented system in meeting important business requirements. However, to accomplish the SAP implementations in the shortest period of time and with the least cost, some organizations are willing to go forward with the big bang approach.

SAP Replacement without Interface

The business systems illustrated in Figure 4-4, including order management, production planning, and accounting, was planned to be replaced by SAP. The materials management (MM) module of SAP provides a common platform for all supply chainrelated activities of an organization. The main activities covered include purchase requisitions, purchase orders, goods receipts, inventory management, and bill of materials. This module allows for greater collaboration between an organization, its suppliers, and its distributors. The production planning (PP) module includes capacity planning, master production scheduling, and material requirement planning. The financial (FI) and accounting (CO) modules include general ledger, book closing, accounts payables and receivables, asset management, cost elements, cost center and profit center management, and activity-based and product costing. The replacement of the disparate legacy systems with these modules will enable NIBCO to operate the systems without any interfaces and costly integration to existing legacy systems. Moreover, because all modules go live at the same time in the big bang implementation, no interfaces are needed between legacy systems and the SAP software.

Centralized, Distributed, Standardized Major Business Operations

MIS in organizations can function either in a centralized or decentralized fashion. Centralizing MIS functions shares best practices, provides a single view of information technology spendcosts, fosters better commercial relationships with suppliers, and improves project success. A centralized view of IT spending can be accomplished with a decentralized accountability for that spending in business units. By creating processes and tools, a single accounting system can be implemented while retaining the investment decisions in the hands of line managers and the cost management decisions in the hands of the local managers. Most organizations have decided to centralize decision rights related to infrastructure services in order to enjoy economies of scale. For example, an organization may have a single decision-making point for investing and building a call center, but the call center may consist of decentralized personnel working from their homes who have decision rights over maintaining their systems.32 A distributed system basically consists of multiple computers that communicate through a computer network to achieve a common goal. For the users, it would appear as a single coherent system. In the case of SAP implementation, distribution works over multiple layers of software to make the system scalable as the load on the server is distributed among multiple layers.

SAP architecture provides a distributed system with a common environment called NetWeaver. The web application server of SAP runs on the NetWeaver environment and includes a distributed client/server model consisting of a three-layer architecture that includes the presentation, application or business, and the database layers. The advantages of the distributed system include speed, reliability, and potential for scalability. SAP is a huge, complex software, and when organizations implement SAP, they often face a situation where the standard vanilla SAP does not provide certain features required by the organization. Vanilla SAP is the standard product from SAP without enhancements or developments. When SAP does not offer a particular feature, an organization implementing SAP can rewrite part of the code or interface to an existing system. Both these options, called customizations, can be expensive and complicated and can delay implementation. Therefore, one of the ways to reduce the cost of SAP implementation is to minimize custom development and extensive configuration. The SAP standard solution is designed and developed for providing high response and execution time to customer organizations. This provides a core solution that remains the same across a customer organization and helps the organization in achieving standardization in its business processes. For organizations that have either undergone or planned mergers and acquisitions, it is important to align all business processes and standardize them across all divisions and business units. Therefore, while implementing SAP, it is imperative for organizations to develop solutions flexible enough to cater to all business processes across business units and divisions.

Cross-functional and Horizontal Organization of Processes

SAP systems provide cross-organization integration through embedded business processes. They consist of many modules, interdependent relationships, one database, standard management and processing rules, and functions including operations, logistics, procurement, sales and marketing, human resources, and finance.33

The cross-application modules of SAP provide general-purpose functionality independent of specific modules. Business workflow automation, electronic data interface (EDI), document management system (DMS), and product data management (PDM) including computer-aided design (CAD) integration are some of the cross-applications used with SAP. Application link enabling (ALE) automates the data exchange between independent systems and provides the ability to synchronize the databases of distributed SAP systems. ERP systems are much more integrated and flexible than conventional MIS because of their integrated component-based software, architecture, and cross-functional integration of all information flowing through an organization.

Cross-functionality refers to the awareness of the interdependencies and information sharing between the various organizational units. Cross-functional integration requires the convergence of all processes across business units and divisions and facilitates information sharing across different parts of the organization. Cross-functionality represents the extent to which different business processes and functions are interconnected, standardized, and tightly coupled in organizations.34 Usually, increased integration of processes results in more operations conducted in a cross-functional way.35 With quality communication and by providing better information to managers, cross-functionality can reduce the overhead cost and improve overall decision making.36 A primary advantage of cross-functional integration is the improvement of horizontal communication. Such horizontal processes are organized around cross-functional core processes. Cross-functionality also eliminates waste and deploys personnel and resources effectively. It empowers individuals and teams to make decisions directly related to their work. Cross-functionality features of SAP can enhance horizontal processes very efficiently and effectively.

The initial project proposal was centered on the recommendations of BCG. NIBCOs SAP project used the recommendations to initiate the scope of the project, which included a number of details; one such detail was the replacement of existing legacy systems.

Project Scope

Key business and information systems were identified by the management team and BCG will be included in the project scope. SAPs modulesFinancial Accounting (FI), Controlling (CO), Asset Management (AM), Plant Maintenance (PM), Production Planning and Control (PP), Materials Management (MM), Sales and Distribution (SD)will be selected for the project. Legacy systems such as MANMAN, the legacy manufacturing software; NIBCON, the procurement and order management system; and ORBIT, the order entry and billing system, will be replaced by SAP modules. Export quotations and orders will be managed by SAPs SD module with assistance from the Syntra documentation tool for foreign shipments. Syntras software is used to automate all aspects of cross-border compliance, import/export documentation, and export license management in order to lower trade risks and inventory cycle times as well as reduce costs and increase customer service. The PM module will be piloted at two plants initially plus in any regulatory hot spots designated by the organization. The team wanted to retain Hewitts Cyborg Human Resources and Payroll functionality while outsourcing data processing. The factory labor system functionality will be delivered by extension of SAPs Personnel Administration (PA) module. Barcode data collection functionality will be integrated into SAP. Enterprise-wide e-mail and scheduling capability will be implemented.

For the big bang SAP project, the leadership team excluded some of the activities from the scope because of schedule and resource constraint. Though cost was considered a constraint, the organization was willing to spend as much as possible to implement this project successfully. The following items were to be excluded from the SAP project:

- At all international plants except the Mexican plant at Reynosa;

- SAP Project System (PS) module;

- SAP Business Workflow;

- Some of the SAP agents;

- SAP tool room production planning; and

- SAP Personnel Development (PD) module.

In addition to the above exclusions, supply chain point solutions would have delayed the implementation. Point solutions in supply chain applications optimize logistics events that function as silos. However, the actions of these point solutions may inversely affect inventory and customer service processes across the entire supply chain. Some of the advanced shipping notifications have to be excluded because of inadequate resources. NIBCO also wanted to add SAP implementation in all North American plants, corporate offices, and distribution centers. The final project scope was presented to the executive leadership team and the board in early December 1996 based on a Go Live date 12 months later.37

Case Questions

1- Is big bang the right approach for NIBCO?

2. What are the problems with proceeding with other types of implementation?

3. Write a scope document for NIBCO.