NTRODUCTION

In the third quarter of 2008, Delectable Foods Unlimited (DFU), the U.S. based manufacturer of

candies and complementary confectioneries (headquartered in Baltimore, Maryland) announced

that its revenues rose to US$3 billion as compared to US$1.5 billion in the third quarter of 2007.

The firm's management and stakeholders were pleased with this development as DFU's revenues

and profits for the third quarter of 2007 as well as for the year of 2007 as a whole had been

adversely affected due to the problems related to the firm's enterprise systems implementation

experience involving an enterprise resource planning (ERP) system and a DFU supplier portal

via an extranet featuring a supplier relationship management module of a supply chain

management software suite.

According to CEO and Chairman of DFU Dawson Carlyle, "Unfortunately, our foray into the

deployment of complementary enterprise systems introduced unexpected shipping challenges

during 2007." What started it all was DFU's initiative to upgrade its IT infrastructure at the heart

of its business operations by deploying the ERP software suite from SAP and JDEdwards'

Supplier Relationship Management module of its larger supply chain management software

suite, and some of the ERP modules were implemented as per the schedule by the firm in

January 2007. However, the remaining modules which were to be implemented by April 2007

were delayed and were implemented only by July 2007. This overlapped with the time when the

firm starts processing big orders for the forthcoming Halloween, Thanksgiving, and Christmas

seasons.

ISSUE 1: DFU's Enterprise Systems

DFU was known for its high quality but reasonably priced candies and confectionery product and

sold quite a lot of them. This meant that DFU had to have highly efficient logistics and supply

chain systems supported by information technology. In the early 1990s, the spending on IT in

the food and beverage industry was among the lowest. During this period, DFU, like most of its

competitors, used mainframe based legacy systems used mainly for basic departmental functions

like accounting, marketing, order processing, human resources, etc.

During the late 1990s, DFU's top management approved its IT upgrade initiative called

"Pressing Forward with Technology," which sought to replace the firm's outdated but still

functioning legacy systems. The main goals of this initiative were to upgrade and standardize

the hardware, shift to the client/server architecture environment from the existing mainframe

based environment, and move to Internet-enabled technologies supported by wide area

networking. By implementing the newest version of SAP's enterprise resource planning (ERP)

suite, DFU also wanted to redesign the business processes involved in fulfilling customer orders

to enhance the firm's competitiveness and raise its customer service quality levels. This SAP

suite included modules for finance, purchasing, materials management, warehousing, order

processing, and billing. The other major piece of the "Pressing Forward with Technology"

initiative was the deployment of DFU's first ever supplier portal via an extranet. This

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interorganizational system would use JDEdwards' Supplier Relationship Management module of

its larger supply chain management software suite. (Please see the details on the extranet in the

section below on this part of the implementation experience.)

According to the initial plan for this initiative, DFU would convert to the new system by April

2007, when the annual sales of candies and confectioneries were usually lower compared to

levels reported for the Thanksgiving, Halloween, and Christmas seasons, usually accounting for

40 % of annual sales. By January 2007, the SAP modules on order processing, finance, and

billing have been implemented. However, the SAP modules on purchasing, materials

management, and warehousing, and the modules from JDEdwards were behind schedule.

Though DFU planned to switch over to the new systems by April 2007, which was the lean

season for its products, the modules were added only in July 2007 --- three months behind

schedule.

From the outside, it seemed like the rollout of the enterprise systems was smooth until peculiar

problems involving order fulfillment, processing, and shipping started manifesting themselves

with respect to the ERP system. Problems also started cropping up with DFU supplier extranet

(Please see section below for details on this topic). Several consignments were shipped behind

schedule, and among orders that were successfully shipped, the deliveries were incomplete.

DFU had little time to respond to these problems as they emerged. The old logistics system that

had been in place was pulled down, making way for the new one which was part of the new SAP

system, which did not function as expected. Without data about the products in its hands, DFU

was forced to call up customers to find about details of product deliveries such as actual dates

when deliveries arrived, quantities delivered, specific products delivered, etc.

In July 2007, when DFU chose the "Big Bang" implementation approach to enterprise system

implementation, it had supplies for around eight days --- this was higher than usual. DFU

maintained more supplies in order to address any minor problems that might occur during

implementation. But three weeks after the deployment of the new systems, it was clear that DFU

would not be able to meet its deadlines as the shipments were delayed. As against the usual five

days it took to deliver its products, DFU asked distributors for around 12 days to deliver their

orders. However, DFU missed those deadlines as well. By August 2007, DFU was 15 days

behind schedule in fulfilling orders.

DFU was unable to send the consignments on time due to problems in order entry, processing,

and fulfillment; on the other hand, the warehouses were piled up with products ready to be

shipped, as the manufacturing process was running smoothly. Product inventory started to pile

up and by the end of September 2008, the inventories were 25% more than the inventories during

the previous year. DFU missed out on the deliveries in spite of the fact that it had more than

enough products in the warehouses.

It turns out that the problem occurred due to the several informal structures within DFU. The

SAP ERP software required all the data pertaining to all locations of the inventory and all other

pertinent details. DFU used to ensure peak-season inflow of products from its manufacturing

units by placing the products wherever the space was available --- this was not always the

official distribution center or the warehouse. Occasionally, DFU rented temporary warehouse

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space that belonged to another firm and sometimes, products were even stored in unused rooms

in its factories. These temporary arrangements were not accounted for and identified as storage

points in the SAP ERP software. The way the software worked, in order to fulfill customer

orders, SAP ERP checks for the inventory available at each location reported in DFU's official

records. However, products stocked in the temporary storage areas indicated were not checked

and entered in the SAP ERP system and thus, were not considered by the software. This

occurred because of the lack of coordination between the technical personnel implementing the

system and the people involved in the actual logistics operations undertaken for moving the

physical products from point to point. The latter group did not update those implementing the

software on the existence of these temporary storage/holding areas. Consequently, the database

that held data on the product inventory levels and their locations was inaccurate and could not be

relied upon in processing customer orders.

Prior to the conversion of the SAP ERP system for actual production use, the IT project did all

three tests --- developmental, alpha, and beta tests, but used only warehouse data based on the

usual official warehouse locations used for both inbound and outbound logistics. Everything

seemed fine when the results of these three tests were analyzed and thus, DFU proceeded to use

the SAP ERP system for its daily work and involved their end users.

>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

ISSUE 1 QUESTION (ERP SYSTEM):

(1) Analyze what happened with the DFU SAP ERP implementation piece using the SDLC

conceptual framework. Where did things go wrong and which SDLC phases were involved?

Briefly explain what should be accomplished in the specific SDLC phase involved. What should

the IT Project team have done instead