Case study: ROI and Justifying the ERP System

Note to the reader: The following case is based on an actual distributor.

Jackson Electrical Supply was a large distributor with operations in the United States and Central and South America. The company had been acquiring global distribution operations and, as result, it now had multiple ERP and other legacy systems in place. The company was trying to achieve complete connectivity in a global environment. Many within the firm, including investors, were very disappointed that the investment they had made in a large, well-known ERP system had not paid off and years after its introduction was still not fully implemented. The new systems the firm kept inheriting were further complicating the effort to achieve a complete implementation.

A great deal of debate surrounded the failure of the system to deliver on its promise, but some believed it was the lack of connectivity that resulted in multiple handoffs causing the lack of efficiency. When the system was first adopted, the centralization of data had revolved around the U.S. operations, all of which were taken onto the system at once. Before the implementation was complete, however, the firm acquired its first foreign acquisition.

The new acquisition was in Brazil, and the problems with integrating the logistics operations and understanding the new marker took precedence over integrating the new operation into the ERP system. The Brazilian operation was concerned about the ability of the system to handle its customer relationships, local currency, human resources issues, and a host of other things. Mostly the Brazilians were concerned about overloading, their people with having to learn how to do things the Jackson way and integrating systems with the new firm at the same time. The Brazilian workforce was not as well trained on modern distribution methodologies as the Jackson people were, and Jackson did not have Portuguese-speaking specialists to help them. For time being, the firms decided to get to know each other better.

The connectivity issue got put on the back burner again when Mexican operations were added a couple of years later. The U.S operations had taken its eye off the ball as well since the lack of connectivity globally made it difficult to achieve its objectives at home. Many thought the emphasis on ERP had died out and that firm had refocused its objectives on global growth. This may have been the case until the company missed its profitability goal for the second year in a row.

The ERP implementation and global acquisition excuses were not holding up this time. The Board of Directors wanted a detailed description of what had gone wrong. They especially wanted to know why the ERP investment in a lot of finger-pointing as various divisions tried to explain why they were not using the system as planned and not getting the savings or service improvements promised when the system was adopted.

Many blamed the system and claimed the company needed a new one. This was not an option for the current management team, however, since any attempt to throw out this size of an investment and start over would likely mean a lot of new faces in the corporate offices. The decision was made to make the system work globally.

The first issue was establishing connectivity within the system itself. This required networking capability and additional hardware that had to be justified. The firm did not have the network to connect its foreign operations to the United States. Management was going to have to ask for additional hardware (servers, etc), software (networking packages), and charges from telecommunications networks for information exchange. In addition, they needed to ask for funds to convert the foreign locations. Some of these funds would go toward training and implementation and some would have to be allocated for licenses and additional ERP provider support. The CFO was fairly certain the board would approve training and implementation as well as license and additional consultant and ERP- provider support. The board would likely go for the request since they, too, believed the lack of connectivity was the main culprit, but the CFO knew this was likely going to be the last straw if results were not achieved quickly.

The connectivity would also require the shutdown of other systems in the network, which essentially meant that new implementations would have to be planned for these divisions. A task force would have to be assembled consisting of people in those divisions and expects from divisions that had already completed the implementation. The divisional implementations would have to run concurrently with the networking rollout. Finally, the cultural bias against the system would have to be reversed by an analysis of ultimate benefits and tying those benefits to the Whats in it for me? question for all users.

Management had their work cut out for them. They set up a schedule with milestones for accomplishments and called in the consultants, hardware providers networking consultants, and ERP providers for advice and to establish the system framework and begin implementation planning. To be sure their implementation was a success and that the system got the credit it deserved (obtained its ROI), they put teams of internal experts together with the consultants to determine what would be accomplished and what the bottom-line impact would be division by division and for the company as a whole.

The board approved the CFOs proposal, but only after an admonishment that they wanted reports in a standardized format to be presented every quarter. Failure to meet planned objectives would have to be thoroughly explained and a plan on how the firm would get back on track also would be required.

Case Challenges

1. How should they use the consultants and the ERP provides? What expectations should they place on these outsiders? How do they help the foreign operations to get online?