Avoiding ERP disaster

The Strategic Petroleum Reserve was determined to learn from others' mistakes

The Energy Department's Strategic Petroleum Reserve, based in New Orleans,

is the country's first line of defense against an interruption in petroleum

supplies. It stands ready to draw down millions of barrels of crude oil

per day from its 565-million-barrel store during a national emergency.

So when SPR officials began eyeing enterprise resource planning software

to streamline administrative and support operations, the critical nature

of their mission demanded that they avoid the massive cost overruns and

delays that have plagued other organizations' attempts to deploy ERP.

SPR officials decided to take a close look at other organizations' failed

ERP efforts and mold their work to bypass those mistakes. The move paid

off. SPR's enterprisewide ERP system — which tied together 16 separate systems — was completed 63 days ahead of schedule and 4 percent under budget. One

year after going live, SPR reports a 47 percent return on its $10 million

investment and is projecting $32 million in saved labor costs.

ERP software is a multimodule software package designed to help organizations

manage core operations, such as accounting and finance, human resources,

purchasing, customer service and inventory maintenance.

While the technology sounds like a silver bullet, it has a checkered

past with numerous organizations, including house-hold names such as Whirlpool

Corp. and Hershey Foods Corp., which faced monumental problems integrating

the technology. Many would-be adopters abandoned ERP projects because of

insurmountable technology integration problems and because the software

required them to change their business processes too drastically.

SPR officials aimed to avoid all that. They began implementing their

enterprisewide ERP solution from SAP Public Sector and Education Inc. in

October 1997 and went live in March 1999. They replaced eight mainframe

computers and 15 smaller computers with a client/server architecture running

Unix. The new ERP system consisted of SAP's financial and accounting, materials

management, plant maintenance and human resources modules for 900 users

at six sites.

Brian Seagrave, director of enterprise systems at SPR during the ERP

implementation and now a business development principal at Computer Sciences

Corp.'s Global SAP Practice, said a convergence of problems — including

the need to replace legacy systems because of Year 2000 problems, inefficiencies

in SPR's business processes and a mandate to cut its head count in half — prompted officials to turn to ERP.

"We're talking a few hundred people we had to get out of the processes,"

Seagrave said. "It took months just to order a white board. We were slaves

to our systems. Our cost and time of procurement were very slow and expensive."

John O'Brien, manager of information systems and technical support at

SPR, said the agency picked the SAP solution because it offered a more integrated

approach compared with other solutions, which often required interfaces

to tie together disparate systems.

However, SPR officials worried that an ERP system could slow transmission

of large amounts of data between SPR's six sites, which are connected via

a T-1 line. SPR required that there be no more than a two-second lag time

for screen updates. However, because SAP's solution is based on thin-client

technology, SPR has had no problems with response times on the new system,

O'Brien said.

The Problem with People

But before moving to pick a technology solution, SPR officials knew

they would have to tackle the sticky business process issue. In fact, this

crucial part of ERP implementations is blamed for many failed efforts because

of the "people factor" involved in changing work processes.

SPR officials began by benchmarking performance in three processing

areas — budgeting, mission support and employee services — against 26 other

organizations, including defense, civilian and commercial entities. They

found that SPR ranked in the bottom 25 percent for performance in those

areas compared with the other organizations.

This data would be crucial to winning over the SPR personnel who would

lead the ERP implementation. Ironically, the SPR leadership had handpicked

the ERP implementation team, filling it with "pro-change go-getters" who

were comfortable thinking out of the box. But the team thought a band-aid

approach with a dose of total quality management practices could improve

the organization's performance without ERP, Seagrave said. The benchmarking

results changed their minds and galvanized the team.

"There was nobody who was going to say a little tweak is going to get

us a 75 percent change," he said. "It shakes you up, and you realize that

there are many different opportunities to run our business that are in front

of us today. You come back ready to change. You come back with religion."

SPR also learned that it was critical to get complete buy-in from middle

and senior management.

"You are changing all the processes of all the submanagers," O'Brien

said. "The middle managers will absolutely kill you if they're not signed

up."

Seagrave said the nine-month business process re-engineering effort — during which the team decided crucial elements such as what would constitute

an employee record — prepared the organization to tackle the technology.

"We were all aligned," Seagrave said. "We didn't have these expensive

consultants bill us by the hour to watch us fight."

Once the team was ready to begin adapting their newly shaped processes to

the technology, SPR employees worked side by side with SAP staff to make

menu selections to configure the system. For example, a compensation manager

would make menu selections for the human resources processes that most closely

resembled procedures SPR already had in place — and how they wanted to change

them.

Even though the team had spent nine months hammering out new processes

to eliminate duplications and streamline operations, O'Brien's "golden rule"

was that SPR would mold its processes to fit the SAP package, and not vice

versa.

SPR picked up this valuable advice from its talks with those organizations

whose ERP implementations had failed. Each had mistakenly tried to rewrite

the software to fit their old business processes, O'Brien said. SPR did

not make changes to SAP's code.

SPR also learned to protect its investment in the employees on the implementation

team. The other organizations had reported being raided by other companies

once their personnel were trained in ERP implementation. So SPR put into

place an incentive program for key people on the implementation team and

tied it to milestones in the project. Employees received bonuses — for up

to 40 percent of their salaries — at three points: after testing was completed,

after going live and one year after deployment.

SPR is now upgrading to the newest versions of SAP's software, and O'Brien

said the team learned so much from its initial efforts that they will be

able to do the upgrade with minimal assistance from outside consultants.

Harreld is a freelance writer based in Cary, N.C.

NEXT STORY: Microsoft to delay security patch

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