On the road to ERP
- By Cheryl Gerber
- Mar 28, 1999
The old maxim "no pain, no gain" sums up the process of setting up enterprise resource planning systems.
The benefits of ERP - which integrates software modules covering the gamut of business management functions, including planning, manufacturing, sales and marketing systems - have been well documented in the commercial world. But the road to ERP involves a few hurdles, such as high start-up costs, culture shock and lengthy ERP software implementation times. Despite these obstacles, a growing cadre of federal agencies has begun to derive increased efficiencies from commercial ERP systems.
While the extent of services required for ERP implementation varies, the desire for ERP software seems to be rising. In 1997, integrated business applications made up 18 percent of the total business application market. That shot up to 21 percent in 1998, said Dennis Byron, enterprise applications analyst at International Data Corp., Boston. Byron said the convenience of dealing with one vendor and one interface throughout the enterprise was one of the factors driving the growth of ERP.
One of the most comprehensive federal implementations of ERP to date is at the U.S. Mint, which installed PeopleSoft Inc.'s full suite in its Consolidated Information System (Coins) to enhance manufacturing, distribution and financial management processes across the entire agency. Using PeopleSoft's Rapid Implementation Methodology, the Mint installed Coins in less than a year to meet Office of Management and Budget deadlines for Year 2000 compliance. The system consolidated and integrated systems and provided the agency with more accurate data in a single point of entry.
The Mint's ERP implementation truly represents the no pain, no gain maxim. Agency employees worked 12 hours a day, seven days a week to meet the October 1998 deadline. "It was a huge cultural change for the Mint," said Jackie Fletcher, chief information officer at the agency. "We were learning the system while we were implementing it. We had to learn to work as a team."
Absorbing the impact of such a huge change in a short time frame has been a challenge for its 2,200 employees, Fletcher said. To help meet the challenge, the Mint recently awarded a change management contract to Electronic Data Systems Corp. and now is planning how to deliver cultural messages stressing that change represents opportunity and that people can share information and work together. Above all the cost and time involved, "the biggest challenge is the people," Fletcher said.
The Mint used Peoplesoft's Rapid Implementation Methodology as a way for users to provide feedback on the look and feel of the developing product, said John Klem, vice president and general manger of Peoplesoft Federal. Users also accepted the implementation more easily because of their input into it. The agency was able to implement the product quickly because PeopleSoft had adapted its commercial product to meet government and statutory requirements, enabling the project team to make decisions rapidly, Klem said.
Catching Up on ERP
Despite such successes as Coins, federal implementations of ERP software have trailed those in the commercial market, in part because major ERP products have not been accessible to federal users. Since late 1996, Oracle Corp. was the only major ERP vendor to offer products on the Financial Management Systems Schedule (FMSS). Recently, however, other major ERP vendors have expanded their contract vehicles.
"FMSS was a big barrier to entry into the federal market until SAP [America Inc.] and PeopleSoft met that requirement," said Katherine Jones, a senior analyst with Aberdeen Group, Boston.
Some agencies did not wait for other players to enter the market. Two years ago, the U.S. Postal Service, in a sole-source contract with Oracle, consolidated and upgraded four legacy accounting systems to Oracle's Accounts Receivable module - part of the company's Financials software package.
That upgrade, which covered 20,000 post offices, was the beginning of the agency's move toward ERP. Last year, USPS spent $3 million on research and development that identified the need to implement the retail modules in the Oracle Financials package, said Randy Bedell, business project leader for USPS in Eagan, Minn.
The $3 million was set aside by the Postal Board of Governors as part of a $37 million, five-year proposal to install the Standard Accounting for Retail system across the entire agency. "The seed money tides us over until we get approval from the Board of Governors to proceed," Bedell said.
USPS hopes to receive that approval by July. Then it will begin a pilot implementation of the retail modules, installing them area by area until proof of concept is complete in September 2001. The agency plans to go live with the World Wide Web-based version of Oracle Financials 11.0 to run client/server Web-based applications on its intranet using a Sun Microsystems Inc. Solaris platform and Oracle database.
In the long run, the costs associated with ERP implementation level off as the benefits kick in. But the biggest barrier to embracing ERP systems - the high cost of implementation services - remains.
"Of the $37 million, we're looking at about 30 percent licensing costs, 10 percent hardware costs, and the rest - 60 percent - is training, implementation and maintenance," said Dick Nelson, senior systems accountant at the Postal Information Systems and Accounting Service Center in Eagan. "Business process re-engineering, which I call culture change, is included in that 60 percent. But the major roadblock to the success of this is changing attitudes about how the Postal Service works."
Users and vendors alike understand the importance of using specialized consulting services to achieve a thorough ERP implementation. "I think it's important that you follow structured implementation methodology," said Wayne Bobby, executive director of Enterprise Application Solutions at Oracle Corporation Service Industries, Reston, Va. "By having a consultant, your chances of success significantly increase."
It remains to be seen how much consulting an organization really needs in order to accomplish a successful ERP implementation. This question has not escaped the attention of ERP vendors, which have reduced the high cost of ERP implementation by enhancing their products in recent years. For instance, USPS uses Oracle development tools to create bolt-ons, or interfaces, between the agency's old and new systems, and it uses Oracle's Application Implementation Methodology to develop the plan.
Likewise, SAP began working two years ago to streamline its R3 product implementation process by introducing Accelerated SAP, a rapid implementation methodology that breaks the process down into five phases. "The goal of Accelerated SAP was to drive down implementation costs and time frames," said Bob Salvucci, president of SAP Public Sector and Education Inc., Washington, D.C.
The Justice Department's Federal Prison Industries was the first federal agency to take advantage of Accelerated SAP, and its $10 million effort may well be a prototype method for setting up ERP with a more streamlined approach that does not rely as heavily on consultants. The agency will do most of the implementation itself and has planned a 15-month phased approach to installing R3 software, starting in November 1999 at the rate of six sites per month.
"Some consultants come in and they never leave," said Tom Phalen, chief information officer at Federal Prison Industries. "All you do is keep on sending them money. But in our case, there is very little money; there's $1 million and no more."
The agency hired SAP implementation specialist Plaut Consulting Inc., Waltham, Mass., to show agency personnel how to configure R3. "And then we will configure it, not them," Phalen said.
Using Accelerated SAP, the Federal Prison Industries training team developed a blueprint that includes business rules, user information requirements, a time line, organizational structures and identification of responsibilities.
The team is now entering the configuration stage, which will define which parts of R3 to implement and how the parts will work together.
But Federal Prison Industries has postponed its implementation of SAP R3 until Version 4.6, known also as Enjoy, is released in the first quarter of 2000. Enjoy will improve upon current R3 screens, which can be difficult to learn and use. "Since I have 1,800 users to train, it is worthwhile for us to wait for Enjoy," Phalen said.
Once SAP releases Enjoy and federal users become more adept at independently using the new rapid implementation methodologies provided by their vendors, it will seem a safe bet that ERP software will be more about gain and less about pain.
-- Gerber is a free-lance writer based in Kingston, N.Y.
AT A GLANCE
Status: ERP systems have taken off in the private sector, but the federal government has been slow to jump on the bandwagon. This may be partially because of the lack of viable contract vehicles for financial management systems software.
Issues: ERP holds the promise of more accurate and integrated data accessible via a single entry point. But factors such as high start-up costs, lengthy implementation periods and a cultural mindset resistant to change may have prevented some agencies from embracing the technology.
Outlook: Guardedly optimistic. Observers believe the release of new tools designed to ease the ERP implementation process and the introduction of products with user-friendly interfaces will make the technology attractive to a greater number users.