Achieving Operational Excellence and Customer Intimacy: Enterprise Applications

Enterprise System
Around the globe, companies are increasingly becoming more connected, both internally and with other companies. If you run abusiness, youll want to be able to react instantaneously when a customer places a large order or when a shipment from a supplier is delayed. You may also want to know the impact of these events on every part of the business and how the business is performing at any point in time, es pecially if youre running a large company. Enterprise systems provide the integration to make this possible. Lets look at how they work and what they can do for the firm.

What Are Enterprise Systems?

For Example:Imagine that you had to run a business based on information from tens or even hundreds of different databases and systems, none of which could speak to one another? Imagine your company had 10 different major product lines, each produced in separate factories, and each with separate and incompatible sets of systems controlling production, warehousing, and distribution.At the very least, your decision making would often be based on manual hard copy reports, often out of date, and it would be difficult to really understand what is happening in the business as a whole. Sales personnel might not be able to tell at the time they place an order whether the ordered items are in inventory, and manufacturing could not easily use sales data to plan for new production. You now have a good idea of why firms need special enterprise system to integrate information.

Enterprise Systems, also known as Enterprise Resource Planning (ERP) systems, which are based on a suite of integrated softwaremodules and a common central database.

The database collects data from many different divisions and departments in a firm, and from a large number of key business processes in manufacturing and production, finance and accounting, sales and marketing, and human resources, making the data available for applications that support nearly all of an organizations internal business activities. When new information is entered by one process, the information is made immediately available to other business processes.

If a sales representative places an order for tire rims, for example, the system verifies the customers credit limit, schedules the shipment, identifies the best shipping route, and reserves the necessary items from inventory. If inventory stock were insufficient to fill the order, the system schedules the manufacture of more rims, ordering the needed materials and components from suppliers. Salesand production forecasts are immediately updated. General ledger andcorporate cash levels are automatically updated with the revenue and cost informationfrom the order. Users could tap into the system and find out where thatparticular order was at any minute. Management could obtain information atany point in time about how the business was operating. The system could alsogenerate enterprisewide data for management analyses of product cost and profitability.

 How Enterprise Systems Work

Enterprise Software
Enterprise softwareis built around thousands of pre-defined business processes that reflect best practices. Companies which are implementing this software must first select the functions of the system they wish to use and then map their business processes to the predefinedbusiness processes in the software. Identifying the organizations business processes to be included in the system and then mapping them to the processes in the enterprise software is often a major effort. A firm would use configuration tables provided by the software to tailor a particular aspect of the system to the way it does business.

For example:The firm could use these tables to select whether it wants to track revenue by product line, geographical unit, or distribution channel. If the enterprise software does not support the way the organization does business, companies can rewrite some of the software to support the way their business processes work. However, enterprise software is unusually complex, and extensive customization may degrade system performance, compromising the information and process integration that are the main benefits of the system. If companies want to reap the maximum benefits from enterprise software, they must change the way they work to conform to the business processes in the software. For Example:Tasty Baking Company identified its existing business processes and then translated them into the business processes built into the SAP ERP software it had selected. To ensure it obtained the maximum benefits from the enterprise software, TastyBaking Company deliberately planned for customizing less than 5 percent of the system and made very few changes to the SAP software itself. It used asmany tools and features that were already built into the SAP software as it could. SAP has more than 3,000 configuration tables for its enterprise software.

Leading enterprise software vendors include SAP, Oracle (with its acquisition People Soft) Info Global Solutions, and Microsoft. There are versions of enterprise software packages designed for small businesses and on-demand versions,including software services delivered over the Web.

Business Value of Enterprise Systems

Enterprise systems provide value both by increasing operational efficiency and by providing firm-wide information to help managers make better decisions. Large companies with many operating units in different locations have used enterprise systems to enforce standard practices and data so that everyone does business the same way worldwide.

Advantage:1. Enterprise systems help firms respond rapidly to customer requests forinformation or products. Because the system integrates order, manufacturing,and delivery data, manufacturing is better informed about producing only what customers have ordered, procuring exactly the right amount of components or raw materials to fill actual orders, staging production, and minimizing the timethat components or finished products are in inventory.

For Example:Alcoa, the worlds leading producer of aluminum and aluminum productswith operations spanning 41 countries and 500 locations, had initially been organized around lines of business, each of which had its own set of information systems.Many of these systems were redundant and inefficient. Alcoas costs forexecuting requisition-to-pay and financial processes were much higher and itscycle times were longer than those of other companies in its industry. (Cycle time refers to the total elapsed time from the beginning to the end of a process.)The company could not operate as a single worldwide entity.

After implementing enterprise software from Oracle, Alcoa eliminated many redundant processes and systems. The enterprise system helped Alcoa reduce requisition-to-pay cycle time by verifying receipt of goods and automatically generating receipts for payment. Alcoas accounts payable transaction processing dropped 89 percent. Alcoa was able to centralize financial and procurement activities, which helped the company reduce nearly 20 percent of its worldwide costs.

2. Enterprise systems provide much valuable information for improvingmanagement decision making. Corporate headquarters has access to up-to-the minute data on sales, inventory, and production and uses this information tocreate more accurate sales and production forecasts. Enterprise software includes analytical tools for using data captured by the system to evaluateoverall organizational performance.

3. Enterprise systems allow senior management to easily find out at any moment how aparticular organizational unit is performing, determine which products aremost or least profitable, and calculate costs for the company as a whole.

Supply Chain Management Systems

If you manage a small firm that makes a few products or sells a few services, Chances are you will have a small number of suppliers. You could co-ordinate your Supplier orders and deliveries using a telephone and fax machine. But if you manage a firm that produces more complex products and services, then you will have hundreds of suppliers, and your suppliers will each have their own set of suppliers. Suddenly, you are in a situation where you will need to co-ordinate the activities of hundreds or even thousands of other firms in order to produce your productsand services. Supply chain management systems, are an answer to these problems of supply chain complexity and scale.

The Supply Chain

A firms supply chain is a network of organizations and business processes forprocuring raw materials, transforming these materials into intermediate and finished products, and distributing the finished products to customers.

It links suppliers, manufacturing plants, distribution centers, retail outlets, and customers to supply goods and services from source through consumption.

Materials, information, and payments flow through the supply chain in both directions. E.g. supportive and opposite directions.

Process of Supply Chain Management

Goods start out as raw materials and, as they move through the supply chain, are transformed into intermediate products (also referred to as components or parts), and finally, into finished products. The finished products are shipped to distribution centers and from there to retailers and customers. Returned items flow in the reverse direction from the buyer back to the seller.

For Example:Nike designs, markets, and sells sneakers, socks, athletic clothing, and accessories throughout the world. Its primary suppliers are contract manufacturers with factories in China, Thailand, Indonesia, Brazil, and other countries. Nikes contract suppliers do not manufacture sneakers from scratch. They obtain components for the sneakersthe laces, eyelets, uppers, and solesfrom other suppliers and then assemble them into finished sneakers. Thesesuppliers in turn have their own suppliers.

For example, the suppliers of soleshave suppliers for synthetic rubber, suppliers for chemicals used to melt therubber for molding, and suppliers for the molds into which to pour the rubber.Suppliers of laces would have suppliers for their thread, for dyes, and for theplastic lace tips.

The suppliers of soles, eyelets, uppers, and laces are the secondary (Tier 2) suppliers. Suppliers to these suppliers are thetertiary (Tier 3) suppliers.The upstreamportion of the supply chain includes the companys suppliers,the suppliers suppliers, and the processes for managing relationships withthem. The downstreamportion consists of the organizations and processes fordistributing and delivering products to the final customers. Companies doingmanufacturing, such as Nikes contract suppliers of sneakers, also manage theirown internal supply chainprocesses for transforming materials, components,and services furnished by their suppliers into finished products or intermediateproducts (components or parts) for their customers and for managing materialsand inventory.

Nikes Supply Chain

This figure illustrates the major entities in Nikes supply chain and the flow of information upstream and downstream to coordinate the activities involved in buying, making, and moving a product. Shown here is a simplified supply chain, with the upstream portion focusing only on the suppliers for sneakers and sneaker soles.

Information Systems and Supply Chain Management

In efficiencies in the supply chain, such as parts shortages, underutilized plant capacity, excessive finished goods inventory, or high transportation costs, arecaused by inaccurate or untimely information.

For example, manufacturers may keep too many parts in inventory because they do not know exactly when they will receive their next shipments from their suppliers. Suppliers mayorder too few raw materials because they do not have precise information ondemand. These supply chain inefficiencies waste as much as 25 percent of acompanys operating costs. If a manufacturer had perfect information about exactly how many units ofproduct customers wanted, when they wanted them, and when they could be produced, it would be possible to implement a highly efficient just-in-time strategy. Components would arrive exactly at the moment they were needed and finished goods would be shipped as they left the assembly line. In a supply chain, however, uncertainties arise because many events cannot be foreseen uncertain product demand, late shipments from suppliers, defective parts or raw materials, or production process breakdowns. To satisfy customers, manufacturers often deal with such uncertainties and unforeseen events by keeping more material or products in inventory than what they think they may actually need. The safety stock acts as a buffer for the lack of flexibilityin the supply chain. Although excess inventory is expensive, low fill ratesare also costly because business may be lost from canceled orders.

Problems in Supply Chain Management

1. Bullwhip Effect
It is in which information about the demand for a product gets distorted as it passes from one entity to the next across the supply chain. A slight rise in demand for an item might cause different members in the supply chaindistributors, manufacturers, suppliers, secondary suppliers (suppliers suppliers), and tertiary suppliers (suppliers suppliers suppliers)two stockpile inventory so eachhas enough just in case. These changes ripple throughout the supply chain, magnifying what started out as a small change from planned orders, creating excess inventory, production, warehousing, and shipping costs (see Figure 9-3).

For example:Procter & Gamble (P&G) found it had excessively high inventories of its Pampers disposable diapers at various points along its supply chain because of such distorted information. Although customer purchases in stores were fairly stable, orders from distributors would spike when P&G offered aggressive price promotions. Pampers and Pampers components accumulatedin warehouses along the supply chain to meet demand that did not actually exist. To eliminate this problem, P&G revised its marketing, sales, and supply chain processes and used more accurate demand If all supply chain members share dynamic information about inventory.

Supply Chain Management Software

Supply chain software is classified as either software to help businesses plan their supply chains (supply chain planning) or software to help them execute the supply chain steps (supply chain execution).

Such systems help companies make better decisions such as determining how much of a specific product to manufacture in a given time period; establishing inventory levels for raw materials, intermediate products, and finished goods;determining where to store finished goods; and identifying the transportationmode to use for product delivery.

Manugistics and i2 Technologies (both acquired by JDA Software) are majorsupply chain management software vendors, and enterprise software vendors SAP and Oracle-PeopleSoft offer supply chain management modules.

For Example:Whirlpool Corporation, which produces washing; machines, dryers, refrigerators, ovens, and other home appliances, uses supply chain planning systems to make sure what it produces matches customer demand. The company uses supply chain planning software from i2 Technologies, which includes modulesfor master scheduling, deployment planning, and inventory planning. Whirlpool also installed i2s Web-based tool for Collaborative Planning, Forecasting, and Replenishment (CPFR) for sharing and combining its sales forecasts with those of its major sales partners. Improvements in supply chain planning combined with new state-of-the-art distribution centers helped Whirlpool increase availability of products in stock when customers needed them to 97 percent, while reducing the number of excess finished goods in inventory by 20 percent and forecasting errors by 50 percent (Barrett, 2009).

Customer Relationship Management Systems

Youve probably heard phrases such as the customer is always right or the customer comes first. Today these words ring more true than ever. Because competitive advantage based on an innovative new product or service is often very short lived, companies are realizing that their only enduring competitive strength may be their relationships with their customers.

Some say that the basis of competition has switched from who sells the most products and services to who owns the customer and that customer relationship represent a firms most valuable asset.

What Is Customer Relationship Management?

Customer Relationship Management (CRM) systems, capture and integrate customer data from all over the organization, consolidate the data, analyze the data, and then distribute the results to various systems and customer touch points across the enterprise.

A touch point (also known as a contact point) is a method of interaction with the customer, such as telephone, e-mail, customer service desk, conventional mail; Web site, wireless device, or retail store.

Well-designed CRM systems provide a single enterprise view of customers that is useful for improving both sales and customer service. Such systemslikewise provide customers with a single view of the company regardless ofwhat touch point the customer uses.

Good CRM systems provide data and analytical tools for answering questions such as these: What is the value of a particular customer to the firm over his or her lifetime? Who are our most loyal customers? (It can cost six times more to sell to a new customer than to an existing customer.)

 Who are our most profitable customers and What do these profitable customers want to buy?

Customer Relationship Management (CRM)

CRM systems examine customers from a multifaceted perspective. These systems use a set of integrated applications to address all aspects of the customer relationship, including customer service, sales, and marketing.

Customer Service
Customer service modules in CRM systems provide information and tools to increase the efficiency of call centers, help desks, and customer support staff. They have capabilities for assigning and managing customer service requests.

One such capability is an appointment or advice telephone line: When a customer calls a standard phone number, the system routes the call to the correct service person, which inputs information about that customer into the system only once. Once the customers data are in the system, any service representative can handle the customer relationship. Improved access to consistent and accurate customer information help call centers handle more calls per day and decrease the duration of each call. Thus, call centers and customer service groups achieve greater productivity, reduced transaction time, and higher quality of service at lower cost. The customer is happier because he or she spends less time on the phone restating his or her problem to customer service representatives.

CRM systems may also include Web-based self-service capabilities: The company Web site can be set up to provide inquiring customers personalized support information as well as the option to contact customer service staff by phone for additional assistance.

Marketing
CRM systems support direct-marketing campaigns by providing capabilities for, Capturing prospect and customer data, Providing product and service information Qualifying leads for targeted marketing, and Scheduling and tracking direct-marketing mailings or e-mail.

Marketing modules also include tools for analyzing marketing and customer data, identifying profitableand unprofitable customers, designing products and services to satisfy specificcustomer needs and interests, and identifying opportunities for cross-selling.

HOW CRM SYSTEMS SUPPORT MARKETING

Customer relationship management software provides a single point for users to manage and evaluate marketing campaigns across multiple channels, including e-mail, direct mail, telephone, the Web, andwireless messages.

CRM SOFTWARE CAPABILITIES

BUSINESS VALUE OF CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS Companies with effective customer relationship management systems realizemany benefits, including increased customer satisfaction, reduced directmarketingcosts, more effective marketing, and lower costs for customer acquisitionand retention. Information from CRM systems increases sales revenue byidentifying the most profitable customers and segments for focused marketing and cross-selling.Customer churn is reduced as sales, service, and marketing better respond tocustomer needs. The churn rate measures the number of customers who stopusing or purchasing products or services from a company. It is an importantindicator of the growth or decline of a firms customer base.

ENTERPRISE APPLICATIONS: NEW OPPORTUNITIES AND CHALLENGES

Many firms have implemented enterprise systems and systems for supply chain management and customer relationship because they are such powerful instruments for achieving operational excellence and enhancing decision making. But precisely because they are so powerful in changing the way the organization works, they are challenging to implement. Lets briefly examine some of these challenges, as well as new ways of obtaining value from these systems.

ENTERPRISE APPLICATION CHALLENGES

Promises of dramatic reductions in inventory costs, order-to-delivery time, aswell as more efficient customer response and higher product and customerprofitability make enterprise systems and systems for supply chain managementand customer relationship management very alluring. But to obtain thisvalue, you must clearly understand how your business has to change to usethese systems effectively.Enterprise applications involve complex pieces of software that are veryexpensive to purchase and implement. It might take a large Fortune 500company several years to complete a large-scale implementation of anenterprise system or a system for SCM or CRM. The total cost for an averagelarge system implementation based on SAP or Oracle software, includingsoftware, database tools, consulting fees, personnel costs, training, andperhaps hardware costs, runs over $12 million. The implementation cost of an enterprise system for a small or mid-sized company based on softwarefrom a Tier II vendor such as Epicor or Lawson averages $3.5 million. Enterprise applications require not only deep-seated technological changesbut also fundamental changes in the way the business operates. Companies must make sweeping changes to their business processes to work with thesoftware. Employees must accept new job functions and responsibilities. Theymust learn how to perform a new set of work activities and understand how theinformation they enter into the system can affect other parts of the company.This requires new organizational learning.Supply chain management systems require multiple organizations to shareinformation and business processes. Each participant in the system may haveto change some of its processes and the way it uses information to create asystem that best serves the supply chain as a whole.Some firms experienced enormous operating problems and losses when theyfirst implemented enterprise applications because they didnt understand howmuch organizational change was required. For example, Kmart had trouble gettingproducts to store shelves when it first implemented i2

Technologies supplychain management software in July 2000. The i2 software did not work wellwith Kmarts promotion-driven business model, which created sharp spikes indrops in demand for products. Overstock.coms order tracking system wentdown for a full week in October 2005 when the company replaced a homegrownsystem with an Oracle enterprise system. The company rushed toimplement the software, and id not properly synchronize the Oracle softwaresprocess for recording customer refunds with its accounts receivable system.These problems contributed to a thirdquarter loss of $14.5 million thatyear.Enterprise applications also introduce switching costs. Once you adopt anenterprise application from a single vendor, such as SAP, Oracle, or others, it isvery costly to switch vendors, and your firm becomes dependent on the vendorto upgrade its product and maintain your installation.Enterprise applications are based on organization-wide definitions of data.Youll need to understand exactly how your business uses its data and how thedata would be organized in a customer relationship management, supply chainmanagement, or enterprise system. CRM systems typically require some datacleansing work.Enterprise software vendors are addressing these problems by offeringpared-down versions of their software and fast-start programs for small andmedium-sized businesses and best-practice guidelines for larger companies.Our Interactive Session on Technology describes how on-demand and cloud based tools deal with this problem as well.Companies adopting enterprise applications can also save time and moneyby keeping customizations to the minimum. For example, Kennametal, a $2billion metal-cutting tools company in Pennsylvania, had spent $10 millionover 13 years maintaining an ERP system with over 6,400 customizations. Thecompany is now replacing it with a plain vanilla, non-customized-version ofSAP enterprise software and changing its business processes to conform to thesoftware (Johnson, 2010).

CASE STUDY
INTERACTIVE SESSION: TECHNOLOGY ENTERPRISE APPLICATIONS MOVE TO THE CLOUD
Youve already read about Salesforce.com in this book. Its the most successful enterprise-scalesoftware as a service (SaaS). Until recently, there were few other SaaS enterprise software applications available on the Internet. Today, thats changed, as agrowing number of cloud-based enterprise resourceplanning (ERP) and customer relationship management(CRM) application providers enter this marketspace.While traditional enterprise software vendorslike Oracle are using their well-established positionto grab a share of the cloud-based application market,newcomers like RightNow, Compiere, and SugarCRMhave found success using some different tactics.Most companies interested in cloud computing aresmall to midsize and lack the know-how or financialresources to successfully build and maintain ERPand CRM applications in-house. Others are simplylooking to cut costs by moving their applications tothe cloud. According to the International DataCorporation (IDC), about 3.2 percent of U.S. smallbusinesses, or about 230,000 businesses, use cloudservices. Small-business spending on cloud servicesincreased by 36.2 percent in 2010 to $2.4 billion.Even larger companies have made the switch tothe cloud. For example, camera manufacturer Nikondecided to go with a cloud-based solution as itattempted to merge customer data from 25 disparatesources and applications into a single system.Company officials were hoping to eliminatemaintenance and administrative costs, but not at theexpense of a storage system that met their equirements,was never out of service, and workedperfectly.Nikon found its solution with RightNow, a cloudbasedCRM provider located in Bozeman, Montana.The company was founded in 1997 and has attractedfirms intrigued by its customizable applications,impeccable customer service, and robust infrastructure.Prices start at $110 per user per month and theaverage deployment time is 45 days.Nikon had been using several different systems toperform business functions, and was struggling tomerge customer data located in a variety of legacysystems. While looking for vendors to help implementa Web-based FAQ system to answer customerquestions and provide support on the basis of thesedata, the company came across RightNow. Nikonfound that not only did RightNow have the capability to implement that system, but it also had anarray of other useful services. When Nikon discoveredthat it could combine outbound e-mail, contactmanagement, and customer records into a singlesystem in RightNows cloud,

it made the move,expecting to receive a solid return on the investment.What Nikon got was far more than expected: anastonishing 3,200 percent return on investment(ROI), equivalent to a savings of $14 million afterthree years! The FAQ system reduced the number ofincoming calls to Nikons customer service staff.More customers found the information they neededon the Web, call response times dropped by 50 percent,and incoming e-mail dropped by 70 percent.While Nikon still hosts its SAP ERP system internallydue to its complexity, Nikon switched its entire CRMsystem to RightNow.Not all companies experience gains of that magnitude,and cloud computing does have drawbacks.Many companies are concerned about maintainingcontrol of their data and security. Although cloudcomputing companies are prepared to handle theseissues, availability assurances and servicelevelagreements are uncommon. Companies that managetheir CRM apps with a cloud infrastructure have noguarantees that their data will be available at alltimes, or even that the provider will still exist in thefuture.Many smaller companies have taken advantage ofa new type of cloud computing known as opensource cloud computing. Under this model, cloudvendors make the source code of their applicationsavailable to their customers and allow them to makeany changes they want on their own. This differsfrom the traditional model, where cloud vendorsoffer applications which are customizable, but not atthe source code level.For example, Jerry Skaare, president of O-So-Pure(OSP), a manufacturer of ultraviolet water purificationsystems, selected the Compiere Cloud Editionversions of ERP software hosted on the AmazonEC2 Cloud virtual environment. OSP had longoutgrown its existing ERP system and was held backby inefficient, outdated processes in accounting,inventory, manufacturing, and ecommerce.Compiere ERP provides a complete end-to-end ERPsolution that automates processes from accountingto purchasing, order fulfillment, manufacturing,and warehousing.Compiere uses a model-driven platform that storesbusiness logic in an applications dictionary ratherthan being hard-coded into software programs. Firmsusing Compiere are able to customize their applicationsby creating, modifying, or deleting businesslogic in the applications dictionary without extensiveprogramming. In contrast to traditional ERP systemsthat encourage subscribers to modify their businessprocesses to conform to the software, Compiereencourages its subscribers to customize its system tomatch their unique business needs.The fact that the Compiere software is opensource also makes it easier for users to modify. OSP was attracted to this feature, along with the robustfunctionality, scalability, and low cost, of theCompiere ERP Cloud Edition. Skaare said that hewas comfortable that the little idiosyncrasies of mycompany could be handled by the software. ThoughSkaare is unlikely to make any changes himself, itsimportant for him to know that his staff has theoption to tweak OSPs ERP applications. Opensource cloud computing provides companies thatflexibility.Not to be outdone, established CRM companieslike Oracle have moved into SaaS. Pricing starts at$70 per month per user. Oracle may have an

edgebecause its CRM system has so many capabilities andincludes embedded tools for forecasting and analytics,including interactive dashboards. Subscribers areable to use these tools to answer questions such asHow efficient is your sales effort? or How muchare your customers spending?Bryant & Stratton College, a pioneer in careereducation, used Oracle CRM On Demand to createmore successful marketing campaigns. Bryant &Stratton analyzed past campaigns for tech-savvy recenthigh school graduates, as well as older, non-traditionalstudents returning to school later in life. Oracle CRMOn Demand tracked advertising to prospective students and determined accurate costs for each lead,admissions application, and registered attending student.This information helped the school determinethe true value of each type of marketing program.

CASE STUDY QUESTIONS

1. What types of companies are most likely to adopt cloud-based ERP and CRM software services?Why? What companies might not be well-suited for this type of software? ANS. From a business users point of view, whether you choose to implement your software as an on-premise solution or choose a cloud-based option will depend on your business requirements: your aims, objectives, resources, preferred costing or payment methods, and what you need from your CRM software or ERP solution. With cloud-based CRM and ERP solutions, the application and data is held on a network of computers kept in advanced data-centres, nearly always at a number of different locations. This means your software provider takes care of the running, maintenance and security of the application and servers 24 hours a day, seven days a week. There are a variety of reasons businesses choose cloud-based applications. With CRM and ERP, the key reasons tend to be that a business can be up and running with the software relatively quickly. Theres also less need for in-house IT staff or high levels of technical skills, and things like security and upgrades are looked after by the vendor. Probably the most common deciding factor between cloud and on-premise is that cloud-computing makes your software an operational expense rather than a capital spend. Theres usually little or no financial outlay in terms of hardware and IT infrastructure, and you pay a monthly fee to use the product, which is based on the number of users you have. That works both ways; some businesses prefer a capital spend and to own the software. Others prefer an operational cost, as with the cloud. For cloud-based applications, you also need a reliable internet connection, and in

some sectors there can be issues with the geography in which the data is actually held. Many mainstream business software vendors are working to transfer their traditional on-premise applications in to the cloud. From a technical point of view, however, its not as straightforward as it may first appear. Although, once its achieved, the results are arguably superior to applications that have been developed as purely cloud-based applications. Why? Because they give customers choice. Not just for the initial implementation, but as their business grows, develops and changes, its easier to move from or to the cloud. Businesses can also move from the public cloud to their own private cloud, with the same application. This is one of the unique benefits of Microsoft Dynamics CRM and its cloud-based version Microsoft Dynamics CRM Online. Both Microsoft Dynamics CRM and Microsoft Dynamics CRM Online are effectively the same products; theyre built using the same code base. So its not that difficult to move a company thats using the onpremise version to the cloud version, or vice versa. Compare this with many of Microsofts cloud-based competitors (such as SalesForce) which are cloud-only applications. Because they are cloud-only, you cant go on-premise even if your business strategy dictates it in the future. Although there have been a few cloud-based ERP solutions around for a while, ERP in the cloud has been taking off at a slower pace than CRM. In April 2011, nearly threequarters of Microsoft Dynamics CRM seats were sold for the cloud version. Concentrix TSG has been offering mid-market sister product Microsoft Dynamics NAV as an onpremise solution for several years. We started offering Microsoft Dynamics NAV as a cloud or software as a service option about a year ago, and although it has generated interest among a range of customers, the on-premise version remains more popular. In a recent independent survey commissioned by Concentrix TSG, 67% of senior finance professionals said that they have no current interest in using a cloud-based ERP solution. The same survey cited concerns about security and a lack of information and understanding about cloud technology as the main reasons organisations are staying away from cloud ERP. For the vast majority of businesses, modern commercial cloud applications provide exceptionally high levels of security, including data protection and back-up, and are usually more secure than the majority of on-premise applications. Sage CRM, the leading mid-market CRM application from Sage, is a web-based product which has had an online version (SageCRM.com) available for a few years. Sage were ahead of many other vendors with SageCRM.com. However, Sage 200, the small and mid-market ERP solution which effectively uses Sage CRM as its CRM module, isnt due to have a cloud version released for some time. In fact its currently looking like the end of 2012. Sage 200 was built from the ground up as a client-server type application. It also has many add-on products by third-party vendors, so getting it in to the cloud is not going

to be straightforward. You could argue that by taking its time getting its popular business management solution in to the cloud; Sage is going to end up playing catch up with other vendors. But according to research carried out on behalf of Concentrix TSG, until ERP buyers agree with the benefits of cloud-computing, and are more convinced of its greater security, theres actually no real hurry. 2. What are the advantages and disadvantages of using cloud-based enterprise applications?

Advantages: Removing hardware and its complications (costs, maintenance/warranties, risk of failure, personnel required to handle them) Availability: Your services are available regardless of location or anything as long as you have an internet connection Technology advantage: When you rely on a company that does services for a living, they are better motivated (and also better equipped) to making better technology/services to cater to you. Often, Cloud Computing technologies are improved than on-site counterparts in terms of efficiency, speed, features and security. Individual companies cannot spend as much resources or time on the same items. Moving from an Capital Expenditure model (where you pay a lot of money upfront of a lot of things irrespective of actual usage) to an Operating Expenditure model (often you will pay for number of servers, or number of users, and you can scale up/down as your size changes and pay for just that much). This is particularly helpful when trying to predict your costs and these costs stay fixed as they are quoted to you, compared to the traditional model. Note this doesn't always mean cost saving but in light of the next point, should still be considered. What I call to call a better relationship between IT & the business: Often, proper use of the Cloud and its technologies help release pressure from IT to handle day-to-day things of keeping everything alive and focus time on more strategic initiatives such as

improving delivery, efficiency, response times and helping the business more.

Advantages (2): Remote Accessibility: With cloud computing, your business is not restricted to a particular location. This applies to individuals also. You can access the services from anywhere. All you need is your ID and password. In some cases, there may be extra security requirements but as they too are mobile, you can easily access your cloud services from any part of the world.

Easy Expansion: As of the characteristics of cloud computing is its flexibility, you can quickly access more resources if you need to expand your business. You need not buy extra infrastructure. You just need to inform your cloud provider about your requirements and they will allocate resources to you. In most cases, the entire process is automated so the expansion takes just a few minutes. The same is applicable if you wish to use less resources. One of the best advantages of cloud computing is easy re-allocation of resources.

Security: Though people doubt cloud computing, clouds tend to be more secure than the traditional business models. Clouds offer real-time backup which results in less data loss. In case of outage, your customers can use the backup servers that sync with the main ones as soon as they are up. Your business gets maximum uptime without any loss of data during the transitions. Other than this, clouds are less prone to hacks and DDoS attacks as people dont know the whereabouts of your data.

Environmentally Friendly: Usage of ready-made resources tailored to your needs helps you reduce the electricity expenses. While you save on electricity, you also save

on resources required to cool off computers and other components. This reduces the emissions dangerous to environment.

Disadvantages: Reliance on the internet bandwidth: Not all countries have cheap or reliable internet connections. Internal IT expertise: Some people feel that not keeping all IT in-house is a disadvantage to them. May not always know where (geographically) your data is stored, shared architecture. Is there a place for On-Premise "enterprise" software such as Oracle, SAP or other applications or should all enterprise applications move to the cloud like Salesforce? If yes can you describe the reasons and applications for these On-Premise applications?

I believe that all enterprise applications should move to the cloud, but that doesnt mean everyone else thinks it should! There are still companies very heavily invested in the on-premise-model and they want to ensure theres still a place for it.

Im glad were on the newer side of the equation, though. Theres not a very promising future for on-premise because customers are ready for a change. Big investments in client-server produced returns that were elusive. Furthermore, the economy that we have been dealing with for the past couple of years has caused customers to question a lot of conventional wisdomespecially when it comes to technology. Customers don't want to part with big buckets of cash or tap into precious credit lines to finance big-ticket purchases of software, hardware and the data center infrastructure that goes with them.

Microsoft, Oracle and SAP are finding themselves confronted by companies like Google, Amazon.com and salesforce.com. And, perhaps to everyones surprise, these are not scrappy dot-com companies anymore. Google does everything (its even a verb). Amazon.com is the Internets biggest retailer and its Web services business uses more bandwidth than its retail business. Salesforce.com hit $1 billion in revenue

and

you

can

now

get

all

your

enterprise

apps

on

demand.

At a time when many tech companies are wobbling, we drew nearly 20,000 registrants at our annual Dreamforce event in San Francisco last month. That's about double last year's numbers. It sends us a message that companies are hungry for better answers than they are getting from SAP, Oracle and Microsoft. Having seen whats possible with a new way, companies have been exercising their power of choice.

Salesforce.com has established the viability of cloud-based computing. The scalability and security issues that IT was very concerned about early in the cloud-based evolution have been addressed and validated. Do you envision that all future software applications will be delivered as a service? Over what period of time do you see this occurring?

We are seeing a major shift to cloud computing, and the trend will accelerate. However, no new technology completely replaces another. We have many customers who still use some form of mainframe and will probably continue to do so for some time. But the best minds and the best new ideas move on. When was the last time that someone told you about a hot new shrink-wrapped business app? Maybe 10 years ago! The best innovation is happening in the cloud right now, and customers know it.

How fast? Thats the big question. Now, every major analyst firm sees cloud computing expanding its share of the overall IT market. The next five years, and the next 10 years will look very different. Right now we are only at the very beginning. I still have a lot of work to do. http://www.customermanagementiq.com/technology/articles/behind-the-cloud-aninterview-with-salesforce-com/ There is no escaping cloud computing. Every software package, service and even hardware is described as cloud-enabled. Seemingly, we are all headed into the clouds never to return. However, while the atmosphere is everywhere, the cloud decidedly is not. It is by definition remote - so if your applications require the highest in performance, cloud may not be the answer.

Not all applications will completely move to the cloud. In some cases this will be by design and the type of application, while others won't be able to avoid migration pitfalls. For the percentage of business-critical applications that require the highest performance and have the most sensitive information and complexity of process, a hybrid model of cloud services to bridge the datacenter, branch offices and trading partners is best. In these instances, the transport time or latency between local applications and those in the cloud may be too much for certain purposes to allow for a standard cloud implementation. Let's look at the top five best practices for ensuring optimal performance and uptime when using the cloud for your most demanding applications. 1. Don't make assumptions determine what can go Cloud and what must not. Decide which applications can move to the cloud completely and which ones cannot. This may be an issue of sensitivity where it is deemed too risky but will certainly differ by organization. Other issues may be the aforementioned latency constraint that would apply to "low-latency" trading. Many of these sorts of applications are "colocated" in the stock exchange in order to circumvent the lag of any external network. But there are many applications where latency in the low seconds is acceptable. These could be good candidates for cloud residency. 2. Don't pay for more than you can actually use the cloud is elastic. Are your applications? One of the big drivers for using the cloud is that you only pay for the resources you utilize. When it determines that you need more resources, the cloud automatically provisions them for you. But not all applications can immediately make usage of additional CPUs and memory. There may be serialization in the applications, problems with threading and even memory leaks. Don't assume that any application will transparently expand to handle rapid peaks in demand merely by virtue of being in the cloud. The same basic IT architecture principles for handling bottlenecks and designing in performance still apply. 3. Don't focus solely on the components remember the transaction. Monitoring is often forgotten when talking cloud; however, it is essential. Rather than merely monitoring the individual components such as the network, servers, J2EE WebApps and message operations, take a step back and monitor the entire transaction path. Transactions are conversations; if you don't monitor them you will not have a clear idea of what is going on within your infrastructure. Focus on transaction performance: the speed with which an application completes an activity that meets business requirements and expectations. 4. Beware of insufficient testing start early and save. Performance testing end-toend is important long before you reach production. Enterprise applications often communicate with other applications and are integrated using middleware. It is important to begin testing enterprise applications after unit testing is completed. This is especially important with transactions that will span the datacenter and the cloud. Besides performance bottlenecks, logic errors may be uncovered. This is a great time

to put policies in place to prevent known problems from reoccurring. And these policies should be consistent across both the datacenter and the cloud. Think of the life cycle of an application working with the cloud as a continuum. The farther to the left you begin testing, the less expensive it will be to resolve problems in availability, logic and performance. 5. Control, but don't over-control self-service in the cloud drives business performance. In a hybrid cloud environment there can be many stakeholders that need access to application data. These can range from the enterprise architects, to development/user acceptance testing to IT operations and the shared services team. However, with some of the business process in the cloud, some in the data center and some parts of it farmed out to virtual cloud brokers, we need to make access to this data as easy as possible. Self-service access enables named users to immediately get to the data they need without installing any software and without disrupting the productivity of others to get it. Enterprises should consider the specific needs of their applications before making the jump into the cloud. Remember not every application was built to run in the cloud, and therefore it becomes important that the necessary adjustments are in place beforehand to help ensure optimal performance. http://cloudcomputing.sys-con.com/node/2047439 3. What management, organization, and technologyissues should be addressed in deciding whether touse a conventional ERP or CRM system versus acloud-based version?

Cloud computing has recently emerged as one of the most important trends in information technology. Though some observers insist the concept has been overhyped, most experts believe it represents a significant transformation in the way software is being delivered and used. No one can deny the market for cloud-based solutions is growing rapidly. According to Gartner Group, the market for Software as a Service (SaaS), a primary application of cloud technology, will total $14 billion by 2013. McKinsey & Company estimates that SaaS is currently growing at a 17 percent annual rate. In this interview Kevin DeCoster, a director in McGladreys technology practice, shares his insights on cloud computing and the pros and cons of using a cloud-based Customer Relationship Management system, or CRM. Kevin, it seems likely that most businesspeople have at least heard of cloud computing, but it appears a fair number remain a bit unclear on the concept. Can you enlighten us? In basic terms, cloud computing refers to a delivery model in which software applications and network infrastructure, like data storage or email servers, are

provided over the Internet as a service. Traditionally, these technologies would reside within a companys server room/data center or on an individual users hard drive. With cloud computing, a user located virtually anywhere in the world and operating virtually any device -- PC, iPad, smartphone, whatever can gain access to information and services via an Internet connection. Then Im guessing a lot of people who are unfamiliar with the term cloud computing are nevertheless already using the technology, right? I mean, wouldnt having an email account through Yahoo or Google be considered cloud computing? Strictly speaking, yes. Any time you store information on someone elses computers and then access it via the Internet, youre involved in cloud computing. So then why is cloud computing generating so much buzz? One reason is that many companies that have traditionally maintained their IT and data management systems in-house are migrating steadily toward cloud computing solutions. Growth in cloud-based applications is likely to outpace the growth of onpremise software fairly quickly, particularly among small and medium-sized businesses, or SMBs. Many organizations not only businesses but universities, nonprofits and others are recognizing the inherent advantages of cloud computing. Such as? Cloud computing offers a variety of benefits, particularly for organizations that havent already made huge investments in IT infrastructure and staff. The managers of a typical start up or SMB have to keep a close eye on cash, so theyd rather not devote scarce resources to computer hardware, software and IT personnel, if they can help it. Operating from the cloud tends to be the less expensive option, at least initially, since the buyer is charged a relatively small monthly fee instead of the onetime payment common with traditional software licenses. And in many cases you are charged on a usage basis, which means there is little waste; youre not paying for the software when youre not using it. So cost savings are the primary benefit? While many users initially are attracted to cloud computing because of cash flow considerations, thats not the only reason businesses are migrating to the cloud. Small companies with relatively limited IT resources like it because it empowers them with sophisticated business processes that previously were only available to their larger competitors. But much larger organizations, including many with substantial IT capabilities, are also taking advantage of cloud computing. What do big businesses find appealing about it? We live in a world where change is constant; even the largest, most powerful corporations have to stay on their toes and be able to adapt quickly to fluctuating conditions. Cloud computing provides an impressive level of flexibility; companies not only can minimize fixed costs but can scale up and down almost immediately, making quick adjustments as workloads increase or decrease. It also can facilitate innovation and rapid decision making.

Are you seeing applications where the cloud option is particularly popular? A wide range of cloud applications are being used by consumers and businesses -everything from VoIP to online photo management. Its become particularly popular in situations where collaboration is important and/or where people are geographically dispersed. For example, one application were seeing move to the cloud fairly rapidly is CRM. That makes sense, since CRM is used by sales departments, which typically have people located all over the country, and all over the world, for that matter. True, the use of CRM was pioneered by sales and marketing departments, and they continue to be among the most active users. But were seeing organizations use CRM in a variety of departments and disciplines. For example, we currently are working with municipalities to help them manage a variety of local government functions, such as managing the workflow associated with building permits. Another example is our work in the health care field. Were helping clients employ CRM technology to track patient compliance with treatment plans, patient outcomes and overall cost of delivery. I suppose you could call that application PRM, for patient relationship management. Microsoft actually refers to its CRM product, Microsoft Dynamics CRM 2011, as an XRM solution to emphasize its applicability beyond just sales and marketing. Arent companies hesitant to store the kind of information typically found in CRM systems on another companys servers? Were talking about detailed, proprietary information about current and prospective customers, among other things. Arent they worried about security breaches? It wasnt that long ago when a lot of business people agreed with you. Companies that had significant security concerns, or that had fiduciary reporting responsibility, sought hosting providers that carried an SAS 70 report or complied with SSAE 16 and ISAE 3402 standards. Today, most of the people with whom we consult recognize that the top-tier cloud providers offer levels of security that few organizations can match. Thats not to say there no longer are compliance-related considerations, particularly in areas of the federal government and among organizations with fiduciary reporting responsibilities. But such considerations exist regardless of whether their IT solutions are on-premise or cloud based. We often help clients analyze compliance requirements and then identify the cloud providers best able to meet their particular needs. So should every company thats evaluating a new or upgraded CRM system opt for the cloud computing option? Helping companies select, install, configure, manage and maintain their CRM systems is a big part of our business, and we dont push our clients toward one particular solution. Naturally, when a client is evaluating CRM options, one of their key considerations is whether to maintain the technology on premise that is, license the software and install it on the clients own systems or have it hosted by a third party.

For some companies, particularly those that already have made substantial investments in IT infrastructure and personnel, going the on-premise route makes sense. Others may have particular tax or regulatory compliance issues that can make the cloud option more challenging. And on-premise licensing can provide some cost savings over the long term say, five years or more. But even that is changing as economies of scale are enabling cloud providers to lower their costs. Frankly, today we are seeing relatively few companies elect to go the on-premise route. The vast majority are electing to have their CRM hosted by a firm like ours or by a cloud provider such as Microsoft. So what are the key factors one should assess when determining whether or not cloud computing is the best option for your organizations CRM system? Many of the factors that make cloud computing attractive in general are of comparable importance when evaluating the pros and cons of your CRM options: relatively small upfront costs, the ability to deploy rapidly, the ability to scale up or down quickly, etc. When buying a CRM system, you want to make sure your vendor is stable and reliable; this is particularly important if that vendor will be maintaining your system offsite. Another important area to consider is the ability to integrate your CRM with your existing enterprise applications. Most of the top cloud providers offer good integration capabilities, and it often is no more difficult to achieve this via the cloud than it is to do on-premise. However, there can be challenges when trying to integrate, say, data from on-premise ERP systems with data from a cloud-based CRM system. In such cases your best option is either to stick with an on-premise solution or partner with a firm that can host and integrate both applications in the cloud. When assessing your CRM options, is user acceptance and adaptability an important consideration? Do most users find cloud-based systems more difficult to use than onpremise systems? Overcoming user resistance is a crucial consideration when assessing CRM systems. One of Microsofts biggest selling features is the ease with which new users adapt to the Dynamics CRM 2011. The reason: its based on one of the most widely used programs in corporate America: Microsoft Outlook. However, while that may be an excellent reason to select the Microsoft product over a competing system, its of little use in helping you compare cloud-based and on-premise options. Most of the top cloud-based CRM solutions are as easy to use and in many cases, easier to use than their on-premise counterparts. Well, theres a lot to think about, but it sounds like cloud computing is a very attractive option for a lot of computer applications, including CRM. Any final caveats or suggestions youd like to share? Take a close look at your service-level agreements (SLA) to make sure there are no hidden costs that could come back to bite you. You need to be very clear what you are getting and what you are not getting in your SLA. While this is always a useful

exercise, it can be particularly important when purchasing any cloud service. This is perhaps of less concern when dealing with Microsoft; most of its offerings are pretty standard. Salesforce.com, on the other hand, provides a larger array of options. Thats not a knock on Saleforce.com; having an array of choices can be beneficial. You just need to carefully evaluate them and know what youre getting. http://mcgladrey.com/Bulletins/Computing-in-the-Cloud-Is-it-Right-for-YourOrganization

CASE STUDY Border States Industries Fules Rapid Growth with ERP
Border States Industries Inc., also known as Border States Electric (BSE), is a wholesaledistributor for the construction, industrial, utility, and data communications markets. The company is headquartered in Fargo, NorthDakota, and has 57 sales offices in states along theU.S. borders with Canada and Mexico as well as in South Dakota, Wisconsin, Iowa, and Missouri. BSEhas 1,400 employees and is wholly employee-ownedthrough its employee stock ownership plan. For thefiscal year ending March 31, 2008, BSE earned revenues of over US $880 million. BSEs goal is to provide customers with what they need whenever they need it, including providing custom services beyond delivery of products. Thus, the company is not only a wholesale distributor but also a provider of supply chain solutions, with extensive service operations such as logistics, job-sitetrailers, and kitting (packaging individually separate but related items together as one unit). BSE has distribution agreements with more than 9,000 product vendors. BSE had relied on its own legacy ERP system called Rigel since 1988 to support its core business processes. However, Rigel had been designed exclusively for electrical wholesalers, and by the mid-1990s, the system could not support BSEs new lines of business and extensive growth. At that point, BSEs management decided to implement a new ERP system and selected the enterprise software from SAP AG. The ERP solution included SAPs modules for sales and distribution, materials management, financials and controlling, and human resources. BSE initially budgeted $6 million for the newsystem, with a start date of November 1, 1998. Senior management worked with IBM and SAP consulting to implement the system. Although close involvement of management was one key ingredient in thesystems success, day-to-day operations suffered while managers were working on the project.

BSE also decided to customize the system extensively. It wrote its own software to enable the ERP system to interface automatically with systems from other vendors, including Tax ware Systems, Inc., Innovis Inc., and TOPCALL International GmbH. The Tax ware system enabled BSE to comply with the sales tax requirements of all the states and municipalities where it conducts business. The Innovis system supported electronic data interchange (EDI) so that BSE could electronically exchange purchase and payment transactions with its suppliers. The TOPCALL system enabled BSE to fax customers and vendors directly from the SAP system. At the time of this implementation, BSE had no experience with SAP software, and few consultants familiar with the version of the SAP software that BSE was using. Instead of adopting the best-practice business processes embedded in the SAP software, BSE hired consultants to further customize the SAP software to make its new SAP system look like its old Rigel system in certain areas. For example, it tried to make customer invoices resemble the invoices produced by the old Rigel system. Implementing these changes required so much customization of the SAP software that BSE had to delay the launch date for the new ERP system until February 1, 1999. By that time, continued customization and tuning raised total implementation costs to$9 million (an increase of 50 percent). Converting and cleansing data from BSEs legacy system took far longer than management had anticipated. The first group of expert users was trained too early in the project and had to be retrained when the new system finally went live. BSE never fully tested the system as it would be used in a working production environment before the system actuallywent live. For the next five years, BSE continued to use its SAP ERP system successfully as it acquired several small companies and expanded its branch office infrastructure to 24 states. As the business grew further, profits and inventory turns increased. However, the Internet brought about the need for additional changes, as customers sought to transact business with BSE through an e-commerce store front. BSE automated online credit card processing and special pricing agreements (SPAs) with designated customers. Unfortunately, the existing SAP software did not support these changes, so the company had to process thousands of SPAs manually.

To process a credit card transaction in a branch office, BSE employees had to leave their desks, walkover to a dedicated credit card processing system in the back office, manually enter the credit cardnumbers, wait for transaction approval, and thenreturn to their workstations to continue processing sales transactions. In 2004, BSE began upgrading its ERP system to amore recent version of the SAP software. The software included new support for bills of material and kitting, which were not available in the old system.This functionality enabled BSE to provide bettersupport to utility customers because it could preparekits that could be delivered directly to a site. This time the company kept customization to a minimumand used the SAP best practices for wholesale distribution embedded in the software. It also replaced TOPCALL with software from Esker for faxing and emailing outbound invoices, order acknowledgments, and purchase orders and added capabilities from Vistex Inc. to automate SPA rebate claims processing.BSE processes over 360,000 SPA claims each year, and the Vistex software enabled BSE to reduce rebate fulfillment time to 72 hours and transaction processingtime by 63 percent. In the past, it took 15 to 30 days forBSE to receive rebates from vendors. BSE budgeted $1.6 million and 4.5 months forimplementation, which management believed wassufficient for a project of this magnitude. This timethere were no problems. The new system went liveon its target date and cost only $1.4 million toimplement14 percent below budget. In late 2006, BSE acquired a large company that was anticipated to increase sales volume by 20% each year. This acquisition added 19 new branches to BSE. These new branches were able to run BSEs SAP software within a day after the acquisition had been completed. BSE now tracks 1.5 million unique items with the software. Since BSE first deployed SAP software in 1998, sales have increased 300 percent, profits haveclimbed more than 500 percent, 60 percent ofaccounts payable transactions take place electronicallyusing EDI, and SPA processing has been reducedby 63 percent. The company turns over its inventorymore than four times per year. Instead of waiting 15to 20 days for monthly financial statements, monthlyand year-to-date financial results are available withina day after closing the books. Manual work for handlingincoming mail, preparing bank deposits, andtaking checks physically to the bank has been significantlyreduced. Over 60 percent of vendor invoicesarrive

electronically, which has reduced staff size inaccounts payable and the number of transactionerrors. Transaction costs are lower. The number of full-time BSE employees did increase in the information systems area to supportthe SAP software. BSE had initially expected to have3 IT staff supporting the system, but needed 8 peoplewhen the first ERP implementation went live in 1999and 11 by 2006 to support additional SAP softwareand the new acquisition. BSEs IT costs rose by approximately $3 million peryear after the first SAP implementation. However, sales expanded during the same period, so theincreased overhead for the system produced a costincrease of only .5 percent of total sales. BSE management has pointed out that much ofthe work that was automated by the ERP systems hasbeen in the accounting department and involvedactivities that were purely transactional. This hasfreed up resources for adding more employees whowork directly with customers trying to reduce costs and increase sales. In the past, BSE had maintained much of its dataoutside its major corporate systems using PC-basedMicrosoft Access database and Excel spreadsheet software.Management lacked a single company-wide version of corporate data because the data were fragmentedinto so many different systems. Now thecompany is standardized on one common platformand the information is always current and available tomanagement. Management can obtain a picture ofhow the entire business is performing at any momentin time. Since the SAP system makes all of BSEs planningand budgeting data available online, managementis able to make better and quicker decisions. In 2006, Gartner Group Consultants performed anindependent evaluation of BSEs ERP implementation.Gartner interviewed top executives and analyzedBSE data on the impact of the ERP system onBSEs business process costs, using costs as a percentageof sales as its final metric for assessing the financial impact of SAP software. Cost categoriesanalyzed included costs of goods sold, overhead andadministration, warehousing costs, IT support, and delivery. Gartners analysis validated that the SAP softwareimplementation cost from 1998 to 2001 did indeedtotal $9 million and that this investment was paidback by savings from the new ERP system within 2.5years. Between 1998 and 2006, the SAP softwareimplemented by BSE produced total savings of $30million, approximately one-third of BSEs cumulativeearnings during the same period. As a percentage ofsales, warehouse costs went down 1 percent, delivery

costs decreased by .5 percent, and total overheadcosts declined by 1.5 percent. Gartner calculated thetotal return on investment (ROI) for the projectbetween 1998 and 2006 was $3.3 million per year, or37 percent of the original investment. BSE is now focusing on providing more supportfor Internet sales, including online ordering, inventory,order status, and invoice review, all within a SAP software environment. The company implementedSAP NetWeaver Master Data Management toprovide tools to manage and maintain catalog dataand prepare the data for publication online and intraditional print media. The company is using SAPsWeb Dynpro development environment to enablewireless warehouse and inventory managementactivities to interact with the SAP software. And it isusing SAP NetWeaver Business Intelligence softwareto learn more about customers, their buying habits,and opportunities to cross-sell and upsell products.

CASE STUDY QUESTIONS

1. What problems was Border States Industries encountering as it expanded? What management, organization, and technology factors were responsible? ANS:Border States Industries had used its own legacy enterprise resource planning system since 1988 to support its core business processes. The system though had been designed exclusively for electrical wholesalers. The system could no longer support BSEs new lines of business and extensive growth. BSE chose enterprise software from SAP AG as its new information system. Management: Even though senior management worked closely with IBM and SAP during the system implementation, day-to-day operations suffered while managers were working on the project. The first group of expert users were trained too early in the project and had to be retrained when the new system finally went live. Organization: Prior to the implementation, BSE had no experience with SAP software and only had a few consultants familiar with the version of the SAP software that BSE

was using. Instead of adopting the best-practice business processes embedded in the SAP software, BSE hired consultants to further customize the SAP software to make its new system look like its old one in certain areas. Because of the extensive customization, the launch date was pushed back four months and the cost of implementation increased by $3 million. Technology: The Company chose to customize the system extensively, writing its own software to enable the ERP system to interface automatically with systems from other vendors. Converting and cleansing data from BSEs legacy system took far longer than management anticipated. BSE never fully tested the system as it would be used in a working production environment before the system actually went live. When the Internet brought about the need for additional changes, the existing AP software did not support these changes. BSE was forced to manually processthousands of transactions outside the SAP system. 2. How easy was it to develop a solution using SAP ERP software? Explain your answer. ANS:When BSE upgraded its ERP system to a newer version of SAP software in2004, it kept customization to a minimum and used the SAP best practices for wholesale distribution. It also replaced other software components with SAP software that provided more integration throughout the companys business processes. Because the company did not customize as much the second time around, the implementation went smoother. The new systemwent live on its target date and costs were 14 percent below budget. WhenBSE acquired a large company that added 19 new branches, the new userswere able to run BSEs SAP software within a day after the acquisition hadbeen completed. 3. List and describe the benefits from the SAPsoftware. ANS:Instead of waiting 15 to 20 days for monthly financial statements, monthly and year to-date financial results are available within a day after closing the books. Manualwork for handling incoming mail, preparing bank deposits, and taking checksphysically to the bank is significantly reduced. Over 60 percent of vendor invoicesarrive electronically, which has reduced staff size in accounts payable and thenumber of transaction errors. Transaction costs are lower. Even though the IT staff used to support the SAP system increased significantly andIT costs rose by approximately $3 million per year after the first SAPimplementation,

sales expanded during the same period. The increased systemoverhead produced a cost increase of only .5 percent of total sales.Much of the work that was automated by the ERP systems has been in theaccounting department and involved activities that were purely transactional. Thishas freed up resources for adding more employees who work directly withcustomers trying to reduce costs and increase sales. Prior to the ERP implementation, management lacked a single company-wideversion of corporate data because data were fragmented into many differentsystems. Now the company is standardized on one common platform and the information is always current and available to management. Management can obtain a picture of how the entire business is performing at any moment in time. Since the SAP system makes all of BSEs planning and budgeting data available online, management is able to make better and quicker decisions. 4. How much did the new system solution transformthe business? Explain your answer. ANS:BSE processes over 360,000 special pricing agreements with designatedcustomers each year. The new software enabled BSE to reduce rebatefulfillment time to 72 hours and transaction processing time by 63 percent.In the past it took 15 to 30 days for BSE to receive rebates from vendors.Since BSE first deployed SAP software in 1998, sales have increased 300percent, profits have climbed more than 500 percent, and 60 percent ofaccounts payable transactions take place electronically using EDI. Thecompany turns over its inventory more than four times per year. Instead ofwaiting 15 to 20 days for monthly financial statements, monthly and year-to date financial results are available within a day after closing the books. 5. How successful was this solution for BSE? Identify and describe the metrics used to measure the success of the solution. ANS:In 2006, Gartner Group Consultants performed an independent evaluationof BSEs ERP implementation. Gartner analyzed BSE data on the impact ofthe ERP system on BSEs business process costs, using costs as apercentage of sales as its final metric for assessing the financial impact ofSAP software. Costs categories analyzed included costs of goods sold,overhead and administration, warehousing costs, IT support, and delivery.The first implementation, 1998 to 2001, cost $9 million and the investmentwas returned within 2.5 years. Between 1998 and 2006 (when the secondimplementation occurred) BSE produced total savings of $30 million,approximately one-third of BSEs cumulative earnings. As a percentage ofsales,

warehouse costs went down 1 percent, delivery costs decreased by.5 percent, and total overhead costs declined by 1.5 percent. Gartnercalculated the total return on investment for the project between 1998 and2006 was $3.3 million per year, or 37% of the original investment. 6. If you had been in charge of SAPs ERP implementations,what would you have done differently? ANS:ERP software is not designed for extensive customization like BSE didduring the initial implementation in 1999. Rather than adopting the bestpracticebusiness processes embedded in the SAP software, BSE decidedto customize the SAP software to make its new system look like its oldsystem. BSEs second implementation went much smoother and cost lessbecause it did not try to customize the system as much and it adopted thebuilt-in best practices. The initial implementation involved too manyperipheral systems rather than having everything consolidated into onesystem. The initial training for expert users was not handled well. Thesystem was not tested as it would be used in a working productionenvironment before the system actually went live. All of these were serious,costly errors that the company corrected the second time around.