AGILENT TECHNOLOGIES AND RUSS BERRIE: CHALLENGES OF IMPLEMENTING ERP SYSTEMS
The good news is that Agilent Technologies Inc.( says its enterprise resource planning applications are stable. The bad news is they got that way only after a rocky ERP migration project that cost the company $105 million in revenue and $70 million in profits.
In mid-August 2002, the multinational communications and life sciences company, formerly a part of Hewlett-Packard Co., said problems with the ERP components in Oracle's e-Business Suite 11e software froze production for the equivalent of a week, leading to the massive losses. The Oracle system, part of which went live in June, handles about half of the company's worldwide production of test, measurement, and monitoring products and almost all of its financial operations, as well as functions such as order handling and shipping.
Agilent is in the process of migrating as many as 2,200 legacy applications that it inherited from HP to Oracle. As part of the switchover, approximately 6,000 orders in the internally developed legacy systems had to be converted to an Oracle-friendly format, an Agilent spokeswoman said from company headquarters in Palo Alto, California. She said the configuration process had problems requiring correction.
In a statement last week, Agilent President and CEO Ned Barnholt said the disruptions to the business after implementing the ERP system were "more extensive than we expected." An Agilent spokeswoman said the issue wasn't the quality of
the Oracle application, but rather the "very complex nature of the enterprise resource planning implementation."
For its part, Oracle Corp. said it's working closely with Agilent. "At Oracle, we are fully committed to all of our customers for the long haul and support them in any way necessary," the company said in a statement. "We have a strong relationship with Agilent, and both companies believe the implementation is stable."
Agilent also had a take-away lesson: "Enterprise resource planning implementations are a lot more than software packages," the company said in a statement. "They are
a fundamental transformation of a company's business processes. People, processes, policies, the company's culture are all factors that should be taken into consideration when implementing a major enterprise system."
According to one analyst, ERP disasters are often caused by the user company itself. Joshua Greenbaum, an analyst at Enterprise Applications Consulting, said 99 percent of such rollout fiascoes are caused by "management's inability to spec out their own requirements and the implementer's inability to implement those specs."
RussBerneandCo. After a three-year saga that included a $10.3 million financial hit from the failed installation of packaged applications, teddy bear maker Russ Berrie and Co. ( is taking another crack at replacing its legacy business systems. The Oakland, New Jersey-based distributor of toys and gifts last week
finalized plans to roll out J. D. Edwards & Co.'s OneWorld Xe suite of enterprise resource planning (ERP), customer relationship management, and financial applications. The multimillion-dollar project is scheduled to be done in phases over the next 18 months.
Russ Berrie CIO Michael Saunders said that the company, which had sales of $225 million during the first nine months of 2001, hopes the OneWorld System will help it
reach $1 billion in annual revenue in the coming years. Within the next 12 months, he said, Russ Berrie plans to begin installing the applications one department at a time,
starting with a stand-alone implementation in purchasing. "We're not going big bang," Saunders said. "We're mitigating implementation risks by taking a phased-in approach."
The company has reason to be cautious. Three years ago, a Y2K-related migration from its homegrown distribution, financial, and customer service systems to packaged
ERP applications experienced major system failures. Saunders said the problems were severe enough for Russ Berrie to take many of the new applications off-line and return to their old systems. Saunders wouldn't identify the software vendors that were involved in the failed implementation, but sources said that SAP AG's applications were part of the 1999 project. A spokesman at SAP confirmed that Russ Berrie was one of its customers, but he declined to offer further details because of pending litigation between the two companies.
Joshua Greenbaum of Enterprise Applications Consulting said it appears that Russ Berrie "bit off more than they could chew" on the 1999 project. Companywide rollouts are especially risky for midsize businesses like Russ Berrie, Greenbaum said.
CaseStudyQuestions
1. What are the main reasons companies experience failures in implementing ERP systems?
2. What are several key things companies should do to avoid ERP systems failures? Explain the reasons for your proposals.
3. Why do you think ERP systems in particular are often cited as examples of failures in IT systems development, implementation, or management?
(Source Adapted from Marc Songini, “ERP Effort Sinks Agilent Revenue,” Computerworld, August 26, 2002, pp.1,12; and Marc Songini, “Teddy Bear Maker Prepares for Second Attempt at ERP Rollout,” Computerworld, February 4, 2002, p. 16.
Management Information Systems – Managing Information Technology in the Business Enterprise, pp.193; Sixth Edition, Tata McGraw-Hill Edition, James A. O’Brien)
REAL WORLD CASE
GM LOCOMOTIVE GROUP : FAILURE IN ERP SYSTEM IMPLEMENTATION
The more things change, the more they remain the same. Or so it seems. Big companies or their big business units are still quite capable of failing badly when it comes to implementing new enterprise resources planning (ERP) systems. With all the bad publicity about spectacular ERP implementation failures by big U.S. companies over the past ten years, one would think that today’s IT departments and business units could develop and manage ERP implementation projects so failure would not be an option. Many probably do. But others continue to take major hits. Take General Motors for instance. Or more specifically, the Locomotive Group of GM’s Electromotive Division (wwwgmemd.com), the world’s largest builder of diesel-electric locomotives.
General Motors Corp.’s locomotive unit encountered such severe problems during a rollout of SAP AG’s R/3 enterprise resource planning applications in 2001 that its spare parts business virtually ground to a halt, forcing GM to launch an emergency turnaround effort six months after the software went live. Officials at GM’s Locomotive Group said order backlogs and fulfillment cycle times still aren’t levels that fully meet customer demands, although business operations started to improve shortly after the rescue effort began in July 2001.
The SAP software had to be reconfigured, flushed, and repopulated with clean data, said Mike Duncan, director of worldwide aftermarket sales and development at the L-Grange, Illinois-based Electromotive Division. The $2 billion GM subsidiary hired a second consulting firm to help fix the enterprise resource planning and supply chain management systems after its first systems integrator completed the initial rollout. The GM unit, which makes locomotive, diesel engines and armored vehicles such as tanks, also had to retrain end users and remap all the business processes that were being built into the new system.
The locomotive unit launched a SAP-based ERP and supply chain system during 2001 in order to improve its financial reporting and its ability to forecast spare parts needs. The problems started when the Locomotive Group went live with R/3 in January 2001. The plan was to make after market operations more efficient by replacing legacy main frame systems with ERP system modules powered by R/3 that could handle parts distribution, order entry procurement, and financial reporting, said David Scott, the locomotive unit’s executive director. He said the software wasn’t configured well enough to match internal business processes, and legacy mainframe data weren’t properly formatted for the new system.
Scott said there were no problems with the R/3 software itself, but the applications weren’t properly configured to meet GM’s needs. As a result, the aftermarket department couldn’t accurately forecast demand or ensure that it had the right mix of parts inventories on hand. “Our business processes were largely arrested by what happened,” Scott said, “We spent a lot of money and expected to get something for it, and got something else instead. It was very disappointing.” Scott and Duncan declined to identify the first consulting firm that worked on the project, nor would they discuss the process they used to originally configure and operate the system. They also declined to disclose the cost of the project or the financial impact of the system problems.
A spokesman at SAP America Inc. in Newtown Square, Pennsylvania, declined to comment specifically on the situation at GM, “They continue to be a productive customer at this point, and we continue to work with them,” he said.
Duncan said the materials supply and forecasting modules in the ERP system were especially troublesome. The way they were configured didn’t reflect the complexity of the distribution processes that the Locomotive Group uses to supply parts to customers in the United States and other countries, he said. In addition, some legacy data weren’t adequately reformatted to work within the SAP applications.
The Locomotive Group brought in Chicago-based Technology Solutions Co. to help reconfigure the ERP systems. Scott said that although most aftermarket operations have returned to normal, GM is still looking for continued improvements from both IT and business process standpoints. The Locomotive Group is also outsourcing SAP related application support, end-user training, and follow-on software implementation for the new ERP system to Technology Solutions. And despite the major start-up problems with their current ERP system, GM still plans to install SAP’s enterprise resource planning software in the locomotive unit’s manufacturing operations and other departments in the next few years.
Case Study Questions:
- GM Locomotive says the problem wasn’t with the ERP software. Then what did cause the major failure of their ERP system? Explain
- What major shortcomings in systems implementation, conversion, or project management practices do you recognise in this case?
- What would you advise GM Locomotive to do differently to avoid similar problems in their upcoming ERP implementations? Explain the reasons for your proposals.
Source : Adapted from March Songini, “GM Locomotive Unit Puts ERP Rollout Back on Track,” Computerworld, February 11, 2002, p.12
Source: Management Information Systems by James Obrien , Tata Mcgraw Hill Ltd , Sixth Edition
MITSUBISHI MOTOR SALES : IMPLEMENTING CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS
Until the late 1990s, Mitsubishi Motor Sales of America Inc. ( was only about cars, and its approach to retail customer service reflected that. There were more than 18 toll-free customer service numbers that callers had to navigate to find information on topics ranging from financing to sales to repairs. "We were fragmented in our approach, and we clearly lacked a customer focus,” says Greg O’Neill, executive vice president and general manager.
Mitsubishi decided to change that. In the spring of 1999, as part of a companywide shift to an increased focus on customers, executives challenged the call center to provide "one voice and one set of ears for the customer," says CIO Tony Romero. That was the beginning of a continuing drive toward improved customer service through a customer relationship management (CRM) initiative that' would eventually engage multiple departments and 18 vendors.
Today, Mitsubishi has one call center and an outsourced service provider that handles the most basic calls. The cost per call has decreased by about two-thirds, and that savings alone paid for the system in 18 months, according to Rich Donnelson, director of customer relations. The system saves agents time and uncertainty and enabled the call center to handle 38 percent more volume in 2001 than in 2000, with an even staffing level. Meanwhile, the company's customer satisfaction rate rose by 8 percent, according to a survey by J. D. Power and Associates.
members established some rules of the road. First, they would selectively choose best-of-breed CRM software components, not the integrated CRM suites that seemed intent on force-fitting Mitsubishi's needs into fixed product offerings. But that required a constant struggle to keep 18 vendors heading in the same direction.
The team members also decided to implement changes slowly, adding a technology only when all employees were using the last one implemented. This approach allowed call
center agents to get comfortable with the new technology over time. To accommodate the deliberate, modular approach, all products had to pass the "three S" test: Is it simple? Does it satisfy? Is it scalable? "If we couldn't answer yes to all three, we didn't do it," says Greg Stahl, Mitsubishi's director of advertising.
The journey began in earnest in June 1999, when Mitsubishi chose to outsource its most basic level of customer calls to Baltimore-based Sitel Corp. Within two months, Mitsubishi's 18 toll-free customer numbers and the multiple call centers behind them were consolidated, and call center software from Siebel Systems was implemented. Also, as part of the companywide customer focus, a new customer-centric database was consolidated in-house the next year. The databasebecame the engine powering the call center, but unfortunately, dirty data were a major stumbling block. The project stalled for months as the data were cleansed and updated.
In early 2001,a digital phone switch from Avaya Inc. was installed that allowed flexible skills-based call routing. Callers to the single toll-free number were routed based on menu choices. About half the callers got the information they needed from an interactive voice response unit, which can answer fairly sophisticated queries without live contact. Simple calls went to Sitel, and the rest were routed to call center agents with the appropriate skills. In March 2001, graphical user interface upgrades put 11 screens' worth of customer information on one screen of call center agents. And Smart Scripts workflow software from Siebel provided agents with decision-tree scripts and automated customer correspondence.
In May 2001, Mitsubishi managers began listening to outsourced service calls, and they could see agents' screens with Avaya IP Agent software. The next month, the company started using workforce management software from Blue Pumpkin Software to hourly forecast call center coverage. Then NiceLog software from Nice Systems was installed to record agents' voice and screen activity for quality assurance and training.
Aside from happier customers, the benefits to call center employees include career growth and higher pay. Previously, agents in separate call centers handled specific areas: accounts, vehicles, titles, or retailer queries. Now the silos are gone and agents can learn new skills in multiple areas, greatly increasing call center flexibility. The workforce management software schedules training time during lags, and agents who learn multiple skills earn more money. Call center turnover, which has traditionally been more than 20 percent, was about 7 percent last year.
O'Neill says the executive team members regularly listen in on service calls to get a feel for customer concerns, and they act on what they hear. "That bubble up of information has driven more early marketing decisions and made us more effective earlier on than I could have ever thought," O'Neill says. "That's been a huge dividend."
CaseStudyQuestions
- What are the key application components of Mitsubishi's CRM system? What is the business purpose of each of them?
- What are the benefits to a business and its customers of a CRM system like Mitsubishi's?
3. Do you approve of Mitsubishi's approach to acquiring and installing its CRM system? Why or why not?
Source: Adapted from "Driven to Better Service," Computerworld, July 8, 2002, pp. 40-41.
Source:Management Information Systems by James Obrien and George Marakas , Seventh Edition , Tata Mcgraw Hill Ltd , pg245
WAL-MART AND MATTEL : SUPPLY CHAIN MANAGEMENT BEST PRACTICES
Being a supplier to Wal-Mart is a two-edged sword," says Joseph R. Eckroth Jr., CIO at
Mattel Inc. ( "They're a phenomenal channel but a tough customer. They demand excellence."
It's a lesson that the El Segundo, California-based toy manufacturer and thousands of other suppliers learned as the world's largest retailer, Wal-Mart Stores ( com), built an inventory and supply chain management system that changed the face of business. By investing early and heavily in cutting-edge technology to identify and track sales on the individual item level, the Bentonville Arkansas-based retail giant made its IT infrastructure a key competitive advantage that has been studied and copied by companies around the world.
"We view Wal-Mart as the best supply chain operator of all time," says Pete Abell, retail research director at high-tech consultancy AMR Research in Boston. Abell says he expects the company to remain in the vanguard. "Wal-Mart is evolving; they're not standing still," he says. The company is still pushing the limits of supply chain management, he says, searching for and supporting better technology that promises to make its IT infrastructure more efficient. Radio frequency identification (RFID) microchips, for example, may replace bar codes and security tags with a combination technology that costs less money.