DISC 6341, Section 00412

Dr. Iris Junglas

October 22, 2003

Vandelay Industries, Inc

Case Analysis

Nazli Dincerler

Ozgur Gocmen

David Silva

Mahendra Mohite

Table of Contents

Introduction…………………………………………………………………3

Section 1:

Company Overview ............................................................................................................. 4 Enterprise Resource Planning

Definition & Evolution……………………………………………………………....5Positive Aspects ……………………………………………………………………..6Implementation & Challenges……………………………………………………….7Role of Consultants…………………………………………………………………..8

Section 2:

Enterprise Resource Planning at Vandelay Industries ......................................................... 9 Causes to the Decision………………………………………………………………..9Possible Challenges that would be met………………………………………….10-11

Section 3 :

Literature Review …………………………………………………………………….. ERP & Change Management……………………………………………………….13 ERP& Knowledge Management…………………………………………………...14

Section 4:

Integration with other cases………………………………………………………………15Summary & Recommendations………………………………………………………16-17Key Take-Aways…………………………………………………………………………18References .......................................................................................................................... 19

Introduction

The case study, “Vandelay Industries, Inc” explores the issues considered by an ICS consultant at the start

of a full-scale implementation of SAP software by Vandelay Industries Inc, a major producer of industrial

process equipment. The focus of the case is Enterprise Resource Planning (ERP) and the possible

challenges that would be faced during the implementation phase, in terms of fundamental associated

concepts such as Process Reengineering, Standardization and Change Management.

Section 1 provides an overview of Vandelay Industries, Inc, introduces the concept of Enterprise

Resource Planning with discussing the causes and challenges of ERP. Section 1 concludes with the role of

consultants during the implementation of ERP.

Section 2 describes the reasons why Vandelay Industries chose to implement ERP systems and raises

possible challenges that would be faced.

Section 3 provides literature review in terms of the relationship of ERP with Change and Knowledge

Management.

Section 4 provides integration with other cases, give recommendations and list the key take-aways.

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SECTION 1

Company Overview

Vandelay Industries, Inc is a major producer and distributor of industrial process equipment, operating in

North America, Europe and Asia with eight plants and 20,000 employees. The company was founded in

Minnesota in the early 1940s. Throughout the following decades company has expanded across the

product lines and global borders emphasizing on features, customizability, design quality and innovative

engineering.

However, in the mid 1980s, when foreign companies had emerged with low cost products and shorter lead

times, the company began to experience difficult times and had closed three plants and laid out

approximately 10,000 employees. During the following decade, company has adopted new technologies

and new ways of doing business to achieve lower costs and shorter lead times. Adaptation of lean

production methods and introduction of cheaper products during this decade has provided incremental

improvement. The company’s new machines become popular but had still remained behind its competitors

in terms of cost and lead times.

During the further revision of its operations, company found the main reason behind longer times and

expense in the production cycle. 95% percent of total lead times were devoted to information processing

due to the poorly integrated computer systems. Throughout the company, information systems had been

selected by each plant individually. This fragmented shape of information system was adding time and

expense to the production cycle.

Driven by managing competitive pressures of low cost and quicker production offered by foreign

companies, company had decided in 1995 to implement Enterprise Resource Planning (ERP). Full

implementation of ERP was anticipated to incorporate the functions of previously fragmented software

and provide the ability to manage each site more tightly allowing standardization and visibility.

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Enterprise Resource Planning

Definition & Evolution

Within the last 20 years, managing a diversified company has become a greater challenge, especially if

companies have expanded across product lines and global borders. Enterprise Resource Planning system

which streamlines a company’s data flows and provides management with a direct access to a wealth of

information (Davenport, 1998), therefore become very appealing.

The ERP applications we see today can be traced back to and have evolved from Materials Requirement

Planning (MRP) and Manufacturing Resource Planning (MRPII) systems. The Gartner Group is credited

for coining the term 'Enterprise Resource Planning', for a concept they developed in the 1990s for the next

generation Manufacturing Resource Planning (MRPII) systems. The concept posited to integrate software

applications of manufacturing beyond MRPII to other functions such as finance and human resources. The

initial definition of ERP was targeted at manufacturing companies. But being a framework of integrated

application suites that unites major business processes, the use of the term ERP has expanded. Today, ERP

encompasses all integrated information systems that can be used across any organization. (egecom.net)

According to Russell and Taylor ERP is as an updated MRPII with relational database management,

graphical user interface and client-server architecture. (egecom.net)

Slater defines Enterprise Resource Planning system as an integrated set of software modules, all linked to

a common database, handling a host of corporate functions such as finance, human resources, materials

management, sales and distribution (Slater, 1998)

Various other descriptions have been provided in the literature but the paper will adopt the ERP systems

definition of:

“shared information systems, which are systems that cross typical organizational boundaries and therefore

have multiple users and stakeholders who have different cultures and approaches to work”. (Pawlowski et

al. 2000)

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In this definition the key underlying idea of ERP goes beyond physical computer integration and system.

As “a salient feature of enterprise integration is business integration. Both computer integration and

systems integration are important means of achieving enterprise integration but other coordinating and

integrating mechanisms such as standardization of work processes, norms, skills and output, and

supervision structure are equally important for realizing the potential benefits of integration”. (Kumar V.,

Maheshwari B. and Kumar U., 2001)An innovation of critical management issues in ERP implementation:

empirical evidence from Canadian organizations, Technovation, 2001).

Positive Aspects of Enterprise Resource Planning

The growing interest in ERP packages may be explained by their proclaimed benefits. ERP systems are

beneficial because they are integrated instead of fragmented, embed allegedly best business practices

within software routines, and provide organizational members with direct access to real-time information

(Ross, 1999)

Companies having acquired an ERP system name the following advantages:

1. Opportunity to see the whole company as one unit, since the system is integrated.

2. The strategic possibility to rationalize and gain better control of the company’s information system.

3. Permit companies to implement fully integrated systems to replace their legacy systems, which are

notoriously difficult to maintain because of their age, size, mission-critical status, and frequent lack of

documentation.

4. Reduction of the maintenance cost of the information system environment by replacing the old system

with a single new one. (Holland and Light, 1999)

5. Increase in efficiency by freeing employees from performing time-consuming manual work

6. Significant cost savings and productivity improvements

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7. Indeed, the main benefits resulting from an ERP installation may actually come from changes in the

business processes, organizational structure, the roles and skills of organizational members, and

knowledge management activities (Davenport, 1998)

Implementation Phase & Possible Challenges

Since ERP system support business integration, they potentially represent more than a change in technical

infrastructure. Indeed, the implementation of an ERP changes the way organizations do business and how

people carry out their work (Koch et al. 1999)

Davenport suggests the benefits available from ERP implementation come at great risk. These risks,

which are especially high for projects that are entered into without extensive planning, are both tangible

and intangible. ERP systems impose their logic upon a business’ strategy, culture and organization, often

forcing companies to tailor its business processes. Therefore the goal of implementing an ERP must be to

improve the business, not just to install the software (Martin, 1998). In order to achieve this goal, it is

imperative that company has a clear understanding of the business implications of ERP implementation

before the onset of the project (Davenport, 1998).

Realizing the high promise of ERP systems comes at a potentially high cost, as the transition to ERP is

neither easy nor quick. The out-of-pocket costs of software, consultants and staff training are considerably

higher for ERP than for most system. Even a medium-sized installation can soak up tens of millions of

dollars and require years of tweaking before the benefits appear. This is reflected in the identification that

approximately 90 per cent of ERP implementations are late or over budget

Some of the documented limitations of Enterprise Resource Planning Systems Include:

1. ERP can have a negative impact on the work practices and culture of an organization

2. There is a need for extensive technical support prior to its actual use

3. The need for competent consulting staff to extensively customize the ERP to increase the acceptance of

a new system.

4. “Lack of feature-function fit” between the company’s needs and the packages available

5. It takes an average of 8 months after the new system is installed to see any benefits

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6. The Total Cost of Ownership (TCO) of ERP, as identified by the Meta Group, includes hardware,

software, professional services and internal staff costs. TCO is averaged at $15 million per system.

Role of Consultants

ERP combines business processes & IT into one integrated software and provides business development,

therefore implementation is not just installing the software. Consultants, either from the ERP vendor itself

or from a third party firm with expertise in the selected package, may be hired to assist with the

implementation. Consultants can play a key role in transferring external knowledge expertise gained

through formal training and prior experience, however the role of the consultants must carefully managed

by the management. The more successful companies consistently reported an effectively managed

relationship with their consultants by ensuring knowledge transfer and avoiding over dependence.

According to Davenport a company has to make sure that the necessary knowledge about the system

remains in the company after the consultants leave (Davenport 1998b). Due to time and cost constraints,

consultants may not train and educate employees sufficiently during implementation; hence companies

might have to invest highly in after-implementation support (Wheatley 2000). In the less successful cases,

companies either depended too little on consulting advice or became over dependent.

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SECTION 2

ERP Resource Planning System at Vandelay Industries

In 1995, Vandelay Industries, Inc had decided to implement a single Enterprise Resource Planning system

throughout the company. The firm had chosen the R/3 system from SAP AG and engaged the Deloitte

&Touche Consulting Group / ICS to assist with all aspects of the project, from technical details of an ERP

system to fundamental changes entailed by the implementation of the ERP system. This section will

discuss the reason for leading this decision as well as the possible challenges that would be faced with the

ERP system implementation.

Causes Leading to ERP Implementation

Fragmentation of Existing System: Prior to the decision to implement ERP system, each plant of

Vandelay had its own system for manufacturing resource planning. In addition to those various MRP

systems across the enterprise, many sites had their own specialized software to help with other functions

such as scheduling, capacity planning and forecasting. Internal investigations of Vandelay had shown that

this fragmented information systems added time and expense to their production cycle.

Long lead times : From the beginning of foundation, company was known for its design quality and

innovative engineering, however with the severe competitive pressures, company began to experience

difficult times. With the entrance of new competitors, firm’s long lead times become a problem. When the

operations of the company reviewed, this long lead time found to be mostly devoted to information

processing and transfer due to the poorly integrated computer systems.

Several business practices across the organization: For the past few decades company has expanded

across product lines and global borders, manufacturing on four continents with 30,000 employees.

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Managing the company had become a greater challenge as having an enterprise wide view of company

become extremely difficult. During this expansion, typical Vandelay plants were allowed a high degree of

independence as long as they achieved an acceptable profit. Due to these facts, every plant created its own

way of business practices which would prevent to have the opportunity to see the whole company as one

unit.

To manage these problems with the system and business practices, the company decided to implement a

single Enterprise Resource planning system throughout the enterprise.

Possible challenges that would be faced

Realizing the implementation of ERP is not only the installation of hardware and software but also the

widespread business changes entailed with the implementation; Vandelay signs a contract with Deloitte &

Touche Consulting Group / ICS. Consulting group is responsible with the whole ERP Project, from

installing the software to assisting in business process reengineering and change management that will be

required for the implementation. Elaine Kramer, who had been with the Deloitte & Touche Consulting

Group for over 5 years, had been chosen to lead the project. Elaine Kramer considers the following issues

at the start of the implementation as challenges:

1. Business Process Reengineering: Business processes and enterprise resource planning systems are

strongly related to each other. In the literature, the ERP packages are considered as the software packages

that make business process reengineering possible. (Brown, 1997) Therefore ERP implementation raise

the question whether to start first with the BPR or the ERP.

According to Kramer, the decision depends on the particular client’s situation. In the first approach, all

four dimensions of organization which are strategy, process, people and technology are explored without

constraints. In the second approach, techonology-enabled change, primary technology is selected first and

influence the other three dimensions of strategy, people and processes which is the case in Vandelay

Industries. Therefore, the ERP implementation in Vandelay will have significant impacts on the

company’s organization and culture.

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2. Change Management: A review of the past ten years in IS research highlighted the fact that ‘human

factors’ are at least as important as ‘technological factors’ . According to Meyerson and Martin

organisational cultures are resistant to change (Meyerson and Martin 1987).

Leading ERP implementations before and being aware of challenges involved, Kramer place the following

issues as challenges at Vandelay Industries for change management:

1. Team Selection: Vandelay and ICS had decided to deploy two teams composed of a joint of client

members and consultants as the project requires a variety of skills. However Kramer has not decided how

to select participants from Vandelay. She could either ask senior management to choose people who

would best suit for the job or mandate to contain one representative from each plant.

2. Centralization vs. Autonomy: There is no way to involve all users in the decisions for implementation.

However what should be the degree of centralization versus autonomy? This decision is very challenging

especially in an organization like Vandelay Industries, which has promoted innovation and autonomy

among its employees. Kramer had a strong belief in “input by many, design by few” however how she

will manage the culture and resistance that would arise during the implementation. How will it affect the

enthusiasm towards change if people were not allowed to experiment with system as much as they wanted

3. Standardization and Capability of SAP: Although the R/3 system provided by SAP is considered to be

more functional when compared to other competing ERP softwares, it could satisfy the specific business

requirements of a company’s only up to the 80-95%. The remaining functionality needed by the

corporations are obtained in the ways of interfacing R/3 to existing legacy systems, other software

packages or developing custom software that extend R/3. Given these options Kramer considers which

one to deploy when the functionality of the R/3 does not fit with the desired Vandelay process design.

3. Timeline and the Budget for the Project: ERP is recognized as one of the largest, fastest growing and

most influential computer applications. Nonetheless, it bears some problems as reports about cost overruns

and lengthy delays in the press have shown. According a research of the PA Consulting Group, 92 percent

of companies were disappointed with their ERP-systems in July 2000. The Conference Board survey

result shows that when the benefits were achieved, it took about six moths longer than expected. This lag

was often due to the pressure to ‘go live’. It resulted in substantial post implementation efforts to detect

and assess shortcomings and deficiencies (The Conference Board 2001).

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Vandelay has projected the implementation to take 18 months and reserved a total balance of $ 20 million.

However based on the scope of the implementation the timeline and budget were very aggressive and will

possibly raise a challenge during the implementation.

These challenges that are considered by the ICS consultant leader at the start of the implementation, will

further be discussed in section 3 by exploring the relevant literature. Recommendations related with these

challenges will be provided in section 4.

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SECTION 3

Literature Review

ERP and Change Management

Change management refers to the effort it takes to manage people through the emotional ups and downs

that inevitably occur when an organization is undergoing massive change (Dunleavy et al., 1998)

To illustrate the advancement of an ERP system in a company and the comprehensive change that

undergoes along, Markus and Tanis (2000) developed an ERP life cycle model. The model consists of four

phases that are characterized by different activities combined with varying types of changes in business

operations. In the first or chartering stage, the idea to adopt an ERP system emerges and the management of

a company selects software and hardware. At this point, changes evolve but are not translated into action

yet. In the next stage, which is called the project, managers and consultants model current and future

business processes; Often, this activity represents a major challenge and change. After the company has

decided on this issue, the project team can configure the system. At the end of the project stage, the ERP

system ‘goes live’ which means that it is activated and used in daily business operations from now on. The

shakedown stage is the third one in the ERP life cycle model. This phase describes the period from ‘going

life’ until the ‘normal operation’ or ‘routine use’ has been reached. During this time, the project team tunes

the performance of the system and realizes changes in processes and procedures. Finally, throughout the

duration of the onward and upward stage, management strives for continuous business improvement, which

incorporates incremental changes.

Throughout these four stages in ERP life cycle, success is highly dependent on users’ acceptance and

contributions to the project. Training and education of users play the key role to a successful adoption of

ERP systems.

ERP and Knowledge Management

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Knowledge Management is concerned with the generation, representation, storage, transfer, transformation,

application, embedding and protecting of organisational knowledge and establishing an environment and

culture whereby knowledge can evolve (Schultze, 1998)

Disterer (2001) argues that it is not an individual’s knowledge or expertise that is the core asset of any

organization, but the collective knowledge of the teams that make up the organization.

Sachs (1995) believes “the intelligence employed in everyday work practices is crucial for actually getting

work done“

However many companies do not appreciate the need for a Knowledge Management program until they

have undertaken a project as large as ERP. During the course of an ERP project the company can witness a

procession of vendor consultants, third party consultants. Effective project manager must ensure knowledge

transfer. Documentation helps keep the project on track, especially in case of project sponsors or key

players leave the company or the project

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SECTION 4

Integration with Other Cases

Springs:

When Vandelay Industries case is compared with Spring case, striking similarities are found in

terms of their acquisition strategy, emphasis on shortening product cyle times, and focus

on information systems. Following the years of its foundation in 1940s, Vandelay has expanded

across product lines and global borders. Half of all new Vandelay sites from 1945 to 1985 were

bought rather than built. Spring has also chosen acquiring companies that would enable it to introduce new

products. In terms of product cyle times both companies had strived for finding ways to shorten their

product cycles. Spring has achieved shorter product cycles by closing ineffective plants and automating

production process whereas Vandelay has found its longer product cyles to be resulted from its

incompatible information systems rather than its manufacturing process. In terms of information system

both companies have realized the benefits of information system and implemented major information

system projects. Springs’ IT efforts mostly focused on SCM where as Vandelay focused on a broader IT

project, ERP.

Eastman Kodak:

Like Vandelay Industries, during the 1990s, Kodak was facing significant cost pressures from competitors.

Company had eliminated more than 4,500 additional jobs, to cut cost but it was still behind its competitors.

To manage with the pressures from competitors, Kodak, like Vandelay, has overhauled its existing IT

systems. Katherine Hudson, the first head of IT at Kodak believed that Kodak should stick with its core

business practices and that they should outsource the non-core IT services. Contracts were signed with

vendors; IBM, Business Land, and DEC. Recognizing that “defining and managing the outsourcing

partnerships was primarily a “relationship” process, like Vandelay, it had signed a contract with a

consulting firm to assist in the project.

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Providian Trust:

Providian Trust, like Vandelay Industries, chose IT to transform its business by reengineering its work

processes. However implementation of Providian Trust has not paid off as expected, since Providian Trust

has faced some difficulties during the implementation resulting from the resistance to change and leadership

issues. Results of the ERP implementation of Vandelay Industries has not been discussed in the case,

however due to the large scope of the project, Vandelay would possibly face some challenges. These

challenges would more likely arise in the time –budget constraints and capability of the software to align

with the business processes. Due to the enthusiasm towards to the project, company would probably not

face resistance to change.

Summary and Recommendations

“Vandelay Industries, Inc” explores the issues that would be considered at the start of a full-scale ERP

implementation. Having fragmented information systems, long lead times and several business practices

across the organization, implementation of Enterprise Resource Planning System will provide Vandelay

Industries the following advantages:

1. Opportunity to see the whole company as one unit, since the system is integrated.

2. The strategic possibility to rationalize and gain better control of the company’s information system.

3. Permit to implement fully integrated systems to replace their legacy systems, which are notoriously

difficult to maintain because of their age, size, mission-critical status, and frequent lack of documentation.

4. Reduction of the maintanence cost of the information system environment by replacing the old system

with a single new one.

5. Increase in efficiency by freeing employees from performing time-consuming manual work 6.Significant cost savings and productivity improvements 7. Indeed, the main benefits resulting from an ERP installation may actually come from changes in the

business processes, organizational structure, the roles and skills of organizational members, and

knowledge management activities

However the key underlying idea of ERP goes beyond physical computer integration and system Since ERP

system support business integration, they potentially represent more than a change in technical

infrastructure. Indeed, the implementation of an ERP changes the way organizations do business and how

people carry out their work. Entailing business process reengineering, change management and knowledge

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management, the implementation of ERP would have great impact on Vandelay’s organization and culture

which should be considered before the implementation. Based on the case information and related literature

review we provide the following recommendations:

Time & Budget Recommendation:

Most of the time schedules and budget forecasts cannot be maintained throughout the project. Management

should be prepared for an escalation of project cost by putting enough money aside before the project starts.

Once the project has begun, it is difficult and expensive to withdraw from it.

Change Management Recommendation:

Success is dependent on users’ acceptance. Prior to the implementation phase company must identify

necessary training and education to employees, and provide it before and during the implementation phase.

Prior training may help resistance to change and increase acceptance.

Knowledge Management & Consultants Recommendation:

Company has to make sure that the necessary knowledge about the system remains in the company after the

consultants leave (Davenport 1998b). Due to time and cost constraints, consultants may not train and

educate employees sufficiently during implementation; hence companies might have to invest highly in

after-implementation support (Wheatley 2000).

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Key Take-Aways

Enterprise Resource Planning system is an integrated set of software modules, all linked to a

common database, handling a host of corporate functions such as finance, human resources,

materials management, sales and distribution

ERP system represents more than a change in technical infrastructure. Indeed, the implementation

of an ERP changes the way organizations do business and how people carry out their work

Change management refers to the effort it takes to manage people through the emotional ups and

downs that inevitably occur when an organization is undergoing massive change

Knowledge Management is concerned with the generation, representation, storage, transfer,

transformation, application, embedding and protecting of organizational knowledge and

establishing an environment and culture whereby knowledge can evolve.

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References

Davenport, T.H 1998. “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug

http://www.egecom.net/eng/products.php?software=true

Slater, D “ The Hidden Costs of Enterprise Software” CIO Magazine, January 15,1998

Pawlowski, S.D., Robey, D. and Raven, A. 2000. “Supporting Shared Information Systems: Boundary Objects, Communities and Brokering”

Kumar V., Maheshwari B. and Kumar U. “An innovation of critical management issues in ERP implementation: emprical evidence from Canadian organizations”, Technovation, 2001

Ross, J. 1999b. "Dow Corning Corporation: Business Processes and InformationTechnology," Journal of Information Technology

Holland, C. and Light, B. 1999. “A Critical Success Factors Model for ERP Implementation” IEEE Software, May/June

Davenport, T.H. 1998 “Living with ERP,” CIO Magazine

Markus, M. L. and C. Tanis (2000). The enterprise system experience – Fromadoption to success.

Martin, M.H. "An Electronics Firm Will Save Big Money by Replacing Six People WithOne and Lose All this Paperwork, Using Enterprise Resource Planning Software. But Not Every Company Has Been So Lucky," Fortune, 137, 2, February 2, 1998,

Wheatley, M. 2000. ERP Training Stinks, CIO Magazine.

Brown, S “ The Art of Continuous Change”, Administrative Science Quarterly

Meyerson, D. and Martin, J. 1987 “Cultural Change: An Integration of ThreeDifferent Views”, Journal of Management Studies

The Conference Board 2001. ERP Trends.

Schultze, U. 1998 “Investigating the Contradictions in Knowledge Management” International Foundation of Information Processing

Disterer, G. 2001 “Individual and Social Barriers in Knowledge Transfer”

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