10 ERP deployments show that megaprojects are standing strong--though they've changed in focus and function. (Originally published in Information Week)

July 11, 2005

17 Min Read
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Remember when enterprise-resource-planning projects were risky undertakings, running way over budget and dragging on well past their deadlines? Thankfully, those times are behind most companies, but that doesn't mean Big ERP has disappeared completely. Megaprojects live on, often as extensions of the core applications installed a few years earlier.

By the end of the 1990s, fueled by year 2000 computer upgrades, more than 60% of large companies had invested in ERP to manage financials, manufacturing operations, and human resources. Now many companies are refreshing these ERP infrastructures with product-life-cycle-management, customer-relationship-management, supply-chain, and cross-border capabilities. And they're relying on these deployments to support emerging technologies such as radio-frequency identification and Wi-Fi-enabled workforces. All that activity explains why ERP remains a huge market: AMR Research estimates ERP licenses and maintenance will amount to $14.5 billion this year.

To understand how ERP projects have evolved, InformationWeek decided to profile 10 of the most large-scale ERP deployments we could find, ranging from 1,000 users to more than 10 times that many. Most of the companies wouldn't disclose either the up-front or ongoing costs of their multiyear undertakings, but at least one of them spent $100 million on its initial deployment, including software, consulting, and desk-top standardization. Beyond the initial cost, it's not unusual for companies to spend $50 million to $100 million on upgrades, says AMR analyst Bruce Richardson. Annual maintenance alone is in the neighborhood of 20% to 30% of initial software costs.

Understandably, businesses have grown weary of big up-front investments in ERP applications, causing vendors increasingly to offer modular packages of software and services. For their part, businesses seem to have learned from past mistakes and in recent years have paid more attention to issues such as process standardization and minimal customization to help keep costs more in line.

Twenty years after first installing SAP R/2, BASF Aktiengesellschaft, a chemical company with 37.5 billion euros a year in annual revenue ($45 billion using exchange rates at press time), continues to invest in its ERP platform. With headquarters just kilometers away from SAP's post in Germany, the company is a third of the way through a three-year project, scheduled for completion in early 2007, to consolidate five SAP R/3 instances into one or two and standardize processes for all divisions. More than 35,000 of BASF's 82,000 employees access the SAP system daily, says Wolfgang Erny, managing director at BASF IT services.

Today you hear less about ERP projects that fail and more about the value gained from upgrading and maintaining what's there. Erny cites the integration of SAP's logistics capabilities into BASF's core ERP platform as being critical to managing production, from aggregating buys to warehousing inventory to managing finances.

Appliance manufacturer Whirlpool Corp.--which began its SAP ERP deployment about five years ago and continues implementations as it opens offices in new corners of the world--believes the value of ERP today is in helping to drive innovation and initiate change. Whirlpool has deployed a single instance of SAP's ERP suite and closes the books for 98% of its businesses on the vendor's financials platform.

The 30-year high in prices of commodities such as steel and copper, combined with record oil prices and a global logistics capacity stretched thin by demand coming from Asia and India, created conditions that put heavy pressure on Whirlpool's margins last year. The company concluded that to manage its margins in this environment, a 5% to 8% increase in prices was needed globally on its products--the first increase in 10 years. "In order to manage and implement those price in- creases, we had to have the capability to see product by product, category by category, country by country, day to day, the impact of materials costs, logistics costs, and the impact into our margins," says corporate VP and CIO Esat Sezer.

In November, the company leveraged its ERP foundation and used SAP's Business Warehouse to deliver the necessary visibility on a global scale, and it was testing the project by January. "You were never able to do that at that speed and pace without having an ERP infrastructure like we have today," Sezer says.

In the case of Del Monte Foods Co., its ERP deployment is driving its ability to meet Wal-Mart Stores Inc.'s and Target Corp.'s RFID mandates to their suppliers. Del Monte in 2003 began replacing more than 70 legacy systems on a variety of platforms with one instance of SSA Global Technologies Inc.'s ERP software on an IBM AS/400. Now it's tying an RFID application into SSA Global's ERP platform, which is known as SSA ERP LX. "ERP is the solid base from which we plug in specific applications and processes that drive innovation such as data synchronization, RFID, procurement, transportation man- agement, and other critical functions," says CIO Marc Brown.With operations primarily in North America, Latin America, American Samoa, and the Philippines and just 1,200 users, Del Monte has the smallest of the ERP deployments profiled here. But it's not underestimating the value of the tools, including the EXE Warehouse Management module deployed just last year, as it focuses on its supply-chain-management processes to become a more demand-driven company.

At the other end of the spectrum is Alcoa Inc., the largest aluminum company in the world with revenue of $23.5 billion a year and operations that stretch across 41 countries and 500 locations, including 350 manufacturing plants. It boasts more than 10,000 users of its Oracle-based ERP deployment, and it's not done yet. The deployment of Oracle requisition-to-pay and finance processes began in Europe in 2001; they wrapped last year. The company this year will complete an Oracle HR implementation across most of its operations except North America, and it expects to be 60% complete implementing its order-to-cash processes by year's end, as well.

Alcoa started with an organization in which line-of-business presidents had responsibility for everything from profit and loss to software selection and IS infrastructure, a setup that led to duplications and inefficiencies. In the new organization, most back-office service functions exist as part of a global shared-business-services model. One example of how far the centralized ERP system has already taken the company: Alcoa North America CIO Kevin Horner cites the savings it has achieved in procurement. Using the Hackett Group's benchmarks to measure its procurement costs against spending, the ratio went down by almost 25%.

"We would suggest that the common optimized processes and common configuration of the software across the company and across the world is a major enabler to drive that home," Horner says. "There's no way we could have ever driven that level of savings in North America alone with 44 different procurement systems." To wring further value out of its procurement processes, in April Alcoa unveiled the creation of a global procurement organization that will take advantage of the common data platform to analyze which commodities the company buys and from whom.

Getting to those common processes and data is also a challenge for the $73 billion-a-year home-improvement retailer Home Depot Inc. It has spent $1 billion to modernize its IT infrastructure and in-store technology, and next month the company will add to that with the installation of SAP for Retail, which includes applications for merchandising and supply-chain management and ties into the company's SAP Financials module. The move will centralize and consolidate 15 order-management systems into one to support the entire enterprise and improve electronic collaboration with suppliers. "We are one of [SAP's] biggest and most cumbersome customers," says Bob DeRodes, executive VP and CIO at Home Depot, noting that the current system is "fraught with error."

One rule other companies have followed to ensure that their systems aren't fraught with errors is to keep implementations simple. Companies spent years debating whether to customize ERP apps, with analysts and vendors, Oracle in particular, leading the charge against the practice. Now, it seems, Oracle and company were right all along. Dow Corning, for instance, runs its SAP ERP system, which at peak times is accessed simultaneously by 1,500 users, with as few modifications as possible.

Dow Corning has bypassed problems by keeping modifications to its SAP ERP software to a minimum, CIO Mulders says.

"We had seen others go down the path of modifying the system to the point that it became their own," CIO Abbe Mulders says. "But then they couldn't keep up with it. So we said no mods." The only changes Dow Corning has made are those that don't fundamentally alter SAP's own code. "When the last sites went live, we had less than 50 modifications, and they were all approved by SAP. That was pretty impressive." The same is true at Alcoa, which says it hasn't changed a line of Oracle code as it has gone through its implementations; it writes interfaces only as needed and specific extensions when Oracle's software doesn't align with direct business requirements.

It's a similar situation at FedEx Corp., which runs one instance of Oracle's PeopleSoft ERP apps, including financials, human resources, inventory, asset management, E-procurement, and expense reporting, for its Express business and its international entities and another for corporate services, freight, and Kinko's, says Scot Struminger, VP of corporate headquarters. "The value proposition is about trying to stay vanilla and not be creative and develop respectable processes," he says. "The creative is in the products, services, and people."

Companies have taken different approaches to the number of ERP instances they run. Dow Corning Corp., for example, runs at its headquarters a single instance of the enterprise system that's used around the world. A single instance is one main data source that all the ERP systems in a company use. Automaker DaimlerChrysler AG runs about 100 instances of SAP modules, having decided to split its deployments into clusters when Daimler Benz and Chrysler merged in the mid-1990s, because it wasn't clear the software and architecture would support so many transactions on a single instance, says Michael Gorriz, CIO of the Mercedes car group and business system at DaimlerChrysler. Systems talk to each other by standard interfaces that SAP supports.

It's clear today that scalability wouldn't be a problem, though, "and if we were to start from scratch, we'd probably concentrate more of the SAP into single instances," he says. But that would require more investment than the automaker wants to make for systems that run well and are well-supported, even as it expands and upgrades its ERP infrastructure, which is based mostly on R/3 release 4.6C but will migrate to mySAP within five years. Most recently, DaimlerChrysler deployed an SAP cluster in Singapore that serves 11 Asian countries, and it's adding 15 European countries in a cluster that will be supported from Stuttgart, Germany.FedEx didn't start out with a global deployment of its PeopleSoft applications, so it, too, began with multiple instances of the software. But as FedEx learned ERP and got better at it, the company concluded that it didn't want to manage all those instances. "There is so much to be gained on this common set of practices that we began to shrink those into single instances," Struminger says.

Going forward, companies like these are considering how to take advantage of the next set of changes coming from vendors. These include Oracle's plans to add business insight via embedded analytics and management reporting in its own applications as well as those it has acquired from PeopleSoft, and SAP's move to component-based architectures for its NetWeaver middleware. "NetWeaver is very interesting to us," says Gorriz of DaimlerChrysler, describing an "ideal world" in which NetWeaver is able to be combined with Java extensions to easily integrate other applications and trading partners.

Microsoft is garnering increasing interest as an ERP vendor, as well, taking its place among the top five suppliers in terms of ERP revenue in 2004. The vendor plans to transition its Axapta, Great Plains, Navision, and Solomon ERP platforms to a common architecture and code base in the next few years.

Obviously, there's always more to do on companies' venerable ERP platforms. "There is no steady state for ERP, because you're always looking for upgrades and improvements," says Whirlpool's Sezer. "As new business developments continue, so will the implementations."

-- with Jennifer Zaino and Beth Bacheldor

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