You are on page 1of 20

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

Section 2:
Enterprise Resource Planning at Vandelay Industries.........................................................9 Causes to the Decision………………………………………………………………..9 Possible 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………………………………………………………………15 Summary & Recommendations………………………………………………………16-17 Key Take-Aways…………………………………………………………………………18 References..........................................................................................................................19

3 .

Introduction The case study. 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. Inc. give recommendations and list the key take-aways. The focus of the case is Enterprise Resource Planning (ERP) and the possible challenges that would be faced during the implementation phase. “Vandelay Industries. Section 3 provides literature review in terms of the relationship of ERP with Change and Knowledge Management. in terms of fundamental associated concepts such as Process Reengineering. Section 1 provides an overview of Vandelay Industries. Section 4 provides integration with other cases. a major producer of industrial process equipment. 4 . Standardization and Change Management. Inc” explores the issues considered by an ICS consultant at the start of a full-scale implementation of SAP software by Vandelay Industries Inc. introduces the concept of Enterprise Resource Planning with discussing the causes and challenges of ERP.

Throughout the company. During the following decade. 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. Inc is a major producer and distributor of industrial process equipment.000 employees. 5 . However. in the mid 1980s. The company’s new machines become popular but had still remained behind its competitors in terms of cost and lead times. design quality and innovative engineering. Driven by managing competitive pressures of low cost and quicker production offered by foreign companies. This fragmented shape of information system was adding time and expense to the production cycle. company had decided in 1995 to implement Enterprise Resource Planning (ERP). 95% percent of total lead times were devoted to information processing due to the poorly integrated computer systems. customizability. Adaptation of lean production methods and introduction of cheaper products during this decade has provided incremental improvement. the company began to experience difficult times and had closed three plants and laid out approximately 10. company found the main reason behind longer times and expense in the production cycle. operating in North America. Throughout the following decades company has expanded across the product lines and global borders emphasizing on features. The company was founded in Minnesota in the early 1940s. when foreign companies had emerged with low cost products and shorter lead times. information systems had been selected by each plant individually. Europe and Asia with eight plants and 20.000 employees. During the further revision of its operations. company has adopted new technologies and new ways of doing business to achieve lower costs and shorter lead times.SECTION 1 Company Overview Vandelay Industries.

(Pawlowski et al. 1998). therefore become very appealing. handling a host of corporate functions such as finance. managing a diversified company has become a greater challenge. graphical user interface and client-server architecture. for a concept they developed in the 1990s for the next generation Manufacturing Resource Planning (MRPII) systems. 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. Enterprise Resource Planning system which streamlines a company’s data flows and provides management with a direct access to a wealth of information (Davenport. But being a framework of integrated application suites that unites major business processes.net) According to Russell and Taylor ERP is as an updated MRPII with relational database management. Today. 2000) 6 . (egecom. materials management. especially if companies have expanded across product lines and global borders. 1998) Various other descriptions have been provided in the literature but the paper will adopt the ERP systems definition of: “shared information systems. The initial definition of ERP was targeted at manufacturing companies.Enterprise Resource Planning Definition & Evolution Within the last 20 years. all linked to a common database. which are systems that cross typical organizational boundaries and therefore have multiple users and stakeholders who have different cultures and approaches to work”. ERP encompasses all integrated information systems that can be used across any organization. human resources. The Gartner Group is credited for coining the term 'Enterprise Resource Planning'. The concept posited to integrate software applications of manufacturing beyond MRPII to other functions such as finance and human resources. (egecom. the use of the term ERP has expanded.net) Slater defines Enterprise Resource Planning system as an integrated set of software modules. sales and distribution (Slater.

embed allegedly best business practices within software routines. Technovation. Positive Aspects of Enterprise Resource Planning The growing interest in ERP packages may be explained by their proclaimed benefits. and provide organizational members with direct access to real-time information (Ross. size. Increase in efficiency by freeing employees from performing time-consuming manual work 6. Maheshwari B. mission-critical status. and Kumar U. The strategic possibility to rationalize and gain better control of the company’s information system. 2001). ERP systems are beneficial because they are integrated instead of fragmented. skills and output.. (Kumar V. Permit companies to implement fully integrated systems to replace their legacy systems. (Holland and Light. Significant cost savings and productivity improvements 7 . 1999) 5. 2. which are notoriously difficult to maintain because of their age. norms.In this definition the key underlying idea of ERP goes beyond physical computer integration and system. 1999) Companies having acquired an ERP system name the following advantages: 1. 4.. Opportunity to see the whole company as one unit. 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. since the system is integrated. and supervision structure are equally important for realizing the potential benefits of integration”. As “a salient feature of enterprise integration is business integration. 3. 2001)An innovation of critical management issues in ERP implementation: empirical evidence from Canadian organizations. Reduction of the maintenance cost of the information system environment by replacing the old system with a single new one. and frequent lack of documentation.

Therefore the goal of implementing an ERP must be to improve the business. 1998). These risks. 1998). as the transition to ERP is neither easy nor quick. not just to install the software (Martin. and knowledge management activities (Davenport. consultants and staff training are considerably higher for ERP than for most system. organizational structure. they potentially represent more than a change in technical infrastructure. ERP can have a negative impact on the work practices and culture of an organization 2. 1998) Implementation Phase & Possible Challenges Since ERP system support business integration. which are especially high for projects that are entered into without extensive planning. culture and organization. 1999) Davenport suggests the benefits available from ERP implementation come at great risk. “Lack of feature-function fit” between the company’s needs and the packages available 5. Even a medium-sized installation can soak up tens of millions of dollars and require years of tweaking before the benefits appear. the main benefits resulting from an ERP installation may actually come from changes in the business processes. the implementation of an ERP changes the way organizations do business and how people carry out their work (Koch et al. The need for competent consulting staff to extensively customize the ERP to increase the acceptance of a new system. 4. Realizing the high promise of ERP systems comes at a potentially high cost. The out-of-pocket costs of software. 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. ERP systems impose their logic upon a business’ strategy. Indeed. 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. It takes an average of 8 months after the new system is installed to see any benefits 8 . the roles and skills of organizational members.7. are both tangible and intangible. Indeed. There is a need for extensive technical support prior to its actual use 3. often forcing companies to tailor its business processes.

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). consultants may not train and educate employees sufficiently during implementation. 9 . as identified by the Meta Group. may be hired to assist with the implementation. The Total Cost of Ownership (TCO) of ERP. hence companies might have to invest highly in after-implementation support (Wheatley 2000). Role of Consultants ERP combines business processes & IT into one integrated software and provides business development. therefore implementation is not just installing the software. The more successful companies consistently reported an effectively managed relationship with their consultants by ensuring knowledge transfer and avoiding over dependence. TCO is averaged at $15 million per system. Consultants can play a key role in transferring external knowledge expertise gained through formal training and prior experience. companies either depended too little on consulting advice or became over dependent.6. however the role of the consultants must carefully managed by the management. Due to time and cost constraints. Consultants. either from the ERP vendor itself or from a third party firm with expertise in the selected package. includes hardware. software. professional services and internal staff costs. In the less successful cases.

With the entrance of new competitors. 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. many sites had their own specialized software to help with other functions such as scheduling. Inc had decided to implement a single Enterprise Resource Planning system throughout the company. firm’s long lead times become a problem. each plant of Vandelay had its own system for manufacturing resource planning.SECTION 2 ERP Resource Planning System at Vandelay Industries In 1995. however with the severe competitive pressures. company was known for its design quality and innovative engineering. Internal investigations of Vandelay had shown that this fragmented information systems added time and expense to their production cycle. Vandelay Industries. company began to experience difficult times. from technical details of an ERP system to fundamental changes entailed by the implementation of the ERP system. In addition to those various MRP systems across the enterprise. capacity planning and forecasting. 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. 10 . Long lead times : From the beginning of foundation. 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. the ERP implementation in Vandelay will have significant impacts on the company’s organization and culture. typical Vandelay plants were allowed a high degree of independence as long as they achieved an acceptable profit. Elaine Kramer considers the following issues at the start of the implementation as challenges: 1. In the second approach. During this expansion. Managing the company had become a greater challenge as having an enterprise wide view of company become extremely difficult. 11 . Elaine Kramer. In the literature. techonology-enabled change. 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. all four dimensions of organization which are strategy. every plant created its own way of business practices which would prevent to have the opportunity to see the whole company as one unit. had been chosen to lead the project.000 employees. manufacturing on four continents with 30. the ERP packages are considered as the software packages that make business process reengineering possible. 1997) Therefore ERP implementation raise the question whether to start first with the BPR or the ERP. Vandelay signs a contract with Deloitte & Touche Consulting Group / ICS. To manage these problems with the system and business practices. (Brown. In the first approach. Therefore. the company decided to implement a single Enterprise Resource planning system throughout the enterprise. the decision depends on the particular client’s situation. primary technology is selected first and influence the other three dimensions of strategy. people and technology are explored without constraints. Business Process Reengineering: Business processes and enterprise resource planning systems are strongly related to each other. Consulting group is responsible with the whole ERP Project. Due to these facts. process. people and processes which is the case in Vandelay Industries. who had been with the Deloitte & Touche Consulting Group for over 5 years. from installing the software to assisting in business process reengineering and change management that will be required for the implementation. According to Kramer.

The Conference Board survey result shows that when the benefits were achieved. it could satisfy the specific business requirements of a company’s only up to the 80-95%. design by few” however how she will manage the culture and resistance that would arise during the implementation. 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. other software packages or developing custom software that extend R/3. it took about six moths longer than expected.2. It resulted in substantial post implementation efforts to detect and assess shortcomings and deficiencies (The Conference Board 2001). 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. 3. Autonomy: There is no way to involve all users in the decisions for implementation. which has promoted innovation and autonomy among its employees. it bears some problems as reports about cost overruns and lengthy delays in the press have shown. This lag was often due to the pressure to ‘go live’. How will it affect the enthusiasm towards change if people were not allowed to experiment with system as much as they wanted 3. Centralization vs. According a research of the PA Consulting Group. Kramer place the following issues as challenges at Vandelay Industries for change management: 1. However Kramer has not decided how to select participants from Vandelay. 2. However what should be the degree of centralization versus autonomy? This decision is very challenging especially in an organization like Vandelay Industries. 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’ . Leading ERP implementations before and being aware of challenges involved. fastest growing and most influential computer applications. 12 . The remaining functionality needed by the corporations are obtained in the ways of interfacing R/3 to existing legacy systems. 92 percent of companies were disappointed with their ERP-systems in July 2000. According to Meyerson and Martin organisational cultures are resistant to change (Meyerson and Martin 1987). Nonetheless. 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. 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. Timeline and the Budget for the Project: ERP is recognized as one of the largest. Kramer had a strong belief in “input by many.

13 . 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.Vandelay has projected the implementation to take 18 months and reserved a total balance of $ 20 million. Recommendations related with these challenges will be provided in section 4.

this activity represents a major challenge and change. In the next stage. the ERP system ‘goes live’ which means that it is activated and used in daily business operations from now on. the project team can configure the system. At the end of the project stage. Training and education of users play the key role to a successful adoption of ERP systems. the idea to adopt an ERP system emerges and the management of a company selects software and hardware. Markus and Tanis (2000) developed an ERP life cycle model. Finally. This phase describes the period from ‘going life’ until the ‘normal operation’ or ‘routine use’ has been reached. In the first or chartering stage. the project team tunes the performance of the system and realizes changes in processes and procedures. At this point. During this time. 14 . The model consists of four phases that are characterized by different activities combined with varying types of changes in business operations. managers and consultants model current and future business processes. The shakedown stage is the third one in the ERP life cycle model. Often. management strives for continuous business improvement. success is highly dependent on users’ acceptance and contributions to the project. After the company has decided on this issue. changes evolve but are not translated into action yet.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. which is called the project. throughout the duration of the onward and upward stage.. Throughout these four stages in ERP life cycle. which incorporates incremental changes. 1998) To illustrate the advancement of an ERP system in a company and the comprehensive change that undergoes along.

embedding and protecting of organisational knowledge and establishing an environment and culture whereby knowledge can evolve (Schultze. 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. but the collective knowledge of the teams that make up the organization. transfer.ERP and Knowledge Management Knowledge Management is concerned with the generation. storage. application. especially in case of project sponsors or key players leave the company or the project 15 . During the course of an ERP project the company can witness a procession of vendor consultants. 1998) Disterer (2001) argues that it is not an individual’s knowledge or expertise that is the core asset of any organization. Documentation helps keep the project on track. Effective project manager must ensure knowledge transfer. transformation. third party consultants. representation.

like Vandelay. Springs’ IT efforts mostly focused on SCM where as Vandelay focused on a broader IT project. striking similarities are found in terms of their acquisition strategy.500 additional jobs. Recognizing that “defining and managing the outsourcing partnerships was primarily a “relationship” process. IBM. Kodak. ERP. In terms of product cyle times both companies had strived for finding ways to shorten their product cycles. Kodak was facing significant cost pressures from competitors. like Vandelay. Vandelay has expanded across product lines and global borders. and DEC.SECTION 4 Integration with Other Cases Springs: When Vandelay Industries case is compared with Spring case. during the 1990s. Contracts were signed with vendors. has overhauled its existing IT systems. Spring has also chosen acquiring companies that would enable it to introduce new products. 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. and focus on information systems. it had signed a contract with a 16 . Business Land. to cut cost but it was still behind its competitors. Katherine Hudson. Following the years of its foundation in 1940s. 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. consulting firm to assist in the project. Half of all new Vandelay sites from 1945 to 1985 were bought rather than built. Eastman Kodak: Like Vandelay Industries. Company had eliminated more than 4. emphasis on shortening product cyle times. In terms of information system both companies have realized the benefits of information system and implemented major information system projects. To manage with the pressures from competitors.

Inc” explores the issues that would be considered at the start of a full-scale ERP implementation. however due to the large scope of the project. The strategic possibility to rationalize and gain better control of the company’s information system. company would probably not face resistance to change. 5. the roles and skills of organizational members. Vandelay would possibly face some challenges. and knowledge management activities However the key underlying idea of ERP goes beyond physical computer integration and system Since ERP system support business integration. organizational structure. Due to the enthusiasm towards to the project. 4. long lead times and several business practices across the organization. chose IT to transform its business by reengineering its work processes. size. Permit to implement fully integrated systems to replace their legacy systems. the main benefits resulting from an ERP installation may actually come from changes in the business processes. since the system is integrated. These challenges would more likely arise in the time –budget constraints and capability of the software to align with the business processes. Reduction of the maintanence cost of the information system environment by replacing the old system with a single new one. Increase in efficiency by freeing employees from performing time-consuming manual work 6. and frequent lack of documentation. Having fragmented information systems.Significant cost savings and productivity improvements 7. Summary and Recommendations “Vandelay Industries. which are notoriously difficult to maintain because of their age. However implementation of Providian Trust has not paid off as expected. Opportunity to see the whole company as one unit. they potentially represent more than a change in technical 17 . Results of the ERP implementation of Vandelay Industries has not been discussed in the case. Indeed. like Vandelay Industries. mission-critical status. since Providian Trust has faced some difficulties during the implementation resulting from the resistance to change and leadership issues.Providian Trust: Providian Trust. 3. implementation of Enterprise Resource Planning System will provide Vandelay Industries the following advantages: 1. 2.

Once the project has begun. Prior training may help resistance to change and increase acceptance. 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. 18 . Change Management Recommendation: Success is dependent on users’ acceptance. it is difficult and expensive to withdraw from it.infrastructure. the implementation of an ERP changes the way organizations do business and how people carry out their work. Prior to the implementation phase company must identify necessary training and education to employees. Entailing business process reengineering. change management and knowledge management. and provide it before and during the implementation phase. 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). consultants may not train and educate employees sufficiently during implementation. the implementation of ERP would have great impact on Vandelay’s organization and culture which should be considered before the implementation. Indeed. hence companies might have to invest highly in after-implementation support (Wheatley 2000). Due to time and cost constraints.

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. embedding and protecting of organizational knowledge and establishing an environment and culture whereby knowledge can evolve. application. transfer. 19 . storage. handling a host of corporate functions such as finance. materials management. sales and distribution • ERP system represents more than a change in technical infrastructure. Indeed. transformation. representation. human resources. all linked to a common database.Key Take-Aways • Enterprise Resource Planning system is an integrated set of software modules.

" Journal of Information Technology Holland. “An innovation of critical management issues in ERP implementation: emprical evidence from Canadian organizations”. ERP Trends. 2. 1998. S “ The Art of Continuous Change”. D. and Kumar U. L.D. D “ The Hidden Costs of Enterprise Software” CIO Magazine. 2001 “Individual and Social Barriers in Knowledge Transfer” 20 . A. "Dow Corning Corporation: Business Processes and Information Technology. J. 2000. M.php?software=true Slater. "An Electronics Firm Will Save Big Money by Replacing Six People With One and Lose All this Paperwork.egecom. Martin. CIO Magazine. Journal of Management Studies The Conference Board 2001. and C. J. Brown.” CIO Magazine Markus. But Not Every Company Has Been So Lucky. Administrative Science Quarterly Meyerson. T. Using Enterprise Resource Planning Software. 1998 “Living with ERP. D. “A Critical Success Factors Model for ERP Implementation” IEEE Software. 2001 Ross. Communities and Brokering” Kumar V. 1998 “Investigating the Contradictions in Knowledge Management” International Foundation of Information Processing Disterer. January 15. and Raven. Technovation. 1987 “Cultural Change: An Integration of Three Different Views”. Tanis (2000).. May/June Davenport.References Davenport.H. February 2.1998 Pawlowski.net/eng/products. 1999. ERP Training Stinks. 1999b. The enterprise system experience – From adoption to success. 137. Wheatley. C. S. July-Aug http://www. G. T. Robey. 2000. “Supporting Shared Information Systems: Boundary Objects." Fortune.H. and Light. Maheshwari B. Schultze. B. Harvard Business Review. and Martin. M. M. U. “Putting the Enterprise into the Enterprise System”..H 1998.