GLOBAL AUTO: THE ERP IMPLEMENTATION PROJECT

This case study is based on a research paper supplied to the JITCAR, Volume 8, Number 4,
2006 by:
Asli Yagmur Akbulut, Grand Valley State University, Grand Rapids, Ml 49504, USA
akbuluta@gvsu.edu

Ram Subramanian Montclair, University, Montclair, NJ 07043, USA

subramanianr@mail.montclair.edu

Jaideep Motwani, Grand Valley State University, Grand Rapids, Ml 49504, USA
motwanii.@gvsu.edu

INTRODUCTION
Jim Smith, the head of the Information Technology (IT) department at Global Auto's
Kentucky plant was both elated and apprehensive at the recent turn of events. His team’s
successful implementation of the new ERP system at the Kentucky plant had caught the
attention of the corporate office. Just this morning, Mary McCarthy, the head of IT for the
company and Jim's boss, had called to congratulate him on his success. "Jim, we at
corporate are proud of what your team did over at the plant. Now, are you ready for this?
We want you to oversee implementing the same ERP software at our Guadalajara plant in
Mexico. We want to go over there immediately to set up and lead a team to get this going,"
said Mary.

"Wow! This sure is a great way to make the corporate office notice you reflected Jim, a
forty-two-year-old, lean and high energy individual who had long wanted to reach
beyond everyday technology issues and move up the organizational ladder. Jim's elation
was, however, tempered by several concerns that he had as he set out to plan the Mexico
implementation. Should he use a phased implementation such as the one in Kentucky or
should he go full bore so that the project can be completed faster? Would cultural
differences in employees in Mexico hinder implementation? If so, what should he anticipate
and prepare for?

Jim realized that this great opportunity came with several challenges. He wondered what he
should do.

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GLOBAL AUTO BACKGROUND
Global Auto is a leading supplier in the automotive industry, which manufactures and sells
wiring harnesses and other electrical distribution systems. The company was founded in
1986 as a result of a joint venture between two Japanese companies. The company
currently operates 28 facilities; and has annual sales around 700 million US dollars. The
company is headquartered in Kentucky and has manufacturing plants located in Kentucky,
Ohio and Texas with additional manufacturing facilities in Mexico. The company also has
several warehouses located in Alabama, Kentucky, Ohio, Texas and Ontario, Canada. Also,
there are technical support groups in Michigan and Ohio that actively participate in research
and design activities. The company employs more than l ,300 employees in the U.S and
Canada, and over 7,500 employees in Mexico.

Global Auto's primary clientele consists of North American automobile manufacturers,

including Honda, Toyota, and Nissan. The company recognizes that the automotive indust1y
is a dynamic world filled with constant changes as new technology emerges. As such, the
company is driven to be the innovative supplier of choice and is committed to leading edge
technology in all product lines and business processes.

THE ERP PROJECT

Identification of the Business Need

When Global Auto started its operations, it adapted a legacy system that was designed and
developed by one of its parent companies. This system was designed to work well in a
decentralized manufacturing environment. However, as Global Auto grew, it developed a
centralized supply chain. Since the original system was written and supported by the parent
company, Jim Smith and his co-workers were having difficulty in tailoring the system to
support the company's unique business needs. The programming language used for the
legacy system was not mainstream, and therefore, it was difficult to find and retain experts
to support the system. Jim remembered talking to his co-workers from different
departments within the company. The accounting department was also having problems
because the general ledger application of the legacy system was inadequate and not year

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2000 compliant. When Jim contacted the parent company to request an upgrade to the
general ledger application; the answer was an "absolute no." The parent company had
already abandoned development of the system and refused to consider an upgrade.

Mark O'Brien, the head of Manufacturing, was having difficulties in scheduling the
manufacturing lines. Mark was always complaining about not receiving accurate stock status
information and was blaming Purchasing for material shortages. He had also mentioned that
equipment problems such as maintenance delays were totally ruining his production
schedule.

Mitch Kruska, the head of Sales and Marketing, had mentioned that Global Auto customers
were upset because of the delayed and incorrect deliveries. Their major customers were
asking for reduced prices and lead times. However, he didn't know how the company should
respond to these requests as he was not getting accurate information from manufacturing
and accounting.

As a result of the fragmented applications much of the company data was redundant and
inconsistent, prohibiting top management from making timely and accurate decisions.
Moreover, the lack of responsiveness to customer needs was affecting profitability to a
great extent

Global Auto decided to move to a new integrated information system that would overcome
the limitations of the existing legacy systems. The company was strategically proactive to
the environment and the needs of their customers when deciding on implementing ERP.
Competitors within the industry had already started implementing ERP systems. The high-
level direction was to move to a system that could support most elements of the enterprise,
connect to ancillary systems to support specific business functions, and was mainstream
enough to have a greater pool of resources to maintain and support it.

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Package Selection
With the high-level objectives loosely defined, the next step was to select the software
package to implement. Even though most of the ERP packages share common features, they
also have differences. Failing to consider whether the package being evaluated will match
the overall business strategy and needs of the organization might result in failure. Global
Auto decided that the next step was to conduct a needs assessment to determine the
business needs more precisely and to match those needs to commercially available software
packages. In order to perform the needs assessment, top management formed a cross-
functional project initiation team. This team included senior personnel from the accounting,
purchasing, material control, production control, manufacturing, engineering, customer
service, and information systems areas. The team members from accounting and
information systems were assigned as co-project leaders. The senior vice president of
material control, a member of the company's executive committee, was added to this
project team with the title of Executive Sponsor. This person's function was to provide
broad guidance, represent the interest of the project team to other members of the
executive committee, and to be the final authority in decision making and resolving
disputes.

To help the company move though the package selection process more quickly and
effectively, the project initiation team decided to partner with consultants from KPMG,
which is among the Big 5 audit and tax firms. KPMG was selected because the company
specializes in helping companies implement and integrate complex packaged solutions
including ERP systems, offers education and training, and consulting in business process re-
engineering, project management, and change management. KPMG has expertise in the
implementation of ERP packages from a variety of vendors including BAAN, BPCS, Oracle,
PeopleSoft, SAP, etc.

The business needs assessment was conducted primarily via interviews of the team
members by expert interviewers from KPMG. The findings were compiled, reviewed, and an
official findings document was prepared. This was then presented to the top management,
and key members of the project initiation team. The recommendations were to evaluate
ERP packages that targeted mid-size companies and to re-engineer key processes at the

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same time as the implementation. The company decided to align business processes to ERP
rather than modifying the ERP software to reflect unique processes.

KPMG recommended three possible software packages whose capabilities matched the
business needs of the company. These packages were QAD of GEAC Software, BAAN of the
BAAN Company, and BPCS of System Software Associates. The project initiation team
prepared a request for proposals (RFP) and invited the three vendors to submit their
proposals. After the proposals were carefully revived, representatives from each vendor
demonstrated their products. The project initiation team decided to eliminate QAD due to
the weaknesses in its manufacturing module. The team members rigorously evaluated the
other two systems on an additional consideration -- availability of ancillary software to
support unique business practices that were not adequately covered by basic ERP systems.
These included automated data collection and manufacturing execution systems. The team
created a gap analysis document which highlighted the differences between system
capabilities and business needs. It was determined either the BPCS system or the BAAN
system would be adequate to satisfy the business needs of the company. They offered
similar functionality and a good selection of partner products.

In the end, the company decided to implement BPCS. One of the determining factors was
the ability of BPCS to operate on the AS/400 platform. The AS/400 platform is the most
widely distributed multi-user platform in the world and would have a larger pool of qualified
programmers to support it. Another important factor the company considered was to
become positioned well to exploit continuous improvement opportunities in the future. In
this respect, BPCS is considered as a flexible ERP package that easily integrates with best-of-
breed partner applications to deliver e-commerce, business intelligence, customer
relationship management and supply chain solutions. Other factors were subtle differences
in the operation of the BPCS system over the BAAN system.

Implementation Strategy
After the ERP package selection was completed, a major decision awaiting the company was
to determine whether to follow a phased implementation strategy or to cutover to the new
system all at once following the "big bang" approach. After a careful evaluation of both

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approaches, the project initiation team concluded that the big-bang approach would require
the simultaneous assignment of huge number of resources to the implementation project
and would be too risky. Recognizing the need for a systematic, structured way of
approaching the ERP implementation process to create the required knowledgebase, the
company decided to follow the phased implementation approach.
The project co-leaders were tasked with developing the implementation plan. BPCS is like
many ERP systems in that it has a modular design. Therefore, the first step was to determine
which modules of the system would be implemented. The project team determined that the
finance function (Configurable Enterprise Financials including sub-modules for accounts
payable, accounts receivable, general ledger and fixed assets) would be the first to be
converted to the new system, giving users time to get used to the new system. Converting
the operations function to the ERP system would follow (Supply Chain Management
including sub-modules for configurable order management and out-bound logistics
management, Manufacturing Data Management, Shop Floor Control, Master Production
Scheduling, Manufacturing Resource Management, Distribution Resource Planning,
Purchasing, Inventory Control, and various other implied support modules).

The modules were selected in conjunction with the determination of which facilities would
be implemented first. The company determined that BPCS should be first installed in the
main components’ division plant in Kentucky. This plant was selected because of the unique
business needs of this plant compared to a wire harness division plant. This facility was
different in that it performed its own material control functions and directly shipped to the
end customer. Wire harness plants relied on centralized distribution facilities for the
material control functions and shipped finished goods to centralized customer service
centres. The legacy system was designed to support wire harness needs and was a poor fit
for the components division plant.

Utilizing project scheduling and cost estimation tools, the project initiation team developed
the project schedule and budget. The team set forth an implementation timetable of nine
months to install and operationalize the financials module (Phase I). The project team
worked with the various vendors to develop the project budget. The initial project budget
would include the cost of the AS/400 system, the BPCS software, dcServ software (a data

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collection system that worked with BPCS), a full education and training curriculum, and
consulting services and would cost around 1.9 million dollars. The team also estimated the
Phase II costs that would be incurred when expanding the system to the other facilities. The
phase II budget was 4.93 million dollars to expand BPCS to all facilities in North America.

Business Process Re-design, Installation and Data Conversion

Top management was totally committed to implementing ERP and was willing to devote
substantial amount of time and money for ensuring success. They believed that the project
team should be empowered to make the key decisions regarding the implementation.
Therefore, they charged the project team with the responsibility of identifying, examining
and rethinking existing processes and gave them the authority to re-engineer or develop
new business processes to support organizational and ERP goals.

The project initiation team realized that it was necessary to work with consultants from an
organization with BPCS expertise to help them throughout the implementation process.
They submitted RFPs to several consulting firms that provided BPCS consulting services.

Ultimately, they selected New Century Systems (NCS) located in Memphis, Tennessee. NCS
specializes in e business solutions, ERP and business intelligence, government technology
solutions and IT staffing. NCS was chosen due to its experienced consultants in
implementing BPCS, as well is its physical proximity to the headquarters of the company.
At the time of implementation, the initial project team was modified to include three
fulltime consultants from NCS and more individuals from the company that were going to be
directly using or supervising those who would be using the software. The final project team
consisted of forty team members. They were divided into eight functional teams that
focused on one aspect or module for implementation. These teams met weekly during the
implementation. The team captains met collectively once per month.

The project team relied on its IT department to be the enabler and facilitator of the ERP
implementation process. They also took steps to ensure that users and all functional areas
were considered in the systems development process and that interfaces to existing systems
were properly undertaken. In highly intensive joint application design sessions, the teams

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gathered and structured user requirements. This is where the users of the system formally
defined the current business processes used in the company. By putting several business
processes under scrutiny by objective observers; the company was able to identify the
inefficiencies inherent in those processes. The consultants then worked with the users to re-
engineer the inefficient processes and gather the new system requirements. The ERP system
was then slightly tailored to support these newly designed business processes. The company
also utilized formal techniques and process metrics for process measurement. Techniques
and methods such as data flow diagrams, CASE tools, and simulation were successfully used
during process analysis and design.

Interface to existing systems was created at two levels and the IT department played a very
active role at both levels. First, an interface was created between the non-BPCS facilities and
the BPCS general ledger system. This was accomplished via a mechanism that is supplied
with the BPCS system for performing this type of integration. It is referred to as Batch
Transaction Processing (BTP). Bridge programs were written to extract the required data
from the external system and load it into pre-defined files within the BTP system. Once
loaded, BPCS would then apply the financial data to the general ledger system. The
company required interfaces for three areas: human resources payroll system, wire harness
material control system, and the wire harness accounts receivable system. AH other
financial transactions would originate within BPCS.

The second level was the interfacing of the new data collection system dcServ into the BPCS
inventory and shop floor control modules. Since dcServ was selected because of the pre-
existing relationship with BPCS; this interface was purchased as a component of the data
collection system. The individual shop floor and inventory control transactions were defined
and configured during this phase.

In addition to these on-going interfaces, it was also necessary to convert data from existing
financial applications over to BPCS. In total there were about thirty files that required
conversion including item master, bills of material, customer master, vendor master, etc.
There wasn't an existing tool to accomplish this; so, a consultant familiar with the BPCS file
structures was hired to write the programs necessary to convert this data.

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It was during this time that the pilot environment was created. This was a fully functioning
BPCS environment that the users and consultants used to develop and test their processes.
An additional environment for technical testing was also created. The company worked very
closely with the ERP vendors and the consultants at this stage and provided them remote
access to their systems. When any problems were discovered, managers would meet to
discuss the problem and contact vendor consultants for fixes.

Preparing the Organization for the New System

Management was aware of the challenges involved and was committed and ready for the
change process using a structured methodology. They established an open communication
and information sharing policy and encouraged cross-functional teams to effectively
manage the change process. Credibility established with these small successes eventually
paved the way for larger-scale changes in the company and promoted a common culture
across the organization in favour of ERP implementation.

NCS offered a complete education curriculum for the BPCS software. Employees were willing
to allocate a large amount of their time to the project. They were aided by training sessions
that were available both day and night in the form of week-long workshops. Each major
module of BPCS was the focus of an individual workshop with the smaller or implied
modules blended into the education where appropriate. End user training was conducted,
and all the procedures were verified. The final event of this phase was the conducting of the
conference room pilot. This was a two-week exercise in which the daily activity of the
existing system was also performed in the pilot system. This was an intense phase in which
NCS provided additional resources to assist in user monitoring and procedure verification. In
addition to this education, several members of the technical staff went to administration
courses offered by various software vendors.

During the implementation phase the technical standards were also developed. The work
instructions were created. The company is a QS9000 certified organization, so all the work
instructions were constructed using a standard format with full change control features.

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These instructions were made available to the users in hard-copy as well as being added as a
section on the company's intranet page.

The company also encouraged everyone, at all levels, to speak out about the system and
make suggestions. Project team would regularly measure changed processes and articulate
their value to management and end-users. Communication technologies such as e-mail
enabled effective communication and teamwork. The open communication encouraged by
management gave users a sense of ownership of the system.

Post Implementation
After the system went live, Global Auto evaluated the success of the ERP implementation
using a set of success criteria addressing the following three dimensions:

Project success: Project success is achieved when the ERP project meets its time, budget,
and scope goals. The project team was able to get the ERP system up and running on time,
within budget and scope. Global Auto considered their ERP project as successful in this
dimension.

Correspondence success: Correspondence success refers to the realization of the pre-

determined business benefits. Even though the management has not really got down to
calculating the return on investment (ROI) in financial terms, 6 months after the
implementation of the ERP system, the company started to observe significant business
benefits. Management reported that as a result of the ERP implementation they were able
to remove a lot of non-value adding activities and streamline the business processes.
Previously, the accounts payable process required a staff of 5 people. After the
implementation of the ERP system, this number was reduced to 3 people, in spite the fact:
that the company had grown and had more accounts payable activity. There were similar
efficiencies gained in other accounting areas. For example, the company observed a
reduction in working capital as well as a 30 percent reduction in financial closing time.
Moreover, using the old system the components plant was continuously in a state where 20
percent of the customer orders were past due. After the implementation, the company has
less than I percent of orders past due and the customer lead time has been reduced by 60

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percent. As a result, interactions with the customers have been improved, resulting in
increased sales revenues. Before the implementation of the ERP system, the company
required an average of 1.9 million dollars in raw material inventory to maintain daily
operations. After the implementation, the inventory levels were reduced to 1.3 million
dollars. Finally, the company reported a cost savings of roughly 10 percent. The long-term
projected cost savings was estimated between 20-25 percent.

Interaction success: The management realized that end-user satisfaction with the new
system is a key factor in order to achieve long term benefits. Therefore, 6 months after the
implementation, end-users in the company were asked about the usefulness and ease-of-
use of the ERP system as well as their level of satisfaction with the system. There was
moderate agreement (average of 3 on a scale of 1-5) among users on the ease of use of the
ERP system. Most users were generally in agreement (average of 4 on a scale of 1-5) that
the ERP system was useful and increased their productivity and effectiveness. As far as user
satisfaction is concerned, the end users were generally positive (average 4 on a scale of 1-5)
about the ERP system. It was also observed that the users were more satisfied (average 4 on
a scale of 1-5) with the accuracy and the ability of the ERP system to provide up-to-date
information and less satisfied (average 2 on a scale of 1-5) with its user friendliness, ease of
use and ability to provide reports that are needed.

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