Enterprise resource planning (ERP) software has looked in grave danger of gaining a reputation as a dinosaur in recent few years. High-profile implementation glitches hit the headlines of the IT press as many ITmanagers began to find that these difficult and costly projects were impossible to deliver. No software company has been in this particular spotlight more than the German ERP specialist SAP.
Problems with SAP implementations reported in Computer Weekly included difficulties with data conversion and synchronisation which led to delivery delays from vehicle manufacturer Volkwagen's Kassel distribution centre; delivery problems at retailer WH Smith as it encountered glitches in its year 2000 SAP roll-out; delays at Cadbury Schweppes as it attempted to integrate 27 instances of SAP into one; and missed targets at Rolls-Royce as the company tried to harmonise data from multiple sites in a £4m SAP programme.
But in the past 18 months SAP has tried to rectify these negative perceptions. Its share price has followed the downward trend of the rest of the technology sector but the supplier has remained bullish, with its faith bolstered by an impressive set of customers such as Nestlé, BMW, Daimler-Chrysler, Caterpillar and Siemens.
Analyst Mark Atherton, of Datamonitor, points out that with such an impressive customer list, SAP must be doing something right. "It is traditional to consider SAP implementations as long and difficult - 'as flexible as concrete' as one user put it once," he says. "But with the current requirement for fast-to-market, short cycle times, fast payback and return on investment, you can see that if the generally accepted faults with SAP implementations are indeed true, then it would not be long before SAP was in real trouble."
Far from being in trouble, research shows a boom in demand for SAP skills. In last week's Computer Weekly/SSP survey of job advertisements, demand for SAP analysts, developers and programmers - and the salaries they can expect - is bucking the trend of a stagnant IT jobs market. Analyst/programmers can command salaries of about 38% more than a year ago. And SAP skills is the only application-level skill to register in the top 20 league table of skills in demand and the only one to register an increase in year-on-year demand.
Yet, according to the survey, SAP consultancy is not in demand. There's a good reason for this, says, Philip Virgo, strategic adviser at the Institute for the Management of Information Systems. "It's simple. The SAP customer base is engaged not in big new contracts but in the incremental roll-out of existing implementations. Comparing SAP with other ERP suppliers Baan and PeopleSoft, which do not figure in the top 100 skills table, demand for SAP does seem to reflect its market leadership and that it is still being implemented, still being rolled out."
There is evidence that the implementation process for SAP is not as difficult as it used to be. "The company has worked pretty hard to make its software easier to implement," says Simon Bragg, an analyst with ARC Consulting, "In 1996, a user could expect to pay six to 10 times the licence cost in consulting charges. These days the external consulting cost has dropped to typically one to two-and-a-half times the software costs, depending on how much process re-engineering the user does."
"SAP has built templates and developed implementation methodologies," he says. "Consultants have learnt on the job, and it is now relatively easy to find people with three years' experience.
"Users have worked out that they need a clear picture of their new business processes, organisational structure, and performance measures, before the consultants set parameters. Senior managers realise they need to sponsor the project and be available to make rapid decisions," Bragg adds.
One recent SAP project illustrates this point. Optical component manufacturer Bookham Technology recently went live with a multi-module SAP installation across numerous sites linked to its shopfloor manufacturing execution system.
The fast-moving business environment that Bookham works in is subject to large rises and falls in demand, according to chief executive officer Giorgio Anania. The company has had to cope with a 50% increase in business in one quarter followed by a shrinkage of the same figure the next. Bookham has gone through a hectic period of acquisitive growth, which has meant it needs to maintain close customer relations and high levels of visibility and speed even though 75% of the product lifecycle is taken up by research and development.
Bookham's workforce has increased from 750 employees to 2,000; it had seven different bills of materials at seven manufacturing sites; and month-end accounts took 25 days to resolve. In the space of 10-12 months the company has installed a single ERP system that is far easier to back up and maintain and has reduced the month-end accounting period to three days. Bookham achieved this with a largely out-of-the-box approach and with a confidence that future changes in the SAP configuration can be taken in its stride.
John Barton, vice-president for information systems at Bookham, says, "Our systems were not capable of allowing the company to grow. We had many different systems and manual links between databases. Our logistics and financial systems could not be backed up without being taken down and so were not available 24x7."
Barton knew the complexities involved in implementing SAP, having overseen such tasks in former jobs. "We did not want to go down the old way of doing things - redesigning our business processes and getting consultants in to develop the solution," he says. "If you can buy an off-the-shelf package, it makes sound business sense as long as you have expertise inside the organisation. [The consultancy which helped in the implementation] Ascent came along and said, 'here's best practice, what can't you live with?'"
Is Barton worried about the software "setting like concrete"? No he does not envisage best practice changing substantially and is confident that the systems integrator can help introduce any tweaks necessary to update business processes.
Malcolm Jones, marketing director of Ascent, concurs, "Best practice is not likely to change massively. Many of the established best practice business processes that are recognised and supported within SAP have been honed over years."
He admits that new, or variant, practices may emerge, and says there are two routes that users like Bookham could take to include them. "If best practice changes within an industry or business area and SAP incorporates it, we would expect to incorporate it within the template and make it available to the customer. Second, there may be some additional existing best practice functionality that the customer has not yet introduced in phase one. We can add pre-defined extensions to the original solution," Jones adds.
But while Bookham's story illustrates the benefits that can be gained from a box-standard ERP implementation, it must be pointed out that the company is a small- to medium-sized enterprise and working from a baseline of zero since it was replacing legacy systems from the ground up. In many instances the picture is not as straightforward, especially if one considers the complex marshalling of resources needed to implement and roll out SAP at large multinationals such as Cadbury-Schweppes or Nestlé.
"Any manager implementing SAP still expects sympathy," says Bragg, as the pitfalls are many.
What the Bookham example shows is that the collective experience of SAP implementers has allowed such ready-made solutions. Where the situation does not allow such a clear-cut approach, at least a set of guidelines has begun to emerge into the body of knowledge in the field.
Philip Carnelly, an analyst with Ovum, sums up the must-avoid scenarios. "Don't try to make the product fit exactly the way you would ideally like to work or on the other hand assume that people will completely change their processes to meet the package. The first takes many years and costs loads, the second meets big resistance. Also be very aware of likely problems of integrating a new system with legacy systems and don't assume that you have got it all right when you switch over to the new system," he says.
But with SAP, businesses are getting enough of it right to make it worth continued investment in these projects, and give the IT jobs market its only star performer of 2002.
How to roll out an ERP implementation
Sanjay Patel is senior systems accountant at satellite communications company Inmarsat and he recently led an SAP implementation at the company. Here he passes on the lessons he learned from the experience.
- Software Selection - identify the "best fit" software for the organisation. It is unlikely that one particular software will meet 100% of the organisation's requirements therefore the software which meets the majority of the requirements should be identified
- Consultant Selection - it is important to meet with potential implementers and get to know the way in which they work best. Interrogate their pricing structure, ie fixed-contract or time- and materials-based or a hybrid of the two? Find out the steps they take to hire knowledgeable consultants. The size of the organisation may be a factor, for example: can a consultant working on the project be replaced with reasonable speed if he leaves?
- Detailed Blueprint and Design Phase - collate both senior management and operational staff requirements in detail and define the process that is to be adopted once the implementation is over. The exercise involves documenting the "as is" process and mapping to the "to be" set-up in detail
- Realisation Phase - once the blueprint phase has been signed off, the configuration of the system, testing, report defining, documenting, training and data conversion are put into place
- Pre-Go live preparation - further testing on the almost complete system, second level (more advanced) training, developing detailed interfaces, carrying out dry runs, parallel testing and report refining
- Go Live phase - actual introduction of the new systems and process, usually phased into the organisation.
- Go Live Support - monitoring issues/bugs raised, system tweaking and general "hand-holding" of end-users of the new system
- Project Review - review of the project and documenting the lessons learned.
What are the pitfalls to avoid in ERP implementations?
- Package selection - don't choose a package based on demos. Suppliers show functionality which can be misleading ie no standard functionality. Ask specific questions about the package no matter how irrelevant you think the question is. The same goes for selecting the implementation partner
- Get management commitment - this is often very high at start of the project but starts to diminish quickly. A possible solution to counteract this is to have targets for staff/managers demonstrating commitment. You could link the success of the project to key managers who are not part of the project team but whose co-operation and sign-off will be needed
- No heavy customisation - it is easy to customise from standard SAP. The problems come later as maintenance costs rise sharply every time the customisation needs to be tweaked
- Don't underestimate training - very often end-users are given a couple of training sessions and the next time they see the package is two months later when they have forgotten it all. The best thing to do is involve the end-users in the system testing.