In September 1998, when Juan Sanchez took over as CIO of Delphi Automotive Systems Corp. Europe in Villepinte, France (north of Paris), the company was in the midst of an enterprise resource planning (ERP) project with straightforward targets and a dizzying array of challenges. As the project got under way, the stakes for a successful implementation increased. At the end of the day, Sanchez and his team learned that such a project took a lot more than careful planning. It took vigilant monitoring of detailed goals, the committed involvement of executives and workers alike, a focus on customer needs and the careful building of a business case for the endeavor.
At the time, Delphi was organized on a geographic basis with different systems in each European country. Where divisions crossed geographic borders, systems support was not consistent. A major implementation of ERP software, with a planned expenditure of more than $50 million, had begun more than three years previously at what was then a European subsidiary of General Motors Corp. The project's ambitious goal: to replace dozens of aging--and incompatible--manufacturing and distribution legacy systems scattered throughout the 58 Delphi sites in eight European countries with a single enterprisewide system.
It wasn't simply the technical aspects of the ERP implementation that made the work difficult. It was the complex business scenario at Delphi that made the new system an imperative and heightened the risk of failure. Possible complications included:
* Systems across borders. The new ERP system needed to cross multiple geographic, cultural and linguistic boundaries. More than 3,500 employees would depend on it to get their daily jobs done. Each country had developed business practices independently, and some could not be reconciled because of the varying legal and regulatory requirements--despite the efforts of the European Union to resolve some of the cross-border inconsistencies.
* Date-rollovers. Delphi was using the project to help solve its Y2K compliance issues. The project also had to help the company support the new euro currency; managers wanted it to provide Delphi's various country locations a single conversion from one system, rather than one conversion for each different system.
* Changes at the corporate level. The June 1999 spinoff of Delphi Europe from General Motors occurred in the middle of the project.
* A lack of in-house IT staff. Delphi itself had no IT staff or systems independent of its soon-to-be-ex-parent, General Motors. Its in-house IT expertise was minimal.
More than two years into the project (at the end of 1997) Delphi engaged our company, A. T. Kearney Inc., to ensure on-time, on-budget completion of the project and a tangible ROI, while EDS Corp. took responsibility for the technical aspects of the rollout of the new SAP R/3 system.
MINDFUL OF MISTAKES
A.T. Kearney viewed this as an opportunity to drive the implementation from a financial and operational perspective, something we felt other companies implementing ERP projects had not done.
You don't have to go far to bump into lots of evidence that shows how ERP software has not delivered on the promises of vendors. Some recent cases where ERP has had publicly disastrous results include Whirlpool, where an ERP implementation crippled the shipping system, leaving appliances stacked on loading docks--and therefore not delivered to paying customers--for a full eight weeks in 1999. Hershey Foods Corp. (also in 1999) claimed that a 19 percent drop in earnings was caused by an incompetent ERP implementation that wreaked distribution havoc during one of its most profitable seasons: Halloween. And according to Computerworld, a new ERP system at Volkswagen AG resulted in significant delays in parts shipments, causing product inventories to build up to costly levels. While these high-profile failures were not top-of-mind when Delphi made its decision to implement ERP, they later served as reminders that such projects can easily get out of control.
Attempting a large-scale ERP project (including implementation and operations) is an expensive proposition for any organization. A recent Meta Group Inc. report measuring the net present value of ERP implementation projects found that approximately 60 percent of respondents indicated a negative return on investment. That number climbed as high as 80 percent depending on the specific software implemented. And because many of these first-generation implementations were internally focused with no associated business case (for example, emphasizing cost reductions, technology and process improvements rather than external benefits like extending ERP systems to players in the supply chain) quantifiable benefits were virtually nonexistent.
A HIGHLY STRUCTURED IMPLEMENTATION
The process we employed on Delphi's behalf focused on six major initiatives:
* Developing a quantifiable business case. Delphi executives first established concrete goals for the business processes they wanted to improve, such as increasing service levels, and calculated the expected benefits to be realized from these improvements.
* Defining best practices. Functional teams defined best practices, such as standardizing accounting procedures across Europe and standardizing logistics processes. These teams, composed of key Delphi executives from affected areas (in this case, logistics and finance), included representatives from a broad range of nationalities and cultures. These executives identified "key migration points" and the precise type and timing of a change.
* Planning prior to implementation. Planning for actual rollout of the new system at each site began very early in the project cycle. An implementation readiness assessment was used to determine if the necessary IT infrastructure was in place and to make sure each site was capable of handling the transition to the new ERP system.
* Strict monitoring of implementation schedules and costs. Once the actual rollout began, a strict, deliverable plan was imposed on each local site. All milestones were carefully tracked, measured and rechecked to ensure that scheduled changes were made on time and on budget.
* Cross-cultural training. To make sure that all affected people (targeted users of the new system as well as consultants and managers) were on the same page in terms of goals and priorities, a project "university" was established in a central location (Paris) to provide training to everyone involved in the project.
* Rigorous tracking of deliverables. Identifying and then relentlessly tracking the complex web of incremental milestones was critical to the success of the project. The methods used were grounded in A.T. Kearney's deliverables philosophy and capitalized on A.T. Kearney's strength and experience in managing large-scale programs.
LESSONS LEARNED
After Delphi executives established their goals and expected benefits when the program was initiated, A.T. Kearney used its benefit assessment framework, Implementation Value Capture, to strictly monitor all deliverables and identify additional revenue-generating or cost-cutting opportunities that Delphi could achieve as a result of implementing the new system.
The highly structured implementation plan put into motion by Delphi and A.T. Kearney set the stage for success. Among some of the valuable lessons learned along the way:
* Define the business value you hope to receive, such as reduction in lead times, in concrete and easily measurable terms.
* Set up regular review measures to make sure you are achieving your goals.
* Don't underestimate the art of "change management." Establishing a training hub (such as Delphi's "university" in Paris) helps ensure that all participants in the project--no matter where they are or what language they speak--understand the goals of the project.
* Make sure that every vendor involved in the project has "skin in the game"--sharing in the risks of the venture. In the case of Delphi, both consulting partners--A.T. Kearney and EDS Corp. --agreed to share in the risk that the project might not succeed by adhering to a fixed time frame at a fixed price. Any cost or time overruns were the responsibility of the consulting partners, not Delphi. A.T. Kearney had to excel at planning the program, managing risk and delivering results.
* Don't lose sight of the impact on the customer. During any major transformation of a company's core business processes, all changes must be absolutely transparent to customers. In Delphi's case, with a technically sophisticated clientele such as BMW, Ford Motor Co., GM, Mercedes and Volkswagen, the slightest hiccup in manufacturing plans could have an enormous financial impact on a customer's business. Notes Sanchez, "We not only had to make many more changes than we originally planned but also had to change how we had originally planned them."
THINKING AHEAD
Conventional wisdom says that business is changing so fast that a single Internet year is worth four calendar years; this means that the formerly standard five-year corporate strategic plan needs to take into account the equivalent of 20 years of radical change in a given industry. It's the challenge that many companies face these days. Although the business case for Delphi's ERP project was originally completed in 1996, Delphi's earlier decision to implement SAP AG clearly helped the company achieve specific strategic objectives, such as establishing common systems and standardized internal processes, creating fast and accurate information flows across the supply chain that are customer driven and supplier supported, enabling the swift integration of any acquisitions, improving productivity of the finance function and working capital utilization, and reducing the cost of legacy systems by more than 30 percent.
About the decisions made so long ago, in a different business climate, Sanchez agrees it was the right thing to do at the right time. "The team made a number of very wise decisions early on in the process. We are a completely different company now," he says.
Bill Jeffery and Jim Morrison are vice president and principal, respectively, with global management consultancy A.T. Kearney.
DIAMONDS IN THE ROUGH
In retrospect, the most interesting part of this experience was that many of the reasons the project is so valuable couldn't have been articulated at the time the project was jump-started. You could even go so far as to say that Delphi would not be a viable company today if it had not begun putting in the ERP system. Examples of the project's value to Delphi include:
* The ability to serve many customers. The ability to serve multiple competing customers in an open market, each having unique EDI procedures, forecast requirements, master schedules and shipping needs. To do that with the old system would have been very difficult and costly, if not impossible.
* Plants working in sync. The ability of 58 sites to work in tandem to fill complex orders that spanned multiple customer sites throughout multiple countries. For example, plants in Delphi's U.K. operation are now able to share resources with plants in Portugal, which was previously difficult and cumbersome.
* A workforce that is technologically up-to-speed. Previously, many of the employees had never touched a PC. "The technical education alone was worth it. We pushed the latest technology throughout the entire company," according to Juan Sanchez, Delphi's CIO.