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Description

PART-A

How Integrated ERP systems and technology can play a significant role in operational success. Reviewed the multiple benefits and challenges from implementing the right ERP system, please address the deliverables below:

What are some of the challenges when trying to implement a new ERP system?

What Tools/Concepts can be used to overcome these challenges?

Please discuss risk vs. reward when taking on a new ERP implementation project (Example: Costs vs.      Productivity Increases)?

Lastly, what type of system does your organization incorporate into their operations?

Any recommendations to your organization in regard to their ERP system?

PART-B

Harvard Business Publishing Case Study: Keda’s SAP Implementation

It will be beneficial to watch the video and reading on “What is SAP? Why do we need ERP” and our “Maximizing the Return on Investment Using ERP Applications”.

Please answer all 5 questions by Q1, Q2, Q3.Q4, and Q5 including minimum four references with URL addresses

What challenges has Keda encountered to influence the implementation of SAP?

What benefits has Keda experienced since “Go Live” with the new SAP ERP system?

Describe the importance of planning when taking on a new ERP implementation? How does an effective      Implementation team mitigate risks associated with an ERP transition?

Define “Computerization” and detail how Keda has used it to strategically and competitively position their organization?

What recommendations do you have to an organization in Keda’s position that may be hesitant of implementing a new ERP system due to associated risks (Costs, Operations      Interruptions, change Management and etc…)?

W5: Lecture
Technology & Integrated ERP Systems
This week we will look at the importance of technology and integrated ERP
systems when conducting process improvement initiatives. Both concepts can be
costly; however, in most instances are necessary to best position the business
for ongoing success. That being said, it’s important for businesses to understand
total investment cost and the return on investment. We will look at certain ERP
systems and how businesses both small and large use them to best position their
operations. In this module, we will review the following:
•
•
•
Integrated ERP Systems
Standardizing Best Practices
Standard Job Instructions
Integrated ERP Systems:
Prior to the late 1970s, information systems were primarily used to support
finance and accounting. Numbers were easy to crunch and the computer
seemed a natural aide to that process. In addition to accounting, inventory
management was commonly automated as well.
In those days, not only systems, but vendors were specialized as well. NCR did
retail; Burroughs did banking; Univac did science and engineering and IBM did
about everyone else. In response to customer demand IBM began to develop
early versions of what became later known as ERP. These systems included
COPICS (Communications Oriented Production Information Control System) and
MAPICS (Manufacturing Accounting and Production Information Control
System). Both systems integrated everything from sales orders to purchase
orders to inventory management to materials planning to accounting in a single
package that provided the capability to update all of the necessary systems from
a single transaction.
There were two problems. First, these systems were extremely difficult to modify.
A company had a choice, they could pay thousands of dollars for modifications to
the system to fit the current processes or current processes could be modified to
the system. Second, these systems were optimized for manufacturing and
required major modification to fit in a distribution or service business.
Years
Title
Main features
1945
≪ Glorious ≫
1965
MRP 0
1975
MRP I
1980
MRP II
1985
MRP II+
1990
ERP
1996
Extend ERP
2001
ERP II
Organization of production principles (based on F.W. Taylor – H. Ford
ideas)
Material Requirements Planning (based on O. Wight – J. Orlicky ideas)
Closed Loop Material Requirement Planning, setting of production
planning and its execution control on workshop level (Miller – Spregue)
Manufacturing Resource Planning based on data from suppliers and
customers. Forecasting, planning and production controlling.
Implementing of JIT (Just in time) concept, weak spot optimization
Enterprise Resource Planning, Materials Planning, Order Entry,
Distribution, General Ledger, Accounting, Shop Floor Control
Scheduling, Forecasting, Capacity Planning, e-Commerce, Warehousing,
Logistics
Project Management, Knowledge Management, Workflow Management,
Customer Relationship Management, Human Resource Management,
Portal Capability, Integrated Financials
From these beginnings, modern ERP (Enterprise Resource Planning) systems
evolved. ERP systems begin with the manufacturing base and via configuration
options and module additions (and take away) allow the company to configure
the system to fit the business process model and strategies that are being or
have been adopted. At the same time these systems fully and tightly integrate all
the business functions.
Let’s take a closer look at what the visual above depicts in regards to an ERP
system connecting the various areas of a business. When a manufacturing
organization sells a product, it triggers the below sequence in the ERP system.
Finance:
•
•
Revenue, Costs, Inventory and Accounts Receivable are all recorded in
the system.
An Invoice is sent to the Customer.
Supply Chain:
•
•
Inventory is reduced, which triggers the supply chain to purchase new
materials.
Demand and Backlog are decreased in the system until a new order is
placed.
Manufacturing & Operations:
•
•
•
Sales Past Due is reduced.
The operations team takes credit for the sale.
Operators are triggered to work on the next open item.
As you can see, there are multiple transactions that need to take place in the
system. There are other pieces to this transaction like customer management,
quality and reporting. While this example looked at manufacturing operations,
the service industries can be drawn out in a similar aspect. As you can see there
are multiple variables that can be triggered from one customer transaction. What
makes an integrated ERP system crucial is its ability to complete all of these
variables simultaneously. An integrated ERP system greatly benefits and best
positions the business; however, it’s also essential for creating customer
value. There are thousands of ERP systems being used around the world.
In this module, we will look at one of the more universal and common systems
being used currently. This system is known as SAP. SAP is a German
multinational software corporation that makes
enterprise software to manage business
operations and customer relations. SAP is
headquartered in Walldorf, BadenWürttemberg, with regional offices in 130
countries.[3] (Links to an external site.) (Links
to an external site.) The company has over
335,000 customers in 190 countries.
Other Supplemental Readings ERP:
– (Must Read)
http://www.webopedia.com/TERM/E/ERP.html (Links to an external site.)
Standardizing Best Practices:
Organizations that operate on integrated ERP systems have the ability to
standardize best practices throughout departments, value streams and
organizations as a whole. There are multiple benefits from standardizing best
practices which include:
•
•
•
•
•
•
•
•
•
Employee involvement and empowerment.
Consistency (reduction of variation) among staff members performing the
work.
Improved productivity without added stress.
Improved, consistent quality.
Reduction or elimination of errors and mistakes (causes of defects).
Work process stability.
Increased employee safety.
Improved cost management as wastes are removed.
Visual management–managers and supervisors can see when processes
are not operating normally.
Source: 10 Benefits
Standard Job Instructions:
Standard Job Instructions are beneficial to organizations and their
employees. SJI’s help individuals’ complete tasks the same way for each
occurrence and across business when looking at segments and business
units. Integrated ERP systems like SAP are universal and offer each business
unit the same functionality. This is extremely beneficial to organizations required
to complete the same tasks at various business units as one SJI can be
incorporated in everyone’s practices. An example of this would be financial
month end close reports that must be completed and delivered to corporate in
the same way from all businesses. Other benefits that come to mind are: Cross
Training, Quality, Labor Resource Management, Audit Support (Think
Procedures even though the two are separate items) and insurance during times
of employee turnover or absence. Is your organization, protected with standard
job instructions?
Beware the pitfalls!
Implementation of an ERP system can provide great benefit to the business, but
beware the pitfalls. These systems are expensive. (SAP often runs into the
millions of dollars in a large company) Implementation is a complex process and
requires careful configuration and testing. The most successful implementations
are done concurrently with a careful and comprehensive redesign of business
processes. (One very successful implementation was done after spending a few
months doing nothing but designing and testing the new business process. Not
until the processes could be proven in the lab did the implementation of the
technology system begin, and even then only on a small scale initially).
Above all, the business must avoid the temptation to automate the existing.
Modern systems like SAP do not work well with 1980s or 1990s era processes.
This is the single greatest cause of cost overrun and/or implementation failure.
OTHER SUPPLEMENTAL Readings (Highly Recommended for Government
Employees)
http://www.mckinsey.com/industries/public-sector/our-insights/transforminggovernment-through-digitization?cid=other-eml-alt-mip-mck-oth-1611 (Links to an
external site.)
(Links to an external site)
http://www.ctnd.com/a-brief-historical-look-at-the-evolution-of-enterpriseresource-planning/ (Links to an external site.)
(Links to an external site)
I look forward to your contributions throughout this module and any additional
references/materials that you would like to incorporate.
Works Cited:
(Links are to external sites)
ERP – enterprise resource planning. Retrieved December 05, 2016,
from http://www.webopedia.com/TERM/E/ERP.html (Links to an external site.)
SAP Software Solutions | Business Applications and Technology. (n.d.).
Retrieved December 05, 2016, from http://go.sap.com/index.html (Links to an
external site.)
14 Benefits of Standard Work https://blog.kainexus.com/improvementdisciplines/lean/standard-work/14-benefits-of-standard-work
For the exclusive use of U. Pasha, 2021.
W11024
KEDA’S SAP IMPLEMENTATION
Terrance Fung and Professors Yulin Fang, Huaiqing Wang and Derrick Neufeld wrote this case solely to provide material for class
discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may
have disguised certain names and other identifying information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2011, Richard Ivey School of Business Foundation
Version: 2017-05-04
Dr. Fan Zhu, vice general manager of Keda Industrial Company Ltd. (Keda), was utterly satisfied with the
outcome of the SAP project. A mere five months after forming an implementation team, Keda had
successfully deployed SAP as its enterprise resource planning (ERP) solution, and the system was quickly
paying for itself through more efficient inventory management. The success was all the more remarkable
given that an estimated 80 per cent of ERP implementation efforts in China failed.1 Despite the success,
Zhu was uneasy. Keda had a large backlog of other information technology (IT) projects waiting in the
pipeline, and Zhu wanted to carefully evaluate the SAP project to determine what had been done right,
what had gone wrong and what Keda had gotten away with due to blind luck.
COMPANY OVERVIEW
Founded in 1992 by Lu Qin, with an initial capital outlay of only 90,000 Chinese yuan (CNY)
(US$13,500), Keda began as a small manufacturer of ceramics machinery located in Shunde, in
Guangdong province. At the time, the global ceramics machinery industry was dominated by European
companies. Keda modeled its business after these market leaders and enjoyed rapid growth in the local
Chinese market through the 1990s. In less than a decade, the company was recognized both as one of
China’s top 500 national machinery manufacturers and as a top 10 building materials machinery
enterprise in the world. By the early 2000s, Keda had surpassed most of its competitors to become a
world leader in building materials machinery, second only to SACMI of Italy (www.sacmi.com). Keda
Industrial (stock symbol 600499:CH) became a listed company on the Shanghai Stock Exchange in 2002.
In 2009, Keda reported total revenues of more than CNY1,425 million (US$209 million), almost double
the amount of its 2006 revenues of CNY931 million (US$119 million).
By 2010, Keda had more than 2,000 employees and a broad product offering spanning industrial
machinery for ceramics, stone processing, building materials processing and energy resource
1
Liang Zhang et al., “Critical Success Factors of Enterprise Resource Planning Systems Implementation Success in China,”
in Proceedings of the 36th Hawaii International Conference on System Sciences, January 6–9, 2003, Computer Society
Press, Washington, DC, 2003, pp. 236–245.
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management. Keda also offered comprehensive plant design and technical consulting services to
industrial clients. Due to the nature of Keda’s products, its sales orders were typically characterized by
significant customization, low volumes and high margins.
Keda’s business as a whole relied on several key business functions, such as research and development
(R&D), purchase of raw materials and parts, inventory management, production that comprised many
assembly line and workshop processes, logistics, and sales and marketing. Each of these areas functioned
autonomously, giving rise to a freewheeling corporate culture where non-standardized processes were
adapted on the fly, and problems were resolved in an ad hoc manner. This high degree of autonomy and
flexible culture enabled Keda to achieve its “pursuit of perfection” through “endless innovation” in the
global market. Indeed, innovation had been essential to the firm’s success in the market. In 1999, Keda
had rolled out the first 3,200-ton pressing machine in China. In 2005, Keda had introduced three of the 10
most innovative new machinery products in the world. Perhaps more remarkable, in addition to its
product innovation, was Keda’s commitment to business innovation. In 2003, the company set up a
Chinese national enterprise post-doctoral workstation and invited post-doctoral scholars to work on
research projects on such topics as supply chain management and human resource management. Keda
also invested more than CNY45 million (US$5.4 million) to set up a state-of-the-art ceramic engineering
R&D testing center. Keda thus established itself not only as a leader in market share and revenue but also
as a product and management innovator.
DRIVERS FOR ERP
Things, however, were not all positive. Keda’s silo-based model, while encouraging decentralized
decision-making and a free wheeling entrepreneurial culture, was clearly taking a toll on Keda’s business
performance. Disconnected business units often duplicated identical processing tasks, resulting in
redundancy and heightened costs. Very little information flowed between departments; as a result,
managers could not make timely, well-informed, holistic business decisions. The lack of integration
prevented Keda’s leaders from acting strategically. For example, when faced with a decision on whether
to compete for orders for a line of polishing machines in foreign markets, Keda could not meaningfully
assess cost and profitability potential — the final quote was based on a hunch.
This lack of integration was especially taxing in the face of competition from local and foreign companies
that challenged Keda on many fronts. To retain its leadership position and continue growing, Keda
needed to continue innovating in terms of product development, business management and operations,
and it needed to be more informed about production, sales and, most importantly, customers. As Zhu put
it: “In managing the enterprise, our most important task is to provide the needed information for every
decision maker every step of the way in the decision-making process.”
An added factor was pressure from Chinese government agencies. Recent years had seen China
encouraging innovation in local enterprises, in an effort to catch up with foreign firms. This
encouragement took the form of campaigns with explicit incentives to promote computerization in
corporations. Thus, Keda’s ERP undertaking could be seen as a reaction to the government’s call.
Another challenge faced by Keda and similar enterprises related to inventory management. Keda’s low
volumes and high customization across an increasingly diverse product line made it difficult to keep track
of the many unique, individual parts. Zhu explained:
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Before ERP deployment, due to the mess in material management, the cost of a product was
unclear and costing was based on experience. It was not clear how much profit or loss resulted
from the sale of a product, nor which part of the product or the production process contributed to
that profit or loss. That made pricing our products difficult, too.
Keda struggled to meet demand. It was producing only six machine presses per month, grossly below the
quantity demanded by customers. This suboptimal use of company resources represented a significant
opportunity cost for the company. Production delays were common, yet resources and facilities were not
being optimally utilized. Reusable materials and parts were often scrapped, and precious machine time of
key facilities was often wasted, idling at times. As Zhu illustrated:
We had a key facility for production [and] someone timed its usage over a week using a
stopwatch. We were shocked when we learned that it was only in production 24.6 per cent of the
time! [This usage compared with more than 90 per cent utilization by a Japanese competitor for a
similar facility.]
Meanwhile, Keda’s rapid growth was driving other change. For example, competition, both local and
abroad, prompted Keda to diversify its business and product lines, resulting in a greatly expanded product
offering. The company’s single production plant mode could no longer cope with the highly diversified
business lines and production functions, prompting Keda to open multiple plants in 2004. The expansion
caused the company to outgrow its Manufacturing Resource Planning (MRP-II) system, which did not
support multi-plant operations. Adding to the demise was the fact that the MRP-II system’s vendor,
Beijing Riamb Software IT Co. Ltd., had ceased maintenance support for the system due to an internal
corporate restructuring. To continue successfully, Keda needed to rethink its IT, urgently.
COMPUTERIZATION AT KEDA
Keda’s first attempt at computerization began in 2000. No overarching direction or roadmap was
provided for IT projects. Rather, needs were addressed as they emerged. Thinking back to this time
period, one member of the IT department recalled:
There was no strategic goal. Others were doing it, so we decided to jump in as well. Since there
was really no planning or even particular objectives, the IT projects were not particularly
effective in solving the company’s problems, and the use of the systems at that time was less than
satisfactory.
Vendor withdrawal of support for the MRP-II system in 2003 did not help. At that time, Dr. Fan Zhu
came on board as the new head of the IT department. Understandably, he was under tremendous pressure,
faced with the dilemma of having to direct resources both to the immediate and emergent needs of the
company, and to the development and execution of an overarching computerization plan. Satisfying the
former needs would likely ensure smooth operation in the short term and hence ease the pressure Zhu
would face from senior management. Satisfying the latter needs, however, would be more proactive in
directing the future development of the company, the trade-off being disturbances to business in the short
run.
Instead of addressing these and other emergent IT projects reactively, Zhu believed that success required
defining clear objectives and expectations, and then constructively aligning initiatives with the company’s
strategic goals. Zhu explained:
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Keda’s goal is to be a world leader. Such a goal cannot be attained by simply increasing labor
hours. It requires a well established structure and system … including computerization as a means.
Computerization is an auxiliary tool that helps [Keda] to achieve its goals and develop its
business.
With this strategy in mind, Zhu decisively ordered a halt to all ongoing IT projects and refocused his
employees’ efforts on developing a comprehensive five-year computerization plan. This plan would
address both short-term needs and long-term strategic goals to propel Keda forward. In devising the plan,
Zhu relied heavily on Benjun Zhang, who eventually became the head of the IT department. According to
Zhang:
When working out the plan, we focused on how much investment was needed and in what kinds
of systems, what our objectives were, what hindrances the company faced, why we needed
computerization, and what problems we were targeting to solve.
Such a comprehensive technology plan had many complexities. The first step was to conduct a companywide status quo analysis. Existing problems were identified, business requirements were collected from
various levels of management and a set of shared objectives was established. Objectives were then
prioritized according to their urgency and how well they aligned with the company’s strategic goals.
Ranked high on Keda’s wish list was an integrated organization structure that would “break”
departmental boundaries and replace them with streamlined data flows and integrated business processes.
By imposing standardized processes and procedures, the new system would provide improved
management control and information quality (e.g., availability, accuracy and timeliness).
The result of the six-month planning process was an encompassing IT blueprint that included
implementation projects for enterprise resource planning (ERP), product data management (PDM), office
automation (OA), manufacturing execution systems (MES), customer relationship management (CRM)
and supply chain management (SCM) solutions. Each of these projects would be completed in phases. A
key element of the plan was to develop a centralized, unifying, shared platform on which all of the
business applications would run (see Exhibit 1).
The plan provided detailed analyses of each project, including objectives, expected investments and
benefits, feasibility in terms of factors such as staffing and technology requirements, risks and alternative
solutions. According to the plan, the ERP implementation project was a priority. Time was critical.
CHOOSING AN ERP VENDOR
One of the easiest decisions Zhu faced was whether to develop a customized ERP system in-house or to
purchase the technology from a third-party provider. The reality was that Keda was out of time. Riamb,
the vendor of the current MRP-II system, had ceased providing maintenance support, making urgent the
need for a replacement system. The company generally lacked internal IT expertise, and building a large
team for such development would be expensive and time-consuming. Furthermore, Keda derived its
competitive advantages not from proprietary business processes but from product innovation and price
competition. Although successfully implementing a packaged solution was far from guaranteed, Zhu
believed that customizing an existing system would be faster, cheaper and of higher quality than building
one from scratch:
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Enterprises need to be clear about their core businesses and competencies. For instance, we could
have developed in-house our own ERP system, but that would not be very smart. Why reinvent
the wheel? We prefer renting or buying existing solutions for anything outside of our core
business and competency.
Choosing a vendor, however, was not as easy a decision. Although a global vendor might be more
experienced, a local vendor might be more suitable in a cultural context. A balance between risk and
benefits needed to be struck. Keda contacted 20 software vendors, both local and global, including
Kingdee, Lima, Tianxing and several SAP vendors. The vendors were invited to visit Keda, to be
introduced to the needs of the company, to demonstrate how their software packages would satisfy those
needs, to share their past experiences and to discuss other implementation issues (see Exhibit 2 for some
of the main selection criteria). Zhang recalled:
Vendor assessment was conducted as the ERP project kicked off. We invited both local and
foreign software vendors to visit our company for detailed assessments. Through these visits, we
also aimed to let Keda’s middle and top managers learn more about computerization and ERP in
general.
Zhu also took a proactive role in visiting existing clients of these vendors:
We visited their existing clients to confirm that what they’d showed us was real. In these
referrals, vendors would likely put forth their most successful cases, and by comparing real
production environments in the industry, we had a much better idea what suited us.”
Through these visits, Zhu and Zhang gained insights about not only the vendors but also possible
complications in the implementation process. These insights proved invaluable later in the
implementation process because Keda could avoid the same mistakes committed by others. For example,
as Zhu commented:
After visiting several enterprises, we observed something very interesting. The only ones who
seemed to be working on the ERP projects were the IT departments. They were churning out
reports, workflows, etc. — activities we thought were outside the work scope of an IT
department. Where were the business managers?
On the basis of these encounters, Keda short-listed nine vendors to respond to a request for proposal
(RFP), which described the exact needs of the company and provided a standardized response form that
would allow Keda to quickly compare vendor offerings. Vendors presented their proposals over a threeday period. Each vendor offering was rated according to strategic alignment goals. Zhu ensured that
senior managers, including the director, were involved in this presentation, negotiation and selection
process. Zhang explained the top management involvement:
If senior managers would not even attend these meetings, then we knew their so-called support
for the project would remain superficial and that project implementation would be difficult. On
the other hand, if they were interested — and they should be, given that this is a CNY10 million
project! — we hoped they would raise questions during the vendor presentations and give us a
feel for what they were excited about.
SAP emerged as the winner. According to Zhu, SAP’s ERP solution appeared to be sophisticated and
feature-rich. It would support complex operational processes across multiple production plants. As an
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industry leader with more than 35 years of experience and more than 40,000 client implementations, SAP
had a proven track record of successful ERP implementations. The fact that SAP had been adopted by
SACMI, a major competitor of Keda and the global industry leader, was not inconsequential.
ASSEMBLING THE IMPLEMENTATION TEAM
As Zhang explained, different groups were responsible for getting the SAP system up and running:
There were three main roles: the key users, the consultants, and the IT officers. The key users
were at the core, the consultants acted as coaches, and the IT officers provided task support to
users and consultants. Success or failure hinged on the key users, since they dictated the future
workflow.
Because Zhu believed that ERP was about people more than technology, once the ERP solution vendor
was on board, Zhu focused on assembling the rest of the project team, which was a painstaking process.
In recruiting departmental representatives, Zhu made sure to involve vital representatives, such as
departmental managers and essential operational staff, who possessed a comprehensive understanding of
the operations and needs of the departments. His approach emphasized user involvement as a critical
success factor:
In assembling the project team, we insisted that the “top dogs” of the various departments be
involved. Also, we tried to pick those who were deemed indispensable by the departments. We
relied on how vehemently departments opposed to the particular person’s involvement in the ERP
project to judge how indispensable he was.
The more indispensible employees were to their department, the more Zhu wanted them on the team. He
also made sure all members had a clear idea of their roles and responsibilities in the project.
Exhibit 3 illustrates the team composition and assignment of responsibilities. In brief, top management
would provide overall project direction and make critical decisions; consulting support would be provided
by personnel from Digital China; project managers would be assigned from both Keda and Digital China;
departmental representatives would oversee the business process redesign and system design aspects; and
the IT department would provide all necessary technical support.
Each ERP system module was assigned an owner from the associated department who was fully
responsible for the workflows and operational details of that module. These key users ensured that the
system’s design correctly reflected business practices, and they also played a crucial role in training users
within their respective departments.
On a more tactical note, Zhu went to great lengths to ensure that the project team worked as an integral
unit. He believed that a determined team effort was not only beneficial but essential for project success:
The arrangement was for the head of each module to work together with the IT department, with
the marketing manager representing the marketing department, the purchasing manager
representing purchase department, etc. At one point, their computers were moved to our office,
and we literally worked together.
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This physical collocation of ERP team members meant that departmental managers would have time to
work on their departmental tasks only after 5:00 p.m. Not surprisingly, this scheme was not popular.
According to Zhu:
There was a lot of resistance to this arrangement. Some reasoned that if they were required to
work with the project team and had to be away from their offices for five months, and their
departments continued to function normally, then they should probably all quit since that proved
they were of no value to their departments!
Fortunately, senior management was supportive. After Zhu reported the opposition and concerns to the
director, a reward system was constructed to resolve the issue. Because departmental managers had to
work longer hours to keep their department afloat, they would be compensated with bonuses. On the other
hand, employees who were unsupportive of project work and missed project meetings would be assigned
to serve at the canteen during lunch hours for a week! Zhang explained:
This arrangement was highly effective as no one wanted to be embarrassed! After all, this would
be a senior management decision, and if anyone really got punished this way, to serve at the
cafeteria for a week, his career in Keda would be all but over.
IMPLEMENTING SAP
With key decisions having been made and the team assembled, the ERP implementation project at Keda
was finally underway. In many ways, the challenges had only begun.
The operations and workflow in many departments had to be modified and streamlined, and the
organization structure required adjustments to accommodate the ERP system. In particular, as-is
processes had to be studied, and to-be processes designed. This responsibility was given to the key users,
who were tasked with writing the specific requirements for the system by describing the inputs and
outputs. Keda IT specialists would then implement the requirements.
Key users were also responsible for specifying the data model. As Zhang explained:
Data was a main issue. The sheer amount of data was one issue, and the data model was another.
We had to devise a data model to support all the operations and workflow. Since operational
experience was needed in this specification, we assigned this responsibility to the key users.
Much work was put into effecting these changes. For instance, as Tian, the person-in-charge of the
materials management (MM) module, recalled: “Data preparation was the most difficult task. We spent a
lot of time taking stock and renumbering stock codes so as to ensure data accuracy in the new system.”
With major change came major disagreements, both between different module owners and between
module owners and consultants. According to Tian, if discussions among departmental representatives did
not result in an acceptable compromise, the matter would escalate to the project management staff who
would try to balance the way users wanted to work with the way the system was designed to work. Zhang
added:
The critical issue was balance. Consensus could not be reached every time. In practice, because
SAP was such a well-established system, we adopted the consultants’ recommendations almost
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100 per cent of the time. We were more inclined to adopt the model the system was originally
designed for, and make changes to the workflow and its management.
Implementation was relatively smooth and speedy. Zhu again stressed:
There was no way the IT department alone could have achieved so much. Take BOM [Bill of
Materials] module for example. We had over 30,000 products. If each was to have merely three
levels of raw materials and sub-parts, we would end up with 90,000 levels to specify in the
system. There was no way the IT department alone could do that.
Top management support was critical throughout the implementation. The chairman of the board himself
was present at five meetings, four of which dealt with the progress and status of the computerization
project. He was also present for some of the regular project meetings, the blueprint design briefing and
the project launch ceremony. When asked about his success on securing top management support, Zhu
offered this advice:
You cannot let the Director’s support remain verbal; it must be realized in actions. Firstly, he
should be involved in the major events, milestones, and decision-making. Secondly, you should
report to him all challenges and difficulties faced in the implementation process promptly, and
not wait until the issues have already surfaced, so that you don’t appear passive.
Staff training was conducted in parallel with system testing. Zhang explained:
The first level of training was provided to selected key users by the consultants. The selected key
users then transferred their acquired knowledge and skills to other users. At the same time,
selected key users were responsible for preparing operating manuals for all users.
By conducting system training and system testing in parallel, time was saved, and users were able to
identify potential malfunctions and gaps. Through testing, users also picked up important skills in using
the system. As Zhang put it, “Testing was training.”
GOING LIVE
Five months after the project team was formed, Keda prepared for system deployment. Timing was
carefully chosen to mitigate risk and minimize business disruptions. Zhang explained the reasoning for
rolling out the new system in August: “Every industry has its peak season and low season. For us, the
months of August, September, and October were the low season when production pressure was lower.”
At this point, Zhu was faced with another strategic choice related to deployment. While a phased
implementation would be less risky, a higher risk “big-bang” implementation had the potential to offer
Keda immediate, full functionality. To expedite the entire process, an aggressive big-bang approach was
adopted. Zhang explained:
We did a rough assessment and we did foresee the possible problems immediately after cutover,
such as delay or even suspension of production. However, if we were to do a parallel rollout, it
would take a month at least to stabilize, during which all data and work would need to be
processed twice. Given the huge amount of data and the already heavy workload, parallel rollout
was not viable.
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Work did not stop at cutover. Problems surfaced immediately and quickly translated into production
delays. While anxiously working through the technical problems and trying to circumvent production
delays, Zhu once again had top management reassurance:
We notified the Director himself before rollout about possible delays in production, and explained
that the ERP rollout represented a fundamental change in how our staff operated. The Director
was extraordinarily supportive and said that he could tolerate ERP-affected deliveries in the first
year.
The implementation team was uncertain how open users would be toward the new system. Because most
prominent ERP systems were originally developed with users in North America and Western Europe in
mind, some had suggested that cultural complications might arise in the Chinese setting. In particular,
opposition to technological changes might be especially pronounced in the Chinese context due to feared
loss of both status and discretion and the use of unrecognized performance metrics. Indeed, when the
system went online, workflow and operations changed dramatically, and users in some departments were
unsupportive of the ERP initiative. Resistance started to surface once again. Zhang pointed out:
When our ERP system first went online, some felt that work became more tedious. For example,
materials for production now had to be checked into and out from the warehouse, before taking it
to the production plant.
He attributed users’ resistance to a power struggle brought about by the drastically reengineered business
operations:
Resistance mainly stemmed from the redistribution of power. For example, inventory
management was previously decentralized and each workshop had its own inventory. Now,
inventory management was centralized so that resources could be shared and better managed. On
the third day after rollout, a workshop manager came to us and said that this centralization was
wrong and he needed to set up his own inventory separately once again. Of course we said no,
since that would be in conflict with our ERP workflow. But on the fourth day, he shut down the
workshop anyway. The senior executives had no choice but to replace him.
Zhang recounted another incident:
We had new designs and new production orders every day, and these placed a lot of pressure on
the Purchasing Department and its manager. After one month, he could not cope anymore and
decided to bypass the ERP system. Senior executives promptly replaced him.
Zhang justified the rationale behind these forced compliance actions:
This is how things work in China. When a new person is promoted to a new position, he will have
no conflict of interest with the new system, and will therefore be willing to comply. Then
everything else is easy, and can be solved by an increase in resources.
In the Chinese context, organizational culture is imposed. In China, workers look up to those in authority
to provide direction. When top management demanded changes, they were accepted. In other words,
country-specific culture was exploited to attain project success.
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Of course, forced compliance was not the only way Keda dealt with issues. For instance, after system
rollout, some users were not completely satisfied with system operations and interfaces, and they
requested system modifications from the IT department. However, because the users were the same
people who originally specified most of the system operations, Zhu was able to fend off these requests
temporarily, until the system was stabilized. He elaborated:
Imagine if the IT department were originally responsible for specifying the requirements and
system flows? In that case, key users would demand endless changes, causing major delays in the
project. Fortunately, since end users were responsible, they had no excuses. They had to accept
and adapt.
Within months of going live, the ERP implementation effort was clearly a great success. Data accuracy,
including that for production planning and inventory management, was estimated to have improved from
85 per cent to 98 per cent. Zhang explained:
Information was much more transparent after system rollout. Before ERP it was very difficult to
trace price paid for materials purchased, but after ERP, price analysis could be done conveniently.
As a result, Keda enjoyed improved market responsiveness, decreased stock holding costs, a significantly
better product delivery time and faster monthly financial reconciliation. Zhang offered one example:
We used to struggle with machine press production, where delays were common. Previously, we
produced about six machine presses per month and faced constant pressure from senior
management. However, one year after the ERP implementation, with exactly the same facilities,
we were producing over 30 presses per month. This dramatic improvement in production capacity
is attributed to the ERP information system.
Due to improved information dissemination, decision quality also improved. Zhang described another
example:
After ERP rollout, through cost analysis, we realized that the cost of a polishing machine we sold
for US$50,000, was actually CNY400,000 (US$52,512)! These orders did not bring high profits,
and management shifted its focus from developing foreign markets to controlling costs.
FUTURE OF ERP
The ERP implementation project had been successful; however, Keda had not yet fully capitalized on the
centralized data and processes that were now possible because of the ERP system. The company was
facing significant information needs, and needed to improve productivity and decision-making.
ERP is an enabling technology. By implementing ERP, Keda was strategically positioned to reap the
benefits of computerization. ERP served as the core on which systems, such as customer relationship
management, business intelligence and supply chain management, could be built to enhance customer
management, optimize decision-making and coordinate vendors, respectively. To Keda, ERP was a
beginning rather than an end.
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EXHIBIT 1: KEDA’S COMPUTERIZATION PLAN
E-Portal
Business
Intelligence
Customer Relationship
Management
Enterprise Resource Planning
Human Resource
Management
Logistics
Facility
Management
Financial
Management
Office
Automation
Inventory
Management
Material
Management
Quality
Management
Sales
Management
Manufacturing
Execution System
Customers
Vendors
Supply Chain
Management
Production
Planning
Project
Management
Product Data
Management
Source: Keda Industrial Co. Ltd.
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EXHIBIT 2: KEDA’S ERP VENDOR SELECTION CRITERIA
[1] Is the system scalable in supporting current and future transaction load given the rapid
growth of the company?
[2] Is the feature set rich enough to support multiple production plants, multiple divisions,
and multiple currencies?
[3] Does the system workflow represent industry best practices?
[4] What are the reports available and how easy is it to generate new customized reports?
[5] Does the vendor have a good track record in previous implementation projects? In
particular, is the vendor experienced in implementing similar systems in companies like
Keda?
[6] Can the vendor be expected to provide reliable long term system support and
maintenance?
[7] Is the system localized to the Chinese market so that it can be effectively used by local
users?
[8] What project management and consulting services are available?
[9] Is the overall cost (initial plus annual maintenance) justified given the functionalities
offering?
Source: Keda Industrial Co. Ltd.
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EXHIBIT 3: KEDA’S ERP PROJECT TEAM STRUCTURE
Project Steering Committee
Overall
Project
Direction
General Manager
Assistant Project
Manager
Project Manager
Consultants
Strategic/
Tactical
Decision
Business Strategy Group
Key User – Production Planning
IT Specialists
Key User – Material Management
Key User – Financial Management
Process/
System
Design
Source: Keda Industrial Co. Ltd.
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