By Martin Piszczalski, Management Consultant
SAP Ag, a German company that produces enterprise resource planning (ERP) software, is the world leader in client-server ERP systems with 39% of the world market. SAP and its European arch-rival, the Baan Company, together are taking the North American market by storm. Among the large, tier-one suppliers, those choosing SAP include:
At the original equipment maker (OEM) level, Chrysler's international operations have selected SAP. Likewise, General Motors has picked SAP for financials in its French operations. To show its seriousness in the U.S. auto market, SAP is also opening a Detroit automotive industry center of excellence. It will include a staff of software developers dedicated to incorporating North American automotive requirements into future, core R/3 releases.
In Germany, SAP is the dominant supplier in the auto industry. Its stable includes:
Furthermore, the software firm is still growing rapidly (if somewhat slower than it had been) at 33% a year in both pretax profits and revenue. Hence, an obvious place to seek a deeper insight into ERP installations is where SAP has the greatest number of customers in Europe.
That region is roughly two years ahead of the North American market in SAP implementations. Furthermore, most R/3 owners worldwide are in the launch phase, not production mode. With the implementation path fraught with potholes and project-run rates hitting millions of dollars per year, ERP project managers would do well to keep abreast of what their peers are doing in Europe. The University of Berne's survey of 72 firms now implementing R/3, conducted by Prof. Gerhard Knolmayer, covered SAP's third-largest geographical market, Switzerland. Only Germany and the U.S. had more installations when this report was issued in 1995.
U. of Bern Survey Finding: Biggest R/3 Headache is Release Upgrades
The Swiss research reveals startling findings. Remarkable, for instance, was the size of R/3 users. While it is widely known that very large firms embrace SAP, the greatest clustering of survey respondents was in the 200 to 300 employee category. Indeed, one Swiss firm implementing R/3 had only five employees!
On the other hand, the greatest challenge reported by R/3 users was in managing the software upgrades coming from SAP. This difficulty occurred broadly, including in firms not modifying R/3 source code, rather they were merely installing the "vanilla" version. At its worse, some R/3 users are finding themselves in perpetual, systems-integration mode. Project managers report having to revisit previously installed modules that no longer work due to SAP changes made in a later release.
For instance, a later release may employ an undocumented change in the scheduling algorithm; this forces the implementation team to re-implement sections that had previously operated correctly. Likewise, some users migrating from R/2 to R/3 find the transition rough.
The survey respondent companies, as a group:
Different Business/Auto/Manufacturing Climate in Europe as Well
Europeans have had significant business differences with their American counterparts that are worth noting. For instance, Europe:
Despite SAP's early dominance of the European market, the German software vendor must still fiercely compete for its home market. For instance, Siemens recently selected PeopleSoft for its human resource function. The German sunroof maker Webasto in Munich picked QAD for its manufacturing software.
In addition, European countries have national software houses that can substantially undercut SAP in price. Although the functionality of this software may be just 20% of that contained in R/3, several manufacturers believe the smaller vendors and packages offer the critical set of functions and features they need. Furthermore, the more modest packages are often faster to implement. These vendors are also achieving market success. The software vendor NS Soft, based in Lagenthal, Switzerland, for instance, has over 500 ERP installations. A system based on its Miracle software costs about $500,00 vs. roughly $2 million for an SAP R/3 system.
Recommendations to SAP Prospects, End Users: RFPs, Re-implementation
North American prospects and end users can benefit from some of the hard-earned lessons of their European counterparts. One decisive area is in requests for proposals (RFPs) and contract negotiations. Professor Joachim Griese of the University of Berne (Switzerland) recommends that prospects craft their own ERP contract proposals rather than merely sign what the vendors offer them. Included here should be performance metrics, both by particular module and for the overall system.
Examples of module metrics include "The general-ledger module will be able to process X number of invoices..." and "The manufacturing resource planning module will be able to generate a master production schedule in X time." Secondly, the contract should include language for overall system performance. An example would be "The system will deliver X number of transactions/second..." In order to proactively act here, the ERP buyer should allocate budget for the legal preparation and negotiation of this contract.
In another area many R/3 newcomers unwittingly set themselves up for a rude shock (as well as blown project schedules). The problem centers around a key, mid-project milestone—the point where all the table parameters have been set and software appears ready to go. At this point the project team naively assumes they have correctly modeled the desired business processes and have mapped them appropriately to the R/3 functions. At this "moment of truth" the software inevitably does not work. What remains is one to three months' additional work. In this period, the project team must re-implement the software, reset parameters and so forth, based on the behavior (and holes) they discovered in their first attempt.
This process continues, module by module. Typically, a manufacturer first implements R/3 financials (FI, CO), then the materials management (MM) module, and so forth. The production planning and control (PP) module is often last. However, production planning is often the most difficult to implement.
Other suggestions from seasoned European users include that the project team:
Heeding these words can lead to more successful implementations. For instance, the machine-tool maker Feintool, based in Lyss, Switzerland, describes its R/3 implementations as "successful." Four years ago they installed Release 2.0 for financials, human resources, and production.
Feintool's SAP staff noted that R/3 upgrades in the past have consumed "lots of time." However, they anticipate the technical upgrade to Release 3.0 to take only a few days. In addition, retaining skilled SAP employees is a problem for Feintool, just as it is for many North American R/3 sites. Feintool, a maker of stamping presses for Mercedes-Benz and Ford, runs R/3 on Digital Alpha servers using Oracle's database.
Importance of Monitoring Overseas Installations
Automotive executives, more than ever, view the world as a single, unbounded market. However, those responsible for specifying the computer systems necessary to build and deliver those vehicles often maintain a remarkably parochial view. Acquirers of software are expending an inordinate amount of effort evaluating the functions and features of today's enterprise resource planning (ERP) packages. To their detriment, many ERP shoppers are spending relatively little time to investigating what the long-term relationship might be like with a particular vendor. This is remarkable, considering that ERP systems can take years to install; furthermore, they are likely to need active updating at least five to 10 years after initial installation.