Why do companies spend millions of dollars (in some cases, billions) on enterprise resource planning (ERP) software when the focus is on e-commerce or e-business today?
E-business is the order of the day for many companies for one simple reason: Without the right infrastructure that ties the front- and back-office together, you can forget about competing in the virtual economy. Bringing your business online requires up-to-date information that starts from having an integrated suite of software—often referred to as ERP. The gains are there to make only if there is enough preparation and planning. Recognising this, two leading companies Ford Motor Company and British American Tobacco Malaysia have invested in such software systems in order to gear up for the future.
Ford Motor Company
Ford is a name that carries with it a long tradition that dates back to 1903 as a pioneer of the automotive industry. Now, 97 years later, Ford Motor Company, as the company is now called, continues its legacy of bringing world-class range of car brands to encompass every level and every segment in the market such as Volvo, Ford, Laser, Mazda, Jaguar and Aston Martin.
But while its name rings with recognition, Ford Motor Company still has a long way to go before it can be a force to be reckoned with in most parts
of Asia. The car manufacturer has been working double time to be a major player in the region in the 21st century.
An expansion strategy has been set to bring Ford Motor Company to the forefront of the region’s automotive industry. With a market that only initially covered Australia, New Zealand, Japan and Taiwan, Ford began expanding into “emerging markets” of the Asia-Pacific about four years ago.
“We began aggressively building our presence in the region around 1996. We believe that Asia is where the growth will be coming from in the next century and we need to strengthen our foothold in the region. When we go into these ‘new markets’, we are putting things there for the first time—implementing business processes as well as information technology infrastructure,” said Bipin Patel, director of Process Leadership for Asia-Pacific, Ford Motor Company.
For the company, expansion means more than setting up sales and marketing offices. It also involves the setting up of car assembly plants to supply
Ford Motor knows that having its manufacturing closer to the customer is a strategic advantage. At the heart of this customer-centric strategy is an ERP system.
In the past three years, Ford Motor Company has built a technology infrastructure using QAD’s MFG/PRO software. The company has implemented 10 packages in assembly plants located in India, Thailand, China, Vietnam, Malaysia and the Philippines. The deployment of such a system is critical to its smooth and trouble-free operation in a new country.
“Our first implementation was in India in 1996. At that time, ERP was the rage and a trendy buzzword. But there are other things that attracted us towards such packaged software. One, we knew it is impossible to deploy our existing corporate system because they were too big and complex for an operation that is only starting up. Those systems were designed to handle big volume of cars like those in the US and Europe. Two, we wanted to gain additional knowledge in implementing not only an ERP system but also business processes that replicate the best practices deployed in other places.
“What makes an ERP system doubly attractive is it integrates the different divisions of a company and is cross-functional. Furthermore, it doesn’t require us to write our own financial and accounting applications—software that doesn’t give us any additional competitive advantage,” said Patel.
But the most important factor that Ford has
to consider is affordability and scalability. And
these twin requirements tipped the balanced in favour of a package ERP system like MFG/PRO.
“We have always employed what we call a ‘reasoned approach’ to IT and deployment. So that if a country like Vietnam makes vehicles in the low thousands, our investment mirrors the business model. We wanted something that is scalable—small but also could grow. We wanted to have it affordable because clearly the business is just starting up and it will not generate profit for some time. Therefore, we have to deploy a system that fits that business model,” Patel said.
As Ford’s director of Process Leadership in the region, Patel reports to the ultimate head of IT and process leadership in the company, as well as to the vice president of the Asia-Pacific operations. In a similar manner, each Process Leadership manager in each country reports to two persons—to Patel and to his respective local managing director.
With this set-up, Patel pointed out that Ford
has its finger on the pulse of both the IT and the business world when deliberating on a proposed
“In terms of IT strategy, that responsibility falls on me and my team in Asia. We develop strategic direction, technology and business processes working in tandem with our business partners. An IT project may either be a top-down initiative like in the case of our drive towards e-commerce, or it could be a bottom-up initiative where a particular country, for example, is enhancing a distribution channel and is in need of a breakthrough IT project. And my job would be to ensure that it comes through and that we would provide the best process technology and right learning from our other countries. And if the project works, to make sure we replicate it elsewhere.
“So it is both top-down and bottom-up in terms of the evolving nature of our IT projects. Because we generally have projects that we know will drive and grow our business, decision making involves both the Process Leadership team and business managers.”
According to Patel, there is no hard and fast answers concerning the cycle time involved in decision making. The challenge, however, is get the approval and full support of management.
“Once they buy into the strategy, then part of the strategy includes what the funding proposal and business strategy would look like. So we do a lot of such pre-work much earlier on. We are lucky that we have strong links to the business’ organisational structure both centrally and locally. Once we convinced the management to give the ‘go’ signal for an IT project, we don’t need approval for each one. What we would need is the approval from the business people for any spending that we do locally—the finance manager has to sign it and the local managing director has to sign the purchase order for high expenditures.”
According to Patel, funding for IT projects
comes both from the Ford central fund and from the local organisation.
“We take the best practices in different countries and we fund it out of the central budget. When it comes to infrastructure that we have to buy locally, then the local Ford organisation would fund it.”
Patel said that IT spending for this ERP project forms part of the total business proposal that is in Ford’s check-list when putting up operations in a new country.
“There are cases like in Malaysia where we and the joint venture company—decided to install MFG/PRO last year. Before that, they (the joint venture) had very little automation, very little systems. We presented them with a very specific IT proposal, and we showed them what had been done elsewhere.”
According to Patel, each MFG/PRO implementation that Ford does is different from the previous one, because of the company’s Best Practice Replication (BPR) programme.
“BPR is a business process for the collection
of high value, proven practices that can be
copied across many plants or functional areas of
According to company official statements, the BPR programme has identified about US$900 million in value and delivered over US$590 million in value since the programme started in 1996. It has collected over 2700 proven practices and replicated them more than 4200 times, thus leveraging a proven business improvement to its greatest extent.
“As in the case of the Philippines where we opened a plant last year. We decided to enhance the ERP system by linking it to an e-commerce extension. We have built a dealers hub to eliminate as much of the paper and fax communication. We also built a supplier hub where we put software between MFG/PRO and the supplier’s system in order for them to communicate with us directly through the Internet. These enhancements give Ford Philippines the competitive edge.”
But Patel said that in the three years that Ford has been implementing the software, the company has been able to constantly improve on the speed of implementation—cutting down the time from eight months during its first installation in India to an average of four to five months implementation period in a new country.
According to Patel, all emerging markets in Asia share the same core modules like materials planning, accounting, sales, and purchasing, among others.
“Also when we go into our implementation, a large part of the job is to train the end-users and explain to them what an ERP system is and what are the business processes that come with the package. We help do the initial setup by getting them to do the entry of the data into the system. What we have learned so far is that we have to constantly retrain people because people move and change jobs. Also, we try to extend the end-users’ knowledge by teaching them about the business processes involved in other modules so that they get the big picture over and over again.
“This is a challenge—making people think across the enterprise now that you have a system that is cross-functional. In relation to this, there is also the challenge regarding the people’s ability to deal with rapid change. Like in China, we are introducing this system that is quite a leap-frog from zero technology to state-of-the-art in a period of three to four years.”
According to Patel, each software system
runs independently and are not integrated with each other.
“In terms of the e-mail system, everyone in the company is linked into one network. But MFG/PRO is country-specific and plant-specific deployment linked through interfaces with the global Ford world. One of the crucial interfaces link the plant with Ford’s common suppliers around the world. This interface to the bill of materials provide up-to-date information about prices and parts availability,” said Patel.
“Also there is an interface to the global financial system which is important for closing the books and putting the ledger back to the Ford corporate world. So we have in each country established linkages with the global Ford world, and the interaction is between the country and the corporate world rather than from plant to plant.”
Meanwhile, corporate policy prevents Patel from giving the total amount that Ford has invested to set up MFG/PRO across the region. And while the company has a timeframe in mind in terms of recovering ROI, Patel said that the company is also using non-monetary measures like speed and quality.
“We are putting other things that will grow as the market grows. It always mirrors the affordability of the business equation,” he said.
Looking ahead, Patel revealed that the
company expects to push ahead with its e-commerce strategy using the Internet to tie together all the elements of its supply chain.
“Right now, most of my time is spent on e-commerce in Asia. One of the biggest advantage for us is the widespread availability of the Internet, allowing us to deploy technology very cheaply. If you take suppliers, we don’t have to put up Electronic Data Interchange links with them because they
are expensive but now we can use the Internet through an ISP.
“We have an e-commerce strategy that encompasses four threads. The first is company-to-consumer. The second is company-to-supplier. The third is company-to-dealers, and the fourth is intra-company.
“Company-to-consumer is really opening up Ford to the consumer whether it’s ordering directly or indirectly—the ability to interact to see what products we have as well as a way of getting unfiltered consumer feedbacks on our company and on our products. So there is this whole range of company-to-consumer e-commerce activity which we are piloting in our countries in Asia.
“In terms of company-to-suppliers, we want to take away the papers and faxes. And we want to use the Internet so that we can take time out of the order-to-delivery process as well as in terms of the inventory, administration costs between our supplier partners as well as for Ford.
“With company-to-dealers, we are putting dealer hubs—a portal where all transactions between dealers and Ford can be conducted—which also take away paper, inventory, administration costs.
“For our Internet, intra-company strategy, we have wired up all our people. Our Web-enabled BPR programme is one of the first initiatives in this area which allows us to copy our best practices from one place to another very quickly.”
British American Tobacco Malaysia
Another world-class company that has benefited from implementing a suite of integrated business applications is British American Tobacco Malaysia (BATM).
On November 3 last year, Rothmans International B.V. Group and British American Tobacco Plc completed its worldwide merger that resulted in the second largest tobacco firm worldwide after Phillip Morris International. The impact on Malaysian shores was the union of local tobacco giants, Rothmans Pall Mall (M) Bhd and Malaysian Tobacco Company (MTC) Bhd.
High on today’s business agenda is honing the supply chain management (SCM) at the recently merged BATM. By improving the management of its supply chain, the company can look forward to an effective and efficient record of inventory flow. Key information garnered is useful for defining consumer needs and providing best service possible to its retailers.
“This will help us make as accurate a forecast as possible and it will also simplify the product procurement procedure,” said Angelo Grasso, head of IT at the new entity. “Increasing flexibility within the organisation is crucial as is the process of gathering and assessing feedback from our distribution channels and from our customers.”
Grasso intends to achieve the task by creating
an “international-flavoured” IT platform from the disparate computing systems inherited as a result of the merger.
For Grasso, blending the two computing systems was a challenge even though both companies had recently implemented SAP R/3 systems prior to the merger.
Grasso is aware of the need to be very careful and makes sure that redundant processes are not duplicated and that strengths, are capitalised upon. “In the integration process, we need to harmonise our roles,” he said.
Prior to the merger, the bulk of Rothmans
products was sold in the domestic market and it
was reverse in the case of MTC that exported 50% of its products. The merger gives BATM a 70% market share. Internal studies had shown that group brands continue to dominate the market and remain attractive to consumers. And to support such services, significant investments has to be continually made to modernise its manufacturing and distribution facilities
And IT is no less an important element here. As Grasso pointed out, BATM’s main IT objective underscores its corporate mission. He added that each and every technology put in place is aimed squarely at securing higher returns for shareholders.
BATM began modernising its activities as early as the 1970s by using external services to conduct data entry work. It was only in the later years that the company began investing in computers.
“These were used mainly for accounting and payroll—mainly what we consider to be a back-office type of activity,” Grasso recalled.
In the early 1980s onwards, the company criteria changed. It not only looked at automating the book work but also at how they can become more efficient by adopting an easier mechanism to acquire goods and raw materials from outside.
The move towards automating procurement and to production planning processes for the manufacture of its products brought BATM right into the mainstream IT scene.
In 1983, BATM invested in ERP software called BPICs running on IBM equipment. According to Grasso, prior to the merger, both organisations followed very similar IT implementation routes. Initial concerns were how to automate the manual and paper intensive work before moving to more important areas such as how to grow as an organisation in terms of delivering their products to market.
“The issue is how do we keep our procurement and manufacturing activities on par with marketing and sales. We collected a lot of information from our customers to evaluate their needs and from retailers on how to improve the distribution network. This data helped determine quantities to purchase and produce,” he added.
Powering Business for the Future
In 1998, Rothmans and MTC made a significant technology shift when it decided to convert and refurbish its computing processes. After careful study of the software available in the market, both opted for SAP R/3 which was implemented enterprise-wide.
The SAP R/3 software implementation exercise was completed a little under 10 months at Rothmans and close to a year at MTC. Both systems went live from January 1999.
Sheer focus on the part of the IT team and solid backing from senior management sped up the implementation process, Grasso said.
“With significant effort put in to create and implement this system in the last two years, we now need to find a way to accommodate one another, fit the roles and responsibilities, and reduce duplicity due to the merger,” he said.
In migrating processes into a single entity, Grasso is mindful that a certain level of autonomy needs to be negotiated while the common activities are merged.
Grasso reiterated that in the process of integration, the company did not try to look at reducing headcount as it was growing rapidly despite the economic downturn.
Instead of downsizing, it chose to deploy its employees in over-staffed divisions to short-handed sections to increase efficiency. “Apart from retraining staff and equipping them with new skills, we also decided to outsource and opted for casual labour when necessary,” Grasso said.
He said that although the company did seek
the help of professional consultants in drawing
up and implementing the new system, BATM still held the reins. “We decided it was better for us in
the long run to have control of the project management work as it would benefit us if we went down this path again,” he revealed.
He also pointed out that there is a cost associated with using external consultants that will need to be justified in the long run. Hence, it made sense to have their own pool of in-house experts. By doing so, he hopes it will help build necessary skills and set career paths as well as provide more opportunities for internal development.
“The ability to train and grow our own support staff not only benefits employees involved but also delivers value back to the company’s shareholders. Besides, we don’t want to pay consultants to do the job three times over. Why not provide career paths within.”
Grasso also hopes that the strategy will bring a halt to job-hopping that epitomise the local IT workforce. While he does not dispute that there always will be people leaving for better prospects or personal reasons, Grasso believes that creating rewarding career paths benefit all parties involved.
Of the total 1900 employed by BATM, the 23 full-time staff in the IT department are mainly business analysts and infrastructure design specialists. Technical staff are hired on a temporary basis when needed.
“We want to provide a conducive environment for them to work in and, if you will, we like to have them job hop within the organisation instead of moves elsewhere. Here they can diversify their
skills and we know we have retained a good person,” he added.
Recruitment does occur, as and when necessary, and the company tends to pick fresh graduates who will be taught under its in-house management training courses.
Now with the merger coming on stream, Grasso revealed that in the next 18 to 24 months, the companies will concentrate its efforts on unifying the divergent business process that the companies had invested on heavily in the last decade.
As the global nature of the company dictates, Grasso reiterated that the implementation will certainly possess an international flavour. Computing platforms opted for deploying systems will be common. However, some are likely to piggyback on others or improved upon.
“What we want to do is fall back on that knowledge and improve on it. At the moment, we are still combining our information to make sure that we meet our targets that have been set for us and then we will be looking into more investments,” he added.
Overall, BATM’s technology roadmap is geared at constantly improving on supply chain management to enhance efficiency. “Flexibility is key as we strive to deliver not only for our group in Malaysia but all our offices worldwide,” he reiterated.
One of the tools under scrutiny at BATM is the Internet. The corporate standpoint of the ’Net is being evaluated from the supply chain and e-commerce perspective.
He said that the company has several missions
in progress where projects related to the Internet
will be undertaken with partners on how best to
use the ’Net.
The core team has been set up in London to run the project with trials taking place around the world on ways the ’Net can enable the business.
“It will be a business-to-business (B2B) model and we need to be clear on how to leverage that best before proceeding any further,” he said, adding that ensuring returns to shareholders is key.