Dow Corning Corporation was founded in 1943 to develop potential of silicone materials. Its principal businesses were silicone materials and polycrystalline silicon. It is a multinational corporation with 29 manufacturing facilities on five continents and greater than 50% of its sales generated outside the USA. Recent years, the trend of moving from an industrial to an information-based national economy changes the nature of jobs, products, services, and organizational form. IT is used as a competitive advantage so that the competition becomes more intense. The proper use of IT determines if an enterprise is a sustainable business with favorable long-term global opportunities, especially to the global enterprise like Dow Corning. It revealed that the company did not just settle down in its core automotive business but was constantly changing its structure due to industry change. However, according to the consolidate statement, the income to sales ratio is a relatively low level which shows the profit level is not satisfactory which may due to the breast implant crisis. To meet the requirements for faster cycle time, lower costs and greater responsiveness to customer needs, the management felt it is necessary to re-engineer the global supply chain at which the implementation of SAP/R3 is the heart.
A well-defined plan is the first step to a successful ERP implementation. Firstly, managers must study the current business situation in details to assess the organization's needs and make the decision to implement ERP where integration is necessary. The second activity is the education and recruit of end users involved in the implementation. Third, a project team should be formed which consists of experts from all functional areas to lead the project. With the help of consultants hired, whether to implement an ERP system will be evaluated and the best enterprise software provider and the best approach to implementing ERP will be selected. The system installation process refers to issues such as software configuration, hardware acquisition, and software testing. Data and information has to be converted to the format used in the new ERP system and servers and networks have to be upgraded. Then the system has to be refined to ensure the business functions are aligned with IT needs. The maintenance solves problems arise during operations.
Before deciding implementation of ERP, several issues must be considered: structural issues, technical issues and managerial issues.
Considering organizational issues, ERP systems help the formation of a more uniform organization by standardize the processes within the company and thus support uniformity. However, the business process has to be clearly defined because if a company's competitive advantage depends on its customization, standardizing their processes could not only lead to the ERP implementation failure, but could also result in a serious business failure because there is nothing to differentiate one company from the other.
To global companies like Dow Corning, standardizing its processes can also cause the lost of its competitive advantage to local, more flexible companies. Thus, before implementation, a company should decide whether to implement it globally, or implement some modules globally while adjusting other modules to fit local requirements to insure not losing the competitive advantage. However, the ERP implementation would take longer to complete and thus cost more money. One possibility is to implement only certain modules, such as finance and logistics, globally. However, in the case of Dow Corning, it intended to introduce all of the SAP capability at one time. It takes the risk of losing its ability to adapt to local conditions, thereby endangering its business. Because SAP did not provide full functionality, team members would need some 'bolt-ons' which would interface with SAP/R3 to provide capabilities that SAP had not provided such as bar coding, EDI. For the earliest implementations, the team intended to minimize bolt-ons to ensure that the core of the system went in successfully, but it meant sacrificing functionality that had existed on Dow Corning systems in the pasts. Take the evidence of bar-coding, their existing applications helped reduce the number of people necessary to do the tasks. They came back in with less functionality, obviously they were going to add more human resource to support their business.
The technical issues are mostly related to structural issues such as customization or writing company-specific software such as the bar coding in the Dow Corning's case. One of the challenges is the difficulty in integration of customized systems which are separate systems for each unit (financial, logistic, etc). Another challenge refers to the interfaces which enable the communication between old modules and new add-on modules.
To overcome these challenges, a huge amount of knowledge is required and most companies are not able to build up this knowledge in-house so they must rely on the support of outside consultants. Again, Dow Corning underestimates the complexity of SAP and the in-house learning without the support of consultants is not sufficient for the huge workload.
The managerial issues also have to be considered, as the change to ERP must be strongly supported at the managerial level and must be controlled at all levels. The consulting, training and implementation team make up more than half of the total cost.
The implementation takes long time for large corporations. Thus, an appropriate implementation team is very important which comprises of consultants from the ERP vendors and expertise from all functional areas of the firm.
Another problem is the resistance from the users to new system because they may hinder the success by using it inefficiently. Thus, the simply training program is not sufficient without an incentive system to encourage users use the new system. One of the key success factors is the support for the project from the company's top management. If the top management strongly backs the project team, the doubters will be convinced easily. Take a look of the Dow Corning case, the project team was consisted of 40 of the firm's top operations and IT professionals. However, there were no prior SAP/R3 expertises. The fact was that the team spent much time exploring what SAP/R3 software could and could not do. As the result, the team became overwhelmed by the complexity of the system and lost momentum. This is partly due to the leadership. It revealed that when Lacefield reorganized the team by reducing the leaders and bringing in new project manager, the momentum was regained with decision made under the pressure of deadline.
Implementation Approaches of ERP Systems
After all these preparation, it comes to the important implementation approach of ERP system. The system configurations, resource allocation, project management, and the project's risks are all affected by the implementation approach used. After the choice of the ERP package with the help of consultants from vendors, another decision has to be made. The modules such as financial, cost accounting and cost management, logistics and human resource have to be chosen to be implemented in which business units or locations.
The approaches the company could take to implement a large group of modules in different organizational units can be classified as big-bang, phased and small-bang. At one extreme, the implementation could be done by implementing all modules in every unit simultaneously which is called "big-bang" implementation. Therefore, the business process has to be checked in detail, but it is not necessary to create interfaces for old and new modules to communicate. Furthermore, the motivation is generally high because of the relatively short time period. However, the complexity is increased and the employees are under considerable stress. All users have to be trained at once and a high degree of consultant support is necessary. Some companies choose to initially introduce one or group of modules in one or small amount of organizational units. The project moves to the next group of modules and units step by step, so called "phased" approach. In this kind of approach, the complexity of implementation is reduced because it is easier to coordinate, control and organize the project. The costs are spread over time, making it too expensive for many companies. Also, at every step, the project team has to gain knowledge which they can use in the subsequent implementations. However, the creation of interfaces for new modules and existing modules to communicate can be nightmare because the strategy stretches over a long period. Also, the team will lose motivation because of the long implementation period. In Dow Corning's case, it intended to implement the full range of capabilities offered by SAP in order to integrate the sales, production, distribution, finance and human resources functions which refers to the big-bang approach. As a result, it added workload on project team which had to learn the software, design process and configure the system simultaneously and the highly integrated nature of the software meant that they have to lose some customized functionality to fit into the standardized business process.
If the company has more than one business unit or location, there is also a third possibility that is derived from the phased implementation: the pilot big-bang or small-bang. One business unit or smaller locality will be chosen for the simultaneous starting of the operation just in that locality. It is thus possible to obtain the experience of the simultaneous implementation without excessively harming the business. What follows the small-bang could be either simultaneous big-bang type implementations in the remaining localities or a series of small-bangs or phased module implementations.
Architecture
The architecture underlying the R3 implementation called for a centralized database despite the distributed processing. Global corporations like Dow Corning prefer the architecture which provides full control of the worldwide operations from the company's headquarters. And centralized human resource would be helpful to many units since people frequently move between units. The regional units might prefer the architecture which provides maximum flexibility to them in finance and manufacturing operations. Once the architecture is chosen, then implementing the architecture requires a good understanding of the system topology and all the project management issues must be resolved.
The implementation of SAP is not only difficult and expensive, but will bring risk to companies.
When we decide which ERP implementation approaches to use, two major factors have to be considered: the number of modules going to implement and the number of business units going to introduce these modules.
For a given company, the risk will be associated to the number of localities that the company has, and to the number of modules that will be implemented. Roughly, for a given strategy, a company with a greater number of localities and implementing a greater number of modules runs greater risks than a company with fewer localities and fewer modules. Therefore, it is more risky for large corporations to take the "big-bang" implementation approach method because it requires for more corporation.
Critical success factors
Nah et al. (2001) documented 11 critical success factors (CSFs) that have proved to be vital to the success of ERP implementation and CSFs unified model for ERP implementation projects (Esteves&Pastor, 2000) is represented in Figure 1.
Figure 1
Strategic
tactical
Organizational
Sustained management support
Effective organizational change management
Adequate project team composition
Good project scope management
Comprehensive business process redesign
Adequate project champion role trust between partners
User involvement and participation
Dedicated staff and consultants
Appropriate usage of consultants
Empowered decision makers
Adequate training program
Strong communication inwards and outwards
Formalized project plan/schedule
Preventive trouble shooting
Technological
Avoid customization
Adequate ERP implementation strategy
Adequate ERP version
Adequate infrastructure and interfaces
Adequate legacy systems knowledge
Because many of the success factors have been mentioned before, I choose some to evaluate the Dow Corning's re-engineering project in further details.
Dedicated staff and consultants
It is important to ensure that the staff believes in the project success. Consultants should help the implementation process while also share their expertise with the staff from the company. In Dow Corning's case, team did not get the support from the consultant at the beginning and lost motivation for a while. This is due to the recruitment problem of team members. However, fortunately, the team regained the confidence at the end.
Preventive trouble shooting
The effort and time required for the transfer of data from pervious systems should not be underestimated.
Appropriate usage of consultants
The number, how and when to use external consultants should depend on the ERP implementation needs. The company should not rely on consultants too much, because they may not have sufficient experiences in the industry and the knowledge of how the company's business process works. The best choice is to choose the leader of consultants from its own company.
Empowered decision-makers
Project team members must be empowered to make quick decisions to reduce delays in the implementation related to slow decision-making (Parr et al., 1999). Dow Corning delayed the decision making due to the lost of confidence in team members and this will prolong the period of implementation and add further risk on the large implementation project. However, fortunately, it reorganized team and tight deadline put pressure on decision making.
Adequate implementation strategy
As I have mentioned before, Dow Corning implement too many modules at the same time without sufficient study of its business process and a comprehensive knowledge of SAP/R3 system and expertise for it. This is quite risky especially for a large corporation like Dow Corning because it can end up with the return to previous step or even failure of the total project. The delay of the implementation can also increase the expense. Many firms failed due to the failure of finishing the activities on time within the budget. However, finally, the team managed to meet the deadline though some functionality had to be abandoned. In spite of these problems, the implementation created new work such as recording the movement of goods within a warehouse and individuals at the pilot sites already took advantages of having a single global system and this benefit will accrue over time.
Avoid customization
Organization should try to adopt its business process built into the ERP, rather than seek to modify the ERP to fit the particular business practices. After completely examined its business process and fully understand what SAP can really do for it, Dow Corning ends up with a far superior process and doesn't have to have customization adhere to standardized specifications SAP supports. However, this also reveals that the ERP project management did not have a sufficient preparation (examine and study its business process in details) before implementation. This increased risk of the implementation failure or even the business failure.
Conclusion,
An ERP implementation is a huge project from the organization which can be affordable and take up to several years to complete. However, when it is integrated successfully, it can bring huge benefit. The Dow Corning's project is successful generally, because it has fixed it drawbacks at the end the implementation.
