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News In Review

April 27, 1998

Boston Beer Co.
Drinking In Enterprise Resource Returns

By Tom Stein

Read about these companies and their ROI programs:
Boston Beer Co.

Case Corp.

Elf Atochem

Hilton Hotels

Sears, Roebuck & Co.

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ROI In The Real World

I mplementing SAP's R/3 suite of enterprise software can be a difficult, even dangerous, undertaking. But for those who do SAP right, the rewards can be significant. One that did it right--and got those significant rewards--is Boston Beer Co.

Boston Beer, the maker of Samuel Adams Boston Lager and other craft-brewed beers, went live with R/3 on Jan. 1, 1996. The company will achieve an 83% return on investment over an initial five-year period, due to operating efficiencies in the administrative and expense-control areas, according to a consortium of independent consulting firms that evaluated the implementation and published their findings in The ROI Report, an industry newsletter. The report also noted that Boston Beer will realize additional benefits through its newfound ability to strategically analyze sales and customer informa tion.

For Boston Beer, moving to SAP was a matter of survival. During the early '90s, the company chalked up a nearly 50% compounded annual growth rate, with revenue jumping to $191.1 million in 1996, up from $29.5 million in 1991. There was just one problem: At the same time Boston Beer faced new competition, its financial and distribution systems couldn't keep pace with the company's rapid growth. For instance, to better understand its business, the brewer wanted to integrate information from all areas of its operations, something it could never do before. "We had a three-year-old business system, but we had already outgrown it," says Martin Roper, Boston Beer's chief operating officer. "We wanted a software package that would grow with us, whether we were a million-dollar company or a billion-dollar company."

Picking the new software involved not just the IS group, but the entire management team, including CEO Jim Koch. "Top management has to be involved in major decisions, and changing a business system is a very major decision," says Roper. "It shouldn't just be the IS department involved, because everyone in the organization will be impacted by the decision."

Taejin Park, Boston Beer's IT manager, couldn't agree more. "The IT department is very tied to the business," he says. "We do not invest in technology just for the sake of technology. My job is to use technology to make Boston Beer a leader, and to make better decisions so we can ship more beer."

More than a dozen vendors, including SAP and Oracle, were evaluated. Each was asked to prove it could perform such tasks as tracking bottle and keg returns from distributors, establishing electronic communications with distributors, and automatically translating the forecast information from distributors into a packaging material forecast.

Big Investment
The project is proving to be a major investment for Boston Beer. The total cost of the R/3 implementation, excluding such infrastructure costs as new PC s and a Novell LAN, has already been approximately $1.8 million over two years. Here's the breakdown:
  • $700,000 for initial SAP license fees and consulting costs,
  • $462,000 for hardware costs, including Hewlett-Packard Unix servers,
  • $300,000 for development and reporting work,
  • $293,000 for additional implementation and training costs, and
  • $88,000 for internal staffing costs.
Though this is a considerable investment for a growing company, CEO Koch says every penny was necessary. Indeed, he likens the commitment Boston Beer has made to SAP to the relationships IS departments once had with IBM. Already, his company is seeing the payback. The ROI Report estimates that for the five-year period from 1996 to 2000, the company will realize $9.1 million in savings and benefits, though the newsletter declines to specify which metric it used to estimate returns.

Among the major benefits of the implementation on the financial and accounting side alone:
  • Performance: Monthly closings now take 10 days, down sharply from the previous two to three weeks. The goal is to reduce that to just five days.
  • Systems: Accounts pay- able has increased purchasing discounts by $100,000 a year. Previously, this was nearly impossible because orders were handwritten and receipts were tracked manually.
  • Efficiency: Accounts payable was able to reduce head count because in the past it had to hire an extra person to ensure invoices weren't paid twice.
  • Payments: With its recent implementation of the electronic funds transfer module, Boston Beer expects to cut five days off its collection of accounts receivable this year, and 10 days next year. In interest alone, the company expects to save $500,000 by the year 2000.
The R/3 system is also bringing about several hard-to-measure benefits. For one, Boston Beer has been able to integrate all sales, distribution, and financial data. "Now we can drill down on payments and follow a sales order through the who le customer life cycle," says Park. "This is huge, because it allows us for the first time to do real analysis. We can see how much we are spending on promotions and marketing for customer X, and then we can see how much product that customer is actually selling."

Looking ahead, Boston Beer plans to extend many of its SAP applications onto the Internet, giving its wholesalers and distributors better and more timely access to information. Says Park: "You can't put a price on customer service like that."


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