InformationWeek

May 24, 1999

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Making ERP Add Up

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Industry experts say companies must also take ROI into their own hands by building a clear set of measurements and tracking them along the way. That's the case with Pitney Bowes Inc., a $4 billion maker of fax machines, copiers, and mailing systems in Stamford, Conn., which is looking to a new business automation system from Trilogy Corp. to bolster profits. The company has many justifications for the project--an $8.9 million investment in product-configuration software from Trilogy, as well as the hardware and services needed to support the rollout--including reduced processing costs, faster order entry, fewer reorders, increased sales productivity, and dramatically reduced logistics costs associated with shipping the wrong products. When considering the software, the company estimated the implementation could save more than $3 million per year.

The Trilogy software is designed to let Pitney Bowes' salespeople quickly build complex orders for customers. Previously, salespeople carried around a manual the size of a telephone book. Configuring one of Pitney Bowes' products--or even figuring out which parts could work together--required intensive labor. By programming thousands of its business rules and constraints into the Trilogy configurator, the company could ensure accurate quotes, faster production time, correct pricing, and, ultimately, more satisfied customers.

"In the past, we would deliver products to customers that were not accurately configured and which were priced incorrectly," says Dave Thomas, project leader for sales automation at Pitney Bowes. "These orders had to be reworked and customers were unhappy."

Pitney Bowes has seen several tangible improvements since it began using the Trilogy application last October. The company says it has slashed the cost of its overall operations by 28%, resulting in an annual savings of $3.4 million. Sales productivity has soared because sales reps can configure and price a product right in front of a customer in less than 15 minutes, as opposed to the hours it used to take. Sales reps are averaging a 3.8% increase in overall sales, and order accuracy has jumped 41%, which means the right products are going to the right customers more often. As a result, Pitney Bowes no longer has to waste money handling returns from customers.

Data Exchange Corp., a provider of high-tech repair services in Camarillo, Calif., had an even bigger ROI goal in mind when it started implementing Oracle's suite of manufacturing, HR, and financial applications two years ago: to grow by acquisition. But CEO Sheldon Malchicoff says his company must have its own house in order before it takes on any others. It licensed Oracle's ERP system to get the flexibility, integration, and scalability needed to support that objective."We saw no way to manage this without a fully integrated ERP system," Malchicoff says

Malchicoff says he's seeing the results he anticipated. Since starting to use Oracle less than a year ago, Malchicoff says, he's been able to cut 10% to 15% from his total cost structure--a "huge" amount in actual dollar savings--thanks to improved processes, reduced error rates, and increased customer service. For example, if a customer has a defective copier and needs a replacement part, Data Exchange can satisfy that request the next day 98% of the time. That's because the software has a master scheduling module that lets the company anticipate failure rates in the field and better manage inventory by having the right replacement parts on the right shelves at the right time.

But Malchicoff warns that an ERP system isn't a cure-all and says companies should be prepared to make an extra investment in developing some of their own functionality. "Anyone who thinks an ERP system will solve all his business requirements is a little naive," he says. During the past two years, Data Exchange has invested several million dollars in its systems overhaul. A good portion of that money went toward custom coding.

"Each business is unique," Malchicoff says. "We did a gap analysis of what Oracle could do and what we needed to do for our business." The company wrote 19 modules comprising 50,000 lines of code for such things as logistics, process control, and data mining. That effort was just as significant as deploying the ERP software--and it cost just as much, an amount Malchicoff had to calculate as part of his ROI analysis.

Pitney Bowes also says there are many impediments to achieving ROI from new systems. So far, the company has rolled out the Trilogy product to 800 of its 2,000 sales reps. But to get maximum benefits from the system, there must be eager and wide-scale adoption--and Thomas admits it's difficult to get the reps to use the product, at least at first. The company says that the more sales reps resist new technology, the more it will affect their ability to sell. To get everyone on board, Pitney Bowes makes sure that one or two technically savvy reps in each region are available to assist slower learners. And the business message is clear: Those who don't embrace technology may not have a future with the company.

Payback Time
Despite early setbacks with their ERP initiatives, companies such as Toro and Owens Corning are starting to hit their stride. After spending nearly four years and $25 million implementing SAP across the company, Toro is seeing a return. The integrated nature of SAP and the higher quality of data it generates has helped Toro be more responsive to customer demand, officials say. For example, the company has effectively moved away from its old business model, whereby it tried to release finished products to a small group of regular distributors. Now, thanks to the new system, it can work directly with such retailers as the Home Depot Inc. and Sears, Roebuck and Co., which can receive just-in-time product deliveries from Toro. This, coupled with new warehousing and distribution methods, has resulted in an annual savings of $10 million due to inventory reduction.