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SAP ERP Implementation in State Owned Electricity Company

Julian Sukmana Putra

Case #2: SAP ERP Implementation in State Owned Electricity Company

This article is part of a series of case studies from Accenture Bloggers and Journalist Competition. The main purpose of this competition is to let people know more about the world of consulting, technology, and outsourcing, which are the main business of Accenture. You may comment, discuss, or share this article by mentioning the original source

Case Study
A state-owned integrated electricity company employing around 38,000 staff, serving over 37 million customers (households, industry, business and others) with a total asset of USD 35 billion (December 2009), has been operating throughout the country with non-integrated systems and non standardized business processes. The company's major issues were that business processes are not standardized and consolidated financial reports were not produced on a timely basis, lacking important decision-making information. In addition, lack of integrated knowledge and control of inventories and assets led to underutilization of assets. With respect to Talent Management, the company's processes concentrated on basic record keeping and un-integrated payroll systems, making it difficult to introduce training plans, career management, succession plans, transparent performance evaluation, and other requirements of a modern Human Resource Management area. How Accenture Helped Accenture implemented an integrated Enterprise Resource Planning (ERP) that covers Financial Management, Material Management and Human Resource Management areas, using SAP. Given the large scale of ERP Implementation and considering the company's first experience with an integrated system, major change management effort is required. To minimize implementation risk, Accenture selected a multiple phase approach. Combinations of rollout sites were carefully picked to ensure minimal business disruption and yet breadth of functionalities is covered. Lessons learnt from earlier roll out was studied and immediately applied to the next one. A total of over 500 training classes were held and a total of over 10,000 training days were consumed by users to learn the ERP system. Appropriate management sponsorship was maintained throughout the implementation, including training which resulted in over 95% training attendance rate. Throughout the implementation journey, Accenture managed to help the company build ERP template that consists of standard policies, business process, chart of accounts and reports to be used at other company's business units By implementing ERP, what would be the impact to the companys business processes?

Answer
For this case, I would like to start with a brief introduction about ERP and SAP. If you are already familiar with those terms, you may jump directly to the answer. Here we go :) ERP and SAP According to Wikipedia, the acronym ERP was firstly used by Gartner Group in 1990 to mention the extension of Material Requirement Planning (MRP). MRP itself is a term that is widely used in manufacturing industry which covers production planning and inventory control system. MRP system has three main objectives: to ensure the availability of raw materials for production and products for delivery to customers, to maintain the lowest level possible for inventories, and to maintain purchasing, manufacturing, and delivery schedules. An ERP system goes beyond that. It covers more various business functions with more complex relations between processes. Besides manufacturing, ERP also covers sales and distribution, finance, and human capital management. Furthermore, current ERP software are also extended with customer relationship management and supplier relationship management. ERP enables a company to run an integrated resource planning and real time cross functional management and reporting. Thomas Davenport modeled the anatomy of ERP system as follow:

Anatomy of Enterprise Resource Planning System

The main feature of ERP is its integration. Formerly, software systems were built for each business functions in a company. Human resources, production, inventory, and finance department had their own information system and hence developed their own processes and produced their own reports. This condition hindered the company to perform efficient business operations and to consolidate all required information to make strategic decisions. In contrast, there are some tangible benefits that can be gained by a company which implements an integrated system like ERP, such as optimized utilization of inventory, human resources, and companys assets, better order management, decreased logistic, maintenance, and transportation cost, better products quality and on time delivery. Besides, the company will also get intangible benefits, like greater visibility and information transparency, process improvement and positive perception from customers.

Many people often think that ERP is software. No, it is not. ERP is a concept. It is an enterprise-wide set of management tools that balance demand and supply, link customers and suppliers into a complete supply chain, providing high degrees of cross-functional integration among all business functions. Indeed, ERP is commonly implemented by a complete set of applications with the use of single, unified database to store data for various modules. One of the most popular ERP software is SAP. With 31% global market share, more than 89,000 customers and 91,500 installations across industries in 120 countries, SAP is current market leader for ERP software. SAP stands forSysteme, Anwendungen und Produkte in der Datenverarbeitung or Systems, Applications and Products in Data Processing. It is the main product of SAP AG, a German software corporation headquartered in Walldorf, Germany, with regional offices around the world. Founded by five former IBM employees in June 1972, now SAP AG is the largest enterprise software company in the world. Latest software package as the main offering from SAP AG is SAP Business Suite 7, which incorporates best practices from 25 industries and includes complete enterprise software commonly required in modern business: SAP ERP, SAP Customer Relationship Management (CRM), SAP Product Lifecycle Management (PLM), SAP Supply Chain Management (SCM), SAP Supplier Relationship Management (SRM), and SAP Composite Applications. SAP ERP, the core product, enables companies to implement its ERP system by managing their financial, human capital, operations, and corporate services and ensure their alignments with overall corporate strategy. Impact of ERP Implementation Based on the case study, there are three main modules that are implemented in the electricity company. Each module comes with functionalities that can solve the companys issues. Moreover, combination of several modules also has a potential to make the companys business process better. Human Resource Management Previously, in human resource area, the companys processes concentrated on basic record keeping and distributed payroll systems, making it difficult to introduce training plans, career management, succession plans, transparent performance evaluation, and other requirements of a modern Human Resource Management area. By the implementation of SAP Human Resource Management (HR) or SAP ERP Human Capital Management (HCM), the company has the opportunity to make all administrative processes become more efficient, so that human resource professionals can focus on other, more innovative tasks. Since the company was formerly using non-integrated system, it was clear that processing all human resource related data from all regions would take so much time and resource. By using SAP ERP HCM, the company can utilize Workforce Process Management that can handle all vital HR functions from all region in one system, including benefits management, time and attendance, and payroll. Using its time management feature, the company can also coordinate companys activities, calculate employee time accounts and wages, and review employee availability using calendar views. If the company also implements SAP Employee Self Service (ESS), all time management processes can be put online. Hence, employees can record their own work time, request time off, and manage their own data. SAP ERP HCM also provides functionalities in Talent Management, including recruitment, career and succession planning, enterprise learning management, employee performance management, and compensation management. Formerly, processes such as recruitment and training might have happened independently, with data stored in different systems. SAP ERP HCM makes it possible to have integrated talent management system through a centralized database system. With integrated system, all employee data is available to managers and human resource professionals, ensuring a seamless system for hiring, training, and promoting people. Material Management Using old system, the company did not have integrated knowledge and control of inventories and assets. This led to underutilization of them. Using SAP Material Management, the company will have better control of its inventories and assets by modeling them using single codification system. SAP Material Managements allows the company to maintain all material movements, from procurement to delivery, and keeping all stocks data real time.

Procurement in SAP helps the company to efficiently manage ordering, receiving, and financial settlement areas of purchasing and ensures compliance with regulations and collaboration with suppliers. Inbound and outbound logistics feature allow the company to control the movement of materials into and out of the companys operation. Managers can monitor the posting and distribution of outbound goods, availability of services from companys assets, and calculate any cost related with logistic activities. This information is also important for the company to review available resources before executing new project. The ability to manage overall flow of materials and monitor stocks and assets centrally makes procedural transactions and administrations of the system are much easier. The company can efficiently process any order, including scheduled maintenance and inspection to ensure the quality of assets. Financial Management Major issues of the company were non-standardized business processes and inability to produce financial reports on a timely basis. This causes the company lacks of important decision making information. SAP states that SAP ERP Financials provides a complete analytical framework to consolidate and dissect business information generated in the companys core enterprise processes. This means that the company can access business data in real time, use that data to make better business decisions and produce impressive reports and analysis. In short, the company will gain better business insight. This is possible because of the data integration capabilities of SAP. Using Financial Supply Chain Management, the company can access online invoices and payments and prioritize payment collection to reduce the number of overdue accounts. To support alignment with financial requirements and compliance, the company can utilize Financial Accounting function to manage consolidations, general-ledger, and accounts receivable and payable. These features enable the company to keep its cash flow moving along in a controlled and productive way and improve its ability to budget and forecast with accurate information. Integrating 3 above modules into one system will result in a larger impact. Integration of human resources management with financial management ensures all company expenses, which includes payroll, employee benefits, recruitment, training, company events, and transportations recorded accurately and real time. The same result applies in material management. All materials purchasing, usage, and delivery will reflect on the financial report without significant manual processes. Detailed transaction records, accurate information and real time access to useful data is very important for the company to make better strategic decisions and to increase their credibility as a national electricity company. As this is the first time for the company to use an integrated system, there should be a tremendous change management which ensure the implementation of the new system run smoothly and minimize business disruption. Accenture did it successfully using its multiple phase approach and appropriate management sponsorship.

References
1) Davenport, Thomas, 1998. Putting the Enterprise into the Enterprise System. Harvard Business Review July-August 1998. 2) Wallace, Thomas F. and Kremzar, Michael H., 2001. ERP: Making It Happen. The Implementers Guide to Success with Enterprise Resource Planning, Canada: John Wiley & Sons, Inc. 3) Muir, Nancy and Kimbell, Ian., 2010. Discover SAP, 2nd Edition. Canada: SAP Press. 4) Dhewanto, Wawan and Falahah, 2007. ERP, Menyelaraskan Teknologi Informasi dengan Strategi Bisnis. Bandung: Penerbit Informatika.