CASE 3 ERP Purchase Decision at Benton Manufacturing Company, Inc. MIS 6330 In case study III-4, titled “ERP Purchase Decision at Benton Manufacturing Company, Inc. ,” describes in detail what a major manufacturing company experiences while considering a substantial investment with the implementation of an ERP (enterprise resource planning) system. Among the company’s management personal opinions vary, some doubt the need of such a system while others support and justify the expense. The question at hand; whether or not to implement a costly system with a lengthy transitioning phase?
In his attempt to answer this question, Walter McHenry, CEO and President of Benton Manufacturing has formed a two man team to investigate and further research the negative and positive possibilities of and ERP system. We will explore the company’s background, component / analysis, and finally our conclusion / recommendation. Background Benton Manufacturing Company, Inc. , is a U. S. manufacturer of consumer durables with reported net sales in 1998 of nearly $1billion and operating profits of almost $180 million.
In North America alone, the company operates 7 factories and 57 distribution centers while employing 5,200 people. Recently, through the acquisitions of several companies Benton’s product lines have expanded offering their thousands of independent dealers a broader selection. In the past, Benton Manufacturing enjoyed a 40% market share. However, as more independent dealerships are being acquired by large firms the traditional relationships between Benton and its dealers have shifted causing the profit margins to diminish.
With the increased competition efforts to stave off the current pressures have also increased. The company implemented a Continuous-Improvement strategy that resulted in a 25% increased productivity, 30% inventory reduction, freed factory space, and reduced cycle time. In order for Benton Manufacturing, to continue as an industry leader and keep its proven history of continuous growth management implemented the following four strategies: 1) Customer-driven new product development 2) The cquisition of business that complement existing ones, 3) International expansion 4) Emphasis o the Continuous-Improvement approach. Component/ Analysis What is ERP – Enterprise Resource Planning? According to the book Managing Information Technology 6th edition, an ERP system is a set of integrated business applications or modules, that carry out common business function such as general ledger accounting, accounts payable, accounts receivable, material requirements planning, order management, inventory control, and human resources management (211).
In other words, it integrates all departments and functions throughout an organization into a single IT system. In this way it enables employees to make decisions by viewing companywide information. Walter S. McHenry, CEO and President of Benton Manufacturing Company, is under the belief that the industry is navigating toward ERP systems and fears Benton might be falling behind. Since he is not as informed as he would like to be about the technology, he decided to further inquire and set forth a quick study if whether such a system would be beneficial to the company.
He assigned the ERP implementation study to a two person team, Adam T. Meyer, a senior systems analyst who has been with Benton in the IS department for 15 years and Jerry L. Cook, who has been with Benton for 12 years and has worked in various positions including engineering, production, finance, and market research. Once the in depth research was completed, Cook and Meyer both agreed that the long term benefits supersede the temporary transitional difficulties. Meyer states, “Our present systems are growing old …and will have to be replaced.
ERP systems have much more functionality and much better integration than our internal IT staff can provide. ” Cook concedes the challenges will be monumental but emphasis that “it will require wholehearted commitment from all departments. ” Some of Benton’s top management were asked for their input and how they felt the system would affect there department the following is there stance. Vice President for Human Resources, Susan R. Hamilton is an advocate of the ERP sys Vice President for Distribution, Tracy C. Scott is an advocate of the ERP systems Vice President for Manufacturing, Pat L.
Miller is concerned and is opposed Vice President for Finance, Lee L. Gibson sees no need and is opposed unless justified The core components of an ERP system are accounting and finance, production and materials management, and human resource. In this way the company is “connected” allowing everyone to see everything within the organization at any time. At the heart of all ERP systems is a database. When a user enters or updates information in one module or application it is immediately and automatically updated throughout the entire system.
By exploring the top management’s opposition or support we can help shed light to their concerns. Vice President for Human Resource, Susan R. Hamilton Why should she advocate for the ERP system? The system will better enhance employee information including payroll, benefits, compensation, performance assessment and assumes compliance with the legal requirements of multiple jurisdictions and tax authorities. She states, “I know that an ERP system will enable us to increase productivity, serve the needs of our employees much better…” Why should she not advocate for the ERP system?
The most apparent reason is privacy issues. Payroll information, benefits and compensation should be kept confidential and away from prying eyes. Additional security measures would need to be implemented, causing perhaps more unnecessary stress if the system they have in place is satisfactorily secure. Vice President for Distribution, Tracy C. Scott Why should he advocate for the ERP system? In brief, the integration or the connectedness of sales, production and inventory would enable him to perform his job to the fullest capacity with expectations of cost savings.
He states, “Our present computer systems work well at the distribution centers but they only provide local information – I can’t get a quick picture of the entire distribution system. ” Why should he not advocate for the ERP system? It has not been tested before. It will take time, patience and effort to fully implement the system. During which, the cost of miscommunication construed information and technical difficulties could lead to unhappy customers risking the possibilities of monetary losses. Vice President for Manufacturing, Pat L.
Miller Why should he advocate for the ERP system? The production and materials management is one of the core ERP components. It must flow seamlessly throughout the organization. Part of his responsibilities include handling the various aspects of production planning and execution such as demand forecasting, production scheduling, and quality control. These areas can improve greatly with the assistance of one unified “to go” system. Why should he not advocate for the ERP system? It goes against what is currently in place and what has proven successful.
He states, “ Continuous-Improvement approach… concentrates on producing many relatively small improvements which can be easily and quickly implemented… an ERP project costing over $30 million is the antitheses to our ContinuousImprovement approach. Vice President for Finance, Lee L. Gibson Why should he advocate for the ERP system? As the VP for finance he manages accounting data and financial processes within the organization with functions such as general ledgers, accounts payable, accounts receivable, budgeting, and asset management.
Being able to view all the information at once, broken down perhaps by distribution center or factory would enable him to analyze the losses and profits narrowly. He can become as detailed and specific as needed, way down to the shift working and the amount of hours put into a product. Why should he not advocate for the ERP system? The cost. His position in the company is linked directly to money. Should we? Can we? Must we? Spend the estimated $34 million on the ERP system with a yearly maintenance of $750,000? How important is it that all management comes to an agreement or at least a consensus?
It is essential for the success of such an implementation. Considering the significant size of the company and its strong cultural roots, it becomes crucial that all top management support the system in a clear and strong way. Conclusion Taken into consideration all of the above mentioned, we believe Benton Manufacturing Company, Inc. should invest on the ERP system. Cook and Meyer have done their research and are convinced that Benton should acquire the ERP system as soon as possible. In short, in order to accomplish any future plans and stay competitive, Benton must transcend to the next level of nformation technology. The team believes an ERP system will provide the company with much more functionality and much better integration than their current system. In addition, Benton has plans to establish business strategies that cannot be achieved without an ERP system. These plans include: • International expansion • Mergers and acquisitions • Use of IT as a strategic weapon • Integration with suppliers and consumers • Reduction of operational costs, • Product line expansion • Process standardization across different units of the company.
Once again, the team believes purchasing an ERP system is the right decision, but Meyer and Cook are well aware of the fact that implementation of the system will be a huge undertaking for the company that will require total commitment from all departments. As far as tangible benefits are concerned, Meyer and Cook have estimated that the benefits of the system will amount to $11. 593 million a year after installation is completed. Over a period of seven years, this will produce an Internal Rate of Return of 20% and a Net Present Value of over $156,000 at a 20% discount rate.
According to the book Managing Information Systems 6th edition page 212, there are seven important benefits gained by purchasing an ERP system are the following: 1) Data Integration (improving accesses to data across business units, functions, processes, and the enterprise) 2) New Ways of doing Business (implementing redesigned business processes, moving to a process orientation) 3) Global Capabilities (supporting globalization with common processes and countryspecific capabilities) 4) Flexibility / Agility Benefit Provided both Business Benefits 5) Client/ Server Architecture Benefits 6) IT Architecture Cost reduction (reducing costs associated with systems operations and maintenance) 7) IT Purchasing Benefits (achieving time, costs, and reliability advantages) Finally, when Benton implements the ERP system, they will have to adapt to the ERP system.
The system does not adapt to the current business structure, which again some fear may corrupt the cultural business within the company. There are four Tier 1 ERP vendors, SAP, J. D. Edwards, Oracle, and PeopleSoft. Out of the four major vendors we recommend considering, SAP. It is probably the most beneficial for Benton as this system integrates several modules or only a portion of them as illustrated in Figure 1. 1. Figure1. 1 http://www. onestopsap. com/SAP-ERP/ The graph clearly illustrates the key areas Benton will have to focus on once the ERP system is implemented. Remember, not all is perfect in an ERP system. Nonetheless, we believe the benefits of such a system is far greater than any of the difficulties.