The tsunami that washed away the Indonesian province of Aceh is only the latest in a series of recent crises the country has had to endure. Almost forgotten is the 1997-1998 Asian financial crisis. Garuda Indonesia was saddled with almost 1.8 billion US Dollars in corporate debt when the country’s national airline carrier almost went under. It took Garuda, which is named after the Indian god Vishnu’s mythological carrier, superhuman efforts to overcome its debt burden. There was a clarion call by the government and Garuda’s board of directors in 1999 to restructure itself to pull it back from the brink of extinction.
Given a mandate in early 2000 to reengineer itself, Garuda sought the assistance of Lufthansa Consulting to cut its operating losses and to streamline its IT infrastructure. It focused on the aviation business model, a business reengineering model used in the airline industry that separates core from peripheral activities. Lufthansa Consulting used this model almost unaltered, and Garuda is trying to do the same. The model strives to cut costs and improve efficiency in various business units while implementing flexible pricing, adding cobranding ventures, expanding distribution channels and flight routes, and improving customer service.
Selecting the right ERP system
Garuda did not achieve its IT transformation overnight. The company struggled for more than a year before it decided to plug the existing gaps in its decentralized legacy systems, which had been developed in house. The company immediately needed to find a way to integrate all its insular solutions. Transparency and data integration were major concerns, because data flowed unevenly between the various business units. Cost overruns were common; poor standards of financial reporting and accountability were frequent obstacles to timely decision making. “We were not agile enough to interpret data comprehensively, and the overall lack of an integration platform was a major handicap to us,” says Widjaya Hadinuherto, vice president of the Garuda IT department.
Garuda put five ERP vendors under the microscope. It needed to know the scope of implementing an ERP solution, the extent of backward application integrity, and the technology road map of the vendor. In early 2001, Garuda selected SAP R/3 because SAP has a track record in the airline business, the software can flexibly manage business changes, and the software is open, user friendly, and conforms with regulations – especially accounting regulations. SAP also provided the best R&D, maintenance support, and additional services of all the vendors evaluated.
Defining achievable results
During the first phase of the implementation, Garuda implemented the financials, controlling, materials management, and human resources components of SAP R/3. The company turned to Lufthansa Consulting for the implementation, with Magnus Indonesia acting as a subcontractor. The two companies worked around the clock to identify the target parameters for each component and the achievable results of the implementation.
Currently, 1,000 users have been licensed to use SAP R/3, and another 500 users will be added once the material management component has been implemented.
The implementation faced a series of challenges in the beginning. Garuda needed more developers than it anticipated. Users had to be trained several times so they could make the most of the SAP software. And in the early stages, additional functions of SAP R/3 had to be programmed because of issues of backward compatibility with existing data.
“We had to do some minor reformatting or tweak SAP’s revenue accounting and profitability analysis component to successfully fit in both passenger and cargo report analysis,” recalls Hadinuherto. “We found that we had to address more reporting parameters and had more screens to handle to get the right numbers.” However, these minor glitches with customization did not deter the IT project managers who performed testing and did a limited installation of the ERP software in remote decentralized hosts systems before full-scale deployment.
This step-by-step approach eliminated the risks associated with moving everything forward at once. “Most of the bugs in the system were ironed out by then, ” says Fajar Zainuddin, IT project consultant with Magnus Indonesia. “So when the ERP system was finally deployed, there was no loss of data and no downtime to its mission-critical applications during the migration process. Everything went as smoothly as planned.”
Go-live earlier than scheduled
Garuda took ownership of the implementation project from the external consultants as it neared the deadline in the fourth quarter of 2003. Garuda learned from Lufthansa Consulting as lead project implementers, but it also altered the approach. Garuda reduced implementation time and costs by using time-tested methodologies. Unlike other large-scale implementations, Garuda omitted the time-consuming preanalysis element and went straight to the design to be approved and later implemented – and beat the scheduled deadline for going live.
The benefits of running SAP R/3 and related applications were not easily quantifiable in the beginning. But the measurable ROI will be evident within the next 12 months. “We have already seen a dramatic increase in the productivity levels of our key users,” maintains Hadinuherto. “This would translate to cost savings in the long run by an average of 15%. The next step is to extend this benefit to our suppliers and customers. Right now, the real-time sales information system and the online financial reporting enable management to take timely decisions.”
Extending Internet sales
Garuda next intends to roll out software solutions for logistics, business intelligence, and e-procurement. It also plans to enhance its supply chain management within the next two years to further help its 7,000-plus employees manage their work from initial contact to final delivery. This in turn improves the overall productivity and responsiveness of the workforce. So far Garuda has enabled online payment for airline tickets through a local bank’s ATM machines, and it wants to explore Internet ticket sales and reservations. Down the road, the company plans to further implement business continuity and disaster recovery planning.
By leveraging the SAP R/3 framework, Garuda can monitor sensitive price information of other competitive carriers and offer more competitive rates and discounts for its customers. With the help of SAP’s route profitability functions, it may add additional flights to profitable routes while reducing flights on unprofitable routes. Doing so will eliminate waste, increase profitability, and make the company more responsive to customers’ changes and expectations. With tighter integration between its back-end systems and its front-end applications, Garuda intends to work in tandem with other airlines by offering cobranding services in which customers can opt to fly under its umbrella of network airline affiliations.
Role model for other airlines
Garuda is in the midst of implementing the SAP maintenance repair and overhaul (MRO) application. Garuda is a diversified carrier with needs ranging from education and training (Garuda Aviation Training), cargo services (Garuda Indonesia Cargo), and ground handling (Gapura Angkasa) to an aircraft maintenance facility (Garuda Maintenance Facility Aero Asia). By implementing the MRO application, Garuda’s IT department can become a total IT solutions provider – not just for Garuda, but also for other airlines that need MRO services.
With a current budget of five million US Dollars to enhance its IT support and services and with a dedicated staff of 58 ERP IT specialists, Garuda is looking to enhance its on-time performance by more than 97 percent and to increase its passenger load factor to higher than its current 80 percent. The aircraft company might then also realize its ambition to be privately listed.