Recover from an ERP Disaster

Feature Article | November 28, 2007 by admin

The vision: to implement a new ERP solution and more precisely manage a multi-state family of Drywall Supply operating companies. The reality: business-threatening operational chaos with an ill-conceived, badly implemented solution from a major industry supplier. The remedy: scrap the entire project and start over with an SAP Business All-in-One pre-packaged partner solution for mid-size wholesale distribution companies. The result: a stable ERP solution that supports efficient operation across all of the company’s offices, enabling cost savings and increased revenue opportunities.

Getting from vision to the desired result was a complicated – and far more painful process than anyone could have predicted. Initially, early in 2005, Drywall Supply management identified several core business challenges to address. The enterprise, which runs eight locations in Minnesota as one of the largest distributors of gypsum board, steel studs, insulation, and many other drywall specialty products in that state, had expanded to supply building products and services in Wisconsin, Florida, and Illinois.

First, they needed a better way to handle multi-state activity, including sales tax schedules, which vary from state to state. They also wanted to better align the various companies in their family of Drywall Supply businesses, with the ability to integrate sales and margin data from all of them and at the same time keep each operating unit separate. As an added incentive to look for a more robust ERP solution, their current platform vendor was bought out by another company, which negatively impacted the support process. In effect, this escalated Drywall Supply’s timetable to review other options.

Carl Johnson, president and founder of Drywall Supply says, “A company like ours can expect to see 50 percent of gross margin going to payroll, so we want to continually look for ways to automate processes and thus reduce labor costs. It’s especially true in today’s business climate because we and other wholesale distributors of building materials and construction supplies have experienced a significant decline in revenues due to the residential real estate downturn.” These are turbulent times in the US building materials and construction industry. Home building is slowing, workloads are dropping, credit is tight, and major players are downsizing or going out of business. “A solid ERP system became a ‘must have’ for us,” says Johnson.

But that’s not what they got with their first new vendor selection. Instead they got a nightmarish implementation of a solution that just didn’t work. And it almost destroyed the business.

Runaway coding creates a nightmare

Johnson says, “The problem with the vendor we selected was that they simply didn’t understand distribution. They could deliver basic business operations, but everything else was developed as a special application, coding from scratch, with no continuity and no compatibility.” Not only that, there was no documentation. It was a disaster waiting to happen.

Four months of chaos ensued. There simply was no business intelligence. Johnson and his team were operating in the dark. They couldn’t run sales or margin reports, track physical inventory, or do correct billing. “We realized later that we billed certain contractors incorrectly. We may have been off by $20,000 to $30,000 in some cases.” They couldn’t trust the information in month-end reports. They couldn’t even balance and reconcile accounts. “We actually had to ask the bank what our balance was,” says Johnson.

Johnson invested another $500,000 to bring in a consultant to debug and stabilize the software. But in the final analysis, the consultant’s recommendation was to scrap everything and begin again. Not to do so would be to court a fatal crash. After operating on a failed system for one year, it was clear that the business itself was in jeopardy.

Tenacity prevails

Johnson and his team knew they just had to keep going and not be defeated by the software’s failure to perform. In a second review process, a peer referred them to itelligence.

“When we started talking with itelligence in November 2006, we established a quick comfort level,” notes Johnson. “We knew that they understood the business. They spoke the language of distribution, from sales and point of sale functionality, to inventory control, to integrated reporting and accounting relevant to our business model. Not only that, they could demonstrate their experience with companies like ours. The solution they were proposing was highly pre-configured, with built-in SAP Best Practices and integrated business processes to streamline our operations.”
In addition to pre-configuration for all logistics processes, including sales, purchasing requirements planning and storage, itelligence showed Johnson and his team the flexible pricing functionality they needed. Even beyond the multi-yard, multi-state specific functionality they were looking for, the system takes prices, markup, and markdown from price lists and multilayer customer agreements into account. The SAP Business All-in-One partner solution it.wholesale also provides tools for cross-Drywall Supply company data exchange, an operation high on Johnson’s list of requirements.

Johnson says, “The basic functions of the distribution business model are well known, and itelligence has integrated best practices for sourcing, procurement, logistics management activities, inventory control, sales, cash flow, and accounting and reporting right into the solution. They did a miniscule amount of customizing for us, primarily to create forms the way we wanted them. Everything else was standard to their solution.”

Managing well in a time of turbulence

The blueprinting and implementation process took place in a four-month period and Drywall Supply went live with itelligence’s it.wholesale, a pre-configured qualified SAP Business All-in-One partner solution for mid-market companies in the distribution industry, in September 2007. “Now our month end reports run smoothly, we can reconcile simply, quickly, and in a timely manner. We can drill down into sales, run margin reports, and really know what’s happening across the company. It means we can spot problem areas – and discover revenue opportunities,” says Johnson.

In addition, the it.wholesale solution helps the company manage shipping processes. Orders are entered into the system and products are delivered, and the inventory and financial records are instantly updated, so there is no need for the time-consuming manual processing of the previous system. Johnson notes, “We now have visibility throughout the entire process, tracking inventories and monitoring routed materials. It means we can operate on a ‘single truth,’ with all our locations accessing real-time pricing and supply information, streamlining shipping, inventory, and other key areas.”

“Without question this was the biggest business challenge we’ve ever been through,” reflects Johnson. “It could have put us out of business, especially coupled with the downturn in the industry. But we’re optimistic that the market will turn around, and in the meantime we’re prepared to ride it out because we can manage the details of our operation and turn a profit. Everything in our it.wholesale solution works. It flows. The other solutions we previously used or considered simply can not match the performance and capabilities that SAP and itelligence have delivered.”

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