Enterprise Resource Planning Proposal for CVS Caremark - Case Study Example

1. 0 Introduction 1 Purpose This report will outline the plan for on site deployment of SAP Consumer Products ERP (SAP) at all sites of CVS Caremark (CVS). SAP will cover all functional areas of the company such as Supply Chain Management (SCM), Sales, Inventory, Finance and Human Resources (HR). Currently all data is being fed through legacy systems and independent smaller software and is not integrated. The data is non standardized resulting in inaccuracies and delay in reporting. 1.2 ERP Benefits to Current Functionalities Profitability for a company starts with excellent Purchase Management and the issues at CVS are inability to access information on its suppliers and integrate their capabilities with their own. A large number of companies realize the route to becoming world class competitors’ lies in their ability to establish high levels of trust and cooperation with their suppliers (Buono 1997). Uncertainties beset the practices of managing a supply chain. There are growing expectations of the end-user, changing market dynamics and technological advancements that need to be dealt with in an inter-firm cooperative relationship (Ghosh and John 1999). This is where integration and sharing of needs will be helped along with the CRM module of SAP. Under modern SCM the supplier is linked directly to sales. Under this linkage he is aware of the movement of final products from the shelf and replenishment of supplies is triggered on reaching a certain critical level. This generates automatic orders on which he commences working without receiving formal orders. This saves time and ensures regular deliveries to production. When partners and collaborators are aware of the requirements, expectations, quality and schedules, costs inevitably come down and greater margins give opportunity for better competitiveness on both prices as well as timely deliveries thus ensuring customer satisfaction, both of which guarantee retention and expansion of business. In similar fashion when inventory information is available in real time across the several company sites it ensures better inventory management in terms of maintaining realistic re-order levels, min-max inventory levels and in fact reducing dead stock due to better visibility. Marketing and sales too will benefit with immediate availability of report on movements and will assist in making good purchase decisions. It is important for CVS to keep a good stock of products that move off the shelf fast and to reduce or eliminate those that are not desired by customers. Faster billings and subsequent follow ups in collections will have a direct bearing on improved financials of the company. The finance module keeps the management abreast of the performance as financial results are usually the first performance evaluation tools. Accurate reports and real time information will lead to prudent financial management and will reduce pressure on working capital requirements that often bear a heavy burden in a trading environment especially when a company has several hundred outlets spread over nationwide locations. Finally the HR division is to be greatly affected. HR functions are no longer limited to hiring and payroll preparation. They are also about employee efficiency and that needs constant evaluation, training and upgradations. The SAP HR module offers these functionalities and makes it simpler for HR heads to devise these policies and to offer capability of following these practices for the maximum benefits of both the employee and the employer. It is equally important to mention here that these modules offering widespread functionalities will be incomplete if dynamic reports or the business intelligence is ignored. It is actually these reports and the vital information they provide that helps the management to take decisions based on facts and assist in formulating all company strategies. With these strategies the company can achieve higher growth with better financial controls and efficient SCM management. Customers are now turning to online purchases in increasing numbers as the convenience in shopping from anywhere anytime is very appealing. SAP will also help to correlate the company website to handle e-commerce functions by integrating this activity to the company database. Thus the customers can actually find availability of their required product at specific locations and order for them online. Besides the customer information gathered through this interaction will be recorded in the Customer Relationship Module (CRM) which will help CVR to identify customer preferences, choices and needs and therefore get in touch with individual customers through online or offline offers whenever their preferences or new product lines are available. This will enhance both goodwill and sales. 2.0 Suggested Modules As CVS is essentially a trading company with a variety of products it will be wise to implement the following modules of SAP. SAP for Consumer Products allows consumer products companies to respond to market challenges and changes in consumer demand by providing consumer insights and the ability to act fast – so they can drive innovation, integrate sales and marketing, and establish a demand-driven supply network. (SAP Website). 2.1 Marketing Customer demand or projections generate orders and it is the functionality of the Marketing module to assist generation of orders as per requirements of different sales outlets. The information will be centrally controlled and will collect requirements of each Selling outlet on a daily/weekly/monthly basis; as may be decided by company policy. The flexibility allows for covering different types and categories of fast moving slow moving and complimentary items. This will also take into account historic movements of products and will project demands based on periodic or seasonal basis to ensure that optimum quantities are ordered for best price and availability benefits. 2.2 SCM This will cover purchase, inventory management, supplier management and logistics. As soon as orders are generated they are marked for specific suppliers, if they have been pre-selected, or will project best possible suppliers based on their previous records of dealing with the company. Over a period of time the company can collaborate with specific suppliers to develop a supply chain that will react automatically to demands and will prepare itself for service and delivery according to projections. The suppliers can be included in the module by offering them limited access to areas of information that helps them to plan their own activities related to CVS. Such collaborations will help in cost reductions and maintenance of targets and timelines across various partners. This can also include logistic companies, third party suppliers who can also organize their own warehousing etc to create an efficient network aimed at cost reduction, quality improvement and lower working capital requirements resulting from better inventory management. 2.3 CRM This module will integrate all transactional information about each individual customer not only for accurate records but for managing future marketing and promotional exercises. The personal preferences, purchase history and redresses of complaints go a long way in creating loyal customers and enhancing the value of the company brand image. Such efforts are possible when correct data is available across the whole enterprise as customers are mobile and if they can be serviced from different points they will become returning customers as they will know the can depend on the reliability of the company services. This is more valid in case of online sales as the customer has no personal touch or contact yet feels as confident as an over the counter customer. 2.4 Finance This is the core module that will not just give sales and other figures. It will actually translate these figures into meaningful and decision making data for bringing about greater efficiencies across the organization. Finance today is more of an enabling function in comparison with its historical reporting function only. Efficiency can be improved through financial evaluations and better financial management will result on availability of data in real time as quick decisions convert possible losses into pragmatic profits. Timely creation of invoices will lead to avoidance of late collections and will have a healthy effect on the bottom line. The se functionalities are provided in the Finance Module which goes beyond automation of the process and suggests innovative reports that can generate cost cutting measures for the management. 2.5 HR The functions of a modern HR department do not end at hiring but also extend to enhancement of the ability of the hired staff. Proper evaluations of performances will help the staff to be motivated through training, extrinsic rewards and promotions. The HR Module will record activities and evaluate staff according to set metrics and offer easy decisions for HR managers. The employees too will feel confident that their activities, when accurately recorded, will give them an opportunity to showcase their abilities in order to earn both rewards as well as job satisfaction through recognition by their peers and superiors. The value of this module can be judged from the fact that appreciation and reward reduce attrition levels. This by itself is of great value as replacing a skilled employee is both costly as well as time consuming. 3.0 Cost of the ERP and Implementation Enterprise wide deployment of SAP will be costly and for CVS it may reach a figure of over $ 500 million spread over a five year period. As of 2008, CVS ranked 24th on the list of Fortune 500 companies grossing approximately $80 billion in annual revenue with annual income of over $ 2.6 billion. It has 6,300 pharmacy stores and all will need to be connected eventually to the central system. As of date it employs 190,000 persons. An average of 3 users at each store will be required to be trained and at the head office there may be over 100 users. The license costs of the ERP will certainly be close to $200 million and Implementation and training will cost around $ 300 million. Of course there can be cost overruns if the timeline is extended or more user training is scheduled or when more branches are added. The roll-out plan will follow the procedures as per schedule to be worked out with SAP. However a broad description of the work is being discussed below. 2.1 Data migration The company already has valuable data in the existing legacy systems that are located at nationwide locations and is not integrated. But it contains all the Master data of the company and its products. It is essential to transfer the entire Master data onto the Server Database to facilitate migration. The new SAP system will need the database to be loaded with Master data. These records are available with each branch but will be overlapping in most cases. Therefore data will first be transferred from say six most heavily stocked branches and additions can be made for specific products as and when it occurs. This data will be transferred to the central database, from where the information can be accessed by each location. After this is done the system will need data on opening entries of inventory. This will have to be transferred to the new system in a phased manner so that services can continue without interruptions. However previously concluded transactions and historical data is to be excluded. This should commence as soon as the system is configured and ready with the application. The Implementation staff that have already been trained on the application can commence on this work with help of other users who will also gain experience while this work is done with their assistance. 2.2 Training Training is required by everyone beginning from the director downwards. There is no exception to this rule. But looking at the magnitude of the work and in order to rationalize the training systems, SAP consultants will train Key Users for each module or work area who ail in turn train other users. This will reduce SAP training time and will contain costs. It must be understood that training will be required on specific user interfaces only which are quite simple, yet organized in an orderly fashion to facilitate data entry. According to Dray and Karat (1994) to the user it is the User Interface that is the system and it is through this the user actually sees the entire system. Training begins on day one of completion of installation at each site and will be done at the place of work as this is expected to be hands on and not theoretical. The training will last an average of 3 to 10 days depending on the intensity required. The training itself is quite easy as they have to understand the working of the user interface only and to learn how to retrieve information. The rest of the work is done by the software. Training will be given by the Implementation team comprising of the consultant team of SAP. Training should be given to groups with identical work to facilitate quick learning and creating internal networks to facilitate enterprise wide understanding. 2.3 Business Change Issues Most Implementation failures happen due to absence of planned change management. This must be the top priority of the company. Every change is resisted more out of misconception rather than the actual ground difficulties. These have to be handled by the management in a carefully designed approach. A change plan must include the top leadership as it is they who will have to inspire the workforce and to ensure that smooth transition takes place. This the most important issue in Implementation and if change policies are not in place the entire Implementation will fail. Adoption of new work processes brings about a huge change in the organisation and it needs to be carefully managed. Installing and implementing a system will certainly change the entire working practices and will affect every individual and department. A change of this magnitude requires three kinds of strategies to mange successful change. They can be categorised as Organisational Strategies, Technical Strategies and People Strategies. Organisational strategy covers the area of developing a change strategy and its deployment, change management techniques, project management, changing organisational structures as well as resources, modifying managerial style and thinking, bringing about co-ordination and emphasising on Information Technologies (Al-Mashari and Zairi 2000). Technical strategies will comprise of Installation of enterprise solutions, understanding and explaining of the complexities, arranging in-house technical capability besides managing the time and cost of this exercise (Sarker and Sarker, 2000). People strategies would mean training of staff including management of their attitudes and behaviour (Gable and Stewart 1999). The management will need to formulate above strategies, as the Implementation teams are not totally equipped to strategise the adoption of change policies. Normally there is resistance towards the software as it is perceived to be a risk by users and some of them feel it would eventually displace them or at least reduce their importance in the organisation. They are also used to their style of functioning and they considered it to be superior over the new system. The two biggest causes of failure are the spreading of rumours or circulation of wrong information. Mostly the sources of these are the outsiders and also a result of communication failure on part of the management. This has been highlighted by Larry Smeltzer (1991) who goes on to say that the worst kind of communication is a lean one which uses a memo as the means of conveying instruction or information. This is too cold and impersonal. They emphasize the importance of face-to-face meetings, the personal touch being vital and convincing between the Change Managers and the employees. Bibliography Al-Mashari, M. and Zairi, M., (2000), ``Information and business process equality: the case of SAP R/3 implementation’’, Electronic Journal on Information Systems in Developing Countries, Vol. 2 (http://www.unimas.my/fit/roger/EJISDC/EJISDC.htm Buono, A., 1997, Enhancing Strategic Partnerships: Intervening in Network Organisations. Journal of Organizational Change Management, (10:3)pp 75-86 Dray, S. and Karat, C.M., (1994), Human Factors Cost Justification, for an Internal development project in R. Bias and D. Mayhew (eds), Cost-Justifying Usability. Boston MA: Academic Press Gable and Stewart 1999 Ghosh, Mrinal and George John (1999), "Governance Value Analysis and Marketing Strategy," Journal of Marketing, Vol. 63, No.4 (Special Issue), pp. 131-145. Smeltzer, L.R., (1991), "An Analysis of Strategies for Announcing Organization-Wide Change," Group and Organization Studies, 16, 5-24Sarker and Sarker, 2000 SAP Website available at www.sap.com Read More