BC sets & Implementation timelines

Hi,
I would like to know about Business configuration( BC) sets and ways to reduce implementation timelines?
Regards,,
Nishant Kansara

Hi Nishant,
In the R/3 system from SAP, a Business Configuration Set (BC Set) is a management tool that allows the user to record, save, and share customized settings.
By creating a BC Set, the user is provided with a snapshot of the customized settings of a system that can be used later on as a template; SAP also provides pre-packaged BC sets designed for specific industries and applications.
BC Sets are useful because they provide continuity and prevent project team members from overwriting each other's settings.
They can also be used for a group rollout, where the customizing settings are bundled by the group headquarters and passed on in a structured way to its subsidiaries.
When a BC Set is created, values and combinations of values are copied from the original Customizing tables into the BC Set and can be copied into in the tables, views and view clusters in the customer system. The BC Sets are always transported into the customer system in which Customizing is performed.
The loading of BC Sets is logged by the system, i.e. which BC Set was copied when into the system, and any errors which occurred. This information is significant for Continuous Change and Upgrade.
There are two kinds of BC Sets:
·        BC Sets (previously sometimes referred to as "simple BC Sets")
·        Hierarchical BC Sets
A BC Set is identified by the following attributes:
·        Name
·        Type (simple or hierarchical)
·        Release
·        Software component
·        Last changed by (person), on (date) and at (time)
BC Sets
A BC Set can contain data from one or more IMG activities. Each IMG activity is listed separately with its Customizing objects (tables or views). The data is selected by table columns and rows, each column is a field, each row a record.
Advantages of using BC Sets:
·         Efficient group rollout.
·         Industry sector systems are easier to create and maintain.
·         Customizing can be performed at a business level.
·         Change Management is quicker and safer.
·         Upgrade is simpler.
REWARD POINTS IF HELPFUL
Regards
Sai

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    SAP R/3 Implementation
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    Company Background
    Geneva Pharmaceuticals, Inc., one of the world’s largest generic drug manufacturers, is the North
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    Swiss Francs. Novartis’ key financial data for the last five years (1994-98) are presented in Exhibit 2.
    The company’s American Depository Receipts trade on the New York Stock Exchange under the
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    Novartis’ global leadership in branded pharmaceuticals is complemented by its generic drugs
    division, Novartis Generics. This division is headquartered in Kundl (Austria), and its U.S.
    operations are managed by Geneva Pharmaceuticals. In 1998, Geneva had revenues of $300 million,
    employed nearly 1000 employees, and manufactured over 4.6 billion dosage units of generic drugs.
    1 This “freeware” case was written by Dr. Anol Bhattacherjee to serve as a basis for class discussion rather than
    to demonstrate the effective or ineffective handling of an administrative or business situation. The author is
    grateful to Randy Weldon, CIO of Geneva Pharmaceuticals, and his coworkers for their unfailing help
    throughout the course of this project. This case can be downloaded and distributed free of charge for non-profit
    or academic use, provided the contents are unchanged and this copyright notice is clearly displayed. No part of
    this case can be used by for-profit organizations without the express written consent of the author. This case
    also cannot be archived on any web site that requires payment for access. Copyright © 1999 by Anol
    Bhattacherjee. All rights reserved.
    ERP Implementation at Geneva Pharmaceuticals 2
    Geneva portfolio currently includes over 200 products in over 500 package sizes, covering a wide
    range of therapeutic categories, such as nervous system disorders, cardio-vascular therapies, and
    nonsteroidal anti-inflammatory drugs. Its major products include ranitidine, atenolol, diclofenac
    sodium, ercaf, metoprolol tartrate, triamterene with hydrochlorothiazide, and trifluoperazine.
    Geneva’s business and product information can be obtained from the company web site at
    www.genevaRx.com.
    Generic drugs are pharmaceutically and therapeutically equivalent versions of brand name drugs with
    established safety and efficacy. For instance, acetaminophen is the equivalent of the registered brand
    name drug Tylenolâ, aspirin is equivalent of Ecotrinâ, and ranitidine HCl is equivalent of Zantacâ.
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    capacity of 6 billion units, and another $23 million in 1998 in clinical trials and new product
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    Industry and Competitive Position
    The generic drug manufacturing industry is fragmented and highly competitive. In 1998, Geneva was
    the fifth largest player in this industry, up from its eighth rank in 1997 but still below its second rank
    in 1996. The company’s prime competitors fall into three broad categories: (1) generic drugs
    divisions of major branded drug companies (e.g., Warrick – a division of Schering-Plough and
    Apothecon – a division of Bristol Myers Squibb), (2) independent generic drug manufacturers (e.g.,
    Mylan, Teva Pharmaceuticals, Barr Laboratories, and Watson Pharmaceuticals), and (3) drug
    distributors vertically integrating into generics manufacturing (e.g., AndRx). The industry also has
    about 200 smaller players specializing in the manufacture of niche generic products. While Geneva
    benefited from the financial strength of Novartis, independent companies typically used public stock
    markets for funding their growth strategies.
    In 1998, about 45 percent of prescriptions for medications in the U.S. were filled with generics. The
    trend toward generics can be attributed to the growth of managed care providers such as health
    maintenance organizations (HMO), who generally prefer lower cost generic drugs to more expensive
    brand name alternatives (generic drugs typically cost 30-50 less than equivalent brands). However,
    no single generics manufacturer has benefited from this trend, because distributors and pharmacies
    view generic products from different manufacturers as identical substitutes and tend to
    “autosubstitute” or freely replace generics from one company with those from another based on
    product availability and pricing at that time. Once substituted, it is very difficult to regain that
    customer account because pharmacies are disinclined to change product brand, color, and packaging,
    to avoid confusion among consumers. In addition, consumer trust toward generics has remained
    lower, following a generic drug scandal in the early 1990’s (of which Geneva was not a part).
    ERP Implementation at Geneva Pharmaceuticals 3
    Margins in the generics sector has therefore remained extremely low, and there is a continuous
    pressure on Geneva and its competitors to reduce costs of operations.
    Opportunities for international growth are limited because of two reasons. First, consumers in some
    countries such as Mexico are generally skeptical about the lack of branding because of their cultural
    background. Second, U.S. generics manufacturers are often undercut by competitors from India and
    China, where abundance of low-cost labor and less restrictive regulatory requirements (e.g., FDA
    approval) makes drug manufacturing even less expensive.
    Continuous price pressures has resulted in a number of recent industry mergers and acquisitions in the
    generic drugs sector in recent years, as the acquirers seek economies of scale as a means of reducing
    costs. The search for higher margins has also led some generics companies to venture into the
    branded drugs sector, providing clinical trials, research and development, and additional
    manufacturing capacity for branded drugs on an outsourced basis.
    Major Business Processes
    Geneva’s primary business processes are manufacturing and distribution. The company’s
    manufacturing operations are performed at a 600,000 square foot facility in Broomfield (Colorado),
    while its two large distribution centers are located in Broomfield and Knoxville (Tennessee).
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    Manufacturing is done in batches, however, the same batch can be split into multiple product types
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    ERP Implementation at Geneva Pharmaceuticals 4
    Bulk materials and finished goods are warehoused in Broomfield and Knoxville distribution centers
    (DC) prior to shipping. Since all manufacturing is done was done at Broomfield, inventory
    replenishment of manufactured products is done first at Broomfield and then at Knoxville. To meet
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    manufacture and package generic drugs under Geneva’s level. Since most of these outsourcers are
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    Geneva supplies to a total of about 250 customers, including distributors (e.g., McKesson, Cardinal,
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    As is standard in the generics industry, Geneva uses a complex incentive system consisting of
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    ERP Implementation at Geneva Pharmaceuticals 5
    determined by the sales management based on negotiations with customers. Often times, customers
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    strategically position the company to take advantage of new value-added processes. More
    specifically, it wanted an enterprise resource planning (ERP) software that could: (1) implement best
    practices in business processes, (2) provide operational efficiency by integrating data across business
    units, (3) reduce errors due to incorrect keying or rekeying of data, (4) reduce system maintenance
    costs by standardizing business data, (5) be flexible enough to integrate with new systems (as more
    companies are acquired), (6) support growth in product and customer categories, and (7) is Y2K (year
    2000) compliant. The worldwide divisions of Novartis were considering two ERP packages at that
    time: BPCS from Software Systems Associates and R/3 system from SAP. Eventually, branded drug
    divisions decided to standardize their data processing environment using BPCS, and generics agreed
    on deploying R/3.2 A brief description of the R/3 software is provided in the appendix.
    R/3 implementation at Geneva was planned in three phases (see Exhibit 3). Phase I focused on the
    supply side processes (e.g., manufacturing requirements planning, procurement planning), Phase II
    was concerned with demand side processes (e.g., order management, customer service), and the final
    phase was aimed at integrating supply side and demand side processes (e.g., supply chain
    management). Randy Weldon, Geneva’s Chief Information Officer, outlined the goals of each phase
    as:
    “In Phase I, we were trying to get better performance-to-master production schedule
    and maybe reduce our cost of operations. Our Phase II goals are to improve sales
    and operations planning, and as a result, reduce back orders and improve customer
    service. In Phase III, we hope to provide end-to-end supply chain integration, so that
    we can dynamically alter our production schedules to fluctuating demands from our
    customers.”
    For each phase, specific R/3 modules were identified for implementation. These modules along with
    implementation timelines are listed in Exhibit 3. The three phases are described in detail next.
    2 However, each generics subsidiary had its own SAP R/3 implementation, and therefore data sharing across
    these divisions remained problematic.
    ERP Implementation at Geneva Pharmaceuticals 7
    Phase I: Supply Side Processes
    The first phase of R/3 implementation started on November 1, 1997 with the goal of migrating all
    supply-side processes, such as purchasing management, capacity planning, master scheduling,
    inventory management, quality control, and accounts payable from diverse hardware/software
    platforms to a unified R/3 environment. These supply processes were previously very manual and
    labor intensive. A Macpac package running on an IBM AS/400 machine was used to control shop
    floor operations, prepare master schedules, and perform maintenance management. However, the
    system did not have simulation capability to run alternate production plans against the master
    schedule, and was therefore not used for estimation. The system also did not support a formal process
    for distribution resource planning (DRP), instead generated a simple replenishment schedule based on
    predefined economic order quantities. Materials requirements planning (MRP) was only partially
    supported in that the system generated production requirements and master schedule but did not
    support planned orders (e.g., generating planned orders, checking items in planned orders against the
    inventory or production plan, converting planned orders to purchase orders or manufacturing orders).
    Consequently, entering planned orders, checking for errors, and performing order conversion were all
    entered manually, item by item, by different sales personnel (which left room for rekeying error).
    Macpac did have a capacity resource planning (CRP) functionality, but this feature was not used since
    it required heavy custom programming and major enhancements to master data. The system had
    already been so heavily customized over the years, that even a routine system upgrade was considered
    too unwieldy and expensive. Most importantly, the existing system did not position Geneva well for
    the future, since it failed to accommodate consigned inventory, vendor-managed inventory, paperless
    purchasing, and other innovations in purchasing and procurement that Geneva wanted to implement.
    The objectives of Phase I were therefore to migrate existing processes from Macpac to R/3, automate
    supply side process not supported by MacPac, and integrate all supply-side data in a single, real-time
    database so that the synergies could be exploited across manufacturing and purchasing processes.
    System integration was also expected to reduce inventory and production costs, improve
    performance-to-master scheduling, and help managers make more optimal manufacturing and
    purchase decisions. Since R/3 would force all data to be entered only once (at source by the
    appropriate shop floor personnel), the need of data reentry would be eliminated, and hence costs of
    data reconciliation would be reduced. The processes to be migrated from MacPac (e.g., MRP,
    procurement) were fairly standardized and efficient, and were hence not targeted for redesign or
    enhancement. Three SAP modules were scheduled for deployment: materials management (MM),
    production planning (PP), and accounts payable component of financial accounting (FI). Exhibit A-1
    in Appendix provides brief descriptions of these and other commonly referenced R/3 modules.
    Phase I of R/3 implementation employed about ten IS personnel, ten full-time users, and ten part-time
    users from business units within Geneva. Whitman-Hart, a consulting company with prior experience
    in R/3 implementation, was contracted to assist with the migration effort. These external consultants
    consisted of one R/3 basis person (for implementing the technical core of the R/3 engine), three R/3
    configurators (for mapping R/3 configuration tables in MM, PP, and FI modules to Geneva’s needs),
    and two ABAP programmers (for custom coding unique requirements not supported by SAP). These
    consultants brought in valuable implementation experience, which was absolutely vital, given that
    Geneva had no in-house expertise in R/3 at that time. Verne Evans, Director of Supply Chain
    Management and a “super user” of MacPac, was assigned the project manager for this phase. SAP’s
    ERP Implementation at Geneva Pharmaceuticals 8
    rapid implementation methodology called Accelerated SAP (ASAP) was selected for deployment,
    because it promised a short implementation cycle of only six months.3
    Four months later, Geneva found that little progress had been made in the implementation process
    despite substantial investments on hardware, software, and consultants. System requirements were
    not defined correctly or in adequate detail, there was little communication or coordination of activities
    among consultants, IS personnel, and user groups, and the project manager was unable to identify or
    resolve problems because he had no prior R/3 experience. In the words of a senior manager, “The
    implementation was clearly spinning out of control.” Consultants employed by Whitman-Hart were
    technical specialists, and had little knowledge of the business domain. The ASAP methodology
    seemed to be failing, because although it allowed a quick canned implementation, it was not flexible
    enough to meet Geneva’s extensive customization needs, did not support process improvements, and
    alienated functional user groups from system implementation. To get the project back into track and
    give it leadership and direction, in February 1998, Geneva hired Randy Weldon as its new CIO.
    Weldon brought in valuable project management experience in R/3 from his previous employer,
    StorageTek.4
    From his prior R/3 experience, Weldon knew that ERP was fundamentally about people and process
    change, rather than about installing and configuring systems, and that successful implementation
    would require the commitment and collaboration of all three stakeholder groups: functional users, IS
    staff, and consultants. He instituted a new project management team, consisting of one IS manager,
    one functional manager, and one senior R/3 consultant. Because Geneva’s internal IS department had
    no R/3 implementation experience, a new team of R/3 professionals (including R/3 basis personnel
    and Oracle database administrators) was recruited. Anna Bourgeois, with over three years of R/3
    experience at Compaq Computers, was brought in to lead Geneva’s internal IS team. Weldon was not
    particularly in favor of Whitman-Hart or the ASAP methodology. However, for project expediency,
    he decided to continue with Whitman-Hart and ASAP for Phase 1, and explore other options for
    subsequent phases.
    By February 1999, the raw materials and manufacturing component of R/3’s MM module was “up
    and running.” But this module was not yet integrated with distribution (Phase II) and therefore did
    not have the capability to readjust production runs based on current sales data. However, several
    business metrics such as yield losses and key performance indicators showed performance
    improvement following R/3 implementation. For instance, the number of planning activities
    performed by a single individual was doubled. Job roles were streamlined, standardized, and
    consolidated, so that the same person could perform more “value-added” activities. Since R/3
    eliminated the need for data rekeying and validating, the portion of the inventory control unit that
    dealt with data entry and error checking was disbanded and these employees were taught new skills
    for reassignment to other purchasing and procurement processes. But R/3 also had its share of
    disappointments, as explained by Camargo:
    3 ASAP is SAP’s rapid implementation methodology that provides implementers a detailed roadmap of the
    implementation life cycle, grouped into five phases: project preparation, business blueprint, realization, final
    preparation, and go live. ASAP provides a detailed listing of activities to be performed in each phase,
    checklists, predefined templates (e.g., business processes, cutover plans), project management tools,
    questionnaires (e.g., to define business process requirements), and a Question & Answer Database
    4 StorageTek is a leading manufacturer of magnetic tape and disk components also based in Colorado.
    ERP Implementation at Geneva Pharmaceuticals 9
    “Ironically, one of the problems we have with SAP, that we did not have with
    Macpac, is for the job to carry the original due date and the current due date, and
    measure production completion against the original due date. SAP only allows us to
    capture one due date, and if we change the date to reflect our current due date, that
    throws our entire planning process into disarray. To measure how we are filling
    orders, we have to do that manually, offline, on a spreadsheet. And we can’t record
    that data either in SAP to measure performance improvements over time.”
    Bourgeois summed up the implementation process as:
    “Phase I, in my opinion, was not done in the most effective way. It was done as
    quickly as possible, but we did not modify the software, did not change the process,
    or did not write any custom report. Looking back, we should have done things
    differently. But we had some problems with the consultants, and by the time I came
    in, it was a little too late to really make a change. But we learned from these
    mistakes, and we hope to do a better job with Phases II and III.”
    Phase II: Demand Side Processes
    Beginning around October 1998, the goals of the second phase were to redesign demand-side
    processes such as marketing, order fulfillment, customer sales and service, and accounts receivable,
    and then implement the reengineered processes using R/3. Geneva was undergoing major business
    transformations especially in the areas of customer sales and service, and previous systems (Macpac,
    FYI Planner, etc.) were unable to accommodate these changes. For instance, in 1998, Geneva started
    a customer-based forecasting process for key customer accounts. It was expected that a better
    prediction of order patterns from major customers would help the company improve its master
    scheduling, while reducing safety stock and missed orders. The prior forecasting software, FYI
    Planner, did not allow forecasting on a customer-by-customer basis. Besides, demand-side processes
    suffered from similar lack of data integration and real-time access as supply side processes, and R/3
    implementation, by virtue of its real-time integration of all operational data would help manage crossfunctional
    processes better. Mark Mecca, Director of Customer Partnering, observed:
    “Before SAP, much of our customer sales and service were managed in batch mode
    using MacPac. EDI orders came in once a night, chargebacks came in once a day,
    invoicing is done overnight, shipments got posted once a day; so you don’t know
    what you shipped for the day until that data was entered the following day. SAP will
    allow us to have access to real-time data across the enterprise. There will be
    complete integration with accounting, so we will get accurate accounts receivable
    data at the time a customer initiates a sales transaction. Sometime in the future,
    hopefully, we will have enough integration with our manufacturing processes so that
    we can look at our manufacturing schedule and promise a customer exactly when we
    can fill his order.”
    However, the second phase was much more challenging than the first phase, given the non-standard
    and inherently complex nature of Geneva’s sales and service processes. For instance, customer rebate
    ERP Implementation at Geneva Pharmaceuticals 10
    percentages varied across customers, customer-product combinations, and customer-product-order
    volume combinations. Additionally, the same customer sometimes had multiple accounts with
    Geneva and had a different rebate percentage negotiated for each account.
    Bourgeois was assigned overall responsibility of the project, by virtue of her extensive knowledge of
    EDI, R/3 interface conversion, and sales and distribution processes, and ability to serve as a technical
    liaison between application and basis personnel. Whitman-Hart was replaced with a new consulting
    firm, Arthur Andersen Business Consulting, to assist Geneva with the second and third phases of R/3
    implementation. Oliver White, a consulting firm specializing in operational processes for
    manufacturing firms, was also hired to help redesign existing sales and distribution processes using
    “best practices,” prior to R/3 implementation. Weldon explained the reason for hiring two consulting
    groups:
    “Arthur Anderson was very knowledgeable in the technical and configurational
    aspects of SAP implementation, but Oliver White was the process guru. Unlike
    Phase I, we were clearly targeting process redesign and enhancement in Phases II
    and III, and Oliver White brought in ‘best practices’ by virtue of their extensive
    experience with process changes in manufacturing organizations. Since Phase I was
    somewhat of a disaster, we wanted to make sure that we did everything right in
    Phases II and III and not skimp on resources.”
    Technical implementation in Phase II proceeded in three stages: conceptual design, conference room
    pilot, and change management. In the conceptual design stage, key users most knowledgeable with
    the existing process were identified, assembled in a room, and interviewed, with assistance from
    Oliver White consultants. Process diagrams were constructed on “post-it” notes and stuck to the
    walls of a conference room for others to view, critique, and suggest modifications. The scope and
    boundaries of existing processes, inputs and deliverables of each process, system interfaces, extent of
    process customization, and required level of system flexibility were analyzed. An iterative process
    was employed to identify and eliminate activities that did not add value, and generate alternative
    process flows. The goal was to map the baseline or existing (“AS-IS”) processes, identify bottlenecks
    and problem areas, and thereby, to create reengineered (“TO-BE”) processes. This information
    became the basis for subsequent configuration of the R/3 system in the conference room pilot stage.
    A core team of 20 IS personnel, users, and consultants worked full-time on conceptual design for 2.5
    months (this team later expanded to 35 members in the conference room pilot stage). Another 30
    users were involved part-time in this effort; these individuals were brought in for focused periods of
    time (between 4 and 14 hours) to discuss, clarify, and agree on complex distribution-related issues.
    The core team was divided into five groups to examine different aspects of the distribution process:
    (1) product and business planning, (2) preorder (pricing, chargebacks, rebates, contracts, etc.), (3)
    order processing, (4) fulfillment (shipping, delivery confirmation, etc.), and (5) post-order (accounts
    receivable, credit management, customer service, etc.). Thirteen different improvement areas were
    identified, of which four key areas emerged repeatedly from cross-functional analysis by the five
    groups and were targeted for improvement: product destruction, customer dispute resolution, pricing
    strategy, and service level. Elaborate models were constructed (via fish bone approach) for each of
    these four areas to identify what factors drove these areas, what was the source of problems in these
    areas, and how could they be improved using policy initiatives.
    ERP Implementation at Geneva Pharmaceuticals 11
    The conceptual design results were used to configure and test prototype R/3 systems for each of the
    four key improvement areas in the conference room pilot stage. The purpose of the prototypes was to
    test and refine different aspects of the redesigned processes such as forecast planning, contract
    pricing, chargeback strategy determination, receivables creation, pre-transaction credit checking,
    basic reporting, and so forth in a simulated environment. The prototypes were modified several times
    based on user feedback, and the final versions were targeted for rollout using the ASAP methodology.
    In the change management stage, five training rooms were equipped with computers running the
    client version of the R/3 software to train users on the redesigned processes and the new R/3
    environment. An advisory committee was formed to oversee and coordinate the change management
    process. Reporting directly to the senior vice president level, this committee was given the mandate
    and resources to plan and implement any change strategies that they would consider beneficial. A
    change management professional and several trainers were brought in to assist with this effort.
    Multiple “brown bag luncheons” were organized to plan out the course of change and discuss what
    change strategies would be least disruptive. Super users and functional managers, who had the
    organizational position to influence the behaviors of colleagues or subordinates in their respective
    units, were identified and targeted as potential change agents. The idea was to seed individual
    business units with change agents they could trust and relate to, in an effort to drive a grassroots
    program for change.
    To stimulate employee awareness, prior to actual training, signs were put up throughout the company
    that said, “Do you know that your job is changing?” Company newsletters were used to enhance
    project visibility and to address employee questions or concerns about the impending change. A
    separate telephone line was created for employees to call anytime and inquire about the project and
    how their jobs would be affected. The human resources unit conducted an employee survey to
    understand how employees viewed the R/3 implementation and gauge their receptivity to changes in
    job roles as a result of this implementation.
    Training proceeded full-time for three weeks. Each user received an average of 3-5 days of training
    on process and system aspects. Training was hands-on, team-oriented, and continuously mentored,
    and was oriented around employees’ job roles such as how to process customer orders, how to move
    inventory around, and how to make general ledger entries, rather than how to use the R/3 system.
    Weldon described the rationale for this unique, non-traditional mode of training:
    “Traditional system training does not work very well for SAP implementation
    because this is not only a technology change but also a change in work process,
    culture, and habits, and these are very difficult things to change. You are talking
    about changing attitudes and job roles that have been ingrained in employees’ minds
    for years and in some cases, decades. System training will overwhelm less
    sophisticated users and they will think, ‘O my God, I have no clue what this computer
    thing is all about, I don’t know what to do if the screen freezes, I don’t know how to
    handle exceptions, I’m sure to fail.’ Training should not focus on how they should
    use the system, but on how they should do their own job using the system. In our
    case, it was a regular on-the-job training rather than a system training, and
    employees approached it as something that would help them do their job better.”
    ERP Implementation at Geneva Pharmaceuticals 12
    Several startling revelations were uncovered during the training process. First, there was a
    considerable degree of confusion among employees on what their exact job responsibilities were,
    even in the pre-R/3 era. Some training resources had to be expended in reconciling these differences,
    and to eliminate ambiguity about their post-implementation roles. Second, Geneva’s departments
    were very much functionally oriented and wanted the highest level of efficiency from their
    department, sometimes to the detriment of other departments or the overall process. This has been a
    sticky cultural problem, and at the time of the case, the advisory committee was working with senior
    management to see if any structural changes could be initiated within the company to affect a mindset
    change. Third, Geneva realized that change must also be initiated on the customer side, so that
    customers are aware of the system’s benefits and are able to use it appropriately. In the interest of
    project completion, customer education programs were postponed until the completion of Phase III of
    R/3 implementation.
    The primary business metric tracked for Phase II implementation was customer service level, while
    other metrics included days of inventory on hand, dollar amount in disputes, dollar amount destroyed,
    and so forth. Customer service was assessed by Geneva’s customers as: (1) whether the item ordered
    was in stock, (2) whether Geneva was able to fill the entire order in one shipment, and (3) if
    backordered, whether the backorder delivered on time. With a customer service levels in the 80’s,
    Geneva has lagged its industry competitors (mostly in the mid 90’s), but has set an aggressive goal to
    exceed 99.5 percent service level by year-end 1999. Camargo observed that there was some decrease
    in customer service, but this decrease was not due to R/3 implementation but because Geneva faced
    an impending capacity shortfall and the planners did not foresee the shortfall quickly enough to
    implement contingency plans. Camargo expected that such problems would be alleviated as
    performance-to-schedule and demand forecasting improved as a result of R/3 implementation. Given
    that Phase II implementation is still underway at the time of the case (“go live” date is February 1,
    2000), it is still too early to assess whether these targets are reached.
    Phase 3: Integrating Supply and Demand
    Geneva’s quest for integrating supply and demand side processes began in 1994 with its supply chain
    management (SCM) initiative. But the program was shelved for several years due to the nonintegrated
    nature of systems, immaturity of the discipline, and financial limitations. The initiative
    resurfaced on the planning boards in 1998 under the leadership of Verne Evans, Director of SCM, as
    R/3 promised to remove the technological bottlenecks that prevented successful SCM
    implementation. Though SCM theoretically extends beyond the company’s boundaries to include its
    suppliers and customers, Geneva targeted the mission-critical the manufacturing resource planning
    (MRP-II) component within SCM, and more specifically, the Sales and Operations Planning (SOP)
    process as the means of implementing “just-in-time” production scheduling. SOP dynamically linked
    planning activities in Geneva’s upstream (manufacturing) and downstream (sales) operations,
    allowing the company to continuously update its manufacturing capacity and scheduling in response
    to continuously changing customer demands (both planned and unanticipated). Geneva’s MRP-II and
    SOP processes are illustrated in Exhibits 5 and 6 respectively.
    Until the mid-1990’s, Geneva had no formal SOP process, either manual or automated.
    Manufacturing planning was isolated from demand data, and was primarily based on historical
    ERP Implementation at Geneva Pharmaceuticals 13
    demand patterns. If a customer (distributor) placed an unexpected order or requested a change in an
    existing order, the manufacturing unit was unable to adjust their production plan accordingly. This
    lack of flexibility led to unfilled orders or excess inventory and dissatisfied (and sometimes lost)
    customers. Prior sales and manufacturing systems were incompatible with each other, and did not
    allow the integration of supply and demand data, as required by SOP. In case production plans
    required modification to accommodate a request from a major customer, such decisions were made on
    an ad-hoc basis, based on intuition rather than business rationale, which sometimes had adverse
    repercussions on manufacturing operations.
    To remedy these problems, Geneva started a manual SOP process in 1997 (see Exhibit 6). In this
    approach, after the financial close of each month, sales planning and forecast data were aggregated
    from order entry and forecasting systems, validated, and manually keyed into master scheduling and
    production planning systems. Likewise, prior period production and inventory data were entered into
    order management systems. The supply planning team and demand analysis team arrived at their
    own independent analysis of what target production and target sales should be. These estimates
    (likely to be different) were subsequently reviewed in a joint meeting of demand analysts and master
    schedulers and reconciliated. Once an agreement was reached, senior executives (President of
    Geneva and Senior Vice Presidents), convened a business planning meeting, where the final
    production plan and demand schedule were analyzed based on business assumptions, key customers,
    key performance indicators, financial goals and projections (market share, revenues, profits), and
    other strategic initiatives (e.g., introduction of a new product). The purpose of this final meeting was
    not only to fine-tune the master schedule, but also to reexamine the corporate assumptions, growth
    estimates, and the like in light of the master schedule, and to develop a better understanding of the
    corporate business. The entire planning process took 20 business days (one month), of which the first
    10 days were spent in data reentry and validation across corporate systems, followed by five days of
    demand planning, two days of supply planning, and three days of reconciliation. The final business
    planning meeting was scheduled on the last Friday of the month to approve production plans for the
    following month. Interestingly, when the planning process was completed one month later, the
    planning team had a good idea of the production schedule one month prior. If Geneva decided to
    override the targeted production plans to accommodate a customer request, such changes undermined
    the utility of the SOP process.
    While the redesigned SOP process was a major improvement over the pre-SOP era, the manual
    process was itself limited by the time-lag and errors in data reentry and validation across sales,
    production, and financial systems. Further, the process took one month, and was not sensitive to
    changes in customer orders placed less than a month from their requested delivery dates. Since much
    of the planning time was consumed in reentering and validating data from one system to another,
    Evans estimated that if an automated system supported real-time integration of all supply and demand
    data in a single unified database, the planning cycle could be reduced to ten business days.
    Though SAP provided a SOP module with their R/3 package, Geneva’s R/3 project management team
    believed that this module lacked the “intelligence” required to generate an “optimal” production plan
    from continuously changing supply and demand data, even when all data were available in a common
    database. The R/3 system was originally designed as a data repository, not an analysis tool to solve
    ERP Implementation at Geneva Pharmaceuticals 14
    complex supply chain problems or provide simulation capabilities5. Subsequently, in 1999, when
    SAP added a new Advanced Purchase Optimizer (APO) module to help with data analysis, Geneva
    realized that the combination of R/3’s SOP and APO modules would be the answer to their unique
    SOP needs.
    At the time of the case, Geneva was in the initial requirements definition stage of SOP
    implementation. To aid in this effort, Oliver White had created a template that could aggregate all
    relevant data required for SOP from distribution, operations, purchasing, quality control, and other
    functional databases, and tie these data to their source processes. It was expected that the template
    would provide a common reference point for all individuals participating in the SOP process and
    synchronize their decision processes.
    The primary business metric targeted for improvement in Phase III implementation is “available to
    promise” (ATP), i.e., whether Geneva is able to fulfill a customer order by the promised time. ATP is
    an integration of customer service level and business performance, the erstwhile key business metrics
    in the pre-SOP era. Customers often placed orders too large to be fulfilled immediately, and ATP
    was expected to provide customers with reasonably accurate dates on when they should expect which
    part of their order to be filled. Generating and meeting these dates would enable Geneva improve its
    customer service levels that not providing any fulfillment dates at all. With declining profit margins,
    as the generics industry is forced to explore new means of cost reduction, Geneva expects that thin
    inventories, just-in-time manufacturing, and top quality customer service will eventually be the
    drivers of success, hence the importance of this metric. Evans explains the importance of ATP as a
    business metric as:
    “Most of our customers understand the dynamics of our business, and how difficult it
    is for us to fulfill a large order instantaneously with limited production capacity. But
    most of them are willing to bear with backorders if we can promise them a
    reasonable delivery date for their backorder and actually deliver on that date. That
    way, we take less of a customer service level hit than defaulting on the order or being
    unable to accommodate it. In commodity business such as ours, customer service is
    the king. Our customers may be willing to pay a little premium over the market for
    assured and reliable service, so that they can meet their obligations to their
    customers. Customer service may be a strategic way to build long-term relationships
    with our customers, but of course, we are far from proving or disproving that
    hypothesis.”
    Future Plans
    Despite some initial setbacks in Phase I, Geneva is now back on the road to a successful R/3
    implementation. The senior management, functional units, and IS personnel are all enthusiastic about
    the project and looking forward to its deployment in all operational areas of business and beyond.
    R/3 implementation has opened up new possibilities to Geneva and more means of competing in the
    5 Typically, manufacturing companies requiring SCM analysis used additional analysis tools from I2
    Technologies or Manugistics on top of ERP databases from SAP or Oracle for SCM purposes.
    ERP Implementation at Geneva Pharmaceuticals 15
    intensely competitive generic drugs industry. Weldon provided an overall assessment of the benefits
    achieved via R/3 implementation:
    “In my opinion, we are doing most of the same things, but we are doing them better,
    faster, and with fewer resources. We are able to better integrate our operational
    data, and are able to access that data in a timely manner for making critical business
    decisions. At the same time, SAP implementation has placed us in a position to
    leverage future technological improvements and process innovations, and we expect
    to grow with the system over time.”
    Currently, the primary focus of Geneva’s R/3 implementation is timely completion of Phase II and III
    by February 2000 and December 2000 respectively. Once completed, the implementation team can
    then turn to some of R/3’s additional capabilities that are not being utilized at Geneva. In particular,
    the quality control and human resource modules are earmarked for implementation after Phase III.
    Additionally, Geneva plans to strengthen relationships with key suppliers and customers by
    seamlessly integrating the entire supply chain. The first step in this direction is vendor managed
    inventory (VMI), that was initiated by Geneva in April 1998 for a grocery store chain and a major
    distributor. In this arrangement, Geneva obtains real-time, updated, electronic information about
    customers’ inventories, and replenish their inventories on a just-in-time basis without a formal
    ordering process, based on their demand patterns, sales forecast, and actual sales (effectively
    operating as customers’ purchasing unit).6 Geneva’s current VMI system, Score, was purchased from
    Supply Chain Solutions (SCS) in 1998. Though Mecca is satisfied with this system, he believes that
    Geneva can benefit more from R/3’s ATP module via a combination of VMI functionality and
    seamless company-wide data integration. Currently, some of Geneva’s customers are hesitant to
    adopt VMI because sharing of critical sales data may cause them to lose bargaining power vis-à-vis
    their suppliers or prevent them from speculative buying. But over the long-term, the inherent
    business need for cost reduction in the generics industry is expected to drive these and other
    customers toward VMI. Geneva wants to ensure that the company is ready if and when such
    opportunity arises.
    6 Real-time customer forecast and sales data is run through a VMI software (a mini-MRP system), which
    determines optimum safety stock levels and reorder points for customers, and a corresponding, more optimum
    production schedule for Geneva. Initial performance statistics at the grocery store chain indicated that customer
    service levels increased from 96 percent to 99.5 percent and on-hand inventory decreased from 8 weeks to six
    weeks as a result of VMI implementation. For the distributor, Geneva expects that VMI will reduce on-hand
    inventory from seven months to three months.
    ERP Implementation at Geneva Pharmaceuticals 16
    Exhibit 1. Novartis’ divisions
    Divisions Business Units
    Healthcare Pharmaceuticals
    Consumer Health
    Generics
    CIBA Vision
    Agribusiness Crop Protection
    Seeds
    Animal Health
    Nutrition Infant and Baby Nutrition
    Medical Nutrition
    Health Nutrition
    Exhibit 2. Novartis’ five-year financial summary
    1998 1997 1996 1995 1994
    Annual sales 31,702 31,180 36,233 35,943 37,919
    Sales from healthcare 17,535 16,987 14,048 12,906 14,408
    Sales from agribusiness 8,379 8,327 7,624 7,047 7,135
    Sales from consumer health 5,788 5,866 5,927 5,777 4,258
    Sales from industry - - 8,634 10,213 12,118
    Operating income 7,356 6,783 5,781 5,714 5,093
    Net income 6,064 5,211 2,304 4,216 3,647
    Cash flow from operations 5,886 4,679 4,741 5,729 5,048
    R&D expenditure 3,725 3,693 3,656 3,527 3,786
    Total assets 55,375 53,390 58,027 50,888 51,409
    Net operating assets 20,913 19,619 21,820 22,278 22,952
    Number of employees at year-end 82,449 87,239 116,178 133,959 144,284
    Sales per employee (Swiss Francs) 369,337 350,905 289,705 258,357 266,740
    Debt/equity ratio 0.28 0.41 0.46 0.46 0.57
    Current ratio 2.0 1.7 1.9 2.2 1.6
    Return on sales (%) 19.1 16.7 13.9 - -
    Return on equity (%) 21.0 20.7 16.7 - -
    Note: All figures in millions of Swiss Francs, except otherwise indicated.
    Pre-1996 data is on pro forma basis, based on pooled data from Ciba and Sandoz.
    ERP Implementation at Geneva Pharmaceuticals 17
    Exhibit 3. Phases in R/3 implementation at Geneva
    Phases1 Business processes R/3 modules Implementation timeline
    (inception to go-live)
    Phase I: Supply side
    management
    MRP, purchasing, inventory
    management
    MM2, PP,
    FI/CO3
    Nov 1997 – Feb 1999
    Phase II: Demand side
    management
    Order management, sales,
    customer service
    SD, MM4,
    FI/CO5
    Oct 1998 – Feb 2000
    Phase III: Supply/demand
    integration, business
    intelligence
    Sales & operations planning,
    supply chain management,
    data warehousing
    APO, MES,
    BIW
    Early 2000 – End 2000
    Note: 1Vendor selection took place in mid-1997
    2MM: Raw materials inventory
    4MM: Finished goods inventory
    3FI/CO: Accounts payable
    5FI/CO: Accounts receivable
    Vendor
    System
    Sales orders ATP
    Sales & Distribution
    Customer
    Inquiry Quotation
    Order
    Generation
    Goods
    Issue
    Billing
    Delivery Document
    Update
    Financials
    Inventory
    Management
    Update
    Demand
    Management
    Run
    MPS/MRP
    Production Planning Materials
    Management
    Finance &
    Controlling
    Exhibit 4. Geneva’s order management process
    ERP Implementation at Geneva Pharmaceuticals 18
    Business Planning
    Sales & Operations
    Planning
    DRP Master
    Scheduling
    Detailed Materials/
    Capacity Planning
    Plant & Supplier
    Scheduling
    Execution
    Demand
    Management
    Rough-Cut
    Capacity Planning
    Exhibit 5. Geneva’s manufacturing resource planning process
    Exhibit 6. Geneva’s sales & operations planning process
    Demand
    Planning
    Supply
    Planning
    Integration/
    Reconciliation
    Business Planning
    (S&OP)
    Key Activities:
    • Product planning
    • Forecasting
    • Sales planning
    • Performance
    management
    (prior period)
    • Master production
    scheduling
    • Capacity planning
    • Materials requirements
    planning
    • Consolidation of
    demand, supply,
    inventory, and
    financial plans
    • Feedback to
    demand and
    supply planning
    • Performance review
    • Key assumptions review
    • Product family review
    • Key customers review
    • Financial review
    • Approval/action items
    Current Planning Cycle (Monthly):
    Financial
    close
    (prior month)
    0 5 10 15 17 20 (Business
    days)
    Demand
    planning
    Supply
    planning
    Integration
    Business
    planning
    Goal:
    To reduce the planning cycle time from one month to 10 business days.
    ERP Implementation at Geneva Pharmaceuticals 19
    Appendix
    SAP (Systems, Applications, and Products in Data Processing) is the world’s fourth largest software
    company, and the largest enterprise resource planning (ERP) vendor. As of February 1999, the
    company employed 19,300 employees and had annual revenues of $5 billion, annual growth of 44
    percent, over 10,000 customers in 107 countries, and 36 percent of the ERP market. SAP AG was
    founded in 1972 by Dr. H.C. Hasso Plattner and Dr. Henning Kagermann in Walldorf, Germany with
    the goal of producing an integrated application software, that would run all mission-critical operations
    in corporations, from purchasing to manufacturing to order fulfillment and accounting. This
    integration would help companies optimize their supply chains, manage customer relationships, and
    make better management decisions. SAP brings in 26 years of leadership in process innovations and
    ERP, and invests 20 percent of its revenues back into research and development.
    SAP’s first breakthrough product was the R/2 system, which ran on mainframe computers. R/2 and
    its competitors were called ERP systems, to reflect the fact that they extended the functions of earlier
    materials requirements planning (MRP) systems in manufacturing firms to include other functions
    and business processes such as sales and accounting. In 1992, SAP released its R/3 system, the
    client/server variant of the earlier R/2 system, which was installed in 20,000 locations worldwide, and
    R/2 is installed in over 1,300 locations by mid-1999. Initially targeted at the world’s largest
    corporations such as AT&T, BBC, Deutsche Bank, IBM, KPMG, Merck, Microsoft, Nestle, Nike,
    and Siemens, R/3 has since been deployed by companies of all sizes, geographical locations, and
    industries. SAP solutions are available for 18 comprehensive industry solutions (“verticals”) for
    specific industry sectors such as banking, oil & gas, electronics, health care, and public sector.

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