Thanks to a back-to-basics approach, a company-wide ERP upgrade wasn't a bitter pill to swallow at Sigma Pharmaceuticals. When Melbourne-based Sigma Pharmaceuticals first implemented an enterprise resource planning (ERP) system almost five years ago in Australia, it turned to a packaged solution.
According to general manager Elmo De Alwis, the company "did not want to reinvent the wheel", it wanted a solution that could be adopted with minimum disruption to operations. Four years later, however -- as it made a significant upgrade to the system -- Sigma decided to undertake a back-to-basics, ground-up implementation rather than a simple upgrade. This would enable the company to re-examine its business policies, standardise its procedures company-wide, and remove customised modifications that had outlived their usefulness. The aim was to streamline business operations to improve Sigma's responsiveness to its customers.
"When we first decided to install an ERP system, we looked at what software was available, and what the leading companies in our very competitive industry were using, overseas as well as in Australia," De Alwis explains.
"We then wanted a system we could use to run the business without modifying the software itself. In hindsight, that was a good decision. It allowed us to keep abreast of the technology while relying on the developer's expertise for leading-edge updates."
At that time Sigma opted to go with the BPCS software suite from SSA. "The software is fully integrated and is not just a combination of smaller packages," De Alwis says. "One of the advantages of a fully integrated package is that it coordinates a lot of the various functions of our business a lot better than a series of stand-alone systems. We have added modules every time we have taken an upgrade, and now Sigma's whole business is run through the BPCS system -- from quality control to financial planning and forecasting."
Competitive Market Sigma is the largest Australian-owned company in terms of sales to pharmacies, and ranks as the largest contract manufacturer in the Australian pharmaceutical industry. It operates three manufacturing plants and a distribution centre, and has sales offices in every Australian city, as well as in Auckland, New Zealand. Its customers include hospitals and retail pharmacies, and it supplies products in the ethical and proprietary markets. More than 350 other suppliers service the fiercely competitive Australian pharmaceutical industry in which the company operates, and most of the leading players are multinational giants.
In order to compete effectively and continue to grow, Sigma is paying increased attention to its export business and is addressing new markets which have the potential to lead the company consistently to double digit growth. Such growth places increasing importance on the way Sigma services and supports its Australian customer base, De Alwis believes. "As an Australian-owned company we see the establishment of a strong domestic base as very important, and we believe that applies in any industry," he says. "We are becoming more and more customer-focused, and see it as fundamentally essential that we benefit to the maximum from efficiencies that computer systems like ours can offer." De Alwis notes that it is a considerable advantage to Sigma that BPCS running on an IBM AS/400 platform requires a minimal infrastructure. The company's IT operation consists of IT manager Rey Sumaru and a network administrator.
When Sigma learned in 1997 of the imminent release of SSA's BPCS Client/Server v6.0 it realised that this upgrade would offer Sigma a chance to capitalise on technological advances in both hardware and software. This version of the ERP system was the first release of BPCS to be certified as year 2000-compliant; it also would allow Sigma to move to a full client/server environment and to adopt a quality assurance module. At the same time, a relatively straightforward hardware upgrade would allow Sigma to migrate its IT systems to a business-oriented RISC platform that offered several benefits, not least of which was the ability to undertake electronic commerce. The arguments for going back to basics when making the upgrade were compelling, and Sigma decided to exploit this to the full by examining its business processes, and especially its relationships with customers. "We took the opportunity to review business systems in line with BPCS, and we made some changes in the way we run our business," De Alwis says. "Those changes improved the efficiency of the process of converting data to useful management information.
"In line with our heightened focus on customer service, we believed that with a single set of policies and procedures in place across the business Sigma could deliver an environment that would facilitate new business integration and allow us to adapt quickly to meet changes in the marketplace. All the improvements we wanted to make would allow us to service our customers better."Zero Modification The project proved a challenge for the IT department, which rounded up a team of five to work on the implementation of the new system, while also fulfilling their normal duties. "We treated the upgrade as a totally new implementation," Sumaru says. "We challenged every procedure to see whether it was logical or if there was a better way for more logical throughput. We didn't change a lot of them. We also went back to zero modifications in the software. Any modification that we had previously made to BPCS to suit our operations had to be justified before it was reintroduced." Sumaru says that the zero modification policy affected some subsystems: for example, Sigma's use of a third-party system for batch documentation, which is now integrated with BPCS so that a single system controls the company's entire workflow. "As a result of the zero mods policy, future upgrades will be much simpler, and maintenance costs will be reduced," Sumaru explains. On the hardware side, Sigma upgraded its hardware to an IBM AS/400 Model 620. "That took us from CISC to RISC technology, which has a better code set and much quicker processing times. The new IBM machine also has the capability for use in electronic commerce, with a firewall and other capabilities built in," Sumaru says. The upgrade, which began in October 1997 and followed SSA's BASIS implementation methodology, went live on June 1, 1998. "It was a fast implementation and it did not disrupt the business for a single day," Sumaru says. "We were very, very pleased." De Alwis acknowledges that the deadline for the upgrade was so tight that SSA thought it could not be done in the allotted time. "However, the team's in-depth knowledge of BPCS served them well and [they completed] the project with minimal use of consultancy -- although it was good to know that SSA consultants and help line assistance were available if needed," he adds. "Their biggest kick was proving they could do it."Pulling Together Also helping the team was the positive reaction from Sigma staff members.
Senior management accorded a high priority to the project, which received strong support from all sections of the business. "Other staff members could see us achieving a lot of efficiencies and improvements, and they were also keen to re-examine policies and procedures and remove non-value-adding procedures and practices," De Alwis says. The decision to treat the software upgrade as a new implementation has paid handsome dividends, De Alwis believes.
"We have addressed aspects of the business that were not previously covered; and we have achieved additional benefits -- such as year 2000 compliance, which is guaranteed by the support of SSA and which has given us peace of mind and addressed what could have been a major problem. As well, we have taken advantage of client/server capabilities; at the same time, we have much improved financial reporting, which gives us access to a lot of information that we did not previously have," he says. "The time frame has been shortened, so that we have almost instantaneous reporting. Information is available first thing in the morning about what happened the previous night and that is proving invaluable for inventory planning and forecasting."By standardising business processes and procedures across the company, Sigma has been able to reduce its training costs considerably, De Alwis notes. The upgrade also introduced the BPCS Quality Management System and Engineering Change Control modules to Sigma, providing visibility and integration of quality-related information and controlled changes to bills of material on the shop floor, De Alwis says. After completing the upgrade the company moved quickly to exploit the electronic commerce capabilities of its new IBM AS/400.
Within five months of completion of the software implementation, Sigma began a pilot e-commerce project with some of its largest customers. The system went live within a month. "In the first stage we looked at receiving orders electronically. Customers used a Web interface, and orders were placed straight into our system," Sumaru says. The system was built on the Pharmaceutical Extranet Gateway (PEG) from Sterling Commerce and has already reduced significantly the incidence of errors in the ordering process at Sigma.
"Our commitment to move to BPCS Client/Server v6 in such a short time frame was based on a number of things: the needs of the business, the time lines we set ourselves, and the confidence in the people who were doing it," De Alwis says.
Now that it has completed the upgrade, Sigma is planning to extend its use of some of the BPCS modules, including e-commerce and warehouse management, to implement projects like EFT, ASN and real-time data collection, De Alwis adds.
"BPCS v6 carries with it an assurance from SSA in terms of the millennium issue, so we can now focus our energies on the future."Bottom-line Benefits Spur UpgradesSigma is not alone in being prepared to upgrade its ERP software as frequently as the developer recommends. Software upgrades rate highly with most CIOs, according to a survey released late last year from US market research company RHI Consulting. The report says that CIOs generally are most willing to spend money on software where the impact on the bottom line will be most noticeable.
About one in four of the CIOs surveyed was prepared to upgrade core functions like manufacturing and customer service packages, and just more than one in five was prepared to pay up for sales and marketing upgrades. "Most companies will direct improvements first to core functions to achieve immediate bottom line results," according to an RHI spokesman. "Manufacturing companies, for example, are upgrading software and hardware used for enterprise resource planning and inventory management. In addition, businesses of all kinds are taking advantage of advances in revenue management software and relational databases for better customer tracking."Leader of the Package When undertaking its upgrade to BPCS Client/Server v6.0.02 -- the first full installation of that software in Victoria -- Sigma installed modules for general ledger, accounts payable, accounts receivable, order entry, shop floor control, planning, forecasting, purchasing, costing, QMS for quality management, sales performance management, manufacturing resource planning (MRP) and distribution resource planning (DRP). In December 1997, midway through the software upgrade, the company installed an IBM AS/400 Model 620-2180, which is built on a RISC processor and is configured by the manufacturer for electronic commerce applications.
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