Executive Summary
Keda Industrial Company Limited is one of the leading manufacturers and distributors of ceramic machinery in China. The firm has registered impressive performance over the past two decades and it is currently one of the top global players in the industry. The top management realized that the data management system was inadequate as it did not facilitate the efficient sharing of information among departments. As such, the top management unit made a decision to introduce the SAP ERP system to address the inadequacies. The biggest challenge in the implementation was resistance from some of the managers. However, this issue was addressed. The study recommends regular training of all the users so that they can understand how to work effectively under the new system.
Case Synopsis
Keda Industrial Company Limited was founded by Lu Qin in 1992 in Shunde, Guangdong province as a small company that specialized in the manufacturing of ceramic machinery (Fung, Fang, Wang, Neufeld, 2011). At that time, the industry was dominated by multinational corporations from North America and Europe. However, this company enjoyed a huge local market in China. Competition from local companies was low hence it was easy for Keda to achieve rapid market growth in the Chinese market. The impressive growth of the company within its first decade of operation saw it listed on the Shanghai Stock Exchange in 2002 (Stack, 2014). The market growth continued, and in 2009, the company reported revenue of over USD 209 million. Despite this impressive growth, Keda started experiencing challenges in having a properly coordinated operation where all departments could easily engage one another to avoid duplications of work and share knowledge and experience. That is when the company’s vice general manager, Dr. Fan Zhu, realized that it needed an enterprise resource planning (ERP) solution to deal with the problem.
Dr. Zhu realized that to introduce an ERP system into the organization successfully, it was necessary to come up with teams that would play different roles at various stages of the implementation. First, he secured the support of the top management unit (the board of directors). He then made sure that all the departmental heads were willing and ready to embrace the new approach of computerization of data. The first step was to choose an appropriate ERP vendor to offer the needed service. SAP was selected as the most appropriate vendor to offer the needed system based on the company’s needs. The second step was to assemble the team responsible for the implementation. The third and critical step was the implementation process. Individuals who were unwilling to change to the new system were eliminated from the firm. Although there were numerous challenges faced, Keda managed to introduce the system successfully.
Strategy Analysis
It is important to look at the strategies that Keda has been using to achieve the current success in its operations in the market. In this section, the researcher will look at the revenue model, the culture of the organization, the business goal, major business strategies, and the IS strategy.
Revenue Model, Culture, and Business Goal
The framework for revenue generation at Keda, as shown in the case study, is based on the manufacture and sale of ceramic machinery (Fung et al., 2011). The main market for the company’s products is in China. After listing on Shanghai Stock Market, the company tried to expand its operations beyond China. However, the top management considered it more appropriate to focus more on the local market because of the huge potential it offers. The company has embraced the Chinese culture where subordinates expect to be guided by their seniors. An authoritarian approach to governance is commonly used at this firm, where junior officers who fail to follow instructions of the top managers are either punished or eliminated from the firm. The culture is working well for the organization. The company’s business goal when introducing the new ERP was to have an integrated system where departments can easily coordinate their activities to avoid duplication of work and loss of resources due to the limited ability of the stakeholders to share data.
Major Business Strategies
Analysis of the case shows that the main strategies that this company is using in the market are cost leadership and differentiation. The company has put in place various strategies to ensure that it has a lean production process. The new ERP system is meant to lower the production costs further. The low cost of production enables this company to price its products competitively both in the local and global market without compromising the firm’s profitability. The company is also committed to ensuring that its products are positively different from that of the competitors. It seeks to ensure that its products are of superior value.
IS Strategy
Edmonds and Blanchard (2014) define IS strategy as a planning document, which stipulates how technology and information systems should be used to support an entity’s overall business plan. Initially, Keda did not have a clear IS plan. However, Dr. Zhu has introduced a system that emphasizes information sharing by various departmental units as a way of enhancing harmony in the operations. The integrated approach to data management made it necessary for this company to embrace SAP’s ERP system to facilitate the management of data at a central point and sharing with relevant departments to improve operational efficiency.
Problems Analysis
Keda is currently one of the leading global manufacturers and suppliers of ceramic machines. The company currently faces a number of challenges, some of which poses a serious threat to its growth in the local and international market, as evident in the case presented. It is important for the management to understand these problems and find ways of dealing with them in the most effective way possible.
Firm-Based Value-Chain Model
Porter’s firm-based value-chain model is a framework that analyzes specific activities, which can enable a firm to create competitive advantage and value in the market. Using this framework, Keda can create value in its operations that may enable it to achieve a competitive advantage in the market. Figure 1 below shows the framework.
As shown in the figure above, the primary activities must be sustained by the support activities to achieve the desired goals. Primary activities include inbound logistics, operations, outbound logistics, sales and marketing, and service (Kale, 2014). These activities are critical in ensuring that raw materials are obtained, processed, and made available in the market for the clients at the right time. To ensure that there is success in undertaking these primary activities, it is important to ensure that support activities are also undertaken in the right manner. They include a firm’s infrastructure, management of the human resource, technology, and procurement (Sinha, 2017). This model is important because when used in supply chain management, it can help in cutting the cost of production and increase its profit margin without having to increase the price of its products.
Model Application at KEDA
The current operations at Keda are exposing it to wastages that can be eliminated using the value chain model that was developed by Porter. The model will enable it to improve efficiency and cut costs of operation. Figure 2 below is the model that the management of Keda should find a way of implementing in the best way possible.
In the figure above, the five primary activities of acquiring raw materials, manufacturing of the ceramic machines, transporting the products to the market, brand and product promotions, and maintaining customer service must be conducted on a regular basis. Rahming (2012) says that it is how these primary activities are conducted with the help of the supportive activities that will determine the level of a firm’s success. The firm will need to develop a close relationship with its suppliers to ensure that it can always acquire raw materials with ease and at a relatively low price. The firm will need to embrace emerging trends and technologies to improve its processing activities. The emerging technologies can help in improving production speed, efficiency, and standardization of the products. The company should empower its human resource to make them more efficient in the production department.
The transport system used by this company should reflect the changes being initiated under the new SAP ERP system. The logistics management should compare the cost and efficiency of hiring a logistics company to understand these activities or to have a fully functional logistics department within the firm. The promotional activities at this company should be based on the emerging trends in marketing. Social media marketing should be used to promote the brand and products of Keda in the local and international markets. Finally, customer management services should be done with the help of support activities. Using modern communication technologies, the firm should enhance communication with its customers so that any issues that arise may be addressed within the shortest time possible. Customers should always be informed of any major changes in the product, cost, or delivery time. The employees within this department should also go through training so that they can understand best practices when handling clients.
Implementation of Needs Analysis
The implementation needs analysis is critical because it will help in identifying what has been done and what needs to be done to improve the chances of success as this firm strives to implement SAP’s ERP system. Table 1 below identifies the needs and responsible authorities at each level.
Table 1: Problem Identification Table.
Implementation of Effectiveness
Summary of the SAP Implementation
After careful analysis and wide consultation with the internal stakeholders, the top management unit of Keda chose SAP as the most appropriate ERP vendor. It was believed- based on the presentations made by over 20 vendors- that SAP meets the current and possible future needs at the firm. The management decided to implement SAP because it outlined how data would be integrated and inter-departmental communication enhanced within the firm. It is necessary to look at how the process was done.
The implementation strategy
The implementation involved centralizing data and most of the operations so that gaps or overlaps could be eliminated in the firm’s operation. One of the main issues that the SAP ERP focused on addressing was common cases where tasks were duplicated in various departments. For instance, it was common to find cases where activities are undertaken in the sales and marketing department where the same tasks are done in the customer relations department. It was also common to find situations where some departments avoided undertaking some tasks with the assumption that it is the responsibility of the other department. The centralization of the entire system meant that such issues would be eliminated. The new system made it easy to define the responsibility of every department and all the units within these departments. The role of every individual, from the top managers to the junior officers, is defined under this new system. The information flow and the concept of sharing data are also outlined in very clear terms. The implementation strategy emphasized the need for the top managers to lead in the introduction of the new system. Most of the departmental heads faced many challenges under the new system, but they were under strict instruction from the board of directors to adjust their activities in line with the changes introduced. The strategy yielded the desired results.
The SAP system components
During the implementation, it was important to understand the SAP system components and their relevance in data management and sharing within the firm. One of the most important components was the database instance. The database offers a central system of data management and sharing within the firm. The information obtained from various sources is made available in the database so that interested parties can have access to it. The central instance emphasizes the centrality of the operations under the new system. The departmental heads have the responsibility of guiding their departments as required. However, their activities must be done from a central system where engagement and close coordination are highly valued.
To achieve such centrality in the management of various activities, the central service component instance component provides the basis of communication among these stakeholders. The SAP help portal enables every user of the system to make necessary consultations so that he or she can understand what needs to be done. The help portal also facilitates the sharing of knowledge among departmental heads, especially when handling interrelated tasks. This component uses AS Java cluster to facilitate communication. Enqueue Replication Server is another important component. It facilitates duplication of data within the database so that if there is a system collapse, users can still have access to data whenever they need it (Graham, Fewster, Copeland, & Addison, 2012). The last component of the system is the dialogue instance. Its main function is to intercept the user’s requests and make the necessary execution to make the needed data available.
Major conversion approach used
According to Christensen and Raynor (2013), when making a major shift in data management, it is important to choose the most appropriate conversion strategy. The management of Keda started the entire process by defining the needs. The next step involved engaging the relevant stakeholders (departmental heads and indispensable employees in various departments) to come up with the most appropriate conversion approach. Given that comparability was a major concern, the team decided to use manual conversion. The vendor started by addressing the issue of compatibility. It was evident that the traditional system that was in use at the firm was not compatible with the new system that was to be implemented. As such, automatic type conversion was not possible. The firm had to use a manual approach of conversion to ensure that everything was done accurately. The existing data was transferred into the new platform by the vendor and then automated. It eased the process of processing and sharing data among various departments of the firm.
The issues and problems encountered and solved in the process
A number of issues were faced during the implementation process, and the top management had to find the needed solution. The biggest challenge, as presented in the case, was resistance by some of the departmental heads. As heads of their departments, they were expected to spearhead the entire process of implementing the new system. However, some of them felt uncomfortable operating under the new system. For instance, they were forced to work from a centralized location during the initial stages of the implementation so that they could learn how to share data and engage their colleagues when necessary. They also had to put in extra hours of work to ensure that their departmental responsibilities were not compromised. Some of the departmental heads ignored the instructions given to them and tried to operate under the old model. The top management unit had no alternative but to eliminate such managers and to replace them with others who were willing to work under the new system. It was not easy to eliminate these managers because they were critical in the development of this new system. However, that was unavoidable, especially for those who were not robust enough to embrace the changes. When other managers and supervisors realized that the top management unit was determined to make this system work, they became committed to embracing the system. Their commitment helped in achieving good results soon after the system’s introduction.
Tangible and Intangible Costs Estimation
It is important to appreciate that the process of implementing the SAP system involves costs that must be met by this company. The effectiveness of the IS implementation is determined by looking at how costs used can be recovered through the benefits that the system offers. It will be necessary to come up with cost estimate so that the management can understand how the expenses can be recovered and the overall viability of this project
Tangible costs estimation
Tangible costs are those that are used directly to purchase items or pay for items and can easily be quantifiable. When implementing the SAP system, Keda will have to incur a number of expenses that can be classified as tangible costs. The firm will need to purchase the hardware needed for the new system. They include computers meant for users, the database system, cables needed for necessary connections, equipment meant to facilitate internet connectivity within the firm, among other equipment. The management will need to pay for the software. The vendor will be paid for the software that will facilitate management and sharing of data. As shown in the case, the firm also has to pay the consultants. The consultants will help the internal stakeholders to understand how to run the system. Table 1 below shows the estimated tangible costs.
Table 1: Tangible Costs Estimation.
Intangible costs estimation
Intangible costs are not easy to predict with precisions. Stack (2014) says that these are costs associated with losses due dropped productivity, reduced employee morale, and loss of employee goodwill. As shown in the case, the top management unit put in place measures to eliminate such costs, especially because of the successful implementation. However, it is important to have an allowance for possible losses. The estimated intangible costs may be about 30% of the tangible costs. It means that the estimate is $ 337,500.
Tangible and Intangible Benefits Estimation
The new project is expected to benefit Keda by improving efficiency and cutting costs. As shown in the case, instances where work is duplicated in different departments at Keda are common. Every time a task is duplicated, the firm loses financial resources and a waste of time among the employees assigned to such tasks. The implementation of the IS system is expected to address these issues. It is important to look at the tangible and intangible benefits of the new system.
Tangible benefits estimation
It is known that when the new system is introduced, Keda will enjoy various benefits of running an automated system. Departments will be more coordinated and data will be shared with ease. Cases of duplication will be eliminated and employees will be more efficient in undertaking their responsibilities. Assigning specific dollar value to these benefits may not be easy, as Sinha (2017) observes. However, it is possible to come up with rough estimated based on the information provided in the case. Table 2 below shows the estimated benefits in dollar value. It is worth noting that the benefits may be higher than what has been estimated in the table below. For instance, it is estimated that the improved engagement with the customers would results in proved sales to the tune of $ 950,000 more than the current value. However, the fact that production will be improved and that Keda will be able to deliver more products in the market means that the actual benefit will be higher than the estimated value.
Table 2: Tangible Benefits Estimation.
Intangible benefits estimation
The tangible benefits indicated above are dollar value assigned to some of the critical areas of improvement expected at the firm after the new system is introduced. It is important that intangible benefits also exist that the management should be keen on tapping. The new system may have numerous intangible benefits that may have numerous financial benefits. Just as the tangible benefits, these intangible benefits may not easily be quantified even if the firm starts benefiting from it. However, a rough estimate of about $ 500,000 may be generated from this project within the first year of its initiation.
Conclusion
Keda Industrial Company Limited started its operations as a small firm that manufactured and sold ceramic machinery in the Chinese province of Guangdong. At the time, the global market was dominated by large multinational corporations from Europe and United States. However, the firm took advantage of the low cost of production in the country and the huge local market to expand rapidly within the first decade of its operations. However, the case shows that this growth was characterized by various challenges, one of which was poor data management and sharing among departments. As the firm continued to grow, its departments started operating semi-autonomously. The autonomy created instances where some tasks were duplicated while others were avoided. The top management unit realized that to improve efficiency in operation and to cut down costs, it was necessary to integrate the system and to ensure that a central command was created. That is why SAP ERP was implemented. The new system eliminated the autonomy of departmental level. Heads of departments were required to work from a central unit, and to share data relevant to their operations. The SAP system enhanced data management and ensured all departments worked very closely to achieve a common goal. Although some of the departmental heads resisted the new system, the support given by the top managers made it possible to achieve the desired success with the project.
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