ERP: Out of the Woods
Two years ago, outdoor-equipment manufacturer Blount International bucked the national trend toward outsourcing by ending a deal with a service provider whose support didn’t match Blount’s growth or technical requirements. A few months ago—despite the success of that decision, the global standards-setting effort that followed and the cutting-edge warehouse project the savings helped fund—poor support took the company offline as it struggled with a relatively simple upgrade to the latest version of SAP’s business applications.
“We had a really good track record when we did the upgrade to [SAP’s Central Component] 5.0 from ECC 4.6 two years ago,” says Barry Brunetto, vice president of information services for the Portland, Ore.-based manufacturer of chainsaw parts, cutting equipment and gearing for heavy-duty machinery. “This time, our guys did everything right, but there were three times when it took more than 15 hours over the planned time because we couldn’t get the answers we needed from SAP technical support.”
That lack of responsiveness and support for its enterprise resource planning (ERP) system forced Blount to move from a relatively standard outsourcing arrangement to one in which a service provider hosts Blount servers at a secure site, while Blount’s IT staff controls all other components, Brunetto explains.
Blount’s $515 million 2007 revenues place it in the midmarket range, but its 13 international locations give its IT operations the complexity of a major global enterprise. That’s why, in 2002, the company consolidated the systems of all its business units onto a single-instance SAP R/3 and data warehouse implementation.
Instead of build-ing and hosting the system itself, Blount hired outsourcer Nexus and migrated the systems in June 2003. Later that year, Nexus was acquired by service provider Corio.
During 2003 and into 2004, Blount continued to migrate business units to the SAP system, but disk-space limitations and performance issues slowed the process. To solve those problems, Corio shifted Blount’s data onto a storage area network (SAN) that AT&T maintained in a Mesa, Ariz., data center.
“Life was good,” Brunetto says of the arrangement, which lasted from June 2004 to March 2005. At that time, Corio was acquired by IBM, which decided to phase out the AT&T SAN because it was too expensive.
By July 2005, Blount needed more space on the AT&T SAN, but IBM was reluctant to provide it without a commitment from Blount to move to IBM-owned hardware. Brunetto agreed, and Blount made the move on July 23. Within two days, transaction times had lengthened from 1 second to 15 minutes. Reaction times gradually decreased, but the relationship had suffered, and Blount began looking for a way out of the contract.
The outsourcing deal, which started at $26,000 per month, had risen to $42,000 a month following the addition of the application servers and disk space needed to meet Blount’s data-growth requirements.
After comparing costs, Brunetto says, Blount was able to hire the same AT&T data center to host a reconfigured set of servers and storage hardware that supplied enough disk space and acceptable (1-second or less) response times to satisfy the company’s headquarters staff and international operations.
Blount’s IT staff controlled the hardware and software, used its Portland data center as a fail-over and disaster-recovery center, and saved more than 30 percent compared with what IBM would have charged for the same setup. The price included the services of an SAP specialist who was added to Brunetto’s 25-person IT staff to help with the migration.
The result? Business-unit productivity rose 12 percent due to improved system performance and automation, and Blount expects to save about
$1.2 million over three years as a result of the “insourcing” deal alone.
That cost saving helped justify an automated distribution center the company just built in Kansas City. The warehouse management system is tightly integrated with Blount’s SAP system, making it easier for Blount and its customers to monitor the progress of orders as they’re placed, fulfilled and shipped.
The warehouse system worked so well and the migration went so smoothly that Blount decided to add SAP’s Advanced Planner and Optimizer (APO) supply chain management software to help it refine its operations. But first the company had to upgrade from SAP’s ECC version 5 to ECC version 6, a move that was scheduled to start on Friday, May 9, and was supposed to be finished by Sunday, May 11.
Unfortunately, that didn’t work out. “We weren’t done until halfway through Wednesday,” Brunetto recalls. “The whole company works on that one SAP instance, so when we’re down, the whole company is down.”
To make matters worse, SAP increased its annual maintenance fees from 17 percent of the initial cost of the software to 22 percent.
A more serious issue was with the technical-support call center in China that was handling Blount’s problems. Employees there didn’t have the technical training to resolve problems quickly, according to Brunetto. “A lot of time was wasted,” he says.
In one case, Sarbanes-Oxley financial reporting regulations prompted Blount to disallow the use of a global password that would have allowed migration scripts to run unimpeded. “We found out later that the scripts were using the wrong password,” Brunetto says.
In another case, one of SAP’s migration-automation scripts commented out an important part of the migration commands, which wasn’t discovered until the problem was escalated to a development center at SAP headquarters in Germany.
Brunetto credits Roger Quinlan, senior vice president and general manager of SAP’s Western region, with resolving these issues. For example, Quinlan shifted Blount’s trouble ticket to a call center in Ireland, which quickly straightened out the password problem.
He also got SAP’s German development center on the case after Blount had been live for only half a day before lengthening response times made it clear the system wasn’t ready for prime time.
“Roger was great,” Brunetto says. “He put all the resources in place to get us back on track.”