"How Midsize Businesses Are Using ERP to Gain Competitive Advantage in a Tough Economy"

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"Oracle Accelerate delivers a comprehensive set of applications, rapid implementation tools, and an extensive partner system, so that companies and government entities can maximize their budgets and achieve real business value quickly."
Source: Oracle

Resources Related to How Midsize Businesses Are Using ERP to Gain Competitive Advantage in a Tough Economy:

• Enterprise Resource Planning (ERP) (Wikipedia)
• Competitive Advantage (Wikipedia)
• Small and Medium Enterprises(SME) (Wikipedia)

How Midsize Businesses Are Using ERP to Gain Competitive Advantage in a Tough Economy

These are, to be understated about it, challenging economic times.

For some decision-makers, the instinct when times get tough is to tighten up, reduce costs, cut corners. In some cases, that may be a perfectly valid inclination.

However, there are many other circumstances - particularly among midsize enterprises - where now is actually the perfect time to invest in a significant IT expansion. In particular, it may be crucial to invest now if the solution can:

1. Improve efficiencies
2. Cut overall costs
3. Make your business more competitive, and
4. Be installed quickly, efficiently and cost-effectively

Take Gavina Coffee, a family-owned diversified supplier of coffee products that reached more than $100 million in revenue in 2008. Gavina is in the process of installing a new companywide Enterprise Resource Planning (ERP) system that will link finance, sales, manufacturing and operations into one IT architecture for the first time in the company's history.

Why so extensive an undertaking? Why now?

"It's really simple," says Carlos Fandino, Vice President of Operations at Gavina and a 30-year veteran of the company. "It's the only way you can stay in business. We are in a very competitive market and in order to be successful you must have a good product, you must provide good service, and you have to have good pricing.

"In order to have good pricing, you have to run the company very lean, and the only way you can run the company very lean is to have information at your fingertips," Fandino continues. "So it's even more than having a good product at a good price - you must still be profitable. Getting to your information quickly is the name of the game. You can't be waiting for information nowadays. We're in a commodity market and it's pretty tough. We have to be able to have the information right there and then when we need it."

For Fandino, there were a number of factors that went into the decision to make the leap now, even in this uncertain economy. Among the most critical of these factors were:

"They may have multiple applications, multiple databases. They get to the point where they need to consolidate under one platform. They want best practices at this point and not quick-fix Band-Aid solutions. Integration is the big thing."

• Company Need. Gavina has been running several different software packages across its business, including ACT for sales support, Excel for inventory management and a separate beverage industry package for distribution and manufacturing. The systems weren't linked and, as Fandino says, "One side of the business didn't know what the other side was doing. Business intelligence was down to zero." The new enterprise-wide system promises to make the company much more efficient, leading to improved productivity, profitability, responsiveness to customers and, eventually, reduced costs.
• The Right Partners. For Gavina, it was critical to find an experienced partner with a trusted, enterprise-tested solution. Gavina is working with DAZ Systems, a LosAngeles- based solutions provider that is a Certified Advantage Partner in the Oracle Partner Network. DAZ is installing the Oracle E-Business Suite Release 12 across the entire company, which will give Gavina management a single version of the truth that will be available when they need it, where they need it and in a format that is most efficient for them to act quickly based on accurate, up-to-date information.
• The Right System at the Right Price. Because Gavina is planning to roll out the system all at once across the entire company, it was important that the system be installed quickly and efficiently. By using Oracle Business Accelerators - which are rapid implementation tools featuring industry best practices available through Oracle partners - DAZ Systems has been able to get the hardware and software set up in just four weeks for the entire company. Beyond that, Oracle's price point for the system was extremely attractive, making it a "no brainer," according to Fandino.

Despite the tough and uncertain economy, Gavina is by no means alone among midsize businesses choosing to upgrade their IT operations in an effort to be more competitive and efficient. In fact, a recent report from Gartner Inc. indicated that, while IT budgets are expected to remain flat this year, the three highest priorities for IT spending will focus on:

1. Improving Business Processes
2. Reducing Enterprise Costs
3. Improving Enterprise Workforce Effectiveness

For Gavina and other companies that are installing Oracle Accelerate applications solutions, those are among the key advantages of acting now and acting quickly. Another commonly cited reason is one that is especially critical to Gavina - gaining competitive advantage, particularly in tough times when other vendors may be less inclined to invest in technology.

"Technology decisions are very critical," Fandino says. "There's no room for error. We are working on margins that are very tight - make the wrong decision and you've lost money. If we can do better at making the right decisions - if our percentage of good decisions is higher - then we are doing the best thing for our company."

Using Oracle Business Accelerators

The installation of the system for Gavina began in January, 2009.At this point, in early February, DAZ and Gavina are working on configuring the various modules and tailoring them to Gavina's specific needs. This is a process that is greatly enhanced by the use of Oracle Business Accelerators, according to Niket Tyagi, who is the project manager for DAZ Systems on the Gavina installation.

"Oracle Accelerators are pre-built with standard business flows, so you don't have to reinvent the wheel every time you start a new project," Tyagi says. "It really gives you a good jump start. We used to spend three to four months before deciding what needs to be done. Now we start with a baseline - and it's a good baseline to start with - and that reduces the whole implementation cycle. It's very flexible and it enables you to get to the testing phase very quickly. You decide something based on the baseline and then you find out where the conflicts are for that particular business. Then you adjust those and you're in business."

Fandino says Gavina expected to begin training before the end of February and to go live with the system - companywide, all departments at once - by June 1.When asked about his expectation for the system, Fandino is somewhat cautious. "We expect to run more efficiently and we expect to have hands-on information about the trends of the business," he says. "As far as setting goals - we still have to see what the end result is going to be and we still have to be trained before we can set goals."

Fandino says he won't go a formal ROI analysis of the system: "We have other things to do. Once it's set up and paid for, we just want to use it as efficiently as possible." But he does see specific advantages to Gavina in forecasting and cost control. "With the information we expect to have we should be able to run the company better," he says. "We're hoping that by next year, as a result of better coordinated information and better information - on inventory, finished goods, raw materials - we might be able to cut back some personnel and achieve savings in labor costs."

For Fandino and Gavina, investing in DAZ and their Oracle Accelerate solution means they can do business in a way that is consistent with the values that the Gavina family has instilled through the years - from the time the company began in Cuba in the 1800s, to its roots in the United States in the late 1960s.

"Honesty is the most important thing in the name of any business," Fandino says. "You have to back up your products. This is a society that is much, much better educated and you have to cater to them. If you are to stay in business in this economy, it's about what I said before - you have to provide good service, a good product and good pricing. Good technology can help make all of that happen."

Building A Business Around ERP

Gavina Coffee fits the profile of a midsize business that is investing in ERP technology now to fix a system that wasn't working well for the company and to gain competitive advantage in a challenging market. This is fairly typical of companies in the $40 million to $500 million range, according to Tony Kender, Senior Vice President of Oracle's Global Accelerate Program Office.

"They may have multiple applications, multiple databases," Kender says. "They get to the point where they need to consolidate under one platform. They want best practices at this point and not quick-fix Band-Aid solutions. Integration is the big thing."

In addition to mid-sized businesses such as Gavina that are looking to fix systems that grew somewhat haphazardly, there are also midsize businesses that recognize the need to invest in ERP before things get out of control. This is particularly crucial in companies that are in strong financial health and want to position themselves for the next upturn, or among companies that are in industries that are exhibiting growth despite the tough economy, such as healthcare, energy and those industries likely to be positively effected by the U.S. government's new economic stimulus package.

One company fitting that profile is eZono AG, a manufacturer of ultrasound imaging systems for the healthcare market, based in Jena, Germany. eZono is a young company - it was founded in July 2004, began operations in May 2005 and delivered its first order to a customer in December 2008.

However, eZono is a young company led by an experienced management team, including Andre Jaekel, eZono's Chief Financial Officer. Jaekel had previously worked at Logitech doing investor relations and mergers and acquisitions work. He saw first-hand the enormous value of having a company-wide ERP system where all departments and functions were integrated and where all processes were consistent throughout the organization.

Jaekel had experience with the Oracle E-Business Suite at Logitech, but when he began the process of evaluating systems for eZono, he kept an open mind and contacted several other vendors. Oracle was the only vendor to respond immediately, and within a day Jaekel was contacted by Pyxis Consulting Group GmbH, an Oracle partner based in Hofheim, Germany.

"We had our first meeting in May and we started the project in June," Jaekel recalls. "Pyxis had already done installations for medical companies and had already done documentation for a lot of the core processes."

The Oracle solution Pyxis and eZono chose was Oracle's JD Edwards EnterpriseOne application suite using Oracle Business Accelerators. "Since they had already done an Accelerate solution, they said we could switch the system on and get it running quickly. In June we started installing the software on servers and in mid-July we started basically implementing it live. By the 31st of July we were ready - it went like bang, bang, bang."

ORACLE PARTNER NETWORK

Thinking About Your Future: Why ERP May Be Critical

One of the most important benefits for eZono in having installed its ERP system is one that may not be necessary for years, but could absolutely be critical to the future success of the company: That is the ability to secure financing.

Andre Jaekel, eZono's CFO, did a lot of investor relations and M & A work previously at Logitech and because of his experience he was adamant that eZono do things properly - from a financial systems standpoint-right from the beginning, and that included investing in the Oracle JD Edwards EnterpriseOne application suite.

"Early stage companies don't invest in finance properly," Jaekel says, based on his past experience at Logitech in evaluating companies for potential acquisition. "You can't just do things annually by Excel, but you have to generate a detailed P & L quarterly. And you have to be able to see revenue by region, by product, margin by product. Without the right system in place you can't do segment reporting on an intra-year basis.

"The key thing from a business point of view is that you have to think about how you want to grow your business," Jaekel adds. "You might want to sell your business someday, or do an IPO. You should start thinking early about a system, about making finance more process-oriented. Finance is a core process. If you outsource it, you don't know what the business is like.

"You need to know the cash burn. You have to know what business units need in terms of money. Without processes in place - in an environment where cash and credit are tight - you can't just wake up one morning and say, ‘Oh my God, I need another round of financing," Jaekel says. "Having the right ERP system in place makes you look more professional as a business - more investable. It will help you compete for money and make it more likely for you to get funding." - Al Perlman

Measuring The Cost Benefits of Oracle ERP

The main reasons Jaekel chose a companywide ERP solution in these difficult economic times were clearly strategic: He believes that the company will operate more efficiently in this manner; that the ERP system will better support the company's growth plans; that the establishment of standard processes will have a tremendously positive impact on the company in the long term; and, frankly, having the ERP system will make the company much more attractive to potential investors or acquirers in the long run (see related story).

However, Jaekel also believes that the price point offered by Oracle and Pyxis made the system extremely attractive - especially in these volatile economic times. Jaekel says the system not only will pay for itself very quickly, it will help eZono to keep costs down for many years to come.

"The costs are so low these days, especially using Oracle Business Accelerators," Jaekel says. "An accountant in Germany costs you maybe 28,000, 29,000 Euros. If I can save two people, that's 60,000 Euros per year. That's what you look at. And that's just pure salary - then there's a desk for each person, and a PC and HR," Jaekel adds, noting that eZono is also saving substantially on IT personnel costs because much of the maintenance is inexpensively outsourced: "I need one IT guy maybe six hours a week for the Oracle system. By adopting a hybrid deployment model - a combination of ownership and outsourcing - we actually pay a lot less than if we would have brought everything in house or outsourced everything."

ORACLE PARTNER NETWORK

Practical, Affordable Solutions For the Midsize Market

Oracle, through a combination of acquisition and attitude adjustment, has become much more than a supplier to the largest enterprises: Oracle has adeptly reconfigured its product line so that solutions once available only to the top tier of businesses worldwide are now available to businesses of all sizes.

For example, Gavina Coffee and eZono both cited Oracle Accelerate as a critical reason why they chose Oracle for their ERP solutions. Oracle Accelerate is Oracle's approach for helping its partners provide enterprise-level solutions to small and mid-sized businesses.

The key is Oracle Accelerate solutions, which are pre-packaged application bundles that can be quickly implemented by Oracle partners and offer the same levels of functionality and scalability as with all Oracle applications. Among the advantages of Oracle Accelerate solutions to midsize businesses:

• Scalability. Customers will not have to rip and replace as they grow.
• Rapid deployment and the ability to use tested products from Oracle partners with documented success.
• Flexibility to adapt as the business changes.
• Access to innovative financing options from Oracle Finance (www.oracle.com/financing/midsize-companies)

Managing Operations and The Supply Chain

Beyond reduced personnel costs, eZono is also saving money, time and resources in managing its supply chain. "Our goal right from the beginning was to have all of our own company's processes run on the system and to make the system available to external users as well," Jaekel says. "We use a third-party solution for logistics and warehousing. We rent space in one of their warehouses. We do all of the accounting and bookkeeping and inventory right in the Oracle system. So the third-party logistic solution now books incoming goods and outgoing goods and they use the Oracle system as if it were theirs, but it's actually mine."

Now that eZono is actually taking orders and shipping products, it is also finding savings - in money and time - in its accounts payable systems. "When we get an invoice it goes into the Oracle system and we never need to re-enter it again. We press pay and the voucher is in. Once the voucher is in the banking system, the order can go out. We need only one person giving very basic data into Oracle - logistics, purchase orders. We don't need a large finance organization. What a lot of companies do in the early stages is have one guy doing inventory and another looking at data and entering it and another guy entering it into the banking system."

In addition to cost savings and operational efficiencies, Jaekel says one of the benefits of using Oracle's EnterpriseOne solution is that it is Web-based. "A core benefit is that you only need a browser to use it," Jaekel says. "I can use it from anywhere in the world as long as I have a browser. We had an issue on a larger invoice while I was on holiday in Switzerland. I hooked up over the Web, went into the Oracle system and had the answer immediately."

Another advantage with Oracle's EnterpriseOne software is that a lot of the functionality is consolidated. "From the purchase order I can essentially see the whole chain of transactions. That is quite useful," Jaekel says.

Advice to Other Midsize Businesses

For other businesses looking to invest in an ERP solution, both Jaekel at eZono and Fandino at Gavina Coffee believe that the challenging economic conditions should not be a deterrent, particularly in areas where an ERP solution can improve company efficiencies, reduce costs and improve competitiveness.

"I'm not one to give advice to others," Fandino says. "I'm focused on what is best for us and what's best for us is what we're going now. You have to back up your products. If everyone would do business like that, we'd all be better off."

Jaekel says one key piece of advice he'd offer to other midsize businesses is to make sure you choose the right consultant. "You want someone who will support you and you can call anytime and won't send you a bill for every five minutes. Having a good consultant is key."

Jaekel also says investing in an ERP system now, may save a lot of time and trouble down the road. "You want to sell your company, the first thing the buyer will ask for is a breakdown of revenues by product, by quarter,' he says. "If you do it right from an early stage - with an integrated database and inventory and AP and accounts receivables in the same environment - you'll be very happy in the long run."

ABOUT THE AUTHOR: Al Perlman is co-founder and partner of New Reality Media. He is an award-winning journalist and publishing executive who has launched more than a dozen successful high tech media products, including Interactive Week, CRN, VARBusiness, Baseline, CIO Insight, CommunicationsWeek, Information Week and others.