ERP Revisited: Midsized Companies Achieving Best in Class Performance While Keeping Costs in Check

(HED) ERP REVISITED: MIDSIZED COMPANIES ACHIEVING BEST IN CLASS PERFORMANCE WHILE KEEPING COSTS IN CHECK

Dear Consumer Goods Executive:

SAP is sponsoring this Consumer Goods Technology white paper for a very simple and powerful reason. When it comes to business solutions for midsized companies, the rules have changed. They have changed in ways that offer important opportunities to you and your company.

Consumer products (CP) companies of all sizes are seeking ways to meet the demanding requirements of retailers, regulatory agencies, and consumers—without increasing their own costs. This presents a particular dilemma for midsized CP companies, who must meet the same demands as the industry's giants, without the advantages of their financial and manpower resources.

There are new solutions available to help you deal with this dilemma. New enterprise resource planning (ERP) solutions that incorporate captured best-business practices have changed the rules of the game. Rule Change number one is that ERP solutions are not just for the giants. And Rule Change number two is that ERP solutions can be precisely tailored to the business needs of midsized companies across a wide range of CP verticals.

SAP offers preconfigured ERP applications that are designed to meet the business needs and operational needs of midsized CP companies. In addition, SAP's global experience in working with thousands of CP companies allows SAP to bring best practices knowledge to help you with your company's particular challenges. State-of-the-art solutions can be deployed quickly, bringing business-process benefits and a financial ROI faster than you may have thought possible.

In the following pages, information from leading CP industry analysts, along with several SAP customer success stories, will provide you with more detail about how the rules for ERP

have changed—in your favor.

Robert W. Frey

Industry Principal, Consumer Products

SAP Americas

Regardless of size or segment, consumerproducts (CP) companies are under constant pressure from retailersto lower prices, while providing higher service levels, shorterresponse times, and lower inventories. This pressure is most acuteon small to midsized manufacturers, as they cannot rely on theenormous economies of scale or the vast human and financial resources available to CP giants.

Nonetheless, like the giants, the small and midsized companies have seen the need to develop and deploy enterprise resource planning (ERP) and other business solutions to satisfy demanding retailers. However, the conventional wisdom holds that state-of-theart business performance and enabling software are too costly, too complex, and take too long to deploy to be an option for a midsized manufacturer. As is so often the case, however, the conventional wisdom is outdated.

Forward-thinking CP companies are revisiting ERP because recentinnovations have changed the rules of the game. Midsized CP manufacturers now have the opportunity and the ability to match

performance metrics of the best-in-class competitors, while increasing financial returns to their shareholders. The key innovation is the availability of solutions that enable business

processes based on industry-specific best practices. SAP, for example, brings such knowledge to the table due to its work collaborating with key system integrators in a wide range of CP verticals. These best practices are delivered in the form of preconfigured templates that are deployed rapidly and are flexible enough to adapt to unique or differentiating business requirements.

The business case to deploy a preconfigured, best-practice solution is compelling when compared with competitive options. Industry best practices drive improved performance

metrics, while the preconfigured solution dramatically lowers the time to deploy the solution and accelerates time to benefit. Companies of any size can achieve these benefits by adopting preconfigured business processes in a best-practice solution, rather than incurring the expense

of developing a custom-process design or blueprint for each of the company's business processes.

It is important to note that best-practice ERP solutions reflect the configurations of standard software offerings, not a new code base. The preconfigured business processes are comprised of modular “building blocks.” These allow companies to maintain and enhance their own unique business processes and to adapt the bestpractice building blocks of business processes that make financial and strategic sense for them. Of course, manufacturers may still elect to develop custom “blueprints” for special areas providing them with a competitive advantage.

CHANGE BRINGS OPPORTUNITY

Although the benefits of implementing a new-generation ERP system may be compelling, many CP companies— especially midsized companies—are hesitant. These companies are “loath to move off their existing platforms,” as AMR Research, Inc.'s Simon Jacobson says, because

of institutional and personal memories of difficult implementations in the past. Finances also play a role in this hesitancy. However, by acting aggressively with this kind of implementation, a midsized company can seize a significant competitive advantage and position itself to anticipate and exploit the next system evolution.

Forward-thinking organizations see the innovation of ERP best-practice solutions as a prime opportunity to build and use technology to support their underlying business strategy today and as a technology foundation for the future. New-generation ERP solutions are particularly well

suited for midsized companies for the reasons stated above.

Moreover, these applications also have other significant benefits. As R. “Ray” Wang, John Ragsdale, and Ian Schuler write in Forrester Research, Inc.'s Trends 2006: ERP Applications for SMBs , “Small and medium-size businesses (SMBs) stand to benefit over the next five years from reduced ownership costs, improved domain expertise, and better support and service delivery through direct interactions, new competitors, and stronger partner networks.”

MIDSIZED COMPANIES FACE A CHALLENGING ENVIRONMENT

In an AMR Research, Inc. article*, Colin Masson and Simon Jacobson describe the current situation facing CP companies succinctly. “Small and midsized businesses,” they write, “face

the same manufacturing challenges as their counterparts in the FORTUNE 1000: increasingly complex manufacturing and supply chain compliance, proliferation of product variants, shorter lead times, increased demand volatility, demand signals coming from multiple sources, and managing—or adhering to service-level agreements (SLAs) as the provider of—contract manufacturing services.”

It is possible, however, for FORTUNE 1000 companies to attack these challenges individually, allocating highly focused resources like commando units. Not so for the midsized CP companies. Midsized companies, working with relatively limited capital, time, manpower, and expertise, must confront the challenges in aggregate. So instead of applying unique solutions, achieving operational excellence for a midsized organization requires a focus on overall business process improvement.

Such a focus requires strategic thinking and strategic tools. For many midsized CP companies, the best tool is an ERP application featuring industry-specific templates. This provides the user with a robust set of capabilities while lowering both cost and risk of deployment.

ENTERPRISEWIDE ERP BENEFITS

It is worth a moment to revisit the underlying value of an ERP application. First and foremost, ERP software redefined the software industry by providing applications that support the

foundational business processes of order to cash and procure to pay. Use of these applications enabled visibility across the supply chain, versus traditional, point-software solutions with silos of information. The support of these core processes is illustrated in the graphic below.

With ERP software, the entire enterprise is able to see the overarching company strategy and planning and can therefore work toward implementing both business strategy and plans in a unified manner. This visible common goal, in turn, greatly improves decision making throughout the organization. Performance analysis is also improved, with agreed-upon metrics readily available so underperformers can be identified and rectified early.

With strategies and operations more closely aligned, productivity and efficiency can be increased by extending the reach of real-time business processes to users within— and beyond—the enterprise. The new generation of preconfigured ERP applications delivers system-wide access to a single version of the truth—a unified and consistent business-process view. The best of these applications also incorporate active alerting, preconfigured work lists, and embedded analytics, enabling virtually any user throughout the enterprise to identify concerns early and pursue opportunities aggressively.

Once the concerns or opportunities have been identified, a decision on the appropriate response can be reached quickly and assuredly since the organization's goals and strategies are now widely visible and understood throughout the enterprise. By putting information in the right hands in near real time, the organization becomes more flexible and better able to recognize and respond proactively to changing conditions.

Those changing conditions frequently involve industry-specific regulations and requirements. An ERP application that provides comprehensive analytics and reporting improves the accessibility and transparency of information for improved compliance. As midsized companies grow, this transparency and reporting capability increases in value, easing the process of compliance across regulatory domains.

CONCLUSION

Given the challenges facing CP companies in this highly competitive business environment, it should go without saying that any opportunity to seize an advantage should be seized, especially by midsized organizations. And it's clear that implementing a preconfigured, best-practice ERP

application is just such an opportunity.

Yet, that understates the case for migration. The fact is that many CP companies, particularly midsized companies, have been slow to act, making it an even greater opportunity for

those who move aggressively.

According to an AMR Research, Inc. survey, 53% of respondents said that their organizations were not using, considering, or considering for the first time an ERP implementation. Another 11% reported that their organizations were not evaluating a replacement ERP system, nor were they adding functionality to, or upgrading, their current application. This represents a dramatic opening for proactive companies who realize that the best time tomove forward is when the competition is content to stand pat.

The time to act is now. CP companies of any size—butmidsized companies especially—can dramatically increase shareholder value by deploying a best-practice ERP application. Such solutions drive tangible benefits in all key value drivers: revenue growth, operating efficiency,

asset utilization, and customer satisfaction. Moreover, a state-of-the-art ERP solution provides CP companies with the foundation to explore the benefits of advanced supply chain that are fueled with real time information from an ERP platform.

BUSINESS BRIEF

CONAIR

Conair Corporation's strategy of growth through innovation and acquisition has allowed it to build on its own brand name with some of the best-known trade names in consumer products, including Cuisinart and Waring kitchen products, and Scunci hair care and accessories. But acquisitions bring their own challenges, including integrating a new company's systems into those of the acquiring company quickly enough to bring a fast ROI.

Conair's ongoing use of SAP solutions has helped it speed the acquisition integration process. Following the March 2005 acquisition of Scunci, Conair was able to “bring them up on our SAP system and integrate it completely into our processes within three months,” says Jon Harding, Conair's CIO. “Usually, mergers and acquisitions take a long time, but in large part because we have a fairly standard set of systems and procedures, we were able to integrate Scunci quickly.”

That standardization has been accomplished with help from SAP, which Conair has been using since 2000 to bring its different geographic markets under one system. “At that time, each market had its own software system,” Harding explains. “Now we have one central instance of SAP with one database, running out of our New Jersey data center, for more than 95% of our global markets. It covers everything: distribution, purchasing, planning, financials, etc.” The centralization allows Conair to implement best practices more easily in the multiple

markets the company serves.

Conair is also making use of more of SAP's solutions, such as mySAP Customer Relationship Management (mySAP CRM). Conair operates its own call centers, both to handle consumer queries and to provide a way for consumers to purchase products. “We're using mySAP CRM to log these calls as well as to pass orders through to the core SAP systems,” says Harding. In France, Conair is using mySAP CRM as a complete field sales automation tool with merchandisers in stores entering sales orders into mySAP CRM running on Tablet PCs.

These orders are wirelessly transmitted back to the core SAP system, and route plans and sales reports are then received back wirelessly.

SAP has also been instrumental in Conair's ability to meet the requirements of some of the largest retailers, including Wal-Mart. “We have a lot of programs to ship to retailers in the ways that they want, and that's one of the areas where SAP helps, especially with the very large order volumes,” says Harding. “I don't believe our legacy systems would have survived with our current order volumes, but SAP has helped with the ever increasing pressures to comply with the various

retail standards.”

BUSINESS BRIEF

TASTY BAKING COMPANY

The Tasty Baking Company is a true Philadelphiasuccess story, with gross annual sales in excess of U.S.$250 million. But in 2003, the company found itself facing serious challenges from within. The company's technology infrastructure was a patchwork of some modern technologies and some old, poorly implemented technologies that had low customerservice levels and questionable performance. The systems were prone to error and underperformance.

As a result, the Tasty Baking Company was a perfect candidate for a best-practice solution designed to meet the needs of the food industry. In January 2004, the Tasty Baking Company began implementing the mySAP™ ERP application, and the project went live in November of that year. The project was a success, according to Autumn R. Bayles, CIO of the Tasty Baking Company. “There was a lot of business value gained, and more to come,” she says.

The specific improvements that Bayles attributed

to the deployment of mySAP ERP were:

• Lower inventories
• Fresher product
• Better order-fill rates
• Lower labor overtime
• Less inventory write-offs
• Enhanced automation of high-volume tasks (such as order entry)
• Real-time data for visibility and reporting
• Freshness compliance and regulatory compliance
• batch tracking

“We implemented on time and within our budget range,” Bayles reports. She advises other midsized companies seeking to emulate the Tasty Baking Company's success to choose a preconfigured, bestpractice ERP application such as mySAP ERP. “Keep it vanilla,” she says. “Simplify your outdated processes and avoid customization if possible.”

BUSINESS BRIEF

ONEIDA LTD.

With annual revenues of U.S.$350 million and 1,000 employees, Oneida Limited is one of the world's largest marketers of stainless steel flatware and tabletop products, with operations in the United States, Canada, Mexico, United Kingdom, and Australia. The company markets stainless,

silverplated and sterling flatware products, china dinnerware, and crystal and glassware items worldwide. Recently, Oneida made the decision to implement an industry-specific bestpractice

ERP application; one geared to meet its business objectives and support its business operating model.

According to Rob Hack, senior vice president and CIO of Oneida, the decision to deploy the mySAP Business Suite family of business applications was the clear choice for Oneida, based on the strength of SAP and the fit of the industry-specific ERP application. “SAP is the ubiquitous

industry standard,” he explains, “which makes it the best long-term platform decision for Oneida.”

Oneida selected IBM as the system integrator for the implementation. “With an 85% out-of-the-box fit with IBM's industry-specific ERP application,” Hack says, “Oneida was confident in selecting IBM applications services to meet our overall business objectives, timing, and cost.” Oneida was also able to leverage its existing IBM hardware platform and the years of experience invested in the IT staff.

Hack believes that for Oneida, the decision to deploy the ERP application was absolutely the right decision. “There are risks inherent in any other solution, risks we're unwilling to take,” he says.

BUSINESS BRIEF

CAROLINA TURKEY

Carolina Turkey is the fourth-largest turkey producer in the world—with U.S.$500 million in annual sales—and operates the world's largest turkey processing plant, in Mt. Olive, NC, that comprises more than 1 million square feet under one roof and processes roughly 20 million turkeys each year. With it legacy systems, Carolina Turkey had departments and functions that were not always working with the same information and still required significant manual effort to collect and process information for monitoring and decision making. After finding that the company's legacy systems were a constraint on growth Carolina Turkey opted for an ERP application from SAP that was preconfigured for the meat industry.

The implementation was completed in two waves. The first wave went live in October 2005, and the second wave was rolled out in phases, going live in April 2006 and May 2006. According to Ed Kacsuta, CFO for Carolina Turkey, the goals were clear. “We had a business imperative to grow capacity and market share,” he says. “We wanted to continue to grow our business profitably, maintain our competitive advantage as a low-cost producer, and increase our mix of higher-margin further-processed products.” Kacsuta reports that the implementation was a success, and is expecting the following results:

• Increased integration of operations
• Improved customer order-fill rates
• Reduced working capital for packaging and spare-parts inventory
• Improved transportation planning and reduced transportation expense
• Improved flock-to-customer traceability
• Improved production yield in further processing
• Improved employee-skill tracking
• Increased timeliness and accuracy of management information
• Reduced manual labor for data collection and report preparation
• Stabilized ERP platform to support growth

The success, Kacsuta says, was the result of hard work and selecting the right ERP partner. “Choosing a partner sets the stage,” he says. “We could not have done this on our own. The fit between the organizations, cultures, and work ethic made a difference.” He adds, “This will transform the way Carolina Turkey does its work. It will affect many different areas of the company and will serve to make the supply chain, human resources, and reporting much more efficient. It represents our commitment to the future of the company, its people, its investors, and its customers.”

ABOUT SAP FOR CONSUMER PRODUCTS

The SAP for Consumer Products solution portfolio combines industry-specific software and market-leading mySAP Business Suite applications to drive the processes that move the CP

industry, including trade-promotion management, category management, and new product development and introduction. With 2,123 customers worldwide ranging from small and midsized companies to large enterprises, SAP for Consumer Products delivers a single, integrated solution that helps goods makers increase collaboration with retailers, partners, and suppliers, driving innovation and efficiency in managing product life cycles, customer

relationships, and the supply chain. Built on the open architecture of the SAP NetWeaver® platform, SAP for Consumer Products enables companies to create a foundation for a more alert and adaptive business network at a lower total cost of ownership. Additional information is available at www.sap.com/consumer.