Question

You work for tier one automotive supplier (revenues $15 billion). The company develops

an IT plan and decides to implement SAP ERP system. The next step is justifying this IT investment.

a. How would you go about justifying the high costs associated with SAP?

b. List, describe, and provide an example of the four different implementation

strategies. Which one would you choose and why

Answer 1

1. The justification of any investment is best explained when the ROI can be justified in an unbiased manner, in this case of Tier 1 automotive supplier, it makes sense to go with SAP ERP due to the following reasons:-

• SAP has one of the best ROI in terms of the total cost of ownership, what it means that if we take say a 10-year horizon, then it is a value investment considering the cost of personalization, maintenance, up-gradation and other associated cost vis a vis any other ERP product as per the experience of present enterprise users.
• The second reason and one of the biggest reason to go in favour of SAP ERP is its ability to offer interoperability and scalability across businesses having very complex relationships among themselves

2. The four ways to implement SAP ERP solution are:-

• Big Bang - Stop using the current ERP system and migrate completely to the new ERP system. E
• Phased - In this method the old systems and modules are replaced one after the other rather than implementing the whole thing at one go.
• Hybrid - In this method some legacy systems are allowed to run in tandem with the new system ensuring that both the systems operate as expected and data across the applications flow smoothly.
• Parallel Adoption - In this method both the systems run in parallel until it is established that the new system is completely ready to take over and then slowly the old system is phased out.

So, the level of risk is highest in the case of the big bang approach with the risk progressively decreasing in the parallel adoption approach.

As per the details given above and considering the criticality of the automobile supply chain where the shortage of even one part can lead to a loss of production and a line stoppage situation the company should go for the parallel adoption approach. Though this approach is slightly expensive, however considering the scale of operation of the company they would be able to absorb this one-time implementation cost in the long run.