| |
 |  |
 |  |
|
Business Readings
Questions to Consider
 Using Technology as a Competitive Tool
By implementing new technology and revamping the way it measures performance, this manufacturing company improved its bottom line and its overall operations. By Chris McCarthy Werthan Packaging, Inc. (WPI) is a $50-million multi-wall bag manufacturing firm that has been around since the 1800s. Our multi-wall paper bags are used to package such products as dry pet food, cat litter, animal feed, sugar, and bird seed. WPI's longevity is no simple accomplishment. To survive this many years in our complex and competitive world, the company has had to master the process of dealing with change. In 1994, WPI went from using early 1960s technology to using 1990s technology. We also changed the way we managed and monitored the company's performance. This evolution has resulted in improved financial and operational status for our company and was accomplished in part by our improved use of management information systems in corporate decision making. We began our process change in 1992. At that time, WPI's information systems were fragmented and proprietary. We had a mainframe, and we had several local area networks that were running as stand-alone systems. All the users were satisfied. The inventory control people were happy with their perpetual inventory of finished goods (which didn't interface with scheduling or accounting systems). The schedulers were happy with their "to-do" list for manufacturing (which didn't interface with purchasing for requirements planning). The order entry folks were happy with the shop instruction sheet they produced (which usually arrived after we had started producing the item). The operations staff were happy with the results their production reporting system gave them (which didn't tie to the accounting results at the end of the month). The MIS staff were happy with the beautiful payroll system that they had created (which required half the time of one programmer to maintain). Finally, the accountants were happy with their general ledger system (that took one month to close). The problem with these systems was that none of them reported results that were consistent....none of them shared information.Énone of them contained accurate data....and all of them were costing WPI in waste and overhead dollars to operate. To make matters worse, these separate systems promoted silos within our organization and discouraged teamwork. What were we going to do? BEGINNING THE CHANGE PROCESS As part of the annual strategic planning process, we reviewed our vision: "To be a superior supplier of value-added packaging." We realized that in order to achieve our superior service goals, we would have to begin operating as a team. The throwing of work over walls would have to stop, and the sharing of ideas and information to improve our ability to service our customers would need to start. We agreed to strive to anticipate customer needs, to make effective use of integrated systems, to reduce lead time and inventory, and to provide excellent delivery performance. I was directed to assume responsibility for the MIS department as vice president...already I was in charge of the accounting area as cost accounting manager...and to take over the leadership of WPI's Project Implementation Team. Management directed the MIS staff to study the market and various alternatives to improve the responsiveness of our information systems. As a result of this study, the MIS group recommended a complete systems upgrade, including hardware and software, for the following reasons:
So in the fall of 1992, the corporate decision came down...CHANGE. The information system upgrade objectives were to improve customer service, improve internal communications, and provide tools to be used in obtaining world-class manufacturing status for our company. The MIS staff was expected to deliver a plan, a budget, and a time line with details as to responsibility for each action plan delineated. Management did not ask us to cost justify the system upgrade because it was market driven and necessary if we were to build the corporate infrastructure. But clear financial objectives were expected from the upgrade. We were supposed to:
SETTING PRIORITIES In our next quarterly planning process, the MIS staff identified three levels of priority issues...short-term, intermediate, and long-term. The short-term priority issues were:
In addition, the newly formed MIS Upgrade Team needed to develop an overall and detailed implementation plan. Here are the plan's early steps:
The intermediate priority issues were:
The long-term priority issues were:
We were convinced that the purpose of information processing was to provide a tool for the employees to use in adding value to the corporation. But WPI had lived with a platform-dependent system for a long time, which required us to choose from too narrow a group of software alternatives. Open systems would allow us to choose software independent of the hardware. The presence of fourth generation tools like SQL and Query400 would allow users and MIS staff quicker and easier access to the mainframe database. One of my favorite stories about the conversion relates to the use of fourth generation tools. After the changeover, a user came up to me very excited about a new scheduling report. He said, "This is a great report....you guys in MIS really do good work!" When I looked down at the report, I realized that MIS had not developed the report but that it was written by a user with Query400 language! I was happy to see our vision of getting information into the hands of the user finally coming to pass. IMPLEMENTATION PLAN KEY FEATURES In developing the list of key features and functions for the new information system, we interviewed all department leaders to see what they expected from a new system. The Order Entry, Customer Service, and Sales departments wanted online order status, "what-if" pricing analysis, available capacity analysis, and sales management tools. All managers wanted new budgeting, forecasting, and modeling tools such as sales and operations planning systems, historical data inquiry systems, and flexible budgeting. The Manufacturing and Inventory Control departments wanted integrated CRP and MRP. Once too often we had set up equipment only to find no material on hand to make the product. A system where the capacity planning module and material requirements planning module shared information would improve our odds at scheduling consistency, and we needed to have this functionality. These departments also wanted online update and inquiry capability, production performance tracking tools, inventory control history, accurate and timely shop packet instructions, and a shop floor manpower planning tool that facilitated the process of staffing the plant floor to meet customer demand (sales and operations planning). Regarding the financial capabilities of the new system, management expected tools to facilitate timely financial statements, effective credit and cash management, inventory and accounts receivable turns management, online general ledger update and inquiry, standard costing system features, and a financial projection function that would forecast the financial results based on the sales and operations plan. Other capabilities management required from the new system were:
A 13-STEP IMPLEMENTATION PLAN To provide WPI with an integrated system that delivered these key features and functions, our implementation plan needed to include a reengineering component as well as a selection and execution component. Also, the plan had to be dynamic so that as changes were discovered, they could be incorporated easily and communicated to the implementation team. The implementation plan consisted of 13 steps. In step 1, we had to develop the detailed implementation plan and the process to maintain it. In step 2, we had to determine the informal constraints that might stand in the way of a successful implementation. Whenever you move from silo-driven systems to integrated systems, the need to compromise becomes evident. For example, product groupings were a concern. The accounting group had always grouped products by large and small bag categories for financial analysis, the converting operations staff had grouped products by type of bag, and the printing operations staff had grouped products by the type of printing process and press that produced the product. We had to decide from an overall company perspective the best way to group products. We learned to compromise and made the decision. The third step in the implementation was to define the system requirements using the key feature and function lists and to evaluate the software vendor candidates. As I mentioned earlier, we sent a 122-page request for proposal to 22 vendors. Based on their responses to the RFP, we narrowed the list to three vendors. These three software packages were demonstrated to the MIS Core Team, which was composed of key representatives from every department in the company. The Core Team ranked the vendors from high to low, and the vendor with the highest rating was chosen. It was clearly a "team" choice, not an MIS staff decision. Next we completed steps 4-6 to prepare the site, train the MIS staff, and develop and implement the hardware installation plan. Step 7 was to revise and update the original implementation plan. Then we installed the software and tested its functionality. Next came the real challenge of any system upgrade...the user training and cutover phase. In looking back over the conversion, we put a lot of work into the design of the education methodology for the user training, step 8 of the plan. We did so to make the learning experience relative to the WPI user. I want to stress that this is the single most important step in the plan and can result in a fiasco if it is not prepared and planned adequately. In this education methodology design phase, the Core Team developed a small WPI database in the new system. This process required that the group set up parameters for the entire system, which provided the basis for all training exercises. The Core Team had to understand the integrated nature of the software and give the group a corporate perspective of the issues faced in each functional area. The prototype model began with the order entry task; included purchasing, manufacturing, inventory control, sales analysis, pricing, and costing; and resulted in the creation of financial statements. It summarized the total manufacturing process as tracked by the system for the major product groups that WPI manufactured. The design of the education methodology was the outline used to develop the system-wide prototype and conference room pilot...steps 9 and 10. The prototype and pilot give the users the chance to show management how they plan to run the business using the new software tools. In step 11, we outsourced the HR and payroll systems, which allowed our MIS staff to focus on the value-added information system development that we needed to implement MRPII processes. We selected a pilot division approach to the implementation at WPI as it let us learn about the conversion issues in a simpler manufacturing operation that involved less volume. In step 12 we developed the cutover plan and completed all actions to convert our Plastics Division to the new system by June 1994 as planned. Our final step, lucky 13, was to cut over our largest division, Paper Packaging, by October 1994. We completed this step on time, and the conversion of the pilot plant helped us discover issues that made the second conversion a much smoother process. IMPLEMENTATION RESULTS The implementation was a success at WPI. Today, management information systems are considered a corporate strength rather than an embarrassment. The upgrade resulted in several benchmark successes for the company:
BENEFITS FROM THE NEW TECHNOLOGY WPI has derived numerous benefits from the new technology, and we have improved our competitive standing in the packaging industry by using the technology to support management decision making. Here are a few examples. In the Operations department, we are enjoying the following benefits of the new technology: Sales and operations planning. We can take a monthly look at our sales demand six months out by product family, and we can develop plans to have available capacity to produce to that demand. Scheduling visibility and planning. We have the ability to look at the schedule in detail and in many different formats...by customer, by territory, by component, by machine, etc. The scheduling system is linked to the material requirements and capacity planning modules and provides consistent data for planning and successful execution of the manufacturing schedule. Capacity allocation process without overload. WPI can see critical capacity shortages before they happen and take steps to address the shortages both financially and operationally by either outsourcing or allocating based on the most profitable mix of products. Reliability. The integrated manufacturing systems have provided WPI with tools we have used to improve our lead times, to reduce safety stocks, and to improve delivery performance. Productivity. Our company has made successful use of SPC (statistical process control) measurements, production attainment measurements, and corporate waste goal measurements to help identify problems and to track improvement as sustaining processes are implemented to solve these problems. In the Sales, Order Entry, and Customer Service departments, benefits derived from the new technology are: Improved delivery performance. We have improved our delivery performance by 30% since changing to the new system. Online pricing simulation. We have the capability to model the impact of product changes on pricing real-time with this tool. Shop order entry. We have improved our quality and reduced corporate waste by using the system shop packets to send manufacturing instructions to the plant. The number of errors in instructions and the time for shop order instruction communication have been reduced significantly since 1994. Capacity plan to sell. Using the sales and operations planning process, WPI can identify available capacity in the future and develop "open capacity schedules by territory." The sales group uses these schedules to try to fill the idle capacity machines with new volume. The HR and Maintenance departments are using the following system applications to improve their performance: Time, attendance, and turnover measurement. Shop floor hiring tool. The HR group uses the sales and operations planning process to develop hiring plans for capacity constrained equipment that is not on a 24-hour schedule. Preventative maintenance and work order scheduling. Equipment downtime analysis. What financial benefits have we derived from the new system? We have achieved process improvement and better bottom line results. Process Improvements Monthly financial projections. WPI uses the sales and operations planning process to create financial projections for profit, balance sheet, and cash availability analysis monthly. We use this information to see if our aggregate manufacturing plan and sales forecast make financial sense. If not, we have to change what we have planned! Financial statement turnaround time. Books are closed in a fraction of the time that it took under the old systems. Cost accounting support efficiency. WPI has implemented flexible budgeting, improved cost projection accuracy, and improved turnaround time for pricing quotation analysis by using the features of the new systems. Bottom Line Results The company has improved its financial position since implementing the new system in 1994:
At Werthan Packaging, Inc. we are proud of our accomplishments and look forward to the next change around the corner. 
Chris McCarthy is vice president and chief information officer at Werthan Packaging, Inc., in Nashville, Tenn., directing all financial activities and management information systems work at the company. She has worked in the accounting and MIS fields since 1977. During her tenure at WPI, Chris has been cost accounting manager, vice president of MIS, project leader for MRPII implementation, and CIO. She holds a master's degree in business from Vanderbilt University. She can be reached at (615) 259-9331.
| ||||||
 | ||||||
