BORDER STATES INDUSTRIES FUELS RAPID GROWTH WITH ERP

SUMMARY

     This Summary of Border States Industries Inc., also known as Border States Electric (BSE), is a wholesale distributor for the construction, industrial, utility, and data communications markets. The company is headquartered in Fargo, North Dakota, and has 57 sales offices in states along the U.S. borders with Canada and Mexico as well as in South Dakota, Wisconsin, Iowa, and Missouri. BSE has 1,400 employees and is wholly employee-owned through its employee stock ownership plan. For the fiscal year ending March 31, 2008, BSE earned revenues of over US $880 million.

BSE budgeted $1.6 million and 4.5 months for implementation, which management believed was sufficient for a project of this magnitude. This time there were no problems. The new system went live on its target date and cost only $1.4 million to implement—14 percent below budget. In late 2006, BSE acquired a large company that was anticipated to increase sales volume by 20 percent each year. This acquisition added 19 new branches to BSE. These new branches were able to run BSE’s SAP software within a day after the acquisition
had been completed. BSE now tracks 1.5 million unique items with the software.

In 2006, Gartner Group Consultants performed an independent evaluation of BSE’s ERP implementation. Gartner interviewed top executives and analyzed BSE data on the impact of the ERP system on BSE’s business process costs, using costs as a percentage of sales as its final metric for assessing the financial impact of SAP software. Cost categories analyzed included costs of goods sold, overhead and administration, warehousing costs, IT support, and delivery. BSE is now focusing on providing more support
for Internet sales, including online ordering, inventory, order status, and invoice review, all within a SAP software environment. The company implemented SAP NetWeaver Master Data Management to provide tools to manage and maintain catalog data and prepare the data for publication online and in traditional print media. The company is using SAP’s Web Dynpro development environment to enable wireless warehouse and inventory management activities to interact with the SAP software. And it is using SAP NetWeaver Business Intelligence software to learn more about customers, their buying habits, and opportunities to cross-sell and upsell products.

CASE STUDY QUESTIONS AND ANSWER: 

1.) WHAT PROBLEMS WAS BORDER STATES INDUSTRIES ENCOUNTERING AS IT EXPANDED? WHAT MANAGEMENT, ORGANIZATION AND TECHNOLOGY FACTORS WERE RESPONSIBLE FOR THESE PROBLEMS? 

- BORDER STATES INDUSTRIES expanded as a result of their new business line and also due to extensive growth from their core business of wholesale distribution. BSE’s existing system at that time known as Rigel was designed only for electrical wholesalers and it did not fit into BSE’s requirements anymore. This is the technology factor that contributed to BSE’s problem. 

During the implementation of the new ERp software the serious management worked closely with SAP and IBM’s consultants for the successful implementation of the system. The day to day operations of the company suffered at this time as the managers hard to work on the new project. Here the senior managers are the people factors that were responsible for this problem. The organization factor that was responsible for BSE’s problem was BSE’s decision to customize the new SAP ERP system extensively. During the initial implementation of the SAP ERP software,instead of adopting the best-practice business processes that was available with SAP Software, BSE decided to customize it to look more like its old ERP system ‘Rigel’. The implementation process took much longer than the management had planned for and that resulted in the delay of their launch date for the new ERP system. This caused their costs to go up by 50%. People were trained much earlier in the process and so they had to be trained again when the system went live, and further the system was not tested properly before it went live. 

2.) HOW EASY WAS IT TO DEVELOP A SOLUTION USING SAP ERP SOFTWARE? EXPLAIN YOUR ANSWER. 

- The solutions developed by SAP ERP software for BSE was not easy as they did not want to make a drastic change for the entire company. In going so, customization and data cleansing was the bulk of the extra charges since they had not expected so much work. 

3.) LIST AND DESCRIBE THE BENEFITS FROM THE SAP SOFTWARE. 

- Once the SAP ERP had been implanted, BSE was able to take advantage of all the different lines of business and integration that they were provided such as e-commerce, online credit card processing and special pricing agreement. These new changes also helped to structure the company in such a way that more employees could be used for sales and less for accounting. Warehouse costs where down by 1 percent, deliver cost down by .5 percent, and total overhead declined by 1.5 percent. All in all, the ROI came into about 3.3 million dollars per year between 1998 and 2006. 

4.)HOW MUCH DID THE NEW SYSTEM SOLUTION TRANSFORM THE BUSINESS? EXPLAIN YOUR ANSWER. 

- The new system helped BSE tremendously with the new system in place, BSE processes over SPA claims each year. It also helped BSE to reduce fulfillment time to 72 hours and transaction processing time by 63 percent. Before the implementation of the new system it took 15 to 30 days for BSE to receive rebates from vendors. Since BSE first deployed SAP software in 1998, sales have increased 300 percent, profits have climbed more than 500 percent, 60 percent of accounts payable transaction take place electronically using EDI, and as stated before SPA processing has been reduced by 63 percent. The company turns over its inventory more than four times per year. Instead of waiting 15 to 20 days for monthly financial statement, monthly and year to date financial results are available within a day after closing the books. 

5.) HOW SUCCESSFUL WAS THIS SOLUTION FOR BSE? IDENTIFY AND DESCRIBE THE METRICS USED TO MEASURE THE SUCCESS OF THE SOLUTION. 

- The solution developed by SAP ERP software for BSE was not easy as they did not want to make a drastic change for the entire company. In doing so , customization and data cleansing was the bulk of the extra charges since they had not expected so much work by the late 1990s, however, sales of ERP systems began to show. Some large manufacturers encountered problems implementing the systems, and others felt that ERP did not live up to its billing as a planning tool. Larger economic factors also influenced sales of ERP systems. 

6.) IF YOU HAD BEEN IN CHARGE OF SAP’S ERP IMPLEMENTATIONS, WHAT WOULD YOU HAVE DONE DIFFERENTLY?

-ERP software is not designed for extensive customization like BSE did during the initial

implementation in 1999. Rather than adopting the best-practice business processes embedded in the SAP software, BSE decided to customize the SAP software to make its new system look like its old system. BSE’s second implementation went much smoother and cost less because it did not try to customize the system as much and it adopted the built-in best practices. The initial implementation involved too many peripheral systems rather than having everything consolidated into one system. The initial training for ―expert users‖ was not handled well. The system was not tested as it would be used in a working production environment before the system actually went live. All of these were serious, costly errors that the company corrected the second time around.