Major manufacturer cuts costs, enables enterprise-wide visibility with IBM and SAP

Published on 19-Dec-2013

"Our business has doubled in size in the past year, and we are confident that the SAP and IBM solutions give us the capacity, scalability and capability to do so again." - Company spokesperson, Major manufacturer

Customer:
Major manufacturer

Industry:
Industrial Products

Solution:
Enabling Business Flexibility, Enterprise Resource Planning, Information Management Foundation, Server Consolidation, Virtualization, Virtualization - Server

IBM Business Partner:
SAP

Overview

This company produces, converts and markets packaging and tissue products that are composed mainly of recycled fibers, with a network of more than 100 operating units located in North America and Europe.

Business need:
This company’s thriving entrepreneurial culture relies on units pursuing their business goals independently. Gaining enterprise-wide information visibility presents a significant challenge, with different business systems at many sites. The company identified that complexity caused by the wide mix of IT infrastructure, software and processes was a drag on growth. When work is passed between manufacturing plants, transactions tend to be complex and slow, and there is no enterprise view of work-in-progress, future orders and group-wide production planning.

Solution:
The company chose to implement a complete range of SAP ERP solutions, including financial management and materials management, alongside SAP Supply Chain Management and SAP Advanced Planning and Optimization. IBM Global Business Services provided assistance with sizing, specification, system architecture, business process and deployment strategy, and with the complete SAP software implementation.

Benefits:
Increased data efficiency by standardizing operations on SAP solutions. Enabled integrated project costing and the potential for business analytics. Introduced the concept of shared IT services, with potential cost reductions for infrastructure, operations and human capital. Optimized processes around production planning and shipping. Improved integrity of data and increased visibility of financial data including profitability and costing.

Case Study

This company produces, converts and markets packaging and tissue products that are composed mainly of recycled fibers, with a network of more than 100 operating units located in North America and Europe.

The company’s success may be attributed in part to its culture. Each of its manufacturing sites is run independently, with responsibility for its own profit and loss, reporting, cost control and management. This structure generates entrepreneurial zeal, as the units strive to out-perform their peers.

Seen from an enterprise perspective, operational independence has its price. The company carries a higher administration overhead than might be expected, with different home-grown business systems at many sites. The company identified that complexity caused by the wide mix of IT infrastructure, software and processes was a drag on growth. When work is passed between manufacturing plants, transactions tend to be complex and slow, and there is no enterprise view of work-in-progress, future orders and group-wide production planning.

A company spokesperson explains: “Every production plan was a challenge. Each unit in the chain acts as a supplier to the next step, from raw materials to manufacturing. With the complexity of the intra-company systems, we found that if we doubled our throughput we rapidly lost the ability to track transactions, performance and finances. Additionally, because the systems were so slow, it was not possible to complete any meaningful analytics or data mining.

“The critical goal was to achieve operational efficiency, with full process visibility from sales orders through to accounts receivable. The initial aim was to modernize the accounting systems, but it quickly became clear that our production and operational systems were also obsolete, and the scope expanded to include materials management and supply chain.”

The company aimed to remove the financial and operational inefficiencies from the independent business units.

Simultaneously, by introducing standard, group-wide standards to record sales, work in progress and future orders, the company would enable enterprise production planning and customer analytics, and ultimately increase profitability.

Setting the strategy for SAP
The company calculated that it would take more than 10 years to rewrite and modernize its existing applications, which sparked a review of the group’s entire IT infrastructure, software and business process strategy.

A spokesperson comments, “Recent corporate acquisitions had introduced both SAP and another ERP solution into the group. Being able to compare the two systems, we realized that SAP solutions would support all our key business areas, and offer the ability to grow with us.

“By using integrated SAP software, we would be able to clear away the operational obstacles, and begin the analytics and data mining journey that is critical to maintaining our competitive focus.”

Starting with a pilot implementation supported by a local systems integrator at one site, where SAP® ERP applications were introduced to replace existing systems, the company quickly understood the potential value offered by SAP software.

Rolling SAP solutions out across all operational units presented a significant challenge that the local partner could not manage, and the company turned to IBM® Global Business Services® for assistance.

A spokesperson explains, “IBM has the size, scale and skill to deliver what we want. IBM Global Business Services tailored the offering to meet our needs, with a hybrid model that manages and supports our legacy and new systems, supplying an ideal mix of in-house and application management services.”

Selecting standardized operations
The company chose to implement a complete range of SAP ERP solutions, including financial management and materials management, alongside SAP Supply Chain Management and SAP Advanced Planning and Optimization.

The company chose to implement the SAP solutions with the least possible customization, relying on the best practices processes embedded in the software and helping to ensure efficient and rapid global rollout.

IBM Global Business Services provided assistance with sizing, specification, system architecture, business process design and deployment strategy.

“The switch to SAP solutions involves significant change management, and IBM Global Business Services has been very responsive,” says a spokesperson. “IBM brings new tools, new methodologies, and access to a worldwide network to help up in different aspects of our project or support. With IBM Global Business Services as our long-term partner, we can reach our goals more rapidly, and the knowledge transfer enables us to accelerate first-time-right execution.”

IBM Global Business Services also implemented the SAP solutions. With a 20-year relationship between the two companies, IBM understands the group’s business needs, and was able to advise on how best to take advantage of the integrated functionality offered by SAP applications.

Standardizing on SAP software will increase the information exchange efficiency between business units as they hand work from raw materials processing to finished goods. For example, by adhering to a single chart of accounts, where each business unit categorizes financial information in the same way, the company will be able to compare process costs and administration overheads at each unit, identify areas for improvement and suggest remedies.

Similarly, when providing estimates, the company will be able to rely on a single, integrated source of cost and process information, producing accurate data, more quickly. And finally, the standardized information will enable the company to analyze its own performance, by reviewing estimates against actuals and reviewing profitability data by manufacturing site, product, customer and much more.

At present some seven locations are live with SAP ERP core functionality, including financials, materials management, sales and distribution, transportation planning, production planning and warehouse management. More than 50 locations will implement these solutions over the next three years.

One site is also using additional functionalities around SAP Extended Warehouse Management, plant maintenance and SAP Mobile Platform offerings containing the Syclo functionality. Further solutions include SAP ERP Human Capital Management, SAP Data Maintenance for ERP by Vistex, SAP Advanced Planning and Optimization and SAP BusinessObjects Business Intelligence.

Choosing the right partners
During the phased deployment the company will continue to run its legacy systems, which are based on IBM Power Systems servers running the IBM i operating system.

A spokesperson explains, “Our experience of the IBM i operating system is outstanding, offering a stable, reliable environment for our business-critical applications. This made the platform the logical choice for the SAP solutions, as we are able to run both new and legacy solutions concurrently within the same environment efficiently and cost-effectively.

“The IBM DB2® for i database is almost entirely self-managing, and requires practically no management time, even for our large and complex SAP solution landscape.”

The company realized that running both old and new solutions simultaneously would overstretch the IT team, whose focus was on the new SAP environment. The answer was to share the burden, by creating a partnership with IBM Global Business Services – Application Management Services.

IBM provides support, maintenance and administration for the legacy solutions, and has transferred some 27 of the company’s systems experts to its own team. These experts have the history, skills and experience to support the unique legacy systems, and the company now has access to the larger pool of IBM operating system, database and hardware engineers that are able to deliver 24/7 coverage.

“IBM Global Business Services offered to build exactly the application management service we need as we move from the old and to the new environments,” says a spokesperson. “The application management service has proved to be very successful. IBM created a catalog of services and defined service level agreements designed to meet our specific needs. The shared service model has cut our IT operational costs, and gives us access to the global IBM resources, which make much more sense for the business.”

Deploying to IBM platforms
A spokesperson describes the systems implementation: “To keep the systems landscape simple, we chose to consolidate our legacy applications and the SAP solutions to new IBM Power Systems servers running the IBM i operating system.

“We have replaced five previous servers with two just two new systems. Advanced virtualization features allow us to run the old and new software in separate virtual servers (LPARs), and the IBM Systems Director Navigator for i enables simple, cost-effective management of the entire virtual and physical landscape.”

The company runs two IBM Power Systems 770 servers, each with 48 processors, running the IBM i operating system. The production server has 13 active processors, and the second server, which runs development, test, backup and disaster recovery services, has 17 active processors. The primary server runs 12 LPARs, allowing the company to operate multiple independent systems, including the integrated DB2 database, without the need to add further hardware. The secondary server runs 30 LPARs for the various failover and development services, and both servers use Virtual I/O Server technology to provide very fast internal networking services.

If disaster strikes and the company fails over to the secondary server, the IBM Capacity on Demand feature allows additional processors to be activated immediately, helping to ensure continued operations and appropriate system performance.

The company has also eliminated local storage devices, consolidating to two IBM System Storage DS8700 solutions, with a total of around 20 TB of data capacity, backed up to an IBM System Storage TS3500 Tape Library.

Gaining the benefits
During the transition to the SAP solutions, the company has introduced the concept of shared IT services, with potential cost reductions for infrastructure, operations and human capital – all essential steps in the highly competitive packaging marketplace. As the SAP solutions are rolled out across the group, the team is gaining new visibility of its activities, helping to understand markets and margins.

A spokesperson explains, “For example, using the SAP applications we can now complete costings for each customer order rapidly and accurately, even if the work spans several manufacturing locations, and ensure that the price quotations meet our margin targets. This information may steer us towards pricing more competitively, or perhaps towards profitable new business sectors and markets.

“In the past, the sales teams at each business unit knew little about customers at the group level. The information provided by the SAP solutions will help us identify opportunities to sell additional services and products, which is better for the business and ultimately better for customers.”

As more of the business units transfer to the SAP solutions, the full potential will become apparent. The team plans to introduce analytics capabilities to reveal detailed performance, and take advantage of production planning by optimizing manufacturing capacity in a way currently not possible.

A spokesperson concludes, “We see SAP solutions as an enabler for the business units. By consolidating to IBM Power Systems we can reduce complexity and cost; by outsourcing to IBM application management services we reduce IT expenses and gain access to global resources; and by standardizing operations with SAP software we can increase efficiency and competitiveness.

“Our business has doubled in size in the past year, and we are confident that the SAP and IBM solutions give us the capacity, scalability and capability to do so again. IBM Global Business Services has shown us how to capture value in new ways, by integrating the information chain and optimizing operations to help us build a fast and flexible enterprise, and yet ensure that we continue with our entrepreneurial culture of success.”

For more information
To learn more about how IBM products, services and solutions are supporting SAP environments around the world, please visit ibm-sap.com.

Products and services used

IBM products and services that were used in this case study.

Hardware:
Power 770, Storage, Storage: DS8700

Software:
DB2 for i5/OS, IBM i

Operating system:
IBM i

Service:
AMS: Enterprise App Outsourcing - SAP, AMS: Enterprise App Outsourcing - SAP ERP, GBS ISV Community: SAP, IBM-SAP Alliance

Legal Information

IBM Deutschland GmbH. D-71137 Ehningen. ibm.com/solutions/sap. IBM, the IBM logo, ibm.com, DB2, Global Business Services, Power, Power Systems and System Storage are trademarks of International Business Machines Corporation, registered in many jurisdictions worldwide. A current list of other IBM trademarks is available on the Web at “Copyright and trademark information” at http://www.ibm.com/legal/copytrade.shtml Other company, product or service names may be trademarks, or service marks of others. This case study illustrates how one IBM customer uses IBM and/or IBM Business Partner technologies/services. Many factors have contributed to the results and benefits described. IBM does not guarantee comparable results. All information contained herein was provided by the featured customer and/or IBM Business Partner. IBM does not attest to its accuracy. All customer examples cited represent how some customers have used IBM products and the results they may have achieved. Actual environmental costs and performance characteristics will vary depending on individual customer configurations and conditions. This publication is for general guidance only. Photographs may show design models. © Copyright IBM Corp. 2013.