Enterprise Resource Planning

Project Report

On

ERP Implementation of

Hewlett Packard

Submitted by: Submitted to:

Devanshi Pathak 13DM065 Prof: Eugene Reuben

Gunjan Kalita 13DM075

Jesil T T 13DM085

Krishna R. Agrawal 13DM095

Mihir Kumar Choudhary 13DM105

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Introduction

What is ERP?

Enterprise resource planning (ERP) is business management software that allows an

organization to use a system of integrated applications to manage the business. ERP software

integrates all facets of an operation, including product planning, development, manufacturing

processes, sales and marketing.

Hewlett Packard (HP):

HP was founded in 1938 by Bill Hewlett and David Packard in their garage in Palo Alto, as an

electronic instruments company. Its first product was resistance-capacity audio oscillator which

gained heavy acceptance by engineers and scientists. HP’s growth was aided by heavy

purchases by the US government during the WWII.

HP announced that its revenues had gone down by 5% to $3.4bn for the 3rd quarter ended July

2004. The reason proposed was due to the problem faced during the migration to the

centralized ERP system. The total financial impact due to the failure was $160mn.

Questions were raised on failure of HP implementing ERP, as it was a consultant for SAP ERP

implementation. HP’s responsibility as a consultant was to prevent the execution problems

faced by the implementing Co. on which it itself failed.

However, while conducting an internal serve, HP revealed that there has been execution

problem and not the fault of SAP.

Technical glitches were small but contingencies planning weren’t addressed appropriately. Our

project aims at providing a detailed analysis of the ERP failure at HP.

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History of HP: A Timeline1

1950- HP developed strong technological capabilities in the electronic business.

1951- HP invented the high speed frequency counter.

1957- HP came out with the 1st public issue.

1961- HP ventured into the medical equipment industry by acquiring Sanborn Company.

1966- Established HP Laboratories and also designed its first computer.

1974- Launched 1st minicomputer on 4K DRAM

1977- John Young was named President, a turn from the founder to a new generation of

professional managers.

1980- HP offered full range of computers from Desktop to powerful

minicomputers.

1980- Developed Inkjet & Laser printers.

1981- Introduced the 1st Personal Computer.

1982- Introduced Electronic Mail System.

1982- Introduced HP9000 with a 32-bit super chip.

1989- Purchased Apollo Computers and became the leader in

Workstations.

1997- Acquired Electronic Transaction Co. VERIFONE for $1.2bn

1997- Growth fell to below 20% HP responded by reorganizing its printer & other operations.

1999- Spun off its test-&-measurement division into a $8bn separate business.

2001- Second largest computer manufacturer

HP’s businesses were structured into 7 business segments.

Financial year ended October 2004, the company had revenues of $80bn, net profit of $4.2bn,

employing 150,000 employees, serving more than 1bn customers in 160 countries.

HP was ranked 11th as per the Fortune 500 ranking in 2004.

1. http://www8.hp.com/us/en/hp-information/about-hp/history/hp-timeline/hp-timeline.html

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HP and SAP

HP had close partnership with SAP since 1989 when SAP began developing SAP R/3 product. It

was offering consulting services for implementation of SAP’s “supply chain” & ERP software.

The first SAP R/3 was deployed on an HP 9000 Enterprise server in 1992 at Wuerth.

Why SAP R/3?

There were 3 reasons for this:

1. HP had a highly decentralized org. structure & every business operated independently.

2. HP redesigned its business strategy to venture into high volume low priced electronic market.

3. Therefore HP planned to phase out its numerous legacy systems and replace it with SAP R/3.

In other words, it was adopted with the aim of achieving shorter lead & delivery time, cost

saving and an efficient global Distribution System

In 1993, HP’s BCMO unit began with the implementation with several modules like- MM, PP, FI,

CO. FI & CO modules were implemented on global basis & SD was implemented as part of pilot

project.

By 1998, major migration to SAP R/3 was completed.

The implementation of SAP Sales Configuration Engine enabled E-commerce for direct

consumer selling and HP kept on upgrading the version as the needs changed.

Why MySAP?

By 2000, HP was keen in making the web-based activities simpler to capture the direct to

customer market and had over 20 SAP R/3 implementations representing FI, PP, MM, SD, CO,

BW, WM & APO.

HP used different version of SAP & had multiple SAP GUIs with around 10,000 users.

As HP was using SAP R/3, it considered using MySAP for its Internet Enabled Technology

Businesses to be a better fit.

The following were the benefits of implementing MySAP:

1. Reduce huge cost incurred on IT support

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2. All programs will run on single browser

3. Eliminate need to create custom SAP interface

4. Greater speed in implementation

5. It had the option of query which would make it easier to use.

HP wanted to link its employees, customers & partners. But, HP faced problem in fulfilling

orders when any order involved various items from more than one product line.

HP wanted to ship the products faster as the demand placed on HP’s supply chain data

workflow increased tremendously.

The main aim was to cut cost, increase transparency & equip itself to the changing business

models. Thus, HP decided to implement the APO module, the central element of SCM.

SAP’s APO & SCM software were first implemented in Europe imaging & printing division. It

helped to forecast & enabled integration of data in a single system. It was introduced in just 5

months time.

After its merger with Compaq in May 2002, it started repairing the SC of all businesses to create

5 standard SC supported by standard technology platform.

It introduced the “ADAPTIVE SUPPLY CHAIN”. It also implemented PLM (Product Life cycle

Management) module to integrate the product lines of the 2 merged Companies.

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ERP Failure

The ERP migration failure In Dec 2003 Gilles Bouchard, the CIO & EVP created a model to merge

the Business and IT group of HP at regional & country level.

This operation along with the ISS (Industry Standard server) was

completed by on May 2004 & that led to increased interdependencies

between groups in the company.

This was 35th Migration and was a part of the Business Process

Architecture. HP wanted to reduce the 35 ERP systems implemented worldwide to four along

with reduction in application from 3500 to 1500.

HP wanted to implement a single Order Management System & successfully reduced the no. to

7 but still wanted further efficiency & flexibility with the implementation of SAP FOM platform.

With the FOM, HP wanted to unite the SAP of Compaq with itself. It involved migration from

separate HP & Compaq legacy SAP R/3 to a new Broad-Based SAP ERP system & this involved

more than 70 supply chain & up gradation to SAP R/3 Version-4.6C.

The symptoms

1. HP took over an empty factory at Omaha to frame the contingency plan to include

both the technical and business aspects so as to provide buffer stock for customized

order. But as soon as the project went live in June 204, Migration problems began

surfacing.

2. About 20% of the orders failed to move from the legacy system to the new one due

to programming errors.

3. HP was able to fix this within a month but orders began to backlog.

4. Dwindling manual processes were not able to meet the demand.

Causes of the failure:

1. Project Team Constitution

2. Data Integration Problem

3. Demand Forecasting Problems

Gilles Bouchard

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4. Poor Planning & Improper Testing

5. Inadequate Implementation Support/Training

6. Project execution problems and not problems with the SAP software.

Note that:

Analysts commented that the Company’s culture did not support the much active involvement

of employees. Also the Company ignored valuable suggestion from employees.

Company staff had warned HP but it was not possible for it to continue with the tradition

system and also suggested for a back-up system but it turned deaf ears over that.

Many Vice-Presidents had joined the rival Companies and also many employees had a fear of

being laid off.

HP had traditionally been a very systematic, risk averse & slow as compared to Compaq’s

culture of being very aggressive & risk loving

HP once again failed in 2005 while implementing “GENESIS” while competing against “DELL”.

There was an expert group who had the entire know-how to implement ERP but it was

dominated by the IT management.

Managers’ ego problems were also a reason.

Impact of the ERP failure:

1. Dissatisfied employees -Employees had to hand label shipments of products

2. Dissatisfied customers due to: delayed delivering, bad configuration, duplicate orders

3. Bad reputation

4. Unstable order system of ISS (Industry Standard Server): problems with data integrity

and simultaneous increase in demands for HP’s standard Servers.

5. HP was unable to fulfill all orders

6. Losses according to HP were $400m in revenue and $160m during the implementation.

7. Lost market share to IBM, Dell.

8. Doubtful future for next SAP implementations

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Learning:

1. Implementation failure can impact overall business performance.

2. There is no standard approach to implement ERP, many times it involves a business

change in many departments. Therefore a detailed mapping is essential otherwise it

might miss out the objectives.

3. The success of implementation depends upon the planning, which considers the

business process along with the technical aspects.

4. To implement ERP, the business processes must be improved & corrected but HP failed

in this.

5. “The potential benefits to the supply chain are much bigger than the IT costs but the

potential risk to the supply chain is also much bigger”.

6. The success of ERP implementation depends upon the ability to align IT along with the

business management objectives, Program Management Skills and a well defined

process.

7. Impossible for HP to envision all the configuration for Customized orders.

8. There should be a manual back-up as a contingency plan.

9. There should be no cross-functional barriers and should create effective processes and

teams to integrate the entire business at all levels.

10. Encourage employees.

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Present Scenario

Learning from its previous mistakes HP has tried to overcome its failure in previous

implementation and thus have improved on the following in the present date2:

HP is certified global SAP Partner

HP is a worldwide leader in SAP operations - over 1.7M

users worldwide

HP has thousands of SAP experts supporting users

worldwide

HP Support Services manage selected portions of SAP IT

infrastructure

HP Support Services provide mission-critical services to SAP

Nearly one in every two SAP installations runs on an HP server platform

When HP and SAP join together, the result is a wider world of possibility based on a

firmer grasp of what's happening, real-time. This means a clear view of what is to come

and what is possible, creating an opportunity to thrive like never before.

The present ERP System Package is provided by SAP and was implemented in 2005. The major modules in the package used by the company are SD (Sales and Distribution), FI (Finance), MM (Materials Management). It took the company 2 years for the implementation and another 2 years for the stabilization and deployment.

The reason for adopting the SAP ERP system has been cited as the following by an ERP Consultant in the company,

“Hewlett Packard’s global parts supply chain is a 20 billion dollar organization. The business function involves multiple suppliers and partners and huge amount of transactions on a daily basis. To manage such a huge business, it needs a robust IT solution. The solution should be capable of managing the complete business functionality such as integrating different partner systems, do order management, perform financial accounting functions, manage inventory etc. Rather than building solutions from scratch in silos, the best approach is to implement an already established packaged application. “

2. http://h22168.www2.hp.com/us/en/partners/sap/index.aspx

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Summary

The project report highlighted the key points which resulted in the failure of the first ERP System in Hewlett Packard.

We started off by presenting a brief introduction and the timeline of the company.

The report covered extensively about the causes that led to the failure, the impact it had on the market and the lessons that the company learnt along the way.

Finally we discussed the present ERP System scenario in the company.

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