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With the successful May 2000 startup of an enterprise resource planning (ERP) system at its Coated Board Div. in Mahrt, Ala., Mead Corp. is poised for the most extensive rollout of supply chain management technology in the paper industry. Known as Project Enterprise within Mead, the project will eventually impact all eight divisions of the company at a cost of approximately $125 million.
While the information technology adopted for Project Enterprise is sweeping--reaching from mill-based production systems to a full-blown ERP system installed at Mead corporate in Dayton, Ohio--the most crucial portion of the project, according to vice president of business process development Jim McGrane, has been the people element. Recognizing the importance of employee participation in the project from the outset, Mead approached the project’s change management side just as seriously and in as much detail as the technology side.
Vanzil Burke and vice president of information resources John Langenbahn (facing) discuss server technology supporting Mead’s ERP system.
Although the project had strong executive management support at Mead because of its strategic focus toward an Internet economy, Project Enterprise faced understandable barriers because of its potential to change so many jobs. With Mead’s decentralized corporate structure, as well as legacy information systems that still functioned efficiently, the company had to educate its work force about the importance of new systems and integrated supply chain management for providing future success and stability (see sidebar, below).
In addition, the core team for the ERP system implementation was comprised mostly of people from various functions throughout Mead, rather than information technology (IT) employees alone. According to John Langenbahn, vice president of information resources, this was necessary for true supply chain automation.
“We’ve learned the hard way that IT projects alone cannot facilitate business change—they don’t have the credentials,” he emphasizes. “If you are truly going to change your business, business people have to be involved.”
Mead’s strong focus on teamwork and employee education does not de-emphasize the complex technological side of Project Enterprise, which involves the installation of nine SAP modules in addition to interfaces with standardized mill systems. Detailed planning went into the software choices, as well as the staged implementation philosophy that brings up order management and non-order management functions separately at each location (see sidebar, pg.43).
Also, in order to make better implementation choices and accelerate the learning curve, Mead purchased intellectual capital based on Monsanto Corp.’s SAP implementation. As McGrane notes, “There is nothing easy about this.” Langenbahn confirms: “From day one, we have been antsy about this; we’d be foolish if we weren’t.”
CONFRONTING DOUBT. According to Langenbahn, the decision to implement an ERP system at Mead was not a “knee-jerk” reaction but part of an evolution toward a more standardized business model. Several internal and external factors played into the 1997 decision to proceed with a corporate ERP system targeted for all eight divisions.
For one, Mead began adopting a “shared services” type of business model in the early 1990s by centralizing some corporate services for financials and logistics. In addition, the company migrated from a mainframe platform to an enterprise-wide client/server one with 8,000 workstations controlled out of Dayton. In spite of such progress, the company saw vendor functionality and corporate culture as roadblocks to a more sweeping ERP system implementation.
During the 1990s, each division used the common computing infrastructure for its own specific purposes, especially those relating to customer service functions. Eventually, individual divisions began looking at evolving ERP systems as a way to augment their legacy systems for better customer service. According to Langenbahn, it soon became evident that a technological “train wreck” was about to occur.
“We were about to install PeopleSoft financials at corporate in 1997, when several divisions, including Coated Board, expressed interest in their own ERP,” he describes. “This would have destroyed our shared services model. Although we might have had eight very good ERP systems, we would have had corporate chaos.”
As McGrane further explains, the clash of the ERP financials was what really signaled a coming “wreck”.
“You cannot truly integrate third-party financials into an ERP,” he notes. “It’s like separating Siamese twins so you can rejoin them to a different child.”
To avoid a potential technology collision, Mead revisited the idea of one ERP system for all eight divisions. Finding that technology had matured enough to make it possible, while taking into account the strategic importance of automating its supply chain for a future e-business environment, the company decided to proceed, but not without reservations.
Langenbahn hesitates over the word “resistance” when referring to any reservations within Mead about implementing an ERP system, preferring instead to call it “doubt”—doubt over the ability to use one ERP system to run eight divisions. Such a decision “flew in the face of our culture,” says Langenbahn, and emanated from Mead’s history as a decentralized organization.
For several reasons, cost was not a barrier in the decision to proceed with the system. Since Mead was on the verge of having its divisions replace 1980s-era legacy systems throughout the company, Langenbahn says that “every bit of an ERP system cost” would have been spent in doing just that. Also, money could be saved by the shared services model, avoiding duplicated effort in each division. And, business process changes from streamlining the organization would be realized in coming years, not to mention the capability for e-business.
By the end of 1998, Mead had decided on SAP R/3 for its ERP system. McGrane says that it was the only vendor at the time that had “the potential to deliver an integrated order fulfillment solution to a corporation of our size and provide robust financial capability.”
BECOMING A PROCESS ORGANIZATION. Installing an ERP system throughout Mead meant more than running new software. To work correctly, it meant a transformation in how business was conducted. Like most major corporations, Mead was functionally managed, leading to what Michael Hammer calls “process fragmentation.” Enabled by the new system, the business would change from a hierarchical, fragmented task-oriented environment to a process-centric environment geared toward end-to-end processes and customer service. Such a change had obvious implications for the people involved, as well as for the choices surrounding the software architecture.
The new business model would force people to collaborate rather than work in the vacuum of their own job function. The potential for 5,000 SAP users meant educating employees as to why such change was necessary, where they functioned within the supply chain, and who to communicate with upstream and downstream of their processes.
Also, to garner acceptance and effect change, the core project team was made up of 30% IT employees and 70% business employees in areas ranging from purchasing to maintenance. The “Project Enterprise” theme was developed to aid in this effort for teamwork and education (see sidebar below).
On the software side, many crucial decisions were required that would affect the ultimate business transformation. For one, the number of SAP modules needed to be determined, as well as the number and types of mill systems, for full supply chain automation. One of the first steps taken toward managing the business transformation and making software choices involved the selection of an integration partner.
For its integrator, Mead chose the IBM’s Global Services Group, making it the first customer of IBM’s joint venture with Monsanto. The Solution Center was a partnership formed to leverage Monsanto’s successful implementation of SAP. According to Langenbahn, Mead sought what it called “intellectual capital” created from the other process company’s collaboration—approximately 70% of which was “immediately transferable.”
At the outset, McGrane, Langenbahn and other Mead executives traveled to St. Louis for a week of meetings with Monsanto and IBM experts. Langenbahn says that “about 50 decisions were made during the week that were major, major ones.” One involved a change in internally measuring operating units from return on total capital to return on assets. Another was that only one image of the ERP system would be installed at Dayton for use by all divisions.
“We were poised to use four or five images of SAP, with variations in the number and type of modules installed, until the meetings,” explains Langenbahn. “We never thought running one image of the system would be possible until we saw Monsanto, and I think the decision to proceed that way saved us a lot of grief. Our timing was right for learning from them.”
After the week of meetings, Mead proceeded with a series of process design workshops. For these, Mead employees functioning as process leads traveled from throughout the corporation to make more detailed decisions about the implementation.
SOFTWARE AND THE SUPPLY CHAIN. From mill-level systems to a full-blown SAP implementation, Mead chose a variety of systems to implement its supply chain strategy. The SAP modules chosen included those for sales and distribution, materials management, financials, asset management, production planning and scheduling, plant maintenance, advanced planning and optimization, quality management, and costing/profitability analysis.
According to Langenbahn, Project Enterprise, when completed, will mark “one of the most extensive SAP implementations in the forest products industry,” especially in the area of advanced planning and optimization. However, the project’s complexity also involved interfacing mill systems, as well as some legacy systems, with SAP. Figure 1 shows the breakdown of supply chain functions by system type, as accomplished at the Coated Board Div.
In August 1998, Mead assembled its core project team, consisting of 60 employees. Together with about 35 consultants, this team was responsible for design and consultation with division implementation teams. Mead Coated Board, the first division to begin implementation, dedicated more than 70 employees to its implementation process.
Mead had many technical challenges to address for the success of Project Enterprise, including interfacing of mill and MRP systems for full supply chain management and dealing with the stock keeping unit (SKU) issue that has plagued many paper installations. Also, user parameters had to be established for orderly workflow. However, one great benefit for Mead was its already established network infrastructure with standardized client/server software capabilities.
“We already had a standardized application environment, with the 8,000 workstations controlled out of Dayton,” describes Langenbahn. “All the production systems ride on that infrastructure as well, including legacy applications. The ERP system meant just putting another thing on top of that infrastructure. We looked at a lot of people who failed in implementing SAP that were simultaneously trying to put in an infrastructure, which is almost impossible.”
Platforms and data issues. The client, or application, side of Mead’s ERP system runs on Windows NT servers located in Dayton. While 100 such servers are currently in use, these are mainly in non-production mode as the company phases the system in at the various divisions. Centralizing the servers improves system uptime, since problems are found more quickly than in a distributed environment.
The database side of SAP resides on three mainframes running the OS/390 operating system with DB2, a scalable database similar to Oracle. McGrane views DB2 as “one of the better technology decisions” made by Mead because of its excellent reliability.
All new mill level systems, along with the remaining legacy systems, run on NT servers using a Unix operating system. These servers are maintained strictly at the mill. However, whether an application resides at corporate or at the mill level is transparent to the user in the workstation environment.
Workflow, mill systems, interfaces. With the exception of fiber, all materials are procured using the ERP system. For fiber, Mead chose to interface with Pacifica Woodlands Procurement software rather than SAP, due to the nature of land management, third-party pays, and other specifics of fiber procurement. The system, currently online at Coated Board, will be standard throughout all divisions.
In Mead’s integrated order fulfillment process, SAP is used to place customer orders and then plan and schedule trim on the paper machine to fulfill those. Throughout this process, the ERP system’s financial management functions, shown in Figure 1, record and control the business activities relating to the manufacturing process, such as purchasing and accounts payable.
Currently, an IBM trim application (now owned by I2 Technologies) is interfaced into SAP’s advanced planning and optimization (APO) package, a “bolt on” to SAP’s standard set of modules that Mead has been the first to adopt within the paper industry. This real-time interface, according to McGrane, has been “one of the more difficult aspects of the implementation.” In the future, he says, Mead hopes that SAP will embed its own trim algorithm into APO.
“It’s our opinion that we can live with a slightly less powerful algorithm that is embedded, because you get significantly more functionality,” states McGrane. “Right now, the tradeoff is that we had to choose global optimization over local for a multi-machine environment, when what we really need is both. However, the technology is just not there yet.”
Langenbahn, too, sees the interface between the planning software and the trim package as one of the riskiest parts of Project Enterprise. However, he acknowledges it as “a key piece where paper companies either make or lose money.”
In Figure 1, the yellow boxes represent legacy software by Mead, some of which will be replaced by third-party systems. For example, OSI’s PI system is now the corporate standard for process data historian, just as Plantware is the standard for safety, health, and environmental standards. Honeywell-Measurex’s OptiVision is optional for those divisions that wish to replace legacy product tracking systems (PTS). Also, for divisions with more sophisticated quality requirements, Mountain Systems Prophecy software is used.
At Mead’s Coated Board Div., the various supply chain functions are performed by different system types - ERP, legacy, or third party bolt-on.
In addition, PeopleSoft’s human resources (HR) management package is interfaced to SAP to post payroll within the general ledger. Part of the initial attempt to use PeopleSoft for various functions, the HR package was found sufficient for Mead’s requirements, says McGrane. Although the ERP system is located in Dayton and production systems are located and maintained at the mill, work is executed independently of where the systems actually reside. This requires much collaboration between corporate and the mill. One of the places this is most evident is in the area of logistics.
While freight rating, load management, freight payment reconciliation, and carrier management are performed in the legacy software environment, these functions are interfaced to SAP in Dayton, where warehouse management and shipping is performed.
The transportation functions shown in Figure 1 are very much operated as a “hybrid model,” according to Langenbahn, with some functions performed in Dayton and a “great deal" done at each location.
The collaboration is not only between individuals, but between the systems as well. In addition to the legacy transportation system/SAP interface, Middleware software from ACSIS sits between the mill floor and SAP to safeguard against the loss of connection to corporate. If this occurs, product can be shipped out of the mill, and the software will “catch up” the ERP system after the connection is re-established.
Batch interfaces exist between the ERP system and Mead’s various banks to facilitate electronic funds settlement. Other interfaces to SAP occur between travel and expense software, as well as a sales tax package called Vertex, since SAP does not efficiently handle tax applications.
Altogether, McGrane says the number of interfaces between SAP and various mill and corporate systems is around two dozen. However, he reports that the real-time interfaces were the most challenging to design.
“The batch interfaces probably took about one to two weeks for coding, but, for example, the two-way, real-time interface between the ERP system and the product tracking system at Coated Board took almost a year to develop,” he describes.
Though difficult to develop, future interfaces will be reusable at the various divisions because Mead has standardized its manufacturing execution systems layer with the OptiVision product tracking system.
Vice president of business process development Jim McGrane and integration project manager Theresa Schnabel strategize implementation approaches.
Skirting the SKU issue. For many paper companies, a major problem with ERP systems has been their tendency to focus on a product as a fixed, unchangeable entity known as a stock keeping unit (SKU). To get the full benefit from an ERP system, according to McGrane, requires defining, costing, and maintaining these fixed products. While this works well for Mead’s consumer and office products business, it is problematic for the paper and board manufacturing divisions because parent rolls are trimmed at varying dimensions, which might number as high as 200,000, requiring the use of excessive master data within the system.
To circumvent this problem, Mead made use of a feature within SAP’s sales and distribution module known as the variant configurator. This feature, according to McGrane, has matured enough within SAP R/3 Version 4.5B that it is now used for Coated Board.
To use the variant configurator, Mead determined the 800 or so most common roll sizes at Coated Board and defined them as SKUs. The 800 units make up more than 80% to 90% of what is sold. The remaining roll sizes are dealt with “on the fly,” says McGrane, using the variant configurator. Although these orders take longer to process, they fortunately represent a small percentage of what is sold overall.
In addition, through the ERP system, qualified users can trace roll genealogy. This is accomplished using SAP’s batch management tool. McGrane describes it as “a difficult challenge within SAP, but doable.”
Defining user roles. The ERP system allows standardization of every job within Mead by definition of specific roles. Mead defined these roles within the system and established their associated user privileges. Individual jobs are then defined as a combination of these roles. Langenbahn says that SAP’s ability for providing security all the way down through the user level was a “big plus” for the software.
REALIZING YOUR PLACE IN THE CHAIN. In November 1999, Mead began its phased implementation of Project Enterprise at Coated Board (see sidebar, pg.43), while two sawmills in Cottonton, Ala., and Greenville, Ga., adopted the entire project. By May 2000, Project Enterprise was in full force at the Mahrt mill, although McGrane reports that the system is not yet feeding real time costing information from process control equipment into SAP so that real-time business decisions are possible, which will be a future enhancement.
Despite what has been described as a “flawless cut over,” many adjustments remain both from a technical and human standpoint. Project Enterprise has a steep learning curve, and many benefits from the system, both expected and unexpected, will only be seen in the future.
“We’ve completed the first step in making the system work,” says Jack C. Goldfrank, president of Mead Coated Board. “Now, we’re focused on making it better. We recognized that a performance dip would be inevitable when making a significant transition, but our goal was to keep the dip as shallow and short as possible. Through a lot of training and the personal growth of our people, we are succeeding.”
Reality strikes. Currently, there are almost 600 Project Enterprise users within Mead. Though product was shipped from day one of the order management implementation at Coated Board, McGrane acknowledges that transition to the new ERP was difficult
“All the training and education doesn’t yield an intuitive acceptance of the technology, so it requires lots of support and leadership in the post-startup environment,” he says. “It’s just very hard to internalize the changes we were asking the organization to go through.”
McGrane describes the reaction during the first week as “it’s a piece of cake.” By the second week, though, the same employees were saying “Oh, my gosh." One reason was because the previously used legacy systems had allowed greater flexibility for the functional areas. At the same time, however, people had never seen the impacts of their changes on other departments.
McGrane cites an example that occurred prior to startup at Coated Board while testing the new system. Within two weeks of going live, it was discovered that the planning and scheduling group was behind on a certain productivity metric. When asked why, the group explained that the customer service group had mis-entered about a half dozen orders and they had spent an entire morning cleaning it up. The customer service leader then came up with several methods for avoiding such errors in the future. McGrane explains that the integrated nature of the software required this interaction between the two groups.
“With the ERP system, the aftereffects of impulsive changes, as well as mistakes, are immediate and visible,” he describes. “Having to deal with those issues as they occur, rather than down the road, is a major change issue. People are working long hours because they haven’t quite grasped the integration factors that cause this. The learning curve is just very steep.”
A customer “shakedown period”. While startup brought one reality for the employees at Coated Board, it brought yet another one for its customers. The division had educated its major customers about the coming change. In fact, McGrane says they “were prepared for many scenarios, although we shipped from day one.” However, some “hiccups” have occurred.
“I wouldn’t want to characterize this as perfection,” describes McGrane. “Any company going through this realizes there is a shakedown period in which both the company and its customers come to grips with the new system.”
For some customers, the change has been transparent, while others have experienced some aftereffects. However, Coated Board is working within the ERP system to address these.
“Sometimes, it’s just a matter of the invoice looking a little different; other times, it’s more complicated,” explains McGrane. “For example, we are trying to freeze our order cycle, and some customers are accustomed to calling up changes two minutes before product hits the machine. Those changes are hard to accommodate, but we are working to find a balance between what the customer actually needs and what they system can support.”
Measuring results. As Langenbahn notes, it will be a few years down the road, even for Coated Board, before the true business case benefits are realized from Project Enterprise. Many of these will be associated with e-business opportunities.
“In two or three years, you will have companies with disciplined processes that are enabled and supported by integrated software, and you will have those without them,” emphasizes McGrane. “For those without them, it will be very transparent to the customer, since slapping a fancy front-end that isn’t integrated makes it obvious what has always gone on behind the scene all along in their processes.”
In addition, the integrated nature of the ERP system has changed many opinions within Mead about the paper industry.
“We may have come into this thinking we were fundamentally different as a business, but over the last 18 months we have found much more in common with other industries than we ever thought,” states McGrane. “When we say we are different, we just haven’t talked about it hard enough—particularly in areas like plant maintenance, where we are in effect putting in standard processing, standard technologies, and standard data structures across this corporation. And people are fine with it, because they understand it’s the right thing to do.”
| BOLDY PAINTING A CASE FOR CHANGE |
| It’s no secret that many ERP system implementations, both inside and outside of the paper industry, have failed outright or failed to reach their utmost potential. Mead’s vice president of business development, Jim McGrane, readily acknowledges this, but is quick to point out one of the key causes.
“The front pages of various media talk about failed implementations, and it boils down to one simple lesson: people make these projects work.”
Recognizing that people are as crucial as the employed technology, Mead began a thorough internal effort aimed at educating every employee—not just potential system users—as to why the change was occurring and what it meant for them. With eight independently functioning divisions that were “very much on top of their game with legacy systems that were probably some of the industry’s best,” according to vice president of information resources John Langenbahn, the company had some important work cut out for it in building a case for change.
For starters, the project was given a name and a face. Dubbed Project Enterprise at corporate (divisions were allowed to create their own names: Project Endeavor for the Paper Div. and Project Discovery for Containerboard), the project’s familiar space shuttle and Star Trek-type logo appears on brochures, coasters, coins, intranet information, and company newsletters. The idea was to educate employees that Mead truly is “boldly going” into an important strategic direction, as wmll as to create an atmosphere of teamwork.
The Project Enterprise theme continues in the “galley”. (shown Janel Burnett and John Wagner)
On the 14th floor, the core project team in Dayton works in what are somewhat humorously called “pods”—cubicles organized in a circle, with tables in the center for discussion. The kitchen is known as a “galley”, and the theme continues throughout the core team’s workspace. With the conglomeration of 75 consultants, IT experts, and business people from functions throughout the corporation, this open environment was designed to encourage communication and to be comfortable, since the large-scale project requires many late nights.
Outside of the core project team, an ambitious education program is underway. By the time Project Enterprise is completed in 2003, every employee will have taken the four hour course explaining why the company is becoming more standardized and what an integrated supply chain looks like.
The course uses maps, a large game board, and other visual representations to describe Mead’s corporate journey, placing it in the context of 1990s globalization, increased competition, poor shareholder returns, environmental issues, and other external pressures facing the paper industry. To date, 5,500 employees have taken the course, which is scheduled for 12 to 15 months ahead of each implementation. McGrane says it has “gotten the highest marks of anything we have ever done in the area of communication. People love it.”
For those working in affected process areas, further education is given as to how they fit in the overall supply chain. This details connections to processes upstream and downstream of their own work and requires another week’s worth of training. It has involved the use of such training tools as InfoDB, an inexpensive alternative to SAP’s onsite training classes that introduces people to the whole concept of SAP navigation, integration, and screens. Although it is not paper industry specific, McGrane says it has value as a preliminary introduction.
Lastly, task training occurs just prior to “go live” so that it is fresh, according to McGrane. This educates people on exactly how a transaction is performed. Despite all the education and training, an actual “go live”, as experienced at Coated Board, is still tricky.
“At startup, we discovered that it just takes a while for the whole process thing to fit in,” he explains. “There is a lot to learn, and people don’t get it on the first bounce. It requires leadership after implementation and a lot of reinforcement, retraining, and reeducation. And that is where we are now at Coated Board.”
Pod E’s setup lets Julie Myers, Jeffrey Richardson, Stacey Domicone, Thomas Fiessinger, and Robert Richardson closely coordinate project startup.
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| PHASING IN SUPPLY CHAIN MANAGEMENT |
| In November 1999, Mead’s Coated Board Div. in Mahrt, Ala., started up non-order management functions within SAP, including purchasing, plant maintenance, asset management, accounts payable, and inbound logistics. Startup of third-party raw materials procurement software from Pacifica, which was interfaced with the ERP system, followed in February 2000. Order management functions, supported by the ERP system and interfaces with mill-level manufacturing execution systems, were brought online in May. These included production planning and scheduling, manufacturing, outbound logistics, and all accompanying financial transactions.
According to vice president of information resources John Langenbahn, this phased implementation has been crucial to the “flawless cut over” at the Mahrt mill.
“Splitting the implementation between order and non-order management activities has been one of our best decisions in Project Enterprise,” he says. “Without this approach, it would have meant too much change at one time. I don’t know how we would have absorbed it.”
As the timeline shows, Mead plans to continue this phased approach with its other divisions. This past August, the Escanaba, Mich., mill brought up non-order management functions, just as the Rumfozd, Maine, mill did in June.
“Project Endeavor is currently the biggest initiative we’re undertaking at Mead Paper,” said Ian W. Millar, president of Mead Paper. “Its potential, as an integration vehicle and enabler for our fundamental business processes, is enormous. We are looking forward to improving our operations via a fully integrated supply chain.”
After order management functions are installed for the entire Paper Div., Mead intends to have a startup every six month, completing the entire project by 2003.
“What is clear is that when we finish, we will have one of the most extensive SAP implementations in our industry," says Langenbahn.
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