ACC 444 Fall 2018: Assignment #3 - Garverick
ACC 444 Fall 2018: Assignment #3 - Garverick
Business Case Analysis of an ERP System
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ESTIMATED TCO |
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Item |
One Time |
Recurring |
Comments |
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Technology |
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Hardware and infrastructure upgrades |
$500,000 |
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Costs for servers/network/wiring/redundancy |
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ERP software contract value |
$2,000,000 |
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Expected negotiated net price |
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Recurring software maintenance –level 3 support |
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$360,000 |
18% of software contract value (low end of maintenance) |
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Database and Identity and Access Management Software |
$225,000 |
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Estimated for MS SQL Server and any of the top 5 IAM systems, which are priced similarly |
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Data |
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Inventory master data accuracy and BOM master data |
$350,000 |
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This data is in 2 different systems currently. Deemed to have major data duplication issues. Need scrubbing and restructuring into new format. |
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All other master data scrubbing |
$200,000 |
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Scrubbing customer, vendor, employee |
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Writing interface programs |
$275,000 |
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Multiple legacy systems will remain (e.g., fixed assets) |
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Recurring data maintenance |
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$140,000 |
2 full time persons for master data maintenance (ongoing 5 years) |
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Writing data conversion programs |
$300,000 |
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Convert data to ERP format and migrate |
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People |
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Internal Project Team
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$2,100,000
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$180,000 |
Six full-time equivalent people; Center of Excellence - two full time people for 5 years
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Change Management (consultants) |
$500,000 |
$100,000 |
Includes costs for communication, education, training; ongoing 2 years |
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Project management (consultants) |
$1,600,000 |
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Integrated project plan, budget etc. |
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Configuration/customization of ERP software (consultants) |
$1,700,000 |
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Adapting the software to use in the company/filling gaps |
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Contingency - 15% |
15% |
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15% buffer on all one-time costs to avoid surprises. |
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ESTIMATED BENEFITS |
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Item |
Current Level |
% Improvement |
Annual Benefits |
Comments |
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Sales |
$75,000,000 |
5% |
$3,750,000 |
Improvement in gross sales due to improved product availability and better service. |
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Direct Labor Productivity |
$15,000,000 |
10% |
$1,500,000 |
Reductions in idle time, overtime, and other HR- related issues related to inefficiency of workforce. |
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6 Fewer Employees Needed |
Average loaded $50,000 annual salary |
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$300,000 |
Reductions in clerical/data entry support and warehouse staff |
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Purchasing costs |
$1,000,000 |
20% |
$200,000 |
Better planning and information = reduced total purchase costs. |
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Inventory |
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Item |
Current Levels |
% Improvement |
Annual Benefits |
Comments |
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Raw Material and WIP |
$17,000,000 |
4% |
$680,000 |
Annual saving from better forecasting and also implementation of vendor managed inventory |
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Finished Goods |
$9,000,000 |
17% |
$1,530,000 |
Annual saving from better forecasting and also implementation of demand management module |
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Premium freight |
$800,000 |
50% |
$400,000 |
Produce and ship on-time reduces shipment cost |
1) You are an analyst for Carter’s ERP project selection team. Write a 1-2 page (single spaced) professional business memorandum to the steering committee (headed by me, Dr.JEO) stating the business case for purchasing the ERP system (also see 1(e) above; you should have at least one “Appendix A” in addition to the 1-2 pages of memorandum text). Use at least one of the four business case rationales that we discussed in CH 5 for purchasing the ERP system. Make sure that you reference key #’s from your TCO analysis and have a persuasive, evidence-based memorandum justifying your need for and recommendation to purchase (or not) an ERP system.