Texas Instrument Case
Texas Instrument Case
Texas Instrument Case
INTRODUCTION
The integration of enterprise systems and the supply chain to an organization is
becoming more critical in an ever-changing, globally competitive environment. As
markets mature and customer preferences become more diverse and specific, quick
response to those needs is required to maintain competitive advantage. This quick
response will require close relationships, especially communications and information
sharing among integrated internal functional groups, as well as the suppliers and
customers of an organization. Texas Instruments (TI), headquartered in Dallas, Texas,
is one organization that has come to realize this requirement for building and
maintaining its competitive edge. One strategic decision made by the organization was
to implement an enterprise resource planning (ERP) system with a focus on linking it
with a global electronic commerce (e-commerce) setting.
This case study provides an overview of the efforts of TIs internal and external ERP
implementation that led to over 70% of the transactions being conducted in a global ecommerce setting. TIs strategic goals include providing visibility of the ERP system to
external constituents via Web linkages and standardizing internal processes and
information technology to support market need. The e-commerce linkage is especially
important in achieving these goals. Thus, TIs ERP system is central to managing its
supply chain and Web e- commerce linkages from both a customer and supplier
perspective.
In this situation there were a number of major players, including project management
direction from Andersen Consulting Services, software vendors such as SAP and i2
Technologies, hardware vendors such as Sun Microsystems, and various suppliers and
customers of TI. Part of the process involved outsourcing some of TIs internal
information systems capabilities to these vendors, especially Andersen Consulting.
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The various stages of implementation from adoption to preparation and operation are
detailed as separate sections. At each stage of the implementation TI used performance
metrics to manage the process. We also provide an overview of how these performance
metrics played a role in the implementation.
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AM
FL
Y
The implementation stage can be classified into: start-up, project management and a
migration handling the switchover from the old to the new system. ERP systems force
large-scale overhaul of business processes and, therefore, their implementation needs
to be supported by appropriate change management approaches (Markus & Benjamin,
1996). Another key concern of implementation is that of systems integration, in which
multiple types of subsystems, platforms and interfaces must be integrated over diverse
and dispersed geographic locations. Systems implementation involves:
TE
Post-Implementation Audit
This last feedback stage, although very important from a continuous improvement
perspective, is one of the more neglected steps. According to Gulliver (1987), for
example, auditing should:
As can be seen, the process suggested above can be arduous, but this necessary effort
must be anticipated for the successful integration of complex and strategic systems into
an organization.
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A high-level architecture of TIs pioneering ERP implementation consists of SAP and the
i2 system for advanced planning and optimization (see Figure 2). The system is a
pioneering, large-scale, global single-instance implementation of seven modules
(finance, procurement and materials management, logistics, planning, field sales, and
marketing) for all of TIs divisions, and it is in use by 10,000 TI employees to handle
45,000 semiconductor devices and 120,000 orders per month. As shown in the figure,
this solution also enabled global Web access to information for TIs 3,000 external users
at customers, distributors, and suppliers sites. In total, over 70% of the business
transactions conducted with TI by all customers and partners are now via the Web or
electronic data interchange (EDI). In summary, the implementation:
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all inventory and manufacturing management be done globally. This process change
caused the practice of earmarking a production lot for specific customers to be
discontinued. There were thousands of programs in use at that time, and this
proliferation of stand-alone systems inhibited the implementation of global processes.
Thus, a proposal to implement an ERP system was made to the president and other
strategic business unit managers.
Many organizations find multiple-instance implementations more flexible and sometimes
easier to implement. Yet TI decided to implement a single-instance ERP system so as to
fully leverage the systems capabilities to support the flexibility and standardization
demanded by global processes. After site visits by major ERP vendors, TI selected SAP,
mostly because of its scalability to handle voluminous amounts of data. Yet, the actual
selection and justification included the evaluation of a number of systems by TI. These
systems were evaluated through a questionnaire that contained hundreds of detailed
questions pertaining to capabilities, ranging from user friendliness to support of major
functions. Many of these same questions were used in aiding in the system justification.
System Justification
A budget of approximately $250 million was set for the implementation. The
justification of the system was done using a combination of tangible and intangible
factors at both the enterprise and business-unit levels. Standard hard- justification
measures such as ROI and IRR were used to ensure the financial viability of the project.
In fact, if these were the only measures to be used, then the system would have been
justified. Yet, the data for these measures were still forecasts and estimates.
Strengthening the financial justification by evaluating other measures and factors
helped to provide a stronger foundation for managerial acceptance. In estimating
financial measures, global capacity utilization as a result of the ERP system was also
projected. The project managers kept in mind that such projections were only
guidelines that could get offset or boosted as a result of other continuous-improvement
activities that were ongoing in the company. These estimates ranged from 3-5% output
improvements based on current assets, which although seemingly small, amounted to
increased cost savings of several hundred million dollars. Some additional intangible
and tangible factors included:
Through this business case justification, acceptable financial returns, along with
strategic factors, such as competing effectively within a given niche market, and
operational factors, such as global inventory management, all played a role in ERPs
justification at TI.
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System Configuration
The goals and processes described above entailed a number of changes at the detailed
level. Many of the changes are difficult to manage because of drastic changes needed to
the ways of doing business (e.g., the business rules). The processes used to address
the arising conflicts range from top-management-enabled dialogue among the
participants to top-management-backed decisions that laid down the policy for TI. A few
examples follow:
All inventory is global. For example, inventory in Europe must ship, if needed,
to any part of the globe, rather than be held for European orders that can
potentially come at some time in the future.
Implementation
In this phase, concepts and goals are translated into tangible action, and as a result, it
is perhaps one of most difficult phases of the project. General principles such as global
processes and standard systems need to be backed up by convincing and deploying the
right people to implement the processes.
We briefly describe TIs implementation phase in the following categories, start-up,
project management, and going live. This description contains the manner by which
problems were addressed in each category.
Start-up. A number of key personnel, along with their families, were expatriated to the
US and stationed in Dallas for a few years. About 250 people were transitioned from TI
to Andersen Consulting (i.e., put on Andersens payroll), which became the main
provisioner of services with respect to the ERP system. IT outsourcing in this case
involved Andersen Consulting taking over the employment and management of former
TI people.
Project Management. Change management played a large role in this stage. The roles
of training, planning, and communicating were of equal importance. All management
levels were involved in this process, as were various vendors and suppliers. Some of
the practices included:
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A help desk was set up to handle problems that could not be addressed by
these experts.
A ticketing system for managing and prioritizing problems was also established
(e.g., a system stop was a high-priority ticket that would get round-the-clock
attention).
Handling Go-Live. To get prepared for go live, the key managers who were stationed
in Dallas were sent back to their territories for educating the next level of users. Using
selected experts, user-acceptance scripts were defined and tested, with problems, if
any, being resolved as per one of the schemes outlined above. Daily conference calls
were set up for 30 days prior to go live to obtain status checks on progress and on the
tickets.
Based on the results of these checks, a risk analysis was conducted weekly to
determine the effects of various potential failures. The implementation plan was to have
a few go live dates one after another, but in relatively quick succession. Except for the
planning system, in all the other stages in this case a direct conversion was employed.
That is, with a downtime of about 2 to 3 hours during a weekend, the old system was
turned off and the new one turned on.
Post-Implementation Status
The system met most of its goals 9 months after the complete implementation.
Response time for the system has exceeded expectations, with 90% of the transactions
worldwide getting a response within 3 seconds. There are around 13,000 users (10,000
TI + 3,000 outside) on the system, with concurrent users ranging from 300 to 1,700.
The integrated system allowed TI to better manufacture and deliver its 120,000 orders
per month involving 45,000 devices.
Some of the key performance measures and parameters evaluated were:
Productivity dip. There was a period of reduced productivity. Given the voluminous
changes involved, this was to be expected. TI expected this and discussed with
Andersen methods to ameliorate this problem.
On-time delivery. TI was not hitting its goal of on-time delivery. In addition to the new
system, market conditions caused more orders than they could deliver. They were
falling short of capacity.
Single-instance global system. The single-instance, integrated global model was
successful, fundamentally transforming how business is conducted at TI.
Better response. Because of its Web capability, the system is used by TIs external
constituents as well, namely, distributors, customers, suppliers, and field salespeople
worldwide. This Web capability allowed easier-to-use order management systems for
customers. Customers no longer had to use TI-specific software applications and/or
costly point-to-point connections.
Inventory reduction. Some TI factories reported output increases of 5- 10% and up to
15% reduction in work-in-process inventory.
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MANAGERIAL IMPLICATIONS
This case study of a successful ERP/e-commerce implementation offers and reiterates a
number of lessons for the management of these systems. The following lessons are
summarized:
Conduct a Thorough Strategic PlanThe case illustrated how market forces had
compelled the company to make radical shifts in its organizational environment and
culture.
Align IT Plans With Business PlansConduct reengineering studies and develop
strategic IT plans to align key IT needs with those of the business.
Get Top Management SupportThe prescription of top management support has been
made ever since early IT implementations (OToole & OToole, 1966) to the present.
Strangely enough, as stated by Jarvenpaa and Ives (1991), it also remains to be one
of the prescriptions that has been regularly ignored. In this case, TIs president and
the chairman of TIs board communicated the importance and status in their quarterly
satellite broadcasts to the company. The president sat in on quarterly meetings and
even stipulated that if anyone wished to customize aspects of the system that they
would have to personally explain it to him and show why TI would get more profit out
of this change.
Change ManagementSet realistic user expectations such as the initial productivity
dips. User involvement is critical. Andersen Consultings process helped to ensure that
such was the case. Make sure that the user is supported to help improve user
satisfaction.
Strong Champion CharacteristicsIn TIs situation, the manager of the ERP project had
over two decades of experience in various levels of the organization. This manager
had broad knowledge of corporate operations since he was in charge of the previous
business process reengineering programs that formed the foundation of the new ERP
system. Previously he was a vice president of one of TIs divisions.
Rationalize Business Models and ProcessesMake sure the business models and
processes fit within the strategic direction and goals of the organization. Time, mass
customization, and flexibility concerns led to a global model. Part of this rationalization
was also completed after the SAP system was agreed upon, since SAP required
business processes to be completed as specified by them or significant customization
of the system would be required.
Manage External EnterprisesAppropriate and well-planned involvement of consultants
is important for keeping the project on a tight schedule. Further, with the advent of ecommerce, companies are more likely to ship and order goods on the basis of Webbased inputs (Kalakota & Whinston, 1996). A training program must encompass such
constituents as well, an aspect that seems to be ignored in the research literature.
Managing external enterprise relationships (and systems) is not something that many
organizations have had experience completing. This makes the e-commerce setting
more complex, especially when organizations seek to integrate interorganizational
systems.
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Manage Using MetricsTI and Andersen Consulting have a corporate culture and policy
that requires the stringent and formal use of metrics in the management and
evaluation of projects. They attribute this policy adherence as one of the key reasons
for success of the ERP implementation.
CONCLUSION
Traditional information systems are often implemented with the goal of improving the
internal productivity of an organization. In contrast, modern enterprise and interenterprise systems have supply chain integration as an additional and an increasingly
critical goal. This makes their management and implementation a very time-consuming
and difficult task. TIs ERP implementation with an e- commerce perspective
compounded these inherent difficulties by requiring additional features.
Management did see some problems in this implementation process and tried to
address the issues. Some of the major problems included:
1. The software for supply chain management (Red Pepper) that was initially
chosen did not meet expectations of TI. This system had to be scrapped;
this resulted in a multimillion dollar cost. The i2 system was then
implemented.
2. A productivity dip did occur. The implementation had to address this issue
for all managers throughout the organization who had some stake in the
performance of the system. The expectations that this would occur were
communicated through newsletters and messages. Consistent and
continuous communication helped to mitigate a situation that could have
caused a major project failure.
3. Getting buy-in from internal functions not directly associated with the
implementation process was difficult. This occurred with the marketing
function. This function needed to be on board for the e-commerce linkage
with customers to work effectively. Training and pressures from upperlevel management helped to ease the transition for the global marketing
group.
4. Engineering is still not fully integrated into the ERP system. The ecommerce linkage incorporating product design with the ERP system was
not feasible for management. For such a technology-driven organization,
the lack of engineering function integration with the ERP system may
need to be investigated.
Key questions to consider:
1. Can a large multinational organization implement a single-instance global
ERP system without the aid of an outside consultant? Could they manage
this process even after implementation? Is outsourcing the IS function for
ERP a good idea?
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2. Which functions are critical within a global ERP system? Why would
engineering not be considered a central function for e-commerce? Why
should it be?
3. What metrics could be considered for system selection, system
implementation, system auditing? Would these be the same metrics? Can
e-commerce-based metrics be used? What type of e-commerce based
metrics may exist?
4. What lessons could be learned from TIs implementation process that
could be used for future module integration? How much
interorganizational system integration is required for TI in the ERP/ecommerce system linkage?
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