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June 03, 2011
Discovery Toys is a medium-size company that has recorded positive total cost of ownership savings from implementing an ERP system. Discovery Toys designs, distributes, and sells toys with educational value. The company outsources all manufacturing activities. Richard Newton, vice president of Operations, estimated that in the first year of operation of their ERP system, Discovery Toys saved approximately 10 million dollars.
The reasons for Discovery Toys’ successes appear to be in the selection and implementation process. Richard Newton used six criteria for ERP supplier selection: risk, implementation, functionality, partnership, cost, and technology. Risk was assessed by how much the selected ERP system would interrupt business during implementation. (Many companies have had major problems with implementing ERP systems and he wanted Discovery Toys to avoid the problems). Implementation referred to the speed and ease with which the software could be integrated into the company’s working information technology. Functionality covered the issue of how closely the software actually met Discovery Toy’s business needs. (Mr Newton had noticed that many vendors provided ‘bell and whistles’ that were unnecessary, but did add cost and complexity.) The forth criteria, partnership, addressed the relationship the supplier provides, primarily in terms of support during and after the implementation. Cost addressed the total cost of ownership, which included estimating the hidden costs such as training, upgrades, and maintenance. The last criteria, technology, referred to an investigation into the software’s compatibility with existing legacy hardware and software systems.
Discovery Toys implemented a J. D. Edwards ERP system. J. D. Edwards designed its software for small to medium-size companies like Discovery Toys, so the cost was low compared to that of other suppliers. The software did not have as many ‘bells and whistles’, but it did meet the functionality requirements of Discovery Toys. In addition, Richard evaluated the system as quick to implement. In fact, implementation took Discovery Toys only about six months. One of the most important criteria to Richard was partnering. J. D. Edwards demonstrated to Richard through its actions during the proposal phase that it would provide Discovery Toys with strong support after the sale.
The results? After stabilisation of the ERP system, the purchasing staff at Discovery Toys was reduced from nine to two full-time employees. The seven employees released or cross-trained into other areas had been performing clerical work prior to implementation of the ERP system. Similarly, the accounting staff was reduced even more dramatically from 21 to five full-time employees. The ERP system automated most transactions, thereby eliminating almost all of the paperwork and enabling instantaneous tracing of orders and transactions. The two retained purchasing professionals essentially became supply managers and are now able to focus on strategic decision-making. As a result, Richard pointed out that the qualifications for future employment of supply professionals at Discovery Toys had increased significantly, to the point where a college degree in supply management is now essential. Additional improvements were: customer service staff reduced, overall inventories reduced, and average lead time for processing orders dropped from five days to one day (Richard Newton, personal interview, November 1999).
Reference: Burt, D. N., Dobler, D. W., & Starling, S. L. (2003). World class supply management: The key to supply chain management. Boston: McGraw-Hill/Irwin.