BUSI 615 Week 8 Final Integrated Learning Project management report Example

An Integrated ERP Plan for Harlan Ridge Stoveworks: Cost-Benefit Case, Implementation Plan and System Recommendation

Executive Summary

We recommend that Harlan Ridge Stoveworks implement a cloud-based enterprise resource planning (ERP) system, going live in April with a single national instance, and that the owners approve a one-time budget of $1.17 million including contingency. Over five years, the investment has an estimated net present value of $1.78 million at a 10 percent discount rate and pays back in just over two years. It remains positive even if benefits fall 40 percent short of our estimates. The main condition is that the preparation phase reaches 95 percent inventory record accuracy before the system goes live; without accurate records, the benefits in this report will not appear.

Our Excel model, submitted with this report, links six planning modules for the firm's two product families. Its results show that integrated planning would let the plant build ahead of the heating season more evenly, carry about $2.2 million less inventory on average and cut the emergency freight and peak-season overtime that currently absorb much of the firm's margin.

What the Model Shows

Harlan Ridge is a composite stove maker in Lancaster County, Pennsylvania, building wood and pellet models with about 240 employees, annual sales of roughly $68 million and two regional warehouses, in Columbus, Ohio, and Albany, New York, serving about 600 hearth dealers. About 70 percent of shipments leave between September and December. Planning today relies on a legacy order-entry program, spreadsheets in the plant and a separate accounting package.

The master production schedule module levels production across the year, building pellet stoves at a steady rate from March and adding a second shift only in August and September instead of from July. The bill of materials and MRP modules show that 14 long-lead components, chiefly auger motors, control boards and ceramic glass, account for most of the shortages the plant suffered last season; all 14 now receive planned orders timed to supplier lead times. The capacity planning module identifies the powder-coat paint line as the binding constraint in August, when the leveled schedule still loads it to 104 percent of capacity, so we recommend a weekend paint shift that month. The distribution requirements planning module plans weekly mixed-model trailers to both warehouses, replacing fortnightly single-model loads, and the transport requirements planning module converts those shipments into 11 fewer emergency less-than-truckload shipments per month during the peak.

The model's main finding is not that the firm needs more stock or more capacity, but that it needs to use the capacity it already has earlier in the year.

Cost-Benefit Analysis

We estimated costs from vendor demonstrations and quotations obtained by the team and benefits from the Excel model's comparison of current practice with integrated planning. One-time costs total $1.02 million: $650,000 for an implementation partner to configure the system and convert data, $220,000 for internal staff time and temporary backfill during data cleanup, $60,000 for training and $90,000 to connect a dealer ordering portal and our two carriers. We add a 15 percent contingency of $153,000. Recurring costs are $180,000 a year in subscription fees for about 85 named users and $95,000 for an internal ERP analyst.

Benefits at full run rate total $1.24 million a year: $440,000 in lower inventory carrying cost, from a $2.2 million reduction in average inventory at a 20 percent carrying rate; $168,000 from a 40 percent reduction in expedited freight; $260,000 in avoided peak-season overtime; $290,000 in contribution from recovered sales, which is half the margin on the roughly 900 stoves dealers could not obtain last season, discounted because some would have been lost anyway; and $85,000 from retiring the legacy systems. We assume only 50 percent of these benefits in the first year, while the system is new, and 85 percent in the second.

Discounting each year's net figure at 10 percent yields a net present value near $1.78 million, and the cumulative cash turns positive after about 2.0 years. The $2.2 million reduction in inventory also releases cash once, which we have not counted as a benefit beyond its carrying cost, so the estimate is conservative in that respect.

We tested three downside cases. If every benefit stream is 40 percent smaller than estimated, the net present value falls to about $180,000 and payback lengthens to about 3.5 years. If one-time costs overrun by 50 percent, the value is about $1.19 million. If go-live slips a full year so that benefits start one year late, the value is about $710,000. The project therefore survives each risk on its own, although a combination of weak benefits and a large overrun would leave it close to break-even. This pattern is consistent with research on enterprise systems: in a study of 186 announced ERP implementations, Hendricks et al. (2007) found some evidence of improved profitability, especially among early adopters, without persistent evidence that the investments harmed performance. Returns are possible but not automatic, which is why our plan ties spending to exit tests.

Recommendation on Implementation

We recommend proceeding. The benefits rest mainly on operational changes the model has shown to be feasible, leveling production, timing long-lead purchases and shipping smaller mixed loads, rather than on intangible gains such as "better visibility." The largest single benefit, lower carrying cost, follows directly from planning that the firm cannot do reliably with spreadsheets. We do not recommend the alternative of extending the current spreadsheets, because they cannot net requirements across 14 long-lead components and two warehouses fast enough to replan when a supplier ships late, which is when they are most needed.

Implementation Project Plan and Responsibilities

The implementation follows four phases, each closing with an exit test, and is timed so the firm never changes systems during the heating season. Markus et al. (2000) found that success in ERP projects depends on when it is measured and that many problems seen late in a project began early without being noticed. Our plan therefore measures each phase on its own terms, with particular attention to the summer shakedown before the first peak season on the new system.

The owner acts as executive sponsor and decides on scope changes and any delay to the go-live date. The operations manager runs the project day to day and reports progress to the owner every two weeks against the exit tests. The materials manager owns data quality, which Umble et al. (2003) identified as a critical success factor along with top management commitment, a capable team and extensive education. Department heads release their staff for training, and the new ERP analyst, hired at the start of preparation, becomes the long-term owner of the system once the partner leaves.

ERP System Recommendation

We compared three mid-market systems that are sold to manufacturers of Harlan Ridge's size: Epicor Kinetic, Microsoft Dynamics 365 Business Central and SAP Business One. The team scored each from vendor demonstrations against criteria drawn from the model's findings.

On these scores, Epicor Kinetic and Business Central are nearly tied, and the deciding factor is the first criterion, which carries the largest weight because the model showed that the firm's main problem is planning long-lead materials against a seasonal schedule. We therefore recommend Epicor Kinetic, subject to a scripted demonstration in which the vendor runs our own pellet stove bill of materials and leveled schedule. If it fails that test, Business Central becomes the recommendation.

Operation and Scope

We recommend cloud operation. Harlan Ridge has two IT staff and no data center, and running servers locally would require hardware, backups and security expertise the firm does not have. Gupta et al. (2018) note that cloud ERP lets smaller firms avoid large budgets for infrastructure and specialist personnel, and their survey of 208 small and medium firms linked successful cloud ERP to factors on the provider's side, namely compliance, network performance and information security. Our plan addresses those factors by requiring the vendor's independent security audit reports before signing and by adding a second internet connection at the plant so that a single line outage cannot stop shipping.

The scope should be national with a single instance. All of Harlan Ridge's operations and customers are in the United States, so one company, one currency for sales and one set of books suffice. The firm does buy auger motors and some glass from overseas suppliers, so the system must handle purchase orders in foreign currencies and long ocean lead times, which all three candidates support. A global configuration with multiple legal entities would add cost and complexity with no current benefit, though a single cloud instance can be extended later if the firm opens a Canadian warehouse, which the owners have discussed.

Risks and Conditions

Three risks deserve the owners' attention. The first is data: if record accuracy has not reached 95 percent by February, the go-live should move to the following April rather than proceed, since the one-year delay case still shows positive value while a failed peak season would not. The second is customization: every request to change the software to preserve an old practice should go to the owner for approval, because changes raise cost and complicate upgrades. The third is people: planners who distrust the system will override it, so the shakedown measures include the share of orders changed manually as an early warning.

Conclusion

The Excel model shows that Harlan Ridge's chronic peak-season problems come from planning too late with too little information, not from a lack of capacity. An integrated cloud ERP, implemented in the off-season with tested phases and clear owners, addresses that cause at an acceptable cost and with a margin of safety in the financial case. We recommend that the owners approve the budget, appoint the operations manager as project manager and begin vendor demonstrations in October.

References

Gupta, S., Misra, S. C., Kock, N., & Roubaud, D. (2018). Organizational, technological and extrinsic factors in the implementation of cloud ERP in SMEs. Journal of Organizational Change Management, 31(1), 83-102. https://doi.org/10.1108/JOCM-06-2017-0230

Hendricks, K. B., Singhal, V. R., & Stratman, J. K. (2007). The impact of enterprise systems on corporate performance: A study of ERP, SCM, and CRM system implementations. Journal of Operations Management, 25(1), 65-82. https://doi.org/10.1016/j.jom.2006.02.002

Markus, M. L., Axline, S., Petrie, D., & Tanis, C. (2000). Learning from adopters' experiences with ERP: Problems encountered and success achieved. Journal of Information Technology, 15(4), 245-265. https://doi.org/10.1080/02683960010008944

Umble, E. J., Haft, R. R., & Umble, M. M. (2003). Enterprise resource planning: Implementation procedures and critical success factors. European Journal of Operational Research, 146(2), 241-257. https://doi.org/10.1016/S0377-2217(02)00547-7