Institute of Business Management

Submitted to : Mr. Taha Shamim Submitted by: Furqan Iqbal : Majid Khan : Kiran Nasreen : Siraj Ahmad Company : Martin Dow (Pharma) Assignment : Project Term Report Course : ERP System Design & Implementation

Hurdles Facing by Acquisition of Another Company System

Abstract: Martin Dow is the pharmaceutical Company in Pakistan that purchased the Roche Pharmaceuticals and its system. It has SAP ERP system that integrating marketing & Sale, Production, SCM, HR and Material management modules. Roche had a pretty good system and they reengineered its business processes but later when Martin Dow got it, Roche got away its all data. Martin Dow has problem with operating the system with best utilization of its ERP. Thare are some challenges that are facing by Martin Dow are availability of past Data/Record, Sometimes functions are dictated by ERP, Incomplete information, Inappropriate integration, Not full utilization of ERP, Problems due to Lack of flexibility in the system, Authorization to access. Executive Summary Martin Dow is the pharmaceutical company of manufacturing services that is formed through the acquisition of Roche Pharmaceuticals that was Swiss base. The Roche had established its ERP start from 1996 that first start from implementing ERP in financial services. Later on the system had been expended due to the need and efficiency. So it had an integrated SAP ERP system. Roche had started its ERP and it had a sophisticated system and train human resources. When later purchased by Martin Dow, Roche had got away its past data that create a lot of problem for martin Dow. It has some challenges that are still exist in Martin Dow are its some functions is dictated by ERP, lack of information, lack of integration, lack of utilization of it ERP, lack of flexibility and authorization access. These challenges made the system of Martin Dow to face the complex challenges. The implementation of ERP has key benefits like operational efficiency, better control of its resources, information visibility, quick decisions, lowering the inventory cost and better customer satisfaction. There are two types of cost associated with the implementation of the ERP that are hard cost and soft costs. The head cost are implementation, licensing fees, maintenance, customization, hardware. On the other hand the soft costs are using employee time to evaluate their job functions to look for areas of improvement, using employee time to evaluate potential software solutions, using employee time to train on the new solution, loss of efficiency and productivity during the implementation period. Through broad catagary these cost are in percentages are as Consulting 30 % , Hardware/Infrastructure 25 %, Implementation Team,

Training & Software are 15% respectively. So the major cost that bare the company for its implementation of Erp is Consulting H/I. Now to solve the problem facing by the Martin Dow could be solve through reengineering its business process, integratging and expension of HR and Finance modules. it also has to reconsider the access process that can access more people when needed. It has also to parrelleliz its process of MRP that every one can access in the organization that will lead to better understandings and decision making.

Introduction of Martin Dow Martin Dow is the bench mark for excellence in pharmaceutical industry, expanding with more than 1000 employees countrywide. Martin Dow has excelled in world class branded generics for half a decade and now growing in emerging markets. We market world-class branded generics which are developed, formulated and manufactured at our GMP compliant manufacturing facility. Martin Dow has recently acquired Roche manufacturing facility in Pakistan. This exchange of strategic ideas, modules and technology has established a globally certified infrastructure keeping the legacy of Roche alive. This collaboration has also resulted in the licensing of Roche's leading brands which are now manufactured and marketed under Martin Dow's tag. We have acolyte Roche's true fingerprints hence achieving the status of brilliance in a very short span of time. Martin Dow not only took over the manufacturing facility but also captured the legacy of operational excellence and maintaining high quality standards.

Miartin Dow Mission At Martin Dow, our highest proof of virtue is that we possess boundless power of excellence directed towards serving humanity. Our corporate values are at par with international standards, covering all socio-ethical, legal and environmental boundaries. We believe in treating every employee with dignity & respect and in creating a culture of continuous learning & development. We firmly believe in establishing a long term & transparent relationship with our business associates by entering into value added ventures which are mutually beneficial. And, we never forget to share the benefits of our success with the communities and be socially responsible. Martin Dows Vision At Martin Dow, the true worth of our business is measured by the objectives we want to pursue. Henceforth, our Vision is:

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To be amongst top-5 pharmaceutical companies in Pakistan by the year 2015 To have a strong presence into Emerging Pharmaceutical Markets of the World To acquire advanced technologies thereby ensuring our presence in highly specialized segments

One of the best management information systems available today is the system of Enterprise resource planning (ERP) that incorporates and automates business processes related to production, distribution and operation. ERP is perfect for increasing productivity, managing resources and maximizing efficiencies in an enterprise. However, selecting the right ERP software vendor is essential when considering the appropriate ERP software system. There are several reputed vendors of ERP systems like SAP AG, Oracle Applications, Microsoft Dynamics, SSA Global Technologies, QAD and Exact Software. The major concern while choosing ERP software vendor is that the enterprise system may have substantial resource tools and untapped applications, when the ERP software solution was initially installed, later on it may turn out to be inappropriate for the operational process. This can incur huge losses to the business or organization.

Challenges Facing by Martin Dow At martin Dow, the challenge is to integrate the system in such a way that all the departments utilize the ERP system to its optimum level. As it was mentioned above, it has only been two years since the company has acquired Roches manufacturing facility and brand licenses. And with this acquisition process, the ERP system of ex-Roche was also acquired. Before stating the challenges that are being faced by martin Dow, it is also to be understood that some of the incumbents were recruited both at operational/functional and managerial level. Following were some of the major challenges that were faced at Martin Dow. In availability of past Data/Record After the acquisition took place, one of the major issues that were faced by the company was the in availability of previous data that was taken away from the system due to the fact that it was solely the property of ex-Roche. Due to unavailability of past record, access to key information could not be accessed and on the other hand data regarding material requirement and material usage was also not available. So, even today the company faces problems when it pertains to utilizing past data and records.

Sometimes functions are dictated by ERP

As it well very well known that ERP systems are either not very customizable, or may be that customization involves a lot of time and money as well. Moreover, few systems are ready to use out-of-the-box. Whereas, some systems may also require other software programs to be integrated, so it might make the processes more complicated or even impossible in some cases. This problem is faced by martin Dow as well. As processes that may be dictated by ERP system are material requirement schedule. As sometimes materials are ordered on the basis of prices and other factors like demand and supply.

Incomplete information At martin Dow, it was observed that the company does not show information about work in process inventory, due to which there are times when certain materials are shown unavailable where as there are available in work in process. So, this may cause to disinformation about the availability of materials. Moreover, the IT department of the company is working towards solving this issue and it can be said that this problem will be resolved soon Inappropriate integration At martin Dow, ERP system is not utilized to its potential as the company is still in its transformation phase. Certain processes are still done manually. Eg authorized signature material acquisition etc, it also leads to increased paper work cost increment as well. It also leads to delay in processes

Not full utilization of ERP

Martin Dow has not adopted the ERP system fully in all the departments as the company is still in its transformation phase and certain BPR is required to change or better the process especially in finance module and HR module which is costly and according to IT department HR module would not be beneficial for the company as it will not ROI . Problems due to Lack of flexibility in the system The system also lacks some flexibility. Eg when there is a mismatch between material ordered and material received the balance is not accepted. The PO has to be reversed in these scenarios. However as learned in class, it can be recommended that credit receipt is generated by

the system and provided to the vendor and flexibility can be brought into the system by bringing the acceptance level criteria which is currently not present.

Authorization to access Due to the factors like workload, haphazard processes and cost of each authorization pass, the company has adopted the policy of using authorization for two incumbents in some instances. However this exercise is not the one to be proud of but, still the company has a reason as it says that it is still going through the transformation phase. And once the company is settled it will streamline all the faulty elements in its processes through BPR.

Strategy of Martin Dow (Roche Pharmaceuticals for Vendor Selection Strategy) As the system of Mortin Dow had with Roche that was the swiss and Korean joint company. In 1996, it has IT and finance and having the same VP that were heading them. There were problem in the transaction process and also the decision time was longer. So the VP had got that the process is to be changed and so they contacted the SAP as vendor selection to create efficiency in their process. The other reason was to integrate the financial resources of the company that had branches were in various countries.. The final goal-which the SAP system would enable-would be for the finance professionals to change from transaction processors and scorekeepers into business partners. So the Roche VP wanted to integrate the global finance operations through the Global SAP enterprise resource planning. By April 1999, the implementation was complete. In the meantime, Waehren and the leaders of his financial team had already started working on Finance Transformation--a project that would complete the makeover of the finance processes. During the initial reengineering phase, through the use of activity-based management, the finance group had determined that 70% of its associates' time was spent in transaction processing, while only 30% was devoted to decision support. Once the new system was complete, transaction processing would be only a small part of their work. The next step would be to identify what competencies and skills the group would need to develop to become business partners and then make sure the people who filled that role would receive the right training. So from the above discussion we can conclude that the re-engineering the process was start with the implementation of the process. There was a wide gap that to fill up with reengineering the process of financial transaction. Later on, Roche has done reengineer it operation process and made it integrated with other process by incorporating module. MES was implemented to get efficiency in the manufacturing operation. But there was a gap between ERP and MES and so they were not collaborated well. So it needed to sycronize the ERP and MES. There Roche faced problem like lack in visibility, responsiveness and performance. So it was creating production challenges that were

Visibility  Learning about machine, material, and quality issues too late to take action  Customer orders lost on the factory floor  Little visibility into actual production costs or KPIs Responsiveness  Ability to respond rapidly and cost-effectively to manufacturing exceptions  Ability to balance supply with demand priorities  Ability to exploit new profitable revenue opportunities Performance  Constant rework, overtime, expedite orders, and shortages  Budget violations, inefficient processes and lost revenues  Lower customer satisfaction and employee productivity and morale Now Roche has the goal of Production excellence so it went to integrate all the process of the business. As Martin Dow is acuision from the Roche so the system left to the Martin Dow.

Implementation of ERP system at Martin Dow At Martin Dow, ERP system known as SAP (System, Application and products in data processing) is used to enhance operational efficiency and productivity. A standard SAP project system is divided into three categories, Development, Quality Assurance and Production.

Although, SAP can be used in an organization for most of the operational purposes but, at Martin Dow it is used mainly in production planning and procurement in Supply chain department while in HR, it is used for purchase requisitions and made by other departments for administrative expenses and issuance of GRN (goods received note) of the non-production or consumer goods.

ERP System and modules are given that is implemented at Martin Dow

Supply Chain y Purchasing y Inventory Management y Warehousing Sales and Marketing Human Resources y Payroll y GRN y y y Sales order Pricing systems Forecasting

ERP Manufacturing y y Material requirement planning Scheduling System Accounting And finance y Accounts Payable/receivable y Asset management

Fig: Application of SAP in different departments at Martin Dow

Implementation of SAP in Supply chain Department at Martin Dow At Martin Dow SAP is used as the resource planner software. It is used in material management, material planning as well as in production planning.

Martin Dow has been able to implement SAP in production planning very effectively, through the support of IT department improvements are made where necessary in order to utilize the software to the optimum level.

Recently it was observed that system was not providing information of the material in process (work in process) due to managerial problems regarding inventory management was reported, keeping the deficiency in consideration, IT department took a decision to bring changes in the system so that WIP (work in process material) status and report could also be generated.

The above picture of SAP application is depicting bill of material (BOM) report of packing material required for a Product. We can observe the quantity required for packaging of Rocephin Vial 500mg. These materials are required for base quantity of 675,000.

So, SAP helps the material manager to find out how much material would be required for any number of units that are to be produced. It is then the responsibility of the material manager to issue purchase requisition so that timely delivery is made available within a required time if material required is not sufficient in the warehouse and procurement process is to be established.

Stock overview list shows the unrestricted quantity available for production, it also shows the number of units lying in the quality inspection and or reserved for other purposes for example blocked due to rejection. So, through the stock overview list, material manager is able to direct the warehouse department to send the required material to the buffer zone through the pick list generated through SAP.

Key benefit Area of ERP at Martin Dow Better process understanding Through the implementation of ERP at Martin Dow (Roche) it create better understanding of the process. Every thing is visual and every employee know the process spectrum and it deliverables. Informational Visibility The main benefit of the ERP that to share the data from the common data base to get fast decision. At Martin Dow, several modules are implemented so that the related data is accessable to get information that is using for the better and fast decision. Operation Efficiency As in Martin Dow, the SCM, Production and HR modules are working that better integrate the resources of the company which leads to have greater operational efficiency. So all the resources are visible and they are scheduled according to the company objectives. Inventory Cost Reduction As martin Dow is integrated with its supplier and the production and marketing through ERP system, the production are kept on the basis to have the lower inventory level with out the sacrifice of the customer satisfaction. Financial Services Due to the ERP system having accounting module, the company has over all financial data that are share and it is beneficial for the the current planning as well as planning for future. It contain the data related to the financial statements that show the company financial health and give direction for decision regarding short term and long term financial loans and the related services. Every company first get start with the financial module and when the data available at hand, the it is the life blood of the decision. As due to the close contacts with all the departments and with its supplier the following main benefits are enjoying by Martin Dow Visibility  Learning about machine, material, and quality issues too late to take action  Customer orders lost on the factory floor  Little visibility into actual production costs or KPIs Responsiveness

 Ability to respond rapidly and cost-effectively to manufacturing exceptions  Ability to balance supply with demand priorities  Ability to exploit new profitable revenue opportunities Performance  Constant rework, overtime, expedite orders, and shortages  Budget violations, inefficient processes and lost revenues  Lower customer satisfaction and employee productivity and morale Now Roche has the goal of Production excellence so it went to integrate all the process of the business. As Martin Dow is acuision from the Roche so the system left to the Martin Dow. Key Cost Areas In implementing ERP there are two costs that are mainly two costs are very necessary to identify acoording to a research that are given following Hard Costs Vendors will typically lay out the hard costs associated with acquiring a new ERP application in their proposals. These costs will typically include:      Implementation Licensing Fees Maintenance Customization Hardware

The two components to the hard costs that are the most difficult to understand are the Implementation and Customization costs. These are service intensive costs and are always the most expensive for the software vendor to provide. If one ask the vendor to provide a fixed price for these components, be prepared to be less than dazzled with the overall success of the implementation. Soft Costs These are almost always under estimated by companies wishing to implement new ERP Solutions. These are internal costs associated with:     Using employee time to evaluate their job functions to look for areas of improvement Using employee time to evaluate potential software solutions Using Employee time to train on the new solution Loss of efficiency and productivity during the implementation period

Far and away the most expensive will be the loss of efficiency from the first day the new system is implemented to at least 6 months into the project. There is going to be a sharp drop off in employees ability to do their jobs as they get used to doing things in a new way. By nature,

people are reluctant to change their behavior and there will always be naysayers who wish they could just do things the way they have always been done. Be prepared to handle this from a management perspective, and in selecting an ERP software vendor, consider which team will help keep the employees at ease during the transition period. If the personality fit is not good during the evaluation period, it will only get worse during the implementation. The total cost of implementation according to the percentage as is given under      Consulting Hardware/Infrastructure Implementation Team Training Software 30 % 25 % 15 % 15 % 15 %

So the majority of cost factors related to implementation of ERP include consulting and hardware and infrastructure that support the implementation. So we can conclude that these two factors have the weight more than half.

9- Now (What are some of the frustration that still exists today?) Implications of the challenges faced: The Implications that the organization is facing while countering the challenges include mismanagement of inventory, delay in work processing, inefficiency in order processing and other hindrances in other business processes. Frustrations that still exist today relating to utilizing ERP are due to unclear vision and objective of the organization. y It is obvious that ERP system in Martin Dow is acquired through ex-Roche, which may not match or meet the objective of Martin Dow. Therefore, pertaining to the same system is not a good a exercise. Current ERP system does not have a well integrated HR module, this is because in exRoche, head office was not located at the manufacturing facility, and separate HR system was developed and used. But in Martin Dow the administration is now located with the manufacturing facility. So to utilize the ERP system to its Optimum level the company should work toward executing HR module as well. Due to the workload and market competition, the company was unable to concentrate on its business processes, but with time, the organization has shifted its concentration business process as well, following is the sketch that was provided by the marketing department to give an example of how the company is working towards business process. (Scanned copy will be attached)

Recommendations: As it is understood that martin Dow is in its rebuilding phase and working aggressively towards retaining its market presence due to which it has faced major issues. So, following are that recommendations that can be followed to utilize ERP to its optimum level and benefit from high ROI on the system.
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The Organization should consider BPR in order to stream line the flow of work which is haphazard at this point in time. On the other hand the organization should expand the use of ERP by registering for more users so that work flow is not hampered and usage is according to head count. Moreover, the organization should implement HR and finance module on larger scale in order to reap benefits out of it. The organization also has a MRP working parallel so the company should switch to the ERP system as soon as possible in order to have a smooth transition from MRP to ERP.(mrp copy)

Refrences:

www. Martindow.com
Kathy Williams "Matthias Waehren TRANSFORMING FINANCE AT ROCHE-NUTLEY PHARMACEUTICALS". Strategic Finance. FindArticles.com. 08 Dec, 2011.

The Real Cost of Implementing ERP Software The Dirty Little Secret, A visco white paper
Total Cost of ERP Systems Implementation in Danish,Slovak and Slovenian Companies, Center for Applied
ICT, Copenhagen Business School