All systems go!

IT solutions can be pricey, especially for SMBs. That is why Alliance Contract Manufacturing demanded that its SAP deal should pay for itself within three years.
Written by Jennifer Tai, Contributor
For G.H. Tan, founder and executive director of Alliance Contract Manufacturing (ACM), IT enablement is key to the future of his business.

A small and medium-size contract designer and manufacturer of precision electro-mechanical components, five-year-old ACM realized from the offset the importance of creating a strong presence in the market to achieve strategic advantages. And to do this, having the right IT tools in place was crucial.

G.H. Tan
G.H. Tan, founder and executive director,
Alliance Contract Manufacturing

In 2002, ACM made the decision to upgrade its existing IT infrastructure with a system that would fulfill the company's IT needs for the next five years. The predecessor legacy system could not cope with the increasing business activities and complexities, not being fully integrated and lacking many critical features. It also hindered the company's ability to make vital business decisions as it could not provide timely information on financial and logistics status.

In its search for IT excellence, ACM was looking to achieve a few objectives. First and foremost, the system had to be able to pay for itself within three years, through revenue and profit growth, as well as reduction of operational costs. ACM also wanted its customers to perceive the company as having a fully integrated value chain that was B2B ready.

"To date, our inventory holding has reduced by 25%. We are definitely right on track to meet those targets by 2005."

Other system performance markers included the improvement of annual productivity, inventory information accuracy, and the reduction of inventory holding.

Shortly after it began its search, ACM landed on SAP's suite of solutions, encompassing Financial Accounting and Controlling with product costing, Materials Management, Sales & Distribution, Production Planning, Quality Management (QM), and E-portal.

"We decided on SAP's product because of its breadth of functionality and integrated nature," says Tan. "SAP has a full range of functionality that meets our current and future needs, and it provides us maximum interoperability with our holding company and its subsidiaries and other SAP users."

Tan also commended SAP on the solution's high scalability and system performance, which allows for high-volume Internet transaction rates. Its vertical scalability encompasses a multi-tier Internet architecture.

On Jun. 30, 2002, ACM signed the agreement with SAP Malaysia and implementation began through SAP's partner JSPC. It went through five implementation phases.

Two years later, ACM is now already working towards RosettaNet-ready standards, supporting the XML-based document standards, and getting ready for their customers and supply chain partners' linkages on a global basis. Work has also started on the implementation of mySAP Enterprise Portal and the Shopfloor Database System. The beta for the latter, according to Tan, has just been completed.

"The Shopfloor Database System allows us to provide manufacturing data to our customers via the Internet, hence enabling ready access anytime they want," said Tan. "This adds value to our customer relationship and enhances our competitive edge."

ACM is constantly enhancing the system based on actual customer requirements.

Profit margins have also improved through leaner operations, shorter lead time, reduced waste, accurate inventory control, and productivity improvement.
"To date, we have completed the base installation of mySAP Enterprise Portal and we are currently looking at developing suitable portal contents and customizing SAP business packages for both internal and external users," said Tan.

ACM has since reaped significant rewards with the implementation of SAP's suite of solutions, where most key performance indicators set ahead of the implementation seem to be reaching their targets. The company has in the last two years achieved stronger market presence, better supplier management, improved customer satisfaction, improved efficiency, better product costing, and increased customer value.

Profit margins have also improved through leaner operations, shorter lead time, reduced waste, accurate inventory control, and productivity improvement, while the value chain has been optimized to support collaborative planning and forecasting.

"We are meeting our revenue and profit growth target in the 2004 financial year," said Tan. "To date, our inventory holding has reduced by 25%. We are definitely right on track to meet those targets by 2005."

The SAP solution has also helped the 20 employees using the system, a headcount which has not increased since implementation. These users can now focus on each of their respective functional areas for higher value-added jobs, with internal procedures having been re-engineered and mapped onto the SAP solution.

"This has created better teamwork, more discipline in data entry and data quality, better communication, and inventory accuracy," said Tan. "The SAP solution has enabled ACM to work in real-time, make faster decisions and respond more quickly to business opportunities. All data is real-time and fully integrated now; information is more transparent to users at all times."

Not content to rest on its current enhancements, ACM is already looking ahead.

"We are planning to upgrade our SAP R/3 4.6c to mySAP ERP powered by SAP NetWeaver," said Tan. "We are also look at a bar-coding system using wireless scanners for ease of data collection in all our shop floors, warehouse systems and fixed assets. In future, all of ACM's Web applications will be hosted centrally through the portal."

Tan has budgeted half a million ringgit (US$132,000) for the next financial year. He is also looking at implementing the SAP HR module in two years' time.

Jennifer Tai is a freelance writer based in Malaysia.

Editorial standards