No Flash In The Pan

By LAUREN GIBBONS PAUL
Network World, 02/07/00

The handwriting was on the wall for Flash Electronics' old materials resource planning (MRP) package. Although the product was created for companies in Flash's industry - contract electronics manufacturing - it was not designed for global companies. There was no ability to share data among several different locations, for example. And Flash was planning to expand out from its Fremont, Calif., headquarters.

So when $40 million Flash began to experience triple-digit growth in the late 1990s, it became clear the company would need to upgrade to enterprise resource planning (ERP) software, which represents the next generation of MRP. Ed Hayes, vice president of corporate development for Flash, had his heart set on a robust tier-one package such as the SAP R/3 suite.

Hayes pic "We started looking around for someone to help us implement it. But we have a very lean, low-margin business. We had to get a good return on our investment," says Hayes, who headed the product selection team. "We had a very small MIS team with no expertise with packages like R/3." Hayes quickly realized that buying R/3 outright was not an option. Perhaps because he worked for an electronics parts outsourcer, the concept of outsourcing quickly presented itself as a viable alternative.

"Just like companies outsource their manufacturing of electronics products to us, we were going to have to outsource our IT to someone else," he says. "It was to our advantage at this point in our growth to go with someone who was already trained and equipped, and we expected to benefit from sharing fixed costs with other companies."

A member of the selection team was referred to Applicast, a Mountain View, Calif., application service provider (ASP) that targets small to midsize companies experiencing rapid growth. The Flash team was very impressed with Applicast, a start-up founded by former Bay Networks executives - even though the company had only one other customer at the time.

Hayes wasn't overly bothered by the thought of trusting critical business systems to a relatively inexperienced ASP. "We took a chance on this company," he says. "There was a higher risk involved, but we believed in the people." The potential benefit of upgrading to a modern ERP system for a modest upfront and monthly maintenance cost outweighed the possible downside of outsourcing a critical application to an unproven company.

So Flash signed on with Applicast to provide the five major R/3 financial and manufacturing modules. It took four full-time Applicast employees about seven months to configure the system and get it up and running, without any customization of the modules.

Since Flash was not a new company (it was founded in 1994), it did have legacy data from its Manex Systems MRP package that needed to be migrated.

An even bigger issue was the fact that Flash had entrenched business processes. The company elected to adapt its business processes to R/3, rather than vice versa, but this can be a risky proposition. Companies must guard against throwing their organizations into turmoil by making users change the way they work. And there is always a risk of unwittingly obliterating a process that gives a company a competitive advantage.

"Companies must never trade off customization for the convenience of the ASP model," cautions Josh Greenbaum, principal at Enterprise Applications Consulting, a consultancy in Berkeley, Calif.

But Hayes is sanguine about the customization trade-off that was part of going with an ASP. "We weren't big enough to start tweaking the code. We fit our business processes to them." He reports the business process changes have not been burdensome, and the 20 regular R/3 users have adjusted to the system. They especially appreciate R/3's sophisticated reporting capabilities.

With installation complete, Hayes is thrilled with the results: "It's like when you buy your electricity. You expect flawless performance. That's what we've been getting. And we couldn't have done it ourselves."