Complex SAP project expected to succeed

Airgas expects many millions in annual benefits, in contrast to recent SAP failures in Marin County and elsewhere

SAP customer Airgas said Tuesday that its "highly customized" implementation of the vendor's ERP (enterprise resource planning) software is looking like a major success.

Airgas' announcement was no doubt welcome news for SAP, following recent reports about troubled ERP projects in Jefferson County, Alabama, and Marin County, California. In the latter case, Marin County officials plan to remove SAP's software and replace it with an alternative, believing that avenue will be far less expensive than fixing the problems.

But Airgas, which sells medical, industrial and specialized gases and related equipment, has had a different experience.

Its SAP implementation, which began in 2008, is expected to generate between US$75 million and $125 million in additional operating income each year, thanks to improved sales, better price management and leaner operating costs, according to a statement.

Airgas anticipates finding even more areas of benefit as the project continues, it adds.

Some 300 subject-matter experts from the 14,000-person company were tapped to figure out which new functionality was required, working alongside a roughly 120-member, full-time project team composed of Deloitte consultants and Airgas executives.

The project hit a milestone in July, when Airgas switched its hard-goods supply chain operation over to SAP. The supply chain "touches nearly every area" of Airgas, and judging by the success of the transition, Airgas is confident the full project will provide a "substantial" economic upside, according to a statement.

The company plans to speed up the implementation, finishing most of the work by mid-2012 and completing it by the end of that year. The accelerated schedule will cost another $20 million over the original $85 million budget, but the overrun will "be more than offset by the economic benefits that will begin to accrue during the conversion process," Airgas said.

Airgas' announcement appears to be a calculated response to rival Air Products' ongoing bid to take over the company. "In response to Air Products' offer to acquire Airgas, we have consistently stated that it is all about value, and we believe the substantial economic benefits of our robust, customized SAP system should be reflected in any valuation of the company," Airgas CEO Peter McCausland said in a statement.

Overall, Airgas' statements should be viewed in a certain context, as they reflect the benefits generally realized by standardizing on an ERP system, said Altimeter Group analyst Ray Wang. It's also an open question as to whether using another brand of software would have been less expensive overall.

But what Airgas' experience shows is the results of solid ERP project planning, namely strong internal support from company employees and executives, a solid understanding of business processes and good change management, Wang said.

Airgas' size was another help, Wang added. "You have to be big enough for this to work. Three hundred SMEs is a commitment."

Meanwhile, SAP recently rolled out a number of Value Engineering tools and services, some of which are available at no cost, for benchmarking system performance and developing business cases for new projects.

"We believe that customers' continued success depends on obtaining measurable return from IT investments," SAP spokesman Andy Kendzie said in an e-mail. "Through our Value Engineering program, we are sharing the necessary information to help customers achieve these results."

The services are the subject of a new report by Gartner analyst Bill Swanton.

"None of the companies Gartner spoke with was under any delusion that SAP was doing this solely to benefit its customers," Swanton wrote. "They realize that SAP has them in a sales cycle, and needs to get companies doing more so they will spend more. That said, they found the services valuable and gained valuable insights into where there were opportunities to improve business performance."

Gartner anticipates that greater than 30 percent of SAP Business Suite customers will have used the services and tools by 2013.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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