The logistics of leveraging SAP at Linfox

It takes a unique kind of courage to embark on an eight-year IT project that totally transforms a company's business processes. And if that isn't challenge enough the project became a target for a small group of "recalcitrant" employees whose discontent could have undermined the implementation.

Embarking on the fourth year of this ambitious journey, the executive general manager of IT at Linfox, Dean Matthews, is well on the way to implementing a world-class freight management system which is a global first making him somewhat of a pioneer.

When the project began four years ago at Australia's largest, privately-owned logistics provider, Matthews said he underestimated the massive impact the technology would have on business processes and the extent to which it would literally enforce efficiencies across the company.

Neither had he expected so much active resistance to change. He said the project involved processes that resulted in a cultural shift and "breaking through this was hard, at times it was touch and go".

"Remember, [some of] these are blue-collar workers [who are] only happy when working with a pen and paper," Matthews said, adding that Linfox has 9000 employees.

The project started with a large SAP R/3 implementation across Linfox operations. This was the central plank for its future business strategy and was followed by the selection of a front-end system to extend the company's supply chain.

While the upgrade managed backend functions such as payroll and billing, Matthews said outward-facing functions were still provided by more than 50 individual applications that were poorly integrated and unmanageable.

As a result, Linfox took steps to address the problem and considered non-SAP solutions but the vendor won out on funtionality. "We actually made SAP work harder in the tender process because it already had a presence in the organization," he said.

"Typically, our first SAP implementation was ugly; we had all the usual problems but we persisted and it has paid off."

Matthews said the really hard yards were put in at the start of the project as there is "massive work involved in design and configuration because there is no template for this".

He knew Linfox would be one of the first to adapt the SAP solution to the warehousing and transportation industry in Australia and the focus was on introducing tight processes that could be policed.

"Our network expands to 7000 locations across Australia and we conduct 20,000 transactions a month," he said adding that the project had to be re-scoped when Linfox acquired its competitor Mayne two years ago for $700 million adding more IT systems to the mix.

Matthews said it began by placing an IT team in a room for three months to undertake re-engineering and work through the capabilities and requirements of the project. This included assessing air, sea and rail to define how operations could work. There were 13 systems involved and the analysis included interviews with 40 customers.

The focus was on freight visibility, the need to track and trace shipments online at item level, as well as on barcoding, product scanning, generation of alerts at actual arrival times, logbook checking, seamless exchange of information with customers, and corporate compliance. All of this has been achieved and Matthews is grateful an entire year was just spent on specifications.

"This has paid off ten fold; then we began pilots to make sure it was robust engaging one customer at a time; there are 1300 customers in the system today," he said.

So what were the drivers behind this project? Matthews said that in 2001 there were significant changes in the highly competitive market.

"It was a saturated market and intensely competitive. We operate with margins of only four to five percent and we received customer feedback that we weren't winning tenders because our IT wasn't up to scratch; tenders went from seeking one page of information on IT capabilities to 200 pages which prompted a strategic review," he said.

"We realised we had to adopt a tier-one IT procurement policy to overcome our predominantly paper-based procedures and knew we had to be ruthless with the technology to force disciplines in business for consistency."

The features the system has today include the ability to capture customer information, analysis and advanced data modelling.

"We are just starting to come to grips with all this information, we don't know what to do with it; it is a bit frightening," he said.

In the past two years the project has hit every milestone and Linfox is on track to keep going forward.

The lessons learned

Asked about the lessons learned, Linfox IT executive general manager Dean Matthews doesn't hesitate.

"Get executive sponsorship. I have spoken to the business executives every second day for the last three years; that is the level of involvement that is required in big projects," he said.

"Make sure you have a bullet-proof pilot; source world-class skills and define processes making them not negotiable.

"Finally for end users - training, training and training.

"This industry is littered with people that over-promise, so we wanted to make sure the capability was in place before we started discussing it with the outside world."

Asked about the company's spend to date, Matthews said there isn't much change left from $15 million.

The project at a glance

The project began by redefining its business processes during a major SAP R/3 implementation that started in 1999.

The Freight Management System (FMS) uses SAP Supply Chain Management modules and SAP's business information warehouse to mirror business processes.

FMS went live in 2003. Some 15 legacy applications were eliminated in the first quarter of 2004 reducing the company's administration burden.

The company is now introducing advanced supply chain modules for fourth-party logistics and other cutting edge capabilities.

Linfox is also working with SAP in Australia and Germany to develop new service offerings to meet the specific needs of vertical industries.

Plans to extend the system internationally will begin next year and may take another four years to complete. During this time Linfox expects to be RFID ready.

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