Variosystems – Ensuring Adaptability for the Future

07. September 2009

As one of the largest electronics service providers worldwide, Variosystems decided to introduce a new centralized ERP system in 2006 to support all of the processes within the entire group. A clearly defined and well-executed implementation project enabled the company to benefit from the new processes in just a short space of time. This case study describes how the project was used to form the basis for aligning processes with business and market developments in the future. An important factor here is harmonizing the processes in a shared system.

1. The Company

Variosystems AG is one of the world’s largest privately owned electronics service providers whose primary aim is to support customers, from designing through to assembling circuit boards.

Background, Industry, Product, and Target Group
With its headquarters in the Swiss town of Steinach near St. Gallen, the company offers complete solutions in the field of electronics, from development and production through to building and testing equipment. With well-equipped production sites around the world, it offers customers a complete service that begins with joint product development and ends with assembling circuit boards or manufacturing entire assemblies. Rather than mass producing goods, it manufactures specific products in small batches. The aim is to cover the entire cycle of a customer solution by means of coordinated services. The customers – mostly international companies operating in different industries – value such a comprehensive service, which they can integrate into their value chain.

The company grew rapidly from a workforce of just 3 employees when it was founded in 1993, to around 600 employees, who generated sales of over CHF 90 million in 2008. The sales volume doubled in the last three years. Less than 10% of sales is from the largest customer.

Variosystems operates at sites in Switzerland, the United States, Sri Lanka, and China. 60% of sales are generated by around 180 employees in Switzerland, with most of the remaining sales generated in the United States. The production sites in Sri Lanka function as an extended workbench for the other productive offices. Most of the purchasing activities within the group are carried out in China.

Corporate Vision
The Variosystems Group helps its customers worldwide manufacture and supply their products by providing electronics components with additional system and logistics solutions. Variosystems aims to actively support its customers not only by performing subtasks such as assembling circuit boards, but by offering complete outsourcing. The core competencies of Variosystems include managing customer products from the initial specification, to international sourcing, assembly, and direct customer deliveries, right through to after-sales services. This involves recording the lifecycle data of customer products, including all changes, in the ERP system. This comprehensive documentation supports the long-term collaboration pursued. As a modern company, Variosystems adopts environmental protection and employee safety procedures at all of its sites.

Importance of IT and E-Business
As a modern, technology-driven company, its corporate strategy is based to a large extent on an end-to-end IT strategy. The core aspect of this strategy is to depict all processes in a global system landscape and to integrate both customers and suppliers in these processes.

The importance of IT, which does not represent the group's core business, is also evident in that it is anchored in management. For example, the CIO responsible for the IT infrastructure in the United States is also a member of the local management and group management teams, and the CIO responsible for applications in Switzerland is also a member of the local management team.

The IT strategy is oriented towards using standard software in all business areas. By implementing the standard processes provided in the program packages, the benefits are exploited as quickly as possible. The following goals were also set based on the global spread of the four sites:

• End-to-end production and capacity planning

• Integrated information flow within the entire business group between sales, production, logistics, engineering, purchasing, and accounting units.

• Comprehensive modeling of goods and value flows in the group

These goals are extremely important, which is why they were listed again as central requirements for the new system landscape in the “Variolympia” project for implementing the new ERP solution.

Initial Situation and Trigger for the Project
The way in which the Variosystems Group is dynamically growing demands an integrated view of the entire company and as much flexibility as possible for adapting and enhancing the ERP solution. The existing, partly outdated decentralized systems were replaced with a new central ERP system as part of the “Variolympia” project, which is the subject of this case study.

Our Business Partners
Variosystems has two partners: SAP Schweiz AG as a business software provider and Resource AG as an implementation partner.

Business Software Provider
SAP Schweiz AG is an international subsidiary of SAP AG in Walldorf (Germany), which was founded in 1972, employs more than 50,000 staff worldwide, and caters to over 86,000 customers with sales revenue of EUR 11.7 million (in 2008). Its corporate goal is to provide end-to-end software solutions for business processes.

Implementation Partner
The implementation project was placed in the hands of Resource AG from Glattbrugg. As an SAP Gold Partner and general contractor, it has over 12 years of market experience and more than 170 employees with proven SAP expertise.

2. Greater Efficiency Through Globally-Integrated Processes

How the new business software was introduced is described in the following sections from different perspectives.

Business Perspective and Goals
Variosystems is an international company that also caters to globally active customers. This is why the group structure and the business processes, including all goods and value flows, are also to be modeled in a new integrated ERP system that is standardized across the group and for all sites. The associated goals were to implement intercompany processes with a high degree of efficiency through extensive process automation and to model the value flows within the business group in a timely and meaningful way using suitable key figures. Cost center accounting was to be managed consistently across all business areas based on a new approach.

Other important requirements were preliminary and final costing of orders, end-to-end processes between sales administration, production, and purchasing, management of consignment stores, global demand determination and procurement, as well as integrated production and capacity planning across the company. All these measures are aimed at saving costs for Variosystems and customers, without any loss in quality.

When supporting globally active customers, it is important that the quality of customer service is consistent across all sites and that a holistic view of customers can be gained. A significant improvement valued is that customers can now be created at any site. At the same time, the ERP system applies defined comparison rules to ensure that duplicate customer records are not created by mistake.

To be able to generate the required key figures, the operational business data is now copied to a business information warehouse system on a daily basis. These key figures can be used to create the complete customer overview that is required and to form the basis for diverse evaluations.

In addition to this, there were certain requirements in terms of the integration capability of the new ERP system. It had to be possible to integrate the existing production control system internally and set up connections to customers and suppliers externally.

Fig. 1 illustrates how the Variosystems Group is organized. It shows that the ERP system has to integrate processes across all sites, for example, whereby production subtasks are passed on from the offices in the various countries to the “extended workbench” in Sri Lanka or to purchasing in China. Stock is also transferred between the local offices, which results in intercompany orders.

Fig. 1: Division of Work Within the Variosystems Group

Fig. 1: Division of Work Within the Variosystems Group

Fig. 2: Requirements Planning and Production Process
Fig. 2: Requirements Planning and Production Process

Process Perspective
Fig. 2 illustrates theRequirements Planning and Production” process in more detail and shows that planning takes place centrally across multiple sites. Production orders are assigned by the sites with customer relationships to the site in Sri Lanka if necessary. The required components can then be ordered globally from different warehouses or through acquisition for the respective site, but still based on specifically defined rules. All of these process steps are carried out in one ERP system. Each location still has its own view of the processes, however. This means that the purchasing department in China, for example, automatically sees the global requirements to be met and can plan accordingly.

The division of work allows the group to work cost effectively. It can also be adapted in line with changes to the company structure, for example, when a new local office is opened.

Application Perspective
The decision to use SAP as the manufacturer of the ERP system was also dictated by the other systems offered by SAP. SAP Business Information Warehouse (SAP BW) is used to generate group-wide reports, while SAP Enterprise Portal (SAP EP) is used for the intranet with the integrated management cockpit – users can access management information with a browser. To connect third-party systems, the SAP process integration platform (SAP NetWeaver PI – SAP PI in short) is used. It can integrate internal systems, such as mobile data entry (MDE) devices, as well as external customer and supplier systems. Material master data is transmitted to the production control system AEGIS.

Through an integration platform in the form of SAP PI, all systems are managed together on this communication bus. As a result, the systems now only have interfaces from and to the integration bus. This effectively decouples the connected systems, thus making it easier to upgrade these to the latest release level, for example. Furthermore, different interfaces in the communication system can be standardized and then forwarded via a standard interface. This increases the frequency of use and thus reduces the costs of implementing, monitoring, and maintaining each interface.

By placing the strategic focus on one manufacturer’s system landscape in which applications are guaranteed to work together, it is possible to respond to business changes with minimum effort. Changed requirements are implemented in the relevant system. For example, this means that company expansion in the form of new sites is depicted in the ERP system, whereas a new reporting requirement in SAP BW or a new interface is implemented in SAP PI.

Fig. 3: Overview of the SAP Application Landscape

Fig. 3: Overview of the SAP Application Landscape

Implementing requirements consistently using applications from the same manufacturer also enables Variosystems to rely on the coordinated further development of these systems and to update systems to newer versions at the right time. Since current requirements and also potential future growth can be covered by the existing versions, no upgrades are currently planned.

The planned interfaces to customers and suppliers can also be set up in various ways through the integration platform [EDI]. The processes required for this – such as vendor-managed inventory (VMI) – can be depicted in the ERP system using standard functions. Primarily material master data from customers and current requirement figures for suppliers are exchanged via different data interfaces.

Technical Perspective
To enable all four sites across the world to access the applications at any time, they are connected to the group headquarters in Steinach (CH) through a virtual private network (VPN). The servers running the SAP applications are operated at this location. To maintain an uninterrupted service even in the event of a major disaster, a second server room in the United States will be used as a backup computer center.

3. Project Flow and Operation

Variosystems introduced a new system landscape in the entire group within a short space of time and harmonized processes across all sites. How this was done is explained in the following sections.

Investment Decision and Evaluation
In 2006, a decision had to be made to upgrade or replace the existing ERP system, which was run separately at each site. What must be considered here is that the different system modifications at each site prevented a smooth release upgrade in this case.
Certain specifications for the option of switching to a new system were defined. Standard software had to be used again in any event. The basic principle was defined explicitly: “We adapt to standards as long as there is no competitive disadvantage for us.” This was done to keep the effort to implement and operate the system to a minimum. The overall solution to be implemented had to be suited to the processes at Variosystems from the outset.
Management gave the IT manager the task of performing an analysis and establishing a decision-making basis to compare the functional scope, requirements coverage, and cost framework for the follow-up product of the currently licensed program and for SAP ERP as an alternative. Only SAP was considered to minimize the costs and duration of the selection process. Furthermore, SAP software was already being used by many customers and suppliers of Variosystems and synergy effects were expected when exchanging data and through process continuity. The standard functions that are always available as a reference model with the baseline SAP ERP system were used as a benchmark for the SAP system. The information needed to make the decisions was taken from SAP’s Internet pages until the implementation partner was selected.

When costs were determined, it was agreed that the total cost of ownership (TCO) would be distributed over ten years, which corresponds to the amortization period. This meant that not only the license and project costs had to be taken into account, but also the costs of the required infrastructure, ongoing operation, and future release upgrades. The evaluation criteria included the process descriptions, the goals specified in "Business Perspective and Goals", and future adaptability. The advantages of both alternatives were analyzed, whereby the weighting of the individual criteria was developed and then averaged by more than one person. On the basis of these comparisons, SAP ERP 6.0 eventually emerged as the best alternative.

Partner Selection
Once the decision was made to introduce a new SAP system, an implementation partner still had to be found before the project could start. This partner was to have the best possible knowledge of all SAP modules. For evaluation purposes, a market overview was created and six providers were chosen as part of a preliminary selection process based on Internet research. These providers could submit an offer for the implementation project in the second phase. The four best placed consulting firms were then asked to put together and present a precisely defined business case based on the selected system, which was SAP ERP 6.0. In addition to an objective assessment based on a catalog of criteria, the emotional and professional aspects of the presentation were also considered. This involved assessing, for example, whether the partner also speaks the language of the industry and would thus be accepted by all members of the project. Resource AG eventually emerged as the implementation partner following this evaluation.

Project and Change Management

The following team was put together for the project:

• Steering committee with managers responsible for the project

• IT manager for managing the project

• Project members representing all sites and process groups such as finance, sales, purchasing, and so on

The ambitious project management was able to spread enthusiasm throughout the team by engaging, personally convincing, and communicating openly to team members, while also winning over subproject organizations on site for the new solution.
The members of the local project teams became key users for the respective sites. Key users [Power User] are leaders who represent their specialist areas in the project and help create the detailed concept. They gain considerable knowledge of the system and new processes. They later create training materials, train the users in their respective language, and provide support as an initial contact person once operations go live. Key users are thus given a key role in building up skills in the suborganizations.

The support of management was also a key factor in reaching the goals defined in the project charter. Had it not prioritized and provided the necessary human resources, it would not have been possible to complete the project on time and in the defined scope. Since the international subsidiaries had undergone their own organizational developments during the previous years, processes needed to be harmonized and reorganized before a new system could be introduced. This was also only possible because the project was fully supported by all levels of management.

The project team assumed the task of implementing the new system across the entire group worldwide within one year and restructuring and activating all processes. An important role was played here by the aforementioned principle of adapting to the standard SAP business baseline reference model. Deviation from this model was allowed only if the company would be at risk of losing a unique selling point. Such decisions could only be made by the steering committee. This fundamental decision laid the foundation for harmonizing the processes. When the system was first introduced at international subsidiaries in Switzerland and the United States, a process template was created, which was then rolled out to sites in China and Sri Lanka. This template will also be applied for implementations at other sites in the future.

Orientation towards a standard system results in a clear and transparent process landscape, which is the optimal preparation for future organizational changes. Different process groups can be seamlessly integrated. Support from the manufacturer can also be fully leveraged. If problems arise with technically modified applications, however, the first step required is always to identify the problem more closely or to restore the standard settings in order to show that the error is not caused by custom changes.

Continuous Maintenance
During live operation, all changes to the system are made by the internal IT department at Variosystems. The key tasks are carried out by two employees with a high level of expertise, who also attend further training at SAP to keep their knowledge up to date.

A steering committee was established to ensure that processes remain harmonized and globally integrated in the long term. It consists of all process owners and holds meetings two to three times a year. Only the changes approved by this “Global Process Harmonization Team” are then implemented centrally in the system for all sites.

The central IT department is responsible for implementing the changes. Only in rare cases are the external services of Resource AG used. Resource AG is also the maintenance partner for Variosystems and provides software maintenance and support. The advantage of receiving support from the implementation partner is that the specialist knowledge gained during the implementation project can be applied. A release upgrade has not yet been scheduled since SAP guarantees mainstream support until the end of 2015 and limited maintenance until the end of 2017.

4. Experiences

After a year and six months of regular operation, the persons responsible can look back at not only a successful implementation project, but also at how well day-to-day processes are supported.

User Acceptance
After the initial transitional phase of working with a completely new system and adapting to different processes, a productive and positive status quo was reached relatively quickly. Acceptance of the solution can be sensed throughout all departments and offices worldwide and is evident based on the small number of change requests. The key user concept proved to be successful since all users have a direct contact person for their processes in their respective language. Many of those involved have also noticed improvements in processes. For example, all materials can now be retraced as a result of barcode scanning devices, automated goods labeling, and predominantly machine-controlled processes for putting away and removing stock.

Achievement of Goals and Changes Brought About
The committed project team was able to achieve all of the goals defined in the project charter. These goals included harmonizing the business processes across all sites and implementing the new SAP ERP system based on the reference processes provided by SAP. Adapting processes to standard software is valued as the key factor for success in the short and long term. A second success factor is the classic template approach used. The processes were defined during the implementation phase at the first site and applied in the same way by all other sites. The process definition rolled out is known as the template and may only be changed in well-founded cases. Such decisions are made by the “Global Process Harmonization Team”.

The working atmosphere has become both positive and calm. In particular, the IT manager points to the high process stability and success achieved in inventory management. The employees value the transparency established through integrated processes and central data storage, as well as the simplicity of the implemented processes.

Inconsistencies in KPIs (key performance indicators) could also be eliminated through harmonizing the processes. Furthermore, bundling the purchasing volume not only allows a better purchase price to be negotiated, but also optimizes requirements planning.

Investments, Profitability, and Key Figures
Controlling group-wide processes centrally is regarded as a sustainable success factor by the management team at Variosystems. On the one hand, it helps improve the transparency and performance of the current organization, and on the other hand, processes can be quickly adapted to changing conditions.

In addition to the standard licensing fees for SAP software modules for approximately 150 users, Variosystems incurred costs for about 200 person days provided by the implementation partner and internal costs for expenses incurred and hours worked by the project team. Costs were also incurred for infrastructure such as server systems and the network. What made the project easier was that the group headquarters hosting the computer center was newly constructed almost at the same time.

The fact that sales could be significantly increased in 2008 without personnel additions is a sign of profitability by management.

5. Success Factors

Special Features of the Solution
What must be emphasized with the Variosystems solution is that the processes at all offices worldwide were changed to the new system practically at the same time. This globally-applied strategy allowed the Variosystems Group to raise cross-site processes to a new level and immediately reap the economic benefits.

The implementation project started with clear tasks that were precisely defined and documented. These tasks were carried out consistently by the project team and communicated to all those affected in an open and well-founded manner. This facilitated day-to-day activities and quickly established high acceptance of the solution among users.

The centralized ERP system enables a complete overview to be created for all customers and their orders. The status of orders can now be tracked along the entire supply chain. Coupled with centralized procurement and globally controlled production, economic improvements could be made very quickly. These can be viewed at any time in the new management cockpit.

Reflection on Long-Term Success Factors
The ambitious project goals were achieved through fully integrating all sites and processes. The optimized processes and transparency gained made it possible to increase sales without any personnel changes. This in particular shows that it was the right choice to implement a solution based on a central system that supports every process across all sites and thus enables a shared view of all data.

Besides the holistic customer view, the new solution delivers all key figures in a group view within the management cockpit, from where detailed country-specific data can be displayed by selecting different levels of characteristics (drilldown method). Since these KPIs, which are calculated based on figures from the Business Information Warehouse, can be displayed graphically on a Web interface, it provided an intuitive and easy way of using the management information system. The key figures on the intranet allow business performance to be analyzed in real time and has replaced all printed reports and spreadsheets.

Lessons Learned
When looking back, those involved in the project agree that a key success factor was the undivided support of management. The evaluation request and the project charter had, of course, already been approved by this body. As a result, two members of management were on the project steering committee. This ensured that no decision was made without the knowledge, but above all, the support of management.

Establishing the local project teams early on and learning how to use the new system are also regarded as success factors. The key user concept contributes to the project's long-term success.

If the project team were to tackle such a project again, the members would not change the procedure in any way. However, parallel implementation at two sites such as Switzerland and the United States is not recommended due to the physical distance between the countries. The same approach can be applied here as for all other sites: a staggered implementation of the template used at the headquarters.

Owner/s of the solution

Variosystems AG
André Bättig, Leiter IT
Industry: Electrics/electronics industry/Optics
Company size: large-scale enterpriseVariosystems AG

Solution partner/s

Paolo Strever, Sales Manager
Resource AG

Case study author/s

Stefan Stöckler
Fachhochschule St. Gallen FHS

07. September 2009
Stöckler; Stefan (2009): Fallstudie Variosystems; in: Wölfle; Ralf; Schubert; Petra (Hrsg.): Dauerhafter Erfolg mit Business Software - 10 Jahre Fallstudien nach der eXperience Methodik; S. 81 - 94; München: Hanser Verlag; 2009

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