Schmidt Case Analysis

Schmidt Background
Family owned into Automobile
parts distribution business
10,000 SKUs 20 million pieces
shipped in a year 1000
different destinations
Annual turnover to the tune of
$40 million
Information System critical to
the business manage volume &
complexity
Present System


-> 18-yr old
-> Obsolete and
unreliable
-> Mostly an
inventory
management
system
-> Lack of
appropriate
system
maintenance as
the original
vendor not
available
-> Dearth of
integration across
functions
New System
Replacement & Integration of all information system within
company
Implementation of ERP system
Modules:- Warehousing, Accounting, Inventory, Purchasing, Sales,
CRM
Improvement of service levels
Reduction in overall inventory levels
Reduction of human resources on account of automation
Proposed by a cross functional team of 8 managers
PROACT Framework
Problem - formulation of decision problem
Objective- needs, priorities, goals
Alternative Actions- potential ways/choices to achieve the
objectives
Consequences assessing how well each choice satisfy the
objectives
Trade-offs- every alternative comes with pros and cons, how
to decide when there is multiples objectives and alternatives

Problems
Project over budget and behind schedule: The organization had
already spent $600,000, resulting in $50,000 over budget and
running behind schedule by three months. It needs to be stopped .
Should he proceed with the conversion project or abandon it?
Decision regarding ERP vendor: At a crucial juncture in the project ,
whether he should change the vendor, if so what are the risks
associated with it?
Employees Skill gap: As the existing employees were not capable of
doing critical functions such as data conversion, network
administration and report writing amidst the conversion, should he
hire experts or train the existing employees to do the same.
Employees resistance. What should he do to motivate the employees
who resist to adapt to the new system
Objectives
Implementation of new information system at the earliest
Manage overrun of project cost and time
Find ERP vendors with better commitment & quality of service
Address the problems related to network administration.
Device a better monitoring & control mechanism for successful implementation of the project
Improve the in-house expertise & reduce the dependence on external consultants
Motivate existing employees to adapt to new system

Alternatives and Consequences
Alternatives Consequences
Change the vendor
Starting from scratch again
Time overrun
Cost Overrun (In addition to already spent
200000 USD)
Continue with Dtech hiring a
new IT Manager, project
manager and Consultants
Increase in fixed cost
May result in a more efficient project
management
Training existing employees involves additional
cost and time
Phased Implementation of the
Project ( In addition to
Alternative 1 or Alternative 2)
Focus on Inventory management module initial
rollout and then deploy other modules such as
Warehousing, Accounting, Sales & Customer
Relationship at a later stage
Leads to more streamlined implementation
Abandon the project Operational inefficiencies will exist
Trade Offs (1/2)
Have to choose between the alternatives based on trading off
some key factors
Changing Vendor trade off between implementation and
project delay
Hiring full time IT manager and IT consultants trade off
between implementation quality and cost
Phase wise ERP implementation trade off between
implementation and easy of managing
Trade Offs (2/2)
Accommodate resources available instead of abandoning project
Set up supervisory team headed by John and have implementation team
members, DTech Consultants and VP sales of DTech to improve implementation
without huge increase in costs
Setting up of stricter deadlines and monitoring project on a daily basis to
accommodate increase in cost with no delay in the project
Trade off potential loss of a $40 million company with a loss of $200,000 by
keeping plan B of other ERP companies ready in case DTech is not able to fix the
problems from their side
Is PROACT framework suitable for our
case?
Though the framework would
help John in systematically
identifying his problems and
alternative actions, it does
not consider ways to manage
risks
PROACT also does not include
elements such as Uncertainty,
Risk Tolerance, and Linked
Decisions