Office Supplies Company Makes Huge Commitment To Microsoft ERP

Privately held Esselte, with $1.3 billion in revenue last year, will gradually replace its 20 separate ERP systems with software from Microsoft and SAP AG. Subsidiaries in 20 countries will use Microsoft Axapta, while those in the remaining five countries served by Esselte will use SAP's products.

J.W. Childs Associates, a Boston-based investment firm that bought Esselte in July 2002, launched the project in an overhaul of Esselte's IT systems, which are so ineffective that they're holding back the value of the 90-year-old company.

The crux of the problem is 20 different ERP systems and 10 unique warehouse management systems spread across the globe that are incapable of sharing data. The reason for such a hairball of technology was Esselte's prior way of doing business. "It was cultural," said Lani Spund, CIO of Esselte. "Every business did its own thing as long as it was profitable."

While the strategy gave each subsidiary lots of flexibility, it also greatly increased sales and general administration costs. The company, for example, had no standardized system for stock keeping unit (SKU) numbers, which are given to each product in order to track sales, shipments, inventory and more. Esselte makes numerous products ranging from file folders and staplers to printer supplies.

Esselte's office addresses and employee information hadn't been updated in years, and the company was unable to aggregate operational data to get a detailed view of revenue, expenses, profits and losses. "Our customers knew more about us than we knew about them," Spund said. "They knew more about our pattern of sales to them than we did. Basically, we were kind of flying blind."

Hired first as a consultant to help clean up the mess, Spund started by extracting information from the ERP systems and storing it in a data warehouse from which Esselte's corporate officers could get some rudimentary reports on business operations. "That took a lot of effort because whenever you do one thing in this company, it's times 20, because there's 20 (ERP) interfaces," he said.

After Spund was hired as CIO in January, the decision was made to gradually move most of the ERP systems to Axapta. The Microsoft product was chosen because of its support for foreign languages and currencies, and because the software complemented Esselte's plans for new financial and factory operations. In addition, Axapta costs less than other comparable systems.

Esselte, in many ways, is the perfect big company for Axapta, which is targeted at businesses with 1,000 employees or less. Because the company is broken up into several regions, the largest deployment will be in North America, which will have about 880 users.

SAP's software will only be used by subsidiaries in Germany, Switzerland, France, Spain and Portugal. "We're going to continue (with SAP) because it's operating well," Spund said. "But that's very expensive. SAP is very expensive to customize, install and maintain."

Axapta will run on Windows XP and Windows 2000 servers, while SAP will run on Unix servers. Esselte is still in the process of choosing a hardware vendor.

All of the subsidiaries will eventually feed information into four data centers, one each in Belgium, Germany, the U.S. and Australia. Esselte will use an MPLS network run by Equant in France. MPLS, or multi-protocol label switching, is a packet-routing standard that can ensure that all the data in a particular flow take the same route over an Internet backbone.

Esselte expects eventually to use the network for telephone calls and videoconferencing within the company to cut down on long distance and travel costs.

Spund has chosen U.S. and Russian subsidiaries for the first Axapta deployments, which began this year. The U.S. subsidiaries were chosen because they're running on legacy systems that are costing more to maintain than the benefits derived from the software. "The United States is running on real ancient technology," Spund said. "I call the operation a computer museum. You can walk in there and see machinery that people haven't seen since the late 70s."

The Russian operations, on the other hand, have no enterprise-level IT systems, so they can gain tremendous benefits immediately. Spund is looking to take the experience from these deployments to guide installations in other regions, a process expected to take the next four years.

Spund is budgeted to spend 2.5 percent of sales on IT, which is nearly double what the company was spending before Childs took over. To justify the expenditure, Esselte's owners expect the new IT system to contribute to the overall value of the company at a level equaling 1.5 times of sales should the company be sold. Rather than sell the company, however, Childs is more likely to take it public.

"If you can improve the efficiencies (of the operations) dramatically, and gain market share over time, then suddenly your company is going to look very attractive to any investor," Spund said.

This story courtesy of Techweb.com.