SAP Case Study

AT A GLANCE
Company Industry: Utilities electrical power Products and Services: Transmission, distribution, and sales of electric power in Chinas biggest city Revenue and Employees: More than 26 subordinate companies with 16,000 employees; 2005 annual sales of CNY 45 billion (US$5.6 billion) in electricity and CNY 10 billion (US$1.2 billion) in electric power engineering and construction Location: Shanghai, China Web Site: www.smepc.com Challenges and Opportunities Asset-intensive utility operations created challenges in asset life-cycle management, operational efficiency, key performance indicators, and information sharing across the enterprise. Chinas membership in the World Trade Organization required dealing with other market competitors. Improving efficiency and controls would lead to opportunities for enhanced profitability and a competitive stronghold. Strategic Goals Maintaining the companys edge as a first-class utility enterprise in China by achieving the following: Ensuring a superior electric power grid Delivering a reliable and high-quality power supply in Shanghai Establishing end-to-end asset life-cycle operational processes Committing to excellence in customer service, asset management, and operations Approach Implement a core enterprise-wide IT platform to enhance corporate management, improve asset management, reduce costs, and ultimately, enable higher profitability Make available shared, real-time information in project planning, execution, accounting, inventory and procurement management, and more Implementation Highlight 2-phase implementation encompassing more than 26 subordinate companies Why SAP Comprehensive functionality of the mySAP ERP application as a centralized IT platform Reputation for strong integrity Solutions, Applications, and Services mySAP ERP Implementation Partner Accenture Key Results The following results over a seven-year period: Inventory turnover increased from 2.2 to 4 in 2005, resulting in working capital improvements of CNY 129 million (US$15.8 million). Retirement of legacy IT systems in more than 26 subordinate companies resulted in savings of CNY 104 million (US$13.5 million). Productivity increases in project planning and execution resulted in cost savings of CNY 31 million (US$4 million). The project yielded an internal rate of return of 31%, with a net present value of CNY 123 million (US$15 million) and a payback period of 3.2 years.

mySAP ERP AT SHANGHAI POWER

ESTABLISHING AN INTEGRATED, ASSETCENTRIC CORPORATE MANAGEMENT FRAMEWORK
One of Chinas largest enterprises, Shanghai Municipal Electric Power Company (Shanghai Power) supplies electricity to 7.2 million customers in Shanghai Chinas biggest city and maintains assets valued at CNY 81 billion (US$10 billion). With the implementation of the mySAP ERP application in 2003 and 2004, Shanghai Power has successfully positioned itself to maintain its edge as a first-class utility enterprise in China. By standardizing and integrating business and engineering data in real time, Shanghai Power optimized its asset-related business processes across grid engineering and construction, maintenance and operations, resource management, asset retirement, financials and human capital, and management reporting. Accordingly, the application helped support the companys four strategic goals: superior grid stability and quality, excellence in customer service, improved control of operational efficiencies and costs, and end-to-end management of asset life cycles. By implementing mySAP ERP, the company defined the concept of asset life-cycle management for the first time. Meanwhile, the company has redesigned, standardized, and optimized more than 40 asset life-cycle management business processes.

CONTENTS
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Challenges and Opportunities . . . . . . . . . . . . . . . . . . The Road to an Asset-Centric Framework Strategic Goals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selection of mySAP ERP Implementation Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Project Planning, Execution, and Accounting Inventory and Procurement Management Asset Maintenance and Operation Management Financial and Management Accounting Centralized Cash Management Within the Financial Supply Chain Centralized Human Capital Management IT Total Cost Ownership Return on Investment 2 3

COMPANY
Founded in 1985, Shanghai Municipal Electric Power Company (Shanghai Power) is a subsidiary of the state-owned State Grid Corporation of China. It is the sole electric utility provider in Shanghai, operating the transmission, distribution, and sales of electric power in Chinas biggest city. The company supplies electricity and electric power engineering and construction services to about 7.2 million customers, both residential and commercial. With more than 26 subordinate companies and 16,000 employees, Shanghai Power is the third-largest enterprise in Shanghai in terms of sales revenue and enjoys over 10% revenue growth annually. In 2005 the company had assets totaling CNY 81 billion (US$10 billion) and generated annual sales of CNY 45 billion (US$5.6 billion) in electricity and CNY 10 billion (US$1.2 billion) in power engineering and construction services.

4 4

Next Steps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ROI Calculation: Assumptions and Rationales

CHALLENGES AND OPPORTUNITIES

The Road to an Asset-Centric Framework

The decision to take the road to an asset-centric corporate management framework was driven mainly by the following reasons.
Costly Manual Processes and Lack of Management Transparency

Before the changeover to enterprise resource planning (ERP), Shanghai Power operated based on manual information exchanges that led to inaccurate, inconsistent, and slow operational processes. Insufficient transparency into the performance of different business units, assets, and processes restricted sound decision making at the management level.

the former Electric Power Ministry. China introduced this second reform to separate business management from government oversight, which helped establish corporations and similar economic entities that operate independently within the market. Both reforms have facilitated progress toward a market system. Nongovernment and foreign investment is encouraged, thereby reducing dependence on state enterprises and national and local governments for investment capital. In this way, a new power industry is taking shape, characterized by an open market, efficient operation, and the potential for sustainable development. In this more competitive business environment, Shanghai Power needed to take immediate actions to enhance its profitability by transforming its management and adapting the organization to new market rules.

Achieving industrialization through IT is inevitable. Thereby, one enables profitability and improves corporate management by introducing an advanced ERP model, implementing an ERP system, and finally successfully transforming the business.
Yu Ping, Head of ERP Steering Committee, Shanghai Municipal Electric Power Company

Change of Utilities Market Rules and Structures

The Chinese power industry has undergone two significant phases of institutional reform since the 1980s. The first came about in 1987 when the government opened up the powergeneration market and encouraged diversification of ownership and operation. A second major phase took place in 1997 with the creation of the State Power Corporation and abolition of

STRATEGIC GOALS
To become a first-class electric power provider in keeping with Shanghais image as the biggest city in China, Shanghai Power must ensure a superior power grid to deliver a reliable, highSuccessful implementation of mySAP ERP is the important milestone for Shanghai Power to become one of the leading electric power providers in the world by marching toward the goal of offering best-in-class power grid service and management and therefore obtaining superior profitability.
Tang Yuezhong, IT Director, Shanghai Municipal Electric Power Company

APPROACH
With a centralized IT system, Shanghai Power could establish a holistic and asset-centric utility management framework integrating financial, material, and asset information and replacing its widely dispersed array of systems. As shown in Figure 2, the integrated framework starts from core capital project planning and then carries over into project execution, control and purchasing, and inventory management. When a project nears completion, the system will automatically run the asset accounting and shift assets or equipment to daily maintenance and operations. The centralized ERP system helps the company manage and control the expenses and costs these activities generate and optimizes investment planning through centralized cash management.

Financial Control & Settlement

Project Planning & Execution

quality power supply in Shanghai and drive excellence in customer service, asset management, and operations. Figure 1 illustrates the companys strategic goals.
Asset-Centric Corporate Management Superior Power Grid Grid stability Power quality Efficient Operations Management transparency into operational costs and processes Optimize maintenance costs and processes Increase workflow productivity Excellent Customer Service Customer response time Outage restoration time New services Maintenance & Operation

Inventory & Procurement Management

Holistic and Asset-Centric Corporate Management

Project Accounting & Equipment Phase-In

Figure 2: Managing Capital Projects

End-to-End Asset Life-Cycle Management Informed decisions by holistic view on asset life-cycle data Asset performance monitoring

In addition, the company wanted to improve operational efficiency and workforce productivity in terms of asset-related financial and human capital management.

Figure 1: Strategic Goals

Selection of mySAP ERP

Implementation

After evaluating both domestic and international software alternatives, Shanghai Power chose the mySAP ERP application to support its strategic goals based on the following reasons.
The condition for reaching the target is to choose the right direction, which is the successful implementation of mySAP ERP.
Yu Ping, Head of ERP Steering Committee, Shanghai Municipal Electric Power Company

After deciding on mySAP ERP, Shanghai Power launched its implementation of the application in July 2003 in a two-phase approach. The implementation scope included all subordinate companies and some subsidiaries. In the first phase, the company implemented the mySAP ERP Financials and mySAP ERP Human Capital Management (mySAP HCM) solutions. mySAP ERP Financials included functionality for financial and management accounting and financial supply chain management,
The implementation of mySAP ERP was successful thanks to harmonization of ERP knowledge, workforce acceptance of the system, and smooth operational processes.
Tang Yuezhong, IT Director, Shanghai Municipal Electric Power Company

SAP offers an integrated system providing these advantages:

A holistic and asset-centric view of assets throughout the life cycle, which is important to the utility industry Aggregated financial, material, and other key information in a single system Integrated management and reporting Real-time information with standardized processes SAP offers a comprehensive set of utilities-specific functionality in line with Shanghai Powers requirements in the areas of project management, plant maintenance and operations, materials management, accounting, and human capital management. SAP offers a business and technology platform that supports Shanghai Power in adapting to current and future market changes. To get a better understanding of the business requirements of each area and reduce implementation risks, Shanghai Power invited the Accenture consulting team to conduct business process reengineering across the enterprise. The intent was to standardize and optimize business processes and clearly develop organizational relationships before the IT implementation.

including treasury and risk management. In addition, the mySAP ERP enterprise asset management functionality enabled inventory management, procurement, and project management functions. The first phase went live on December 31, 2004, with part of the rollout extending into early 2005. Plant maintenance functions went live during the second phase in April 2005. Total project cost was about CNY 100 million (US$12.5 million). As the implementation team for the SAP solutions, the consultants from Accenture worked with each business area and IT department of Shanghai Power on design, actual implementation, data conversion, user training, and rollout.

RESULTS
By adopting mySAP ERP, the company initially achieved two key goals: end-to-end life-cycle management and efficient operations. In addition, the implementation laid the foundation for a
By implementing and running mySAP ERP, the business processes are standardized and optimized across the company. Corporate management regarding centralization, leanness, and flatness are enhanced. Meanwhile, the company culture and working environment have fundamentally changed toward collaboration throughout the enterprise.
Fu Ruxiang, ERP Project Manager, Shanghai Municipal Electric Power Company 0% Before SAP After SAP Capital projects budget control Time to raise a purchase requisition Purchase requisition for capital projects 1 day

-100% Auto % of capital projects exceeding budget 5%

-100%

Figure 3: Automation of the Purchasing Process

Automated Purchase Requisitions and Project Control

continuous improvement plan aimed at the other two goals of delivering excellent customer service and establishing a superior power grid.
Project Planning, Execution, and Accounting

With mySAP ERP, the company has succeeded in automating approximately 14,000 purchase requisitions for capital projects generated annually. Previously, it took an entire day to create a purchase requisition manually. Besides reducing effort dramatically, automation has resulted in asset life-cycle cost savings of about CNY 3.3 million (US$425,000) annually. mySAP ERP is also helping Shanghai Power gain budget control over a portfolio of 22,000 projects1 that were valued at over CNY 20 billion (US$2.5 billion) in 2005, eliminating the cost overruns that typically ran about 5%.
Standardized Project Management Processes

By using the project management functions of mySAP ERP, Shanghai Power has standardized and optimized the project management process, improved data integrity for management reports, and reduced risks and life-cycle costs (see Figure 3).

In addition, project management processes are standardized across the company from project planning and budget creation to project execution and completion including project resource scheduling, project check and acceptance, and project accounting and closing.

Shanghai Power generally undertakes about 22,000 projects annually, of which about 500 are considered large and high value.
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Improved Transparency and Reduced Risks via Data Integrity

Time taken to handle project accounting Project accounting on its completion 5 days

Finally, mySAP ERP brings Shanghai Power much improved data integrity and accuracy, eliminating substantial manual effort for project calculation and consolidation. mySAP ERP supports project execution with visibility into project status, resources, tasks, and costs with work breakdown structure functionality.

-80% 1 day

Before SAP

After SAP

Figure 5: More Efficient Project Accounting

Time taken to generate project status report Project status reporting 5 days

-100% Auto Before SAP After SAP

Project managers have also reduced the time spent on generating project accounting reports from the system, which now takes just one working day rather than five. Calculated across 500 projects every year, the annual cost savings is about CNY 1 million (US$125,000). Further, the company has successfully defined standardized equipment structures and master data across the company.
Inventory and Procurement Management

Figure 4: Faster Project Status Reporting

Productivity Savings via Automated Status Reporting

Previously, five working days were required to generate project execution status reports for more than 500 high-value electric power and construction projects. Without real-time tracking of project status, quick response to any changes was impossible. Now the project manager can look over project status at any time and automatically generate status reports from the system for an annual cost savings of CNY 568,000 (US$71,000) through reduced labor.
More Efficient Project Accounting

With the implementation of mySAP ERP, inventory and procurement management has improved dramatically.

Annual inventory turns Inventory turnover 2.2

x1.8

4.0

Before SAP

After SAP

When a project is complete, the project manager turns over activities such as project accounting to the finance department while the maintenance department takes control of project assets and equipment. That is, the asset-centric model supports project accounting and equipment maintenance during the phase-in process.

Figure 6: Centralized Inventory Management

Inventory management and procurement functionality of mySAP ERP helped the company establish integrated inventory management for the warehouses or stores previously held in the subordinate companies. The company can now monitor the inventory data in real time, making adjustments or creating transfer orders as capital projects require and consequently reducing inventory carrying costs. As shown in Figure 6, inventory turnover accelerated from 2.2 early in 2005 to 4.0 by the end of the year, with an annual 1.8-month working capital improvement of about CNY 20.5 million (US$2.5 million).
Reduced Purchasing Costs Through a Centralized Purchasing Strategy

Consolidation in type of materials used for projects, MRO, and so forth Total number of materials 284,400

-95% 15,000 Consolidation in total number of suppliers for procurement Total number of suppliers 2,330

-58% 980 Before SAP After SAP

Before the mySAP ERP implementation the purchasing function was dispersed, with no one department responsible for purchasing activities at headquarters. Instead, purchasing was outsourced to a subordinate company, Shanghai Power purchasing center. Without systems integration, there was little transparency in purchasing activities or oversight of expenditures. Now, the company has centralized the purchasing department at the head office, defined its responsibilities, and standardized and optimized purchasing processes. The purchasing department collects purchase requisitions on high-value assets or equipment from the subordinate companies, then consolidates all requirements, sources suppliers, negotiates with the selected vendors, and finally signs long-term purchasing agreements. This way, the company not only strengthens its control of purchasing activities but also reduces costs.

Figure 7: Consolidated Material and Vendor Data

Finally, as an integrated solution, mySAP ERP helps the company standardize master data company-wide. Information on materials and vendors is no longer maintained in 26 separate systems. To illustrate, the total number of master data items related to materials has plummeted 95% from 284,400 to 15,000, with an annual operational cost avoidance of about CNY 283,000 (US$35,000). The number of vendor master data items has dropped by 58%, from 2,330 to 980.
Asset Maintenance and Operations

The mySAP ERP application has helped Shanghai Power better manage both regular and emergency maintenance and repair. Within months of the implementation the company had already achieved the following benefits. Standardized service order management for planned and unplanned maintenance mySAP ERP helps the company standardize service orders for planned and unplanned maintenance of assets or equipment from creation and execution through to final completion.

Improved transparency of maintenance costs Before the implementation, maintenance costs were often inaccurate because of errors made during manual record keeping and calculation. The plant maintenance function along with process standardization enables real-time execution and monitoring of maintenance activities and cost items for greater transparency at the corporate level. In addition, the availability and transparency of detailed maintenance data allows for potential reduction of maintenance costs. Reduced service order costs for third-party maintenance outsourcing For daily maintenance operations and unexpected events, Shanghai Power outsources service to third-party partners. In the past, the accounting staff handled order settlement manually and verified invoices on an annual basis. Now, these tasks are completed within the system, and invoice verification is done once a month. As a result, the processing costs for thirdparty maintenance service have fallen sharply.
Financial and Management Accounting

Estimated Annual Effort Reduction in Finance-Related Activities (in thousand CNY) +7% productivity improvement

Finance settlement of capital projects 341 Month-end closing

568

851 495

Payroll accounting 2.7

74

200

400

600

800 After SAP

1,000

Before SAP

Figure 8: Improved Productivity

mySAP ERP provides an optimal platform to integrate financial management and control with the activities involved in project management, inventory and procurement, project accounting and equipment phase-in, and asset maintenance and operation management. Hence the company can capture corporate financial and cash flow status in real time and make timely decisions accordingly.
Improving Productivity in Financial and Management Accounting

submitted the project accounting report and asset list has dropped by 40%, from five to three workdays. The labor cost has dropped from CNY 568,000 (US$71,000) to CNY 341,000 (US$42,000). In addition, mySAP ERP has also brought positive change to the month-end closing process. Here, each of the subordinate companies has realized a 42% reduction in effort reduction from 12 to 7 workdays. This will lead to annual cost savings of about CNY 356,000 (US$44,000), from CNY 851,000 (US$106,000) to CNY 495,000 (US$62,000). Finally, centralized payroll policy has made a big impact on financial payroll accounting. Previously, after HR completed the monthly payroll accounting and submitted it to the finance department, employees spent about one working day to complete the relevant activities, with an annual transaction cost about CNY 74,000 (US$9,000). However, by using mySAP ERP, Shanghai Power can check and complete the remaining activities for an annual operational savings of about CNY 71,000 (US$8,900).

As shown in Figure 8, the availability of data on each asset throughout its life cycle allows better budget control. Annual transaction costs have dropped by CNY 653,000 (US$82,000) with a 7% improvement in productivity. When it comes to the financial settlement of capital projects, the financial department has experienced a dramatic improvement in productivity. The time it takes to complete a settlement for a capital project once the project manager has

Centralized Cash Management Within the Financial Supply Chain

The company installed the SAP Treasury and Risk Management application to consolidate the cash management spread across the different subordinate companies at the head office. Before the implementation, Shanghai Power used a discrete cash management strategy to allow each subordinate company to manage and control cash flow independently. However, this approach resulted in the following problems: Tight cash flow Higher cash buffer in each subordinate company Longer cash-to-cash cycle Lower transparency and control of cash liquidity and planning However, after the SAP application went live in 2005, the company has succeeded in centralizing its cash management strategy (see Figures 9 and 10).

Centralized cash management has significantly reduced the total required cash buffer by consolidating the bank accounts of more than 70 operations to 23 bank accounts at headquarters. Cash utilization is also much improved. Before the implementation, the sales revenues from electric power would remain in the subordinate companies for three to five days before transfer to the head office. Currently, sales revenues are automatically transferred and booked directly into the accounts of the head office, accelerating cash flow. From 2004 to 2005, the accounts receivable lead time shortened by 33% from 12 days to less than 8. Meanwhile, the accounts payable lead time extended by 12% from 21 to 24 days.

Bank interest rate for savings account Bank Interest Rate 0.72% per annum

+100%

1.44% per annum Before SAP After SAP

Figure 10: Improved Interest Income

No. of sets of bank accounts for company operations and investments Bank Account Management 26

-92% 2 Time taken to transfer sales revenue from subordinate companies to head office Cash Utilization 3 to 5 days

Centralized cash management also produces interest income, as shown in Figure 10. Before the implementation of mySAP ERP, one-third of the revenue in electric power about CNY 1.3 billion (US$162 million) remained in each subordinate company for 10 days or so, earning about 0.72% interest annually. Now, all

+100% Auto Before SAP After SAP

Figure 9: Cash Management

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the revenue directly booked at the head office earns annual interest at 1.44%, resulting in annual interest income of about CNY 3.2 million (US$400,000). The head office now has a real-time view of the cash status of all subordinate companies, therefore increasing transparency and control. The difference between real-time information and month-end updates will make a significant impact on capital investments.
Centralized Human Capital Management

Qian Weiming, HR manager of Shanghai Power, explains that before the implementation, the company spent five workdays collecting HR data from the subordinate companies and generating consolidated reports. With the system in place, it is much easier for employees to generate reports for top management, who now spend about an hour to search for relevant data and create a report.

Human capital management is another important element supporting enterprise management and sustaining company growth. With centralized HR management in the head office and access to real-time HR information across all of the subsidiaries, Shanghai Power has achieved a 9% productivity improvement for its HR department (see Figure 11).
Reduced HR Operational Costs

Personnel administration (at each subordinate company)

Monthly time to update personnel administration records 5 days

-70% 1.5 days Before SAP After SAP

Figure 12: Centralized Payroll Administration Data Maintenance

With the implementation of mySAP ERP HCM, Shanghai Power has reduced HR annual operating costs by about CNY 600,000 (US$75,000).
Time to collect data and create customized HR report 1 day

In terms of personnel administration, mySAP ERP HCM has helped the company shorten the time to maintain records from five workdays to a day and a half, with annual cost savings of about CNY 248,000 (US$31,000).

HR report generation (Involving multiple subordinate companies data)

HR payroll execution (across all 26 subordinate companies)

HR effort in monthly payroll execution 129 person days

-88% 1 hr Before SAP After SAP 1 person day Before SAP After SAP

-99%

Figure 11: HR Reports Generated by the System

Figure 13: HR Payroll Execution via a Centralized Platform

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Centralized Payroll Policies and Processes

Improved Transparency of HR Data and Application Integration Across the Company

With the implementation of mySAP ERP, Shanghai Power centralized HR payroll policy and standardized the HR payroll process. The subordinate companies, each of which generated payroll at different intervals using different banks, had handled the HR payroll process in the past. Not surprisingly, this caused high transaction costs as well as lower efficiency and employee satisfaction across the company. Now, where payroll execution once took an aggregated 129 workdays company-wide, the centralized payroll process is completed in one workday for an annual cost savings of about CNY 351,000 (US$44,000). Further, Qian Weiming points out that, with a 9% improvement in HR efficiency and productivity, HR employees can spend more time on higher-value strategic activities rather than transactional tasks.

Figure 14 demonstrates the contrast between the separate payroll processes formerly handled by the subsidiaries and the streamlined centralized process. Each subordinate company operated three subsystems to handle payroll, personnel administration, and employee retirement insurance. Now, the company operates consolidated HR payroll processes with the support of payroll functionality in mySAP ERP, which leads to higher transparency and lower transaction costs.

Before SAP

After SAP

Holding company Process

Holding company

Subcompany

Subcompany

Subcompany

Subcompany

Subcompany

Subcompany

Subcompany

Subcompany

Payroll effort = 26 subcompanies x 1 week each

Payroll effort = 1 main company x 1 day

Personnel system Payroll system Personnel system Payroll system Personnel system Payroll system Personnel system Payroll system Personnel system Payroll system Payroll maintenance effort = 1 centralized HR system Personnel and payroll system (SAP)

System

Payroll maintenance effort = 26 subcompanies x 1 system each

Figure 14: Benefits of Centralized Payroll Processes

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IT Total Cost of Ownership

In addition, mySAP ERP has significantly reduced Shanghai Powers IT total cost of ownership (TCO). With the many independent and far-flung systems managing operations at the subordinates, IT operational costs totaled about CNY 50 million (US$6 million) annually. mySAP ERP has replaced some legacy IT systems and retired several functional systems, lowering TCO about CNY 16.5 million (US$2 million) annually from 2006 on.
Return on Investment

The table illustrates the investment, incremental costs, and benefits of the SAP solution and implementation by Shanghai Power. Costs total CNY 113.8 million (US$14 million) over a seven-year period. The impressive results associated with each benefit contributes to total savings of CNY 293.5 million (US$37 million) in the ERP life-cycle period with annual savings of CNY 46.6 million (US$5.8 million) from 2006 on. Over a seven-year period, Shanghai Power should realize a net present value of CNY 123 million (US$15 million), a 31% internal rate of return, and a total payback period of 3.2 years. That is, the company should see its return on investment in early 2008.

The quantified benefits from the successful implementation and the companys investment and incremental costs in mySAP ERP are summarized in the following table.

Quantified Benefits of the mySAP ERP Implementation (in million CNY)

20042 Investment and Incremental Costs - Hardware - Software - Training and rollout - Implementation - Maintenance Quantified Benefits - Project planning and execution - Inventory and procurement management - Financial and management accounting - Centralized cash management - Human capital management - IT savings from legacy systems 90 15 15 10 50

2005 10

2006 2.3

2007 2.3

2008 2.3

2009 2.3

2010 2.3

2011 2.3

Total 113.8 15 15

10

20 50 2.3 2.3 46.6 4.9 20.7 0.7 3.2 0.6 16.5 2.3 46.6 4.9 20.7 0.7 3.2 0.6 16.5 2.3 46.6 4.9 20.7 0.7 3.2 0.6 16.5 2.3 46.6 4.9 20.7 0.7 3.2 0.6 16.5 2.3 46.6 4.9 20.7 0.7 3.2 0.6 16.5 13.8 293.5

13.9 1.5 6.2 0.2 0.9 0.1 5.0

46.6 4.9 20.7 0.7 3.2 0.6 16.5

The first phase of the SAP implementation at Shanghai Power included the head office and more than 26 subordinate companies. It started in July 2003 with business process reengineering and ended December 31, 2004, with successful go-live of mySAP ERP. As the majority of the investment occurred in 2004, that year was chosen as the starting point for the ROI analysis.
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NEXT STEPS
According to Fu Ruxiang, IT manager for Shanghai Power, mySAP ERP is helping the company meet its strategic goals and standardize corporate business processes. However, some business areas still need improvement while business operations are being stabilized. Going forward, the next steps focus primarily on how to improve business operations with the support of mySAP ERP. This case study also identified a variety of steps that Shanghai Power could take with minimal effort to better support the asset-centric corporate management framework, as follows.

Since the company still handles cash and budget planning

manually, we recommend that the company utilize the strategic enterprise management functionality of mySAP ERP for cash and budget planning, consequently achieving the automatic inclusion of purchase commitments and accounts payable and receivable and enhancing transparency and control in budgeting.

Some HR processes such as employee leave requests and

performance management are still handled manually. We recommend that the company implement the employee selfservices function in mySAP ERP HCM to automate these processes, thereby reducing operational costs, redeploying the workforce to higher-value activities, and capturing higher employee participation and satisfaction. After making major achievements with the baseline implementation of mySAP ERP, Shanghai Power will continue to use additional functionality in mySAP ERP toward its additional goals of delivering excellent customer service and a superior power grid.

In terms of inventory management, current replenishment

requests are maintained manually, which has a negative impact on forecast accuracy and even inventory management. For this, the Business Consulting group of SAP Consulting recommends that the company utilize the material resource planning function in mySAP ERP to generate replenishment requisitions automatically when inventory stock reaches the reordering point, thereby reducing logistics costs and optimizing inventory management.

In terms of order and documentation management, Shanghai

Power still uses manual approval procedures such as purchase and service order release. We recommend that Shanghai Power run the workflow function of mySAP ERP to streamline the operational processes, shorten the operational lead time, and therefore improve response to customer requirements.

Manual input of invoices and verification for accounts payable

involves substantial effort and a potentially high error rate. Therefore, for this, we recommend utilizing the standard invoice verification function of mySAP ERP to reduce manual effort and the probability of input errors.

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APPENDIX
ROI Calculation: Assumptions and Rationales
DRIVER ASSUMPTION RATIONALE

Discount Rate Annual Employee Cost Annual Working Days Benefit Ramp-Up Period SAP Investment Allocation

5.58% CNY 60K (US$7.5K) 264 days 9 months 2004: CNY 90M (US$11M) 2005: CNY 10M (US$1.2M)

Bank loan rate Average annual salary per office employee 12 months x 22 working days (Shanghai Power has a 5-day work week) Users take time to realize full benefits of effort reduction from new processes and new system Taking the conservative approach, software license, hardware, and implementation costs are fully accounted for in 2004 Training and rollout costs, totaling CNY 20M (US$2.5M), are divided equally between 2004 and 2005

Annual IT Savings ERP Lifespan

CNY 16.5M (US$2M) 7 years

Annual IT savings from retirement of legacy systems that are replaced by SAP Consistent with the general life of back-office ERP systems

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