A much-needed infrastructure upgrade and a move to SAP has Ampol's Lubricants division running like a well-oiled machine when it comes to customer serviceWhen your parent company has rewritten the textbook on post-merger IT integration, converting your entire company's IT systems across to another mainframe system in just three months, then outsourcing the whole kit and caboodle -- what's left for a humble division to do? For Ampol's Lubricants division management, answering that question in 1996 was a no-brainer. Clearly, the next move had to be to dramatically alter the way the division used information technology to run the business, via an upgrade of the entire IT infrastructure and implementation of SAP R/3 to support a vision for the future focused on customer service and customer choice. In the process Lubricants was determined to ensure the platform it built would add real value to its customer services, not only by delivering additional products to those customers, but also by changing the work practices of many of its employees. Only in that way, the division management believed, would those employees be free to concentrate on delivering value to the customer. The division also aspired to do everything possible to get the jump on its competitors, who were focusing equally intense efforts towards achieving similar goals.
While the path has not been entirely smooth, with unanticipated issues to deal with all along the way, Lubricants is confident the move has been entirely in the right direction.
Step One: A Marriage of True Mainframes
As reported in IT Casebook in September 1996, Ampol and Caltex began merging their Australian refining and marketing assets in 1995 to create the largest petroleum products company in Australia, forcing the marriage of two entirely disparate mainframe systems. The IT merger was a huge endeavour in which the two companies proved spectacularly successful. Before the merger both companies had mainframe-based core business systems, although Ampol had already made the decision to move to a client/server structure based on SAP R/3. With Ampol's IT staff already four months into the client/server conversion project, this work stopped dead as the merger unfolded. Meanwhile, the IT team got to work on converting most Ampol data to the Caltex business system (deemed the most modern of the two systems and the one with the most extensive functionality) and on carrying one Ampol MRP-based system across to the Caltex mainframe.
Some 70 separate projects and 1500 major tasks later, it was time to outsource the new-look Ampol data centre to CSC and focus on the overarching goal of managing the most rapid and cost-effective possible migration to client/server.
Since that time IT teams in all parts of the company have been beavering away at that task so comprehensively that by the middle of this year there won't be a single system left in the Caltex/Ampol group that was there at the time of the merger.
Step Two: Installing Infrastructure
For Ampol's Lubricants, 1996 was a time of frenetic activity, as the company underwent the process of integration with new parent company Caltex Australia.
It was also the year to do something about the outmoded computing infrastructure upon which it was then reliant. Clearly, Lubricants would need to direct the main thrust of that work at replacing the mainframe system born of the merger and the outmoded mainframe-based production management system bought over from Ampol as part of that merger. According to manager, Lubricants Accounting, Allan Keith, Ampol post-merger was in a position where it simply had no choice but to change the way it used information technology to run its business. While Y2K compliance was a factor, the primary motivation was that the existing infrastructure could neither cope with Ampol's existing nor emerging business requirements. Now Ampol Lubricants has a new SQL Server Windows NT-based infrastructure provided by HP, and a SAP system developed specifically for the business unit, which is providing support for a vision for the future focused on customer service and customer choice. The SAP R/3 implementation went live on January 1, 1998 on schedule and within budget.
Ampol Lubricants subsequently added Hewlett-Packard's Business Recovery service to the outsourcing engagement.
In the Beginning
The Lubricants division represents a particularly diverse business, where some 120 employees produce around $150 million a year through the production, sale and distribution of around 400 lubricants products for vehicles, machinery and specialty applications under the Ampol Performance Oils brand and other brands, including Caltex. Those products include engine oils, hydraulic oils, gear oils, transmission fluids, greases, agricultural spray oils, industrial and process oils and medicinal oils, and are marketed through retail, distributor and commercial channels. Before the decision to implement a SAP system specifically for the business unit, Keith says, many of its systems were running under the corporate banner and on the corporate hardware. The mainframe-based production management system was non-Y2K compliant. While Lubricants could have upgraded that system, the vendor was only offering support direct from the US. "We also identified that our future business needs would not be supported by that system and we were looking for a system that would support what we saw as the future directions of our business," Keith says.
That system had to be capable of providing interfaces into a range of other systems, including warehouse management and automated picking. "We sell bottled products, large drums, we ship everything via palettes," Keith says. "Our business is fundamentally different to selling fuels, which is Ampol/Caltex's core business. While they ship everything in trucks and use fill stands and everything is automated, we have people running around with forklifts and doing all of that other stuff." That made automated picking and full warehouse management, including barcoding of all products, a primary future direction.
And since Lubricants' Honeywell 3000 process logic controllers (PLC) are essential to the control of the division's product blending and filling activities, any production system had to be able to interface with and talk directly to the PLC to avoid the re-keying and reprocessing of information.
"The other core thing we saw as important to us was electronic communication with our customers," Keith says. "We wanted a facility that would provide Internet access and EDI access directly to our customers, and provide them with feedback information on delivery times and other information."None of those goals could have been achieved with the existing legacy system.
Not could any existing product drive the business completely in that direction.
However, extensive reviews of the market showed SAP offered the best current business fit, with desirable functionality that was not yet available scheduled for future releases. For instance, a cartage system, scheduled to be part of SAP Release 4.0, could automate the payment of freight and ease reconciliation of freight bills -- functionality in big demand by the distribution teams. And the next release was also due to feature other major improvements important to Ampol Lubricants. "Where we found SAP a bit weak on the costing side, we understand Release 4.0 has actually strengthened that up a bit," Keith says, " and we are also looking to the Internet-enabling functionality of the software, the ability for SAP to actually talk to other systems."Since Ampol Lubricants had an existing relationship with two IT service providers: Hewlett-Packard and CSC, it went to both suppliers to outline its requirements, emphasising it was looking for a partnership that would provide it with all the relevant IT expertise needed to complete the project. That's because while the rest of Caltex/Ampol was in a staged implementation of SAP, the Lubricants business was entirely outside the scope of that activity and the division had no in-house expertise to call on. The vendor would have to help.
Eventually HP was awarded the business. Its staff worked with the project team to achieve a clearly defined goal: the Ampol Lubricant business imperative of being able to do exactly what it did before changing systems, while accommodating current and future business needs and embracing the additional business functionality available with SAP. The first step was providing the upgraded SQL Server Windows NT-based infrastructure, comprising a development environment, a training environment and a production environment. HP also provided the SAP technical support and the setup and structure for the product.
Then a focused team began work on implementing a broad range of SAP modules, including sales and distribution; materials management; financials including fixed assets, accounts payable and accounts receivable; production planning and some components of the quality systems. While the division undoubtedly "made some mistakes", Keith says, the system went live on January 1 last year after a six-to-seven month implementation phase. Lubricants has since been bedding down the new system.
One of the first effects of the implementation was to mandate changes to the existing support structure, which was light, since the old system did not require a lot of support. The SAP system, especially in the first few months of its operation, proved a very different story. That support burden is easing as time goes by, but Lubricants found it initially had to create two new support positions, located in the manufacturing facilities, to cope with the extra workload. "This support burden has dropped off quite substantially in the last few months," Keith says. "Now we will leave one of those people in one of the plants -- because that makes it a lot easier for us to get location feedback -- and aim the other at developing future projects like warehouse management and Internet ordering and other facilities." According to Keith, the other immediate effect was that integration of information began proving to be a key benefit to the division -- if a somewhat mixed blessing. "SAP is a fully integrated system; one of the biggest benefits is that when you do something, everybody else can see that you're doing it and what has happened. To me, that is probably the biggest benefit we've realised to date."But integration can be a double-edged sword, Keith says. Staff in sales and distribution, for instance, are not used to having to rely on the activities of the production planning people when keying orders into the system, because never before have those orders worked back through the production schedule to determine product availability. "Now everybody is reliant on everybody else, and that is proving not only to involve a cultural change but a job performance change," he says. "Suddenly the roles of people aren't quite as clearly defined, and have to be reviewed. In some cases, even in sales and distribution, people suddenly have to do some extra things to help. So we're finding the roles are changing a little bit, with a bit of tweaking around the edges, with everybody's role growing and with everybody finding out more about what everybody else does. "I don't think you can fully see all of those consequences ahead of time. When we sat down with the users on some of the early communications, they all said they wanted an integrated system. Whether they realised what that meant is another issue. It is taking a while for everybody to get used to it."Lubricants managed the issue by performing numerous job review processes involving everyone in non-award roles, including non-shop floor staff. Now the division is having a second take at the whole process, again bypassing the HR group to work directly with line management and the staff involved to identify ways to add value to their existing roles. The new levels of integration caused other issues for staff, Keith says. "In a mainframe environment you're allowed one session open at a time. SAP lets users have six. And we found a number of users weren't ready for that and were locking themselves out of records. Or they found they suddenly were reliant, in order to do an order for a customer, on the existence of certain other information that didn't currently exist," he says. "It meant educating people to the fact that suddenly their information is far more important to other people than it ever was. That has taken us a long time, some re-education and a number of sessions of talking through the issues with people."Only extensive and painstaking education sessions proved capable of overcoming those users' perceptions that the system was not working. You simply can't achieve such an effect in a training environment, Keith says. Meanwhile, customers -- ostensibly the chief beneficiaries of the new system -- also had to share the pain of the implementation process. "I would suggest that with SAP being so large, it's almost impossible to test everything," Keith says. "We had a few negative impacts on some of our customers where we combined deliveries on single invoices. We didn't anticipate them because we couldn't test the size of the data and all of the options. "Some of those customers weren't very understanding, because they had already been affected by the merger, since we've gone through so many system changes. The customers have probably borne the brunt of all of those changes." To smooth ruffled customer feathers, Lubricants is now involving them much more closely in new system development and testing, especially on the Internet ordering process. By working through the issues with customers, providing them with demonstrations and accepting their feedback, Keith says Lubricants is winning over the ones who were irritated by the bumpy merger and implementation process.
"On the other hand, their comment back to us is: 'We're really happy you asked, but now we expect that you won't do anything unless you come back again and ask us for the final signoff.' That means it has to be a two-way street, it has got to be a continual information feed." Again, it's a situation that is proving both a blessing and a curse, Keith says. For one thing, there is no way the division can hope to get input from every single customer. Nor can it ever hope to get every customer to agree on any one issue. Some customers will inevitably have their noses out of joint at some time or other, until the entire process is completed. Keith is acutely aware of the need to manage that issue. "I probably, in my role, have spoken to more customers in the last six months than I have done in five years," he says. But is he enjoying this new aspect to his role? "Yes and no," he answers.
The Payoff
If the whole process has caused considerable upheaval, there is no doubt it has been worth it. "One benefit is that staff are getting a greater understanding of other people's roles in the organisation, because they are more reliant on them," Keith says. "And this is very much a go-forward platform. The true benefit for us is that I think we're in a position where, from an IT perspective, we can meet the needs of our customers.
"That marries with the vision of where we see the future in the development of our business unit. It really comes back to focusing on servicing the customer, giving the customer a number of alternatives in the way they are supplied with a product: how they wish to place their order, how they wish to have the product delivered, how they wish the information delivered back to them. "At this stage I believe we're probably in front of a number of [our competitors] in certain areas and behind in others," Keith says. "I know that some of our competition have already got warehouse management with barcoding and scanners up and running, and we know some of their results in reducing picking errors.
But in other areas -- as to providing Internet services and ordering, and enabling us to look back through the delivery process, we believe we're in front."
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