British American Tobacco (BAT) is a 99-year-old company in the tobacco industry that has grown to be one of the top three global players through organic growth and acquisitions. Formerly B.A.T Industries, it spun off its financial services business in 1998 and merged with the global cigarette company Rothmans International in 1999. BATs local and international brands are sold in six world regions: Africa, America Pacific, Asia Pacific, Europe, Latin America, and Mesca (Middle East and Central Asia). Corporate headquarters for BAT is based at Globe House in London.

The IT function at BAT

The information technology (IT) function within BAT mirrors the overall company structure. Peter Brickley, the global CIO, is located at Globe House and has direct reports with responsibilities for IT infrastructure, IT service delivery, e-business and business system initiatives. Under Brickley, there has been an increased emphasis on global strategies to help reduce the costs of implementing integrated IT solutions and ongoing IT service delivery.

BAT currently delivers IT services via three data centers that are geographically located in Europe, North America, and the Asia Pacific and are governed by regional management. All three data centers now operate under a shared services model: by consolidating IT operational support functions as the regional level, economies can be achieved.

In the Asia Pacific region, a data center was established in Malaysia in early 1999. Since that time, it has evolved into a shared services organization (Asia Pacific Shared Services APSS) that combines two business streams: a data center and a competency center (center of excellence) for SAP.

Changing business environment in Taiwan

Prior to January 2001, BAT Taiwan was a branch office of BAT Services, Ltd, UK, with responsibilities for trade and brand marketing only. After the tobacco market in Taiwan was liberalized in 1987, imported cigarettes were allowed to be sold via local agents. Initially, BAT brands were sold in Taiwan through different distributors. In 1992, the importation and distribution of all BAT brands in Taiwan was consolidated with one sole importer/distributor. After the merger of BAT-Rothmans, BATs sole distributor and Rothmans sole distributor were merged. Taiwan has more than 70,000 retail outlets, of which about 4,000 outlets are under five large convenience store chains that currently account for 43% of BATs volume.

Taiwans business environment has been undergoing some major changes due to major bilateral negotiations in preparation for entry into the World Trade Organization (WTO). To provide a more level playing field for international tobacco companies, Taiwan Tobacco will have to be dissolved and legislated changes in tobacco taxes will be implemented. These actions will have significant impacts on pricing, market size and profitability.

In the face of these changing market dynamics, BAT Taiwan commissioned a Full Market Potential Study. This study identified Taiwan as one of the key profitable growth markets in the Asia Pacific region. However a change in business model would be necessary to grow the business and to reap supply chain savings.

Under the new business model, BAT Taiwan would be directly importing its own products and selling directly to key accounts (e.g the big five convenience chains) and its distributor. The plan was to begin direct importing by January 1, 2001.

The ERP choice for BAT Taiwan

The new business model for BAT Taiwan created a need for a new computer system for functions and processes not previously performed. The Taiwan end-market needed to have its own accounts payable and accounts receivable systems because BAT UK had previously handled these functions. It also needed a system to support direct selling and inventory management for multiple sales channels, not just for a single distributor.

Although Globe House sets strategy and dictates the standard IT platforms, each end-market chooses which ERP platform standard to implement, as well as when to implement it. During 1999 and early 2000, several BAT regions had implemented SAP R/3. Within the Asia Pacific region, R/3 projects had been carried out in Australia, Malaysia, and Singapore. The Asia Pacific region was using three different SAP R/3 templates to satisfy area needs. Because of the success of these projects and growing pressures for common data standards, it was expected that SAP would become the solution for all end-markets over time, if it could be implemented at a reasonable cost.

An internal study by enterprise system experts from various BAT units in the Asia Pacific was conducted in July 2000, and the recommendation was to implement SAP R/3 in two phases for sales and distribution (SD), materials management (MM), financials (FI), and controlling (CO). Phase 1 would support direct importing and distribution to one customer (former distributor) and would be operational by January 1, 2001. Phase 2 would support direct sales and distribution to key accounts and would be operational within a further six months.

Selecting an implementation partner for BAT Taiwan

For a new, still small, Taiwan end-market, project costs were a very important consideration, so the decision was made to not request a bid from an external consulting firm. Both the BAT European shared services and the newer Asia Pacific shared services organizations were invited to submit proposals for BAT Taiwans R/3 implementation as well as ongoing operations and support. The decision was made to go with APSS (Asia Pacific Shared Services) for a number of reasons including a high confidence in the SAP functional and technical expertise in the Asia Pacific (AP) region, lower personnel costs in the AP region versus Europe and the same time zone. There were also some natural synergies with APSS that would help with communications; for example, APSS could support the Chinese language that is used exclusively for business transactions in Taiwan. In addition, compared with an external consulting firm, the fact that the APSS team knew BATs business really helped.

They [APSS team] added a lot of value. When we needed to decide how we wanted to configure something, they would say the BAT way is this.
H.Y.Lim, Project Co-Lead, BAT Taiwan

BAT Taiwans SAP R/3 project

The APSS (Asia Pacific Shared Services) project plan for Taiwan outlined a fixed-cost implementation budget of $100,000 for Phase 1 and an estimated budget of $50,000 for Phase 2. The project cost was based on several assumptions one key assumption related to the use of the template developed by APSS and used in Singapore (BATS). By using this template, BAT Taiwan could leverage BATs best practices for the new business processes, in particular for the financial and controlling modules. The four primary business processes would be order-to-cash (accounts receivable), requisition-to-payment (accounts payable), inventory management, and plan-and-manage enterprise that includes profitability analysis. R/3 Release 3.1H would be implemented for Phase 1.

Very few of our people had any experience in actually using an ERP system; they didnt have an integrated system view of things. So we depended a lot on the proven template. As a team we said there should be minimal, minimal changes to the template. We dont want to change the system and get away from those embedded best practices.
H.Y.Lim, Project Co-Lead, BAT Taiwan

Initial project schedule

The original schedule was to implement the R/3 modules in two phases. Phase 1, started on 25th September with the project kickoff, and was to be completed by 2nd January 2001 (SD, MM, FI/CO). Phase 2, to be completed by June 2001, would involve implementing the additional modules needed for direct sales and distribution to key accounts. In addition, it would require interfacing a third-party invoicing system required by the Taiwan government to R/3, as well as a Chinese language module to support the production of reports in the official Chinese language for the area offices.

The project team was co-led by a BAT Taiwan business manager and an experienced IT project manager from the area office in Hong Kong. The APSS project team members included a team leader responsible for process integration and three full-time application consultants who worked on-site in Taiwan. Two APSS technical team members worked primarily from APSS headquarters in Malaysia. Seven BAT Taiwan employees were selected to be the power users none of them had prior experience of SAP, yet were considered fast learners who would be able to pick up the new system quickly. Three other BAT Taiwan business managers participated as needed in business process owner roles.

The good thing about Taiwan is that most of the managers here are pretty new in the organization. They are young, well educated (many have MBAs), and have a high level of computer literacy. They are open-minded and are more prepared to take on changes. They knew that whatever we were doing in the past, things were going to be different, and they knew that what we had was cumbersome, that we could not go forward with a bunch of non-integrated systems. They welcomed the [SAP] system; this was going to help them do their job. Their commitment level was extremely high. So the credit is due to the people themselves.
Mah Yong Tian, BAT Taiwan Country Manager

Scope change: moving forward Phase 2

Initially, the plan was to complete the Phase 1 development and testing within eight weeks to provide a buffer for training the business users in not only the new system, but also in the process changes associated with the new business model. However, a few weeks into the project, the project leaders recognized that some of the Phase 2 changes would already be done in the initial configuration, so it might be possible to move Phase 2 forward. They believed that Phase 1 could be completed easily within the eight-week period and that the team members could then focus on Phase 2 (renamed phase 1B) prior to the January implementation. The new Phase 1B included the two requirements that were specific to the Taiwan implementation: the government-designed invoicing system and the Chinese language module.

The impact of this decision greatly increased the risks of the project from both an IT and a business perspective. These additional requirements increased the technical complexity of the initial implementation, as well as the need for training on additional business processes. A formal review was conducted to reassess the risks and it was agreed that the office was under-resourced given the new, accelerated timeframe. BAT Taiwan hired additional temporary staff to help with regular operations to free up the business team members during the user acceptance-testing phase and renegotiated the APSS contract to ensure that APSS team members would stay longer than originally anticipated following the January rollout to provide support.

New Challenges

Although SAP Taiwan was developing the government-designed invoicing system (GUI) for BAT Taiwan, it could not deliver the system prior to January 1st 2001 to meet the accelerated schedule. Because the Phase 2 functionality had been moved forward, BAT Taiwan had to interface a bolt-on third-party GUI system from a local supplier to its R/3 system. The Chinese language module was needed to print reports and SAP Malaysia offered to help, but did not have the resources to do it before mid-March. Again, BAT Taiwan had to select a bolt-on system to ensure that the system would print correctly in Chinese.

User Acceptance Testing and Change Management

Because of the change in BAT Taiwans business model, the change management activities associated with the SAP implementation involved defining new staff roles, communication with all personnel, as well as providing training for those involved in the new system. Additional users received overview training from the APSS consultants. A key challenge here was how to convey the integrated nature of the system when most people were used to focusing on a single function.

Quality Reviews

Globe House provided funding for two quality reviews. SAP Taiwan was selected to do the first review after the user acceptance test. This review took place in early December and took the form of the quality check for the Final Preparation Phase in the SAP ASAP (Accelerated SAP) methodology. The results were positive and the project team prepared for the final steps: data conversion on 29th December and go live on 2nd January 2001. The second review, a formal Post Implementation Review, sponsored by Globe House, was to be conducted toward the end of March 2001.

Go Live

The Go Live went according to the revised project plan with one major exception: the government-designed invoicing system (GUI) was not integrated with R/3 until mid-January. Instead, a backup plan relying on the resources of BAT Taiwans long-time distributor was utilized. Two APSS team members remained on site for six weeks following Go Live to support the users in learning the new processes and the completion of phase 1B. By February the new order processing was going smoothly.

The Asia Pacific Shared Service center (APSS) runs BAT Taiwans R/3 system in the same client as those for Singapore and Thailand, which was implemented in late 2000 also using the Singapore template.

Conclusion

We needed a new system to support the new business model. Accounts payable and accounts receivable had never been done in Taiwan before, and the timeline was very short. We told them SAP is not new to Asia, and if it works in operating companies similar to ours (like Singapore) there is no reason why it should not work for us. Furthermore, the integrated information derived from the SAP system is going to help make our jobs more efficient and meaningful. There was a huge buy-in.
Mah Yong Tian, BAT Taiwan, Country Manager

In summary, the recent SAP implementation in Taiwan marked an important business transition for the Taiwan market, and it also represented a big victory for insourcing an SAP implementation at BAT. The BAT Taiwan project, in particular the implementation approach and management of the project, is a valuable case study that could be amplified as best practices to other parts of the Asia Pacific region and for BAT as a whole.