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The complexity of systems and software to run web-based applications has forced federal government agencies to consider building-block approaches that come from Enterprise Resource Planning (ERP). A recent study done by Federal Sources, Inc., part of the PRIMEDIA Business Information Group, projects that the Federal Government's demand for ERP systems will grow to nearly $4 billion over the next five years, from $2.8 billion in 1998. The Federal Sources study cites legislative and regulatory efforts, such as the Government Performance and Results Act of 1993 and the Joint Financial Management Improvement Program, as the primary incentives behind the move toward ERP. This insatiable appetite for new, dynamic systems that can grow with an organization and be outsourced mirrors the private sector. Providing greater access to information, integration with ecommerce, and tying disparate supply chain processes together make ERP software attractive for revitalizing government, as well as sales-driven corporations.

The Premiere Success Story in ERP for Government: The U.S. Mint

The first significant player in Federal Government to launch a full-speed ahead ERP initiative under the supplier PeopleSoft (www.peoplesoft.com) was the U.S. Mint (www.usmint.gov). If the U.S. Mint were ranked today alongside all ecommerce sites, it would be in the top 10 etailers, according to U.S. Mint officials. For two consecutive years, the U.S. Mint has received the highest customer service rating achieved by a government agency as measured by the American Customer Satisfaction Index survey conducted by the National Quality Research Council at the University of Michigan School of Business. The U.S. Mint is the world's largest coin manufacturer and has grown to a Fortune 500-sized international marketing organization with more than $1 billion in annual revenues and 2,200 employees.

As a case study, the U.S. Mint has become the quintessential crowning jewel in the "Why ERP Now" question within government ranks. The agency's COnsolidated INformation System (COINS) was the first enterprise resource planning system implemented in less than one year within the federal government. Other large agencies have begun to study and explore ERP initiatives, including the National Institute of Health (NIH). However, the U.S. Mint has taken the leadership role in defining advantages, knowledge-sharing and building loyalty amidst its ranks for a PeopleSoft solution that works and scales throughout the organization.

"Our legacy systems at the Mint were reviewed in 1986. We had a Cobalt-run system. We also had separate programs for marketing, and inventory, for example. Our systems were not at all integrated," explained Philip N. Diehl, director of the U.S. Mint. This caused a discussion about the Y2K problems facing the U.S. Mint and ultimately a commitment to completely integrate operations. "It was clear to the entire organization that it was to our advantage to look at an ERP implementation. It was painful--we had to do a full sweep in 12 months. Usually a business gives itself 24 to 36 months for this. There were some very tough tradeoffs, but the support for ERP was clear," Diehl explained.

What made this decision timely and swift began at the top of the organization. All geographical locations were involved, bringing in the bottom up element. "We forced ourselves to use the best in business practices. And, we recognized the human element that was to be required to implement ERP. We did some crucial things right," Diehl added. The U.S. Mint was aware of the ERP disaster stories and the horrible lessons found on the pages of the Wall Street Journal, so it took a business process re-engineering implementation approach.

Jackie Fletcher, CIO for the U.S. Mint, spoke of the last 15 months as a textbook for other agencies looking to do an ERP implementation. The ERP contract, while won by PeopleSoft, actually went to another reputable ERP vendor first. It was a $40 million life-cycle implementation at stake. Top management at the U.S. Mint decided the ERP software vendor should be responsible for implementation, and PeopleSoft adopted that business model. Based in Pleasanton, CA, PeopleSoft employs 6,500 people and had 1997 revenues of $815 million. In 1998, the U.S. Mint began to implement a total of 15 PeopleSoft application modules at its six sites in Washington, Philadelphia, Denver, San Francisco, West Point, N.Y., and Fort Knox, Ky. with a total of 1,200 users. They included the modules of financial management, project management, sales and logistics, and production management applications, as well as enterprise planning, production planning, production management, bills & routings, cost management, inventory, purchasing, order management, general ledger, accounts receivable, billing, accounts payable, budgets, and asset management.

The first priority of the ERP implementation went to accounting and accountability issues. "Six years ago, we were a basket case in financial management. Today we have the best processes in place," said Diehl. CIO Fletcher also cited the immediacy and reliability of financial information as having a profound impact. "We would struggle to close the quarter 30 to 60 days after it ended, several years ago and so the business ran on instinct. Today we close the books within 10 days," Diehl said. The CFO Act, and a series of related legislative acts, imposed outside independent accounting audits, forcing the U.S. Mint and other agencies to look for speed in this area.

The Mint has received eight Hammer Awards and two National Partnership Awards from the Vice-President of the United States recognizing a wide range of customer services, labor management, and business process improvements. The second profound change coming from ERP processes was the availability of timely information on sales and assets. The ongoing analysis and response to market opportunities has made the U.S. Mint one of the best eretailers on the web today. "Five years ago we could not have told you what it would cost to produce a product. We didn't have sales targets--there was no point in trying to measure performance in that environment," Diehl said.

Today the U.S. Mint has real-time databases that can follow an order through the mail, the web transaction, or a phone transaction. Real-time reports can be run on sales and revenues. It was December 1997 when the U.S. Mint took the plunge into ecommerce with a simple catalog; and by late April 1998, secure online ordering became a reality. In the beginning there were $2,000 weeks, and by Oct. 1999 last year the revenue stream had hit $10 million a month. The U.S. Mint finished the fourth quarter of 1999 at $26.5 million, an increase of 114 percent from the previous quarter, and the numbers are not stopping their rise. Sixty percent of the U.S. population now collects coins. The state coins release program, one new coin every 10 weeks, has been resoundingly successful due to the scalability of the PeopleSoft system, according to Fletcher. For example, on Oct. 18, 1999 the coin for Connecticut was released, 7 million quarters, and sold out in 4.5 hours.

By Jan. 11, 2000, with the release of the Massachusetts coin, there were 20,000 simultaneous visitors waiting online to buy. "This did tax our site. Web traffic doubled in the last six months. ERP allows us not to be crushed by traffic. Scalability and instant analysis of performance are critical," Diehl said in February 2000.

PeopleSoft products at the U.S. Mint have also been supported by two other software tools with scalability and versatility, MACS--a mailing order and customer service system, and a CRM(Customer Relationship Management)-tailored package by Boston-based Marcus. The U.S. Mint management have found that while ERP is a solid framework, there is no panacea. There was no significant CRM in the ERP Peoplesoft package in 1999. "And, this would be useful to us," Fletcher cited. In January 2000, PeopleSoft did complete its acquisition of Vantive Corp., a developer of customer-relationship management applications, in a stock deal valued at $547 million. PeopleSoft says the acquisition will let if offer a full line of E-business applications by integrating Vantive's CRM and Ecommerce software with its existing applications. Fletcher and Diehl indicated that the one of the strongest lessons learned in the last two years has been the importance of a customer-friendly ERP vendor. "The ERP market is heating up very fast. There is great potential for ERP in this town. Federal laws relating to financial reporting and performance management are driving federal agencies to these solutions," Diehl concluded.

For the U.S. Mint, several new phases of ERP will follow in 2000 and 2001, including more training of the nontechnical workforce. The PeopleSoft human resource modules will be added which will allow for automated data collection. In 2001, the U.S. Mint will use activity-based costing, and outsource more of its customer relationship management functions. ERP functionality will continue to grow in the next two years alongside federal agency requests for more integration. Many ERP vendors have announced significant developments which could assist in landing federal government contracts. Enterprise application vendors are beginning to integrate ecommerce capabilities, including internet-based procurement. The opportunity to increase their stronghold within existing clientele, growing user demand, and the desire to be the enterprise backbone makes the applications a big push for 2000, according to AMR Research.

SAP, Inc., for example, is heavily promoting its B2B Procurement module. Perhaps its weakest link is in external content management, AMR Research cites. SAP expects to catch up quickly in ecommerce areas and looks to have a major impact on its installed base. Its online store includes catalog, shopping cart, order processing, and status tracking and supports SSL and SET for security.

Another large ebusiness player, Oracle, have promoted a web employee module including desktop requisitioning for some time, however users must convert to the Internet Computing Architecture to gain all benefits and that conversion has been slow, according to AMR Research. Oracle's iStore component offers catalog management, personalized presentation, integration into its Call Center and Telephony Suite for human interaction.

General Services Administration's Federal Technology Service Focuses on ERP

Looking at the options from all large ebusiness contenders will play a role in streamlining government and one federal arm will assist in identifying the right approaches. After more than a year of research and analysis, the General Services Administration's Federal Technology Service has determined that ERP systems and services will enable federal executives to achieve dramatic improvements in internal operating efficiencies while enabling unparalleled flexibility and speed in the retrieval, analysis and delivery of information for policy-makers and citizens. The research indicated that ERP systems will help eliminate redundancies in data entry, storage and processing between federal financial services, human resources, logistics, and service delivery functions. Benefits are derived by using embedded, switch-selectable
business process re-engineering modules along with a new generation of distributed, World Wide Web-enabled architectures.

The General Services Administration's Federal Technology Service will initiate a new "product line" group to help agencies deploy ERP, amongst other technologies. The six reasons listed on why industry and agencies should using FTS as their partner were described as:

1. FTS can bring in commercial partnerships and the government lags behind the private sector in adopting those technologies.

2. FTS will assist as a help desk in getting agencies to make the best use of powerful new solutions. Agencies must determine the right systems and support services to fulfill their objectives, handle dynamic change in operations, and avoid schedule slippage, cost overruns, technical pitfalls and transition issues.

3. FTS will become the "market-maker" in the federal sector for these technologies. The size of the federal market is enormous, and FTS assessments show ERP demand will exceed $1 billion annually, however current federal spending has not reached even 5 percent of the potential.

4. FTS will enlist commercial market leaders with longevity in service delivery and extensive product offerings, some of which are not serving the federal sector.

5. FTS will establish pilot programs and demonstration areas for ERP systems, particularly to agencies where the conept of use is new. This allows vendors to provide the necessary information and hands-on time to explain how and why their solutions apply in specific environments. All federal agencies will have an opportunity to evaluate and share their knowledge base.

6. A matchmaking service will be setup by FTS to allow for the rapid facilitation of federal agencies with specific needs, making their request for proposals to the appropriate ERP vendor. Contract vehicles will be presented to assist in this process.

Federal spending on IT professional services, and outsourcing will be critical drivers of growth in ERP implementations within the federal IT market over the next few years, according to INPUT.com's comprehensive study, Federal Information Systems and Services Market Forecast, 1998-2003. INPUT, an IT information and marketing services firm, anticipates growth at 6% in federal spending for vendor-furnished IT hardware, software, and services, reaching $33.8 billion in 2003.

"Technology is no longer seen by government as merely a support function," states Brian Haney, Lead Analyst for INPUT's Electronic Government Program. "The Administration is now viewing IT as a process enabler-a key ingredient in its efforts to accomplish its missions," he added.

"Traditionally the government has used outsourcing services predominantly in data center operations. Now we're seeing a growing interest among government agencies to outsource a broader range of functions, including desktop services, network management, and business operations," says Kevin Plexico, Vice President of INPUT.

Analyst Haney added, in a recent report, "As the federal government downsizes and decentralizes, it will look to ERP applications for assistance in operating efficiently in a more geographically dispersed environment. Implementation and maintenance of ERP software as well as Internet-enabling of that software will be one of the key growth areas in the federal market."

ERP for Aerospace and Defense Contractors Comes of Age

Defense contractors have also begun to use ERP in their replacement of legacy systems, particularly last year as a way to address Y2K concerns. In late 1998, the Defense Contract Audit Agency (DCAA), the Defense Contract Management Command (DCMC), and the defense-related industry associations decided to look at ERP systems and their effects on government contractor practices and costs. Last year a study team was assembled to analyze large ERP site implementations at several large defense contractors. The site visit list included:

--Lockheed Martin Vought Systems in Arlington, Texas
--Rolls-Royce Allison in Indianapolis, IN
--Marconi Aerospace Systems, Inc. in Wayne, NJ
--Boeing Military Aircraft and Missile Systems Group in St.    Louis, MO
--Northrop Grumman Electronic Sensors & Systems Sector in    Baltimore, MD
--Lockheed Martin Aeronautics Sector in Kennesaw, GA
--Lockheed Martin Missiles & Space in Sunnyvale, CA

Several ERP system software suppliers currently are doing business with the defense industry and have developed Aerospace & Defense (A&D) industry-specific solutions that are integrated with their core systems.

The current A&D ERP market is dominated by SAP of Waldorf, Germany, according to the study. Other suppliers to this market include BaaN (Netherlands), and PeopleSoft. Industry associations have taken an interest in promoting ERP as the answer for phasing out legacy systems and for ecommerce or EDI integration. They include: Aerospace Industries Association, Electronic Industries Alliance, and the National Defense Industrial Association.

The study completed last year by DCAA and DCMC concluded that there were positive implications on the DoD acquisition community, including the expected use of supply chain management, EDI, government-industry collaboration, and systems integration. As a general rule, the ERP systems implementation costs were 80 percent process reengineering, communication, education and training. The remaining 20 percent went to the software purchase itself.

Most of the sites visited indicated that the manufacturing operations portion of the ERP system had not yet been implemented. In 2000 and beyond, they said they will focus on modules involving borrow-payback, Defense Priorities and Allocation Systems, configuration control, and Earned Value Management Systems (EVMS). According to summary results, no regulatory or policy impediments to ERP were identified. Current government risk based management and auditing approaches are applicable to ERP systems. Study co-team leaders, Stephanie Strohbeck of DCMC, and Michael Weisz, of DCAA, indicated that there was a significant benefit at those sites where government personnel were involved early in the contractor's planning and implementation of their ERP systems, even if only status presentations were given.

The study observations demonstrated:

1. Total ERP system implementation costs could be in excess of $300 million for a complex, multiple facility configuration. Actual or projected savings are in the range of 2-to-5 year payback.

2. A major benefit of the installed base observed was the significant reduction in legacy systems. For example, the study said the typical legacy environment could range up to 1,000 systems with up to 80 percent replacement by an ERP initiative.

3. Strong executive support, reinforcement and involvement in the selection process was considered key in its acceptance and for adequate funding.

4. Little or no change in software code was necessary--commercial-off-the-shelf (COTS) with robust efforts to use its functionality worked.

5. It was recommended that 10 to 15% of the implementation budget be allocated to training, based on the site visits. Contractors generally experienced higher than normal attrition, as high as 30 percent of the internal core team, of skilled ERP personnel during implementation and after "going live."

6. Surprisingly, no contractors were yet using EDI or Internet-enabled features of the various software packages. However, it was thought in the upcoming years this functionality may be phased in.

7.Contractors were not integrating supply chain management into their ERP implementations either. Two sites were considering partnering with one another to incorporate this functionality in their systems.

8. Some discussions between DCMC and contractor personnel indicated ERP might be tied into Integrated Digital Environment (IDE) efforts to maximize the use of ERP system functionality for civil/military integration.

The recommendations of the study team indicated that Government should communicate ERP approaches and actions felt necessary to field personnel. In addition, government participation in industry ERP user groups and conferences was considered very important to share lessons learned.

Software like SAP's Business Engineer and BaaN's Orgware provide ERP support for reengineering processes. The study team leaders indicated that respective industry association technical committees in the American Production and Inventory Control Society and the Institute for Internal Auditors should choose to focus on developing key performance metrics and critical success factors for relevant ERP standards.