3/22/2010

By Tom Sawyer:
One growing pain many construction companies endure comes from a need to shift business and project management processes to a system that integrates data across all processes. Enterprise resource planning (ERP) systems do just that, and there is an upsurge of interest in them. But vendors and companies aren’t consistent when they use the term, and excessive claims are made.

PROJECT: Robert Diemer Water Treatment Plant 
PLACE: Yorba Linda, Calif.
BENEFITS: ERP pays off for Shimmick on a $190-million project, tracking 600,000 hours of time and labor.
 

As an idea, ERP, when used to unify data and processes and efficiently address well-defined business-management issues, is spot-on, convinced adopters say. Further, with improvements in hardware and software, the transition to ERP is getting more manageable all the time.

“When they use the term ‘ERP,’ it means different things to different people,” says Scott Fairgrieve, CFO at Shimmick Construction Co. Inc., Oakland, Calif. “The attraction is the ideal of having a fully integrated system at your company, rather than having an estimating system, a scheduling system, plus job costing, human- resources and equipment-maintenance systems. It’s having as much [integration] in the same system as possible.”

The phrase “enterprise resource planning” comes out of the manufacturing sector, in which software was applied to automate the process to make sure the flow of materials and resources continuously matched the needs of production and that the accounting system was keeping up.

Manufacturing is a big market, and many big companies have revenues in the billions. Many of those manufacturers’ ERP needs, as well as those of some of the larger construction firms, are addressed by major foundation-technology vendors like Microsoft, SAP and Oracle, with its JD Edwards Enterprise One suite of applications. These are commonly referred to as “Tier 1” vendors. Industry and sector-specific variants are crafted by resellers and partners and then specially customized to a firm’s needs by integrators and internal IT departments.

“Microsoft, Oracle and SAP all have grand ERP strategies. They all want to be the ERP solution for everyone,” says Christian Burger, president of Burger Consulting Group Inc., a Glen Ellyn, Ill.-based firm focused on information systems in the construction industry. “They are powers of industry, and they see this as one untapped market,” Burger says.

The demarcation of tiers quickly begins to blur, but the “Tier 2” vendors generally serve customers with an annual revenue of $500 million or lower. There is a range of costs, features and customizability, but Tier 2 includes most of the products designed for a particular industry’s use—like construction. These products can share adaptation capabilities and even software architecture with the Tier 1 products, but they are built more around bolt-on modules and out-of-the-box functionality than their more sophisticated siblings. Further, Tier 2 products require significantly less care and tending, although that varies depending on how detailed the customer wants the tailoring to be.

Market leaders vary by sector served, according to the results of the Construction Financial Management Association’s “2010 Information Technology Survey for the Construction Industry,” released on March 5. The more widely used products—job cost, accounting and payroll—can be integrated with project management; CMiC, Viewpoint, Penta, Computer Guidance Corp., Sage Timberline and Maxwell Systems all offer such products. “There is huge variation in the capabilities in project management and in the size of the companies [the vendors] would be able to support,” says Angus Frost, managing director at Burger Consulting.

“The Tier 2 companies offer out-of-the-box functionality in the tier they own,” says Burger. Some things that differentiate within Tier 2 companies, he says, are the development platform; product maturity; functionality; the ability to handle complex, multistate union payrolls; the availability of an equipment application and integration with a sophisticated project-management tool.

 

The difference between Tier 1 and Tier 2 further blurs as the software’s underlying technology ages and its market share goes down. While many vendors offer point-specific solutions and bridges to various business functions, clients are asking questions of ERP offerings: Will the system rise to the demand for real-time information? Can it adapt without significant redevelopment to meet ever-changing needs?

Some companies decide to just keep on the same path; others decide they can’t afford to wait to strengthen the data-management backbone of their organization.

The first hurdle is the marketplace: There are an enormous number of options available to construction-industry users. Approaching the process of selecting an ERP system and converting operations is a daunting task. But interviews with decision-makers at companies that recently have navigated the process suggest it doesn’t have to be one of those too-painful tasks that always gets put off for another year.

Still Not Easy

“Anybody should flinch when approaching this topic,” says Tom Garrett, vice president and CIO at Brasfield & Gorrie LLC, a general contractor in Birmingham, Ala., with 2009 revenue of $1.9 billion. Garrett said the company decided it was outgrowing its Computer Guidance Corp. system a few years ago and began to study its options.

“The real decision is that you have to decide what you want and then figure out whether you can afford it,” Garrett says. The company spent two years researching and eventually cut its short list down to two: JD Edwards and CMiC.

“CMiC did a demo and blew everybody out of the water. If we had voted right then, we would have gone with it. But as we got deeper, our team did a wise thing: Each of the groups that had input—accounting, payroll, HR, project management—prepared white papers. They said, ‘This is our preference and why. We could live with the other one, but there will be the following shortcomings … ’ ” The exceptions were so significant that “they turned the ship,” Garrett says.

Following up on the vendors’ customer references also proved valuable, although all loved the products they had—“predictably,” laughs Garrett. CMiC customers were very focused on their construction and did not want to support heavy IT staffing. JD Edwards users cited their work with owners who require specialized data-report formats that could best be served by tailoring the system. “In those cases, each company had a large IT department,” says Garrett.

That is the way Brasfield & Gorrie works as well, Garrett adds. “We are accustomed to giving our customers what they want. We have unique requirements, and we have some special things that we have to be able to do. The only way [to do them] is to have a package that will let us do those things.”

Implementation took 18 months and was done in two phases, with the general- ledger function going live on Jan. 1, 2009. “Five months later we did everything else, including a very tight integration with [Meridian] Prolog [project-management system].”

“It was a hard road and a lot of work, but at end of the day we are very happy,” Garrett says. “The cost to implement was pretty steep. It’s not a decision you take lightly. Whatever the cost of the software, the true cost is double that,” he says. With normal maintenance fees of about 20% a year, he says, “you buy it twice in five years.”

For the firm, there was one other benefit no one expected: The process of analyzing product pros and cons gave everyone involved a better sense of the larger corporate purpose, he says.

Patchwork Quilts

Another large construction firm, Webcor, San Mateo, Calif., with revenue of $1.4 billion last year, went down a very similar path, but its decision broke the other way. It selected the relatively “out of the box” CMiC package over either of Oracle’s ERP offerings, Oracle Business Suite or JD Edwards Enterprise One.

Gregg Davis, senior vice president and CIO, says the company started going live with the new system in November 2009, replacing a “patchwork quilt” of programs, databases, links and bridges. “There were a lot of puzzle pieces in the database to put this quilt together. It kept tearing at the seams,” says Davis. Without an integrated project management and accounting system, “We weren’t getting the metrics and data to keep our finger on the pulse of the company,” he says.

 

In the old system, each one of those applications was a silo. “People knew how to do tricks and hide things and shift things around,” Davis says. “We got rid of or shut down 11 different applications or homegrown brews or Excel spreadsheets. Now it’s all in one ERP system, and when you post it to the database you can’t hide anything.” That feature helps executives to quickly see when managers are getting into trouble on jobs and add resources to help them. “We have a dashboard, and executives monitor the pulse of every job in real time vs. two months later, when it is too late to do anything about it,” he says.

Davis adds, “in fairness,” that other products probably also work well in similar ways. “When you go to that layer of sophisticated software, those are the kinds of benefits companies are going to get,” he says. “It really came down to the feature set and the company and culture and salespeople and what each of our teams would get out of them.”

Over the course of a year, Webcor has implemented all the CMiC modules except customer-relationship management. It brought equipment and rental management into the system last month. “It’s not like QuickBooks, where you set up and off you go, but it went very well,” he says.

Burger advises clients to consider the effort of implementation and the likelihood of successful adoption by the ultimate users—the staff— as costs and risks to weigh when selecting systems. Some companies clearly believe they need tailored Tier 1 products, but those products will require more IT support.

“It’s not a question of Tier 1 being better. That’s not relevant. [Tier 1 and Tier 2 systems] both have their pluses and minuses. The question is, which one is right for me?” Tier 1 is pushing down-market, Burger says, while some Tier 2 vendors, like Viewpoint, are using technology such as Microsoft’s “.net” development platform to enable customized features. These tools let users change the way screens display, add fields and tables and change some report-writing characteristics.

Burger says, “This raises the question, if Tier 2 is less expensive and works out of the box and takes less time to implement, why go to Tier 1?” One reason is that Tier 2 products do not have the customization layer that Tier 1 products have. “That really changes the way the software functions,” he says.

The customization layer lets programmers make changes for the client without changing the source code. It is used to build vertical ERP products for various industries. “The whole point of breaking the layers apart is that you can take advantage of new technology without having to re-engineer the customizations,” Burger explains.

Adds Burger’s partner Frost, the functionality of Tier 1 products is deeper in areas like HR, general ledger and accounts payable. Tier 1 tends to be the choice for companies dealing in international markets and currencies, as well, and for “certain companies, it’s part of the culture—‘Only purchase Tier 1,’ ” he says.

Shimmick Construction’s CFO Fairgrieve said his firm implemented Viewpoint for its ERP system two years ago. ERP is making complex jobs—like the firm’s Robert Diemer Water Treatment Plant project in Yorba Linda, Calif., a $190-million joint venture with Obayashi Corp.—manageable and the company more competitive.

“With over 600,000 hours budgeted, we need to make sure we are tracking labor productivity. We enter both labor hours and production quantities every day into the ERP system at the jobsite, which gives us real-time information and allows us to react quickly to issues as they arise,” says Fairgrieve.

Before the implementation of Viewpoint, all cost reporting was done offline in Excel, he says. Accounting and project management were two separate systems with duplicate entries. Says Fairgrieve, “All that useful data isn’t part of our ERP system. It’s in a spreadsheet somewhere, and if you want to go back to some earlier job to check something … well, ‘That was on Bob’s laptop, and Bob is not here anymore.’ ” He says the company is working on incorporating its legacy data.

 

“We are a lot further along than we wer­e—significantly further along,” Fairgrieve says, adding that he looks at moving to a complete ERP solution as an elusive continuum. Viewpoint does not have a scheduling module, for example, so Shimmick integrates with Primavera.

Equipment Advantage

One of the ERP system’s important contributions is the equipment module, which Shimmick ties to a remote, fleet-management data-collection system from Seattle-based Zonar Systems. Notes Fairgrieve, “It’s helping us more carefully manage our equipment. We’ve got a fairly good size fleet—$20 million or so—and we had a pretty rudimentary way of tracking equipment costs. Now we are in the 21st Century.”

The company has a profit-and-loss analysis for every piece of equipment. “We have dual rate charges: an ownership rate based on time and an hourly rate based on usage. You blend [the rates], and that’s what you charge for equipment,” he says.

He says Shimmick discovered it had been overcharging jobs because it didn’t know what equipment actually cost. “Our equipment division was always profitable, so we knew we were building too much equipment cost into the [estimate] vs. our competitors.”

Cold Turkey

Another Viewpoint user, Gulf Industries, Inc., Mandeville, La., may have come the furthest in a single jump with its implementation. The 30-year-old firm supplies and installs safety products for highways and bridges. According to CFO Monica Hodges, the firm’s sales have grown in the last five years from $35 million to $75 million. It has a complex structure of several companies, each supplying the others. Gulf works in multiple states and regulatory and tax jurisdictions­. Until five and a half months ago, it did it all with a 25-year-old, customized but never-updated DOS-based system.

The company’s founding owner, who died two years ago, didn’t like computers, Hodges explains. “He installed them 25 years ago but was not interested in upgrading.” Everything was done manually with little integration. The software was an accounting package that tracked job costs for only direct costs. “You could not burden the job,” she says. “It did not automatically balance job costs. General ledger reconciliation was a nightmare.”

But in one detail, Gulf Industries was ahead of its time. Hodges says it had negotiated with its bank a decade ago to set up a bill-payment system that let it upload accounts-payable data to the bank, which made direct deposits and cut and mailed checks. “You see it with Quicken and with personal banking, but you don’t see it in businesses like ours,” Hodges says. The company’s in-house programmer wrote code to trigger e-mail and fax notifications-of-payment to vendors. “We started 10 years ago,” she says. “We were early.”

Hodges, the subcontractors and suppliers all loved it, but the company could not find an ERP solution that could do the same thing. It also wanted a vendor that could handle Gulf’s web of intercompany sales—and it almost failed in that, too. But at the make-or-break time in negotiations, the representative from Viewpoint found a way.

Gulf Industries went “cold turkey” and implemented the new system without converting and importing its old data. It went live in 14 weeks. “It was a choice of converting everything or just carrying the balance forward with a minimum amount of history and starting out clean,” says Hodges.

The CFO acknowledges how challenging the transition to an ERP solution can be, echoing a widely held sentiment in the industry. As Hodges says, “This year is going to be the hardest year. Then we are going to move forward.”