How to Realign ERP Apps and Slash Costs

Here's how Zarlink, a semiconductor maker, met critcal application needs after being told to cut IT spending by 40 percent. The company beat that figure by freezing SAP development-and increased productivity with specialized reporting apps and databa

Bill OConnor knew something was wrong when he was summoned to the chief executives office at Zarlink Semiconductor in April 2001. The economic downturn, in particular the collapse of the technology sector, had hit the Ottawa-based chip manufacturer hard. Revenues had fallen by nearly half from the previous years levels. Red ink was staining the balance sheet.

The market didnt know it yet, but Zarlink would report a first-quarter loss of $116 million (U.S.) on revenue of $105 million for the quarter ending June 29, 2001. That was a stark about-face from the profit of $28 million on revenue of $184 million the company had earned in the quarter a year earlier. Worse, reports from the field indicated that fiscal 2002 would be a bloodbath for the semiconductor industry.

The message that newly hired CEO Pat Brockett delivered to OConnor, his chief information officer, was blunt: Spending in the companys information-technology department had to be slashed, fast and deep. "It wasnt just a matter of cutting spending," says OConnor. "I was also being asked to increase the level of productivity."

Brockett gave OConnor his marching orders: He had one month to come up with a plan.

The company had other challenges. Zarlink had just been spun off from telecommunications company Mitel Networks as a pure-play semiconductor fabricator. During the technology boom in the late 1990s, Zarlink had acquired several competitors but never fully integrated their systems. That meant there was no single view of the newly independent companys financial reporting systems. Reports and records had to be pulled together by analysts to get a complete picture of the companys far-flung operations in North America, Europe and Asia.

Brockett, who had headed up National Semiconductors $1.5 billion analog and wireless group, was hired to begin the new chapter at Zarlink. OConnor was also fresh onto the scene from Singapore, where he had led Mitels Asian technology operations. Zarlinks previous CIO had left after the split from Mitel. OConnor had a background in finance, and Brockett wanted someone who knew how to crunch numbers to plot the companys technology strategy.


Click here to read a detailed guide on cleaning data, and its effect on reaching important reporting goals.

Zarlinks primary problem, OConnor recalls, is that as a result of the Mitel spin-off, the company inherited a technology infrastructure built for a much larger enterprise. Mitel had annual revenue of $1.6 billion just before the split, and its semiconductor division was responsible for about $600 million of that figure. But with the economic downturn, Zarlink was on target to record only $222 million in revenue in fiscal 2002.

Chief among the inherited systems: an SAP enterprise resource planning system installed in 1999 and 2000 at a cost of $24 million. Of Zarlinks 112-person information-technology staff, 36 were dedicated to the SAP system. The companys annual technology operating budget was $20 million, of which about $6 million was directly attributed to SAP.

Not only was SAP eating up a huge chunk of the companys technology budget, it was not delivering an appropriate return on investment. "We essentially had a system that was built for a company twice our size, and we werent getting the benefits out of it that we should have been," OConnor says.

For $24 million, Zarlinks management expected to have on-demand access to the companys key performance metrics, such as daily sales, receipts, sales backlog and inventory. But because SAP had never been fully integrated with the rest of the companys core applications, such as budgeting and forecasting, inventory management and human resources, reports had to be cobbled together by analysts each week. All told, the company had 70 to 80 different core applications running its operations.

"The I.S. organization was struggling when Bill came in," says information-systems manager Macrae Morse, who lived through the spin-off from Mitel. "We were working with I.S. fiefdoms and as a result, there was no single sense of financial truth."

Next Page: Hashing out a plan.