Reference no: EM13837059

Winning The Bet

International Game Technology (IGT) is a leading manufacturerof slot machines and lottery machines for casinosand government lotteries. Headquartered in Reno,Nevada, with sales headquarters in Las Vegas, the companyalso maintains sales, manufacturing, and servicesites in Africa, Australia, Europe, and South America. ItsReno site alone produces 140,000 machines annually. Ithas been profitable for many years. In 2005, it had aprofit of $437 million on revenue of $2.4 billion, apparentlya situation that would lull executives of other companiesto think "If it ain't broke, don't fix it." Not IGTmanagers.

Until 2002, each business function had its own informationsystem. IGT had different systems for handlingsales, customer orders, manufacturing, and accounting.When managers wanted to receive information about a specific customer order, they had to go to each functionalunit to receive a different piece of the information:customer details from the sales department, status ofthe machines being manufactured from the manufacturingunits, and payment status from accounting. Theaccounting department itself had several software applicationsthat handled different books, such as accounts receivable, accounts payable, and the general ledger.As business was growing, managers complainedthat they could not get comprehensive information onorders. The IT department developed interface softwareto connect the systems, but there were still complaintsthat information was not coherent. The IT specialistsadmitted that they were maintaining a mishmash ofsoftware. The loudest complaints came from theaccountants. Every year it took them two weeks "toclose the books."The accounting department pressured managementto purchase a new system that would make their workmore efficient. The CIO understood their plea but wasafraid that satisfying this department's request would trigger similar requests from other units, such as engineeringand manufacturing. The result might be a betterinformation system for each department, butdisparate systems that still were not connected to eachother. On the CIO's advice, IGT management decided toimplement an ERP system.A steering committee and project team wereassembled. Their members focused on business functionalityrather than the technology. After the firstselection, systems from three companies wereconsidered: SAP, Oracle, and J.D. Edwards (which waslater acquired by Oracle). After further consideration,

SAP won the contract, and IGT embarked on a twoyeareffort. In 2003, the company switched to using the

R/3 ERP system. IGT did not disclose the cost of theproject, but analysts estimate it was well over $10million.

When the system was ready, three functions wereincorporated into one enterprise system: product development,manufacturing, and finance. Like other ERPsystems, R/3 is highly structured even when modifiedfor a particular customer. As often happened, the newsystem forced IGT to change some of its businessprocesses. However, the company chose SAP's systembecause it found it less rigid than other ERP systems.

This was important to IGT, because it builds machinesto order.The system afforded the company several benefits.Price proposals are made based on more accurateinformation and estimates. Managers on the manufacturingfloor can view or print out manufacturing processsheets at their own PCs. Employees can no longerignore specifications or "cut corners." The system doesnot allow a process to continue when an attempt suchas this is made. The products are made more efficientlyand with fewer errors. The system connects allof the company's sites around the globe. One of thesystem's modules is project management, whichenables managers to monitor design changes andcosts involved in new product development.The new system replaced the old MRP (materialrequirements planning) system, but the company stilluses its internally developed factory control system,which has been successfully integrated into the SAPsystem. The factory control system enables managersto know which machines are built at which plant.IGT reduced the average period of order to shippingfrom 9-10 weeks to 7-8 weeks. When a rush order isentered, IGT can now fulfill it in four weeks instead ofseven weeks. Between 2002 and 2005 the error rates inorders for raw materials decreased from 10 percent toalmost 0. Inventory turn increased from 6.3 to 8.4 percentper year.IGT's CIO admits that the implementation waschallenging. The company makes a variety of machines,which meant that many bills of materials had to beentered into the system (and new ones will have to beentered for new products). Adapting some features tothe way IGT operates was not easy. However, the implementationwas successful. The CIO credits the successto strong support from senior management, the establishmentof a steering committee with members from allaffected units, a capable project management team, a training program to help employees understand how touse the new system, and the rigorous testing the systemunderwent before it was used.

Thinking About the Case

1. What problems did IGT face before the implementationof the ERP system?

2. How does the new system help control processes?

3. Compared to the situation in 2002, what are the benefitsof the ERP system?

4. IGT decided to continue operating its older factorycontrol system. Why do you think it did so?