This case study examines the IT and ERP challenges facing Smorgon Steel (SSX), one of Australia's largest steel producers. The paper analyzes the company's five disparate ERP systems — SAP R/3-4.6c, JD Edwards, Symix, Progress, and Creative Software EasyPay Enterprise — and the integration gaps that have limited their strategic value. It explores key performance metrics, supply chain visibility deficiencies, and the impact of the pending OneSteel acquisition. Drawing on AMR Research's Demand-Driven Supply Network (DDSN) maturity model, the paper proposes a roadmap for consolidating ERP instances, implementing Master Data Management, adopting real-time analytics, and transforming Smorgon's IT function from a cost center into a strategic business driver.
This paper demonstrates applied case study analysis: the student identifies a real organizational problem (fragmented IT infrastructure), surveys existing literature and frameworks (DDSN, MDM), and derives actionable recommendations tied to specific business outcomes. Rather than abstractly reviewing theory, each analytical point is anchored to a named system, division, or measurable KPI within Smorgon Steel, modeling the kind of evidence-to-recommendation reasoning expected in graduate-level business analysis.
The paper opens with an executive-style problem summary before moving into organizational background. A system-by-system ERP audit forms the analytical core, followed by a KPI framework section that defines how performance is currently measured. The final sections shift from diagnosis to prescription, presenting a strategic IT transformation roadmap and a detailed recommendations list. This diagnosis-then-prescription structure is well-suited to management case studies and mirrors professional consulting report formats.
Today Smorgon Steel has five different ERP systems installed, and as a result the IT infrastructure has grown to be disparate and only partially integrated. The company uses WebMethods as the Enterprise Application Integration (EAI) layer between these ERP systems and supply chain applications including Manugistics, Mincom, Weighbridge, TagMan (tag management system), SpectroMeter (quality testing system), and a data warehouse residing on a Storage Area Network. The wide disparities across each of these ERP systems mean that only the most common and easiest-to-produce reports are generated, delivering little value beyond core transaction and reporting metrics. Simply put, there is no alignment of these ERP systems with a common business strategy, which minimizes their value to the organization. Compounding this is the lack of integration on sales and operations planning (S&OP) data, including the absence of master data management repositories that could otherwise be leveraged for major strategic contribution rather than functioning as annualized costs.
These are the key strategic areas of focus for Smorgon Steel going forward. First, the company is looking for ways to leverage IT to accomplish working capital reduction, increase and sustain margin improvements through better pricing and more effective procurement practices, and attain cost reductions through more effective forecasting and procurement strategies. In addition, Smorgon wants to transform its IT function to mine data aggressively, use analytics to identify and fund insightful areas for future growth, and — most importantly — become more customer-centric across its many business strategies. Taken together, these five core challenges must be met for Smorgon to accomplish the strategic objective of transforming its IT organization from being cost-based to being strategically active in the core parts of the business.
Smorgon Steel (SSX) is one of the leading providers of steel in Australia and has grown steadily through acquisitions and an emphasis on building out its distribution business. It has a market capitalization of approximately $1.3 billion on the Australian Stock Exchange and operates in nine countries. The company relies on three dominant business platforms: metal recycling in Australia and Asia, steel products in Australia, the USA, and Asia, and metal distribution in Australia. As of the company's latest financial statements, there are 5,800 employees globally.
The company was founded in 1981 and in 1983 initiated its first mini-mill for steel manufacturing in Laverton, Victoria. Its use of electric arc furnace technology in steel production was the first of its kind in Australia. Smorgon Steel went public in February 1999 on the Australian Stock Exchange following the acquisition of Australian National Industries (ANI). With that single acquisition, Smorgon doubled in size, which led to a successful initial public offering and provided the company with funding for additional acquisitions.
Disparate in their structure and intended roles within Smorgon Steel, the five major ERP systems currently in use are described and analyzed below.
SAP AG's founder, Dr. Hasso Plattner, often remarked that SAP was born out of the need for better distributed order management systems in process manufacturing industries. SAP R/3-4.6c is the culmination of Dr. Plattner's vision for unifying all critical components into a single platform that could be used to create portal views for distributors, dealers, and resellers. R/3-4.6c was also the first ERP revision from SAP to separate Web Application Server logic from SAP R/3 core technologies. In short, SAP R/3-4.6c is ideal for process goods manufacturers that rely on distribution channels as core parts of their value chains.
Having been acquired by PeopleSoft in 2003, and with PeopleSoft in turn being acquired by Oracle in late 2004 (finalized in early 2005), the fate of support for JD Edwards applications is a significant unknown for over 40,000 of its customers. JD Edwards' leadership position in small and medium manufacturing was what attracted PeopleSoft in the first place, as PeopleSoft had a solid base in human resources, accounting, and CRM, yet lacked depth in the markets where JD Edwards excelled. Despite Oracle's efforts to reassure JD Edwards customers, the reality is that Oracle acquired PeopleSoft and JD Edwards to migrate them toward a service-oriented architecture called Fusion, and has not completed any updates to either system since the acquisition. Clearly, Smorgon Steel needs to discontinue paying maintenance on this ERP system, as no major updates will be forthcoming.
Seradex Manufacturing Software, like JD Edwards, found initial success selling into small and medium-sized manufacturers, particularly in the fabricated products industry. Seradex is built entirely on the Microsoft platform, and as a result requires WebMethods adapters and connectors to integrate even the most fundamental data with the SAP R/3-4.6c instance, which runs on the HP-UX operating system using an Oracle 9i database for the data warehouse. Symix ERP is comprised of several module suites, including Front Office ERP, Accounting ERP, Core ERP Modules (System Manager and Bill of Materials), Management Control ERP modules, and a core set of Manufacturing ERP modules that Smorgon uses for supply chain management and Lean ERP manufacturing.
Despite the breadth of modules Seradex provides, the challenges of integrating data between Microsoft operating systems and SAP R/3 at the field level — among the most complex integration tasks in enterprise software — make Symix a candidate for consolidation. SAP's Supply Chain Module on the MySAP Suite, the follow-on to R/3-4.6c, can perform all the same functions as Symix and can be negotiated as a bundle-in with SAP as part of an ERP consolidation effort.
Smorgon Steel has also created its own in-house ERP system called Progress. Virtually any company with sales over $100 million globally has at one time or another created its own ERP system, primarily to track orders, coordinate and synchronize pricing, and manage bills of materials that drive production floor manufacturing. Today, Smorgon uses WebMethods to integrate with Progress only at the data transaction level. While homegrown ERP systems are typically consolidated over time and their master data management functions transitioned into a larger system of record, the majority of these systems are transformed into front-end systems for procurement and purchasing. It is conceivable that the key functions of Progress will be transformed into a portal-based series of applications that support Smorgon's ongoing management of suppliers and buyers and its strategic sourcing activities.
Smorgon's Shared Business Services consolidate accounting, finance, human resources, and other core functions that the Recycling, Reinforcing, and Smorgon Metals Distribution divisions rely on for support. The company has made a substantial investment in the EasyPay Enterprise (EPE) platform, which acts as an EAI layer integrating the many process areas where accounting and human resources are required to complete internal tasks. EPE is tailored specifically to shared common corporate functions. Batch-oriented integration of key system updates and financials from operations must be consolidated, analyzed, and stored in the SAP R/3 instance first. The integration between EPE and SAP R/3 is not considered reliable due to the strict formatting and naming conventions SAP enforces — conventions that EPE cannot exactly match on all transactions. As a result, Smorgon continues to spend heavily on consulting and integration projects between EPE and other systems, without seeing the full return on these investments. The inaccuracies between EPE and SAP system data contribute further to the declining credibility of higher IT spending within Smorgon.
Having begun in steel manufacturing and progressed into Australia's largest distributor of steel products, Smorgon today finds itself with an IT architecture and ERP strategy better suited to manufacturing than to distribution. The company's strategic focus has moved on, yet its ERP systems remain anchored in the manufacturing past. This misalignment is slowing the company's ability to serve its customers effectively. A clear indicator of this transition — from manufacturing-centric to distribution-centric — is senior management's decision to place the largest ERP instance, SAP R/3-4.6c, within the Smorgon Distribution Division. Meanwhile, the Recycling and Reinforcing divisions still operate with legacy ERP systems that have limited integration beyond basic transaction reporting through WebMethods. What is needed is a re-architecting of IT investments — including the many disparate and sporadically connected ERP systems — into a demand-driven network that better serves suppliers, buyers, and customers, and provides management with the insights needed to excel across the five strategic dimensions identified in the introduction.
Smorgon's ERP strategies need to be fundamentally overhauled. Beyond that, IT itself needs to be transformed from a disparate set of high-maintenance applications into an architecture that propels the company toward its strategic objectives.
Several key insights emerge from an analysis of the company's product flow. First, Smorgon is highly dependent on its suppliers, and coordination with supply chain partners — including buyers and suppliers — is absolutely essential for the company to achieve its inventory turns targets, a key performance indicator. Second, synchronizing with customers, both those purchasing through distribution channels and those buying directly, is another critical dimension of the business model. Forecasting and sales analysis tools are used to provide demand visibility and give Smorgon enough lead time to react to changes in demand. Third, the company actively uses syndicated business trend research and industry data to anticipate changes in demand over time. Fourth, CRM systems play an important role in providing a 360-degree view of the customer and advancing the strategic priority of becoming more customer-focused and increasing market share. Fifth, and most critically, the company places significant reliance on analytics and business intelligence to drive decision-making.
Smorgon Steel must change and revolutionize its use of IT if it is going to achieve its business objectives. Consolidating the disparate ERP systems and creating an integrated IT infrastructure that is demand-driven — namely focusing on the forecasts and requirements of customers first — is what needs to be the strategic direction of their change. The present ERP systems and their analytics capabilities are isolated and myopic, not providing the necessary supply chain and customer visibility required. Through a re-definition of Smorgon's IT strategies toward a more demand-driven model, adoption of the DDSN framework, and progression through its maturity levels, Smorgon stands a much better chance of attaining its strategic objectives and transforming from a manufacturing-centric to a customer-centric organization.
The following are specific recommendations for Smorgon Steel as it transforms its manufacturing-centric ERP architecture into one better aligned with its business needs:
Centralize on the SAP R/3-4.6c instance and consolidate JD Edwards and Symix. In doing so, Smorgon can cancel the expensive maintenance contracts on the JD Edwards ERP system, which Oracle has already ceased updating. Symix is today a point solution and should also be discontinued. Maintaining one ERP system on a Microsoft platform while the remainder run on UNIX will continue to impede real-time data sharing.
Migrate Progress business process flows into a MySAP Portal and begin test projects using NetWeaver as the replacement for WebMethods. Progress's logic flows and support for strategic sourcing and procurement are core to the company's operations and cannot simply be discontinued. Instead, the logic should be migrated into a MySAP portal environment, with NetWeaver piloted as an enterprise-wide replacement for WebMethods. NetWeaver can provide greater consistency and depth of analytics on transactions and accounting data relative to the simplistic connectors and adapters WebMethods uses today, and is rapidly becoming a viable platform for real-time data integration between third-party ERP systems.
Standardize on a single data warehouse as the system of record and single version of the truth for all operations, replacing the current multi-database environment.
Prioritize integration with business intelligence, pricing, forecasting, and S&OP systems, which is currently non-existent. This includes integration with product lifecycle management (PLM) and manufacturing execution systems (MES).
Launch a strategic initiative focused on supply chain visibility, targeting at least four layers deep into key supply chains to enable proactive rather than reactive decision-making.
Bring in a more comprehensive financial planning, reporting, and analysis application suite to ensure that all divisions and operating branches have real-time access to their financial performance.
Create a dedicated analytics layer within the IT infrastructure to support the collecting, analyzing, and reporting of operational data. Piloting NetWeaver to accomplish this is recommended.
Adopt a Demand-Driven Supply Network architecture and begin progressing through the DDSN maturity model to orchestrate and synchronize supply chain and forecasting activities with key partners.
Consider outsourcing key components of Shared Business Services to Software-as-a-Service (SaaS) providers who can deliver higher levels of performance and functionality than the existing applications. SaaS platforms are increasingly strong at integration, making this a viable alternative worthy of serious consideration.
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Manufacturing Snapshot 2006: Information Architectures for Operations Intelligence Are Still a Work in Progress. AMR Research. August 31, 2006. Boston, MA.
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