For a logistics company in the oil and gas industry — or in any industry for that matter — to be profitable, the business needs a strong growth strategy that will benefit its customers, suppliers, employees, and the industry as a whole. But growth, especially growth through acquisitions, involves managing many moving parts: Disparate business processes must be integrated, supply chain operations need to remain efficient and reliable, and inventory planning and procurement pricing have to be viewed through a consolidated lens. And underlying all of this must be a stable back-end technology platform.
This was the challenge for Maxum Petroleum, a growing energy logistics company that delivers a full spectrum of fuels and oils to commercial and industrial customers. With legacy systems spread out in offices and warehouses nationwide — from Los Angeles to Chicago to West Virginia — each of Maxum’s locations had been operating with its own back-end systems and individual supply chains. For example, Maxum’s fleet of over 600 trucks historically was tracked with outdated, non-integrated legacy systems that were not able to scale.
Over the past five years, to help harness its aggressive acquisitions activity, Maxum’s 12 operating companies have merged — which presented quite a systems integration challenge. “In acquisition mode, you need to be able to snap new companies in and operate them efficiently,” says Matt Hamilton, Vice President of IT for Maxum Petroleum. “We needed to come to a common platform that we could use as a foundation to allow for growth. We had no consolidation, and we couldn’t handle another acquisition by trying to merge in another back-end system.”
Managing the technical side of Maxum’s acquisitions presented substantial implications to the business: Without consolidating each of the acquired companies’ data, it would be near-impossible to run financial reports in real time. Reports could only be run after each individual company uploaded its data, which was unruly to manage. “We knew that, in order to grow, we needed to have better financial reporting — with near-real-time dashboards to see a snapshot of the business today, not in the future,” Hamilton says.
“We needed to have better financial reporting — with near-real-time dashboards to see a snapshot of the business today, not in the future.”
— Matt Hamilton, Vice President, IT, Maxum Petroleum
For example, without the ability to integrate purchases from each location, there’s no easy way to anticipate potential gains that could result from consolidating fuel purchases. “If all of our operating companies are buying fuel, and we don’t know how many gallons each company is buying and where they’re buying it, then we can’t try to get better deals from our suppliers,” Hamilton says. “And if we’re segregated, then we don’t know if we’re calling on the same customers and competing with ourselves.”
And so began the search for a central system on which to standardize all 12 of Maxum’s operating companies. Above all, they needed a system that knew the inner workings of their industry, coupled with the support to help consolidate the data funneling into that system. Maxum selected BackOffice Associates as their preferred partner. (See the sidebar to the right for more information about how BackOffice Associates’ expertise has played an integral role during Maxum’s implementation.)
Mining a Solution
In the oil and gas business, unique pricing requirements are a central part of everyday operations. As average consumers witness when they fill up their cars at the gas station, oil and gas prices change every 30 minutes. Similarly, when Maxum buys its fuel from its suppliers — directly from the refineries and pipelines — their prices, which are also based on supply and demand, are constantly changing. “We need to capture cost data and decide how we’re going to price our customers each day,” Hamilton says. “It’s very complicated because you want to make sure you’re not losing money — ever — and the prices can change on you very quickly.”
To manage this variable pricing, the 20-person IT staff at Maxum had developed custom software that integrates with the back-end systems of its original platform company, Simons Petroleum. So, in the search for a new platform on which to standardize Maxum’s various legacy systems, it was important to find a replacement that could handle this type of integration. “We wrote a lot of unique programs to automate and simplify our pricing decisions, and we needed a strong pricing engine that could handle that,” Hamilton says. “Also, we needed a back-end system that could handle the company’s very complicated EDI requirements and at the same time integrate with our document imaging system.”
The various operating companies at Maxum had very different levels of IT strengths. Some were pretty advanced, a few ran some automated systems, and others were operating in a traditional pen-and-paper fashion. “Simons was one of the only companies that did any sort of EDI,” Hamilton says. “Having a single back end would allow us to strengthen our EDI, add additional customers on EDI, and hopefully speed the number of days it takes to invoice a customer.”
Refining the Options — and Selecting SAP ERP
Maxum quickly decided to standardize on an ERP system that would better enable scalability and drive sales synergies across the company. “We began looking at midmarket ERP systems and then at the larger ones, and we felt that SAP was the best for our industry,” says Hamilton. “Considering almost all the major oil and gas companies run SAP, it seemed like the right choice for us.”
The project encompassed implementing SAP ERP 6.0 software for financials, controlling, materials management, and sales and distribution. Maxum selected SAP for Oil & Gas, an industry solution that provides tank and inventory management functionality customized for the oil and gas industry, as well as SAP Oil & Gas Secondary Distribution, an add-on packaged solution. Using this industry-specific technology out of the box, Maxum business users can move fuel orders into transportation planning, where logistics users can then schedule trucks and move orders around to optimize delivery routes.
Getting the Project Off the Ground
The decision to adopt SAP technology ultimately came from upper-level management and the board of directors — the main driver for the project was a directive from the CEO and CFO of Maxum. “The business case for an ERP system was very simple,” Hamilton says. “It was clear from the top down that consolidation was necessary for growth.”
Since the project came from the top down, there was total cooperation from every operating company, and it was easy to build a core SAP implementation team. In addition to the IT staff members working on the SAP project, Maxum created dedicated teams to focus on financials and controlling, sales and distribution, and materials management — with individuals from the business side sitting on each team. “With the top-down buy-in, everybody’s very excited about helping and being part of this implementation,” Hamilton says. “Many of our executives are dedicated resources on the project.”
The implementation team followed standard SAP methodology through the project’s planning and design phases. Most recently, the team finished up the coding and configuration, and testing is next on the agenda. The project’s expected go-live is December 2010.
Filling Up the Tank: Augmenting
the Team with Expertise from BackOffice Associates and SAP
In addition to the core team members, Maxum brought in external people who travel back and forth to Oklahoma City — the main hub for the project — to help with cleansing data, analyzing and refining processes, answering questions about requirements, and testing. These resources will also serve as the power users who will help train the rest of the staff.
“We tried to find the people who knew our industry segment best or who really specialized in what was difficult with our business, like taxing and data conversion,” says Hamilton. “We chose a vendor that would help us be successful — BackOffice Associates.”
Hamilton met with BackOffice at a trade show last year when the project was still in the blueprint phase. “Their people seemed to understand our pain points, and they guaranteed that we would have a successful implementation,” Hamilton says. “We hired them to do our data conversion, and they’ve been very successful. They’ve helped the business identify problems with our data we didn’t even know about, and they’ve helped with our data cleansing and data governance processes.”
As SAP is Maxum’s prime integrator, there are also a lot of very experienced functional consultants from SAP on the project team to help with the configuration. Maxum also brought in a few offshore and onshore developers to help speed up development. In total, there are seven different outside firms, including Alvarez & Marsal to assist with change management and a third-party vendor to help integrate all of the company’s taxes into SAP ERP.
“We’re also building out our Center of Excellence, so we’re hiring more people who will take over the SAP development and support when we finish,” Hamilton says. “We have hired two assistants to handle the logistics to bring in 60 or 80 people every week and to try to coordinate all the processes and functions at the same time.”
Filtering Through Business Processes and Managing Change
This full-fledged technical and functional SAP implementation will affect operations in all areas of the business. In addition to implementing the software in the different operating companies, Maxum is engineering new business processes company-wide.
“We’ve built what we’re calling a ‘Maxum template’ to try to keep all the processes very similar,” says Hamilton. “All office workers will be affected by the new software. Warehouse workers will have to deal with some process changes, the materials management and procurement teams will have new policies and procedures, and even drivers will need to cope with some new requirements — so it really is across the board.”
The mentality at Maxum is to keep the business processes that work in place — and to change them only if and when that makes sense. At the same time, the company sees the project as a great opportunity to review all of its processes to make sure they adhere to best practices. For example, the company didn’t have an automated purchase order system in place previously — this is a best practice that they’re now implementing.
“That’s why we chose SAP, because they know the oil and gas best practices,” says Hamilton. “And we didn’t have to change a lot of our business processes because the software is so configurable.”
According to Hamilton, the team is heavily focused on change management, and user acceptance is going fairly well. “At first, true buy-in can be difficult to achieve because people are inherently reluctant or nervous about change — they’re accustomed to the systems they’ve used for 20 years,” he says. “We’ve really stressed change management, and the employee communications we’ve built into the project have helped to break down any of those barriers.”
Some of the practices Maxum put into place to manage technical and business process changes include:
- Bringing people into central locations to ease daily communication
- Scheduling big kick-off meetings and recurring update meetings
- Developing an intranet that is constantly updated with notes about how the project is going and what users can expect
- Launching a monthly newsletter
- Having the CEO travel around to conduct “town-hall meetings” and answer questions
- Dedicating anonymous dial-in numbers for concerned employees to call
“We put a lot of individuals on the project who have explained what employees will get out of the SAP software. I think that communication helps,” Hamilton says. “And we haven’t seen many complaints at all.”
There’s a dedicated team of approximately 10 people, including six consultants who are helping to drive change management. In addition to working on all the training documents, these individuals were involved in the project’s design and build.
“We also bought SAP Productivity Pak, which is an extremely powerful tool for training,” says Hamilton. “And we have engaged our human resources staff to help with the implementation and help train our people right the first time.”
Next Steps: Reporting and Testing
For its reporting needs, Maxum also turned to SAP. “We have some similar customers, vendors, and products across all our companies, so we need to be able to roll up all of that reporting at a high level to get visibility of our company on a large scale,” says Hamilton. “So we’re looking at using a mixture of standard SAP reporting capabilities as well as some SAP NetWeaver Business Warehouse (SAP NetWeaver BW) and SAP BusinessObjects integration on top to give dashboard and drill-down reporting.”
To get started, Maxum is carving out time and resources to assess its reporting needs and plan accordingly. First, the team must identify all the reports they’ll need in the future. “We are currently building out the infrastructure for the reporting and then deciding how it will work on a larger scale, and there’s a lot of planning involved,” Hamilton says. Then, they’ll start building out the SAP NetWeaver BW data cubes and doing the extraction from SAP ERP.
Next on the agenda is building out the reports and starting to test. “With the solution extensions we purchased from SAP, we can automate many of our tests and speed our testing processes,” says Hamilton. “We’ve gotten really far in our configuration development, and it’s exciting to look at our own data in the system and visualize how it’s going to work. It is exciting to start testing and see these tools in action.”