CS Shanghai Power

8/3/2019 CS Shanghai Power

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SAP Case Study

mySAP ERP AT SHANGHAIPOWER

ESTABLISHING AN INTEGRATED, ASSET-CENTRIC CORPORATE MANAGEMENTFRAMEWORK

One of Chinas largest enterprises, Shanghai Municipal

Electric Power Company (Shanghai Power) supplies electricity

to 7.2 million customers in Shanghai Chinas biggest city

and maintains assets valued at CNY 81 billion (US$10 billion).

With the implementation of the mySAP ERP application in

2003 and 2004, Shanghai Power has successfully positioned

itself to maintain its edge as a first-class utility enterprise in

China.

By standardizing and integrating business and engineering

data in real time, Shanghai Power optimized its asset-related

business processes across grid engineering and construction,

maintenance and operations, resource management, asset

retirement, financials and human capital, and management

reporting. Accordingly, the application helped support the

companys four strategic goals: superior grid stability and

quality, excellence in customer service, improved control of

operational efficiencies and costs, and end-to-end manage-

ment of asset life cycles.

By implementing mySAP ERP, the company defined the concept

of asset life-cycle management for the first time. Meanwhile,

the company has redesigned, standardized, and optimized

more than 40 asset life-cycle management business processes.

AT A GLANCE

Company Industry: Utilities electrical power Products and Services: Transmission, distribution, and sales of

electric power in Chinas biggest city Revenue and Employees: More than 26 subordinate companies

with 16,000 employees; 2005 annual sales of CNY 45 bill ion(US$5.6 billion) in electricity and CNY 10 billion (US$1.2 billion) inelectric power engineering and construction

Location: Shanghai, China Web Site: www.smepc.com

Challenges and Opportunities Asset-intensive utility operations created challenges in asset

life-cycle management, operational efficiency, key performanceindicators, and information sharing across the enterprise.

Chinas membership in the World Trade Organization required dealingwith other market competitors.

Improving efficiency and controls would lead to opportunities forenhanced profitability and a competitive stronghold.

Strategic GoalsMaintaining the companys edge as a first-class utility enterprise inChina by achieving the following: Ensuring a superior electric power grid Delivering a reliable and high-quality power supply in Shanghai Establishing end-to-end asset life-cycle operational processes Committing to excellence in customer service, asset management,

and operations

Approach

Implement a core enterprise-wide IT platform to enhance corporatemanagement, improve asset management, reduce costs, andultimately, enable higher profitability

Make available shared, real-time information in project planning,execution, accounting, inventory and procurement management, andmore

Implementation Highlight2-phase implementation encompassing more than 26 subordinatecompanies

Why SAP Comprehensive functionality of the mySAP ERP application as a

centralized IT platform Reputation for strong integrity

Solutions, Applications, and ServicesmySAP ERP

Implementation PartnerAccenture

Key ResultsThe following results over a seven-year period: Inventory turnover increased from 2.2 to 4 in 2005, resulting in

working capital improvements of CNY 129 million (US$15.8 million). Retirement of legacy IT systems in more than 26 subordinate

companies resulted in savings of CNY 104 million (US$13.5 million). Productivity increases in project planning and execution resulted in

cost savings of CNY 31 million (US$4 mill ion). The project yielded an internal rate of return of 31%, with a net

present value of CNY 123 million (US$15 million) and a paybackperiod of 3.2 years.


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COMPANY

Founded in 1985, Shanghai Municipal Electric Power Company

(Shanghai Power) is a subsidiary of the state-owned State Grid

Corporation of China. It is the sole electric utility provider in

Shanghai, operating the transmission, distribution, and sales of

electric power in Chinas biggest city. The company supplies

electricity and electric power engineering and construction

services to about 7.2 million customers, both residential and

commercial. With more than 26 subordinate companies and

16,000 employees, Shanghai Power is the third-largest enterprise

in Shanghai in terms of sales revenue and enjoys over 10% rev-

enue growth annually. In 2005 the company had assets totaling

CNY 81 billion (US$10 billion) and generated annual sales of

CNY 45 billion (US$5.6 billion) in electricity and CNY 10 billion

(US$1.2 billion) in power engineering and construction services.

CONTENTS

Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Challenges and Opportunities . . . . . . . . . . . . . . . . . . 3

The Road to an Asset-Centric Framework

Strategic Goals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Selection of mySAP ERP

Implementation

Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Project Planning, Execution, and Accounting

Inventory and Procurement Management

Asset Maintenance and Operation Management

Financial and Management Accounting

Centralized Cash Management Within the FinancialSupply Chain

Centralized Human Capital Management

IT Total Cost Ownership

Return on Investment

Next Steps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

ROI Calculation: Assumptions and Rationales


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the former Electric Power Ministry. China introduced this

second reform to separate business management from govern-

ment oversight, which helped establish corporations and

similar economic entities that operate independently within

the market. Both reforms have facilitated progress toward a

market system. Nongovernment and foreign investment is

encouraged, thereby reducing dependence on state enterprises

and national and local governments for investment capital. In

this way, a new power industry is taking shape, characterized

by an open market, efficient operation, and the potential for

sustainable development. In this more competitive business

environment, Shanghai Power needed to take immediate actions

to enhance its profitability by transforming its management

and adapting the organization to new market rules.

CHALLENGES AND OPPORTUNITIES

The Road to an Asset-Centric Framework

The decision to take the road to an asset-centric corporate

management framework was driven mainly by the following

reasons.

Costly Manual Processes and Lack of Management

Transparency

Before the changeover to enterprise resource planning (ERP),

Shanghai Power operated based on manual information ex-

changes that led to inaccurate, inconsistent, and slow operational

processes. Insufficient transparency into the performance of

different business units, assets, and processes restricted sound

decision making at the management level.

Change of Utilities Market Rules and Structures

The Chinese power industry has undergone two significant

phases of institutional reform since the 1980s. The first came

about in 1987 when the government opened up the power-

generation market and encouraged diversification of ownership

and operation. A second major phase took place in 1997 with

the creation of the State Power Corporation and abolition of

Achieving industrialization throughIT is inevitable. Thereby, one enables

profitability and improves corporate

management by introducing an

advanced ERP model, implementing an

ERP system, and finally successfully

transforming the business.

Yu Ping, Head of ERP Steering Committee,

Shanghai Municipal Electric Power Company

3


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To become a first-class electric power provider in keeping with

Shanghais image as the biggest city in China, Shanghai Power

must ensure a superior power grid to deliver a reliable, high-

quality power supply in Shanghai and drive excellence in

customer service, asset management, and operations. Figure 1

illustrates the companys strategic goals.

With a centralized IT system, Shanghai Power could establish

a holistic and asset-centric utility management framework

integrating financial, material, and asset information and

replacing its widely dispersed array of systems. As shown in

Figure 2, the integrated framework starts from core capital

project planning and then carries over into project execution,

control and purchasing, and inventory management. When a

project nears completion, the system will automatically run

the asset accounting and shift assets or equipment to daily

maintenance and operations. The centralized ERP system helps

the company manage and control the expenses and costs these

activities generate and optimizes investment planning through

centralized cash management.

In addition, the company wanted to improve operational

efficiency and workforce productivity in terms of asset-related

financial and human capital management.

STRATEGIC GOALS APPROACH

Successful implementation of mySAPERP is the important milestone for

Shanghai Power to become one of the

leading electric power providers in the

world by marching toward the goal of

offering best-in-class power grid service

and management and therefore obtain-

ing superior profitability.

Tang Yuezhong, IT Director,


4

Figure 1: Strategic Goals

Financial Control& Settlement

Maintenance& Operation

Project Planning& Execution

Inventory &ProcurementManagement

Asset-CentricCorporate

Management

Figure 2: Managing Capital Projects

Holistic andAsset-Centric

CorporateManagement

Efficient Operations

Management trans-parency into

operational costsand processes

Optimizemaintenance costs

and processes

Increase workflowproductivity

Excellent Customer

ServiceCustomer response

time

Outage restorationtime

New services

Superior Power GridGrid stabilityPower quality

End-to-End Asset Life-Cycle ManagementInformed decisions by holistic view on asset life-cycle data

Asset performance monitoring

Project Accounting & EquipmentPhase-In


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Selection of mySAP ERP

After evaluating both domestic and international software alter-

natives, Shanghai Power chose the mySAP ERP application to

support its strategic goals based on the following reasons.

SAP offers an integrated system providing these advantages:

A holistic and asset-centric view of assets throughout thelife cycle, which is important to the utility industry

Aggregated financial, material, and other key information

in a single system

Integrated management and reporting

Real-time information with standardized processes

SAP offers a comprehensive set of utilities-specific functionalityin line with Shanghai Powers requirements in the areas of

project management, plant maintenance and operations,

materials management, accounting, and human capital

management.

SAP offers a business and technology platform that supportsShanghai Power in adapting to current and future market

changes.

To get a better understanding of the business requirements of

each area and reduce implementation risks, Shanghai Power

invited the Accenture consulting team to conduct business

process reengineering across the enterprise. The intent was to

standardize and optimize business processes and clearly develop

organizational relationships before the IT implementation.

Implementation

After deciding on mySAP ERP, Shanghai Power launched its

implementation of the application in July 2003 in a two-phase

approach. The implementation scope included all subordinate

companies and some subsidiaries. In the first phase, the company

implemented the mySAP ERP Financials and mySAP ERP

Human Capital Management (mySAP HCM) solutions. mySAP

ERP Financials included functionality for financial and manage-

ment accounting and f inancial supply chain management,

including treasury and risk management. In addition, the

mySAP ERP enterprise asset management functionality enabled

inventory management, procurement, and project management

functions. The first phase went live on December 31, 2004, with

part of the rollout extending into early 2005. Plant maintenance

functions went live during the second phase in April 2005. Total

project cost was about CNY 100 million (US$12.5 million).

As the implementation team for the SAP solutions, the con-

sultants from Accenture worked with each business area and IT

department of Shanghai Power on design, actual implementa-

tion, data conversion, user training, and rollout.

5

The condition for reaching the target

is to choose the right direction, which

is the successful implementation of

mySAP ERP.

Yu Ping, Head of ERP Steering Committee,


The implementation of mySAP ERP

was successful thanks to harmonization

of ERP knowledge, workforce accept-

ance of the system, and smooth opera-

tional processes.

Tang Yuezhong, IT Director,



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By adopting mySAP ERP, the company initially achieved two key

goals: end-to-end life-cycle management and efficient operations.

In addition, the implementation laid the foundation for a

continuous improvement plan aimed at the other two goals of

delivering excellent customer service and establishing a superior

power grid.

Project Planning, Execution, and Accounting

By using the project management functions of mySAP ERP,

Shanghai Power has standardized and optimized the project

management process, improved data integrity for management

reports, and reduced risks and life-cycle costs (see Figure 3).

Automated Purchase Requisitions and Project Control

With mySAP ERP, the company has succeeded in automatingapproximately 14,000 purchase requisitions for capital projects

generated annually. Previously, it took an entire day to create

a purchase requisition manually. Besides reducing effort

dramatically, automation has resulted in asset life-cycle cost

savings of about CNY 3.3 million (US$425,000) annually.

mySAP ERP is also helping Shanghai Power gain budget control

over a portfolio of 22,000 projects1 that were valued at over

CNY 20 billion (US$2.5 billion) in 2005, eliminating the cost

overruns that typically ran about 5%.

Standardized Project Management Processes

In addition, project management processes are standardized

across the company from project planning and budget creation

to project execution and completion including project

resource scheduling, project check and acceptance, and project

accounting and closing.

RESULTS

By implementing and running mySAPERP, the business processes are

standardized and optimized across the

company. Corporate management

regarding centralization, leanness, and

flatness are enhanced. Meanwhile, the

company culture and working environ-

ment have fundamentally changed

toward collaboration throughout the

enterprise.

Fu Ruxiang, ERP Project Manager,


6

Purchase requisitionfor capital projects

Figure 3: Automation of the Purchasing Process

1 Shanghai Power generally undertakes about 22,000 projects annually, of

which about 500 are considered large and high value.

Auto

Time to raise a purchase requisition

-100%

1 day

Capital projectsbudget control

0 %

% of capital projects exceeding budget

-100%

5%

Before SAP After SAP


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Improved Transparency and Reduced Risks via Data

Integrity

Finally, mySAP ERP brings Shanghai Power much improved

data integrity and accuracy, eliminating substantial manual

effort for project calculation and consolidation. mySAP ERP

supports project execution with visibility into project status,

resources, tasks, and costs with work breakdown structure

functionality.

Productivity Savings via Automated Status Reporting

Previously, five working days were required to generate project

execution status reports for more than 500 high-value electric

power and construction projects. Without real-time tracking

of project status, quick response to any changes was impossible.

Now the project manager can look over project status at any

time and automatically generate status reports from the system

for an annual cost savings of CNY 568,000 (US$71,000)

through reduced labor.

More Efficient Project Accounting

When a project is complete, the project manager turns over

activities such as project accounting to the finance department

while the maintenance department takes control of project

assets and equipment. That is, the asset-centric model supports

project accounting and equipment maintenance during the

phase-in process.

Project managers have also reduced the time spent on generat-

ing project accounting reports from the system, which now

takes just one working day rather than five. Calculated across

500 projects every year, the annual cost savings is about

CNY 1 million (US$125,000). Further, the company has success-fully defined standardized equipment structures and master

data across the company.

Inventory and Procurement Management

With the implementation of mySAP ERP, inventory and

procurement management has improved dramatically.

7

Figure 4: Faster Project Status Reporting

Project statusreporting

Auto

Time taken to generate project status report

-100%

5 days


Figure 5: More Eff icient Project Accounting

Project accounting onits completion

1 day

Time taken to handle project accounting

-80%

5 days


Figure 6: Centralized Inventory Management

Inventory turnover

4.0

Annual inventory turns

2.2


x1.8


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Finally, as an integrated solution, mySAP ERP helps the companystandardize master data company-wide. Information on materi-

als and vendors is no longer maintained in 26 separate systems.

To illustrate, the total number of master data items related to

materials has plummeted 95% from 284,400 to 15,000, with an

annual operational cost avoidance of about CNY 283,000

(US$35,000). The number of vendor master data items has

dropped by 58%, from 2,330 to 980.

Asset Maintenance and Operations

The mySAP ERP application has helped Shanghai Power better

manage both regular and emergency maintenance and repair.

Within months of the implementation the company had already

achieved the following benefits.

Standardized service order management for planned and

unplanned maintenance mySAP ERP helps the company

standardize service orders for planned and unplanned mainte-

nance of assets or equipment from creation and execution

through to final completion.

Inventory management and procurement functionality of

mySAP ERP helped the company establish integrated inventory

management for the warehouses or stores previously held in

the subordinate companies. The company can now monitor the

inventory data in real time, making adjustments or creating

transfer orders as capital projects require and consequently

reducing inventory carrying costs. As shown in Figure 6,

inventory turnover accelerated from 2.2 early in 2005 to 4.0 by

the end of the year, with an annual 1.8-month working capital

improvement of about CNY 20.5 million (US$2.5 million).

Reduced Purchasing Costs Through a Centralized

Purchasing Strategy

Before the mySAP ERP implementation the purchasing function

was dispersed, with no one department responsible for purchas-

ing activities at headquarters. Instead, purchasing was outsourcedto a subordinate company, Shanghai Power purchasing center.

Without systems integration, there was little transparency in

purchasing activities or oversight of expenditures. Now, the

company has centralized the purchasing department at the

head office, defined its responsibilities, and standardized and

optimized purchasing processes. The purchasing department

collects purchase requisitions on high-value assets or equipment

from the subordinate companies, then consolidates all require-

ments, sources suppliers, negotiates with the selected vendors,

and finally signs long-term purchasing agreements. This way,

the company not only strengthens its control of purchasing

activities but also reduces costs.

8

Total number ofmaterials

Figure 7: Consolidated Material and Vendor Data

15,000

-95%

284,400

Total number ofsuppliers

980

Consolidation in total number of suppliers forprocurement

-58%

2,330


Consolidation in type of materials used forprojects, MRO, and so forth


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Improved transparency of maintenance costs Before the

implementation, maintenance costs were often inaccurate

because of errors made during manual record keeping and cal-

culation. The plant maintenance function along with process

standardization enables real-time execution and monitoring of

maintenance activities and cost items for greater transparency

at the corporate level. In addition, the availability and transpar-

ency of detailed maintenance data allows for potential reduction

of maintenance costs.

Reduced service order costs for third-party maintenance

outsourcing For daily maintenance operations and unexpected

events, Shanghai Power outsources service to third-party part-

ners. In the past, the accounting staff handled order settlement

manually and verified invoices on an annual basis. Now, these

tasks are completed within the system, and invoice verificationis done once a month. As a result, the processing costs for third-

party maintenance service have fallen sharply.

Financial and Management Accounting

mySAP ERP provides an optimal platform to integrate financial

management and control with the activities involved in project

management, inventory and procurement, project accounting

and equipment phase-in, and asset maintenance and operation

management. Hence the company can capture corporate f inan-

cial and cash flow status in real time and make timely decisions

accordingly.

Improving Productivity in Financial and Management

Accounting

As shown in Figure 8, the availability of data on each asset

throughout its life cycle allows better budget control. Annual

transaction costs have dropped by CNY 653,000 (US$82,000) with

a 7% improvement in productivity.

When it comes to the financial settlement of capital projects,

the financial department has experienced a dramatic improve-ment in productivity. The time it takes to complete a

settlement for a capital project once the project manager has

submitted the project accounting report and asset list has

dropped by 40%, from five to three workdays. The labor cost has

dropped from CNY 568,000 (US$71,000) to CNY 341,000

(US$42,000).

In addition, mySAP ERP has also brought positive change to the

month-end closing process. Here, each of the subordinate com-

panies has realized a 42% reduction in effort reduction from

12 to 7 workdays. This will lead to annual cost savings of about

CNY 356,000 (US$44,000), from CNY 851,000 (US$106,000) to

CNY 495,000 (US$62,000).

Finally, centralized payroll policy has made a big impact on

financial payroll accounting. Previously, after HR completed

the monthly payroll accounting and submitted it to the f inance

department, employees spent about one working day to com-

plete the relevant activities, with an annual transaction cost

about CNY 74,000 (US$9,000). However, by using mySAP ERP,

Shanghai Power can check and complete the remaining activi-ties for an annual operational savings of about CNY 71,000

(US$8,900).

9

Finance settlementof capital projects

Month-end closing

Payroll accounting

Estimated Annual Effort Reduction inFinance-Related Activities

(in thousand CNY)

Figure 8: Improved Productivity

568

341

851

495

74

2.7

2000 400 600 800 1,000

+7%productivity

improvement



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Centralized Cash Management Within the Financial

Supply Chain

The company installed the SAP Treasury and Risk Management

application to consolidate the cash management spread across

the different subordinate companies at the head office.

Before the implementation, Shanghai Power used a discrete cash

management strategy to allow each subordinate company to

manage and control cash flow independently. However, this

approach resulted in the following problems:

Tight cash flow Higher cash buffer in each subordinate company Longer cash-to-cash cycle Lower transparency and control of cash liquidity and

planning

However, after the SAP application went live in 2005, the company

has succeeded in centralizing its cash management strategy (see

Figures 9 and 10).

Centralized cash management has significantly reduced the

total required cash buffer by consolidating the bank accounts of

more than 70 operations to 23 bank accounts at headquarters.

Cash utilization is also much improved. Before the implementa-

tion, the sales revenues from electric power would remain in

the subordinate companies for three to five days before transfer

to the head office. Currently, sales revenues are automatically

transferred and booked directly into the accounts of the head

office, accelerating cash flow. From 2004 to 2005, the accounts

receivable lead time shortened by 33% from 12 days to less than

8. Meanwhile, the accounts payable lead time extended by 12%

from 21 to 24 days.

Centralized cash management also produces interest income, as

shown in Figure 10. Before the implementation of mySAP ERP,

one-third of the revenue in electric power about CNY 1.3 bil-

lion (US$162 million) remained in each subordinate company

for 10 days or so, earning about 0.72% interest annually. Now, all

Bank AccountManagement

Figure 9: Cash Management

2-92%

26


No. of sets of bank accounts for companyoperations and investments

Cash Utilization

Auto+100%

3 to 5 days

Time taken to transfer sales revenue from sub-ordinate companies to head office

Figure 10: Improved Interest Income

Bank Interest Rate

1.44% per annum

Bank interest rate for savings account

0.72% per annum


+100%

10


11/16

the revenue directly booked at the head off ice earns annual

interest at 1.44%, resulting in annual interest income of about

CNY 3.2 million (US$400,000).

The head office now has a real-time view of the cash status of

all subordinate companies, therefore increasing transparency

and control. The difference between real-time information and

month-end updates will make a significant impact on capital

investments.

Centralized Human Capital Management

Human capital management is another important element

supporting enterprise management and sustaining company

growth. With centralized HR management in the head off ice

and access to real-time HR information across all of the

subsidiaries, Shanghai Power has achieved a 9% productivityimprovement for its HR department (see Figure 11).

Reduced HR Operational Costs

With the implementation of mySAP ERP HCM, Shanghai Power

has reduced HR annual operating costs by about CNY 600,000

(US$75,000).

Qian Weiming, HR manager of Shanghai Power, explains that

before the implementation, the company spent five workdays

collecting HR data from the subordinate companies and gener-

ating consolidated reports. With the system in place, it is much

easier for employees to generate reports for top management,

who now spend about an hour to search for relevant data and

create a report.

In terms of personnel administration, mySAP ERP HCM has

helped the company shorten the time to maintain records from

five workdays to a day and a half, with annual cost savings of

about CNY 248,000 (US$31,000).

11

Figure 12: Centralized Payroll Administration Data Maintenance

1.5 days-70%

5 days

Monthly time to update personnel administrationrecords

Personneladministration(at each subordinatecompany)


Figure 13: HR Payroll Execution via a Centralized Platform

1 person day-99%

129 person days

HR effort in monthly payroll executionHR payroll execution(across all 26 subordi-

nate companies)


Figure 11: HR Reports Generated by the System

1 hr-88%

1 day

Time to collect data and create customizedHR report

HR report generation(Involving multiple sub-

ordinate companiesdata)



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Centralized Payroll Policies and Processes

With the implementation of mySAP ERP, Shanghai Power cen-

tralized HR payroll policy and standardized the HR payroll

process. The subordinate companies, each of which generated

payroll at different intervals using different banks, had handled

the HR payroll process in the past. Not surprisingly, this caused

high transaction costs as well as lower efficiency and employee

satisfaction across the company. Now, where payroll execution

once took an aggregated 129 workdays company-wide, the cen-

tralized payroll process is completed in one workday for an

annual cost savings of about CNY 351,000 (US$44,000). Further,

Qian Weiming points out that, with a 9% improvement in HR

efficiency and productivity, HR employees can spend more time

on higher-value strategic activities rather than transactional

tasks.

Improved Transparency of HR Data and Application

Integration Across the Company

Figure 14 demonstrates the contrast between the separate pay-

roll processes formerly handled by the subsidiaries and the

streamlined centralized process. Each subordinate company

operated three subsystems to handle payroll, personnel admin-

istration, and employee retirement insurance. Now, the compa-

ny operates consolidated HR payroll processes with the support

of payroll functionality in mySAP ERP, which leads to higher

transparency and lower transaction costs.

12

Figure 14: Benefits of Centralized Payroll Processes

Before SAP

Holding company

Personnel system

Payroll system

Subcompany Subcompany Subcompany Subcompany

Personnelsystem

Personnelsystem

Personnelsystem

Personnelsystem

Payrollsystem

Payrollsystem

Payrollsystem

Payrollsystem

Payroll effort =26 subcompanies x 1 week each

Payroll maintenance effort =26 subcompanies x 1 system each

After SAP

Holding company

Personnel andpayroll system

(SAP)

Subcompany Subcompany Subcompany Subcompany

Payroll effort =1 main company x 1 day

Payroll maintenance effort =1 centralized HR system

Process

System


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IT Total Cost of Ownership

In addition, mySAP ERP has signif icantly reduced Shanghai

Powers IT total cost of ownership (TCO). With the many inde-

pendent and far-flung systems managing operations at the sub-

ordinates, IT operational costs totaled about CNY 50 million

(US$6 million) annually. mySAP ERP has replaced some legacy

IT systems and retired several functional systems, lowering TCO

about CNY 16.5 million (US$2 million) annually from 2006 on.

Return on Investment

The quantified benefits from the successful implementation

and the companys investment and incremental costs in mySAP

ERP are summarized in the following table.

The table illustrates the investment, incremental costs, and

benefits of the SAP solution and implementation by Shanghai

Power. Costs total CNY 113.8 million (US$14 million) over a

seven-year period.

The impressive results associated with each benefit contributes

to total savings of CNY 293.5 million (US$37 million) in the ERP

life-cycle period with annual savings of CNY 46.6 million

(US$5.8 million) from 2006 on.

Over a seven-year period, Shanghai Power should realize a net

present value of CNY 123 million (US$15 million), a 31% internal

rate of return, and a total payback period of 3.2 years. That is, the

company should see its return on investment in early 2008.

13

Quantified Benefits of the mySAP ERP Implementation (in million CNY)

20042 2005 2006 2007 2008 2009 2010 2011 Total

Investment and Incremental Costs 90 10 2.3 2.3 2.3 2.3 2.3 2.3 113.8

- Hardware 15 15

- Software 15 15

- Training and rollout 10 10 20

- Implementation 50 50

- Maintenance 2.3 2.3 2.3 2.3 2.3 2.3 13.8

Quantified Benefits 13.9 46.6 46.6 46.6 46.6 46.6 46.6 293.5

- Project planning and execution 1.5 4.9 4.9 4.9 4.9 4.9 4.9

- Inventory and procurement management 6.2 20.7 20.7 20.7 20.7 20.7 20.7

- Financial and management accounting 0.2 0.7 0.7 0.7 0.7 0.7 0.7

- Centralized cash management 0.9 3.2 3.2 3.2 3.2 3.2 3.2

- Human capital management 0.1 0.6 0.6 0.6 0.6 0.6 0.6

- IT savings from legacy systems 5.0 16.5 16.5 16.5 16.5 16.5 16.5

2 The first phase of the SAP implementation at Shanghai Power included the head off ice and more than 26 subordinate companies. It started in July 2003

with business process reengineering and ended December 31, 2004, with successful go-live of mySAP ERP. As the majority of the investment occurred in

2004, that year was chosen as the starting point for the ROI analysis.


14/16

14

According to Fu Ruxiang, IT manager for Shanghai Power,

mySAP ERP is helping the company meet its strategic goals and

standardize corporate business processes. However, some busi-

ness areas still need improvement while business operations are

being stabilized. Going forward, the next steps focus primarily

on how to improve business operations with the support of

mySAP ERP.

This case study also identified a variety of steps that Shanghai

Power could take with minimal effort to better support the

asset-centric corporate management framework, as follows.

In terms of inventory management, current replenishmentrequests are maintained manually, which has a negative

impact on forecast accuracy and even inventory management.

For this, the Business Consulting group of SAP Consultingrecommends that the company utilize the material resource

planning function in mySAP ERP to generate replenishment

requisitions automatically when inventory stock reaches the

reordering point, thereby reducing logistics costs and

optimizing inventory management.

In terms of order and documentation management, ShanghaiPower still uses manual approval procedures such as purchase

and service order release. We recommend that Shanghai Power

run the workflow function of mySAP ERP to streamline the

operational processes, shorten the operational lead time, and

therefore improve response to customer requirements.

Manual input of invoices and verification for accounts payableinvolves substantial effort and a potentially high error rate.

Therefore, for this, we recommend utilizing the standard

invoice verification function of mySAP ERP to reduce manual

effort and the probability of input errors.

Since the company still handles cash and budget planningmanually, we recommend that the company utilize the

strategic enterprise management functionality of mySAP ERP

for cash and budget planning, consequently achieving the

automatic inclusion of purchase commitments and accounts

payable and receivable and enhancing transparency and con-

trol in budgeting.

Some HR processes such as employee leave requests andperformance management are still handled manually. We

recommend that the company implement the employee self-

services function in mySAP ERP HCM to automate these

processes, thereby reducing operational costs, redeploying

the workforce to higher-value activities, and capturing higher

employee participation and satisfaction.

After making major achievements with the baseline implemen-

tation of mySAP ERP, Shanghai Power will continue to use

additional functionality in mySAP ERP toward its additional

goals of delivering excellent customer service and a superior

power grid.

NEXT STEPS


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ROI Calculation: Assumptions and Rationales

APPENDIX

DRIVER ASSUMPTION RATIONALE

Discount Rate 5.58% Bank loan rate

Annual Employee Cost CNY 60K (US$7.5K) Average annual salary per office employee

Annual Working Days 264 days 12 months x 22 working days (Shanghai Power has a 5-day work week)

Benefit Ramp-Up Period 9 months Users take time to real ize full benefits of effort reduction from new processes and new system

SAP Investment Allocation 2004: CNY 90M (US$11M) Taking the conservative approach, software license, hardware, and implementation costs are2005: CNY 10M (US$1.2M) fully accounted for in 2004

Training and rollout costs, totaling CNY 20M (US$2.5M), are divided equally between 2004and 2005

Annual IT Savings CNY 16.5M (US$2M) Annual IT savings from retirement of legacy systems that are replaced by SAP

ERP Lifespan 7 years Consistent with the general life of back-office ERP systems

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www.sap.com/contactsap

50 081 184 (06/09) 2006 by SAP AG. All rights reserved. SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver, and other SAP products and servicesmentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several othercountries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Data containedin this document serves informational purposes only. National product specifications may vary. Printed on environmentally friendly paper.

These materials are subject to change without notice. These materials are provided by SAP AG and its affiliated companies (SAP Group)

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