Lesley stowe fine foods ltd

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LESLEY STOWE FINE FOODS: THE ERP DECISION Douglas Scott wrote this case under the supervision of Joe Compeau solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Copyright © 2013, Richard Ivey School of Business Foundation Version: 2013-09-17 As Lesley Stowe gazed out her office window at a rainy Vancouver evening, she couldn’t help but reflect on the remarkable growth that her company had experienced over the past 10 years and its implications for managing Information Systems and Information Technology (IS/IT). It was April 2012, and Lesley Stowe Fine Foods (LSFF) was in the final stages of selecting an enterprise resource planning (ERP) system from a shortlist of proposed solutions. Stowe began to review the notes she and her senior managers had compiled over a long series of presentations and discussions with each of the candidates. Even though at times the content felt overly technical, Stowe and her team were confident that implementing an ERP system was an important step to take. She brewed a cup of her favourite loose leaf tea and began to think things over once again. COMPANY OVERVIEW Parisian-trained chef Lesley Stowe founded Lesley Stowe Fine Foods in Vancouver, British Columbia in 1990 out of frustration with the lack of specialty foods in the city. LSFF’s combined offering of premium catering services, cooking classes and specialty grocery products quickly became a hit with Vancouverites, and the business enjoyed early success that continued through the 1990s. Recognizing the seasonal nature of the catering industry, Stowe also negotiated contracts to provide desserts for many of Vancouver’s top restaurants, a key component of the company’s stable profitability. In the early 2000s, Stowe created a recipe for an artisan cracker to include in LSFF’s gift baskets. The crackers — named Raincoast Crisps after Vancouver’s local ecosystem — were instantly successful, and demand for the product resulted in several months of sustained stock-outs. Soon after, a difficult decision was made to discontinue the company’s food service operations in order to focus on production of the crisp. A decade later, Raincoast Crisps were available in over 4,000 stores across North America and had been featured on Oprah’s O List and in Martha Stewart’s Whole Living Magazine. In 2012, LSFF offered six flavours of Raincoast Crisps, as well as a line of gluten-free oat crisps and a line of all-natural “power cookies” aimed at competing with meal replacement bars (Exhibit 1 shows the product line for LSFF).

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In 2010, production volume necessitated the move from the company’s small facility in midtown Vancouver to a large-scale manufacturing space located outside of the city. The new plant, combined with prudent capital investment in new equipment, dramatically increased LSFF’s production capacity without significant overhead increases or capital constraints. Though Raincoast Crisps were widely available across Canada, LSFF’s distribution in the United States was still limited. Given the company’s considerable domestic success, as well as strong preliminary results across the border, it seemed that LSFF was positioned for exponential growth as it entered the U.S. market. PRODUCT Stowe developed the crisps as an accompaniment to other gourmet products that LSFF featured in its signature gift baskets at the time. The first crisps, prepared in Stowe’s oven at home, were made from brown bread dough mixed with a flavourful variety of seeds and nuts. The result was a cracker that had a very distinct flavour and texture but that was neutral enough to complement a very broad range of toppings, especially the premium cheeses, dips and antipasto for which they were designed. This recipe was still used in the original flavoured crisps that remained bestsellers in 2012. The immediate success of the original recipe soon led to the development of new flavours based around more specific taste profiles. LSFF offered seven varieties: original, rosemary raisin pecan, salty date and almond, cranberry hazelnut, fig and olive, cinnamon raisin and a seasonal winterfruit flavour. In response to recent changes in consumer preferences, in 2012 the company released three flavours of gluten-free crisps, which were made with oat flour. 2012 also marked the launch of LSFF’s first product outside of the cracker category: the Raincoast Cookie. Stowe created the cookies after identifying the opportunity to make a better-tasting alternative for meal replacement bars. The company offered three flavours: apricot, ginger and slivered almond; dried cranberry and toasted hazelnut; and dark chocolate, tart cherry and pecan. The cookies were selling well through local distribution channels, but due to time constraints, management had not yet been able to push expansion beyond western Canada. LSFF’s commitment to exceptional quality was a key consideration for all of its products. Despite huge increases in production scale, the crisps were still mixed, baked and sliced in small batches, using only the best ingredients. Product quality also represented a critical point of differentiation between LSFF products and imitation brands that attempted to sell replica products at a lower price point. MANAGEMENT AT LSFF LSFF’s management team and organizational structure remained largely stable over the years following the company’s move to dedicated production of the crisps. As the founder, owner and president, Stowe was the key decision maker and was actively involved in the management of all business functions. In recent years, her role in marketing and sales had become an increasing time commitment as expansion to new regions required her to travel for trade shows, in-store demonstrations and distributor negotiations. Stowe had worked with Vice-President (VP) Maggie Arro for over two decades and relied on her for day-to-day management of the company. Other key decision-makers included VP Operations Ali Samei, Director of Sales Susan McVee, Accountant Chris Bray and Production Manager Maybo Wu. Au

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In its early years, the company’s operations were small and processes were very simple. As a result, when issues arose within specific business segments, they tended to have implications for the entire firm. In response, Stowe and her managers were forced to work together to address each unique challenge as it arose. This cross-functional approach became a key component of corporate culture, and Stowe believed that it allowed the LSFF team to be exceptionally nimble as the company went through its sustained period of high growth. But by 2012, continued growth was beginning to strain the capacity of LSFF management. Communication between managers became increasingly difficult as each business segment came to be larger and more complex. As well, the absence of lower-level staff often forced managers to complete time-consuming tasks that would have otherwise been outside the scope of their responsibility. LEGACY SYSTEMS AT LSFF When LSFF began dedicated production of the crisps, a combination of low volume and a focus on local distribution created a need for only the most basic of information systems. For the first few years, management relied on manual data collection, using a combination of handwritten notes and ad hoc Excel spreadsheets to manually track and compile information. However, the company’s rapid growth made information increasingly complex as it scaled up volume, expanded geographic distribution and added new flavours. By 2006, management was no longer able to effectively record and process data informally and, as a result, adopted a software-as-a-service (SaaS) enterprise resource planning (ERP) platform through a boutique software firm. This system was implemented with two specific goals. The first was to support the collection and reporting of data related to specific business functions, in particular sales order fulfillment, production, inventory management and accounting. The second was to consolidate the data recorded in separate functions in order to provide information to support firm-level management and strategic planning. The SaaS ERP platform supported four key areas of LSFF operations: sales order fulfillment, production, inventory management and accounts receivable. LSFF used the Simply Accounting Product for Accounts Payable, a product called Ceridian, for payroll, and Salesforce.com for marketing and customer relationship management (CRM). Unfortunately, from its inception, the SaaS ERP platform frustrated management with a variety of problems. For some business segments, such as production and inventory management, the system’s limited functionality necessitated continued use of manual information recording and processing. For other segments, such as shipping, the system offered no functionality at all, and manual data collection processes continued. These processes were time-consuming and almost always carried out by managers. Compounding these clear issues was the problem of poor ongoing service from the vendor. LSFF management felt that the vendor was slow and offered insufficient responses for basic problems. Moreover, LSFF had no dedicated IT staff, and this lack of system support only drove managers further towards manual processes when technical issues arose. In many cases, inadequate data had direct and significant implications for profitability, as highlighted by one incident encountered by VP of Operations Samei:

As I was compiling my monthly inventory spreadsheets for a report, I grew curious about certain inventory items, and was shocked to see upon compilation that in the last 12 months we had purchased over 100,000 pounds of sunflower seeds! In order to use [our current system], I had to manually track purchases on an individual basis, and aggregated information was not available. Within days of this discovery I negotiated a 20 per cent discount with our supplier, which wouldn’t have been possible if I hadn’t happened to add things up on my own. Au

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Moreover, the system offered almost none of the promised functionality relating to data integration across business segments. This was of critical importance, as any information to support decision making at the firm level had to be collected from each segment and compiled by hand. Being involved in day-to-day management made this especially frustrating for Arro:

It got to the point where a simple monthly performance report was taking me eight to 10 hours to manually compile and format. At that time I’d say 90 per cent of all management reports were still made individually in Excel.

Years of frustration came to fruition when, in fall 2011, Arro formally approached Stowe about the need for change. After a series of meetings, the company commissioned IDEACA, a boutique ERP consulting firm, to do an operational audit of LSFF, create a request for proposal (RFP) and advise during the selection process. THE REQUEST FOR PROPOSAL The RFP was issued on February 23, 2012. It included details of the expected requirements of the system and the implementation process, as well as information about LSFF and the decision making process. Exhibit 2 contains excerpts of the key elements of the RFP. Of the eight RFP responses received, the LSFF team invited five candidates to pitch their proposals to the company’s board. The results of these interviews were mixed; three candidates were eliminated quickly. The team liked one proposal made by SAP; however, the proposal was contingent on an additional third- party add-on called BatchMaster. This software appeared to provide many unnecessary functions and was prohibitively expensive. Another vendor pitched an Infor ERP system, and at first the software seemed to be a great match for LSFF’s functionality needs. However, after seeing demonstrations of the software, the team felt its bare bones appearance and complicated dashboard were not user friendly enough for their needs. Two separate vendors proposed Microsoft Dynamics NAV systems, one of which seemed like a poor fit and was eliminated immediately. The other, provided by a Vancouver-based vendor called the Underwood Group, was very well-received. A fifth proposal made by another local vendor, Barnes and Co., was also viewed as very strong. Both of these proposals were made by experienced vendors offering solid software, and the team was faced with the difficult task of deciding between the two. Final Proposals Barnes and Co. — Sage ERP X3 Founded in 1995, Barnes and Co. was a Vancouver-based technology consulting firm, which provided Sage ERP systems to mostly small and medium-sized enterprises (SMEs). In recent years, the company had some success with implementations in the food space, including two national distributors of organic foods and one regional restaurant chain. The company listed projects for a hardware manufacturing firm and a supplier of specialty auto parts as specific examples of Sage ERP X3 implementations. The Sage ERP X3 system was targeted at mid-market businesses (50 to 5,000 employees) with international requirements and strong growth in manufacturing, distribution and service industries. X3 was Au

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developed by Sage to specifically address the needs of mid-size companies for whom large-scale ERP solutions were thought to be unnecessarily complex and unwieldy. The goal of X3 was to offer the benefits of ERP performance while focusing on simplicity and functionality. The system was also intended to be scalable in recognition of the growth opportunities available to medium-sized businesses. Sage ERP X3 was used daily by over 170,000 users at more than 3,000 companies in 53 countries around the world. Barnes and Co.’s response was 67 pages in length and included a very detailed table indicating how the Sage software met or exceeded the RFP requirements (Exhibit 3 shows an excerpt from this table). The Sage software was described in detail with information about each of the modules that made up the product that came from Sage’s product literature.1 The project methodology began with the sales hand-off and then proceeded to a project kick-off meeting. This was followed by a project planning phase where the preliminary statement of work (to be developed by LSFF and Barnes and Co.) would be converted to the formal project plan. The next phase involved the configuration and implementation of the software at the hosting facility, based on a requirements document. The implementation activities followed an iterative approach using a series of “conference room pilots” where transactions were tested as if they were being processed in a live environment. After configuration and implementation, the next phase was project closure, followed by account manager follow-up. The proposal included provisions for off-site hosting, which would be provided by the implementer through a partnership with an affiliated data services firm. Costs for this option, based on an hourly billable rate of $160 with no billable travel time, is included in Exhibit 4. The Underwood Group — Microsoft Dynamics NAV Founded in Vancouver in 1989, the Underwood Group provided implementation, development, project management and support services on Microsoft Dynamics ERP and was the largest and oldest Microsoft Dynamics Partner in western Canada. Underwood Group’s proposal highlighted extensive and specific experience implementing Dynamics NAV at mid-size food processing and manufacturing companies. The implementer offered strong references from a processor of specialty Asian fish, a Vancouver-based roaster of fair-trade coffee beans and a processor of high quality fruit products, all of which had international distribution. Microsoft Dynamics NAV was Microsoft’s ERP solution, aimed to provide comprehensive solutions and management functionality for SMEs. The software did not have a specific industry focus but was designed to streamline financial processes and reporting, generate real-time data for production functions, improve sales and customer relationship management and support international operations.2 Dynamics NAV was also designed around considerations for growth, and the software facilitates the addition of new business processes to the system post-implementation. The response from the Underwood group was 23 pages in length and included at least some discussion of each of the required sections, though it did not follow the template precisely. The proposal included options for LSFF to host the Microsoft Dynamics NAV software in-house (on premises) with professional services for implementation provided by Underwood, hosted by a third-party provider (hosted) and through a SaaS option. Details on the hosted and SaaS options were a bit limited in the proposal, but additional information gained during the presentations clarified the missing information. 1 http://na.sage.com/~/media/Company/ERP/White%20Papers/Sage-ERP-X3-Version-6, accessed September 16, 2013. 2 http://www.microsoft.com/en-ca/dynamics/erp-nav-overview.aspx, accessed September 16, 2013.

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Three tools for supporting data migration were described in the proposal. The data migration process seemed to involve extracting data from current systems, cleaning and harmonizing it to a standard format, transforming it to the format required for NAV and then loading it into the new tool. Underwood also offered some access to industry standard data (such as payment terms, country codes, etc.) that could be automatically imported. Underwood emphasized that it was a local partner who could serve LSFF well. It had a staff of 35. The proposed implementation team members were relatively young and energetic but very experienced, with each of the six members having at least eight years in the field. The proposal did not detail the expected resource effort required from LSFF employees but estimated it based on past experience at between 166 and 249 person days (two to three times their own implementation services). Underwood followed a five-phase project methodology running from analysis to design, construction, and deployment, culminating in “go live.” The proposal provided a fairly detailed training and implementation plan, using a phased roll-out with core features implemented first and production and capacity planning introduced only in phase two. The response argued that such a phased approach would facilitate learning and adaption to the new software and would also make it easier for the project team to manage the rollout. The costs for this option, based on time and materials billing, are shown in Exhibit 5. THE DECISION Stowe finished her tea and prepared to leave for the day. She was more confident than ever that an ERP system was a necessary step for her company. That being said, she was still unsure about which of the two options to choose. She knew that the key to the decision was identifying which proposal best addressed the needs of the company both now and in the future. The next step would be sitting down with her team to figure out which one that was.

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EXHIBIT 1: LSFF PRODUCTS

Raincoast Crisps served with Goat’s cheese

Original and Rosemary Raisin Pecan Crisps

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EXHIBIT 1 (CONTINUED) Source: Company records, http://www.newboro.com/Kilborn's/Gourmet%20Foods/leslie_stowes_raincoast_crisps.jpg, accessed September 16, 2013.

Rosemary Raisin Oat Crisps

Two flavours of Raincoast Cookies in packaging A

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EXHIBIT 2: KEY EXCERPTS FROM REQUEST FOR PROPOSAL

Request for Proposals LSFF-RFP-001: ERP Implementation

Issue date:

February 23, 2012

Closing time: Proposal must be received before 2:00 PM Pacific Time on March 16, 2012

1.0 INSTRUCTIONS TO PROPONENTS 1.1 Introduction This Request for Proposal (RFP) outlines Leslie Stowe Fine Foods Ltd (LSFF) high-level requirements for an Enterprise Resource Planning (ERP) system. Interested Proponents are invited to respond to this RFP by March 16, 2012. Short-listed Proponents will be invited to present a live system demonstration and present the essentials of their proposal to the LSFF Evaluation Team during the days of April 2 – 4, 2012. LSFF is extremely value conscious in making this acquisition and it is anticipated that the initiative must provide substantive benefits relative to the total lifecycle costs. 1.2 RFP Terminology  Evaluation Team: The individuals who will evaluate the Proposals on behalf of LSFF.  LSFF: Lesley Stowe Fine Foods Ltd.  Optional: A requirement not considered essential, but for which preference may be given.  Proponent: A company or consortium that submits, or intends to submit, a Proposal in response to this RFP.  Proposal: The Proponent’s response to the RFP, which includes all the Proponent’s attachments and presentation

materials.  Request for Proposal (RFP): This solicitation for Goods and Services, including attached appendices.  Services: The contracted services as specified in the RFP, the Proposal, and any resulting Contract.  Should or Desirable: A requirement having a significant degree of importance to the objectives of the RFP.  Validation: The stage in the RFP process during which the LSFF may confirm, through testing, that a

Proponent’s proposed solution complies with the requirements of the RFP.  Vendor: A successful Proponent to this Request for Proposal who enters into a Contract with LSFF relating to

the subject matter of this RFP. 1.3 Confidentiality The contents of this RFP and all information provided by LSFF are to be considered confidential information and remain the property of LSFF. We remind all vendors of the Mutual Non-Disclosure required. All Proponents should hold all information received in this document, including follow-up information and documents, in strict confidence and not disclose this information to any third party except to its employees, lawyers and consultants on a need to know basis. Copies of the document may be reproduced by the Proponents, only to the extent that it is required to allow the Proponent’s party and its employees to respond to this RFP. Upon the request of LSFF, the Proponent agrees to destroy or return to LSFF all copies of this RFP. Proposals submitted to LSFF will also be held in confidence and shall be considered the property of LSFF. A