Zaidi Oil: the SAP ERP dilemma
On a beautiful October morning in 2011, Mr Abbas and Ms Kariuki were seated facing each other in the Zaidi Oil Group boardroom in the presence of the CEO and five other company directors in Nairobi. They were debating whether or not to upgrade their current B1 system to a bigger version of SAP.
Abbas was the new ICT Director of Zaidi Group, an oil marketing company (OMC) operating in East Africa. The fact that he had been with the company barely three months did not prevent Abbas from voicing his opinion and even disagreeing with the directors around the table as they discussed the B1 system. Kariuki, the Finance Director, saw the USD400,000 price tag for system licenses alone as very impractical. However, unable to hedge quickly enough, the company had lost a substantial amount of money due to the 20 per cent depreciation of the Kenyan shilling against the dollar in just three months….Continue Reading the case….
Here are the three questions to answer from the case:
- How would you advise Macharia to proceed on the issue of upgrading the B1 System?
- Should they upgrade to higher version of SAP or should they just improve the B1?
- What criteria would you use as a basis for your decision/recommendations?
Zaida Oil Group: SAP ERP Dilemma
Zaidi Oil Group of Companies Limited is a Kenyan oil marketing corporation with operations throughout East Africa that is focused primarily on the supply of products used in the generation of power, manufacturing, construction, and mining sectors. The company was established in 1990 by Mr. Macharia and three businessmen as one of the oil distributors to the Democratic Republic of Congo and Rwanda following the departure of some significant multinational firms from the Kenyan markets. Over the years, Zaidi has experienced massive growth through the acquisition of oil depots in different towns in Kenya and the launch of subsidiary corporations in Tanzania, Uganda, and Rwanda. Later in 2007, Zaidi Transport Limited was established to enhance efficiency in the transportation of products across the region after acquiring the Mombasa Terminal. Amidst the massive growth and accompanying IT system challenges, the Group’s executive team is debating if to upgrade the current B1 ERP system to a better AI ERP system.
Part One
Abbas, Zaidi Group’s new ICT Director, commenced an information technology needs assessment survey across the Group by visiting all East African’s operating departments, facilities, subsidiary companies, including Zaidi Transport. One would advise Macharia to proceed on the contentious issue and approve the implementation of the higher A1 ERP System based on the IT needs assessment survey findings that presents a better understanding of the current status of IT within the Group. The survey revealed that the Group’s ICT infrastructure is overly decentralized, while the governance and procurement processes are not wholly coordinated. The Group’s IT System has one core B1 system, hardware, and databases; however, the majority had different software and hardware platforms. Additionally, even though the two operating entities had a similar application, their configuration and information differed. Even though the Group’s operating entities dealt with one customer, there was no assurance that each entity could have precisely the same customer data in their different information systems.
Other critical findings from Abbas’ survey were the significant limitations, issues, and challenges of their present ERP system. For instance, the sole server’s unreliability in Kenya, obsolescent network, and present Internet infrastructure. There were reports of recurrent system downtimes, which paralyzed operations, leading to inefficiencies such as the incapability to load and transport the oil products due to required KRA documentation. Despite the doubling of the demand for oil products, the Group was operating at half capacity by supplying over 300 million liters of oil against a capacity of 600 million liters in the same market. As a result, Macharia should approve the implementation of the higher SAP A1 System based on the IT needs assessment survey findings and the need to increase operating capacity.
Part Two
Mr. Macharia and other directors should approve the upgrade to the higher SAP A1 version instead of the improvement of the current B1 system. Despite the hefty $400,000 price tag for system licenses, potential risks, and other allied costs, upgrading the B1 system will….
….Middle of Paper….
The final criteria are fundamental changes to the Group’s infrastructure in the face of massive growth in the next five years. The higher version of the ERP system will support the operational changes, more capacity, and higher demand that will ensue from growth into other African nations in the next five years. The new system will allow the Group to expand into untapped markets, increase revenues, match capacity, increase operational efficiency, lower operating costs, and ultimately enhance its financial performance.
References
Acosta, F. R., & Acosta, A. S. (2014) “Zaidi Oil: the SAP ERP dilemma”, Emerald Emerging Markets Case Studies, 4 (8), 1-10, https://doi.org/10.1108/EEMCS-01-2014-0023
Marchewka, J. T. (2015). Information technology project management: Providing measurable organizational value. Wiley.
Schwalbe, K. (2019). Information technology project management. Cengage.