(Following is the text of a letter concerning SAP from Glenn Strehle, vice president for finance and treasurer, to faculty members, the Administrative Council and administrative officers on November 22. In the letter, Mr. Strehle provides an update on the conversion to SAP as MIT's financial system of record).
In early September, the Controller's Accounting Office began recording the Institute's financial information using the new SAP R/3 System. Its implementation was a joint effort by the Management Reporting/Financial Operations reengineering team, the Controller's Accounting Office, Purchasing, the Office of Sponsored Programs, Information Systems, SAP consultants and others from across the Institute.
In an August 20 letter to the community, Senior Vice President William R. Dickson announced the upcoming conversion to SAP. He noted "there will be some difficulties" and asked for patience during this transition period. Despite enormous work by the MIT staff and its advisers during the last 18 months, there were a number of unanticipated difficulties with the implementation. Although many of these were quickly resolved, others persisted and added to the workloads of our colleagues in departments, laboratories and centers. I want to update you on the initial implementation of SAP and review our reasons for installing a new financial system.
The SAP implementation was an initial success when the system went "live" at the end of the Labor Day weekend. It worked! Our sense of success was tempered, however, as reports of problems emerged. These did not threaten the system, but did call for a major near term effort to fully resolve them. Some errors could be fixed "in bulk" while others had to be individually resolved. Problems and issues described by the community seem to fall into three categories:
-- Some purchase orders in process and other financial information in the old system were transferred into the new system without fully matching the original because of errors that had not been identified during the testing period. For example, incorrect MIT addresses and vendor names appeared on a small percentage of purchase orders. The one-time problem of incorrect vendor names was solved, but the task of redoing each document and rectifying any payments is taking longer. Although the great majority of items were transferred correctly, the need for a detailed examination of all items was necessary. We appreciate the help we received in reviewing the September statements from those throughout the Institute. The October accounting statements were sent to departments in the second week of November and will provide an opportunity to determine how much progress has been made. A cover letter from James Morgan, our new Controller, describes procedures for informing Accounts Payable of possible errors.
-- The combination of inaccurate information on some purchase orders together with learning the new SAP system by Accounts Payable personnel slowed the payment of vendor invoices. (These invoices are usually paid at a rate of more than 1,000 a day.) We have added temporary staff, are working overtime and are utilizing those having expertise to help with both training and resolving problems. Since early October we have brought the backlog down from over four weeks to about three weeks and expect to be back to almost normal by early December. Some vendors reacted to the slow payments by asking for prepayments or other guarantees that orders would be paid on time. We have communicated with our vendors and believe this problem is being resolved.
Unexpected slowups, such as those which occurred in September, pushed many invoices into an overdue status. The Institute has a policy of paying its bills on time. Frequently, the delay in getting information about the receipt of goods and the approval of invoices from departments to Accounts Payable causes us to pay later than the due date. An important reason for introducing the new accounting system is to provide for a much faster flow of information to and from departments and central accounting offices. However, the full functionality of the system will not be achieved until the departments have the ability to communicate electronically using SAP. In addition, some recent complaints about slow payments result from original document errors and purchasing issues that predate the SAP implementation.
-- The new system includes features that will help to simplify the recording of our financial transactions, but does display some information differently than our prior accounting reports. For example, the account numbers have more digits and each item on an invoice is recorded as a separate line item. We expect to demonstrate and implement some SAP features in coming months that should enhance our ability to serve the diverse needs of our community. At the same time, there is a need to simplify procedures that add significantly to our costs and workload. For example, we chose to reduce processing costs by including only telephone summary totals in the monthly accounting statements. Detailed telephone calls are now reported separately.
For the first phase of the implementation, we maintained the old object code numbers, but there still were some initial problems with feeding information electronically into departmental systems. There are many advantages in having more account (object code) numbers in SAP to classify expenses. Under our prior system, the shortage of numbers to classify expenses and departmental accounts led to multiple uses of numbers, misclassifications and "work-around" procedures that made standardization, simplification and process improvement impossible. When fully implemented, the SAP system permits the reclassification of financial information into "child" accounts that can significantly improve our record keeping and analysis.
NEED FOR NEW SYSTEM
The need to simplify our financial procedures remains a key goal of the Institute. With campus revenues growing at only about 2 percent a year, even less than the rate of inflation, there are important reasons for continuing steps to reduce our administrative costs. Among these costs are the significant expenses related to managing our financial transactions, both centrally and within the departments. Each transaction often has to be entered several times in various central and departmental financial systems. The tracking of financial transactions and the related budget and expense controls creates a large workload for both faculty and staff.
SAP will enable us to store data electronically in a single place in a way that permits departments and the central accounting office to track expenses and facilitate transactions without re-entering the information in different systems. Our goal for purchasing is to reduce the process steps required by about one-half while also shortening the time to complete the buy-pay process. Our ability to start up SAP, despite the near-term problems, provides optimism that the longer-term improvements can be achieved.
Because departments are responsible for managing their own budgets at MIT, they developed separate financial systems in order to monitor their expenses and uncommitted funds in a continuous manner. Many of these systems would have required significant upgrading as the equipment and software were becoming obsolete and would no longer be maintained by the vendors. We decided, therefore, to focus our efforts on developing a single, integrated financial management system, rather than maintaining many distributed systems.
For MIT, it is the first time in more than 30 years that we have attempted a major revision in the general ledger and other core accounting systems. This is a step that would have been necessary even if we had not embarked on the reengineering of administrative support services, and we should expect to repeat such upgrading at least once every few decades.
The original objective in reengineering our administrative processes was to achieve cost reductions, efficiency and improved service. While few would view our past systems as a desirable end state, we are aware that the community expects us to achieve the transition with as little inconvenience as possible. We appreciate the involvement of so many of you and will work to achieve that objective.
A version of this article appeared in MIT Tech Talk on December 4, 1996.