UGPC Analysis Of Case Facts

Analysis of Case Facts
Assuming that the payback period for implementing the fully integrated ERP system with an initial investment cost of Php 3,000,000 is only one year, we have derived the total cash inflow by implementing the ERP system is also equal to Php 3,000,000 through the formula Payback period is equal to initial investment divided by the total cash inflow. Using this value, we have computed how much does Ultimate Global Paper Corporation will save if it falls in any of the three scenarios given which are the Best in class (20%), Middle (50%), and the Bottom (30%).
Benefits
Percentage
Proportion
Savings in pesos
Reduction in inventory costs
22%
0.34920635
1047619
Reduction in manufacturing operations costs
19%
0.3015873
904761.9
Reduction of administrative costs
22%
0.34920635
1047619
TOTAL
63%
1.0
3000000
Table 1. Breakdown of projected savings by implementing the fully integrated ERP system in the best class scenario.
For the Middle and Bottom scenarios, we based our computation from the values obtained in implementing the fully integrated ERP system. Since the payback period for both the middle and bottom scenarios are not given. We assumed that the percentages in the middle and bottom scenarios are relative to the values in the best class scenario.
Benefits
Percentage
Proportion
Savings in pesos
Reduction in inventory costs
11%
(11%/22%) = 0.50
(1047619*0.50) = 523809.5
Reduction in manufacturing operations costs
6%
(6%/19%) = 0.315789
(904761.9*0.32) = 285714.3
Reduction of administrative costs
8%
(8%/22%) = 0.363636
(1047619*0.36) = 380952.4
TOTAL

1190476
Table 2. Breakdown of projected savings by implementing the fully integrated ERP system in the middle class scenario.
Benefits
Percentage
Proportion
Savings in pesos
Reduction in inventory costs
2%
(2%/22%) = 0.090909
(1047619*0.09) =
Reduction in manufacturing operations costs
0
(0%/19%) = 0
(904761.9*0) = 0
Reduction of administrative costs
-1%
(-1%/22%) = -0.04545
(1047619*-0.05) =
-47619