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Project Cash Outflow

Cash flow analysis is a method for determining the estimated annual costs and benefits for a project and the resulting annual cash flow (Schwalbe, 2008, p. 270). The cash flow analysis for the SCM module implementation is presented below in this section. Figure #11 represents the cash outflow that is expected to be produced as a result of the activities involved in the implementation process. The cash outflow for each activity is presented according to the year in which the activity will occur. Figure #11 is done according to the cost estimate provided in the previous section and generated using Microsoft Project 2007

According to Kathy Schwalbe, cash flow analysis must to be done to determine net present value (Schwalbe, 2008, p. 270). Cash flow analysis for the SCM module implementation is presented in figure #12 below. The cash outflow, or cost, compared to the benefits expected from module implementation. As discussed earlier in this project, the new system will result in a number of benefits for CVS Caremark. One of the benefits discussed was the expected inventory expense reduction by $4,200,000 annually. It will be achieved through the SCM module and is projected to be attained in 2011.

Assuming that the

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discount rate is 10%, the discounted costs amount to $1,627,254; the discounted benefits are $3,150,000. The net present value for the module implementation is $1,522,746. Conclusion This project has been undertaken to implement a SAP system for Supply Chain Management for CVS/Pharmacy that will cover purchase, inventory management, supplier management and logistics. The major benefits include improved customer service, increased sales (especially online purchases), reduced inventory expenses, better inventory management, and increased operational efficiency.

Other benefits come from savings from streamlined processes, savings from reduced reimbursements to customers who have received unacceptable products, improved cash flow, and an increase in labor productivity. The expected increase in sales revenue is $5,572,000 with reduction in inventory expenses by $4,200,000. An additional $16,560,000 savings is expected from operational efficiency whereas cost savings from other factors are expected to be $17,000,000. With a discount rate of 10%, the total discounted costs come to $103,056,000, and the total discounted benefits come to $107,760,270.

The net present value for the project is $4,703,700, and the return on investment is 4. 56%. Based on payback analysis, the payback occurs in the year 2012 with cumulative benefits minus costs reaching $4,703,700. The project success criteria are 1) Maximum implementation time should be 4 years 2) Payback period of 3+ years 3) Positive NPV and ROI. The project will be considered successful even if the implementation time takes a little longer than 4 years, provided it meets all project objectives and stakeholders expectations, and provides the benefits listed in the ERP proposal.

The project deliverables are Business case, ERP proposal, project charter, scope statement, WBS, project schedule, cost baseline, organizational chart, responsibility assignment matrix, stakeholder analysis, statement of work, final project presentation, and other documents required to manage the project. Based on the project documents created including WBS, Gantt Chart, and Network diagram, the project will take more than 600 days (approximately 20 months) to complete with 25 resources (including the project manager).

The expected project completion date is 5th October 2010. In order to ensure the success of the project, the management needs to ensure that Organizational Strategies, Technical Strategies and People Strategies have been formulated well. Of most important strategy is that face-to-face meetings, the personal touch being vital and convincing between the Change Managers and the employees should be encouraged at all times to ensure that rumors or miscommunication do not affect the project.

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