Best in class ERP

Surveys, straw polls and anecdotal evidence all indicate that manufacturers' experiences of their ERP systems, in terms of cost/benefits and fitness for purpose, are anything but consistently good – and that they also vary over time. Reasons given range from problems with the software vendor and/or implementer to inflexibility in the underlying technology and also the choice of bolt-on applications. But the truth is invariably more complex – and more subtle – and manufacturers now, more than ever, need to cut through all this. So what makes the difference between a good, indifferent and poorly performing ERP system? As it happens, we can draw upon several substantial studies to help us here, all from respected sources. Aberdeen Group, for example, recently published its fifth annual study, 'ERP in manufacturing 2010: measuring business benefits and time to value', which is a distillation of 445 respondents views and based on the analyst's established best in class criteria (which include 97% inventory accuracy, 96% manufacturing schedule compliance and 98% OTIF). According to author Cindy Jutras, vice president and research fellow at the analyst, top performing manufacturers – and, by implication, those most satisfied with their ERP – are "111% more likely to quantify the business benefits of their ERP implementations" than the rest. On average, they also "take advantage of 39% more functionality", and the best of the best also demonstrate "an 83% advantage in full visibility of their business". Diving down a level, there are several implications. First, Jutras' findings show that best in class manufacturers subscribe to the view that you can't manage what you don't measure. It's kind of obvious, isn't it, that taking the time to identify what 'good' looks like, and then monitoring against relevant performance criteria, is going to focus minds on the priorities. That's particularly important today, when ERP implementations are not only big, company-wide affairs – as they always have been – but must also be specified for flexibility. Above all else, manufacturing SMEs need to be responsive to customer demands at the operational level, as well as ready for change in the long term, and any ERP system's success will be judged against these. As for Jutras' functionality and visibility points, arguably they're inextricably interlinked. If you only implemented what used to be considered core ERP (MRP II, financials, inventory management etc) and not the likes of APS (advanced planning and scheduling), CRM (customer relationship management), MES (manufacturing execution system, BI (business intelligence) or forecasting, then, broadly speaking, the system isn't touching all departments. So there will be workarounds, data duplication and black holes – meaning lack of management visibility and barriers to good decision-making. Moving on, IDC Manufacturing Insights also has something to say, albeit indirectly, about ERP success factors. Its recently published 'Beating complexity, achieving operational excellence' white paper, sponsored by Infor and IBM, takes soundings from 700 small and mid-size discrete manufacturers around the world to determine three key points. First, manufacturing in the developed world is significantly more complex than it was, due to pressures to reduce costs and improve productivity, which have conspired to demand tighter integration at all levels of the supply chain. Secondly, the three main operational priorities for the foreseeable future should be: demand planning and forecasting; new product design and introduction; and what it calls 'manufacturing operations management' – an even more bland descriptor for MES. And thirdly, to achieve operational excellence, manufacturers need "skilled people resources, agile and adaptable processes, and available and relevant information". IDC's first point brings us back to that clear requirement for ERP to be spread across more departments – using today's integrated modules – and equally to the importance of 'visibility'. For this analyst, though, visibility matters not just in terms of, say, a real-time link between production and sales, but also engineering design, sales and marketing – hence its second and third points. Otherwise, as the report's authors, Megan Dahlgren and Pierfrancesco Manenti, put it: "Lack of clear visibility into market demand, coupled with global competition, makes developing profitable new products a guessing game." That said, they also reflect much of current thinking around the effectiveness of ERP systems, when they state that packaged systems have not historically serviced us very well. Manufacturers should "enquire how their existing ERP can be reconfigured to help them solve their bid and project management challenges", they say, in a nod to these particular difficulties. Dahlgren and Manenti could just as easily have said: "…to solve their requirement to do more with less, and to do so flexibly." Interestingly, however, IDC also reveals the key modules, beyond core ERP, thought by its respondents to be most valuable in delivering 'operational excellence'. Top of that list is BI, followed by MES, then financial budgeting and forecasting, CRM, supply chain management and supplier relationship management. Inventory optimisation comes in seventh, followed by PLM (product lifecycle management) software and then office automation and unified communications technologies. Granted, those findings will have been the result of tick box stuff, and granted also there need to be caveats concerning systems already in place, your industry sectors, your position your supply chains etc – but there is precious little overlap with WM's own research results. Averaging across a broad range of manufacturers, our respondents' key modules for enabling all-round agility and responsiveness are: APS first, then shopfloor data capture, MES, sales and operations planning tools, forecasting systems, CRM, computer aided process planning systems – and BI fairly low down the pecking order. So what should you do? Probably the first decision needs to be around the adequacy of your existing core ERP system. Aberdeen's study makes the point that ageing ERP systems "may be based on older, inflexible architectures, or may have undergone a technology refresh". The point is that, as business requirements and market conditions change, it's quite possible that what was once a sound foundation is now holding you back. As a Ross ERP spokesperson puts it: "Most businesses feel the pressure and frustrations of legacy systems as an indicator that it's time to invest in a new system. It could be the inability to incorporate newer desktop capabilities to help them streamline their business processes. It could be the lack of consistent or easy to use business analytics. Or it could be concerns over the integrity of their information, and the time it takes to collect this for a fiscal close or regulatory compliance reporting." If you're looking for further justification for an ERP upgrade or change, Tim Mohn, industry principle at US quality management software firm Sparta Systems, makes the point that, if your system has been heavily customised, the total cost of ownership is increasing all the time, because of the maintenance and eventual upgrade implications. "During a recent conversation with an employee of a manufacturer in the highly regulated life sciences market, I learnt that over 25,000 documented customisations had been made to its big-name ERP system," he laughs. Parking that thought for now, whatever you decide to do, there is another aspect to excellence in ERP, and that has to do with good old fashioned people. Alan Bowling, chairman of the UK and Ireland SAP User Group, is good value here. "In many respects the softer stuff, such as managing the people components of your business process, can be the most difficult part," he advises. "Training and support are critical, along with effective and appropriate user interfaces. To get useful insight and feedback, manufacturers should look to establish a user network, comprising of users, super users and support staff. By doing this, they will be able to get the right balance between people, processes and technology, rather than focusing solely on technology." Bowling's view: "The manufacturers that are likely to be most successful will be those that focus on modelling and modifying their business processes, rather than solely the technology." He also suggests that, since ERP vendors are constantly re-engineering their software to make it easier to use and manage – and more readily adoptable beyond the usual departmental boundaries – manufacturers will soon need less IT people to keep them running. So, he says, successful manufacturers will shift their focus to "how they would like to run their business, how it can be improved and how business processes can be enhanced or streamlined". In other words, start thinking about taking on a business analyst or two, with IT knowledge, instead of vice versa. That's not to say manufacturers can simply abdicate all responsibility for the technical aspects of ERP. "Good data management remains key to ensuring that manufacturers get true value from their ERP," concedes Bowling. "They need to make sure that there is one version of the truth; establish what the lead system or component is for the data; and don't waiver from that principle," he continues. And that also means taking care to establish which data needs to be kept, and which can be discarded, to avoid the usual data mountains. Roger Thorpe, customer services and IT manager at truck suspensions manufacturer BPW, which recently underwent a significant Syspro ERP upgrade and extension, offers valuable guidance. Having been through the ERP mill before, this time, he says, BPW didn't fall into the trap of grand ideas that fall at the first hurdle. Instead "we defined a rigid set of implementation rules and stuck to them". In practice, he set up a small team from across the company disciplines and worked with software developer K3 to define rules around, for example, how the production, stock, labour and accounting systems would work, down to the finest detail. "That way, we knew the system would work exactly as we wanted it to. Dotting all the 'i's and crossing all the 't's meant that there were no nasty surprises to bounce us off schedule," he says. And this wasn't a trivial ERP project. At the time, BPW was gearing up for manufacturing and assembly in the UK – no longer simply selling commercial vehicle axles built at its parent company in Germany. That meant adding BoM, WIP and production planning modules – and integrating those with the existing Syspro accounting and warehouse stock control system. However, it also meant first upgrading to the latest version, with Service Pack 2, because of a requirement for its additional features. Assuming nothing and accounting for everything, says Thorpe, allowed the company to examine its existing processes, make improvements and lock them in. "Even some of the points you might think can't be important are worth doing properly. For example, we had been running a FIFO warehouse management system, but that wouldn't work for the new production side; we needed to account for WIP using standard costing. The detail of how we integrated that, so that the two parts of the businesses could work alongside each other, turned out to be key." Sage Line 500 user Boomer Industries' finance director Andrew Wallace offers similar advice, although from an entirely different angle. The story of his most recent project is one of recognising the growing importance of joined-up customer service, and looking for a CRM solution to bolt on. Concerned about seamless integration, Wallace first considered Sage SalesLogix, but concluded it was too heavy weight, so started looking around the third party market before being brought back into the fold with the advent of the lighter weight Sage CRM 1000. Again, for him, the advice that matters concerns people. "We set up teams from around the business to get our business processes right and move to a more business process-orientated system. But, you know, if I was going to do it again, I would get staff buy-in for the change much earlier. I would also pilot it at every level. But I would delay the deeper training. I would go for some initial training and then get people using the system on the job before doing the full training." But the last word goes to Jutras and the Aberdeen report. While she notes that streamlining and accelerating business processes, and making ERP central to that drive, is key to doing well, she also observes that best in class manufacturers are significantly more likely than the rest "to use the features and functions of ERP to optimise the current use of capacity". Pointing to the familiar tale of tightened credit and rising raw material prices – and their inevitable impact on capital spending and volatility of supply chain demand, she draws the obvious conclusion that production facilities may now be under pressure. "ERP solutions designed specifically for manufacturers blend demand planning with material requirements and capacity planning, to improve throughput and make optimal use of [existing] production capacity," she advises. Add to that the potential for improved visibility – not just by management – and hence also 'teamwork', using today's ERP tools, and it isn't difficult to see that a 'good' ERP system is the nerve centre – actively enabling manufacturers to do more with less and helping them to turn on a sixpence, should the need arise. Come along to the cimForum (computers in manufacturing) on 3 November at the Ricoh Stadium, Coventry to receive advice from best in class manufacturers. The event is free to qualifying manufacturing business professionals and independently produced by this magazine and its sponsors.