Don’t wait: just do it

Sometimes it makes sense to unfreeze development on your legacy ERP system so you can add ‘killer’ third party packaged functionality early, rather than wait for system replacement. That’s what Tim Payne, European materials director for global maintenance and speciality chemicals manufacturer and distributor NCH, did – and at time of writing, he’s on target for return on £185,000 investment easily within two months as a result of massive inventory reductions and better batch production scheduling and logistics efficiencies. He’s already looking for more! NCH is a privately held global business headquartered in Dallas Texas that, since its formation in 1919 has diversified into cleaning chemicals, fasteners, welding alloys and components for fluid handling as well as maintenance supply products. The company has subsidiaries in more than 50 countries, employs around 10,000 and has manufacturing plants in the UK, Spain, Portugal, Turkey and the USA. It’s mostly process sector stuff with some in-house general manufacturing and significant subcontract operations around Europe. Until relatively recently, business operations were essentially individual in each country, each working with local suppliers, contract manufacturers and customers in their own markets. That meant everything from purchasing teams, to warehousing was local, and thus also country planning and buying. The result: “We had inventory issues, capacity issues, a disparate supplier base with different contractual arrangements and so on,” says Payne. Over the last three years the firm has been attempting to move to get the economies of scale that could come from consolidating much of that and becoming a cohesive European operation. But trying to make inventory management and purchasing pan-European was never going to be trivial. “We’d set up a supply chain group and a purchasing group here in West Bromwich, but we were trying to do it with the existing bespoke ERP system, with a planning suite bolted on the side by our own IT department.” Which was fine, except that there was no visibility into the order books or planning across the regions. The system could view everything locally, but wasn’t set up for pan-European management, and had no access to detailed business information in the various geographies. “We realised we needed better tools to be able to add value,” comments Payne. As a result of that and other system issues, development on the project was halted half way through while all systems became the subject of a major review. However, Payne and his team weren’t going to be put off. They reckoned the ERP was fine at the transactional level, with inventory data, balances and so on by then being consolidated in the UK. It was only the lack of European planning data that was the real issue. “What we needed to do was enhance the ERP in the UK straight away, rather than waiting, and then we could overlay supply chain planning,” he says. And then the economies would be realised. Payne says they managed to persuade the board by pointing out that they would achieve a return on investment many times over in the months, or more likely years, it would take to go through the extended ERP system review and eventual replacement. So, NCH’s IT department built the ERP interfaces and modifications, with automated links to the local European systems, and then added FineChain MerciaLincs demand forecasting and supply chain planning software from Finmatica. Interfacing to all the European systems was a breeze, he says, because the team also bought Finmatica’s EAI tools and interfacing suite, developed by group company Ortems (planning and scheduling software), acquired 18 months ago. “It’s been brilliant,” says Payne. “It’s been so easy to configure for the different systems, and you can do transformations, like currency changes and so on in no time. That took just two days of training.” In brief detail, Payne reckons the software cost him £125,000, plus about £10,000 for two new servers and £50,000 worth of training. He says that with a trial run of his data, on the conventional hard measure of inventory reduction he expected at least 20% savings on fast moving ‘A’ class items and 25% on slower ‘B’ class products – using the existing mechanisms of smoothed average forecasting, despite seasonal demand. “For the justification we were more pessimistic than that, so we halved the estimates and still reckoned we could get ROI in four months.” And the result: “Actually, we’ve already managed 50% inventory reduction of the ‘A’ items – so on that measure alone it’ll be less than two months to payback.” And that’s just the top line measure of getting forecasting and planning more accurate, real time and centralised for decision making and purchasing. He adds reductions in obsolescence and write-offs that previously came from “the guesswork and getting it wrong”, better production scheduling and costing across its own and its suppliers’ plants – and on top of that, also logistics and freight savings and efficiencies. “We went live just two weeks ago with 50 products and 100 SKUs. There were no problems and we’ve already expanded it to all 1,300 products.” Beyond the forecasting and demand planning supply chain software, NCH also bought Finmatica’s inventory and requirements planning and deployment suite – covering classical DRP for warehouse inventory management and, just as important, manufacturing production planning. “That provides visibility of what’s selling, how best to replenish it, how to batch up production in the most efficient manner and so on. It’s meaning more efficient scheduling of chemical batches and cycles – at first for ourselves, but we’re already working with one of our major suppliers as well. “That company runs SAP and our system provides EDI ordering and invoicing, while the supplier emails back order status, production, materials despatched and so on, which we can compare with our systems.” That’s another potentially big money saver. Payne says that hitherto there have been instances of NCH’s own manufacturing unit or a supplier being given an order for a chemical on one day and then another for the same again on the next! More efficient planning with the supply chain at the macro demand level all the way through to scheduling production and replenishment at the detailed batch level – in sympathy with optimum manufacturing – will deliver additional savings that weren’t costed into the original business plan, says Payne. And the same applies in warehousing and transportation: the system is already helping users to optimise pallet numbers and layers for loading and unloading efficiencies and Payne is also expecting a substantial drop in freight charges through better planning and scheduling and virtually eliminating panic shipments of potentially hazardous chemicals. ”We could be saving another £150,000 a year from that,” he laughs. Payne says that the system will now be extended initially to six suppliers using EDI, but that in Phase Two, probably within the next year, he will get the Mercia Collaborate module and move to cover more of the supply chain and contract manufacturers with web-based planning, execution and fulfilment coverage. The lessons are very clear. If you can do the business justification, then have the courage of your convictions and, assuming you have an enlightened – by which we mean IT aware – management team, with the leadership potential and commitment, you will get results.