Making sense of e-business in manufacturing

'E-business’: who invented the term? When it was coined it served some purpose in raising awareness that the Internet and its technologies really would mean more than an academic nicety – indeed mean business. But now it’s virtually meaningless, embracing as it does all the potential of today’s IT to connect people, data, information, processes – externally across suppliers, customers and partners, and internally across functions and operating units – fast, efficiently and at low cost, and apparently with almost limitless choice. Its implications are too immense. Which is why late in March we assembled a panel of IT vendors, consultants, analysts and manufacturing users at Brands Hatch, and asked them to help us make sense of the e-business frenzy. This was the first of our e-Manufacturing ‘e-forum’ events, in association with the DTI, CBI and sponsors Oracle, e-know.net and market researcher Benchmark. Our goal was to get to exactly which of the aspects of ‘e’ we should individually focus on to transform our businesses and manufacturing in terms of what actually matters – quantifiable benefits through, for example, improved efficiency, productivity and operational costs, but also collaboration, responsiveness and agility – ultimately sustainable profitability. We wanted to make sense of the nonsense – to unbundle ‘e-business’ and then establish how manufacturers ought to consider moving forward tactically and strategically, taking account of the technology, its providers, and their own likely business and people problems. This we have done, and you’ll find in the following pages the outputs from that debate: frank and honest considered opinions on everything from e-procurement to collaborative engineering and supply chain management, integration and the rest – along with advice on how, and how not, to get there. Business strategy? First then, we asked the team to consider how manufacturers should move on from where they are now. Benchmark Research, in its survey last year among 1,700 manufacturing managers, found 91% of manufacturers saying they’re either implementing e-business or planning to do so – probably meaning they’re putting up little more than a marketing website. So how should we get started? Should we develop an e-business strategy? Mike Askew, director and general manager at Westland Transmissions, in criticising the hype and terminology of IT vendors and consultants, spoke for many in manufacturing: “My business is making aerospace transmission systems and helicopters. What we look for is IT to be a tool to help us do that better. I’m not sure what an e-business plan will actually look like … I think we’re very pragmatic in the sense that we want benefit from any investment we make.” Pragmatism, opportunism: absolutely. So should a grand e-business strategy even exist separately from the rest of the day job? Opinion was divided. David Tudor, for Oracle, said: “The problem is, business is moving so fast that you spend six months trying to put a plan together and it’s out of date.” But Graham Wylie, of Enigma, warned, “There’s a tendency to apply [new] tools as things exist inside the organisation, rather than saying ‘new technology has enabled us to spread this net wider’.” For him, the value of formulating a strategy is that it forces you to think outside the box. And Richard Montalvo, for Mapics, added: “There is a danger that if you don’t fit [e-business] into some overall strategy, you end up pulling point solutions around, building the next set of legacy systems.” Simon Eade of Caterham Cars agreed with that: “In our company, initially IT was pushing for e-business, but now it’s like we wound sales up and let them go. What started as a handful of Caterham products on a website with a separate database is being added to all the time. And it’s not integrated with our ERP system – which has got 15,000 product codes. There’s no strategy – they’re just growing it. And it’s going to fall over.” Important points. As David Waldron with Fourth Shift (now AremisSoft) said, e-business (web-based applications) is really a whole new set of IT tools that enable things to be done differently, better, slicker, cheaper. So “thinking about business problems that might involve e-solutions,” is the way to go. And while developing an e-business strategy may sound pretentious and arguably misses the point, you can see the value of installing an ‘e-business director’ if only to focus on new thinking. One caveat: Cambashi’s Bob Brown. “I think the devil here is in detail. You say ‘manufacturing’ … but there’s enormous diversity in terms of size, nature of organisation, stake holders, all kinds of things. So yes I think strategy is critical, [but] it ought to be an integral part of the corporate strategy.” Sales and marketing Key to any organisation is its sales and marketing, and Benchmark finds that these departmens have been largely responsible to date for driving e-business. But should sales and marketing direct and control it? There’s no doubt that a number of the initaitves that come from this quarter do pay. Microsoft’s Rod Blackwell, for example, spoke of one winning approach: “We’ve done some very interesting projects with VW in Germany. You can now go onto VW.com and choose a car configuration. But they try to take that even further and build a relationship with the customer using MSN. So suddenly they open up a completely new relationship with their customer.” Wylie, whose company concerns itself with after-market IT typically for aerospace manufacturers (where he claims margins are 30—60% instead of the 1—3% in equipment sales), gave another excellent example. “You’re not going to buy an aircraft engine on the web, but you might buy the spare parts. When you have a broken engine sitting in front of you, how are you going to fix it? So it’s maintenance manuals, illustrated parts catalogues, service bulletins, technical information … put on the Internet with personalised access to the point of use. That whole process of shared information is what’s unearthing new benefits. That’s the principal of collaborative commerce.” And there are countless others. Fine, but that doesn’t mean e-business should be controlled by sales/marketing. Andy Bates for Rockwell was concerned that with sales people the focus is fixed “on front office revenue generation, not back office cost reduction.” Which is a mistake: “A lot of the benefits are to be gained from back office things like improving production, productivity and asset availability.” Peter Klein of Synquest said: “What people should be focusing on is the availability of information: once they start thinking that way they will realise they have to start from the centre of the organisation and work out.” And that’s the point. Tom Kneen of Cisco, facing harder times now, but still a model to which many aspire, insisted that manufacturers must stop thinking of ‘e’ only as a revenue generating mechanism. Cisco’s growth, he said, although founded on e-business technology, was entirely customer-driven. e-procurement Then there’s ‘e-procurement’, the marketeers’ ‘low hanging fruit’ – and it’s a compelling story. Blackwell again: “Recently, Microsoft UK was chastised because only 85% of all indirect procurement was done electronically, whereas in the US it was 98% – and you’re talking several billion dollars: PCs, the marketing, contracts, all that stuff. Our cost of transactions has gone down from $60 to $5, and I’m just very surprised that other people haven’t done this.” John Watton of Ariba said: “What we’re seeing is a move to more strategic sourcing of suppliers: more standardisation on the companies they deal with.” Purchasing managers in the smarter companies, he says, are rationalising suppliers, cutting better aggregated deals – and then automating all that and getting on with higher value, more complex work on reduced headcount. The only real barriers, he says, are cultural. “The procurement community is built on personal relationships at a local level – for good reasons. And people are naturally wary about feeling they’re giving away some control.” Few doubt that all this is fine for non-production (indirect) items, but e-procurement for production materials is quite another matter. SAP’s Paul Eggleton: “When it comes to the direct items, the engineered items, fabricated items, it’s a whole different attitude in buying across the web. That requires a fundamental shift in the way companies operate with each other.” Caterham’s Eade spoke with experience: “We have a lot of generic parts from Ford, Vauxhall, Rover which we do already buy over the Net. But where we want Caterham-specific parts we have to assess suppliers and their equipment. It takes three or four months, and we have to invest heavily in their tooling. We’re not going to do that over the Net.” Don’t forget spare parts though – the after-market again. Bates said: “Spare parts typically don’t have the attributes of pencils and stationery but neither are they as complex as direct supplies.” The only problem for would-be users is parts identification. “Identification of location, number, usage – even that basic information is often not available. Without it, it’s simply impossible.” And that’s a serious pity, because there are excellent opportunities here for companies that have got those basics right. Westland’s Askew summed it up. “My observation is that my own procurement department spends a huge proportion of their time interpreting the output of the ERP, order administration, communicating with a supplier on delivery dates or whatever. The e-procurement opportunity to me is about using the technology at the point of requirement – so actually on the assembly line, ordering a part directly from the supplier and it being delivered to them. Now procurement’s role fundamentally changes … to putting an infrastructure and suppliers in place for other people to call off parts. That seems to represent a significant benefit, not just in terms of cost, but speed and operational efficiency.” Shopfloor operations Now to manufacturing management – controlling and monitoring shopfloor and plant operations, maintenance management, etc – what does e-business offer here? Rockwell’s Bates said that manufacturers are sceptical of e-business in this context: “They’re looking at ‘I have a certain asset base; how do I make the right stuff at the right time and right price out of those assets? And then how do I make as much of it as I possibly can?’.” In short, they need to understand how e-business tools – providing for low cost information flow anywhere, any time, any platform – can help them with real world issues. “What always amazes me,” he said, “is the poor manufacturing efficiencies you find all over the place.” He cited surveys showing how 10 years of investment have yielded only 1% improvement. “The UK average is about 41%, and 20% is not an unusual number,” he said. “One in five of machines are actually operating at any one time.” Clearly, web technologies have a role to play here in enabling ‘visibility’ of factory equipment – not just from the business level but between manufacturing operations and maintenance. Consider the productivity per capita gains when machine and plant operators, armed with wireless connected PDAs (personal digital assistants) become supervisors. And then the value of asset management (maintenance) linked to production and business screens so planners know what’s really available to promise – and its running rates. “When we’re talking about ‘low hanging fruit’ it’s hard to imagine any more low hanging fruit than that,” said Bates. The problem, as ever, is in getting to the financial savings: often the measurements aren’t there, projects are couched in technical rather than business benefit terms, and vested interest gets in the way. Integration But what about integration from the shop floor ‘up’ to the business systems. There’s no doubt that ERP systems can be integrated with shopfloor systems – there are interfaces – but more often not they aren’t, or they are, but inadequately. Reasons range from those above to the costs hitherto of links, which made only fixed point-to-point communications viable. With web technologies all that changes – and it must. Rockwell’s Chris Haines said it all: “You can spend a lot of time, effort and money investing in trying to improve the [ERP to web] links and find that you’re no better off because the actual problem is the link between the ERP software and the factory floor. And the business is making decisions based on assumptions that are incorrect – big assumptions sometimes.” Absolutely, and Bates added: “You need an understanding of how you make that transaction-based system at the top communicate with the real time environment on the factory floor. That hasn’t been addressed properly.” ‘Back office’ to web-based ‘front office’ integration is the next hurdle. Rod Blackwell said that currently, “90% of orders taken over the Internet are manually re-entered into other systems.” But there’s another possible problem: Benchmark Research found 36% of manufacturers in its survey believe their ERP systems are incompatible with e-business. Could our legacy systems get in the way of progress by failing to provide what’s widely accepted as the prerequisite for ‘dealing’ over the Net – a reliable foundation of integrated IT? The panel thought not. Fourth Shift’s Waldron: “What you’re inviting people to do is go through 18 months of hell putting in a new ERP system just so they are where they were when they started – when actually they can amend what they’ve got and get on with it.” The exception, as Eggleton put it, is those that missed out on proper ERP. “They still have un-integrated financials, un-integrated stock controls and the rest. Trying to move that forward in an e-business environment I think is going to prove impractical. If they have any ERP implementation they can build on, that’s fine, but if what they’ve got is a little MRP, a bit of finance, a bit of purchasing over there, I think they’ve got a problem.” Simple enough? Not quite: Manugistics’ Sam Brown said: “The question we get from our customers who historically put our solution on top of their ERP systems, is not ‘will ERP provide the collaborative technology we need?’, but ‘we spent so much on it and we still haven’t fully implemented ERP, so is it better to throw it away and start again?’.” His point: why not look at modern enterprise application integration (EAI) software and service providers (founded on web technologies)? “Today, a company can get by with separate inventory management, order management, financial systems.” And there’s a way to keep the up-front costs down. Sally-Ann James of manufacturing application service provider (ASP) e-know.net noted that specialised ASPs like her organisation (VSPs really: vertical service providers) can provide almost any level of e-business add-on for a very low up-front investment and fixed monthly fee. It’s a tempting alternative. It really isn’t just technology though – it’s also where you put it. Geoff Turner at MatrixOne said: “Where we’ve come across poor integration isn’t just where people have bought ‘points solutions’. It’s where they’ve assumed the back end they need to integrate is the ERP system. Actually, what we see is that integrating into the engineering data framework (the PDM) and enabling that to provide the link into the business systems, is much more powerful. It means engineering is at the heart of the business, rather than finance.” Supply chain collaboration And so to the Net effect on supply chain collaboration, web exchanges and so forth. Here, said the panel, it’s less about technology and more about culture. Paul Eggleton again: “One of the big difficulties for suppliers is taking information, this knowledge, this stuff that you want to get to your customers, and sharing it on an open exchange. What’s the value for a supplier in opening up all that wonderful information to competitors? Content is a real problem.” We all have to wrestle with this. Oracle’s Tudor suggested its a job for extranets and private web exchanges. “Actually providing useful information to your customers, whether in terms of drawings, stock availability or supply chain capacity – you can’t do that unless you’re all collaborating,” he said. And he added: “If manufacturers don’t provide that information to their customers, in two years’ time they’ll go to somebody who can.” But it needn’t be such an intractable problem. As Peter Klein of Synquest said, it’s a question of degree. He suggests that as part of any e-business effort, manufacturers need to think hard before they act. “Don’t try and join together what you’ve got now and then just stick something on at each end and say that makes it ‘e’! Look at your total processes, what you’re trying to do and what integration you need – and where you can minimise it.” And that depends upon your business, products, existing infrastructure, customers and suppliers. Transactional e-business But what about transactional supply chain communication? Synchronisation even? The panel agreed that being ‘e’ connected will be a must – at least at a local level as OEMs start to follow the electronics, high tech and retail sectors and demand more from their suppliers. Blackwell said: “If you look at the way Dell works with its suppliers, it forces them to have complete transparency through the supply chain, in every item from a CD writer right down to components. OK that’s a hi-tech example, but why aren’t other companies doing it?” And Tom Kneen of Cisco said. “The whole ethos behind the Cisco supply chain is … we share all the information we can with our manufacturing partners. We pretty much outsource all our manufacturing and share not just our forecast information, but two or three weeks of our order book as well. And then it’s up to them to decide how they can deliver and to what cost.” In these examples though it comes back to who has power over the supply chain, and in general industry that can be complicated. Bates: “What people have in their minds is, the customer is big, the supplier is smaller and their supplier is smaller still. That’s not the way it is: when you look, the customer is small, the supplier might be big, and some of his suppliers might be big and small. So who forces who is very complex, so it’s very difficult to work out a technology that’s safe and reliable.” But supply chain visibility, if not synchronisation, could bring real benefits. Eade: “In the automotive industry we’re small fry. We use Titan Motor Sport for steering racks, oil pumps and so on, but their biggest customer is Lotus, and it doesn’t matter what we say, we come second to them. We might have to wait three weeks for parts if Lotus puts in a big order. So yeah, getting transparency through an open system would help us a lot: we would know what was really happening and work round it, rather than being fobbed off. We would like to move off down this route.” Westland’ Askew said fairness and transparency had to be the watchwords. “In the last 10 years we’ve come under more pressure to deliver more value for our customers at lower cost. That forces us to look at the whole value chain, including our contractors.” And aside from using dubious forecasting tools to cut costs, he said: “By and large, the suppliers do a significantly better job for us if they know what we know.” Like what? “Like anything associated with schedule definition, even a limited forecast that we might do for our customers. Like different scenarios and some of our business planning assumptions, new products that we’re interested in.” Collaborative engineering Last but not least, engineering design – the intra- and inter-departmental and inter-company collaboration where ‘e’ technologies can again contribute in spades. Nick Roberts, European director of automotive engineering firm Breed International, said that collaborative engineering is fundamental. “Unless we compress our design engineering cycle times, we can’t compete – integrating with suppliers on how we design the product for a rapidly changing and reactive supply base is the way to go. Tighter and tighter collaboration, more and more information sharing, even into the planning stage, is the direction we’re heading in.” There’s more though: web technologies are being harnessed alongside engineering design for component supply management. MatrixOne’s Turner: “When we’re looking at highly complex products and engineering, collaboration is key to improving the product development life cycle, but strategic sourcing has an important role here too.” And Roberts confirmed its importance while also flagging up a problem: “We’re taking away from procurement the ability to say, ‘let’s control our pricing sets by having two or three vendors compete’. Because if you do that you’ve done three times the collaboration with three suppliers. But if we select a partner, then you’ve given the strategic power back to the supply base on price. How do you maintain the price control yet have a partnership arrangement?” Culture again: e-business isn’t just about providing new tools for existing business processes, it’s new tools for new business processes. Good luck.