Taking a fresh look at the manufacturing landscape

You’ve got an enterprise system bedded in, or just as likely, you’ve got several. You’ve completed perhaps a phase two and/or three initiative beyond that so that in IT terms you’re getting closer to what the business says it needs to run more efficiently. At the same time you’ve probably been involved in some factory floor initiatives – anything from supporting improvements in detailed scheduling, to putting in better production management, with shop floor data collection (SFDC) or possibly more radical lean manufacturing methods. And if you haven’t done them yet, there’ll be calls from the factory managers for TQM, TPM, Six Sigma, or whatever, while the business leaders call for external supply chain and customer management IT initiatives. Then, on top of these, there’s implementing what’s being called ‘the missing link in world class manufacturing’ – intelligent plant asset management systems with the sophistication to integrate maintenance scheduling, spares inventory management, procurement etc with the rest of the business. Busy, busy times. So what should you be doing next? And after that? Taking it from the top, Chris Potts, director of business IT consultancy Dominic Barrow, says, “first check you’re wired to the business investment strategy.” And he explains, “We recently did some work for a global manufacturer of fertiliser that wanted to know where to go next with its ERP. The first thing to do was look at what they were trying to do; and having done that, they realised they should be working outside their ERP, not with it at all.” His advice: “Forget the technology; look at the corporate plans – and then see how IT can help. Ask yourself, ‘do people want to buy our products at that price with this quality at that level of customer service?’. And if you’re selling on price, for example, then everything you do with your processes and IT should be about cutting that price – not improving quality or something else.” He concedes it’s common sense, but says, “so often there’s a disconnect here.” The point may seem simple but the implications are profound. IT strategy should first and foremost be about adding value to the corporate strategy, not picking out initiatives no matter how right they might seem. Individual perceptions tend to be just that – optimised for the individual or the department, not the company. Paul Rankine, a management consultant with consultancy Compass, agrees and advises manufacturers to get right away from what he refers to as ‘departmental optima’ – but he also adds preconceptions, dogma and so-called received wisdom. He puts it thus: “You need to be clear about your business objectives. There are so many trends and initiatives… You need a multi-disciplined team to cut through all this and analyse supply chain systems versus internal manufacturing systems, CRM systems and so on – to look at the suitability of what they’re considering.” Measurements right? As a further up-front consideration, he says: “You also need to be clear about the way departments measure themselves – and consider are they the ways your customers do? For example, so many manufacturing managers are still measured on shopfloor utilisation! They should be measured on delivery versus the schedule, but they’ve probably been doing it for 20 years.” And with the predominance of ERP initiatives in recent years, he also advises: “Be aware that if you’re not careful ERP becomes something in itself – you make decisions for the IT project, rather than the business. And that’s a huge concern.” So often IT and business strategy is sacrificed on the alter of project continuity. Beyond this he also urges manufacturers to consider other detailed aspects of both the business and the manufacturing outside the IT remit before going too far. Product rationalisation, he notes, is a classic – checking the total costs of production to see what’s profitable and what’s not, with activity-based costing, actuals and margins, not forgetting customer sanity checks – are they the ones that cause you late changes and rework? And what about the cost of holding goods to respond to that? Likewise in purchasing, getting an all-round view of best value suppliers: “They might be good on price, but what about delivery, documentation, quality?” he asks. Similarly in manufacturing itself, he says, “If changeover times are poor, do they need to spend money on IT to reduce them, only to find equipment utilisation is no better and they should have been looking at the causes. Some analysis might have found that they’ve gone up 50% and that’s just because customers are increasingly changing their minds late – breaking their contractual agreements with you, but knowing that you’ll respond. That happened to one of our clients recently in the toiletries sector on filling machines. The point is, you can be too focused.” You can also make fatally flawed assumptions. Kevin Harding, principal consultant on the manufacturing side of consultancy Atos Origin’s SAP practice, takes us back to basics. “One of the things that still surprises me is the number of companies we go to and find their data just isn’t accurate. Yet what MRP II tried to instil was the importance of data accuracy. “Companies still seem to assume that they can put in sophisticated systems and solve all their problems. They will not. The number one priority is to get your data right.” And in that he includes stock accuracy, BoMs, routings, operating and set-up times and processes, formulations and so forth – and forecasts as well. He accepts that there’s a bit of chicken and egg about this, but insists, “Without that, it doesn’t matter what we do for you, we’re wasting our time.” That done, he says having one contiguous set of data accessible to all is the next priority – “so we’re all talking off the same page.” So early considerations should include integration, limiting the number of ERP and legacy systems – ensuring that key information is the same throughout the enterprise. He points out that little has changed from the early Oliver Wight days, with the drive towards sales and operations planning (S&OP), noting that too many are still in the situation where sales and marketing’s forecasts are not believed by production planners, who in turn are disregarded by the shopfloor. And so on. There’s no getting away from different departments’ different priorities and KPIs (key performance indicators), but any sensible strategy should see these people mandated to at least meet and understand one another at a senior level regularly, otherwise again, the systems won’t help – they won’t be trusted. And finally, Peter Hopkinson, principal consultant with the business solutions group at Atos Orgin, has a slightly different approach. He suggests manufacturers conduct an opportunity analysis from the MES (manufacturing execution system) and MIS (management information system) standpoint. “Look at the plant equipment history (including run time accumulation); do a proper production investigation looking for process excursion recordings; check out product traceability opportunities; look at the storage and control of plant instructions and recipes; and examine the integration with financials and enterprise systems. “The key points are to understand the business drivers and take an architectural view, including looking at integrated business processes. It’s a matter of being sensible. Think big; start small. Don’t get carried away with the technology – or the scale of integration: sometimes you just need to connect a few specific signals.” Lean manufacturing That said, lets get to the business/IT priorities themselves as seen through the eyes of our colleagues across the industry. Top of the list, according to Rankine, is lean manufacturing – the full original deal including decoupling the MRP II aspects of ERP so that it doesn’t drive the shopfloor, with or without integrated SFDC and the rest. If orders are directed in to the manufacturing back end, say via configurator software, production can be pulled efficiently through on demand, whether via cards or appropriate IT, with MRP only for material release and purchasing. “I can’t think of an industry that wouldn’t benefit from lean done like this,” he says. “In some cases you don’t need ERP at all in terms of material handling and the shopfloor.” And he points to Kanban and the range of similar methods, noting that as long as you’re aware of the different replenishment cycles needed to avoid building up WIP you’ll be fine. His key advice: “The system can’t do it all for you – you have to do some thinking yourself.” Chris Knowles, operations director with Southampton-based contract electronics manufacturer ACW Technology, also says lean manufacturing is the most important. “So many of our competitors have gone to the wall. You’ve just got to use these techniques to minimise the stock you hold.” He makes the point that lean manufacturing, JIT and associated techniques like line-side deliveries don’t just apply to the automotive sector. “We have used all of these, especially at our South Wales facility. You have to use them if you want to reduce your stock-weeks measure.” Atos Origin’s Harding doesn’t suggest lean as a first port of call, but he absolutely agrees that manufacturers must put to one side preconceived ideas that any initiative is only suitable for the industry in which it was conceived. He says that at the factory floor level, companies should be looking across the spectrum of lean, JIT and TOC (Theory of Constraints) – as well as Six Sigma, TQM and TPM. “It doesn’t matter where they came from; JIT came from the automotive industry, but if you can work with your trusted suppliers, giving them access to your data, you may well be able to strip out admin and get deliveries without direct involvement, for example.” He adds quite rightly: “It’s important to stop saying ‘we’ve always done it like that’. For example, thinking about building product with late configuration, perhaps not in the factory but in distribution, can make a big difference to costs and flexibility. That’s the other end of JIT if you like.” And it looks like some of the enterprise systems vendors have got wind of this sentiment. SSA GT and K3 come to mind instantly as already well and truly on the ‘lean bandwagon’, and another about to leap aboard. Laurens van der Tang, president of resurgent manufacturing mid market ERP developer Baan, says: “We are launching ‘Leanwave’ – a whole solution geared to support manufacturing companies needing to make a lean transformation that also goes out into their supply chains… I see a renaissance coming now in manufacturing itself.” Manufacturing renaissance He comments: “For two years companies have focused on the ‘e’ hype and CRM at the expense of internal efficiency… They still need to increase resource utilisation, reduce lead times.” But he warns, none of these initiatives has all the answers. “There is no silver bullet: on their own they don’t deliver the promises they make.” At an entirely different level, Phil Hanson, lead principal with IBM Global Services’ industrial practice, still puts e-procurement as his number one priority. “We [IBM] are a $90 billion company and we’ve accumulated savings of $6 billion. We were already striking global deals, but conformance was poor. There was too much maverick buying. e-procurement has saved us a fortune because of its rigorous workflow. This will give you the most ROI.” The argument is well rehearsed and we all know that most of the focus hitherto has been on ‘indirect’ non-production purchasing – although market researcher Benchmark finds just as much activity with production components. Expanding on this slightly, it’s worth noting that software, services, private web exchanges and companies are all out there now to make e-procurement pay – but with or without them, it can be a profitable and quick first move into ‘e’, and everything that entails in terms of learning and culture. Hanson’s second choice, perhaps surprisingly in view of the hype factor, is CRM (customer relationship management). “CRM brings you your best bang for buck.” Why? “Proper CRM is systematic and methodical. It helps to ensure right products, right time and all those kinds of disciplines. It helps you to make more efficient use of your energies.” He’s not advocating that CRM should be at the centre of the business, as some of the CRM vendors (unsurprisingly) and the analysts (somewhat surprisingly) have, but he is going against the current flow in recommending CRM. After these two, he gets onto his favourite subjects. “Don’t automate complexity,” he advises. “Simplify the business processes first. There’s a whole lot of unfinished business on the ‘lean journey’,” he counsels, “and you can’t ignore that. If you haven’t finished process change yet, you’ve got to get that right.” And then: “Work out how you can be genuinely different.” IBM made itself flexibile at its Greenock manufacturing site by investing in i2 supply chain IT – and has since been able to switch as the need arises from build-to-order to make-to-stock depending upon component availability. It’s not everyone’s requirement, but there certainly is an argument for ensuring levels of agility and responsiveness – both to customer demand changes and to events in the supply chain. With that off his chest, Hanson reminds us of a fundamental change – the availability of rugged and very viable alternatives to owning and operating your own software. Everything from application service provision (ASP) to managed and hosted IT services are all possibilities. “The bottom line is that they halve the time to deliver application solutions and they’re implemented with rigorous processes and SLAs designed for the user concerned.” And you delete your staffing and infrastructure management responsibilities. Meanwhile, no one can afford to ignore supply chains – including SMEs. Hanson is unequivocal: “They’ve got to find a way of becoming part of electronic supply chain networks. That’s a must. It used to be very expensive to do EDI, but now with EDI on the Internet companies can’t afford not to do this.” And he adds: “Remember, an SME only needs a browser to participate in, for example, design collaboration.” In fact, from an entry level standpoint, the same applies to supply chain transactional collaboration – ordering components and subassemblies, tracking, delivering, inspecting, returns etc: ultimately the whole supply chain synchronisation bit. But in a sense, this is the trivial part of the equation: the far bigger deal to get the full benefits is working through all the business process and cultural changes required, and then the follow-on IT to support data exchange with appropriate automation, workflow and so on. ACW’s Knowles agrees, saying that improving supply chain interactions is actually one of his two IT priorities. “We’ve had a two pronged approach to our IT strategy. First is to minimise mistakes; like everyone else we’ve got too much stock, probably around 30% due to ‘unforced errors’, and software can help with that. Second is to speed up communication of core knowledge throughout the supply chain. We’re all dependent on our customers’ forecasts. Supply chain applications “If they tell us they want something in two weeks we have to jump through hoops to do it. So we have to be able to manipulate that information and get it into our systems and those of out suppliers as quickly as possible. The secret is to find a way of getting as much lead time as possible, and in practice that means stripping out time.” Harding adds another point here: he’s concerned about manufacturing’s problems with globalisation – the fact that whereas planning and scheduling and the rest have all been plant-centric, it now needs to move to multi-centre-centric. “MRP itself is plant focused so it can’t cope,” he says simply. “Companies are only just coming to terms with supply chain concepts. They need visibility of stock and capacity at all sites so they can promise profitably, so they need APS (advanced planning and scheduling). The focus first has to be collaborative planning – with suppliers and customers… Look at your supply chain and focus away from finished goods and on whole processes. Post ERP, you need to go for this. “My gut feel is that this is more important than supply chain execution,” he adds, although he concedes that there’s chicken and egg in here as well – you’re not going to hit the deadlines you said if you don’t have this too,” he says. So consultant and manufacturer agree – and IT vendor. Says Baan’s van der Tang: “Supply chain integration is clearly the biggest area of opportunity to realise more cost savings and reduce lead times. Manufacturers may have been opening portals or participating in online exchanges but with most supply chains there is still huge room for improvement. Events happen, orders get cancelled, supplies come in late, whatever and that’s still all being dealt with by telephone calls and faxes. It’s unstructured and chaotic and companies are still having to manage by building inventory and long lead times.” In fact, John Worth, business solutions architect with Baan, ranks IT priorities as: first, supply chain integration; second, PLM (product lifecycle management); third improving shopfloor planning and execution systems; fourth, business intelligence (BI); and (in contrast with IBM’s Hanson) fifth and trailing, aspects of CRM. On supply chain, he says: “Our users are increasingly telling us they want to get closer to their suppliers and customers, and that’s where portals start to become interesting – making information available 24 hours a day, and accessing anything from anywhere in real time.” And portals are not just topical: manufacturers absolutely should be working on them, he says. “The thing about collaborative commerce that people didn’t at first grasp was the ability to share information seamlessly – for example, to publish a purchasing schedule and have suppliers see it, and to do that automatically in a standard format.” And he too alludes to web services behind the portals – like transparent and flexible integration via former software developer Top Tier’s ‘drag and relate’ functionality, now being jointly developed by unlikely bedfellows SAP and Baan. Atos Origin’s Harding has another take on this, noting what he calls “the blurring of boundaries” between production planning and materials management for example. “It’s [the IT] all modularised,” he says, “but individuals can’t think like that any more – they can’t be compartmentalised,” because processes and the people that touch them are all becoming more integrated for the sake of speed and customer service. “Whereas systems and people used to be plant-focused, now people have to look wider than that.” For this reason, he urges users to start looking at both portal technology and software component-based ERP systems. He too refers to ‘drag and relate’ technology, as a way of relatively easily surmounting the boundaries of modular functionality, by allowing departmental users to work “without knowing or caring in detail about where the information has come from.” It’s a fair point for ongoing development: whereas you might once have put up with fighting your way round different systems to get at the data you needed, your users won’t be able to afford to – nor have the luxury of that kind of time wasting. Moving on to PLM, Worth says this is being seen as increasingly key across much of Baan’s customer base. Why? Because, he insists, once you’ve got the cost and profitability benefits out of internal ERP and supplier synchronisation, the old chestnut of getting products to market faster dominates. And he reminds us it’s more than that. Yes the cost of developing new products is high, and we know time to market is critical in terms of getting the payback (not just faster but before the opportunity is lost to competitors). But there’s also the whole business of “integration of the product data right through its lifecycle.” PLM and plant floor More and more companies are subcontracting sizeable chunks of the design process and then also manufacturing and after sales service. “So you need to be able to manage that all the way through what got designed, what got built, what got delivered.” He accepts that beyond the big automotive and electronics sectors this is emergent, not mainstream, but he urges companies to think on the gains to be made beyond straight PDM (product data management). Then there’s the plant floor, and Worth’s take on this is that in the mid market there are advantages from not just planning manufacturing site by site. “There are savings and performance improvements to be had by planning in a single hit.” Beyond that, however, he opines that whereas the whole integration of the factory bit, with shopfloor data collection (SFDC) systems etc, was popular a year to 18 months ago, it isn’t now. And he insists this is more than mere fashion. “When you actually get close to it, it’s hard to achieve; there’s a lot of integration work to do; all production systems are very different; and unless you’ve got a greenfield site, it’s difficult.” Surely we’re used to worthwhile systems not being easy to achieve? “Yes, but the returns are not perceived as being so great either. They’re difficult to quantify – apart from better decision-making,” he concedes. Finite capacity scheduling, on the other hand, remain easily quantifiable and doable, and although at a lower level, remains well worth considering early. Harding argues the case for a bit of balance here. “Some companies focus too much on shopfloor data; does it get you better ROI and profitability? You have to see it in context and only go for the data and update rates that make sense. In some cases shopfloor systems are driven by accountants who like the data they get, but the test is, is it going to bring more profitability?” Rankine simply advises that you establish the criticality of reporting frequency to planning and scheduling, thinking about the ‘drum beat’ of production progress which is dependent on volumes, machinery types, constraints and so on. Adding APS, he notes, will mean that everything is tighter so you’ll need to know earlier because the impact will come sooner to keep inventory low while maintaining customer service. And that in turn means attention to the detail of inventory management and considering different supply chain models, ensuring that different components, subassemblies and products with different values and rates get different replenishment treatment. Returning to Baan’s Worth, when it comes to business intelligence, he points out that the vast majority of businesses still find it surprisingly difficult to find out what’s going on ‘now’. And he says that the benefits of self-service BI lie in part in understanding that managers “often don’t know what questions to ask. BI is about making this visible and easing that process based on real world decision making and interactivity.” As for CRM, he says, it’s increasingly being seen as a tool rather than the heart of ERP, and for manufacturers in the mid market the most relevant letter in the acronym is the ‘R’. “What companies are talking about is managing their relationships better with customers and suppliers.” So we’re back to Worth’s first point. Inevitably, there’s a deal of ‘horses for courses’ in all of this. Knowles reminds us that application classes like PLM, finite shopfloor scheduling, the various MES systems and SFDC are applicable for the high volume, high complexity OEMs across industry, but not necessarily elsewhere. He favours business intelligence but, striking a chord with many in manufacturing, points to the usual time and resource issues. “I would love to do some data mining of our ERP system to see what trends are there. It’s all there in the ERP system.” It is all there: somewhere. The next few years should be about getting the right data to the right place in the right time to find that pot of gold – sustainably. Good luck. Long range IT and business strategies Lawrie Rumens, principal consultant with business improvement consultancy Oliver Wight, says if you’re thinking IT strategy, think 10 years out and plan accordingly. Top of his priorities is being aware of globalisation – how is your ERP going to work across sites and countries? “We will have to value aspects of the IT differently,” he observes. “So multi-language, multi-currency become more important and maybe you have to accept getting 85% of the detailed manufacturing functionality, and go for the bigger picture.” His second key priority concerns logistics. “Assuming you’re efficient at manufacturing, there’s going to be a huge job to be done in sorting out distribution [and] we will have to start valuing those systems that pull this together more highly. Schneider’s logistics in the States are so slick compared to anything in Europe. There’s a colossal opportunity here.” It’s all top level stuff, and Rumens goes on to advise manufacturers also to be prepared to rethink their product engineering processes and IT, and to start putting in place what’s loosely termed knowledge management systems (KMSs). “Increasingly,” he says, “designs will come from anywhere and you won’t be able to rely on all your embedded design-for-manufacture constraints; you’ll need processes and CAD/CAM that translate what you’ve got into something you can manufacture on your shopfloor.” And as for KMS, he says: “if we’re going to get continuous improvement and better mean time between failures in our processes we need to capture them so that best practices are always being used by everyone. Look at TQM, Six Sigma and the rest today: why do we keep giving them new life? Because people revert to type so easily. The challenge is, how do we build [good processes] into our systems so that as, for example, shifts change they have no choice but to use it until another improvement is found?” Archimedes on fire: a lever to move the earth If one point stands out, it’s that linking IT investment to the bottom line is key. And that means making the right connections – in every sense. Carol Ptak, who heads up strategy for enterprise systems at IBM Global Services (and co-authored Eli Goldratt’s ‘Necessary but not Sufficient’ management guide to the Theory of Constraints (TOC) in manufacturing business), is one who believes that most of us get this wrong. She says that for a strategy of improvement to work manufacturers “must change the right business rules synergistically with the right technology.” Doing one or the other doesn’t work. “Look at the whole lean manufacturing bit: the pilots are always incredibly successful, but when they scale up, it all goes wrong.” Why? Because, she says, they’ve given themselves a massive overhead of card systems by failing to think through IT. Equally, manufacturing is littered with companies that have implemented ERP without taking advantage of it to improve processes – only to find negative profitability. “They paid for the new system, yet implemented what they had before.” The secret, she says, is first having the vision, second, the business rules to support the vision and third, the IT to support them – and then changing the latter two interactively as they are inextricably linked. “I call it ‘Archimedes on fire’,” she quips. By ‘vision’ she means thinking outside the box about what the company should be doing with its suppliers for its customers to create a sustainable ‘win, win’ business strategy. And with the vision in place, she says what are the allied business rules to deliver on it – and then what are the constraints getting in the way. “That’s where, and only where, you need to focus your business process re-engineering,” she says. “The rest is a waste of time and resources.” And that done, you need to identify the IT required to enable those business processes to work efficiently. “And then change the business processes and the technology synergistically.” Get this right, she insists, and you get beyond the received wisdom of having to go through painful, slow improvement to make gradual iterative improvements, to serious and rapid improvements. “This is the silver bullet,” she insists. “Do all three of these and you should be able to go through the cycle in four to six months – and business that do that are guaranteed they will drive tremendous bottom line benefits.”