Three essential steps to connected business

There are essentially three phases of development in enterprise IT usage for manufacturers. The first is basic automation of processes at the back-end, usually involving ERP at the accounting, stock control and inventory management end. The second involves integration of progressively more back-office systems – production, shop floor operations, despatch etc – with the front office (so sales, marketing and the rest). Then the final key hurdle is building the system out to support digital collaboration with third parties in the supply chain. Few manufacturers have reached the end game – the hallowed virtual turf where they can collaborate with customers, partners and suppliers online, via a web-enabled supply chain, effectively conducting business in real-time. Indeed while most large companies have undergone, or are belatedly going through the first phase, there is evidence that many smaller manufacturers are still struggling there. Integration and automation beyond the base is still ahead of them. But whatever stage a manufacturing SME is at, the next year or two will be crucial: even smaller companies will need to have automation and integration issues at phase two resolved. If not, they will find it hard to participate in a marketplace increasingly dominated by larger companies – where automation, integration and even collaboration are well underway – or the low cost economies, or both. Back-office integration with the shop floor is an important, but not the only, factor for manufacturers, according to Andrew Buckley, director of marketing for the mid-market at Sage, one of the solution vendors which has tailored its platforms for SME development. "Manufacturers also need to consider integrating systems like CRM [customer relationship management] with the back-office, which will enable sales and after-sales to take advantage of information held in marketing. And they need to consider connecting their systems to web hubs to extend their reach out to the supply chain," says Buckley. What are increasingly seen as 'standard' business processes are being automated at the Tier One and Two business levels, based on web technologies, such as XML, he observes. Yet he fears that many manufacturing SMEs are still working through the automation phase. His concern: this is leading to a fast-widening gap in capability, making life increasingly difficult for SMEs facing the relentless pace of change. He's right. Basic business processes, such as handling purchase orders, ASNs and similar transactions, are now being generated as XML-based electronic documents for inter-system exchange and automation. To function with customers, soon all tiers of manufacturing will need to have at least this common capability to transact and share information electronically. "Document exchange is an essential aspect of business, and connecting with the technology and standards to make that seamless is going to be vital for all companies in the near future," observes Buckley. Bob Mick, vice president of emerging technologies at analyst ARC Advisory Services, believes there are really only two strategies for manufacturers when it comes to back-end system integration, whether that's with the shop floor, with legacy systems or out to suppliers, customers and so on. One is to develop a customised integration initiative, the other to get a 'packaged' solution from a single software vendor. Mick: "Vendors selling architecture solutions can often deliver a more consistent environment, while point solutions may only add to the complexity." One obstacle to going it alone, particularly with third phase web working, is the uncertainty surrounding technology, for example with Web services – their underlying standards, likely scope and timing. "It's a question of 'wait and see' for manufacturers regarding Web services; they are having to look at how things come together on this front," says Mick. That aside, Mick sees web-based integration delivering three types of business critical outcome. First, synchronisation between enterprise platforms gives automation and a clear, real-time view of key inter-business information and transactions. Second, a broader requirement to access information can be served by introducing web portals to provide single points of on-demand, user-authenticated access. And third is low cost, loose enterprise application integration (EAI) for business processes, linking internal and external parts of yours and others' IT infrastructures. How to get there? Mick makes the point that manufacturers that have taken the customised route to solve integration problems are now reassessing their decision, reworking their strategy and then deciding what to do. While it would be wrong always to suggest focusing on a single enterprise software vendor environment, it does delete a lot of the potential for integration woes: the cost and effort required to mix and match can be a cause of regret, even among the largest. It would be a brave move for a smaller manufacturer to go that way. Making it work One SME that's done phase one, is well into phase two and now tackling phase three of the ERP integration and automation cycle, is RE Thompson and Company (Vacuum) which co-designs and manufactures mechanical components for the aerospace and defence sector. The company employs 36 people, and adopted the single software vendor approach, with a Line 50-based manufacturing system from Sage two years ago – which it has since successfully built out to include several advanced processes relatively easily. Michael Thompson, managing director of the company, describes its role as providing machine shop capabilities to companies without a comparable facility. Inevitably that involves designing and producing a wide range of parts and components, giving Thompson the right to describe the company as a "one-stop shop" – but also making its business, engineering and manufacturing management fairly complex. At the base level of its ERP, Thompson reports that the system, for example, tracks components and individual assemblies all the way through, providing an audit trail down to batch and material – a key feature of operations in the aerospace sector. Purchase orders are linked to engineering documents which in turn connect to the material and component source, work in progress and so on. At another level, the firm also makes extensive use of the Crystal Reports business intelligence tool set to analyse and disseminate key information across the company. Staff can view refreshed versions of up-to-date reports specific to their roles through a single click. It's an aside, but that's led to a lighter use of the ERP software in certain areas: as Thompson puts it, staff like machinists don't need a full Sage client, so its integrated reporting system saves on software licences. But then at the third level, Thompson makes the point that part of its proposition is a promise to go for fresh ideas with customers where these add value. And the latest aspect of that is about collaboration. "We will be exchanging electronic orders with customers via a secure site," he says, "where order progress can also be checked. Sage is supporting us in this sense, as they have an advanced strategy to become a web-based company – and we're following this route." Going digital with key inter-business communications won't only improve customer service – it will also save time, he says. While it's good to talk with customers, automated and self-service processes provide a better way, and cut out much of the admin trail and cost on both sides. In fact, using its own integrated environment as a launch pad, the company can now start automating regular exchange of data. As the example of RE Thompson shows, moving progressively through the three phases to collaboration is not something for the big boys alone. It will be at the core of surviving and thriving in the still emergent digital marketplace.