To upgrade or to re-implement: pros and cons

Achieving a 17% (eur4m) reduction in stockholding in just 18 months is pretty good: seeing another comfortable 25% in the next 18 months is nothing short of an excellent dent in working capital. That's what's happening at Generics UK, a pharmaceuticals company that produces generic drugs for UK and overseas markets. It's the result of intelligent business process re-engineering in light of what can be routinely done with a modern, tightly integrated and highly functional ERP system – and the firm's story provides some useful pointers for us all. Generics UK, based in Potters Bar, Herts, makes drugs as tablets, liquids and syrups; it's also a substantial drug supplier for third parties, and its high speed lines handle all formats, including containers and blister packs. This is a highly regulated industry, so issues include clean room production and tight audit trails. But there's also the matter of managing rapid change, mostly in terms of pack designs and sizes, with the usual old/new stock problems and the potential for a lot of different product and packaging mixes. Beyond that, the firm manufactures about 80% to stock/forecast and the rest to-order, although almost all from the same raw materials and packaging suppliers. Capacity isn't a problem so, operationally, the complexities are in managing suppliers, materials inventory and movements, and planning and scheduling of procurement, production and logistics. Then on the customer side, since the only real differentiators are service, price and agility, the concerns are efficient marketing, forecasting and responsiveness. Generics UK first installed a Ross ERP system in 1997, but realised in 2002 that the IT world had moved on hugely. So it took the opportunity of a two-version upgrade to its current iRenaissance to embark on a considerable business process overhaul across everything from financials, sales and purchasing, to inventory control, warehouse management and manufacturing, including MPS and MRP. It also re-worked its Labware LIMS quality management system integration. The whole project initially went live in June 2003 on an IBM Xeon system with SQL server and a database processor. Substantial change "This was much more a re-implementation than an upgrade," explains business systems manager Alan Barber. "We are geared to a delivery lead time of 48 hours, which calls for a tight grip on manufacturing costs and quality, as well as meticulous planning. We needed to improve our use of the system so that we would be buying and making the right things at the right time, all of the time… So we started from scratch, with a user questionnaire and a pilot. "It was going to be a substantial change anyway because we were moving from v3.1 to v5.7, so there were big functionality improvements. Things we'd bespoked as departmental systems over the years could be consolidated onto the new system." Examples included one legacy system for managing LIMS quality rejects on an old Lotus Notes database, and another similar for managing customer returns. "We've used standard Ross functionality and done some straightforward reporting to provide the users with what they need," says Barber. "And there are several advantages to that: like everyone dealing with the same data in real time, not batched and synchronised; no re-keying or errors; and the IT department no longer having to look after the old systems when they fall over." An all too common thief of time. He doesn't say everything is on the new iRenaissance system. "In fact, we've still got our old Alpha VMS system here. We didn't port all the product data across to the new system, so we use the legacy system on the occasions when we need to access some of the older products." Entirely pragmatic. Barber regards the project to date as a great success, but with a lot more to come. Pointing to the stock turns improvement, he says the firm is confident of going much further once it's ironed out some familiar challenges. He sees, for example, tightening up on the supply chain relationships and procurement sides, while also improving data accuracy, as key to getting closer to JIT manufacturing – which can be followed by better planning and ultimately finite scheduling. "Since going live we've been concentrating on consolidating the system. We're not as lean as we would like to be. We're still getting planning right, and for that we need to get better data accuracy on cycle times, supplier lead times and so on. We went live at about 80%… We also need to address our supplier relationships so we can be more certain of the right goods arriving when they're supposed to, and improve planning accuracy." It's what you'd expect in the real world of quantum leaps and iterative improvements: companies, after all, do have to continue trading, and resources and pockets are only so deep. But Barber reckons squeezing another 25% out of inventory is entirely realistic, as is getting standard lead times halved from 16 to eight weeks on the make-to-order side of the business for the smaller independent pharmaceutical companies. And all that can be achieved without moving substantially from planning through MRP/MPS (master production scheduling). Barber reckons there may come a time when the company needs to move up to APS (advanced planning and scheduling), and will probably go the Ross route "because it's completely integrated". But that's not yet. Iterative improvement Similarly, Generics UK doesn't need to make radical changes to its forecasting, currently managed through Demand Solutions. Barber believes the firm isn't using the system's forecasting algorithms as well as it could, but says that it drives S&OP (sales and operations planning) well enough, keeping tabs on historical data and generating the right numbers for MRP/MPS. Meanwhile, he refers to other benefits already achieved. "The system is browser-based, and although the users might not notice much difference, from an IT perspective, there are several advantages. Like we don't have to do any client installs every time there's an upgrade. Over the last year that's probably saved us about 500 man-hours." Then in terms of validation, Barber says that although the old system took care of audit trails and lot traceability, meeting industry regulations, the new system is much easier to use. He cites, particularly, running enquiries, but also says departmental information is now available throughout the business whereas "previously you couldn't get at it." As a result, Generics is already moving away from paper records. Looking at ROI, he says: "We've reduced stockholding by eur4m to eur20m, and we're looking for another quarter off that." That will come through the system facilitating moves to more JIT, which will in turn enable it to reduce lead times and thus further cut money tied up in working capital. Again, however, he repeats that cannot happen until supplier relations, business processes and data accuracy have been improved – but he expects to be there in 18 months. Incidentally, it's worth noting his view that much of this will be realised by the business as it becomes able to trust system data and thus its recommendations. "Things will get better when procurement, for example, allows processes to be automated, with MRP running direct to purchase orders, as opposed to purchasing people using MRP suggestions to drive old processes." Chicken and egg – but you can see a virtuous circle of improvement coming all the same.