18 November 2011
On the shoulders of giants
Formulating an IT strategy for any manufacturing company – and that includes SMEs – with a planning horizon of, say, 12 to 36 months, is never going to be trivial. In part, that's due to the sheer scale of imponderables. In today's global economic environment, who among us knows with any certainty what he or she will be doing next month, never mind next year? And, with the continuing pace of today's software, hardware and service developments, there is a sense of shifting sands, rather than solid foundations in the underpinning IT.
So, given that a key deliverable is crafting your IT resource to support the business goals, you're facing some serious front-end soul searching with the management team. Equally, you're going to need some fancy footwork when it comes to the back-end detail. Anyone who has done this before will tell you that a good dose of flexibility and contingency – technical and contractual – goes a long way.
Additionally, any IT strategy needs to consider several levels. Putting it crudely, at one extreme will be the detailed infrastructure issues, while at the other should be the big picture. Holding all that together demands unusual skill, mostly in spanning the ongoing divide between IT and the rest of the business.
But there are useful clues out there that can, and should, help to direct your thinking – and that of the management team. Take Cindy Jutras, who admits to more than 30 years of manufacturing ERP – latterly with analyst Aberdeen Group before setting up Mint Jutras. Her just-published study 'ERP in Manufacturing Performance Benchmark' seeks to expose what makes world class ERP implementations (see panel) able to deliver outstanding improvements to manufacturers that are head and shoulders above the pack.
What makes this report valuable is that the differentiators she finds are so striking – in everything from the respondents' software upgrade strategies to their choice of deployment models. While no one is suggesting short-circuiting your homework, you can think of this as your opportunity to stand on the metaphorical shoulders of giants.
For example, should your IT strategy include upgrading ERP to the latest version? Clearly, a lot depends on the system's age, how many versions behind it is, its supportability, and whether it can support what the business has in mind for tomorrow. However, for many companies the decision is based less on logic and more on dogma – management's attitude towards the value (or lack of it) of new technology.
What Jutras' research demonstrates to these doubters is that world class ERP implementations almost invariably do take advantage of modern technologies and the innovations they allow. Key findings include that the best are 41% more likely to be running the latest ERP release, and 79% less likely to be two or more releases behind. Why? As Jutras puts it: "A lot of manufacturers don't apply the same continuous improvement philosophy to their ERP as they do to other disciplines. But that means they can't take advantage of some of the vast strides in functionality that vendors are delivering today. The research shows that keeping current is one of the most important aspects to consider in any IT strategy."
She also points out that top performing manufacturers claim they are achieving great things even before finishing migration projects – and that they find significantly fewer difficulties in going live than the rest. The implications include that they understand the importance of training – and budget for it – but also harness the power of newer, more intuitive interfaces, and stick to the knitting. Furthermore, they avoid customisation, which Jutras believes tends to be caused by poor training and communication. That's backed by the study's finding that world class implementation are 24% less likely to indulge in modifications.
Easily said, yes, but it can be done. Conceding the point that selecting an ERP system upfront for best fit and functionality may not be enough – given that systems and businesses have a habit of changing – she makes two suggestions. First, score ERP suites highly for their ability to be tailored without touching the source code. Second, consider external software components or web services – but then make sure your system can support them in terms of integration, services and infrastructure!
However, there is more to the 'fit and functionality' argument. It turns out that world class implementations on average purchase and use significantly more ERP modules, and even more external add-ons, than the rest. Considering 34 main ERP modules typically on the hot list for manufacturers (everything from financials to MRP/CRP, scheduling, QA and business intelligence), her research indicates that the best implement 35% more ERP modules than the others and that they are 24% more likely to be fully implemented.
Plainly, any strategy for success needs to major on completeness of the system – looking carefully at what's really needed, rather than what the business might scrape by without. But it also needs persistence: top performers don't run out of steam in their Phase Two projects, despite the temptation to get back to business as usual, after what is almost invariably a gruelling and time-consuming process. Also, it's worth noting that they go live with Phase One nearly 25% faster than the rest – meaning months of effort saved almost certainly because the culture and the technology are right.
So far, so good. Now, the big one. Assuming your foundation ERP is performing as required, and predicted to remain so for the foreseeable future, the real deal is add-ons. Modules such as CRM, supply chain planning, MES (manufacturing execution system), EAM (enterprise asset management), document management and compliance management, are between two and six times more prevalent in world class implementations than the rest. And while the clear winner in terms of numbers implemented is CRM (57% of world class versus 27% the rest), some of the biggest differentiators include field service management (40% vs 9%), supplier relationship management (40% vs 13%), supply chain planning (51% vs 12%), EAM (34% vs 7%) and PLM (product lifecycle management, on the engineering side, at 46% vs 14% for the others).
Jutras is rightly ambivalent over the choice of extension software supplier – best of breed versus extended ERP – because it's all about preference and required sophistication. Integration is rarely such an issue today. The other point is relevance: plainly, not all manufacturers need all, or indeed any, of these extensions.
Obviously, you must consider your position in light of your own business and IT environment. However, if ever there was a useful steer, this has to be it.
World class implementations
If you're wondering how much better world class ERP systems are than the rest, comparative average deliverables from analyst Mint Jutras' research include: 14% increased profitability year on year, compared to 5% for the rest; 23% improvement in OTIF (11%, the others); and 19% reduction in operating costs (7%). Further indicators to consider are: 15% cut in administrative costs (5%); 19% reduction in inventory costs (7%); 16% drop in cycle times (9%); and 16% increase in production (11%).
Granted, these figures demonstrate that ERP systems, no matter how they are ranked, are responsible for considerable improvements – but world class implementations remain way better. Just how much can be seen by taking a different view of the same data: one that examines companies' progress towards goals that most manufactures would regard as important. Jutras cites reduction in waste, where 26% of world class performers have met their objectives compared to just 4% of the rest, and improved resource utilisation (40% versus 6%). Now that is stark.
"World class ERP implementations get the connection between ERP and these business goals," insists founder Cindy Jutras. What she means is that, while efficiency is right up there on everyone's agenda, manufactures with world class implementations don't confuse business goals (enabling growth, cutting costs and improving customer service) with the means to getting there (improving visibility, standardising business processes and automation).
"Visibility, standardisation and automation are all important steps in the process of continuous improvement, and ERP can be the vehicle for providing all [of them]. But it is important to look beyond [these] to the ultimate goal of business improvement," she explains.
Software as a service
A serious surprise for many manufacturers will be that, when it comes to what IT departments term system deployment, the tables are turning fast. Whereas received wisdom dictates that it's better to have critical enterprise software running somewhere within the business, now the world and his wife is looking at SaaS (software as a service) ahead of 'on-premise'.
Analyst Mint Jutras finds that 62% of world class manufacturing ERP implementations globally currently consider SaaS first. Meanwhile, poorer performers remain wary of cloud delivery, to the tune of 34% in favour and 59% against – plumping resoundingly for the traditional approach to licensed ERP software.
"The top cited advantages of SaaS are mostly reduced cost of ownership, reduced effort when it comes to upgrades and a better proposition where IT resources are limited," states founder Cindy Jutras. "Generally, those who have implemented world class ERP systems perceive SaaS as a lower business risk, while the others don't."
By lower risk, she doesn't mean that manufactures feel they can just walk away from the solution, if it fails to perform. After all the blood, sweat and tears associated with any ERP implantation, whatever the deployment model, that's highly unlikely to be a realistic option. No, this is about availability of the system (SLAs are now proven and good), more frequent and painless updates (meaning businesses stay up to date with technology), ease of remote access, ease of bringing up additional sites – and, critical for many, far less of a hit on the capex.
Incidentally, security, although still often perceived as an issue, can actually be enhanced by going to a hosted solution. As Jutras says: "I would say that a world class SaaS ERP implementation is more secure than an on-premise implementation, unless the latter is fully off limits." And she means a hypothetical site with no VPN, no laptops that move around etc – in other words, no sources of infection –which is, of course, unrealistic.
Just as important, she agrees that for manufacturing SMEs not rolling in cash or IT resources, it's going to be virtually impossible to beat a good on-demand ERP provider, in terms of both professionalism and sheer grunt power.
What about the shopfloor?
In manufacturing, any long-term IT plan that fails to have a strategy for the shopfloor is missing an important trick. Plenty of production plants still run their shops on spreadsheets and clipboards. That's fine, but only as long as the business is satisfied it can continue to service its markets like that.
As Julie Fraser, principal industry analyst with Cambashi, points out, that may not be much longer. "The problem is that, the variety and mix of products, on top of demand volatility and pressure to meet customer service standards increasingly means that human beings just can't manage without some sort of system."
That has traditionally been the case for some sort of MES (manufacturing execution system) or, taking a wider view, MOM (manufacturing operations management) system. Add in the fact that there are issues around traceability in certain industries and recalls in others, and the case for plant floor information systems gains further weight. Then remember that the rest of the business could benefit from visibility of production – for example, so that sales can promise against real capability – and the case for investment in shopfloor systems becomes compelling.
Fraser accepts that there is still confusion around the terms MES and MOM, but points to the ANSI/ISA S95 standard and MESA (Manufacturing Enterprise Solutions Association) definitions for guidance. "These show what's included and what might be relevant to you. Nothing is standard, because manufacturing is not like that, but, on the other hand, nothing is unique either," she advises.
Given that MES/MOM systems are increasingly modular, configurable and functional – as well as getting easier to install – the fear factor should be diminishing. Also, with user interfaces now catering well for shopfloor operatives on the one hand, and managers across the business on the other, world class users are proving that versions of these systems should be considered essential extensions for many more manufacturers than is currently the case.
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