Simplifying the Making of Complex Products. An Epicor White Paper

Transcription

1 Simplifying the Making of Complex Products An Epicor White Paper

2 Table of Contents The Right ERP System can help Industrial Machinery Manufacturers Master the Global Economy Body 1 New Market Dynamics 2 Managing Complexity 3 The Need for Good Project Management 4 Supporting Lean Methodologies 5 About Epicor 2 Simplifying the Making of Complex Products i

3 The Right ERP System can help Industrial Machinery Manufacturers Master the Global Economy Body As it prepared to launch a groundbreaking new product, the management team at IONICS Mass Spectrometry Group realized the company needed to revamp a number of business processes. The new product, a molecular analyzer that incorporated many new technical advances, was destined to be a fast seller, and IONICS needed a reliable means of tracking the nearly 12,000 parts that go into each unit. It also needed a direct link between its inventory management and product development systems to ensure that the parts it keeps on hand always comply with the most recent engineering specifications. To accomplish that, IONICS adopted a fully integrated ERP suite that provides complete visibility into all of its critical business data. In addition to improving its inventory management, IONICS is now able to forecast, with a high degree of accuracy, the actual demand for all of its products. It also can see when demand patterns shift, which allows it to consistently build the exact number and mix of products its customers actually want to buy. Perfecting this type of juggling act has always been crucial for companies that make industrial machinery and components, but it has become even more important as well as more challenging in recent years. And there is growing evidence that a properly configured ERP system is the ideal tool for companies seeking help in overcoming these challenges. For instance, a recent study by Aberdeen Group, a leading business research and consulting firm, found that best-in-class companies in the industrial machinery and components sector make more extensive use of ERP than their peers. Aberdeen confers best-in-class status on companies that rank in the top 20 percent on the following key performance indicators: Inventory management, which entails keeping inventory levels low as well as maintaining accurate counts; Complying with planned manufacturing schedules; and Delivering customer orders that are complete and on time. Scoring high in these areas keeps operating costs down, which typically translates to higher profit margins. As Aberdeen and other industry experts have noted, however, simply adopting an ERP system will not earn a company best-in-class status. To achieve that level of performance a company must first choose an ERP system that fits its business, and then implement it properly. Simplifying the Making of Complex Products 1

4 For industrial machinery and component manufacturers that means being able to identify an ERP system that can support the industry s unique characteristics, which include: The prevalence of complex products, which necessitates complex manufacturing processes; Customers that rely on the products to give them a competitive edge which forces manufacturers to practice various forms of to-order manufacturing either making, configuring, assembling, or engineering products to exact customer specifications; and Products with long lifecycles, requiring extensive aftermarket service. Finding the right ERP system to address these, and a myriad of other issues confronting industrial equipment manufacturers has become increasingly important as shifting macroeconomic forces have redefined the criteria for success in this industry. New Market Dynamics With customers typically relying on industrial equipment to perform a function that gives them a competitive edge in their own markets, it used to be enough for the equipment manufacturer to build the highest quality product. Customers often were willing to wait for the manufacturer to finetune a design or tweak a production process if it meant improving the quality of the final product. The emergence of a global economy fueled by Web-based information technology has changed that dynamic. It has made it easier for competitors from across the globe to enter new markets, forcing all manufacturers to change their mode of operation. Companies that use industrial machinery no longer have the luxury of waiting for new equipment to be delivered because their customers are demanding faster delivery on their orders. Thus, the industrial equipment manufacturer has to cut time-to-market as well. Under this new paradigm, product quality is a given. If an industrial equipment manufacturer can t deliver a product to the customer s exact specifications in the time frame the customer demands, there likely is another supplier waiting in the wings that can, and maybe even at a lower price. To understand how things have changed for industrial equipment manufacturers in recent years, consider the case of one company that makes five different product lines: food service equipment, air distribution products, engineered products, engraving equipment and hydraulic products. The company has grown to 31 divisions, largely through acquisition, and when it started on this growth path it let newly acquired entities operate as separate businesses, only reporting financial results to corporate headquarters. That no longer is the case. In the old days, we were pretty much like a venture capitalist, allowing each acquired company to retain its own brand and operate autonomously, the company s CIO says. But that was when we had little competition. With the Simplifying the Making of Complex Products 2

5 emergence of global competition, corporate executives have taken away much of that independence. This company, like most top performers in the industrial equipment sector, now runs its entire business on a single integrated ERP suite. Having that type of system in place gives the manufacturer greater control over what is now is a global extended supply chain. Industrial equipment manufacturers generally adopt global business models for one of two reasons: They ve chosen to reduce overhead associated with labor and capital equipment by outsourcing manufacturing functions while concentrating or more strategic activities like designing new innovative products. They want to establish a presence in various geographic areas in hopes of attracting new customers in those regions. Managing Complexity Whether the motivation is seeking new suppliers, new customers or both a global business model adds another layer of complexity to an already complicated business. It s only natural that companies struggling to manage such complexity would seek out ERP systems. After all, they have come to be widely recognized as the core technology platform for bringing a sense of order to business processes. In their infancy, ERP systems helped companies streamline operations by automating business processes. Over time, however, ERP vendors have architected systems that mimic best practices for a range of business functions from taking customer orders to planning production schedules allowing these systems to be a force for instilling a sense of discipline while also helping improve performance in an organization. Often, companies adopt the best practices embedded an ERP system as a way of ensuring that all business processes are performed in exactly the same fashion across the entire enterprise. This form of standardization has many advantages, from cutting down on the potential for duplication of effort to winning favor with customers and suppliers by making the company easier to work with. The use of a product configurator is a prime example of how an industrial equipment manufacturer can benefit from using the best practices embedded in an ERP system. A well-designed product configurator will be linked to a repository of information on the makeup of products that the company already has built, as well as a knowledge base of parts that can fit together to create new configurations. This information typically is gathered by querying company s product design and manufacturing experts. Linking this information to the product configurator gives sales and customer service reps the ability to tell customers almost instantly whether the exact product they are requesting can be built. When the configurator is part a fully integrated ERP system, the rep also can tell the customer whether the parts required to build the product are readily available, and if the company Simplifying the Making of Complex Products 3

6 has the available production capacity to fill the customer s order in a reasonable timeframe. In short, the company has an easy, standardized method of telling customers exactly what they can build for them, when they can deliver it, and how much it will cost. In its study of industrial equipment manufacturers, Aberdeen found that a majority of the best-in-class companies in the sector felt it was important to standardize all business functions. But this group expressed a greater sense of urgency about the need to standardize and streamline manufacturing processes. Aberdeen researchers concluded that this heavy preference for standardizing manufacturing processes stems from the complex nature of the to-order environment in which industrial equipment manufacturers operate. In this world, Aberdeen concluded, time to market is the critical factor separating the top performers from mere survivors, and having standardized, streamlined processes helps get products to market faster. The Need for Good Project Management It s not enough to just get products out fast, however. In the industrial equipment sector, products also must be built to each individual customer s exact specifications. That means each order an industrial equipment manufacturer receives takes on the characteristics of a major project from the gathering of information to prepare a quote, through working with various departments inside the company as well as customers and suppliers on the design of individual components and manufacturing processes. Each project results in a unique product that is engineered, built, or configured to perform a specific set of tasks for a specific customer. And the chances of that customer being satisfied with the product are higher if the project was managed with standard, proven processes that facilitate better communication and collaboration across the extended supply chain. That s because product is more likely to be built right the first time. That s why a strong, enterprise-class project management component is among the key features top-performing industrial equipment manufacturers look for in an ERP system. An enterprise-class project management system as opposed to the many desktop solutions on the market allows for widescale, simultaneous collaboration around all aspects of a project. It allows all departments that will be involved in designing, building and delivering a product to begin planning their efforts at the earliest possible stage. In a well-run project-oriented enterprise, manufacturing no longer has to wait for a product design to be complete before it starts outlining processes for building it. The pertinent people in the manufacturing organization have full visibility into the design process, via the project management system, allowing them to see for themselves if their planned manufacturing processes are appropriate for a given product. They also get updates on design Simplifying the Making of Complex Products 4

7 changes, as they happen, so they can alter production processes without delay. This level of collaboration greatly reduces the time involved in preparing customer bids as well as manufacturing products, all of which leads to the faster time to market that is so crucial to companies in the industrial equipment sector. A good project management system also offers all the information necessary including links to engineering data and up-to-date parts lists to support field technicians who provide after sales product support. Supporting Lean Methodologies The desire for standardized processes that reduce cycle times also has fueled growing interest in Lean methodologies among industrial equipment manufacturers, though some in the industry still question whether Lean techniques are good fit for companies that make complex products. The primary tenet of Lean is removing waste, or unnecessary activities, from a process. Doing that alone should lower product cycle times. But there are many components of Lean and a lack of understanding of many of these components has led to confusion about whether Lean methodologies are applicable to the industrial equipment sector. For instance, some Lean advocates contend the most important part of the methodology is building to exact customer demand, and that no production should begin until actual orders are in place. Some industrial equipment manufacturers don t think that strategy can work for them. Lean fanatics don t understand that it is not a good fit for complex products, says the vice president of logistics/supply chain for a durable goods manufacturer. Customer demand may be sporadic and we have long lead times. You can t be constantly ramping up or running down. You need an even flow through the factory. Long lead items, indeed, pose a problem for industrial equipment manufacturers whether they practice Lean methodologies or not. That s why they need an ERP system that allows them to forecast customer demand, while also providing the ability to spot shifts in demand and alter plans for building and procuring parts with both short and long lead times, as appropriate. None of that precludes the use of Lean methodologies, however. In fact, Aberdeen s study found that the majority of best-in-class industrial equipment manufacturers have made a strong commitment to specific Lean methodologies, and that they also seek ERP systems that support those processes. Here are the four Lean principles the top-performing industrial equipment manufacturers are most likely to embrace: Value stream mapping A technique for analyzing the flow of materials and information currently required for bringing a product or service to market. It can be helpful in identifying opportunities for reducing lead times. Simplifying the Making of Complex Products 5

8 Cellular manufacturing A system in which equipment and workstations are arranged in a manner that allows for continuous and smooth movement of inventories and materials to produce products from start to finish in a single process flow, while incurring minimal transport or waiting time. Kanban, or a system for signaling when new parts are needed, usually drives the movement of parts to a work cell rather than requiring workers to go and find parts. Kaizen The philosophy of continuous improvement. It calls for all employees from the CEO to line workers to constantly look for and suggest ways of improving processes. 5s Refers to five actions that must be taken to start and maintain a successful Lean program. The 5s are: sort, set-in-order, shine, standardize, and sustain. Adopting these principles clearly can help companies achieve the goal of standardizing business processes in a way that should lead to the consistent production of quality products within fairly reasonable lead times. But history has shown that it s nearly impossible for an entire global enterprise to adhere to a standard set of processes over the long term without the type of discipline that can only be imposed by a properly designed ERP system. For manufacturers of industrial machinery and components that would be a fully integrated system, allowing the free flow of information across the following critical components: A customer relationship management and/or sales management system linked to a product configurator that enables sales or customer service reps to make quick determinations on the company s ability to deliver the exact product a customer is requesting; Flexible and scalable inventory management and supply chain management functionality, enabling the company to forecast and track customer demand and quickly adjust procurement plans and production schedules in line with that demand; A robust, enterprise-class project management solution for shepherding orders from the quote and bid stage, through the design and production phase, and finally to managing post sales support. This solution also must support Lean methodologies, in addition to having an overarching technology layer that gives individual users access to informational portals and dashboards. The portals and dashboards should present users with the current information necessary to perform their job at the highest level of efficiency, while also allowing them to analyze the performance of business processes in a way that allows for developing strategies for improving performance. One question that is bound to arise for any company considering a new ERP system is: Can we afford it? Simplifying the Making of Complex Products 6

9 The project manager for a construction equipment manufacturer answered that question like this: We are replacing legacy systems with a corporate standard ERP. While the systems we have installed have most of the functionality of the corporate standard, they are not as integrated or connected. Six months before we started our implementation we formed a team to answer the question, How are we going to pay for this? We identified four areas: lower inventory levels, less premium labor, less expedited freight and less time to close the books every month. In other words, if the ERP system is the right fit for the business it will pay for itself. Simplifying the Making of Complex Products 1

10 About Epicor Epicor Software (NASDAQ: EPIC) is a global leader delivering business software solutions to the manufacturing, distribution, retail, hospitality and services industries. With 20,000 customers in over 150 countries, Epicor provides integrated enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM) and enterprise retail software solutions that enable companies to drive increased efficiency and improve profitability. Founded in 1984, Epicor celebrates 25 years of technology innovation delivering business solutions that provide the scalability and flexibility businesses need to build competitive advantage. Epicor provides a comprehensive range of services with a single point of accountability that promotes rapid return on investment and low total cost of ownership, whether operating business on a local, regional or global scale. The Company s worldwide headquarters are located in Irvine, California with offices and affiliates around the world. For more information, visit Disclaimer This document and its contents, including the viewpoints, dates and functional content expressed herein are believed to be accurate as of its date of publication, September However, Epicor Software Corporation makes no guarantee, representations or warranties with regard to the enclosed information and specifically disclaims the implied warranties of fitness for a particular purpose and merchantability. All information contained herein is subject to change without notice. The usage of any Epicor Software shall be pursuant to an Epicor end user license agreement and the performance of any consulting services by Epicor personnel shall be pursuant to Epicor s standard services terms and conditions Epicor is a registered trademark of Epicor Software Corporation. All other trademarks acknowledged. Copyright 2010 Epicor Software Corporation. Job# 549 For more information, contact Epicor Software Corporation: info@epicor.com or Worldwide Headquarters Von Karman Avenue, Ste Irvine, California USA Toll Free: Phone: Latin America and Caribbean Blvd. Antonio L. Rodriguez #1882 Int. 104 Monterrey, Nuevo Leon, CP Mexico Phone: Fax: Europe, Middle East and Africa No. 1 The Arena Downshire Way Bracknell, Berkshire RG12 1PU United Kingdom Phone: Fax: Asia 238A Thomson Road #23-06 Novena Square Tower A Singapore Singapore Phone: Fax: Australia and New Zealand Level Miller Street North Sydney NSW 2060 Australia Phone: Fax: Simplifying the Making of Complex Products 2