Beyond ERP: Advanced Applications Can Deliver Rapid Payback and Competitive Edge

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1 Beyond ERP: Advanced Applications Can Deliver Rapid Payback and Competitive Edge October 2004 Industry Directions Inc. Many manufacturers and distributors need to find new ways to improve their performance, since turning a profit is tougher than ever. A few may decide to replace their current Enterprise Resources Planning (ERP) systems. However, the trend is to improve operational performance with specialized solutions that solve a critical issue and generate rapid payback. There are many applications that meet those criteria and are helping small and medium businesses get ahead. Most companies would like to carefully prioritize their information technology (IT) budgets to focus on those projects with the greatest returns and least risk. To determine project priorities, companies can rank them according to alignment with business goals, ability to gain a competitive edge and payback. As a result, each company may set a different set of project priorities, but many will pick more focused application projects rather than a full-blown ERP system. There are several benefits of this solution-specific approach during a recovery period. One is that the savings from smaller-scale, high impact IT improvements can be applied to larger scale initiatives and eventually to the replacement or upgrade of an enterprise system. Another is that rapid improvement can deliver a competitive edge. Compliments of Key Improvement Areas What drives smaller manufacturers is similar to what drives the market leaders, but smaller firms most demonstrate better responsiveness and innovation and greater agility to compete effectively. Therefore there are five critical success factors that are the goal of many IT enhancement strategies. These are: operational synchronization multi-channel responsiveness time-to-market innovations customer and trading partner collaboration continuous improvement. (See Figure 1.) Operational Synchronization It s challenging to keep all supply and manufacturing activities in tune with market demand and each other. This is true whether a company is striving to sell, produce and operate in a local or regional market or be a global player. To synchronize activities, companies need visibility to market demand and the agility to shift activities in their operation or a business partner s. The flow of materials through the supply chain and distribution is one aspect to synchronize; others include the plant floor operations, maintenance of assets, customer and supplier contracts, and design partners.

2 Customer & Trading Partner Collaboration Time-to-Market Innovations Continuous Improvement Operational Synchronization Multi-Channel Responsiveness Figure 1: Small to midsize industrial companies can differentiate themselves through synchronization, responsiveness, innovation, and partnering. Continuous improvement is critical to survival. Multi-Channel Responsiveness Most companies have multiple channels for sales, support and service to customers. If these channels do not look consistent, confusion, errors, redundancy and customer dissatisfaction are the outcome. Customers are demanding centralized sales and service relationships whether they order online, through direct sales, a call center, retail, reseller or overseas office. And manufacturers want more opportunities to touch customers directly. To gain responsiveness in sales, fulfillment and service processes, companies are learning they need real-time data access, synchronization and visibility. Some are taking it a step further and striving for demand-driven responsiveness across their organization. Time to Market Innovations New product innovations provide market differentiation and business value in cutthroat industries, and in many companies, products under one year old make up a quarter or more of annual sales. The challenge is getting products, particularly configured products, to market faster, with less cost and fewer errors. Most products today are complex, developed with partners, built with globally sourced materials and manufactured in facilities that may not be run by the brand owner. Each of these processes in the product lifecycle is difficult to manage with legacy enterprise systems. Customer and Trading Partner Collaboration Many mid-size and smaller industrial companies have a built a reputation for outstanding long-term partnerships with customers. Some provide outsourced manufacturing or services as an extension of the larger company. However, more and more major companies are insisting that all of their suppliers regardless of size provide them more data in a timely fashion. Visibility to the operations and access to information is crucial to being able to detect problems, resolve issues and make alternative plans without disrupting customer service or impacting profit margins. Due to these benefits, many smaller companies are pushing for similarly good visibility with their suppliers and other partners. Continuous Improvement A major challenge all businesses face is staying competitive as market expectations and competitor capabilities continue to increase. The concept of continuous improvement is simple, but achieving it is not. First, it requires visibility into performance which usually relies on correlating data from several different areas. Once the company can see how it s doing, it needs tools to analyze the root causes of problems and to correct them in a lasting way. And improvement in one area such as the plant or warehouse really only has an impact on the enterprise s financial KPIs if the rest of the organization leverages this progress in their planning and assumptions. Advanced Applications Extend ERP ERP systems are the transactional backbone or system of record for most manufacturers. Just prior to the new millennium, ERP vendors were flush with cash and bought up dozens of supply chain management (SCM) solution providers and were gearing up to acquire Industry Directions Inc.,

3 customer relationship management (CRM) suppliers. While some succeeded, many had to wait out Y2K, the dot.com boom and bust and then an economic downturn to revisit their acquisition strategies. In the meantime, they revamped their ERP technology platform and either partnered up or built their own capabilities for advanced applications. For customers on older versions of some ERP systems, this has meant limited access to advanced applications through their current ERP provider. Other ERP vendors have put tremendous effort into building new versions with componentized technology structures so they can fully integrate older versions with newer application extensions. And there are always niche solution providers who make sure their solutions can link to as broad a base of current and legacy ERP solutions as possible. The advanced applications most commonly adopted to support the critical initiatives of small to midsize manufacturers are Supply Chain Management (SCM), Customer Relationship Management (CRM), Product Lifecycle Management (PLM), Portals and e- Commerce and Business Intelligence (BI). (See Figure 2.) These ideally connect to and extend the ERP no matter who provides the application. They may share customer orders, material plans, customer and supplier records, product BOMs, and current status data. Supply Chain Management (SCM): High impact SCM applications for smaller manufacturers solve the problem of synchronizing operations. They can also improve visibility of remote and partner operations and support rapid time-to-market and fulfillment responsiveness. Specific solutions include collaborative demand planning from companies such as Demand Works, plus AspenTech, i2, Logility and Manugistics who also offer distribution planning, production planning. Advanced planning solutions have proven to be a major factor in the business success of companies of all sizes. Advanced Planning & Scheduling Collaborative demand forecasting & planning Execution Transportation & Warehousing Supply chain visibility of supply & demand RFID deployment Supply Chain Execution solutions can have particularly rapid, quantifiable payback. These include transportation and warehouse management and RFID tracking through the supply Common source of customer data Customer and service lifecycle histories Distributed and multichannel order mgmt Rule based product configurator Contract management Collaborative design and development Collaborative eng change management Common source of product data Distributed document management Product lifecycle monitoring & alerts Trading partner communication & data sharing EDI & web-based transactions for orders, shipments, notification Collaborative work environment Private markets for speedy, accurate partner visibility Public markets for finding strong partners Common data warehouse across sites Real-time operational monitoring & alerts Rules based exceptions and resolutions Collaborative analysis and resolution Application-specific metrics & analytics Figure 2: The five core advanced applications cover a broad range of capabilities beyond what ERP alone can provide. Each application type can support a company s ability to solve critical problems and gain a competitive edge. Industry Directions Inc.,

4 chain from vendors such as Manhattan Associates, SSA, Viewlocity and Yantra. Eventdriven monitoring and alerts from a wide range of supply chain solution providers can provide improved collaboration. This is true internally and also between a branded manufacturer or distributor and the production facilities that serve it. Other rapid payback solutions that support many companies top priorities address global sourcing as from Ariba, replenishment planning and execution as offered by IMI and Yantra, as well as service parts fulfillment, lean scheduling and Kanban management. Finite scheduling and Manufacturing Execution Systems from companies such as Ames & McBain, Rockwell Automation, Starthis and Taylor serve inside-the-plant needs. Customer Relationship Management (CRM): A single face to the customer is crucial for multi-channel responsiveness, innovation and synchronization. This means sales, engineering, call center and service personnel in all facilities and partners that interact directly with customers can access a common source of information. Increasingly, these applications are web-based and designed for mobile use by sales and service personnel. In many cases, the customer can also get better, more coherent information about the products and services available to them and often purchase on-line. Advanced CRM applications include portal-based and role-specific data access to customer histories, current order status, contract terms, product specifications, service schedules, service histories, returns and outstanding repairs. There are applications that span all customer, partner or service lifecycle applications, such as from Clear Technologies, Onyx, Relevis and Siebel while other applications have more focused capabilities. Product Lifecycle Management (PLM): New products must get to market fast enough to capture adequate market share to achieve profitability. Today collaborative design, development and deployment is the way market leaders are shaving off months of development time and costs to be first to market. Smaller manufacturers pride themselves on their innovative processes, and work closely with customers to help them embed their designs or work with distribution partners to launch new products. The faster they can get to market, the more quickly they can develop and launch additional innovations. In some environments, experience in production, sales, distribution and repair or maintenance can also drive effective innovation. Similarly, information on co-products and by-products, production competencies and materials can drive entirely new business lines. Advances in PLM have revolved around collaboration in design, engineering, engineering change, materials sourcing and quotations, documentation, and portfolio management. The applications that support collaboration across internal and external development teams include product data management, engineering change management, formulation, product lifecycle workflow, CAD/CAE and process planning. Software from companies such as Aras and Dassault can support many of these collaborative innovation functions. Industry Directions Inc.,

5 Portals & e-commerce: Multi-department, inter-location and inter-company collaboration and communication have become critical to the success of every company. Some SCM, CRM and PLM applications have built-in facilities for communication beyond the core task-driven users. Application-independent portals can provide a flexible, tailored way to provide visibility to employees, suppliers, customers and other partners. Beyond visibility, e-commerce applications allow trading to occur transparently and instantly with a minimum of paperwork. The providers of both private marketplace enablers and public marketplaces that have survived this long deliver real value to users. These range from web replacements for EDI that allow even the smallest company to participate in major partners networks to public marketplaces where companies can negotiate to buy and sell products and services with companies they might not otherwise know. IBM s WebSphere Commerce suite is a very capable Internet infrastructure, and solution vendors such as Avaya, Cisco, i2, IMI, SSA and Yantra leverage those capabilities. Business Intelligence (BI): Because most industrial businesses are quite complex and fastmoving, it s challenging to fully understand performance. BI provides the ability analyze both historical and current data, and then to quickly identify exceptions. It massages data to deliver information on trends, variance to plan, unplanned events, anomalies, and errors based on specified rules and parameters. Users then have the flexibility to look at pertinent details based on a particular problem or within the scope of their role. Analysis helps illuminate the cause of the problem before it impacts other operations or customers. BI platforms often allow the company to assemble and analyze any data they want. Analytical applications built on BI generally focus on specific areas such as finance, marketing, sales, supply chain, procurement and manufacturing. Advances in data warehousing, real-time monitoring and multidimensional analytics as well as fastdropping hardware and infrastructure costs have made BI and analytics much more accessible to smaller enterprises. BI providers, such as Business Objects, Hyperion, MicroStrategy, Silvon and SPSS, offer analysis, alerts, performance measurement and application-specific insights for decision support. This visibility and analysis allows companies to accurately assess their performance and continuously improve it. Keeping a Competitive Edge Deploying applications on a selected basis for maximum returns is good business. While some companies may believe these systems are for larger organizations, they are not overkill for small ones. Companies must perform due diligence to determine which applications have the most potential for returns with the least risk. An economic recovery provides opportunities for companies to gain leverage over competitors who failed to continuously improve their performance. The advanced applications discussed in the paper are high impact performance solutions that support leading business strategies and market opportunities. More information is available on the IBM SMB Industrial web site, under Solution Areas. The solution profiler on this site can also help to identify a good fit for a specific business need in a vertical industry. Industry Directions Inc.,