The Pressure is on Manufacturers
No industry in the U.S. has been hit harder by globalization or
faces more challenges than manufacturing where the innovation and
rapid growth of the past has become a much less likely scenario for
the future. In fact, for individual companies—it's often no longer
a question of the growth and profitability they can achieve. More
likely, it's a question of whether or not they will survive as a
company.
But, of course, all is not lost. As a manufacturer, the ability
to innovate and adapt that served you well in the past can also
serve you well in the future as your company strives to keep pace
with its new business environment. You have many ways to take on
your competitive challenges, but one response stands as critical,
if not the most critical. That is improving the efficiency of your
business.
Improved business process efficiency drives everything else
that is important to your success:
- customer satisfaction
- innovative new product introductions
- effective supplier relationships
- positive employee morale
Because it is so fundamental, improving business performance has
long been a focus of manufacturers. But in most situations, the
easy gains have already been made - such as pruning the workforce,
buying more efficient production equipment and negotiating better
deals with suppliers. Often manufacturers have stopped short of
upgrading their IT infrastructure with an advanced enterprise
resource planning (ERP) solution, on the assumption that only the
largest companies can expect to get a return on their investment in
ERP. But the business environment has changed - and so have the
options for leveraging sophisticated ERP capabilities. For many
manufacturers moving to an advanced ERP solution may be the right
next step in their quest to be more competitive. In this
whitepaper, we offer insights into the business challenges that can
make ERP the right next step for your business. We also offer
insights into how manufacturers can leverage the business benefits
of ERP and, among other things, level the playing field with
competitors who have exploited ERP functionality for many
years.
Telltale Signs: When an ERP System is Right for Your
Business
Many of the warning signs prevalent at manufacturing firms are
also the telltale signs that the time is right to pursue
implementing their first ERP solution or upgrading a legacy
solution that no longer serves their needs. Every one of the
business challenges outlined below may not exist at your company,
but the odds are that one or more will be familiar and this may
indicate that implementing an ERP solution can have a significant
positive impact on your business.
"Islands of Automation" impede communication and
necessitate duplicative effort.
The inability of business applications to communicate with one
another is a common challenge for many manufacturers. This scenario
often occurs at manufacturing businesses who use standalone office
applications like Quickbooks and Microsoft Excel to support their
operations. It is also a common scenario for manufacturing
companies that implemented early generation ERP, MRP or MRP II
solutions many years ago, but whereby business has undergone
significant change in the ensuing years. For manufacturers with
early generation enterprise solutions, the problems are frequently
aggravated by the fact that their maintenance contract has lapsed
and the cost to bring it up to date or upgrade the solution with a
new version is prohibitive.
When applications cannot communicate with one another, employees
are forced to enter the same business information multiple times in
different applications. With most workforces already stretched
thin, this is a costly waste of time. Duplicate data entry also
creates more likelihood for errors and inconsistencies that can
hamper business efficiency.
Beyond wasted and error-prone activity, islands of automation
also hamper effective decision-making because employees lack
visibility into parts of the business that are beyond their
immediate responsibility. For example, if a company has multiple,
non-integrated applications, there is a greater likelihood that
inventory control will be inadequate and the purchasing department
will get caught off guard on the status of inventory essential to
keeping the production line operating smoothly. Islands of
automation also can adversely impact production processes because
of the structural communications problems that prevent a business
from leveraging lean manufacturing and eKanban practices. Finance
and accounting processes often are hindered by poor internal
communications capabilities. In addition, communications with
customers may be adversely impacted because order management and
fulfillment processes are inadequate.
You have to cut more costs, but don't know how.
The pressure to reduce expenses has faced manufacturers for many
years and events are conspiring to make matters worse. First, the
emergence of manufacturing in low cost countries has put more
pressure on established U.S. manufacturers to meet even lower per
unit costs. Second, the easily achieved cost savings have been
identified and achieved. For example, staffing at many
manufacturing companies has already been cut to the bare minimum,
so the workforce is as lean as possible. And at several of these
companies, old inefficient production equipment has been replaced
with new equipment that works faster and more economically, with
reduced energy consumption.
One of the only areas left to look is to optimize core business
applications. This has seldom been the first place a manufacturer
looks for cost reductions, in part, because of the perception that
implementing a comprehensive enterprise software solution will be a
complicated, disruptive and expensive endeavor. However, having
wrung out the other inefficiencies in their operations, many
manufacturers can no longer ignore the potential of an ERP solution
to take their business to a new level of efficiency.
You're losing the innovative edge that made you successful
in the first place.
Innovation is how many manufacturers got their start and built a
successful business. But innovation isn't a one-time event, a fact
that is especially true given the heightened competitiveness of the
current manufacturing environment. For many companies, and perhaps
yours, innovation has fallen by the wayside as all efforts have
been placed on getting the greatest return possible from the
existing portfolio.
The problem, of course, is that because product innovation
continues at other companies eventually every manufacturing company
must innovate with new products or new business models. This need
to innovate is driving many companies to look for ways to make
their business more efficient, thus freeing up the resources needed
to support major new research and development initiatives.
You're not meeting customer demands for
information.
Customer expectations are increasing. They want more product
variety, higher quality and faster fulfillment of their orders. The
customers of manufacturers that have intense competitive pressures
of their own are increasingly pressing for more information on
orders. But for manufacturers, delivering the information about
such things as production and delivery schedules is hampered by
poor access to information across the enterprise. If this problem
exists at your company, an ERP solution will help by enhancing your
ability to communicate within your company and with your
customers.
The ABCs of ERP: What an ERP System Can Do To Improve Your
Business Performance
ERP systems can level the playing field for manufacturers that
find themselves in a pitched battle against competitors by
delivering a wide range of business benefits. With an ERP system up
and running, small manufacturers are able to:
- Improve sourcing and procurement for reduced product costs and
better inventory control
- Enhance order management and fulfillment for improved closure
rates and stronger customer relationships
- Enable lean manufacturing and eKanban for more efficient
production processes
- Collaborate across the enterprise for streamlined
operation
- Improve finance and accounting processes for faster
decision-making and better cash management
These business benefits are achieved as a result of a wide range
of specific capabilities inherent in all current generation ERP
systems. An ERP solution can improve your business performance
because it:
Streamlines your business processes. With ERP,
individual business processes are better linked so operational
velocity increases as one event in your business automatically
triggers the next.
Enables you to eliminate non-value add
activities. The single, enterprise-wide database that is
implemented as part of an ERP system means that data can be entered
once and then used easily and error-free to support multiple
business processes.
Creates a single dashboard for enhanced
visibility. The linkage of business processes and a common
database provides employees in one area with visibility into all
parts of the business necessary to do their job. For example, the
enhanced visibility enabled by an ERP solution means that your
purchasing department can keep a careful eye on inventory levels
and accelerate or slow down orders in ways that assure your
production line is not disrupted by unplanned shutdowns due to
parts shortages or your costs increase because of unnecessary
inventory.
Enables you to invest in innovation. The
reduced operational costs made possible by ERP solutions will free
up money to invest in new products.
Enhances your reporting capabilities. With
better linkage between business processes and better collection and
analysis of information, an ERP solution will help streamline the
process for creating business reports, while simultaneously
producing higher-quality reports that facilitate better decision
making.
Enhanced external communications. As an ERP
system provides you with better visibility throughout your
business, it also helps to improve the communication across your
supply chain. This is particularly useful in today's environment as
manufacturers are increasingly doing business with suppliers and
customers in other countries and must rely on effective electronic
communication to make this possible.
Reduces business risk. The combined
capabilities of an ERP system—better communications, better
reporting and analytics and more efficient production and
non-production processes—reduce a company's overall business risk.
Because an ERP system gives you better visibility into your
business, you can identify potential risks with greater precision.
And because you have more efficient business processes, you can
respond faster and more effectively to individual risks and, in the
process, better serve your customers.
You Can Choose the Approach to Take
Once it becomes apparent that a manufacturer needs to leverage
ERP functionality, there are two basic approaches that can be
taken. In one approach, the company will license either an
end-to-end ERP solution or one or more best-of-breed solutions that
address specific business processes. In general this approach also
requires a company to purchase a maintenance contract to support
the new solution and new hardware on which to implement the
solution.
There are downsides to the traditional ERP model
While the traditional approach may appear to offer the most
control, there are number of downsides:
- Major upfront investment in new hardware and software is
required
- There is a need to hire or contract new technical staff to keep
the system running
- Significant time and expense also will need to be devoted to
training the IT staff on the intricacies of the new system and in
training other employees in using the system
There is a viable alternative
The alternative to investing in new ERP software, new hardware
and new technical staff is to get the ERP functionality your
business needs from Software- as- a-Service (SaaS) provider. With
the SaaS approach, there is a recurring monthly fee for a Web-based
ERP solution. Typically the fees are based on the specific
functionality and capacity that your business uses and can increase
or decrease depending on your requirements.
The research of a number of analyst firms indicates that many
manufacturers will increasingly be evaluating Web-based ERP
solutions as a strategic move. For example, AMR Research was quoted
in Managing Automation (12/28/06) as finding that although only 9%
of respondents in a current survey are currently using on-demand or
usage-based software licensing models for the ERP systems, 18% said
they want to try the on-demand approach in the future.
The Advantages of
ERP Delivered as a Service
An increasing number of manufacturers are discovering the
advantages of forsaking an in-house ERP implementation in favor of
an outsourced business model. Accessing ERP from a service provider
has appeal for many manufacturers because it can deliver more
business value, faster and at reduced costs than a purchased
solution. More specifically, the advantages include:
Faster time to Value. With a Web-based ERP
solution, your company can avoid the time, expense and potential
for business disruption associated with the use of in-house
applications. While most traditional ERP solutions take 6-12 months
or more to implement, a Web-based solution can up and running in
less than 3 months. Because you in effect plug your business into
an existing state-of-the-art ERP infrastructure, the risk of
disruption to your business is virtually eliminated. The speed to
value is also better because employee training can be focused
strictly on the business process level, leaving the technical
details of running the solution to your service provider.
No upfront investment. By taking a Web-based
approach to your ERP solution, upfront expenditures on licenses,
maintenance contracts and new staff can be allocated instead to
investments that directly improve your business, such as new
product development, new production equipment or new sales and
marketing initiatives.
Predictable, long-term costs. With a
traditional solution, the initial license and maintenance
agreements are only a small part of the real cost of ownership over
time. Long-term liabilities also include the ongoing costs of new
IT resources, each of which will cost approximately $100K per year.
By contrast, with a Web-based solution, you know the total ongoing
cost upfront. Monthly fees are aligned with your business needs
because they only change if your capacity requirements change due
to a business expansion or contraction.
Access to only the rich ERP capabilities you
need. By working with an ERP service provider who
specializes in manufacturing your company can get the
industry-specific functionality that best meets its needs. In
addition, storage is scaleable so you only pay for the capacity
that meets your current needs. By accessing only these
capabilities, you are not forced to purchase functionality and
capacity that you don't require.
Availability of top-level IT expertise. Because
delivering ERP is their core mission, service providers have IT
experts on staff who know the intricacies of the ERP solution you
are using and can more quickly and efficiently address issues that
arise. By contrast, with a software license solution any problem
that can't be handled internally must be addressed through the
software vendor's support organization. In many instances the
vendor will only advise your IT personnel on how to correct the
problem, leaving the onus on your staff to make the fix.
Availability of the latest technology. As with
IT expertise, ERP service providers have a powerful incentive to
provide the most advanced ERP functionality available. A service
provider will leverage its economies of scale to bring on line new
ERP functionality that can boost the business value of your
solution. What is a seamless upgrade process with a Web-based
solution can be a costly and disruptive software re-implementation
with a purchased solution.
Risk mitigation. With a Web-based solution,
your company can take advantage of numerous security and
risk-mitigation capabilities. For example, your key business
information and systems will be housed in a dedicated data center
with redundant power, fire protection, cooling and climate control
and the capability to withstand hurricane-force winds. A
well-established, timely back-up process can be implemented to
protect your business from disruption due to unplanned business
events and natural disasters.
Conclusion
With globalization a reality, manufacturers must make their
business as efficient and agile as possible. In response, many U.S.
manufacturers are adapting to the threats inherent in globalization
by adapting their business model to focus more on the assembly of
product components that are manufactured in low cost countries. In
addition, many manufacturers are searching for ways to make their
business processes more efficient so they can free up resources to
develop innovative new products and strengthen customer
relationships.
Regardless of whether your company sees its future in product
innovation, business model innovation or both, leveraging a
Web-based manufacturing ERP solution can play a fundamentally
important role in the long-term success of your company.
About Glovia Services, Inc.
Glovia Services, Inc. is a wholly owned subsidiary of Glovia
International, Inc., a subsidiary of Fujitsu Limited (Tokyo Stock
Exchange: 6702), one of the world's most experienced and solidly
backed providers of extended ERP solutions for businesses of any
size-from small and midsized companies to global enterprises.
Glovia Services offers GSInnovate web-based manufacturing software
from pluggable point solutions to a comprehensive on-demand ERP
suite that provides for the unique needs of engineer-to-order,
make-to-order, high volume and mixed-mode manufacturing
environments through comprehensive, end-to-end functionality for
the entire product life-cycle. Headquartered in El Segundo,
California, Glovia Services has helped manufacturers to cut costs,
improve productivity, and meet customer demands for over 30 years.
For more information please visit www.gsinnovate.com, or call
310-563-8700 or 877-474-8896 (toll free).
About Fujitsu
Fujitsu is a leading provider of IT-based business solutions for
the global marketplace. With approximately 160,000 employees
supporting customers in 70 countries, Fujitsu combines a worldwide
corps of systems and services experts with highly reliable
computing and communications products and advanced microelectronics
to deliver added value to customers. Headquartered in Tokyo,
Fujitsu Limited (TSE:6702) reported consolidated revenues of 5.3
trillion yen (US$53 billion) for the fiscal year ended March 31,
2008. For more information, please see: www.fujitsu.com.
About the GSInnovate Industry Insight Series
Glovia Services strives to equip manufacturers with the expert
knowledge and best practices gained from our own manufacturing and
technology experience. The GSInnovate Industry Insight Series
provides manufacturers with the latest resources to effectively
manage their business on demand.
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