ERPII: What manufacturers should know
By Greg Mills*
EMERGING standards for supply chain integration, enterprise application integration and business process optimisation offer the manufacturing industry significantly increased benefits over existing ERP systems.
While adopting the new standards, known as ERPII, will mean some manufacturers need to upgrade or replace their implementations, the potential benefits will more than justify the costs.
So what are the drivers behind these changes to ERP?
The answer does depend to some extent on the structure of the value chain to which you belong and where you are placed in that chain. For some, that pressure will come from big customers - in our experience, at Cincom , manufacturers of consumer packaged goods are often among the first to adopt new technologies because of the pressures they come under from their large customers. For others the pressure will come from powerful suppliers who have a strong presence in a single market. Also, you may be driven by competitive pressures such as the need to meet improved service levels and cost models. And, finally, the drive could come from inside your organisation as you strive to reduce costs and improve revenues through early adoption of this technology.
Regardless of where it comes from, the pressure will come and businesses need to prepare themselves.
What's in the latest generation of ERPII software?
A lot has changed in the flexibility and functionality of systems and how you can deploy these solutions to reduce your business risk. Probably the biggest value-adding features revolve around the ERP software being able to talk to other software applications. Inside your organisation this is known as Enterprise Application Integration (EAI) while outside your organisation this will involve web services, point-to-point communication using some form of XML or other agreed form of exchange. With little effort you can integrate the communication between the various software programs. Re-keying data will become a thing of the past and the need to print purchase orders, acknowledgements etc will disappear as the system manages these tasks automatically and warns you if certain events did not occur or need to occur. This is all part of Business Process Orchestration.
Business Process Orchestration will allow you to define business processes (within, outside or across organisations) and to identify the transactions that make up the events in a process. For example, a machine breakdown event on the factory floor could trigger a purchase order for a replacement part. Those parts of the process you want to automate you can - by using defined business rules. When an event occurs you can send a message to the initiator of the process - or the fitter waiting for the part to turn up before an urgent job can recommence.
In addition, systems have become more "intelligent"-- they are able to identify the user, what his information needs are and how he can best utilise the information available. Users of the system can now be in-house or they could be an authorised customer or a vendor accessing your services through the web, from their own offices. This ease of access delivers significant improvements in productivity and ease-of-use.
As supply chains become more integrated and business processes are automated, the supply chain will require less day-to-day management. . Instead it will be driven to manage exceptions and much of the traditional "grunt work" will be handled by your software. This will mean more time to focus on improving the way the supply chain fits together, reduce inventories and improve productivity.
Expect to see increased supply chain velocity, greater product customisation and lower cost of doing business from next-generation ERPII systems.
How to select an ERPII system for your business
Analysing the requirements of your business can be a daunting, but never the less critical step, in selecting the right ERP system. You need to ensure the software meets the functional needs of the users today while also ensuring it positions the company to meet the sometimes radical changes needed to accomplish your strategic objectives.
Business Requirements Surveys provide a useful tool to help the various departments within your company to identify in detail their specific business requirements in a format that can be used for comparative purposes.
It is also important to look at the methodology of implementation. There no longer needs to be a "big bang" approach. Good solutions are 'componentised' so you can choose to deploy pieces of the software as appropriate. This allows you to reduce your initial investment, reduce risk and see a faster return on investment.
You should pilot the software or conduct a proof of concept to prove the capability of the solution. Business process re-definition in this new operating environment can be done for parts of the business to identify where and how to deploy these solutions without risk. And the software now becomes an enabler of process rather than dictating the way it should be done.
Last but by no means least, look at the vendor's track record for on-time, on-budget implementations. Many vendors use third parties to implement their solutions. In this case, check that you aren't getting a busload of inexperienced IT graduates. Look for a vendor that employs people who have been production managers, materials managers, and engineering managers - people who are experienced in your industry, not just in software.
*Greg Mills is head of manufacturing solutions, Cincom Systems of Australia.
15-Sep-2004