Moving forward to reap the benefits of ERP

Now millennium compliance is in place companies should focus on the business benefits of ERP, says Diane Palframan

By now, most of the IT money allocated to combating the millennium bug should have been spent, leaving manufacturing companies to ponder their next IT investment. One option will be to expand the scope of their year 2000-compliant enterprise resource planning (ERP) systems.

`The past two years have been unique because, for a lot of ERP implementations, the focus has been on timescale – year 2000 – rather than business benefits,’ says Stephen Thornton, consultancy director of ERP vendor Intentia UK. Now the systems are in, he suspects companies will wait until after the millennium before deciding how to move forward, to ensure that their systems can survive the date change.

Broadly, manufacturers will take one of two paths, says Andy Mulholland, director of technology at IT services and consultancy firm Cap Gemini. Either they will choose enterprise application integration or extended ERP.

To help firms decide which is more appropriate and improve the return on investment of their ERP systems, Cap Gemini recently introduced a service called enterprise effectiveness.

The former route, enterprise application integration, will require companies to ascertain where ERP has been beneficial to the business (for example, in providing a common view of financial data) and where it has not, and bridging the gap with one or more specialist applications. Extended ERP recognises the need for greater communications with other companies by giving them remote access to the ERP system.

At present, manufacturers are tending to opt for enterprise application integration, says Mulholland, because they are moving towards making products to order which requires more sophisticated resources planning software than that available in most ERP systems. `ERP vendors have a one-size-fits-all approach,’ he says, `and, even though they are improving their systems, they will not be able to meet the specialist demands of all the different manufacturing sectors.’

Not all ERP vendors agree. Instead, many are choosing the second option of trying to extend their systems to meet the changing needs of their customers. They are doing so through acquisitions, alliances and further in-house software development. `I think ERP is almost limitless in its scope because it can cover e-business, management of customer relations, business intelligence and supply chain optimisation,’ says Thornton.

All these add-ons tend to have an external rather than an internal focus because ERP vendors reckon this is manufacturing industry’s next major concern – improving customer service.

In the medium-sized companies served by MAX International, managing director David Peirce says: `the Holy Grail is on-time deliveries. Companies with a turnover of £30-40m are not typically world-class and their on-time deliveries are often 70% or lower.’

The key to improvement, says Peirce, is a flexible ERP system which can regularly monitor and display information about all the factors that have an impact on delivery time and easily accommodate changes without having to reconfigure the ERP system.

He cites as an example Bestobell Aviation, a Slough-based aerospace components manufacturer, where lack of management information was one of the reasons overdue orders climbed to a fifth of the firm’s £14m sales. Having installed a MAX system, the company now has a single set of data from which it is easy extract relevant information. It now delivers 98% of its orders on time.

In a similar vein, Pat McCarthy, managing director of ERP vendor Information Engineering Group (IEG), also argues for greater visibility of up-to-date information but he believes it should also be on the shopfloor. `ERP is a white collar application,’ he says, and is not sufficiently dynamic for factory planning and scheduling.

To overcome this problem IEG has developed its own real-time manufacturing software which it is selling as a complement to its own and other ERP systems. Mayflower recently announced that it was investing £750,000 in IEG’s ERP and factory software at its UK bus and coach operations. The company aims to create a common database for procurement, analysis and reporting, and to link in shopfloor activities.

`With our product, you can plan your workload against demand in more detail than you can with ERP, quickly create a detailed schedule and monitor jobs as they go through the factory,’ says McCarthy.

Another fundamental problem among some manufacturers, especially in the engineering sector, is the proliferation of stand-alone systems, maintains Alastair Sorbie, managing director of ERP vendor Industrial & Financial Systems.

`There is a tendency to think customers in this market are more advanced than they really are,’ he believes. `In fact, a lot of companies have yet to reap the benefits of having a centralised database and integrated applications.’

Once firms have a common source of data, they have a greater understanding of the overall business, its exposure in the market, its operating costs and what other people are doing in the organisation. `You can also increase customer service activities because you can find information more readily,’ says Sorbie.

These companies’ systems will naturally evolve to incorporate management of customer relations, advanced planning and scheduling and product data management, believes Sorbie. The most likely source of this software will be ERP vendors rather than independent developers, he adds. The main reason for this is that ERP vendors can offer the software integrated with their core product.