Planning ahead

With UK manufacturers facing competitive pressures that demand ultra-keen pricing and precise cost management, the case for investing in ERP has never been stronger. Mark Venables reports

Enterprise Resource Planning (ERP), a business management system that integrates all facets of a business from planning through to manufacture, sales, and marketing has become increasingly important over the past decade.

In that time it has evolved from being a somewhat generic approach towards more application-specific capabilities for particular sectors. Suppliers have also had to embrace and offer a number of developments such as support for mobile devices and ‘work-anywhere’ practices.

This and the pressure to join up the supply chain, in and outside the factory, has made ERP more integrated, according to Mike Spragg, managing director of ERP specialist Infor Global Solutions UK. A key enabler for this move has been the internet. Many other modular, integrated sub-systems now link to the ERP core such as customer relationship management (CRM), engineering change control, product lifecycle management (PLM), warehouse and distribution, or logistics systems. Radio frequency identification (RFID) is also forcing change.

One of the more profound and recent influences has been the impact of lean manufacturing, which threatened to displace the ‘push-based’ forecasting principle of ERP.

The market continues to be extremely volatile. At the supplier level, consolidation is the key word, a mergers and acquisition phenomenon that the CAD industry saw in the 1980s. Within tier two and three of the ERP market there have been too many, too small suppliers. On the demand side, globalisation, outsourcing, increased collaboration and shorter times-to-market are key driving factors.

‘This means that customers now need vendors with substantial resources, assured longevity and a worldwide presence,’ said Spragg ‘As a result, smaller suppliers are either being purchased by larger companies, or face going out of business. There will soon be fewer but larger ERP companies: the ones with a future will be able to deliver value for money, plus a depth and breadth of continually-developed products, and superlative support services that the large suppliers of today will be unable to match.’

ERP now meets the needs of most businesses, although there are still gaps in areas such as contract lifecycle management (CLM). It is generally believed that there will be innovations within the next generation of systems, but these will facilitate demands for better connectivity with other systems including mobile devices, closer

collaboration and workflow between individuals and groups, more industry-specific applications and more extensive connection to the supply chain outside the factory, whether local or global.

‘What we are going to see is the rise of web service architectures,’ said Paul Eggleton, marketing manager at ERP specialist SAP. ‘We have been through the mainframe, the mini environments and the rise of the client server. We now have the rise of web services and service-orientated architecture that will provide an underlying infrastructure that enables integration using standard XML as well as allowing companies to integrate their operations both internally and externally.’

That sentiment was echoed by Spragg. ‘Although invisible to users, most innovations will occur in the underlying technology that makes systems work,’ he said. ‘Web services will proliferate. Java, .Net and other tools and standards will vastly improve ease of use, integration, reliability and security.

‘In addition, software agents will further automate supply chain event management and provide key performance indicators: vital data and information will be automatically channelled to those that need to know and take action.

‘In particular, one business-oriented software development to watch is packaged composite applications (PCA), arising out of enterprise applications integration (EAI) and enterprise services architecture (ESA). Large software and systems integration companies will drive its uptake, but there will also be significant contributions from smaller, leading edge developers. They will all push ERP into a more integrated, over-arching management asset, available anywhere, anytime.’

Also on the applications side, expect to see contract lifecycle management, for supply and demand side relationships, becoming a significant application within ERP. It will automate what is now a fragmented and inefficient set of processes within companies and across supply chains.

The continued advance of lean methodologies was initially seen as anathema to implementation of ERP, but there has been a gradual realisation that the two seemingly opposed ideologies can support each other. ‘There has been some wrong-headed thinking,’ said Spragg. ‘The response of some developers has been to adapt ‘push-based’ software in an attempt to make elements of ERP support the ‘demand-pull’ of lean processes, but lean demands a more fundamental and appropriate approach.

‘Although the exponents of lean argue that IT has no place in this domain, there are costly issues in trying to run purely manual systems, especially in manufacturing plants with many product variants. IT has a place in lean, but in ways that feed back into ERP and close the loop. In addition, with all the hype on lean, people forget that the theory of constraints (ToC) still has an important contribution to make; this methodology has been successfully combined with ERP and may, in some cases, be more appropriate than lean.’

Eggleton sees increasing globalisation as one of the key drivers to increase implementation of ERP systems. ‘Twenty years ago small manufacturing companies in the West Midlands knew who their competitors were because they could look out of the window and see them. Today the competition will probably be in China or India. So the ability to compete is going to be driven more and more by the ability to be efficient in your processes, and ERP systems enable that efficiency — even for very small companies. It provides the abilities to define and capture your processes and ensure that you are achieving best practice.’

According to Spragg, modular and integrated ERP systems still represent the most effective way to run the entire manufacturing business, whatever the size. The need to invest in ERP has never been stronger, particularly with UK manufacturers facing competitive pressures that demand ultra-keen pricing and precise cost management, fast response and guarantees on delivery.

‘Reliance on an outmoded collection of disparate IT, or partially manual administration, manufacturing and logistics systems, is more likely to hinder rather than help the business,’ said Spragg. ‘Even if strictly lean methods are introduced, there is still a requirement for an IT system to support administrative, financial and general management tasks.’

‘Traditional manufacturers no longer always manufacture,’ said Eggleton. ‘They will do the design and engineering work and then sub-contract the manufacturing to eastern Europe or Asia. So, with such an extended supply chain, having the ability to integrate outside the organisation with supply partners or shipping companies is crucial. If what you win by moving to low-cost production areas is lost in extra supply chains costs there is no benefit. So the ability to integrate outside of the enterprise, in much the same way that ERP allowed you to within the company in the 1990s is becoming increasingly important.’

Today there is plenty of choice and opportunity to exploit the benefits of ERP. If the right system has been selected, the underlying architecture will allow new applications and technology to be readily integrated. Above all, ERP will let management monitor and control the entire process and performance of the business, and connect to the systems of external customers and suppliers, making for a seamlessly ‘joined-up’ supply chain.

What’s more, large customers are demanding that suppliers connect to their corporate supply chain systems —and this may leave no option but to adopt ERP and related technologies.