Forging New Supply Chains With ERP

Manufacturing managers once had to be experts at Capacity Planning, then Materials Requirements Planning. With the advent of end-to-end supply-chain management, is Extended Enterprise Resource Planning the next stage?

Fifteen to twenty years ago, the name of the manufacturing game was capacity planning,now known as Materials Requirements Planning (MRP). What manufacturers needed then was amethodology for gauging the arrival of materials to their manufacturing sites.

MRP developed as manufacturers recognized that these processes were influenced byfactors such as labor and financial assets. "The focus of these early solutions wason specific function and assignment completion. All of which led to functional'silos'," says Jan Willems, KPMG Management Consulting N.V. (Amsterdam, Holland).

MRP has rapidly evolved into Manufacturing Resource Planning (MRP II), Just In Time(JIT) inventory control and other logistics planning tools. These tools include financialanalysis and reporting, demand forecasting, sales force automation and tracking, humanresources, materials planning, production and the building of enterprise systems aroundthe paramount needs of manufacturing and customer services.

"The mission of MRP solutions shifted somewhere along the way as providers watchedtheir clients' business models change from hierarchical, financially-oriented activitiesto encompass whole enterprise process models," observes Markus Berber, HP'sapplications marketing manager for the Internet Applications Services Division (IASD)."Users were looking for process-specific packages that effectively closed the gapbetween existing information systems and business processes that were also evolving. Theywanted to overcome the limitations of traditional constraint-based planning and do muchmore 'what-if?' scenario-based analyses leading to specific business decisions."

This was the plan for what's become known as Extended Enterprise Resource Planning(ERP). "Because customers needing to combine outcomes of process reengineering withprior downsizing, or even upsizing through acquisitions, were effectively demanding muchmore from their solution providers," says Berber. For example, ERP product suites nowinclude important provisions for integration of industry- or process-specific applicationsfrom third-party vendors.

Collectively, these developments from providers further boost the aims of ERP andSupply Chain Management (SCM)-enabled companies that want to integrate highly specialized,packaged applications using advanced planning, forecasting and other industry-specificsupply-chain activities. "One sees these differences between Stage 1 and Stage 2,where IT uses solutions to integrate many more business functions," points outWillems. Enhancing manufacturing processes which directly enhance many customer services,the step between Stage 1 and 2, creates a stronger flow from design to sales. Many ERPvendors have already integrated these basic processes into their software.

Bending And Blending

But customers care about product, price, quality and availability...not about themanufacturer's problems and processes. In Stage 3, the manufacturer's mindset isfundamentally changed and looks at processes from the customer's point of view, whichcasts a very different perspective on planning and supply chain management. These forcesare now affecting the latest stage of progress in supply chain evolution -- blendedsolutions.

In Stage 4, teams and alliances of vendors collaborate to integrate supply chaincapabilities throughout the ERP system, creating a "value network or virtualenterprise." The fact that most Fortune 500 companies are ERP-enabled fuels dramaticprogress in supply chain integration. "Interestingly, some manufacturers conducting[Business Process Re-Engineering] site-by-site find different sites are in differentstages," notes Willems.

ERP Specialization

Today, the segmentation of ERP-related software vendors can be divided into severalhighly specialized areas:

* Enterprise Resource Planning (ERP)

* Advanced Planning & Scheduling (APS)

* Manufacturing Execution Systems (MES)

* Warehouse Management Systems (WMS)

And there are nearly 100 enabling technology vendors and as many supportingconsultants, listed by the Supply-Chain Council (Pittsburgh, Pa.). Founded in 1996, theSupply-Chain Council promotes progress and best practices among corporations'supply-chains involved in purchasing, logistics, supplier management, customer service,business process reengineering and information technology. More than a dozen arespecializing in supply-chain innovation.

This approach is in stark contrast to the "band-aid" solutions that Berberdescribes as identifying isolated problems and attempting to solve them all with single,point-solutions. Such software is often short-lived, he says, because seemingly isolatedproblems are later found to be not so isolated after all. So, their success will be quitelimited.

Therefore, if you haven't kept track of the changes and improvements in Extended ERPand SCM, you might be overlooking a competitive advantage.




Process plants are most likely to be moving from Stage 1 to Stage 2, especiallyin developing countries. But the assembly shop plants are in Stage 2 or are busy with ERPintegration. Custom-built sites are often in Stage 3 because speed is such a criticalfactor.

High-tech industries are most likely to be evolving to Stage 4 because cyclespeed is as critical as product innovation and flexibility.

The stages are not perfectly sequential; often they work in parallel. It is not"bad" or "good" to be in one stage or another. It is more a functionof the market being served.

Source: KPMG, Jan Willems, 1998.* 15