Enterprise Requirements Planning Alternatives
In evaluating enterprise resource planning systems and the solution-specific extensions, the successful organization addresses features, technology, cost and vendor durability.
Manufacturing automation begins on the plant floor and extends to the rest of the enterprise. It is more than ERP; it is a collection of hardware and software technologies that support the manufacture, warehousing and distribution of products. Developments in this area cover a wide variety of technologies that are essential to the manufacturing process.
- Computer Numerical Control. CNC translates computer-aided design (CAD) drawings into machine-tool specifications for cutting, drilling and milling machines.
- Smart Factory Equipment. Smart factories use smart sensors and embedded microprocessors to identify and locate failures on the assembly line, reducing the frequency and length of downtime.
- Automated Assembly Systems. Automated assembly uses hardware and software to improve quality, reduce labor cost and speed production.
- Storage Systems. Automated storage and retrieval systems improve inventory control.
- Robotic Cells. Robots support faster production rates and handle larger, heavier parts, as a result, more demanding applications are automated, especially where consistency and precision are required.
- Measuring Systems. Inspection data is converted into design and manufacturing information that can be used to make production and engineering decisions. The coordinate measuring machine (CMM) is getting smaller, lighter and more portable and ISO 9000 is positively impacting on the quality of quality measurements.
- Bar Code Systems. Integrated bar code systems touch every function of a manufacturing enterprise, including production, receiving, operations, finance, inventory control, transportation and shipping, and engineering.
Supply-chain initiatives, rapid planning, JIT (just-in-time) and demand scheduling depend on high-speed production and distribution capacity. Automation improves quality, reduces lead times and cuts handling costs. Since the health of the industrial complex is one measure of the health of the economy, the manufacturing systems that support the production and distribution capacity needs to be the best and most advanced possible.
Enterprise resource planning (ERP), and its predecessors, MRP and MRP II, comprises the largest segment of the manufacturing automation market. ERP software, with the exception of some huge CAD package purchases, is the largest manufacturing software implementation a company is likely to make. While MRP II was limited mostly to manufacturing planning, ERP integrates manufacturing with a manufacturing information resources, such as personnel and financials.
ERP is a complex concept, intimidating concept. As a result, most industry consultants advise their clients to make sure they understand their business processes before they implement an ERP software package, or any software, for that matter. The first ERP packages came out in the early 1990s. These were purchased by midsize manufacturers because the software was off-the shelf and affordable. Large companies typically wrote their own manufacturing software. However, with the advent of ERP, the large companies have lead the way with packages, such as SAP, J. D. Edwards and Oracle. However, numerous other numerous vendors have emerged to service small and midsize manufacturers (more than 20 of these are listed in Exhibit "A").
Generally, ERP software falls into three categories: Large systems, for companies willing to pay for and adopt advanced technology; midrange systems, for companies more concerned about functionality; and small systems, for companies that mainly look for as much functionality as possible at a reasonable price. A multinational giant will look at SAP's R/3 client/server-based ERP, a midrange manufacturer might choose Symix Solution from Symix Systems Inc., and a small company might choose Genesis, an off-the-shelf solution that's easy to learn, implement and customize.
Large-, medium- and small-size manufacturers share basic business processes: order management, financials (general ledger, accounts payable and receivable), human resources (payroll, personnel, and time and attendance), materials management and manufacturing information (planning and scheduling, lot tracking and reporting, and quality management). To distinguish themselves from one another, ERP suppliers add an extensive list of functionality including supply-chain management, warehouse management and distribution logistics. Previously these functions had little or no integration with manufacturing and planning. Furthermore, it is common for manufactures to pick and choose the sourcing for the shared business processes. Some business functions are outsourced to value-added providers (for example payroll or general ledger) while others may come from different software providers (for example, PDM, personnel or quality control).
In addition to all these considerations, there is the issue the Year 2000 conversion. Initially this was viewed as a technical issue. However, the prospect of a massive conversion that impacts most of its software has become the catalyst for many manufactures to purchase ERP systems that eliminate the date-format problem. Furthermore, the analysis of Year 2000 issues has made it increasingly more obvious that aging mainframe and midrange systems can be superseded by more-flexible, client-server (frequently NT-based), feature-rich ERP systems. Finally, ERP growth is providing opportunities for solutions that address specific applications, such as transportation logistics, warehouse management, planning and scheduling, configuration and more.
Shared Business Functions
Regardless of the size of the enterprise, manufacturers typically share a large number of common business functions. As a result most full function ERP applications offer some combination of order management, materials management, manufacturing planning, manufacturing information, financials and human resources. With more than 30 ERP supplies, ERP marketers have many creative ways to package these business functions. Frequently, ERP systems include utilities for software maintenance, installation, report writing and inquiry that ease installation and reduce post-implementation support. When analyzing ERP systems, manufacturers need to look for the following:
Identifying the parts used in quote preparation, cost roll-up for labor and burden and cost roll-up from the bill of material. Quotations.
Quote preparation, including markups for labor, material and burden, quote follow-up reporting and quote to order conversion. Sales Orders.
Order entry, credit tracking, discount and pricing, delivery instructions, acknowledgement and packing slips, multi-state sales tax and integration with financials (GL, AR, etc.). Invoicing.
Automated invoice, manual invoice, invoice inquiry, discount and commission calculation, credit memos and invoice history. Sales Analysis.
Standard reports by customer, representatives, backlog, bookings (by customer, salesperson, territory and part number) and high-level language for custom reports. Accounts Receivables.
Aging report, flexible cash application, customer statements and service charges.
Multiple location capability, lot/serial number tracking, planned and unplanned issues, transaction reporting and transaction history. Physical Inventory.
Data capture, multiple cutoffs, automatic adjustments, bar coded tag and count sheets, tag accounting, and reconciliation accounting. Cycle Count.
Automatic selection of part numbers for counting and automatic adjustments. Costing.
Multiple costing methods (standard, average and last), and multiple cost components (labor and burden (fixed, variable and material).
Single and multi-level bills, product structures, configuration bills, BOM copies and where used reporting. Engineering Change Order.
Engineering change requests, engineering change orders effective dates and change control. Master Schedule.
Finished goods schedules, spare parts with independent and dependent demand, and driven by sales orders, sales forecast and manual input. Material Requirements Planning.
Net change or regenerative processing, flexible planning horizon, shop calendar, bin item planning and planned purchase orders. Capacity Planning.
Work center where used, infinite and finite work center loading, shop calendar and load reporting. Routing.
Standard operation maintenance, labor rates by work center, fixed and variable burden rates, parts routing maintenance, ISO-9000 instructions, routing copies, move and queue by routing step, and tooling and drawing references by step.
Data for planned and released work orders, recommends release of planned orders, supports finite and infinite loading, manual loading, flexible re-routing and work order modification. Work Order.
Maintains planned orders, manual work orders, rework orders, change order quantity, scheduled start/complete dates, routing steps, and produces shortage and scrap reports. Purchase Order.
Multiple deliveries per PO, purchase to inventory, work order or GL account number, drop shipments, aging of committed dollars, past due information, purchase order history and manual PO close. Tracking and Reporting.
Lot number and serial number tracking. Quality Management.
Receiving inspection, discrepant material control, material review board process and rework subsystem.
Built-in balancing control, flexible account structure, multiple open accounting periods, consolidation, financial statements, automatic closing, budgets, history, journal vouchers, audit trail, account analysis and scalable. Accounts Payable.
Invoice to PO to receiving report match, AP aging reporting, PO variance posting, partial shipments, check reconciliation, 1099 forms and automatic discount.
Supports all states, direct deposit, complex pay periods, flexible tax tables, multiple check process processing accounts, multiple open pay periods, manual checks and government reporting. Time and Attendance.
Support for automatic, manual and piece rate time card processing, and supports time and attendance from time clock or production floor data systems. Personnel.
Design organizational models, perform position management by defining and recording required skills, competencies, experience, and qualifications, career management functions, forecast requirements, manage the recruitment cycle, track salary history, and administer benefits and compensation.
Other business functions could include: contract management, distribution, warehousing, credit management, product warranty, repair management and history, fixed assets, import/export, product costing and job costing.
Solution Specific Extensions
Asset Care. Asset care, typically called computerized maintenance management systems (CMMS), automate the documentation and scheduling of factory equipment repairs. The value of manufacturing assets is ability to produce goods. The less downtime, the more resources are available for making products, and the greater its competitive advantage. The term asset care therefore acknowledges that optimum equipment and plant uptime is a competitive advantage and contributes to return on investment and bottom-line savings. It is a manufacturing planning and scheduling tool that optimizes assets by allowing production to be scheduled elsewhere when maintenance is being performed. CMMS solutions range from standalone PC applications to enterprisewide applications built on client/server technology. Maintenance management functionality frequently overlaps with ERP. Many ERP systems have MRO, maintenance repair and overhaul modules. Some feature repair forecasting modules that allow users to effectively develop material requirements by assigning failure probability factors to individual pieces or batches of equipment.
Manufacturing Execution Systems. Manufacturing execution systems (MES) convert the flow of data from the factory floor into process control management. They emphasize planning, execution and control. MES performs scheduling, quality management, document control, resource allocation, data acquisition, labor management, operations analysis and other functions. Most MES packages are always industry specific, most frequently specializing in the pharmaceutical, semiconductor, textile or disk drive manufacturing industries. Although standalone today, the trend is for MES to be tied to ERP systems. Furthermore, the Internet makes MES part of the total electronic commerce chain. MES applications benefit from an integrated client/server platform for the Internet and Intranets.
Simulation. Simulation is the ability to model a factory, a design process, a control system or the operation of a business organization. With the aid of personal computer-based simulation tools, manufacturers can model real-time planning and scheduling, dynamic rescheduling of job shops, and evaluate distribution centers, material handling and robotics. Applications include finite capacity planning, throughput improvement, WIP management, cycle time reduction, and manpower requirements planning. Furthermore, simulating factory layouts and material flows are easily extended to production planning and scheduling. Organizations can use simulation programs to design factory-floor controls and business process modeling. Using factory-floor simulation technology, business process modeling re-engineers business process workflow and simulation techniques. Finally, engineers use simulation for the acceptance testing of new products and systems, enabling users to interact in real time, to design, test and evaluate products and processes to achieve the most cost-effective system.
Product Data Management. Product Data Management (PDM) reduces the time spent on managing Engineering Change Orders (ECO) and routing changes (searching, collecting, collating, copying and routing documents). It gets changes to the factory floor as quickly as possible. Product Data Management (PDM) is typically limited to document management. PDM and MRP share common data, such as bills of materials, routings and engineering specifications, that reduces paperwork handling, improves quality and reduces implementation time. But few manufacturers have gotten beyond the central repository of electronic documents. Yet, the potential workflow and status reporting capabilities of PDM provides manufacturers with real-time multimedia capabilities. Implementation time is the biggest obstacle to PDM. Most manufacturers take 18 to 36 month to implementation PDM, although some vendors are moving toward more rapid implementation cycles (as little as a few weeks). Finally, PDM implementation continues to be slow because few suppliers offer document management that integrates well with ERP and product management.
Statistical Quality Control. Statistical process control (SPC) is easier to implement when QC software algorithms are used. This has created a market for statistical quality control (SQC). QC software systems measure the performance of manufacturing processes and indicate where they are out of tolerance. ISO 9000 establishes criteria for measuring and documenting manufacturing processes. It defines the structure and requirements of a quality system. With ISO 9000, manufacturers are forced to think in terms of total quality systems, or quality execution systems. As a result, quality control is integral to enterprise resource planning systems and ERP software vendors are enhancing QC functionality, unfortunately, no ERP offers SQCs.
Warehouse Management System. Just-In-Time (JIT) manufacturing increases warehouse activity, frequently doubling inventory turns and therefore outstripping the order, ship, billing and fulfillment processes. As a result, warehouses and distribution centers stock more items in smaller quantities, and more frequently ship in smaller quantities, less than pallet load or truckload quantities. Organizations need to make a distinction between warehouse management systems and managed warehouse systems. The former focuses on warehouse management as an activity, often coming from an engineering perspective. Automating warehouse activities is the primary application. A true managed warehouse, on the other hand, is tailored to the individual company.
Supply Chain Management. As manufacturers moving toward a customer-service model, planning and scheduling is being reevaluated. The three dimensions to this planning and scheduling, strategic, tactical and real-time, must be integrated for effective planning and subsequent execution. The supply chain is not a single chain, it is a series of chains: demand planning and deployment, order and inventory management, warehouse management, transportation management and electronic commerce. Unfortunately, no single software package satisfies all of these processes. It is the links between these software packages that dictate the success of the supply-chain management applications.
Personal Computer-Based Control. Personal computers, LAN's and graphical user interfaces have changed manufacturing control processes. Although it is common to mix UNIX, IBM AS/400 and Windows NT, the direction is client/server processing and Windows NT. Selecting NT as the standard allows software providers to exploit standard hardware interfaces such as Microsoft's OLE and DCOM technologies to pass data between the plant floor systems throughout the enterprise. Such standards act as a common API, allowing any compliant device or software application to communicate with any other compliant component. The standard technology promotes flexibility. It facilitates easier data exchange between devices, control systems and supervisory applications. For the first time, manufacturers are moving toward a link between two major areas: the back office or financials with the mission-critical, real-time factory applications into one flexible enterprisewide solution.
In evaluating ERP systems and the solution specific extensions, the successful organization addresses four aspects: features, technology, cost and vendor durability. It is obvious from the wealth of alternatives presented here that ERP features are extensive to the point of being overwhelming the prospective user. To successfully sift through these features companies need to understand their manufacturing strategy. Are they moving toward electronic commerce, JIT, demand scheduling, build to order, outsourcing or all of the above. They need to develop a requirements checklist and use a structured approach to selection, emphasizing the need for flexibility. In a highly competitive world market, the only guarantees are that strategies change and manufacturers do not want to re-install an ERP system to satisfy that direction change.
From a technology perspective, the direction of the technology is moving toward Windows NT and purchased software. Large systems continue to be based on UNIX platforms, but the scarcity of UNIX technicians and the complexity of the software are causing the small to mid-range organization to move to NT. Further, software providers find NT reduces their development, support and hardware cost and lower cost makes the sale easier. As a result there is a definite trend to PC-based technology
Cost is another whole issue. Successful companies do not select ERP systems because they are the least expensive. Early on we identified that ERP software falls into three categories: small midrange and small. Companies need to pick where they fall and focus on software in that category. But do not be afraid to move up to the next higher category if there are features that better conform with the strategy of the organization or will speed the implementation. In addition, do not be afraid to negotiate. The ERP market is a competitive market and software providers will negotiate.
Finally, successful organizations look for established, quality suppliers that support the shared business functions but also demonstrate the ability to perform the following:
- Offer flexible systems solutions that can take advantage of existing technology where appropriate and expand as business needs change.
- Understand technology's role in supporting business processes and addressing business problems. Because many bar code systems take the place of paper-based systems, partners who understand existing business processes are in the best position to recommend automated alternatives.
- Look beyond the technology itself which accounts for only a fraction of a company's total implementation costs, and offer value-added services such as installation, transition support, post-sales technical support, and training.
In conclusion, the word flexible has been used eight times in this article. The frequency is indicative of the significance in the selection process. If it had been used twice as much it would not be sufficient emphasize the significance.
About the Author:
Howard W. Miller has held the CIO position for more than 25 years. He specializes in IT transition management and is responsible for profit improvements in excess of $250 million. He is the author of two books and more than 90 articles.