Manufacturers Join the Technology Revolution—Reluctantly

• 05/22/2000

Recently the term SCM has been tossed around as if supply chain management were a fresh phenomenon, an idea that until now was totally new to the thinking of most manufacturing companies. Of course, this is the not the case—manufacturing and supply chain have always been inseparable. But today, effective SCM has increasingly become a symbol of success and a primary focus for manufacturers that want to compete in an e-economy.

In examining the unique IT challenges facing this huge and diverse industry sector, MIDRANGE Systems set out to learn why today’s concept of supply chain management is leaving some manufacturing shops in danger of falling behind in their industry. For many industry experts, the answer is simple: If it ain’t broke, don’t try to improve it.

Manufacturer’s Dilemma: The New Supply Chain Forces out the Old System
While the goal of building and maintaining business partner relationships remains basically constant, what has changed about SCM are the means, the speed and the scope of how business is conducted across a supply chain, says Kevin Prouty, senior research analyst, discrete industries, for AMR Research in Boston. Harnessing the potential of this concept can be achieved almost exclusively through the implementation of new technology.

Very often, however, implementing a supply chain management solution also means tackling the big monster, ERP. And here, says Kelley Jones, president of Real Resolution consulting firm (Austin, Texas), is where many legacy manufacturers hesitate to climb on the bandwagon.

“Most manufacturers in the real world...are so many generations behind in the applications the AS/400 offers, that discussing the new technologies coming over the horizon is ludicrous,” says Jones, whose firm specializes in consulting for manufacturers running AS/400 platforms. “Most are still running RPG 2 or 3; few are on SQL.”

Prouty believes manufacturers’ resistance to radically new IT tools is not simply due to an overly conservative mind-set, but to a reluctance to abandon customized applications that may have taken years to develop and fine-tune. In an AMR report entitled, “Between ERP and a Hard Place: The Plant Manager,” published earlier this year, Prouty argues that some executives and plant managers are willing to forgo the potential benefit of a more advanced system in exchange for a somewhat outdated system that, if nothing else, consistently gets their products off the line.

“(One) plant manager said it was painful to watch an ERP system with almost no direct plant functionality replace a legacy production system that took years to develop into a useful system,” Prouty writes. “Plants have had to scramble to fill gaps in functionality that resulted when new ERP systems replaced legacy systems.”

When Milwaukee-based Velvac Inc. first began to consider abandoning its homegrown applications for an integrated ERP-like package, MIS director Robert Otto considered moving to an entirely different platform, although it was something he sought to avoid.

“I guess it was in the back of my mind, but I felt we had a signficant investment in the 400. All our people are AS/400-based,” Otto says. “It’s a box I’ve grown to love, so I preferred to find a system that would fit our business that would run on the platform. I thought about it, though.”

Velvac, a 64-year-old manufacturer of components for heavy-duty vehicles, traditionally used applications developed in-house, but in 1994 decided it needed to modernize its technology for better financial control and functionality. It first chose to strengthen its SCM and integrate it with manufacturing operations with System 21 from JBA (Studley, England). The primary goals for the new IT investment, Otto says, were more technically sound financials, MRP functions and more manufacturing and costing features, as well as forecasting and planning.

Then, beginning in 1997, Velvac looked to overhaul its HR and payroll departments as well, which until that point had been based on manual time cards. Velvac adopted Kronos Inc.’s (Chelmsford, Mass.) Timekeeper products, to keep better tabs on employee hours and productivity and shop floor operations.

Otto decided on these particular products in large part because they allowed him to continue running back-office applications on the AS/400. However, in its search for an integrated supply-chain solution, Velvac chose JBA, Otto says, primarily based on the strength of the actual manufacturing functions included in the product.

“We felt we were pretty well situated. We had a decent customer service/order entry set-up even with our homegrown stuff,” he says. “So that’s not really what we were looking to acquire. We wanted all the fun bells and whistles that come along with an integrated ERP kind of package.”

The Kronos solution allowed not only electronic employee time card and check processing, but it also offered shop floor and data gathering modules, which Otto came to see as a great advantage in coordinating production planning.

“So we looked at this plan and we thought, if we’re going to have all these time clocks on the floor, can’t we get some data gathering too?” he asks. “…Before that, we were taking all the work orders, somebody had to enter it by hand, and then by the time you find a mistake, it’s three months after the problem started, and by then any data you get is meaningless. So our standards were quite a way off from our actual production time.”

Otto says Velvac’s changeover from home-grown applications to integrated solutions packages covering everything from communication with suppliers to production scheduling was not entirely painless, and involved some significant trial and error. But the results in productivity have compensated for a difficult transition.

“Our production planning use to be a dartboard kind of approach,” Otto says. “Now, after 10 years of looking around for a solution, we’ve finally got some numbers we can believe.”

According to Prouty, Velvac’s implementation process was not unusual. For many established manufacturers, it is difficult to plunge ahead with new IT initiatives that may temporarily disrupt production. However, whether the new system is intended to run on an AS/400 or some other legacy platform is largely irrelevant. Prouty says the problem of adjusting from a legacy system to ERP is primarily one of software, not hardware.

Before now, he says, there has not been sufficient communication between CIOs and manufacturing engineers when a major technology infrastructure change is put into place. And while the benefits of ERP and SCM are clear on the business end, shop floor managers often aren’t educated on how to use the new systems for their purposes. However, he says, this is beginning to change.

“These ERP packages are so big it’s hard to find the tools in there and the people who can find them,” he explains. “…What I tell companies is, ‘Don’t just stop the communication when the server’s turned off.’ In companies that had a difficult adjustment, no one went in and looked at the customized functions and features the legacy systems were providing before they went in and turned it off.”

Power Shifts to the Virtual Customer
Velvac is largely an exception, say industry experts, when it comes to the confidence they demonstrate in the area of customer service. Much of the reason for growing concern over how best to gather and utilize customer input is rooted in a fundamental change in perception about who most influences the decision making in manufacturing businesses. Historically, brand dominance and product reputation meant the most successful manufacturers could dictate how retailers would sell their products, as long as their quality remained high. Now, an explosion of competition means high quality alone is not enough to attract today’s more discerning consumers. According to Deloitte & Touche’s report “The 1998 Vision in Manufacturing—Global Report: Executive Highlights,”

“The quality era is now evolving into what we call the ‘Era of the Virtual Customer.’ Customers around the globe are deciding what, when, where and how they will purchase goods and services. Customers have virtual access through cyberspace to more products and services than ever before and they are using smart systems to help them make more informed, personalized choices. … Expectations will not only continue to rise, but they will become increasingly unpredictable.”

In the new economy, customer service equals supply chain control.
“If you’re a gigantic, gigantic manufacturer you can own vendors,” says Jones of Real Resolution. For most companies, however, that is simply not a reality, which makes effective relationships with partners critical to building a successful business. Ideally, supply chain management would mean a solid Web front end that allows consumers to configure a customized product within the manufacturer’s guidelines. When a customer places an order, it is communicated to the supplier, the manufacturer and distributor, to determine material gathering, production and shipping time, while all the customer sees is the date their product is to be delivered, according to their specifications.

Of course, there are roadblocks to achieving the ideal.
“The question is, can you get the Web presence solid enough and understandable enough and friendly enough for customers to use it in that way,” he adds. “If you’ve got that and you can move from an ERP configuration to the engineering process … that saves an enormous amount of money. You put it all on the customer—you don’t even know what happened until you get an order with perfectly configurable specifications. When I get done ordering a plane ticket over the Web, all the airlines see is money and one of their seats filled. If you can do all that, you end up with an extremely competitive product because it’s exactly what your customer wants, and the only person who wasted their time was the customer. Good deal.”

Rochester: Charging Ahead? Or Stuck in a Rut?
For those running enterprise systems on AS/400s, one of two opinions has probably entered your consciousness as you consider ways to get your systems in shape for this kind of competition in an e-crazed business world. Some users assert that recent efforts by IBM to adapt AS/400 to new technology—with better Internet enablement, Domino support, and increasingly, Java capability—are enough to justify continued belief in the stalwart server as a viable platform for the future. At the same time, though, AS/400 users are skeptical about whether their beloved platform can adapt sufficiently and rapidly enough to the expanding and changing needs of an electronic enterprise.

Over the past year, IBM’s AS/400 division has made a push to bring SCM vendors on board the AS/400 sphere. In March, the initiative scored its first major victory, with market-leading ISVs i2 Technologies, SynQuest, Logility and QAD, agreeing to port their applications to the AS/400 platform. While release of the Portable Application Solutions Environment (PASE) in late 1999 helped to make this a reality, two of the vendors—SynQuest and QAD—actually chose to port their applications using native ILE.

Bill Meinhardt, AS/400 global ERP and SCM segment executive at IBM, says the recent vendor recruiting efforts are designed to improve the platform’s legacy image problem and boost customer confidence. “Basically, it’s reinforcement in (customers’) minds that the platform is strategically viable.”

Like many AS/400 users, Robert Otto of Velvac is of two minds when it comes to the future of AS/400 in enterprise e-business. Otto says he prefers the platform for all of his back-office functions, but as his company looks to establish a stronger Web presence, he’s been forced to consider whether the AS/400 will be the most viable choice.

“We’re still hedging our bets on the e-commerce thing on the AS/400. We’re looking into setting up this Web server, and I’m not yet sold on the idea of hosting it on the 400,” Otto says. “The reliability is there, and I think some of the tools are there now, but until I become more familiar with some of them, the jury’s still out. I’m not sure if IBM is really putting these things out there because they need them and not really developing a product that is, so to speak, ‘best of breed.’”

Kelley Jones says there are lingering concerns about the AS/400’s viability for e-commerce, with regard to speed, for instance as compared with other platforms. But he is not willing to write off the platform as being ill-suited for new business practices. Even RPG, he believes, continues to play a role.

“RPG, like all languages, is on its way out, but how many decades is it going to take? Who can say? Even ILE RPG is pretty long in the tooth,” Jones says. “It isn’t very competitive when you look at it in a development environment, but there are still some things RPG can do when you get below just the level of viewing the data that still makes it justifiable—you can do some very complex logic with RPG.”

Jones says that while the advantages of RPG are likely to diminish or be phased out over time, on the whole, the platform will continue to hold a strong position in industries that look for a reliable, familiar server. If IBM consistently shows a commitment to moving the AS/400 forward with advanced technology, the platform will probably still be considered the best bet for industry.

“The legacy manufacturer who had a System 38 and they moved to an AS/400, today they have an HTTP server, an e-mail server, all these things. And all of the investment they had in RPG is still there,” says Jones, whose company Web site runs on an AS/400 server. “The fact that it can do all these things in one box, the advantage that gives is great. … Those are the things that really surprised me when they moved from a CISC to a RISC processor.

“Manufacturers that have real manufacturing divisions that they have to control, they continue to require a system that is stable. The database that a manufacturer runs off of is extraordinarily complex—it contains everything they do and everything they have done,” he continues. “And when you look at these other platforms that are so unreliable, compared to the 400, the thought of it being down has sort of leaked out of people’s consciousness. The electricity’s on, the AS/400’s on.”

However, Jones says, nothing is for sure, especially if it is taken for granted. The biggest weaknesses in the platform, he believes, are the difficulty in configuring Internet function, the anonymous FTP server, and other features that can not be property implemented out-of-the-box. There is of room for improvement in how and to what extent IBM is willing to devote time, money and talent.

“It is difficult to get qualified professionals, because IBM continues to fail to put AS/400s into the technology colleges and people to teach them,” Jones says. “I still feel like there is a lack of marketing support—they don’t see it as the competition that it is for business dollars.”

Taking the Plunge—One Step at a Time
In contrast to what some other analysts say, Deloitte & Touche’s “1998 Vision in Manufacturing” report offers some encouragement to IT professionals who think management will never be willing to move forward with the kind of large-scale IT initiative this would require. Far from a stubborn resistance to change, Deloitte’s analysts find industrial shops recognizing, adapting to and embracing changes in their industry geared toward better incorporating customer input in determining how business is done.

“The 1998 study finds that rather than being surprised by changes in the market, leading manufacturers anticipate change and possess the flexibility to quickly adjust their strategies.”

Given the difficult adjustment that can accompany an ERP implementation, AMR’s Prouty offers some advice to companies looking to move beyond their familiar legacy applications: Consider the implications across the enterprise, in production and planning as well as in business, before adopting a new system. “ERP, in the way it’s implemented sometimes does outweigh the benefits on the business side.”

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