ERP System Constraints in the Process Industry

For lack of an available solution designed for their needs, some process manufacturers have attempted to implement an ERP system for discrete manufacturing. As there are several fundamental differences between the operations and practices of process and discrete manufacturing, opting for such a stop-gap measure is not always effective. Process manufacturers have no doubt noted the constraints that are placed on their operations as a result of using a system that was not designed for their needs.

The nature of the process manufacturing business is such that it is difficult to manage inventories and profits. Process manufacturers experience large quantities of finished product in transit and of raw inventory. The products often have low yields with substantial scrap (fine chemicals, pharmaceuticals, or plastics).

Business dynamics is putting demands on ERP systems to help with

* maintaining a lead over competition
* simplifying the product lines
* responding to shorter product life cycles
* providing mass customizations (car options, computer system accessories, etc.)
* complying with regulations compliances

In an attempt to meet these demands, many manufacturers have looked at ways to improve supply chain optimization by re-examining manufacturing processes, relocating closer to markets, and looking at cheaper energy, transportation, and labor. The businesses' needs are such that an ERP system must be powerful enough and diverse enough in functionality to do more than simple process manufacturing.

Specific Requirements of an ERP System for the Process Industry

Here's an overview of how some of the functionalities of an ERP system for process industries help manufacturers better perform the activities listed above.

1. Conversion process capability
In the process industry, the bill of materials (BOM) used in discrete manufacturing is replaced by the master product formula, or simply the formula. The formula requires a conversion table for measures, such as weights from grams to pounds, and must have the ability to record liquid units of measure, in both metric and US-standard. The formula must also record specific information related to product characteristics that can affect manufacturing processes. For example, in the blending process, the system can record product information such as percentage calculations of raw materials, and the effective specific gravity, potency, density, and number of reactives of those raw materials.

2. Interface to other modules
The master formula can also be linked to submodules like quality assurance (QA), procurement, inventory, and accounts payable (A/P) for government compliance and safety issues. Also, the manufacturer must be able to trace products in order to manage dating of inventory lot control and the amount of inventory available at the distribution level. Furthermore, there are government and regulatory concerns that deal with the nature of the materials, as there may be a controlled substance with specific shipping, handling, and storage regulations. Or, the manufacturing process may emit hazardous by-products. Or, there may be logistical concerns within the manufacturing process itself.
3. QA module and flexible formula adjustments
A process industry ERP system must also have a formulation-balancing operation based on the premise that the QA group tests random samplings of production batches. The system needs the ability to adjust, through a program logic control (PLC) interface, any variations in materials used and external factors such as humidity, temperature, cool-down speeds, etc. Also, the material flow and consumption is recorded back into the ERP system. The system's routing functionalities reflect those capabilities as a requirement or not, depending on the user's specifications.

4. Reworking all co-products and scrap materials
As a result of manufacturing processes, residual materials (by-products) may be created. These by-products can be collected as waste and reused. This is the case within the plastics industry, for which the collection and re-entry of materials into process creates very specific criteria. In the process industry, due to a continuous production flow operation, the production process generates a theoretical production yield, which may be calculated by the downstream packaging operation as units for case-pack quantities. The residual amount generated from the production process may vary within a percentage point, but in the downstream conversion process, the residual quantities may be aligned to complete full, case-size box quantities. By using flexible formulas, process ERP systems can demonstrate how the residual materials can be reworked from waste back into materials used in production.

5. Supply chain management (SCM)
Collaborative forecasting and planning are essential features of the process industry ERP system, especially for the automotive and consumer products industries. Some the most important functionalities include

* visibility over inventory across the global supply chain
* enterprise-wide planning in the areas of sales and marketing, procurement, and production
* the ability to integrate planning for what-if scenarios
* the ability to benchmark quality and vendor performance issues
* detailed reporting that highlights areas where parameters may be out of scope
* real-time available-to-promise (ATP) information for customer service

6. Process industry costing
The financial system for the process industry must also be able to provide for multiple-level formulas on the same production work order, and for outside processing at subcontract facilities. Given the nature of process industry products, most plants must operate on a continuous basis, which drives maintenance costs up. As a result, maintenance costs usually comprise 30 percent of a process industry plant's operating budget. Thus, an ERP system must integrate with some type of best-of-breed system to meet the requirements of the operation, and with some form of asset management system, which takes into account predictive and preventative maintenance.

Process Industry Manufacturing Challenges

Manufacturers in the process industry are at a difficult crossroads. Although the industry is not facing any imminent substantial decrease in its overall profit margins, there is concern in the industry according to a recent study by the Canadian Manufacturers and Exporters Association, which cites the following issues:

* increased global competition
* foreign currency fluctuation
* changing patterns of customer demand
* escalating business costs
* problems in implementing new technologies
* competitive business pressures
* shortage of skilled workers

To address these issues, process industry manufacturers and distributors must manage the following key activities, and ensure they use an enterprise system that supports these activities:

* Planning production for both materials and capacity—to develop a production plan, manufacturers must ensure that there are sufficient available resources and materials, production capacity, and labor.
* Inventory tracking and controlling work-in-process (WIP)—monitoring material consumption and tracking work order progress is the basis of manufacturers' being able to meet sales order, demand, and delivery dates.
* Replenishment and demand planning—the ability to review variances between forecasted and actual sales is the basis of managing vendor lead times and raw material replenishment.
* Managing the supply chain for order fulfillment—reviewing the global supply chain provides manufacturers with the ability to coordinate logistics and operational activity to meet customer order fulfillment expectations.

An Analyst's View of Process Industry SMB Challenges

The process industry provides many of the products we use in our daily lives for food, shelter, and health. Such products are created as materials and transformed through the use of energy resources and chemical products. In addition, the process industry manufactures products that are essential to advanced industries such as computing, biotechnology, telecommunications, automotive, scientific, and space exploration.

These industries are facing major pressures not only to meet the present needs of our global economy, but also to do so without compromising future generations by ensuring that processes

* meet environmental guidelines
* optimize energy resources efficiently
* result in products that are safer, more reliable, and more functional
* provide features that meet both industry and consumers needs

This article focuses on how enterprise resource planning (ERP) vendors are helping the process industry meet both the needs of today and deliver on anticipated functional requirements that will help meet the needs of tomorrow.

TurtleSpice ERP! (Week 5)

Selecting an ERP system is like sitting down to a 10-course meal in a restaurant you can’t afford with waiters you don’t trust who won’t give you anything but a bent fork and a sippy cup anyway. Your chair has eight kinds of design flaws and the menu wants to maximize your forward-looking leverage on key performance indicators in an increasingly fast-paced intestinal climate.

Except that you can’t even get through the damn door of the damn restaurant because your damn VP is standing in the damn way.

Mike decides to push ahead with a trimmed-down BPM process [see overview of project road map], but first he needs to go on the record with his reasoning.

VP Wade Sharkey is not pleased. He’s worse than not pleased. He’s furious.

He’s not used to being furious, and he doesn’t like it.

Wade Sharkey launched his entrepreneurial career at age 14, with a booming trade in very-recently-previously-owned cars, discounted by virtue of an inexplicable lack of license plates.

And he hasn’t gotten all the way from there to here by allowing his emotions to cloud his judgment.

He also hasn’t gotten from there to here by letting subordinates do as they please. Well, except for one certain subordinate in particular. Under certain circumstances. He checks his agenda.

The Blurry Line between ERP and PLM

The purpose of integrating ERP and PLM is to ensure that product definition information (which is mainly generated by the product design and development department) is accessible instantly by the following processes (e.g., production and services). Also, data from non-design phases can be a valuable input for the decision-making process during the design and development stages. ERP and PLM vendors and implementers have developed technologies to integrate the two systems and to integrate CAD design information with enterprise software applications as well.

In the past, the boundary between the ERP camp and the PLM camp was quite clear. However, after seeing the market potential of PLM solutions, almost all major ERP players have entered into the PLM market. This doesn't necessarily mean that PLM solutions provided by ERP vendors integrate with ERP systems better than those provided by pure PLM vendors (sometimes it may take very long for an acquired PLM solution to be well integrated with its new owner's ERP system), but it should be somewhat easier to coordinate the efforts of integrating two systems together.

Both ERP and PLM vendors are trying to extend their respective solutions' capabilities to the other side. This effort makes the line between ERP and PLM blurrier—ERP solutions are now more capable of managing product data and PLM vendors are adding more transactional functionality in their offerings.

On one side, ERP solutions are increasing their inward capability of managing product data. This phenomenon can be found more significantly in ERP solutions specifically for the ETO industry. To explain how ETO ERP is advancing in providing PLM functionality, I selected two common sub-modules: product data management and product/item configurator. Both submodules are available in ETO ERP and Discrete ERP (which has more generic coverage on manufacturing industries) categories within the Technology Evaluation Centers' (TEC's) knowledge bases (KBs). The comparison of average rating scores (based on TEC's software selection methodology) of the two types of ERP on the selected submodules clearly shows that ETO ERP provides better PLM capability than Discrete ERP (see figure 1). These average scores are quite representative since they are based on 111 Discrete ERP and 35 ETO ERP solutions recorded in TEC's knowledge base. Although PLM-like functionality within an ETO ERP solution can't match what PLM can do, this extension may reflect that ETO manufacturers are eager to enhance the connectivity between product data and operation data.

Figure 1. Rating scores of two submodules within ETO ERP and Discrete ERP

On the other side, PLM vendors are now working on expanding to the ERP-like functionality. A good example is the increasing availability of sourcing solutions from non-ERP PLM vendors. No matter how a PLM vendor positions its products (i.e., sourcing as a part of the PLM package or as a parallel offering alongside PLM), it makes perfect sense to increase the proximity between product definition information and sourcing. For ETO manufacturers, delivering high-quality products on time requires efficient sourcing, decision-making, and operations which rely on instant access to accurate product definition information and streamlined collaboration around it.

The Blurry Line between ERP and PLM in Engineer-to-order (ETO) Manufacturing

It is important for all manufacturers that have implemented ERP and PLM systems to build connections between the two software applications. For engineer-to-order (ETO) manufacturers (who design and manufacture products to the specific needs of the customer), the connection between ERP and PLM is even more important due to the specificity of the ETO sector.

Facilitating Engineering Changes

For ETO manufacturers, the probability of product and process changes is high. During the time between receiving customer requirements and delivering final products, changes happen (whether the customer modifies their requirements; design modifications are requested by the shop floor; or issues on the supplier's side result in using alternative parts). Quite often, a change initiated in one system (either ERP or PLM) will have a consequence in the other. For ETO manufacturers, the capability of efficiently capturing change requests and implementing change actions throughout the entire value chain (customer, manufacturer, and supplier) in a synchronized manner is one of the key success factors.

Reducing Rework and Scrap

Every manufacturer wants to reduce rework and scrap but ETO manufacturers dislike these costly activities more than the average manufacturer. In the ETO sector, the quantity of each product is usually small—unlike mass production manufacturing. This manufacturing process allows for a certain percentage of rework and scrap and costs are allocated to finished products without significant increase on unit price. For ETO companies to avoid catastrophic wastes in manufacturing processes, they have to make sure that the design department knows what can be made on the shop floor and that the production side always works on the up-to-date design specifications that reflect correct customer requirements.

Meeting Delivery Time
One of the major responsibilities that product/project managers at ETO manufacturers have is to ensure that the product can be delivered on time. Although one delivery delay may result in only one unhappy customer, for some ETO manufacturers, this customer may mean their entire business. The need to oversee both the development and production processes for every product poses a challenge for managers in the ETO sector. . The collaboration between product development and production is even more challenging since the two processes are mainly handled by two different information systems—PLM and ERP, respectively. Unless the two systems can talk to each other consistently, the collaboration won't be effective and efficient.

Providing High-quality After-sales Services

For many ETO manufacturers, after-sales services are not only obligations attached to the product but also an important revenue source. High-quality after-sales services rely on accurate product definition information (usually maintained in PLM systems), traceable service activities (which more likely reside in transactional systems such as ERP), and a convenient reference between the two sides. The entire perception of after-sales services is based on the experience dealing with the product provider as a single entity regardless if customers have access to ETO manufacturers' systems or have to interact using traditional communication means. That being said, ERP and PLM systems have to work as if they are a single system. For more discussion on the integration between PLM and ERP-like systems for service purposes, please read the blog post What Keeps EAM/CMMS Away From PLM.

Innotas Features and Benefits

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Three core modules that fall under the portfolio management umbrella.
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Project Portfolio Management permits organizations to select and indicate the priority of various project portfolios, to align themselves with strategic business goals.
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Application Portfolio Management helps firms determine what the costs are according to budget and resource allocation in order to support critical processes and work flows and which applications not supported further beyond strategic objectives.
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Project Portfolio Management and Application Portfolio Management include flexible and structured hierarchy-based portfolios that permit users to integrate their business process change scenarios according to customer-driven KPI metrics or relationships.
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Resource Management gives a global, macro, and micro view into overall resource capacity for staffing projects and applications, both at the project development stage and while the project is in progress.

For more information on this vendor, please visit www.innotas.com.

3. Meridian Systems

Meridian, based in Folsom, California (US), provides software solutions for construction projects and to facilitate physical infrastructure improvements. Meridian has been ranked as the market leader for project management software within the construction industry by Constructech magazine, which also ranked the vendor's solutions as top products in March 2008.

Meridian Product Features and Benefits

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Provide both on-premise solutions and on-demand solutions.
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The Project Portfolio Management module is the focal point of this vendor's service offering, and it is designed to manage project scope, schedules, budgets, contracts, and resources.
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The Facility Management module is designed to help the user manage all physical assets and service requests.
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Business Intelligence is an embedded part of the software, designed to permit senior management visibility into the entire portfolio of projects and view their status based on KPIs, dashboards, and drill-up and drill-down reporting.
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Business Process Management offers the ability to create and automate best business practices and processes across the enterprise.

A Snapshot of Some PPM Solution Providers in the SaaS Space

1. Genius Inside

Established in 1997 and headquartered in Lausanne, Switzerland, Genius Inside creates and sells enterprise project management solutions, known as Genius Project.

With over 70,000 North American users and close to 400 installs worldwide, Genius Inside also has a vast network of resellers, and the company is a certified IBM Partner. The software is designed for the Lotus Domino Collaboration server, and has won numerous awards, such as the 2008 Lotus award for Best Mid-Market Solution. The product is a comprehensive set of integrated applications across ten modules.

Genius Project: Features and Benefits

• User-friendly software with a customizable user interface.

• Numerous standard templates, such as Project Management Institute (PMI), PRINCE2, and Six Sigma, which easily integrate to an organization's existing processes within its enterprise resource planning (ERP) system, such as procurement, accounting, etc.

• A complete project management solution, including portfolio management, project tracking, cost and budget tracking, planning tools, etc.

• A resource management system, with user-friendly and customizable time- and tracking-sheets, advanced reporting, process and workflow support, a document management system, and the ability to use rich collaboration.

• A cross-industry solution that can be used in both process and discrete manufacturing environments, and that is scalable to both large global locations and small offices having two or three users.

• Reports that can be exported to MS Project, and vice versa.

• Project information work breakdown schedule (WBS) that can be displayed in Gantt chart format.

• Multi-project milestones and key performance indicators (KPIs) that can be displayed and that support rich analytics using online analytical processing (OLAP) tools through a business intelligence (BI) interface.

The Hosted PPM Alternative

Many PPM vendors that originally sold on-premise solutions have made a transition into the on-demand marketplace. The primary reason for this change is that they have realized the potential value of this untapped market space, as software as a service (SaaS) offers a number of advantages to the client in the SMB market:

• No software needs to be installed.

• No infrastructure is required to support the application.

• The SaaS vendor manages all network issues and all software version updates.

• SaaS applications result in a lower total cost of ownership (TCO). On-premise software can cost a substantial amount in implementation fees and user support.

• SaaS applications allow scalability. Many of the features designed for an on-premise PPM system may be too robust for the small business user. But users can derive the benefits of a PPM system with an on-demand application, even if at first they are using only the parts of the software they require. Features and functionality can be added later, as users become more familiar with the application.

The Democratization of PPM

Long before the digital age, British novelist G.K. Chesterton wrote: "You can never have a revolution in order to establish a democracy. You must have a democracy to start a revolution."

This paradox holds true when you consider the modern business landscape, which has seen the decision-making process transform from being the responsibility of a mere handful of top-level executives, to include a greater number of people across many departments and levels within the organization. To a large degree, this transformation has occurred because of the ever-increasing number of methods corporate data is collected and processed to allow greater visibility for management and to support the business process.

The average small to medium business (SMB) has many of the same strategic needs as Fortune 500 organizations have for processing data into information. Consider an SMB's need to integrate technologies to support its manufacturing and supply chain issues, which affect the organization's ability to generate revenues. These SMBs may sell to larger organizations, which demands greater integration with these organizations' business processes and systems. The requirements have an impact on everything from product design to engineering, to sourcing and procurement, to sales and distribution, coupled with greater compliance issues and regulatory concerns.

The mid-market has limped along with rigid systems and processes that were developed on platforms and architecture now about 20 years old. As a result, organizations have had to create a variety of ad hoc reports by using spreadsheets, replete with the constraints of inaccurate and static data. When managing projects, spreadsheets are a poor way to track changes, as they leave no audit trails, and they are an inadequate medium for interpreting data.
Until recently, PPM was viewed as a solution only larger organizations could benefit from, the logic being that PPM was time-consuming and costly to deploy. For SMBs, the cost of software licensing, hardware, and consulting services, as well as disruption to a business's day-to-day operations during implementation of PPM, were simply too high.

So what alternatives to using spreadsheets, with all their inherent flaws that risk the loss of valuable revenues to increasing global competition, do SMBs have.

How Project Portfolio Management Can Deal a Winning Hand to the SMB Project Manager

As organizations fight tenaciously for every inch of market share, IT departments have had to deploy technology that assists these dynamic organizations to remain competitive. One of these technologies is project portfolio management (PPM): a set of processes to analyze, recommend, authorize, activate, expedite, and monitor projects to meet organization improvement goals. Figure 1 provides a visual of these processes and how they flow during a project.

Figure 1. The flow of PPM processes.

According to The AMA Handbook of Project Management (2nd edition), PPM, when used to its full potential, can assist organizations to realize the following goals:

• an estimated 20–30 percent reduction in the time it takes to develop new products

• significant improvement in completing projects on time and on budget

• improvements in research and development (R&D) productivity

ERP Vendors Venturing into PSA

On February 29, PeopleSoft Inc. took the wraps off its Professional Services Automation (PSA) product, software that aims to help services firms better manage financial and human-resources systems. PeopleSoft PSA targets firms that have difficulty managing the skills and availability of staff. The product provides opportunity and service-resource management, which handles project proposals and planning; identifies employees with the right skills for the job; and manages billing, invoices, and contracts.

PeopleSoft is not alone in the emerging professional services market. Evolve, Novient, and Niku provide billing and management services to professional firms. Craig Conway, PeopleSoft president and CEO, says the difference between PeopleSoft and its rivals is that the competitors are focused on a single piece of the market. "You don't see comprehensive billing and contract management being integrated with opportunity management, which is what PeopleSoft delivers", he says. Pricing will be based on the number of employees who use the product, which is unlimited. But Conway says PeopleSoft is considering switching from a user-pricing model to value-based pricing.

On March 6, Lawson Software joined the fray by reaffirming its position as a "premier total solution provider for the professional services industry". Lawson currently serves 165 professional services customers with a focus on delivering full front- to back-office integration and automated, closed-loop e-business processes. Lawson, which announced its professional services initiative in November 1998, has been delivering industry-specific functionality in a fully integrated solution suite for professional services since September 1999.

"With Lawson's one-year lead in development, we feel confident that we can continue to outpace the competition with real solutions deliverable today and real ROI," said Carol Hallock, director, Professional Services Business Unit, Lawson Software.

"This is a dynamic and rapidly expanding market that has not been adequately addressed by our competitors, which have traditionally focused on manufacturing rather than services industries. Lawson has been offering Web-deployable solutions for more than four years, and has delivered front-to-back office integration capabilities for more than one year. Since its inception, Lawson's professional services vertical has given business management and information technology consulting firms, professional employer organizations (PEOs), staffing offices, consulting firms, employment agencies, law firms, engineering firms, government contracting agencies and other services organizations single-point access to integrated business data." Hallock added.

According to Lawson, its Web-enabled professional services software includes:

* An in-house developed, fully integrated customer relationship management (CRM) module for client and prospect opportunity management

* Resource scheduling capabilities

* Deployment and utilization features that allow users to not only search and match the skills of their internal employees, but also to perform skill searches against their partner and sub-contractor employee base

* Web-based time and expense entry with management functionality to capture project costs and track labor utilization

* A fully integrated Activity Management module to handle all necessary billing, revenue recognition and contract management functions, as well as budgeting, analysis and other project management tasks

* Advanced workflow to create and fully automate closed-loop business processes

* Web-based self-service for easy application and data access by a widely distributed workforce

* When combined with Lawson's human resources, payroll, and procurement solutions, this fully integrated solution suite allows professional services organizations to realize efficiencies and analytic opportunities that newly hatched and non-integrated systems cannot provide.

Better Service, Lower Cost

Another benefit of SLM is the automation and optimization of the service processes in the field. Resource utilization and efficiency can be increased through effective call scheduling, allowing more service to be performed with fewer technicians. Companies have found the value of completing service calls on the first visit by deploying the right technician, with the right service parts and the right skills at the right time.

In addition to reducing service costs in the field, SLM can also impact the help desk processes in order to allow for more efficient call centers. Service requests can come from many places in addition to a problem report from a customer. These service requests must be routed to the right company representative and then efficiently dispatched for service.

Maybe most importantly, SLM can integrate the service-oriented business processes that span from the time of the service request through to satisfaction of the need and billing or warranty. Still better, SLM may be able to predict the need for service in advance and avoid an unplanned service call with a planned preventative maintenance call, lowering costs and increasing customer satisfaction.

Tapping the Value of the Aftermarket

Many manufacturers and distributors are beginning to recognize that there are significant revenue and customer satisfaction opportunities available after their product has been sold, in the "aftermarket". The aftermarket has been a lower priority for many, particularly for manufacturers, who have historically viewed themselves purely as product companies. This sole focus on developing and selling products as their key to success ignores the fact that the cost of maintaining some products can easily be 4 to 5 times the cost of purchasing the product - or more. This additional revenue has often been left to third party companies.

The value of the aftermarket is highly dependent on the type of product and the industry. In industries that sell capital equipment such as medical devices, telecommunications, instrumentation, IT hardware and other complex equipment, companies are starting to significantly increase their focus on services revenue. For some companies this is a strategic move to grow the top line, while others are looking to replace revenue from slower product sales in the current economic conditions.