Rise in global enterprise deployments seen as response to far-flung supply networks
By Malcolm Wheatley, senior contributing editor and Kevin Parker, editorial director -- Manufacturing Business Technology, 5/1/2007 12:00:00 AM
“With our plants located in Europe, Asia, and North America, it just made sense,” says Mark Fox, Richmond, Va.-based manufacturing information systems manager at DuPont Teijin Films, of the decision to locate the company data center in, of all places, Dumfries, Scotland.
A joint venture between Japan's Teijin Group and Wilmington, Del.-based DuPont, DuPont Teijin is a leading supplier of polyester films. It has benefited hugely, says Fox, by standardizing on SAP R/3 ERP running as a single global instance in the Dumfries data center.
Instead of the 50-plus IT-support staff needed prior to the change, just 14 employees handle the system workload today. Running as a single instance also reduces server requirements and lowers network costs. It's difficult to put a figure on the overall saving, contends Fox, “but it's certainly in excess of a million dollars a year.”
A number of trends have come together to make managing an enterprise system a global project, and the development has far-reaching implications for how plants will operate in future.
Explosive demand from emerging markets, the growth of the productive capacity of developing regions, and the related consolidation of regional and midsize manufacturers by means of mergers & acquisitions have transformed product manufacture. For both cost and branding purposes, managers must ensure the same high quality regardless of where products are made.
Even midsize companies, squeezed by competition from low-cost labor regions, are running plants in diverse regions, and must ensure that the IT infrastructure scales appropriately.
“Single instances not only make it easier and cheaper to support geographically dispersed plants, but with modern telecommunications there's no degradation of response speed,” notes Ben Allard, engagement manager at Watertown, Mass.-based ERP consultancy Green Beacon Solutions. “With applications running in very large data centers rather than at manufacturing plants, they typically run much, much faster.”
A debate unfolds
It seems, though, there is no single right answer when it comes to the need to balance regional requirements against global efficiencies.
To get what it needed, Dusseldorf, Germany-based Henkel Consumer Adhesives carefully defined and standardized five key business processes, and then deployed regional instances of SAP R/3 to operate those processes.
The processes in question—order-to-cash, purchase-to-pay, managed production, product life-cycle management, and supply chain planning—act as standard templates across the Henkel business, says Mark Hamlin, operations director at Henkel's Winsford, U.K. plant. “It's a Henkel template, and the idea is that whenever you're in the Henkel world, the processes running within the business in question are the same,” he says.
Most regions run SAP R/3 release 4.6b, Hamlin adds, while Central and Eastern Europe run SAP R/3 4.7. “Globally, there are 17,000 users of the SAP system, which we think is a lot,” he says.
Running a shared single instance across each region—the Winsford plant runs on a Western European instance residing in a data center in Dusseldorf—makes information sharing easier. Inventory management and supply chain personnel in Winsford, for example, can see inventory holdings at Henkel sites across Western Europe.
Hamlin says it makes sense for plants in Western Europe to share information so as to optimize inventory movement. Sharing the same information with plants in South America or Australia makes less sense. For Henkel, combining regional instances and common business templates delivers good value, Hamlin says.
The remaining inconsistency—the number of existing SAP versions—will be ironed out at some point in 2008, he adds, when plants worldwide will migrate to a common release.
A very strong movement
A book, recently published by Boston-based AMR Research, The Future of Enterprise Applications, has this to say:
“In the past five years, we have seen very strong movement toward standardization and centralization of enterprise applications. Companies are establishing shared service centers for human resources, finance, procurement, and customer service. They are deploying comprehensive enterprise applications to support these functions globally. Most CIOs are actively working to reduce the diversity in their application portfolios, forcing the business to standardize on a very small set of applications vendors.”
Yet standardization also can bring additional costs, imposing an application burden and licensing cost on manufacturing plants regardless of whether they need the application or are capable of coping with it. This can be a special concern as manufacturers increase their foothold in low-cost economies where literacy and IT skills are at a premium.
At Philadelphia-based GlaxoSmithKline, for example, such thinking drives a twin-track approach to ERP standardization involving SAP R/3, and QAD MFG/PRO.
Within GlaxoSmithKline's more complex pharmaceuticals businesses—and where U.S. Federal Drug Administration certification is an issue—SAP R/3 is the solution of choice, explains Adrian Lowe, QAD MFG/PRO process and application lead manager within GlaxoSmithKline's Brentford, U.K.-based global manufacturing systems team.
In GlaxoSmithKline's less complex businesses, such as manufacture of dietary supplements and “over-the-counter” health-care remedies, QAD is the preference—usually in its MFG/PRO eB2 iteration, but with a move to MFG/PRO eB2.1 likely. The twofold strategy is possible, Lowe explains, because of a prior investment—as at Henkel—in standardizing core business processes.
As a result, the question of platform choice becomes not one of application functionality, but that of cost and fitness-for-purpose. “Because the underlying business processes are the same whether a plant runs SAP R/3 or QAD, all that varies is the solution that drives those processes,” says Lowe.
QAD already is found within six GlaxoSmithKline plants—two in the U.K., plus plants in Morocco, Turkey, Kenya, and Nigeria—and may be installed in others. While no plant running SAP will have it taken out to put QAD in, stresses Lowe, plants in, for example, Eastern Europe, which currently run neither system, will have their needs evaluated and a determination made regarding appropriateness.
“Not only isn't it possible to implement SAP R/3 everywhere—we just don't have the resources—but it's overkill for a less complex plant,” says Lowe. “QAD offers a cost-effective solution that gives us a low total cost of ownership, and is easily implemented.”
While acknowledging that smaller manufacturing plants—especially in developing countries—may struggle with a full ERP solution, Simon Pollard, SAP VP of discrete manufacturing, says some form of “SAP-lite” isn't the answer.
Pointing to Vevey, Switzerland-based Nestlé, which has a strategy of employing small, focused factories with typically less than 200 employees per site, Pollard argues that any dilution of standardization is suboptimal. The best way to minimize any local burden is to farm out the IT complexities to parts of the business better equipped to deal with them.
In Pollard's eyes, hosting offers the best of both worlds. “Standardization is the best way of building template-based best practices, and hosting is the best way of delivering them,” he argues.
Time will tell. While globalization is an accepted fact, the best way to deploy IT in a globalizing world remains a matter of context.
