Bye-bye generic ERP
Mid-market enterprise systems gain vertical depth, not just extended apps
By Paul Mann, contributing editor -- Manufacturing Business Technology, 6/1/2002 6:00:00 AM
Generic enterprise system solutions—those do-it-all-for-most-anybody solutions—are fading from the mid-market scene. Maybe that's because every software executive has read Geoffrey Moore's book, Crossing the Chasm, and is desperately seeking a secure niche. Maybe it's because mid-market vendors already have extended their product lines with customer relationship management (CRM) and supply chain management (SCM) modules, and now are seeking another competitive advantage.
More likely, the rush to verticalize enterprise resources planning (ERP) systems aimed at small- to medium-size manufacturers is driven by the prospect base. "You just can't take a generic, off-the-shelf ERP, slap it in and expect it to work—no way," says Steve Miller, vice president of information technology at PEMCO Aeroplex, a provider of airplane maintenance, repair, and overhaul (MRO) services based in Birmingham, Alabama.
Executives in industries as diverse as high-tech medical devices and apparel agree. They say generic solutions require longer implementations, more workarounds, and the complication of add-on solutions.
But just because a vendor claims a vertical focus, its product may not deliver on industry needs. "Vendors often will dress things up as a well thought-out vertical strategy," says Simon Bragg, European research director with Dedham, Mass.-based analyst firm ARC Advisory Group. "On the contrary, what tends to happen is that a vendor will talk the right language in a certain vertical and win a few deals. When the solution doesn't really fit, then they do some quick customization and call that development."
Over time, that may work out okay, but Bragg recommends applying a simple test for vertical focus. "Look for a vendor where 20 percent of sales are focused on your niche," he says. "If they've got $10 million in sales from your vertical, then they're probably spending $2 million to $3 million on research and development in your market to deliver new functionality."
Much like Stamford, Conn.-based analyst firm Gartner has laid out in its ERP II concept, next-generation enterprise systems will not only have functional extensions and more modular architectures, but also deep vertical-industry capabilities. It's widely recognized that enterprise suite vendors—even those focused on Tier 2 and Tier 3 companies—have made substantial gains on functional extensions. Lesser-known, but of similar importance to end-users, is the progress being made on vertical functionality.
Unique needs
"We looked at a number of ERP solutions and they just didn't fit our aviation MRO business," says PEMCO's Miller. "What we do is very different from manufacturing—it's a lot more variable and complex. For example, we might have one Boeing KC-135 Stratotanker come in for service and it's real clean. But the next one might require a spar replacement, and that adds 3,000 man-hours to the job.
"We need to be able to schedule the people and material efficiently to get the plane back in the air and make a profit," Miller continues. "The manufacturing-based ERP solutions don't have the flexibility to tie all that together."
Another complication of the MRO business is the sheer volume of data. A typical service involves approximately 2,500 individual activities per plane. "We're managing hundreds of thousands of work orders that need to be monitored closely," Miller says.
After looking at a number of ERP solutions, PEMCO purchased the Impresa MRO solution from Avexus, based in San Diego. "The biggest benefit for us is that we now have a fully integrated system," Miller says. "People don't understand how big a deal it is to have all the time and attendance, project costs, billing information, customer, supplier, and inventory information all in one system."
This big-picture view has helped PEMCO operate more efficiently in a number of areas. "Our big metric on fixed-cost contracts is efficiency," Miller says. "When you're going to get X, minus your costs, you keep the difference. With Impresa, supervisors are constantly pulling up data, analyzing it, and making adjustments so that we spend less and make more."
Avexus specializes in enterprise systems for MRO operations, but a number of extended ERP vendors with a mid-market focus also address this market. These include Chicago-based IFS, and Schaumburg, Ill.-based Intentia. Greenville, S.C.-based Jobscope Corp. also targets the MRO market.
À la mode
Often, vertical differences stem from the mode of manufacturing typical of an industry. "We didn't go down the path of a generic ERP solution because that did not address the job-order dynamic of our business," says Dick Hendricks, chief financial officer at Vulcan Engineering, a provider of foundry equipment. "Most of the applications we looked at were devised around supporting a standard manufacturing process, and inventorying standard components."
That just didn't work at Vulcan because the bulk of the company isn't focused on manufacturing standard components. Rather, the meat and potatoes of the business is designing and building turnkey custom foundry solutions.
"These complex projects can run nine to 18 months from order through engineering, installation, and startup; and typically range from $1- to $25-million each," Hendricks says. For years, Vulcan managed these projects with a solid accounting package, highly experienced project managers, and heroic efforts by the rest of the team. But with strong company growth, eventually there weren't enough experienced managers to personally guide each project.
That's when the company began looking for a solution to automate many of the core processes. In early 1999, it purchased Encompix ERP from Cincinnati-based Encompix Software. Six months later, Vulcan went live on the new solution.
"What we got was a lot of flexibility in progress billing capabilities," Hendricks says. "That's important because we rarely have any two projects that are the same. We also got strong capabilities to monitor engineering progress, purchasing progress, and labor."
For years, Vulcan had enjoyed a good reputation for delivering these large-scale projects on-time and on-budget. But doing that often took extraordinary effort by the entire team.
"If engineering was running behind, then the people in the shop compensated for it," Hendricks says. "If the shop was running behind, the people in the field compensated. It was just a lot of incredible effort by individuals that kept us on-schedule.
"Today, daily reporting gives project managers a detailed snapshot of every aspect," Hendricks continues. "On our first project after the implementation, the manager spotted a problem while we were still on the design boards and got things back on-track. By catching it early, we headed off a problem that could well have cost us $250,000."
Other benefits, though less dramatic, of the new system include much- improved tracking of rework expenses, deviations, and job costing. Plus, automation of purchase orders saved the company several clerical positions and $100,000. "That's an annuity we enjoy every year," Hendricks says. But perhaps the biggest benefit is that the company's growth is no longer limited by the number of experienced managers.
Plastics-specific
Growth also posed a challenge for Cal-Mold, a Los Angeles-based plastics injection molder. But for that company, the key problem was time, not management resources.
"For years, we struggled to integrate a small, plastics-specific management software with a third-party process monitoring system and we never could get the two to talk to each other," says Rick Foote, Cal-Mold project manager. When the company decided to triple its manufacturing capacity with a new 170,000-square-foot facility, there was no question that a new system was required.
After a extensive search that included several large, generic ERP packages, Cal-Mold selected EnterpriseIQ, from IQMS, based in Paso Robles, Calif. Key factors in the decision were IQMS' focus on plastics, tight integration between modules, and ease of implementation and use.
"It took less than three month from the time we signed the check to IQMS until the time Enterprise IQ was up and running," Foote says. "We couldn't believe the system could be up and running that fast, considering we had spent nearly three times that long trying to make our old manufacturing and process monitoring systems work together."
Thanks to the Windows look and feel, most users very quickly felt comfortable with the system. "It's very easy to figure out and use," Foote says. "Everyone from the president to the machine operators use the system to record, track, monitor, and report activity. Nothing in our plant gets done without a work order. EnterpriseIQ has allowed us to reduce downtime on our plant floor, eliminate labor overrun, and generally run a more efficient operation."
Lot tracking
Improving efficiency is a pretty typical goal of most ERP implementations, but manufacturers in the high-tech medical devices market have some other challenges as well. First among them is the headache of tracking products long after they've reached the customer. This requirement, mandated by the Food and Drug Administration and other global regulatory agencies, is not part of your typical ERP package.
"When we started a search for a new solution, we looked at 28 mid-market ERP solutions," explains Lance Connor, director of reliability at Computer Motion, a high-tech manufacturer based in Goleta, Calif. "The search quickly narrowed down to one solution because of two key elements.
"First, we needed lot and serial number tracking, linked to a specific configuration," Connor continues. "Second, we needed to track the configuration of the devices as they are repaired and upgraded in the field."
Primarily on the strength of these capabilities, Computer Motion selected MAPICS ERP for Extended Systems from Atlanta-based MAPICS. But even without the heavy-duty tracking challenges, managing Computer Motion's complex design and manufacturing processes would test the mettle of most any enterprise solution.
Start with the core product—a voice-activated, computer-controlled, robotic surgical device with articulated arms. No question, this is a very complex product consisting of hardware, software, and networking components.
Design, prototyping, and early production are handled by Computer Motion. Then, as the products mature, production is outsourced to a handful of key partners. "To deliver our completed designs, we needed a system that could provide configuration, part specs, and material requirements to our suppliers," Connor says. "When making a medical device, the supplier needs to know every step in the production process. In MAPICS, this device master record lets the supplier know exactly what it takes to make the product correctly."
A smooth handoff to suppliers is just the start of Computer Motion's extensive involvement throughout the product life cycle. That's because these devices require regular on-site maintenance and upgrades.
"Through the service management module, we track absolutely everything about the customer and the product," he says. "If we take a call from the customer, we can immediately see when the product was shipped, what configuration, what version, what serial numbers, and all production and maintenance history. We know how many times the product has been refurbished and even whether the product is still in warranty."
The same module also is used to track customer feedback. In turn, that data feeds the development of next-generation product. "Our goal is to ensure not just customer satisfaction, but customer delight," Connor says.
If there are any similarities between the manufacture of surgical robotics and a maker of socks and intimate apparel, they're not readily apparent. That's why Delta Galil Industries, the Israeli manufacturer of private-label apparel, took a different path when it sought an enterprise solution.
"We wanted a fully integrated system to cover all aspects of business management," says Avi Pinhas, Delta's chief information officer. "The new system had to support new business trends, activities, and various modes of operation. In addition, we looked for strong support of specific fashion operation processes."
Apparel solution
A key part of the challenge was Delta's complex make-to-order production environment. The company produces approximately 12 million pieces of apparel each month, a task involving as many as 120 million components, often transported among various manufacturing sites.
Altogether, the company must coordinate more than 1,500 raw material and services suppliers around the world, and synchronize the activities of multiple factories and distribution centers to ensure customer orders are fulfilled in a timely manner.
After a comprehensive search, the company selected Movex Fashion, from Intentia. "When we made the decision in 1995, Movex Fashion was the only ERP package that supported textile manufacturing company requirements and could accommodate our massive growth, rapid changes in the business environment, and the need to produce offshore," says Pinhas. "In addition, Movex Fashion runs on an IBM AS/400, a robust and scalable environment."
Today, Movex Fashion is live at sites in Israel, England, Jordan, Egypt, and Scotland. "The London distribution center significantly improved customer service by doubling order accuracy rates and reducing order processing time by 80 percent," Pinhas says. "Inventory accuracy at our main fabric warehouse increased at least eightfold. In addition, because of the simplicity of maintaining Movex, we've been able to reduce the IT staff from 55 people to 40."
These are the kind of bottom-line results that pay for solutions, and pay for them quickly. These also are the kind of results that are typically much harder to achieve without the requisite vertical market functionality provided by the vendor.
But making the right solution choice has never been more complex. "What's happening today is that a lot of the mid-market players are casting about, looking for a relatively secure niche," says ARC's Bragg. "At the same time, you've got a number of the Tier 1 players with good vertical functionality coming down and challenging for the business at the $50-million manufacturer."
There is little doubt that vendors of collaborative enterprise suites will have to address the market on multiple fronts, with vertical-industry functions being a crucial area. Still, manufacturers examining solutions must explore questions of solution cost, implementation cost, maintenance cost, the financial viability of the vendor, local support, and other factors. Generic ERP may be disappearing in the mid-market, but it's not entirely clear that the future belongs to mid-market vendors with vertical functionality.
| Generic ERP | Engineer-to-order |
| Price list | Estimate and quote |
| Standard products | Unique products |
| Sales order | Job order |
| Standard cost | Actual cost |
| Purchase material to stock | Purchase material to a project |
| Ship from finished goods | Ship from work-in-progress |
| Product lead times in days/weeks | Product lead times in months/years |
| High-volume production | Low volume |
| Invoice on delivery | Progress billing by milestones |
| Focus on material planning | Focus on production scheduling |
| Forecast-driven | Project-driven |
| Plan with master schedule | Plan with project management |
| Standard MRP | MRP by project |
| Delivery to customer | Installation on-site |
| Part-number based | Job-order-based |
| Design is completed before production | Design is an integral part of production |
| Few engineering changes | High engineering change |
| Cost variance to standard | Cost variances to original estimate |
| Flat bills of material | Deep bills of material |
| For More Info: | ||
| Avexus: www.avexus.com | Encompix Software: www.encompix.com | IFS: www.ifsworld.com |
| Intentia: www.intentia.com | IQMS: www.iqms.com | Jobscope: www.jobscope.com |
| MAPICS: www.mapics.com | QAD: www.qad.com | Syspro Impact Software: www.sysprousa.com |
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