Best practices make perfect
Establish a core infrastructure; build better processes around it
By Roberto Michel, senior contributing editor -- Manufacturing Business Technology, 4/1/2005 7:00:00 AM
The technology to manage a global operation has come a long way at Knowles Electronics during the last three years. First, the Itasca, Ill.-based company installed a global, single instance of an enterprise software suite for visibility over transactions. It then rolled out Web-based portals and dashboards to offer up timely summary information to senior-level executives and customers.
With such choices, Knowles is incorporating what experts see as two best practices in using IT for superior operations. First step: establish a common transactional foundation. Next: improve decision support around that core data.
At Knowles, the first step was an 18-month ERP deployment at nine sites, including facilities in the U.S., China, and other parts of Asia. Completed in July 2002, the rollout replaced nine legacy systems, and led to a new level of operational visibility, says Randy Kjell, CIO.
"We had nine locations running nine different systems, so trying to get a view of the business was really difficult," he says. "Everyone had different part numbers, customer numbers, and vendor designations—sometimes for the same parts or entities."
The ERP suite from Oraclewas installed on a single-instance basis, meaning there aren't separate versions or databases for different locations or regions. Experts say either moving to one common system or a more federated yet integrated ERP approach is key to global operations because either option allows managers to instantly see trends, rather than wait for monthly rollups of limited data.
The information in ERP suites covers everything from sales, inventory, and financial data to demand and material plans. While the systems have been maligned over the years as costly to deploy, that rap has lessoned as vendors improve implementation methodologies.
For Knowles—which makes tiny high-tech microphones and receivers used in the hearing industry—the system is crucial to global operations. "It's a matter of knowing what's happening in the business," says Kjell. "We now know on a daily or even moment-by-moment basis where we stand globally from the perspective of sales, accounts receivable, cash position, and inventory—or what's happening on the manufacturing floor in China."
Of course, consistent ERP data isn't the only IT best practice. David Caruso, senior VP with Boston-based AMR Research, says global manufacturers are "investing around the edges" of ERP in areas like demand management and business intelligence (BI).
Manufacturing Business Technology spoke with analysts and other experts to compile some top IT best practices for global operations (See table at right). Considerations vary, from portals and RFID to better support for sales & operations planning (S&OP) processes. Most experts, however, recognize a twofold approach of establishing consistent systems of record and layering performance-management applications over those systems.
The foundation
Navi Radjou, a VP with Cambridge, Mass.-based Forrester Research, says ERP system consolidations are popular projects because they cut down on system administration and maintenance fees. But at the same time, progressive users see consistent ERP data as a springboard for process improvements.
Says Radjou, "The smart CIOs will say, 'Look, our imperative is to create more synergies among our divisions, but we can't have these operational synergies because at the IT level, each division runs its own ERP system. So a prerequisite for synergies in areas like procurement is an integrated ERP system, or a federated approach."
A federated approach to ERP might entail using integration software to more tightly bind two systems. Some enterprises, however, make do with end-of-month "rollups" of sales or financial data. The problem with this strategy, says Kevin Gromley, global manufacturing consulting leader with New York-based Deloitte, is that financial rollups don't support supply chain collaboration. "If the strategy calls for inter-plant inventory transfers, the integration likely has to extend to materials and order management," says Gromley.
Once consistent ERP data is achieved, says Hank Rossi, a partner with consulting firm Accenture, New York, leading companies also standardize core processes, such as the way engineering changes are conducted.
At Knowles, consistent ERP data is a springboard for better tactics in inventory and procurement management, according to James Wynn, senior director, global supply chain. The ERP deployment is credited with helping Knowles cut inventory costs by 50 percent.
"Before the deployment, we'd be working with common suppliers, but each site would deal with those suppliers independently," says Wynn. "With a centralized system, we can aggregate and clearly understand our spend with common suppliers, which leads to cost savings."
Knowles has multiple business units that sometimes supply each other. The new system's global view of inventory across sites and business units allows for an integrated business plan and global available-to-promise functionality, while also streamlining inter-plant inventory transfers.
"Having visibility to the assets, their value, and where they are located has enabled us to implement direct-ship programs, and more generally, helps us in areas like cycle-time reduction and improved delivery performance percentage," says Wynn, who notes the company's on-time delivery performance percentage has improved from the mid-80s to the high-90s since the deployment.
From the IT perspective, says Kjell, a single instance eliminates the need for database administrators at multiple sites. "Administration and development support are in one spot, which simplifies our objective of keeping the system running smoothly," he says. "When we implement changes, they are automatically available to all locations without repeating the installation processes."
Add in intelligence
With its ERP foundation in place, the next step for Knowles was to build a portal using Oracle Application Server 10g. This set of software tools, says Kjell, acts as middleware between real-time ERP data and portal inquiries, and also handles logon and other security and provisioning functions.
A wizard-like function in Oracle's software, called OmniPortlet, allowed rapid portal development, says Kjell. One portal serves up current order status and other information to customers. Another provides key performance indicators to Knowles' executive team, including daily sales, plant yields, and inventory positions. "They access [the portals] all the time," says Kjell. "This gives them a great deal of visibility into what's happening in the organization."
AMR's Caruso sees performance management—which includes BI solutions and scorecards—as an "explosive" growth area. "Organizations are saying, 'We need to be able to aggregate all the information from all the nodes in our supply chain—especially manufacturing activity—and find out how we are performing, and compare ourselves to benchmarks for best-in-class performance'."
Metrics also are shifting to more holistic yardsticks such as the perfect-order metric, or "time-to-volume wins" for new product launches, adds Caruso. BI and ERP vendors, he says, "are getting better at providing frameworks and examples of metrics that can accelerate the learning curve."
Chris Jones, a senior VP with Boston-based analyst firm Aberdeen Group, cautions that enterprise-level BI might need to be combined with intelligence tools that incorporate plant trends.
"At the plant level, potentially much more data needs to be consolidated and filtered, rather than just piling everything into a data warehouse," says Jones. "You might need to tie in to batch records, process control, or materials management data. At the same time, companies should keep the endgame in sight by linking plant trends back to customer service."
Toronto-based Labatt Breweries is rolling out a corporate performance-management solution from Cognos, says Mike Ali, change management, Enterprise Business Intelligence (EBI), with Labatt. Initially rolled out to 550 people in sales & marketing, the solution offers up scorecards and analysis tools on sales trends and factors such as profitability.
Ali cautions, however, that performance management isn't as simple as buying a set of BI tools. "The presentation of the information has to be as simple as possible," he says. "Data quality also is very important. We're glad we did the due diligence in aligning consistent data beforehand."
Demand-driven direction
AMR recommends that manufacturers build demand-driven supply networks, or DDSNs, that focus on reacting to demand signals. "If you can understand the quality of the demand signals you are getting—and the volatility and variability of them—and start sharing demand information across your entire network, you'll make better decisions throughout," says Caruso.
IT investments for DDSNs include forecasting software, demand visibility tools, and trade promotion applications, Caruso adds. Related to these are the ongoing investments that leading companies are making in RFID pilots.
Indeed, the ability to assimilate new demand signals—rather than rely on traditional sales forecasts—can be seen as an IT best practice. Larry Lapide, research director at the MIT Center for Transportation & Logistics, Cambridge, Mass., sees improved demand responsiveness within S&OP processes as key to superior operations. Leading companies, says Lapide, are applying demand and supply planning software—as well as newer collaborative tools and dashboards—to S&OP.
S&OP is a decades-old concept in which executives regularly meet to bring the demand and supply picture together. Lapide contends today's planning suites—which have demand and supply collaboration tools to get feedback from distributors, customers, or suppliers—are well suited to S&OP. Add in a dashboard function built with performance-management software, says Lapide, and S&OP has the technical teeth to be much more responsive. "Many companies have all the technology pieces, but they have to think about how to put it all together within the context of S&OP," he says.
Enabling innovation
Experts say enabling product innovation also is a best practice for global operations. That means investing in applications for product life-cycle management (PLM).
"The overarching principle with managing innovation," says AMR's Caruso, "is not just managing the research and development activity, but also making sure new product launches are woven into the entire supply chain, including end-of-life concepts and regulatory concerns."
Regulations such as the Waste Electrical & Electronic Equipment (WEEE) directive elevate the importance of managing the product record over the full life cycle, notes Caruso. Other PLM-related applications—such as project management—help launch a product in a virtual or outsourced environment.
Forrester's Radjou posits that manufacturers need to build "innovation networks" with applications that support outsourced supply chain and product development management. PLM applications or supplier portals, for instance, are logical investments. New service-oriented architectures also support virtual supply chains by making it easier for partners to share information.
Yet when Forrester surveyed 613 IT executives last November, their top priority was cost containment.
Does that mean concepts like innovation networks and PLM remain ahead of their time? Radjou acknowledges that the cost-cutting mind-set has been hard to shake, but adds that leading CIOs are starting to emphasize investments for innovation.
Concludes Radjou, "If you think about PLM applications, they both cut costs and promote innovation: for cost cutting, by doing away with the manual handling of CAD drawings and other documents; and for innovation, by accelerating time-to-market."
