How to procure manufacturing software

Without question, today's manufacturers wrestle with issues of connectedness, speed, and quality of performance of the supply chain. Among the complications are entirely new business processes, global sourcing cost pressures, and regulatory compliance beyond anything most manufacturing managers ever anticipated.

Similarly, over the past 10 years, on nearly every front, the manufacturing software industry has undergone a massive transformation, including the rise of new technologies and embedded Internet capabilities, entirely new application categories, and vendor consolidation.

Yet throughout all these changes, methods for selecting ERP and associated systems have changed very little.

Now, as many manufacturers address customer demands and visibility, they're finding the capabilities of their backbone systems are insufficient. In fact, beyond the point-to-point supply chain, manufacturers must manage not only production and fulfillment, but a true commercial relationship—one that includes all the data and processes that companies share.

The information required to manage such a relationship includes design and specification data, supply and production status, quality regulatory information, and demand, supply, distribution, and transportation status.

Driven by customers' requirements for information visibility and high-velocity response times, some manufacturers are redoing their systems—specifically the ERP backbone. While ERP penetration at the Fortune 1000 level is fairly pervasive for smaller manufacturers—the suppliers to the big OEMs—many of those with less then 2,500 employees aren't using current ERP systems, or are just beginning to look.

A 2005 study out of Boston-based AMR Research found 37 percent of manufacturers are not using, or considering, an ERP system—and the number jumps to 47 percent when there are less than 500 employees. Given that many of these companies have systems that are technologically obsolete, difficult to maintain, and incapable of supporting emerging business practices or global financial and regulatory requirements, many need major system upgrades to survive in today's aggressive global marketplace.

Unfortunately, many executives view ERP selection with a fair amount of trepidation due to a lingering sense that too many ERP initiatives delivered limited success. Narrowly focused selection processes may have a lot to do with this disappointment.

Historically, large amounts of energy were spent mapping transactions and data to existing or proposed processes. Yet few manufacturers focus on low-level activity or a command-and-control model. Today, ERP selection is more than buying an application—it involves wiring the whole company, not just controlling manufacturing and supply chain operations.

There are things that can be done to improve the chances for overall success and long-term fit of an ERP system.

Declaring key principles provides a better framework.

Preceding any ERP system selection, develop overarching principles that embrace today's realities and opportunities to provide a context for the selection process.

Should the system play a more powerful role in the company?

The most frequently cited business issue driving IT investment is better use of data throughout the organization, however, many ERP systems focus merely on the collection of data—not the sharing, process flow, or analysis of that data.

Your action: Stop thinking about the system as a data repository that people dip into when they need information. Powerful implementations make the ERP system a massive communication platform.

How do you measure and view company performance?

In truth, few executives actually use ERP systems. This is because the last generation of system implementations focused on controlling the lowest levels of activity with little thought given to management's needs. The real question is: What is the basis of competition, and what are the true determinants of success for the company?

Your action: Identify key performance drivers, their associated metrics, and their impact on corporate goals. Ensure that these drivers are visible and manageable through normal systems operation—not as an add-on that will come later.

How much connectivity does the business require?

Successful ERP implementations transcend corporate boundaries. Understand how far into the supply chain your processes and data must reach. Ask yourself: What types of data do we need to acquire, receive, share, and use?

Your action: Understand your data universe and plan an information architecture. This is where a serious discussion about data—as well as its location and availability—comes in. There are myriad data types, including design, specification, lot/serial, and regulatory compliance information; and demand and production visibility. Know where it all comes from, the quality and reliability of the source, and how the data will be exposed for use.

What applications, technologies, or capabilities are critical to the success of the business?

Most manufacturers must live with a patchwork of purpose-built applications. Many of these have been tweaked to near perfection. Will one vendor actually replace these, or will you still need those specialized applications that constitute your uniqueness? Are they irreplaceable? Will existing systems deliver the right information to your ERP system, and in the right frequency?

Your action: Rationalize the applications that must stay. Consider design, channel management, e-commerce and catalog systems, and customer and sales management applications. Understand their impact on the business, and the care and feeding they require.

What are the implications of technical architecture?

Service-oriented architecture (SOA) eases integration of disparate systems, lending ability to manipulate systems as business requirements change. By definition, SOA is an approach to software built around services—loosely coupled, standards-based, and interoperable software components that can be reused and recombined.

SOA allows creating capabilities—such as assembling a single view of a customer from CRM, finance, and supply chain systems; enabling dashboards to be built that combine data from manufacturing execution, quality, and ERP systems, creating a sales & operations planning analysis capability that combines data from demand management, production, sales, and extrinsic factors from external sources.

Your action: Identify how SOA can improve business processes. A technical architecture that exists for its elegance is wasted. This should be one of the key architectural decisions you make. Ensure you know what you want the SOA to do for you, and make all vendors validate their capabilities specific to your long-term desires.

All of the previous questions should result in strong, documented direction. After exploring and reaching decisions on these overarching principles, what steps do you take to actually select an ERP system?

Step 1: Define business goals and future success factors.

Company managers have a keen sense of what the true basis of competition is within their respective industries, and what constitutes a critical success factor. Executives know these factors will only be achieved if they are articulated in the goals and measures that drive an organization. It's essential to know what specifically is at the core of profitability, whether it be low-cost operation, product innovation, or customer satisfaction. Understanding the basis of competition and the business goals determines how to weight business processes and identify how the business will be measured.

Step 2: Critical business processes should be your primary focus.

Decompose these critical success factors into their underlying processes. Determine which business processes enable your competitive position within the industry. Which processes, when executed properly, will create a more competitive cost structure? Note that in times like these, many entirely new processes must be developed to move to the next level of corporate performance, or address industry-driven change.

Also consider which processes must be implemented on a global basis—many processes are departmental in nature and, as a result, are replicated throughout divisions or individual manufacturing sites. Many processes benefit from being done on a global basis for the entire organization. Identify which key performance indicators determine efficient operation of those critical business processes.

Step 3: Document and weight your requirements

Know which things are must-haves, as well as what you want them to do. Rank these in order of importance.

Develop an ROI calculation, but beware of inventory and head-count reductions. While one-time inventory reductions often are attainable, head-count reductions may not be the right goal, nor are they easy to come by. Higher productivity accomplished through efficient processes is the true long-term upside of ERP systems.

Step 4: Develop a short list of vendors

Nearly every ERP system delivers base transaction control. What separates a lot of vendors is their industry knowledge and ability to streamline time-to-benefit. Make sure the chosen vendors have invested in your industry and are prepared to invest in your success. Remember: This is a relationship that could last 20 years.

Use outside help to identify logical vendor candidates. Analyst firms can quickly get to a good short list that combines the needs of a vertical industry, the right platform technologies, and leading-edge functionality. Challenge them on the risk inherent in a vendor. Consultants can identify candidates and execute the project as well. One caveat is that many consultants align with specific vendors.

Step 5: Demo, demo, demo. In other words, see the processes completely.

Give vendors a script of critical business processes and a description of what you must see. Be specific about the need for visibility into measurements. Understand how much work it takes to get the right information. Most processes are measured differently for performance management purposes—i.e., monitoring cycle time versus cost or output.

Allow time for vendor discovery. In preparing for the demonstrations, the vendors may need to visit the site for plant tours and consult with key people in business operations to best understand the challenges and objectives of the business.

Step 6: Select a vendor.

Always keep in mind that selecting an ERP system should focus on using technology to cut costs, increase efficiencies, and improve customer satisfaction. The competitive capabilities a company needs are delivered through key business processes, not fancy transactions. Review the availability of implementation consultants with industry-specific experience and support personnel. The track record that the vendor or VAR has in an industry will be an excellent predictorof the speed and success of theimplementation.