Manufacturers face choices in initiating multiplant planning

Powerful forces—including emerging market opportunities in developing countries, availability of cheap labor in those same countries, and the formation of megacorporations by means of mergers & acquisitions—mean that manufacturers today, both large and small, are playing in a global sandbox.

Given more far-flung operations, should a company opt for 1) the holy grail of single global ERP instance; 2) standardize on a package easily integrated across multiple instances, thereby gaining data consistency; 3) integrate existing software assets by means of so-called middleware; or 4) make extensive use of e-commerce hubs?

The issues involved are complex. One thing is clear, however. The answer to the question must be based on the market served, products, and processes of the supply chain itself.

First, some preliminary considerations:

As manufacturers more closely knit their far-flung resources, emphasis on supply chain planning has grown, leading to more global, strategic business functions and processes, and the need for close integration to minimize time and performance latency.

It's also true the supply chain isn't always confined within the domain of a single company. The need to maintain control and visibility across manufacturing nodes extends to outsourced or contract manufacturers that many companies employ to reduce cost and increase velocity.

Further, once a company builds a global supply network, it wants to measure its performance. Increase in company purchases of corporate analytics solutions, whether drawing data from an ERP system or from a consolidated database, is evidence thereof.

Says Julie Fraser, principal with Cummaquid, Mass.-based Industry Directions, "Our interviews with industry leaders for the MESA Metrics that Matter research program showed 80 percent want to ensure the same metrics are used the same way across all plants. We believe this drive for consistency is part of why ERP, in use at 68 percent of the companies responding, topped a list of 19 applications most commonly achieving return-on-investment in two years or less."

This emphasis on understanding what happens to be the case suggests the challenge facing many companies is meeting two potentially conflicting objectives: 1) maintaining corporate oversight by means of visibility, control, and ability to orchestrate; and 2) allowing local business units the flexibility needed for competitive advantage.

The resulting ERP-level projects focus on global standardization of enterprise processes, like cash-to-cash and procure-to-pay cycles, across multiple sites. Manufacturing projects, however, are incredibly diverse, encompassing various styles of manufacture that differ from site to site, making standardization on functionality difficult.

Two important considerations therefore are 1) the diversity of products and manufacturing processes involved; and 2) the ruling corporate control philosophy. The more products share the same processes and supply chain, the more likely they can be managed centrally. The production of raw material-grade plastics would be an example of such. Conversely, a manufacturer making myriad dissimilar products—say a diversified conglomerate like Textron—doesn't gain near as much by standardizing and imposing central control (See graphic, Product diversity by industry).

Looked at this way, one can see why chemical and oil & gas companies tend to move toward the single global instance—and why diversified manufacturers, especially those that grew through acquisition, let divisions run their own locally tailored systems.

Manufacturers striving for consistency and leverage fall naturally into either single-instance or multiple-instance ERP strategies based on the diversity of their products and processes, and given the challenge of balancing global control and meeting local requirements (See graphic, Diversity's impact on ERP strategy).

Although there are myriad possible variants, supply chain system strategies boil down to four primary deployment models:

1. In the single-instance ERP model, one large-scale system is the repository and hub of all information.

2. Multiple instances of the same ERP system, on the other hand, allow for some process variability while still maintaining consistency and visibility. This scenario brings with it challenging, complex IT operations issues. The number of sites involved, variability of processes, data consistency, volume issues—even time zones—can complicate matters.

3. A supply chain backbone model in which many, often disparate, systems are woven together via integration and data-sharing techniques may be best for companies with diverse products and processes. Here, better scheduling and control at the plant level is critical for sustained profitability.

To meet their financial closings and performance management needs, these companies often use simple rollups to gain information visibility without attaining coordination across linked activities.

4. Some manufacturers opt to step out of the ERP framework and tie together value chains by means of commerce hubs like E2open that connect all participants of a specific value chain. In E2open's case this includes many suppliers in the high-tech electronics industries.

Regardless of the decision made, the most successful companies tend to share three key attributes:

• A clear corporate vision with objectives that specify the right level of consistency and required cooperation across business units;
• A dedicated group tasked with rationalizing and improving business processes—especially those that require data consistency between sites or for corporate-level organizations such as procurement; and
• Centralized financial analysis of all projects and benefits using rigorous and credible measures. And, most important, recognizing who really benefits: the business or IT?

Today, most companies formulate their value chain strategy based on a foundation of ERP. In this regard, it's therefore fortunate that ERP vendors are the dominant players in most enterprise application segments, including customer, human capital, supplier, and supply chain management. Manufacturers that standardize on a fewer number of providers minimize the technologies and applications involved.

Today, all companies must develop capabilities to build, sell, and support products on a global basis. Succeeding will be based on information systems that speed innovation and customer service, and enable global visibility for effective decision-making.

If you don't yet have a long-term vision of how your multiplant ERP backbone strategy will unfold, now is the time to start thinking about it.