Tough decision at Freudenberg-NOK leads to enterprise system that fits the bill

It was, says George Molchan, CIO at Plymouth, Mich.-based automotive manufacturer Freudenberg-NOK General Partnership, “a pretty tough sell.”

Evidently not given to overstatement, Molchan is referring to management's reluctant acquiescence to his plan to scrap an enterprise system recently implemented at the company's Corteco aftermarket division, and replace it with a system from enterprise vendor QAD.

Yet the evidence was clear. As early as November 2004, in Molchan's first week on the job at Freudenberg-NOK, he visited the Corteco division and was disappointed at what he saw.

“There were a lot of very unhappy customers—both internal and external,” Molchan recalls. IT system staff were continually rebooting the system, and in the process trying to keep a series of disparate databases and applications synchronized.

As Molchan battled to stabilize the system, he came to realize that the automotive aftermarket lived and died by EDI, and that the system in place needed extensive customization to handle several standard types of EDI transactions.

In all, some 200 pieces of custom code would be needed just to give users back the level of functionality they had prior to the implementation—a level of customization so extensive that it would effectively create a unique version of the system, thus largely locking it out of seamless upgrades to new releases.

The system had to go, and so Molchan's team—led by Randy Whitehair, director of ERP, who had rejoined his former boss, Molchan, at Freudenberg-NOK in early 2005 to lead the stabilization process at Corteco—began the selling process needed to get the message over.

QAD was ranked the tenth largest enterprise system vendor in the world in last year's Manufacturing Business Technology Global 100. Of the 10, however, only it and Glovia International could be said to be solely focused on the manufacturing industries.

In fact, QAD focuses on just six manufacturing vertical industries: automotive, consumer packaged goods, food & beverage, electronic systems & components, industrial products, and life sciences.

QAD says this singular focus allows it to deliver software and services that are more fully integrated than point solutions, or what QAD refers to as rollups—that is, solutions resulting from ERP market consolidation following from mergers & acquisitions—while being easier to implement, lower in cost, and enabling a higher return-on-investment than solutions that try to meet the needs of multiple industries.

Founded in 1979 by Pam Lopker, its chairman and president, and Karl Lopker, CEO, QAD had revenues of more than $235 million in its recently completed fiscal year. Its installed base includes 5,500 licensed sites of both Global 1000 and midsize manufacturers.

QAD solutions manage traditional in-house enterprise functions such as order management, finance, and production; as well as extensions out to customers and suppliers.

In the last two years, QAD introduced its Shared Services Domain solution for companies with multiple divisions that need to maintain different currencies, charts of accounts, manufacturing configurations, and other business options in a single system. This flexibility can be important in global operations—e.g., it gives companies the option of using one centralized database to run multiple day-to-day business operations where central control makes sense; or in decentralized mode for autonomous operations.

In response to trends toward greater use of Web services, starting with its flagship MFG/PRO eB2.1 release, QAD offers a Web services-oriented architecture (SOA) achieved through use of Progress Software's OpenEdge and Sonic technology. SOA also has been adopted within QAD's QXtend integration framework.

QAD also will launch a distributed order management solution to further extend Shared Services Domain capabilities for global integration and local execution. A new interface, closely integrated with Microsoft desktop applications, is on the horizon as well.

Meanwhile, back at the Corteco division, “The welcome mat certainly wasn't out,” says Whitehair, recalling lengthy struggles that, as he puts it, “focused on winning hearts and minds one person at a time.”

The negative reaction was understandable, says Molchan. “They had twice gone over budget, had almost lost the business of a lot of significant customers—and then we came in saying, even though things are starting to settle down, we're going to rip it out and replace it.”

But it wasn't just the replacement plan itself. Within the Corteco division, doubts were expressed at Molchan's recommendation to turn to QAD's MFG/PRO enterprise system, which was in use within Freudenberg-NOK's extensive manufacturing operations.

Again, says Molchan, the pushback was understandable.

“These people were in the distribution business, had survived the worst implementation imaginable, and here we were, saying they had to rip out a distribution-specific system and put in QAD, a manufacturing-oriented system. If they were going to put in a new system, they wanted to look at systems running successfully in distribution operations—not in the manufacturing plants feeding distribution operations. Instead of MFG/PRO, they wanted DISTRIBUTION/PRO—and we didn't seem to be offering them that.”

But Molchan had assurances from QAD management that the system did indeed contain the functionality Corteco sought. The problem was how to prove it to a collection of battle-hardened and systems-savvy individuals “who just knew” QAD wasn't right for the business.

A deal with the Corteco division was hammered out: Molchan would show them what QAD had to offer, and if it didn't cut the mustard, the division would be free to look elsewhere.

The first QAD referral involved a visit to Mahwah, N.J.-based Sharp Electronics Corp. “The reaction was: 'The functionality of QAD seemed to work okay, but it's not a business like ours. Show us QAD working in a business similar to Corteco',” explains Whitehair.

The turning point came with a visit to the Wheeling, Ill.-based aftermarket operations of power transmission and motion control manufacturer U.S. Tsubaki. “When they returned, they said, 'Let's go'—and after that, we never looked back,” says Whitehair.

Extending an existing license agreement proved highly cost-effective, and a “significant investment” was avoided by using EDI-compliant QAD rather than building EDI compliance into the previous system.

Begun in January 2006, the September 2006 QAD go-live delivered significant benefits. For the first time, says Whitehair, there's a single, stable, system of record right across the business—both manufacturing and distribution operations.

The distribution operation at Corteco benefited, too. For a start, there's been a reduction of around 11 people in terms of the IT and business operations head count. Operationally, use of the QAD system led to a 49-percent improvement in the time taken to put away newly received items, a 34-percent improvement in the time taken to re-pick them for dispatch, and a 35-percent improvement in return merchandize authorization (RMA) processing time.

Boston-based Aberdeen Group's 2006 ERP in Manufacturing Benchmark Report confirms midsize manufacturers are struggling with a proliferation of aging ERP systems. The survey of more than 1,000 companies found 45 percent of midsize manufacturers have more than one ERP system, and 5 percent have four or more.

Says report author Cindy Jutras, VP of manufacturing and ERP research, Aberdeen Group, “We found aging implementations based on outdated technology are limiting the business process evolution necessary to any company that wants to thrive and grow amidst the pressures of globalization and increasingly demanding customers.”

Manufacturers find themselves with multiple ERP systems for three primary reasons: involvement in merger & acquisition activity; ERP decisions that had been left to autonomous divisions; and changes in corporate standards in which existing systems weren't replaced. Today, 71 percent of companies surveyed having multiple ERP systems intend to consolidate.

“Even less than seven years ago, at the turn of the century, the ERP solution landscape was far different than it is today,” says Jutras. “A healthy portion of ERP implementations more than five years old was selected from a menu of options significantly reduced from today's offerings. As a result, a wealth of home-grown and custom applications have been used to fill gaps left by ERP solutions of days gone by.”