The Pressure is on Manufacturers

No industry in the U.S. has been hit harder by globalization or faces more challenges than manufacturing where the innovation and rapid growth of the past has become a much less likely scenario for the future. In fact, for individual companies—it's often no longer a question of the growth and profitability they can achieve. More likely, it's a question of whether or not they will survive as a company.

But, of course, all is not lost. As a manufacturer, the ability to innovate and adapt that served you well in the past can also serve you well in the future as your company strives to keep pace with its new business environment. You have many ways to take on your competitive challenges, but one response stands as critical, if not the most critical. That is improving the efficiency of your business.

• customer satisfaction
• innovative new product introductions
• effective supplier relationships
• positive employee morale

Because it is so fundamental, improving business performance has long been a focus of manufacturers. But in most situations, the easy gains have already been made - such as pruning the workforce, buying more efficient production equipment and negotiating better deals with suppliers. Often manufacturers have stopped short of upgrading their IT infrastructure with an advanced enterprise resource planning (ERP) solution, on the assumption that only the largest companies can expect to get a return on their investment in ERP. But the business environment has changed - and so have the options for leveraging sophisticated ERP capabilities. For many manufacturers moving to an advanced ERP solution may be the right next step in their quest to be more competitive. In this whitepaper, we offer insights into the business challenges that can make ERP the right next step for your business. We also offer insights into how manufacturers can leverage the business benefits of ERP and, among other things, level the playing field with competitors who have exploited ERP functionality for many years.

Telltale Signs: When an ERP System is Right for Your Business

Many of the warning signs prevalent at manufacturing firms are also the telltale signs that the time is right to pursue implementing their first ERP solution or upgrading a legacy solution that no longer serves their needs. Every one of the business challenges outlined below may not exist at your company, but the odds are that one or more will be familiar and this may indicate that implementing an ERP solution can have a significant positive impact on your business.

The inability of business applications to communicate with one another is a common challenge for many manufacturers. This scenario often occurs at manufacturing businesses who use standalone office applications like Quickbooks and Microsoft Excel to support their operations. It is also a common scenario for manufacturing companies that implemented early generation ERP, MRP or MRP II solutions many years ago, but whereby business has undergone significant change in the ensuing years. For manufacturers with early generation enterprise solutions, the problems are frequently aggravated by the fact that their maintenance contract has lapsed and the cost to bring it up to date or upgrade the solution with a new version is prohibitive.

When applications cannot communicate with one another, employees are forced to enter the same business information multiple times in different applications. With most workforces already stretched thin, this is a costly waste of time. Duplicate data entry also creates more likelihood for errors and inconsistencies that can hamper business efficiency.

Beyond wasted and error-prone activity, islands of automation also hamper effective decision-making because employees lack visibility into parts of the business that are beyond their immediate responsibility. For example, if a company has multiple, non-integrated applications, there is a greater likelihood that inventory control will be inadequate and the purchasing department will get caught off guard on the status of inventory essential to keeping the production line operating smoothly. Islands of automation also can adversely impact production processes because of the structural communications problems that prevent a business from leveraging lean manufacturing and eKanban practices. Finance and accounting processes often are hindered by poor internal communications capabilities. In addition, communications with customers may be adversely impacted because order management and fulfillment processes are inadequate.

The pressure to reduce expenses has faced manufacturers for many years and events are conspiring to make matters worse. First, the emergence of manufacturing in low cost countries has put more pressure on established U.S. manufacturers to meet even lower per unit costs. Second, the easily achieved cost savings have been identified and achieved. For example, staffing at many manufacturing companies has already been cut to the bare minimum, so the workforce is as lean as possible. And at several of these companies, old inefficient production equipment has been replaced with new equipment that works faster and more economically, with reduced energy consumption.

One of the only areas left to look is to optimize core business applications. This has seldom been the first place a manufacturer looks for cost reductions, in part, because of the perception that implementing a comprehensive enterprise software solution will be a complicated, disruptive and expensive endeavor. However, having wrung out the other inefficiencies in their operations, many manufacturers can no longer ignore the potential of an ERP solution to take their business to a new level of efficiency.

Innovation is how many manufacturers got their start and built a successful business. But innovation isn't a one-time event, a fact that is especially true given the heightened competitiveness of the current manufacturing environment. For many companies, and perhaps yours, innovation has fallen by the wayside as all efforts have been placed on getting the greatest return possible from the existing portfolio.

The problem, of course, is that because product innovation continues at other companies eventually every manufacturing company must innovate with new products or new business models. This need to innovate is driving many companies to look for ways to make their business more efficient, thus freeing up the resources needed to support major new research and development initiatives.

Customer expectations are increasing. They want more product variety, higher quality and faster fulfillment of their orders. The customers of manufacturers that have intense competitive pressures of their own are increasingly pressing for more information on orders. But for manufacturers, delivering the information about such things as production and delivery schedules is hampered by poor access to information across the enterprise. If this problem exists at your company, an ERP solution will help by enhancing your ability to communicate within your company and with your customers.

The ABCs of ERP: What an ERP System Can Do To Improve Your Business Performance

ERP systems can level the playing field for manufacturers that find themselves in a pitched battle against competitors by delivering a wide range of business benefits. With an ERP system up and running, small manufacturers are able to:

• Improve sourcing and procurement for reduced product costs and better inventory control
• Enhance order management and fulfillment for improved closure rates and stronger customer relationships
• Enable lean manufacturing and eKanban for more efficient production processes
• Collaborate across the enterprise for streamlined operation
• Improve finance and accounting processes for faster decision-making and better cash management

These business benefits are achieved as a result of a wide range of specific capabilities inherent in all current generation ERP systems. An ERP solution can improve your business performance because it:

Streamlines your business processes. With ERP, individual business processes are better linked so operational velocity increases as one event in your business automatically triggers the next.

Enables you to eliminate non-value add activities. The single, enterprise-wide database that is implemented as part of an ERP system means that data can be entered once and then used easily and error-free to support multiple business processes.

Creates a single dashboard for enhanced visibility. The linkage of business processes and a common database provides employees in one area with visibility into all parts of the business necessary to do their job. For example, the enhanced visibility enabled by an ERP solution means that your purchasing department can keep a careful eye on inventory levels and accelerate or slow down orders in ways that assure your production line is not disrupted by unplanned shutdowns due to parts shortages or your costs increase because of unnecessary inventory.

Enables you to invest in innovation. The reduced operational costs made possible by ERP solutions will free up money to invest in new products.

Enhances your reporting capabilities. With better linkage between business processes and better collection and analysis of information, an ERP solution will help streamline the process for creating business reports, while simultaneously producing higher-quality reports that facilitate better decision making.

Enhanced external communications. As an ERP system provides you with better visibility throughout your business, it also helps to improve the communication across your supply chain. This is particularly useful in today's environment as manufacturers are increasingly doing business with suppliers and customers in other countries and must rely on effective electronic communication to make this possible.

Reduces business risk. The combined capabilities of an ERP system—better communications, better reporting and analytics and more efficient production and non-production processes—reduce a company's overall business risk. Because an ERP system gives you better visibility into your business, you can identify potential risks with greater precision. And because you have more efficient business processes, you can respond faster and more effectively to individual risks and, in the process, better serve your customers.

You Can Choose the Approach to Take

Once it becomes apparent that a manufacturer needs to leverage ERP functionality, there are two basic approaches that can be taken. In one approach, the company will license either an end-to-end ERP solution or one or more best-of-breed solutions that address specific business processes. In general this approach also requires a company to purchase a maintenance contract to support the new solution and new hardware on which to implement the solution.

• Major upfront investment in new hardware and software is required
• There is a need to hire or contract new technical staff to keep the system running
• Significant time and expense also will need to be devoted to training the IT staff on the intricacies of the new system and in training other employees in using the system

The alternative to investing in new ERP software, new hardware and new technical staff is to get the ERP functionality your business needs from Software- as- a-Service (SaaS) provider. With the SaaS approach, there is a recurring monthly fee for a Web-based ERP solution. Typically the fees are based on the specific functionality and capacity that your business uses and can increase or decrease depending on your requirements.

The research of a number of analyst firms indicates that many manufacturers will increasingly be evaluating Web-based ERP solutions as a strategic move. For example, AMR Research was quoted in Managing Automation (12/28/06) as finding that although only 9% of respondents in a current survey are currently using on-demand or usage-based software licensing models for the ERP systems, 18% said they want to try the on-demand approach in the future.

An increasing number of manufacturers are discovering the advantages of forsaking an in-house ERP implementation in favor of an outsourced business model. Accessing ERP from a service provider has appeal for many manufacturers because it can deliver more business value, faster and at reduced costs than a purchased solution. More specifically, the advantages include:

Faster time to Value. With a Web-based ERP solution, your company can avoid the time, expense and potential for business disruption associated with the use of in-house applications. While most traditional ERP solutions take 6-12 months or more to implement, a Web-based solution can up and running in less than 3 months. Because you in effect plug your business into an existing state-of-the-art ERP infrastructure, the risk of disruption to your business is virtually eliminated. The speed to value is also better because employee training can be focused strictly on the business process level, leaving the technical details of running the solution to your service provider.

No upfront investment. By taking a Web-based approach to your ERP solution, upfront expenditures on licenses, maintenance contracts and new staff can be allocated instead to investments that directly improve your business, such as new product development, new production equipment or new sales and marketing initiatives.

Predictable, long-term costs. With a traditional solution, the initial license and maintenance agreements are only a small part of the real cost of ownership over time. Long-term liabilities also include the ongoing costs of new IT resources, each of which will cost approximately $100K per year. By contrast, with a Web-based solution, you know the total ongoing cost upfront. Monthly fees are aligned with your business needs because they only change if your capacity requirements change due to a business expansion or contraction.

Access to only the rich ERP capabilities you need. By working with an ERP service provider who specializes in manufacturing your company can get the industry-specific functionality that best meets its needs. In addition, storage is scaleable so you only pay for the capacity that meets your current needs. By accessing only these capabilities, you are not forced to purchase functionality and capacity that you don't require.

Availability of top-level IT expertise. Because delivering ERP is their core mission, service providers have IT experts on staff who know the intricacies of the ERP solution you are using and can more quickly and efficiently address issues that arise. By contrast, with a software license solution any problem that can't be handled internally must be addressed through the software vendor's support organization. In many instances the vendor will only advise your IT personnel on how to correct the problem, leaving the onus on your staff to make the fix.

Availability of the latest technology. As with IT expertise, ERP service providers have a powerful incentive to provide the most advanced ERP functionality available. A service provider will leverage its economies of scale to bring on line new ERP functionality that can boost the business value of your solution. What is a seamless upgrade process with a Web-based solution can be a costly and disruptive software re-implementation with a purchased solution.

Risk mitigation. With a Web-based solution, your company can take advantage of numerous security and risk-mitigation capabilities. For example, your key business information and systems will be housed in a dedicated data center with redundant power, fire protection, cooling and climate control and the capability to withstand hurricane-force winds. A well-established, timely back-up process can be implemented to protect your business from disruption due to unplanned business events and natural disasters.

Conclusion

With globalization a reality, manufacturers must make their business as efficient and agile as possible. In response, many U.S. manufacturers are adapting to the threats inherent in globalization by adapting their business model to focus more on the assembly of product components that are manufactured in low cost countries. In addition, many manufacturers are searching for ways to make their business processes more efficient so they can free up resources to develop innovative new products and strengthen customer relationships.

Regardless of whether your company sees its future in product innovation, business model innovation or both, leveraging a Web-based manufacturing ERP solution can play a fundamentally important role in the long-term success of your company.

Glovia Services, Inc. is a wholly owned subsidiary of Glovia International, Inc., a subsidiary of Fujitsu Limited (Tokyo Stock Exchange: 6702), one of the world's most experienced and solidly backed providers of extended ERP solutions for businesses of any size-from small and midsized companies to global enterprises. Glovia Services offers GSInnovate web-based manufacturing software from pluggable point solutions to a comprehensive on-demand ERP suite that provides for the unique needs of engineer-to-order, make-to-order, high volume and mixed-mode manufacturing environments through comprehensive, end-to-end functionality for the entire product life-cycle. Headquartered in El Segundo, California, Glovia Services has helped manufacturers to cut costs, improve productivity, and meet customer demands for over 30 years. For more information please visit www.gsinnovate.com, or call 310-563-8700 or 877-474-8896 (toll free).

Fujitsu is a leading provider of IT-based business solutions for the global marketplace. With approximately 175,000 employees supporting customers in 70 countries, Fujitsu combines a worldwide corps of systems and services experts with highly reliable computing and communications products and advanced microelectronics to deliver added value to customers. Headquartered in Tokyo, Fujitsu Limited (TSE:6702) reported consolidated revenues of 4.6 trillion yen (US$47 billion) for the fiscal year ended March 31, 2009. For more information, please see: www.fujitsu.com.

Glovia Services strives to equip manufacturers with the expert knowledge and best practices gained from our own manufacturing and technology experience. The GSInnovate Industry Insight Series provides manufacturers with the latest resources to effectively manage their business on demand.