Current and
Competitive ERP
Evaluate current ERP system capabilities and
determine how to meet future growth plans.
www.mpi-group.net.com
©2013 The MPI Group.
T
oday’s enterprise resource planning (ERP) solutions differ greatly from versions introduced even just a decade ago. The good news for manufacturers is that ERP continues to evolve as solution providers improve functionality, usability, and integration.
Even as a wave of consumer-driven technology trends change business processes (i.e., mobility, social media, apps development), ERP continues to be the foundation for operational success. Many manufacturers understand their need for up-to-date ERP systems: 12 percent of manufacturers anticipate that they will purchase systems and/or applications for enterprise management in the next 12 months. Why so many? Perhaps because only 40 percent of manufacturers indicated that they have effective systems and/or applications in place to support enterprise management.1
Multiple trends drive ERP evolution, including:
• Rapid uptake of process- and product-based technologies that promise immediate benefits to manufacturers: additive manufacturing/3D printing and cold forming; robotics and process automation; digital manufacturing and “lights-out” factories; and machine-to-machine (M2M) sensor connectivity.
• Cloud computing, SaaS, and server virtualization, all of which have opened ERP access to small and midsized producers along supply chains.
• Social business tools, which provide role-based “pull” capability to access critical knowledge within the vast data produced by modern enterprises. This trend not only accelerates processes and improves the outcomes of daily decision-making, but also is essential in attracting and retaining top talent who expect such usage.2
When reviewing the viability of their current ERP systems, manufacturers must be aware of available technology upgrades — and the competitive advantages they confer. Just as long-established industries such as automotive, heavy industry, metals, and chemicals have evolved, so, too, has ERP.3
When reviewing
the viability of
their current
ERP systems,
manufacturers
must be aware
of available
technology
upgrades — and
the competitive
advantages they
confer.
1 Manufacturing 2013 Executive Summary, based on MPI Manufacturing Study, The MPI Group, August 2013.
2 Social Business: Big Benefits for Manufacturers, Infor, August 2013.
Deloitte recognized this in a recent report on technology trends, calling for a reinvented ERP engine: “The traditional industrial-grade engine of ERP made sense in the days of rigid, automated, highly standardized business processes. Processes are a sequence of activities — planned, predictable, repeatable, and often inflexible. They should have a big, powerful engine to drive scale and efficiencies on well-defined tracks. The new event-driven world still uses processes, but they have become flexible, agile, and configurable based on the event that just occurred — within the core, or at the edge. The old engines could not process billions of events at near real-time speeds and allow this maneuverability. Thus the reinvented engine — a necessary condition for real-time processing of disparate data at competitive price points.”4
The Urgency to Upgrade
MPI research shows that most manufacturers lack the information technologies they need to stay competitive.5 About half of manufacturers have business systems
and equipment to support “current requirements” for six key growth strategies. Yet only a small percentage of manufacturers described their tools as “state-of-the-art,” capable of providing long-term support for the six strategies. What’s more, a surprisingly large percentage of manufacturers report that their systems either are inadequate for their current requirements or simply do not exist:
• Customer-focused innovation: 18 percent with state-of-the-art business systems and
equipment; 47 percent no systems or inadequate systems. • Human-resource management: 9 percent state-of-the-art; 33 percent none or inadequate. • Process improvement: 14 percent state-of-the-art; 24 percent none or inadequate. • Supply-chain management and collaboration: 11 percent state-of-the-art; 31 percent none or inadequate. • Sustainability: 8 percent state-of-the-art; 43 percent none or inadequate. • Global engagement: 8 percent state-of-the-art; 47 percent none or inadequate.
4 Tech Trends 2013: Elements of Post-Digital: Reinventing the ERP Engine, Deloitte, June 2013.
6 Anwen Robinson, “Time to Migrate? The Importance of Modern ERP for Successful Business,” Business Computing World,
June 6, 2012.
It’s important to note that huge numbers of manufacturers — from one quarter to nearly half, depending on the particular strategy — have no system or inadequate systems to support growth. This represents a huge opportunity for manufacturers to become more competitive through technology upgrades alone. Furthermore, the companies that upgrade sooner will reap the greatest benefits by aligning their systems with today’s rapidly accelerating business cycles. Customers waste no time changing suppliers and service providers in the global economy. A slight advantage today can equate to significant business tomorrow.
That’s why savvy executives are reviewing their ERP systems. Manufacturing executives should be concerned if they conclude their current ERP solution:
• Can’t allow staff to efficiently respond to customers’ demands for new product
introductions, specialization, and customization.
• Can’t support the fulfillment of customer orders as fast and/or at prices that
competitors can offer.
• Requires expensive IT modifications to keep up with changing workflows, new
business processes, and new production technologies.
• Struggles to absorb heightened demand on current processes, such as more
transactions, more users, multiple currencies, multiple locations, multiple types of assets/products, and great process variations (engineer-to-order, configure-to-order, mixed-mode manufacturing). • Relies on an IT department to produce custom reports and analysis, slowing down the decision-making process and leading to strategies based on old data. The price of ignoring these signs can be steep: “Outdated ERP can leave you dangerously out of touch. The more change your organization is subject to — growth and expansion, acquisitions, new product lines, etc. — the less you really know. A lack of available business information can become a significant problem, no matter how many spreadsheets and workarounds have been developed.”6
Customers waste
no time changing
suppliers and
service providers
in the global
economy. A slight
advantage today
can equate
to significant
business
tomorrow.
Choosing the Right Upgrade Path
If you need to upgrade your ERP system, consider three available paths and choose the one that aligns with your goals and resources:
• Modifying the existing system: According to Deloitte, many companies choose to keep licensed-based, traditional ERP software for the core of their businesses, ignoring opportunities for improvement. “Engineered systems, in-memory computing, and a broader shift to cloud infrastructure and platform enablement of parts of the core ERP landscape have the potential to improve cost and performance characteristics of the preserved core.”7
The benefits of this option are that it extends the life of previous technology investments and causes minimal disruption. Modifications require additional investment of time and money, and the “new” functionality of the end result may be limited, but for companies with large, deeply entrenched ERP deployments, the benefits of tweaking what they already have may outweigh the limitations.
• Adding to the existing system (point or two-tier solutions): Point solutions, such as best-of-breed solutions that focus on functions (i.e., warehouse inventory, human resources), can effectively improve ERP performance and functionality. Advantages are highly focused and deep vertical specialization, tight integration, and maintenance of organizational visibility during transition. Two-tier solutions are essentially multiple ERP systems working simultaneously, one core system with supporting systems running on top for specific product lines, units, regional operations, etc. As distributed decision-making replaces traditional top-down management hierar-chies and as manufacturers move to more “make-it-where-you-sell-it” corporate structures, two-tier ERP systems are becoming more common. For example, a new geographic market might require more complex configurations of a product family due to local regulations. A two-tier system can preserve the cost benefits of common production platforms, while allowing for cost-efficient customization. Adding on to an existing system also provides flexibility in aligning ERP to changing needs — both internal and in the marketplace — while maintaining corporate compliance. This is especially important for manufacturers in highly regulated industries that require not only detailed production records for compliance (i.e., medical devices, food and beverage), but increased flexibility in non-production functions such as HR.
Just as important, a two-tier option also may actually reduce costs, despite the purchase of multiple systems. These savings come via fewer modifications; shorter implementations; more frequent and less expensive upgrades; and lower maintenance needs. Additionally, this model keeps the door open to new market opportunities because a manufacturer can modify operations to match specific demands.
• Total replacement of the existing system: Sometimes the best option is to start from
scratch. This is often the case if a company’s growth has come mostly from acquisi-tion, and the integration of disparate systems is too costly or threatening to ongoing operations. Significant strategy shifts — restructuring or asset consolidation — can also render a legacy ERP system inappropriate for evolving customer needs. In these instances, it may make sense to replace an entire ERP system rather than to “make it work” with time-consuming (and often ineffective) fixes and workarounds. Savvy executives will review not only TCO of their existing systems, but the opportunity costs of not making an ERP change.
Fortunately, today’s ERP replacement approach is far less onerous than the big-bang (i.e., pain) implementations of the past. Cloud technology allows for development work without shutting down the old system, and a phased migration of data can ease the transition.
Choosing the Right Vendor(s)
It’s likely that over time, most manufacturers will adopt ERP systems that are hybrids of on-premises licensed software and cloud-based services; or a complete cloud-based solution, depending upon size, corporate structure, and needs. “With the growing realization of the importance of ERP, many companies have started to look at alternative (cheaper) methods of accessing the software. Cloud technology is one solution that is of great interest to small and medium enterprises (SMEs), especially as many of their traditional in-house functions may already have been migrated to this solution … A further benefit of cloud technology is that it allows greater flexibility; a company will be able to choose which elements of ERP are most suitable for its purposes. The idea of a flat fee subscription is also appealing to many businesses; the licenses have the added benefit of allowing multi-user access.”8
The cloud-delivery model has up-ended the entire IT solutions-provider marketplace and the traditional role of enterprise IT departments. Making the right ERP choices can be daunting for CIOs and CTOs. At the same time, the weight of those choices is at its heaviest because a wrong decision can stop production lines and profits. Key attributes to consider in evaluating an ERP solution include:
• Flexibility: Architecture for easy upgrades and adoption of new production and business process technologies.
• Return on investment: TCO that factors in anticipated changes in the number of users, locations, customers, and products.
• Breadth: Support of global expansion (multilanguage, reporting variations, compliance variation, etc.).
• Ease of use: Ability to support a dynamic workforce with variable skill levels, experiences, and backgrounds.
• Industry expertise: Specific vertical needs of the industry and customers (purpose-built), with anticipation of how these may change (scalability and agility).
• Flat, future-oriented platform: Support of collaborative, team-based, dispersed decision-making and execution.
Conclusion
ERP remains the foundation of manufacturing success at many firms. Savvy executives are conducting in-depth reviews to make sure that their ERP systems have evolved at least as quickly as their businesses have — and that their ERP providers are ready to help them well into the future.About The MPI Group www.mpi-group.com
The MPI Group serves leaders with research, advice, and performance-targeted solutions that provide a competitive advantage in today’s fierce marketplace. MPI combines the disciplines of research, strategic advice, knowledge development, and hands-on leadership to create a difference — in performance, in profits, and in the people who make them possible.