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ERP & Co.: How Process Manufacturers Use Technology to Scale New Heights

Published On: September 16 2008

In this blog post, I’ll examine how growth-oriented organizations will build their IT infrastructure around ERP, and then integrate systems in other related areas to optimize their ERP capabilities.

In the Beginning There Was ERP

The recent TurtleSpice ERP series featured on the TEC blog features a fictionalized company within the process industry going through the decision process to determine what ERP system would best meet its needs. In the case of Turtle Spice, it was deemed that an integrated process ERP system would be the logical starting point to create a technology infrastructure—the premise being that as a growing concern, production and sales volumes are increasing, and clients are placing increased demands which cannot be met without a system by which planning and order execution can be organized.

Indeed, at each stage of the business cycle the need for timely and reliable financial information is critical, as financial performance will be the driver that permits the organization to grow and develop other markets and expand its product offerings. In addition, formulas have to be recorded in accordance with production batch sizes and for the purposes of traceability in order to satisfy compliance requirements. Furthermore, it’s essential to have the ability to track both finished goods for sales and order processing and raw materials for inventory re-order and replenishment linked to a purchasing module.

Thus, the ERP system should be the central control system by which subsequent systems can exchange information as additional applications are required. The Supporting Cast Although the TurtleSpice series does not make specific mention of other enterprise system requirements, it is not difficult to imagine that a similar organization going through growth would invest in other technologies. Some of these investments might be mandated by customers, while others could be required as a cost reduction and process improvement effort. Below are some of the systems that likely would be required.

Customer Relationship Management (CRM)

CRM is a methodology and software that assists in managing how an organization interacts with its client base in an organized approach. There are three primary activities within a CRM solution:

  1. Operational CRM  This consists of enabling an organization’s sales and marketing team to design a sales campaign based on research into demographical and order data.

  2. Enterprise Marketing Automation (EMA) Companies can use demographical and order data to develop programs around service and warranty requirements. Telemarketing sales campaigns can also be built around the collected data from the CRM system to sell warranties and accessories.

  3. Sales Force Automation (SFA) SFA automates the ability to track sales leads, schedule sales calls, coordinate responses on mailings from brochures sent by direct mail, and generate reports. Many companies have used CRM to optimize marketing efforts, resulting in greater sales and increased revenues.


Enterprise Asset Management (EAM)

EAM or computer maintenance management systems (CMMS) help organizations ensure that manufacturing equipment is maintained and serviced on a scheduled basis. This is of critical importance in an organization where breakage in process machinery could result in the inability to produce product and meet sales commitments.

There are two parts to this software: enterprise asset management and computerized maintenance management. These EAM side permits you to determine whether a part is cost prohibitive to maintain and when to purchase another. The CMMS side determines when a maintenance or a new piece of equipment is scheduled for repair.

As certain equipment repairs are unscheduled, EAM /CMMS will assist in ensuring that the correct resources (both material and labor) are in place. In a recent TEC article (Use a Computerized Maintenance Management System to Improve Predictive Maintenance Performance, by David Berger), strategies were analyzed on how these systems can benefit a firm to lower overall operating costs and store valuable information about maintenance functions within the organization.

Supply Chain Management (SCM) Systems

The discipline known as supply chain management is the essential activity responsible for the movement of products and raw materials as they flow from the vendor through the manufacturing and or distribution process to the end customer. The activities within SCM include purchasing, planning, inventory management, warehousing, transportation, customer service, and demand planning.

Within these activities you can analyze sales forecast to determine demand, plan production, negotiate pricing and ordering of raw materials, and plan and schedule manufacturing, warehousing, and transportation to the customer. To gain more insight into the complexities of SCM, read TEC analyst David Bourque’s article From Manufacturing to Distribution: the Evolution of ERP in Our New Global Economy. Below are some subsystems and activities within SCM that are useful to understand.

Advanced Planning Systems (APS)

APS systems support planning activity within SCM by means of quantitative methods. APS extends the abilities of ERP by analyzing sales forecasts, demand patterns, and economic ordering patterns

Warehouse Management Systems (WMS)

WMS is a vital part of any SCM strategy, as its primary focus is to control the movement and storage of inventory within a warehouse and to process related transactions (including shipping, receiving, putting away, picking for sales order processing, and allocation of warehouse space and bins to minimize material handling costs). WMS uses various pieces of technology, including bar code scanners, mobile computers, wireless LANS, and RFID. The fundamental reason for WMS is to increase the velocity of movement in the processing of sales orders. The system works in support of both ERP and SCM. Radio Frequency Identification (RFID)

RFID technology is used within SCM as a means to track inventory. The efficiencies and ease of use of of RFID will gradually supplant barcodes. The benefits of RFID enable companies to track assets from a distance and require less human intervention. They are useful as well for tracking obsolescent inventory and for maintaining real-time data. See the TEC article The Three Rs of RFID: Reward, Risk, and ROI for more on how retail organizations use RFID as a strategic part of managing their inventories and how it can decrease warehouse, distribution, and inventory costs, and increase profit margins.

Business Intelligence (BI)

An emerging tool no longer exclusively in the domain of large corporations, BI can provide organizations with means to manage data in a strategic way. In the case of manufacturing operations, obtaining and managing historical information—and manipulating it to make sound business decisions—can be critical. Below are some examples:

• key performance indicator development in the event of compliance-related issues

• formula adjustments

• trend analysis with respect to raw material commodity purchases

• data mining of customer order patterns

Quality Management (QM) Systems

As far as regulatory and compliance requirements are concerned, process manufacturers (such as the pharmaceutical and food and beverage industries) must track the sources of all raw materials and the dates on which products are manufactured and handled. A QM system will be able to track formula approvals, raw materials sources, lot number control inspection records, product and raw material specifications and packaging components, and product label instructions and information in the event of a product recall (or for inspection requirements from a government or regulatory agency).

Process Control Systems

As production volumes increase and as new products are developed or acquired, coordinating blending, batch manufacturing, and packaging may become difficult to handle manually. A central control room should manage a stable production environment and packaging operation linked to an ERP system, through programmable logic controllers to update manufacturing records and supply chain management.

A Final Thought

Obviously, technology alone does not guarantee the profitability of your firm. As with any IT acquisition, you must manage the process that assists in implementing change. At the end of the day, people manage change: the tools mentioned here can only benefit an organization if function, process, and people are aligned.

If you would like to obtain more information about any of these systems, please visit the TEC’s Vendor Showcase, or come to TEC’s white paper library to broaden your knowledge on these and other systems.
 
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