PeopleSoft Gathers Manufacturing and SCM Wherewithal Part Four: Challenges and User Recommendations




Challenges

This article analyzes whether an array of recent PeopleSoft, Inc. (NASDAQ: PSFT), moves will finally and lastingly establish it as a serious contender in the manufacturing enterprise resource planning (ERP) and supply chain management (SCM) space. These moves are discussed in detail in Part One of this note. In a nutshell, we have been looking positively at PeopleSoft's mega acquisition of J.D. Edwards ever since its announcement in June, albeit not overly enthusiastically due to its inevitable challenges down the track. True, the PeopleSoft-J.D. Edwards merger was in a great part about retaining the big five (or big four, or big three) seat and about the need to be bigger within shrinking market opportunities.

While some tout that regardless of the industry, type of manufacturing environment, or product volumes, flow manufacturing principles can be implemented successfully, the concept has not been all things to all people so far. It is still challenging or even unsuitable to deploy in a jobbing shop that does highly configure-to-order (CTO) or engineer-to-order (ETO) products having high setup times and long lead times, although it has been occasionally deployed there with almost as much success as within high-volume, more repetitive make-to-demand environments. The fact is that only a minority of all ERP vendors properly support the ETO environments, let alone with flow manufacturing concepts. Cincom would be one honorable exception, given its Flow Manager product handles kanban replenishment and demand smoothing, but not line design and operation method sheets, since these features would not bring much benefit to ETO manufacturers. These customers often specify product families that include products that require one or two unique and expensive components in addition to their share of common parts, which could benefit from flow methods of smoothing spikes in demand.

The best candidates to adopt flow manufacturing included only a few certain industries like high-tech, aerospace and defense (A&D), and CPG. These industries can most feasibly achieve the feedback from reconfiguring the shop floor into dedicated production lines for product families around which flexible and cross-trained work teams are established. However, for other organizations that feat will not happen overnight, since achieving flow manufacturing takes more than moving equipment into product family production lines, creating flexible workstation teams, establishing quick changeovers, and introducing kanban signals. It also requires specific flow manufacturing training, continually maintained disciplines, and a process improvement mindset (for example, zero defects, zero setup, the use of standardized components, zero inventory, etc.).

Until very recently, there has not been much off-the-shelf software to help manufacturers institute flow processes, other than cumbersome spreadsheets and internally developed packages or practices to handle flow techniques, such as line design, line balancing, kanban management, and mixed-model production. Further, in addition to the lack of consensus on what exact set of features constitutes the flow manufacturing software, there has also been a philosophical debate about what flow software should do in relation to ERP/MRP.

On the one hand, JCIT has been advocating the misfit of ERP concepts of planning and scheduling, which do not allow a manufacturer to use a demand forecast as the basis for a reliable materials purchasing plan. Conversely, flow-oriented manufacturing starts with the earlier-mentioned process called demand smoothing a technique which involves looking at a forecast over a certain period of time (anywhere from one week to several weeks) and determining how many products must be built each day to fill the total amount of orders expected to come in over that time. The flow manufacturer will then ask its suppliers to deliver parts every day, with each shipment amounting to only enough parts to satisfy that day's quota.

On the other hand, there are some indications that flow systems cannot handle demand variability, variable product mix, shared resource constraints, or complex products with long lead times, which limits flow for items where variability is only at the end item mix, and not with frequent content variations of option mixes. For this, and all the above reasons, most manufacturers implement this method gradually and use flow to make one product family, which necessitates ERP, MRP, or APS for the rest of the business.

Thus, many prospects will be more amenable to the flow manufacturing product that is designed to complement an MRP II or ERP system rather than replace it.

This is Part Four of a four-part note.

Part One detailed recent announcements.

Part Two discussed the market impact.

Part Three covered manufacturing.

Supply Chain Challenges

Flow manufacturing does not address synchronizing around the supply chain, multiple partners, and suppliers, since it is merely an execution tool. Thus, it would be too nave to dismiss the need for proper planning, because regardless of how responsive an execution system may be, waiting for chaos to happen and only then trying to act, would be equally disastrous as it has been with compiling nearly ideal plans (through cumbersome algorithms) and never doing anything about executing them or obtaining a feedback about their outcomes. As supply chains become more dynamic and operate in near real time, the lines between planning and execution continue to blur, which bodes well for their functional convergence. Companies need real time information from execution systems to develop and adjust optimal plans. While the execution side should benefit from more realistic plans for the sake of readiness, rather than to merely react after the fact in a firefighting fashion.

True, PeopleSoft has most of the above capabilities on paper, but at this stage the capabilities are still spread over disparate product lines. While it is impressive that the vendor has been moving quickly to create parallel products, transferring functionality among PeopleSoft, JCIT's Demand Flow, and the former J.D. Edwards products to fill existing gaps, many competitors now offer these within more homogenous product suites. Many of the above competitors also have a partnership with JCIT, and some of JCIT's earlier mentioned high-profile customers have already selected the competitive flow manufacturing product.

There is also the alignment, cross-training, and integration of geographically dispersed PeopleSoft and J.D. Edwards sales forces to consider. Some consolidation will happen throughout the company's new global organization, although PeopleSoft wants users to be able to choose both systems and platforms that best suit them, from the Linux operating system (already generally available), Unix, Windows to IBM OS/400, and run whatever database and hardware they wish. PeopleSoft has already consolidated general and administrative expenses and will search for further operational efficiency by identifying consolidation targets among the merged entity's two sales forces, at least three product development teams (and technical foundations), some remaining indirect channels, and multiple support groups.

The nagging question remains whether and when the vendor will be required to perform some more careful juggling because as the intention is to expand rather than consolidate products, the integration plan is not yet geared toward the development of common components. Although this would be ideal cost wise, given the higher ongoing costs to support three product lines and plans for intellectual property exchange, the reality is different, and the need to support vertical industry sectors, for example, will mean there will be divergence within components even though the design aim will be to maintain as much commonality as possible. Unless it is carefully handled, this is one aspect that could have ramifications among the customer base when upgrading selected components. While this is not a short-term risk for the users, over time, product rationalization might cause some evolution and displacement of products, strategies, technology, and people. PeopleSoft will have to vigorously keep proving the reality of the current plausible high-level product blueprint, while creating a unified global sales strategy and sales force that can sell the right products to the right customers.

In addition to integrating existing modules, PeopleSoft will have to address some remaining gaps that the merger has failed to remedy. Both PeopleSoft and former J.D. Edwards have been somewhat remiss about their native product lifecycle management (PLM) strategy, resorting rather to the alliance with Agile Software. However, one could hardly imagine successful supply chain management without PLM collaboration, particularly within the vendor's industries of focus. Also, PLM is necessary for enabling the design for manufacture and assembly (DFM/A) and concurrent engineering concepts, which helps simplify product design to enable smoother flowing processes, which in turn means easier production scheduling. A flattened BOM, as a result of the product development and manufacturing processes being designed concurrently, in addition to being much easier to plan and schedule than a non-flattened multi-level BOM, has many other advantages—from reducing the production lead time to fewer parts to be picked, kitted, and handled. Not to mention that the engineering change order (ECO) management and the ability to quickly reflect product engineering changes in the line design are also tightly connected with PLM.

Nevertheless, PeopleSoft might be in the driver's seat provided it can leverage the JCIT and Carol Ptak's clout (given her ongoing position in the Supply Chain Council on the lean analytics special interest group [SIG]) amongst manufacturers and further educate them about the right measures, or key performance indicators (KPIs) that manufacturing businesses need to adopt to go and stay lean and agile. People change what they do when they change their mindset, which in turn might change when businesses change what they are measuring and tracking. To that end, PeopleSoft plans to release a manufacturing scorecard shortly and "throughput" analytics in 2004 as part of PeopleSoft EPM suite, which should provide financial and business KPIs, and associated business process automation, with relevant measures that would go all the way through companies, from the CEO, through the plant manager to cell and line operators and the departments. Given that lean/flow manufacturing concepts have been on the agendas of almost all manufacturers, the expected measures and methodologies will be useful for PeopleSoft to sway these prospects its way.

As a matter of fact, the recent moves should be the best way for PeopleSoft to further build composure and market confidence, and to fend off Oracle's hostile bid without shouting a blue murder (i.e., "atrociously bad behavior") and without expecting major help from anti-competition regulators. After all, acquisitions are part and parcel of a free market, and, given PeopleSoft's share of acquisitions, one should expect that what is good for the goose should be good for the gander too. In case of the takeover failure however, the chances of which we do not intend to predict, then 2003 and 2004 will likely be the years when PeopleSoft has at long last become a force to be reckoned with in the vast manufacturing arena.

Recommendations

PeopleSoft remains a fierce contender in a number of industries and is generally worth considering in HR, financial, CRM, professional and enterprise service automation (PSA and ESA), and SCM enterprise applications realms—it offers an attractive product portfolio, with dedicated ongoing service and support. Existing PeopleSoft customers should certainly consider the new offering, but bearing in mind the nascence of the offering and with looking at what the other vendors have to offer. PeopleSoft customers in the service industries and J.D. Edwards's manufacturing customers should continue with their current investments, while the enterprises with a mix of these formerly disparate products should keep a close eye on the vendor's integration plans. Conversely, PeopleSoft manufacturing customers and J.D. Edwards customers in service industries should assess the vendor's product plans given they might benefit if PeopleSoft shares functions between the product sets.

As for potential customers, PeopleSoft Enterprise remains a very strong contender in enterprise application selection processes within the following industries: utilities, healthcare, service providers, financial institutions, public sector, insurance, higher education, high-tech and electronics, wholesale distribution, and consumer packaged goods (CPG). It should be on a short list in any selection where HR or payroll system, financial modules, CRM, SRM, and e-business or self-service are the main pillars of an enterprise application. However, since the company has been touting significant manufacturing and supply chain product enhancements within its new release, current and potential users are advised to be informed about these, particularly in the above-mentioned industries. Enterprises, both existing and prospective PeopleSoft customers, should include PeopleSoft on their short-list when evaluating SCM packages featuring strong collaborative B2B e-commerce features. PeopleSoft Enterprise is the entire internet-architected big system, that is, for example, is aimed at high-tech manufacturers subcontracting production around the world. Such customers need real time collaboration, but not want to expose all their secrets to unwanted prying eyes.

Existing J.D. Edwards' customers should certainly welcome the improved vendor's posture and should consider the new offering bearing in mind the immaturity of recently released products, and the magnitude of still outstanding product delivery. They should evaluate the add-ons coming from the new products as a way to add value to their existing applications either with an interim integration solution now or by waiting for PeopleSoft to supply a generally available seamlessly integrated solution. Question the company's ability to deliver promised horizontal functional modules and vertical enhancements in short and medium-to-long term timeframes, and across different geographies.

One would be hard pressed to justify not including PeopleSoft EnterpriseOne (former J.D. Edwards 5) at least on an initial long list of vendors in a global manufacturing and distribution enterprise applications selection. Evaluate the product if you are a mid-market or a low-end Tier 1 enterprise (with $100 million -- $3 billion (USD) in revenue) and if your requirements fall within the scope of the traditional ERP and SCM offering, with manufacturing, logistics and financial modules as main pillars of an enterprise application. Key verticals sectors served are manufacturing and distribution, including CPG, food and beverage, pharmaceuticals, medical device, automotive, chemicals and general engineering. Asset-intensive and project-oriented service or manufacturing and distribution industries also score well. Finally, the company also targets high-tech and general industrial fabrication and assembly.

There is no preference on manufacturing style as the offering can fit in almost every environment from configure-to-order (CTO) and engineer-to-order (ETO), to process manufacturing and mixed-mode/hybrid manufacturing. Still, existing customers and prospects should thoroughly evaluate the vendor's vertical strategy to ascertain whether it will coincide with their business strategies. Former J.D. Edwards' value proposition remains a choice for rapidly changing environments particularly those with distributed plants, value system flexibility and openness, data scattered over several different systems or platforms, and the need to integrate that data into a single solution. To that end, Enterprise One is the general purpose web-enabled, multi-platform (UNIX and IBM iSeries) client/server system that is very scaleable and has strength in multi-tier plant environments. PeopleSoft's mid-market customers should demand more details from the product blueprint given that the PeopleSoft EnterpriseOne product is likely its main offering in most vertical industries.

Existing users of the IBM iSeries-based PeopleSoft Enterprise World (former J.D. Edwards' WorldSoftware) should be aware that the sexy CRM and collaborative SCM modules will be interfaced to their product through the XPI technology, and should inquire about a more detailed product integration strategy and coexistence. Many manufacturers that are still wedded to the AS/400 should relax due to "indefinite support" being offered, although the cost of maintenance of that service has yet to be determined. Despite such synergies, significant challenges remain due to product overlaps, technology differences and cultural assimilation. PeopleSoft has managed to keep itself profitable lately primarily by leveraging service revenues, including maintenance, and by focusing sales efforts on mining its installed base. J.D. Edwards' customers, therefore, should not be terribly surprised by increased maintenance costs or shorter release support cycles. Customers and prospects should watch how PeopleSoft executes its product expansion plans and its up-sell and cross-sell opportunities, given these will also affect its services' viability.

In principle, PeopleSoft's current users should react positively to the company's recent acquisitions and to future prospects as product expansion should allow them to address many outstanding needs. PeopleSoft Enterprise and Enterprise One products are likely to experience the greatest capabilities convergence, given PeopleSoft's apparent intent to broaden the capabilities of both product lines. Therefore, question PeopleSoft's officials to obtain a firm delivery schedule of intended offerings. As with all new releases, users should employ a critical approach in their evaluation of PeopleSoft products in light of still unproven technology such as mobile synchronization). You should and request the company's written commitment to promised functionality, length of implementation, and seamless future upgrades, particularly for recently announced offerings. In any case, account with the significant increase in technical skills of your IT department, particularly in XML, HTML, Java, Internet security and firewalls, LDAP, JavaScript, and so forth. As for the recent and still ongoing alliances, insist on long-term commitments to product integration and guarantees of replacing equivalent software in case the partnerships dissolve for some reason in the future.

While business process integration across products, data integration through a central data warehouse, and content integration through portal technology are plausible concepts that PeopleSoft has been leveraging to integrate into its product lines, users should discern the depth of the integration and whether the processes like "order-to-cash" are truly working seamlessly across multiple previously disparate applications.

 
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