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The Steel Manufacturing Industry: What Use Is an ERP System, Anyway?

Written By: Khudsiya Quadri
Published On: August 11 2009

TEC regularly works with companies to identify the right software vendors for their industry and particular needs. I’m going to provide you with information about ERP systems and how they relate to steel industry requirements (note: you can always consult our Vendor Showcase to find out more about specific software vendors).

An ERP system is typically considered to be a company’s IT data backbone application, and helps integrate business activities across multiple departments and sites (or across the entire enterprise). ERP modules range from product planning, parts purchasing, inventory control, and product distribution, to order tracking, and provides business application modules for finance, accounting, and human resources as well. Tier-one vendors such as SAP and Oracle provide full suites of ERP business applications.

ERP applications have evolved with new technological innovations such as client/server architecture and service oriented architecture (SOA), which provide more flexibility to configure a system for your particular requirements. With the help of SOA, for example,  it’s easier to “break” an ERP application into small modular components which use industry-specific processes to communicate, interact, and operate. SOA has helped ERP vendors move away from the “one size fits all” methodology—as we all know, no two organizations have the same requirements.

In the steel manufacturing industry, the ERP application typically sits on the top levels of the business IT/manufacturing framework. See the diagram below for the different application layers within a steel manufacturing company; this diagram is very similar to a diagram contained in a document produced by IBM Global Business Services (see page 9), which I have modified slightly for the purposes of this blog post.



steel-manufacturing-framework2.png

[click thumbnail to enlarge image]

Integration of ERP with other business processes is key for the success of steel manufacturing organizations.

Here’s an example of a typical process flow in a steel manufacturing plant:

A customer order is entered in the ERP module, which communicates with the supply chain management (SCM) module to figure out which orders can be met by on-hand inventory or by creating a production plan. This information is fed back and forth between levels 4 and 5 on one hand, and levels 3, 2, and 1 on the other, so that a promise date can be sent back on customer orders.

The supply chain application provides a rough-cut planning from the demand planning module, which results in the creation of a production plan. Once the production plan is in hand, the work orders are created and marked against available stock on hand.

As the work orders are created, they are communicated to the MES application for load balancing and to make sure each production line is optimized according to the order sequencing. It’s crucial to convert the planned order from the SCM application right before the production starts, as that will feed into the ERP system, which will transfer all the requirements to the MES layer. The MES layer will define what quantities of orders will be converted into pieces of slabs, coils, etc.

The steel manufacturing framework described above helps organizations identify gaps among their different departments. Information must flow from level 1 to level 5 in for successful business operations. To find the “best ERP fit” in the steel industry, it is very important to understand the multiple layers of operations in steel manufacturing, as well as to understand which system needs to communicate with which layer, and at which point of the process.

ERP solutions satisfy a broad range of requirements, from financials to the supply chain, but when it comes to manufacturing execution, most ERP solutions have gaps in fulfilling the requirements. Areas such as financials, human resources (HR), customer relationship management (CRM), forecasting, planning, order management, inventory management, asset management, distribution, and transportation can be facilitated with an ERP system. However, detailed operations of scheduling, quality, production tracking, constraints planning, capacity planning, multi-dimension, grades, etc., can only be performed efficiently by industry-specific manufacturing execution system (MES)/advanced planning and scheduling (APS) applications.

The steel industry is so competitive in nature that it’s hard to imagine a steel manufacturer doing without an ERP application to manage day-to-day processes, ensure efficiency within the production plant, and provide real-time reporting visibility into the organization’s overall performance.

As there are many ERP software vendors for the steel manufacturing industry, it’s very difficult to say which one is the “best” ERP vendor. The most effective way of knowing which ERP software will fit your needs is to compare your business requirements against the functionality of the ERP software.

However, finding the best-suited ERP application for your organization can be an overwhelming process. So now the question is this: How to find the right ERP application for your particular needs? Unhelpfully enough, every vendor solution has its own strengths and weaknesses. It’s best to evaluate a solution based on how capable it is of providing features and functions that match your business needs and internal processes out of the box. Customization of any enterprise software is always expensive, usually risky, and probably not the best path to implementation success.

What do you think? If you’re in the steel manufacturing industry, do you think you require an industry-specific solution? Leave a comment below!

Alternatively, define your needs here and see which software products match your requirements.
 
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