Tier 3 And Tier 4 ... Where Do You Go If You Don't Know, What You Don't Know.

  • Written By: Carl Livesay
  • Published On: May 15 2003



Introduction

For many small to mid size manufacturing companies it has become abundantly clear that in order to be competitive, there is a definitive need for strong technology systems. Unfortunately, technology needs are frequently preceded by immediate financial demands in payroll, capital equipment, and other areas. In many cases, these small to mid size companies have similar needs as their larger competitors. Without proper technology and information systems tools, their business is unable to successfully compete and the business suffers. Sadly, with the purchase of the tools, many companies suffer financially due to over purchase. Too often, a project will cost more than $150,000 when the project could be completed for a third to half the cost.

Consider these points: Many of the smaller manufacturing companies are family owned and operated. The senior staff is often comprised of family members and long term employees. Many times, these executives have limited experience elsewhere resulting in the stagnation of ideas, Additionally, there is an over dependence on executive seminars as a method to stay abreast of newer business practices. Seminars are a good source but should not be the only source. Unfortunately, independent business consultants are cost prohibitive for companies who need them most.

How then, do executives acclimate themselves to current methods, practices, and business issues. For example, where does the General Manager of a $15m manufacturing company go to get preliminary information about ERP Systems? Where can the executive obtain a sample preliminary requirements document for their specific NAICS (SIC) Code? What questions should be asked? What components should be included in the RFP? How does PLM (Product Lifecycle Management) integrate with ERP? How much integration is too much?

It has been my experience that the majority of consultative sales professionals provide good sound advice for customer purchases given a clear set of requirements. The challenge is getting a clearly articulated "requirements list" or ultimately an RFP. Absent of a definitive list of requirements there is little chance for the customer to select the best fit. To suggest that software providers will define customer's requirements thoroughly and that the customer will be sold only what they needed is nave. The software provider is looking to place their product. It is unreasonable to task software providers with defining your business needs. Software providers and business partners in many cases will rightfully, terminate the sale process as soon as it is made clear that their product is not a fit. Meanwhile, the customer still does not have a requirements list.

History

In the days, before ERP, when you needed a computer, you called IBM, if you were a manufacturing company, you purchased MAPICS because your finance people said so. Later, the IBM Systems Engineer showed up to install the software with your data processing department after everyone went home for the next three-day holiday (just in case). Next your data entry operators began entering data right away to an eight-inch diskette, which was then loaded into a 10-diskette magazine and fed into your computer by one of your three full time Data Processing people. After the diskettes were processed, your Data Processing department posted the batches of transactions after a series of edit reports were printed, reviewed, and adjusted.

Current Situation

Today, manufacturing business systems are dramatically different. Features routinely available in manufacturing systems were unimaginable 20 years ago. Now, the senior operations people in concert with engineering, quality, sales, and finance, weigh in on all major projects. Interestingly enough, all department needs are not equal and a weighted value should be assigned proportionate to each department's contribution in the issue.

In 2003, a small to mid size manufacturing customer can acquire a 15-user ERP system that may function on any or all of the major operating systems (Unix, NT, Win 2000, Linux or an AS/400 and so on). Software list purchase price for this system will range from $15,000 - $80,000 for essentially the same major features. There are subtle differences in the details workings of the system. After all, the devil is in the details. To compound the issue, the customer could purchase the system on a per user basis and should expect prices to range from $1,000 to almost $5,800 per user. Sadly, more money spent only means one thing for certain. More money spent. Add in the annual maintenance ranging from 12 21% of the software list price or purchase price depending on the product. Add the implementation costs (installation, deployment, tailoring, user education and training etc.). These costs will run from 50% to 200% of the software list price. A cool $7,500 to $160,000. Confused? Aggravated?

Small to mid size manufacturing companies seldom have a strong IT Executive (who acts as an independent consultant) so they are likely to engage an independent consultant $800 $2,500 per day to fill the gap. This may reduce or eliminate all together, initial planned savings. Total pocket price for projects can run from $20,000 to almost $200,000 for 15 users for essentially the same general features. With a variable like this, it pays to look at the details and purchase to your needs.

Adding insult to injury, how does a $15m manufacturing company compete with a multi billion-dollar giant for automotive supply chain business opportunities where margins are painfully low and competitive? Additionally, PLM (Product Lifecycle Management) and ECN (Engineering Change Notification) require singular database sources shared with ERP. BOM management and configuration management combined with industry AIDC requirements for automotive certification make it almost impossible to compete without a strong thoroughly integrated information system. The most value comes from Industry Professionals who have previously traveled this road. This experience has the potential to save thousands of dollars if you can tap into it. Where is it and how do you get to it?

One solution is for there to be a discussion forum where Manufacturing executives can openly and confidentially discuss their business issues, concerns and practices with other executives and industry professionals.

ERP Selection Process

ERP selection is a science not an art. Business needs can be well defined economically. Perceived obstacles in business processes for one product are features in another. Scalability is no longer an obstacle. Entry prices have come down. In short, tier 3 and 4 ERP Providers and their Business Partners have overcome many barriers to entry. If you haven't seen them lately, you haven't seen them.

At last count there are over 8,000 ERP Providers and over 25,000 Business Partners. Each one has at least one target market. Contrary to what others in the tier 1 and 2 market have said, one size doesn't fit all. Especially in the Tier 3 and 4 marketplace. Which ERP Providers offer the best fit for your business? Like the odds? Which ones target your business type?

ERP Projects can be broken down into four major steps

Evaluate the current business and determine the proper course of action. Document your findings. This is the foundation for your RFP and the checklist for project completion.

Validate your observations, the processes and the business model. If it's broke fix it. Now you know what your needs are. Facts, not perceptions. Most ERP Providers and Business Partners welcome this level of thoroughness. If their product is a fit, they know exactly how to position it. If not, they will excuse themselves from the project to avoid investing time (and money) in sales which they are unlikely to win. Ask yourself; do you still need an ERP System or a replacement for your existing system? If so, and most will, you now have scrubbed business processes and all of the components for a thorough RFP and Demo Script. Ironically, you have not needed to contact a single ERP Provider or Business Partner.

Eliminate waste. Identify non-value added activities and remove them. Reduce steps. Dispose of non-value added activities where ever possible.

Accelerate the now tuned business processes. Select and deploy ERP and automate effective processes. At this stage, customers have the business processes identified, documented, planned adjustments in place and a product (or products) to address the business needs.

Follow these steps and project costs will drop. Risk is reduced, projects flow smother and there are significantly fewer surprises. Preparation and documentation are the keys to success.

Business Requirements for the Small to Mid Size Manufacturer

Small to mid size manufacturing companies today require nimble business processes running on supportive systems delivered at record low total cost of ownership and requiring little or no ongoing technical support. Executives in today's market need resources with experience. Direct, pointed, factual and fast. All of these are readily available (and have been for years) to companies who can afford it. The challenge is to deliver these tools to the companies who need it most and to those who can least afford it. It has been accurately said "experience is the best teacher, especially when it is someone else's experience."

Senior Level (C Level) Information Systems executives are an excellent source having evolved into internal independent consultants. These executives effectively cross department boundaries and are often tasked with research and development projects in cross-functional business areas. Senior IT Executives quickly become impartial subject matter experts representing their internal customer's interests exclusively. But, what if your company cannot afford an information professional of this caliper? Independent Consultants fill the void on an as needed basis. At an average fee of approximately $1,600 per day (plus expenses) they are effective but costly. How does a small to mid size manufacturing company address their information systems needs? How do these companies compete?

Now consider the evolution of the ERP market place. Consider this relatively recent turn of events. The Tier 1 software providers have saturated their original marketplace. Next the Tier 1 companies moved into the Tier 2 marketplace, Tier 2 have come down to the Tier 3 and 4-market space. So what is wrong with this situation? Software pricing has dropped; these products are pre-configured for smaller niche industries. Features previously available only to select few (extra large) are commonly available.

The problem is long-term affordability and upkeep. Deployment of the larger Tier 1 and 2 products dwarf Tier 3 and 4 in deployment cost, complexity and ongoing support. Manufacturers in the Tier 3 and 4 market place should be careful not to be blinded by the false perception of prestige associated with "me too" when discussing ERP products and services previously available only to larger companies.

Tier 3 and 4 companies continue to represent the largest quantity of opportunities several times over. Proportionately they also have the lowest TCO per user. Limited project dollars demand, accelerated tasks performed with precision. "A sharper saw". Implementation is measured in weeks instead of months. Tasks are measured in days. Post sale implementation teams are lead by strong project managers who routinely assign the customer pre-requisite tasks which are validated as complete prior to consultant arrival. This is a very effective step in the transition of project ownership. In the small to mid size manufacturer, the emphasis is on teamwork. When the ball is dropped, everyone scrambles. Outside consultants are used as subject matter experts and occasionally as ringers on a temporary basis.

Many Executives Don't Know What They Don't Know

Given that most small to mid size manufacturers do not have an internal independent consultant (CIO) on board, how do they get the necessary information to identify, select and deploy the best solutions for their specific business? What is the best way for an executive to stay informed about topics relative to their specific interest and business? Where does an executive obtain feedback and advice from peers without someone's meter running?

One way is to network with industry professionals. Collaborate with other executives and companies. Take a consortium approach to projects. Gain access to white pages analysis, requirements documents and RFP's. Use templates and tools for your specific manufacturing business. Ask the questions you are interested in. Solicit feedback. Discuss the issues, concerns and opportunities openly. Share experiences, good and bad. Show others your battle scars, learn from theirs. Many executives need occasional advice or a sounding board to confirm their direction and decision matrix is sound. ERPSearch offers these valuable resources and a resource directory so members know the frame of reference from which the advice originates. For this reason, ERPSearch.com was formed.

Discussion Forum for Manufacturing Executives

At ERPSearch.com, manufacturing executives openly and confidentially discuss their business issues, concerns and practices with other executives and industry professionals. There is no charge to executives for this service. ERPSearch has created a network of Business Executives, Independent Consultants, Software Providers and Business Partners for the purpose of discussing industry topics. Interestingly enough the tables are turned. Software Providers, Business Partners, and Independent Consultants pay a small monthly fee to talk with the Executives. All Members are validated in the positions they claim and there are no false memberships. When an executive represents they are the GM, you can be certain you are communicating with the General Manager. No moderator's filtering your discussion. ERPSearch is a different level of discussion specifically for executives.

  • Need to find a way to capture performance indicators using your ERP System?
  • Want to know the difference between machine hours and cycle time?
  • Why should you consider using a magnetic scheduling board before deploying your ERP system scheduling system.
  • Can a well-defined RFP response be used as an attachment to your software license agreement?
  • What sequence should your implementation be completed?
  • Need a recommendation for bar coding software that meets automotive standards?
  • Want to know what the proper ratio of setup machinists to operators is for horizontal, vertical or turning centers?
  • What bar code system works best with your ERP product?
  • What ERP products are other companies gravitating to?
  • Need to find a company to provide EAI or customized integration between your SPC, MES and ERP Systems?
  • Should you use a store and forward or RF bar code system?
  • Need to find a shop floor specialist?
  • How do you deploy finite scheduling without collapsing your schedule?
  • Where do you find experiences CNC programmers who understand standards and methods for attacking new projects?
  • What CNC network plays well with your job shop product and your machine controllers?

In today's market, small to mid size manufacturing companies are forced to stretch every dollar. Performance demands are at an all time high. Most are still recovering from severe business declines in the last two years. Regardless of the plans for the future, survival is the word of the day. Think of the discussion forum at www.ERPSearch.com as a survival kit for small to mid size manufacturing executives. Straight talk about issues important to you.

Points to Ponder

  • Think you need an ERP System?
  • How do you know?
  • How do you cost justify your investment?
  • If you do need an ERP System, should you purchase a general product, which is extremely easy to modify and customize for your business, or should you look for an industry vertical offering, which was designed, specifically for your business type?
  • Is your business truly unique or just unique to you? Do other companies face the same issues?
  • What questions do you ask of your internal team to determine your real business needs?
  • Which departments have the most to gain or loose with the deployment of a new system?
  • If you have the list of requirements, how do you get it to the right potential partners and providers?
  • Want to know which PLM product is easy to integrate with your ERP system?
  • What SPC or MES system offers the most accessible data for report writers?
  • What companies have the most experience integrating ERP, PLM, and AIDC for your industry?
  • How much should a small manufacturing company budget for IT? Many reports say that 2.5 3.5% of gross revenue is reasonable and it may be. Given that rule of thumb, a $15m manufacturing company has $375k to $525k per year for Information. A technology centric business involving robotics, heavy in the areas of MES may actually require more than 3.5% especially if government compliance is an issue. On the other hand, a light assembly operation may have a reasonable budget of $150k.
  • Is information a scorecard for your business or a competitive weapon?
  • What will you do differently if you have the information you have described?
  • Will you decisions be different?

Independent consultants providing senior level manufacturing executives with access to valuable resources run ERPSearch.com. Resources include industry experts, consultants, software providers and other manufacturing executives. There is never a charge to the manufacturing executive. Industry experts, software providers and business partners are encouraged to demonstrate their expertise resulting in a strong sense of teamwork among members. Straight talk, direct responses, effective solutions. www.ERPSearch.com

About the Author

Carl Livesay is the founder of ERPSearch.com and an Independent Manufacturing Consultant. Carl has over eighteen years of operations experience in small to mid size manufacturing companies ranging in size from 5 to $150 million in annual sales. This Tier 3 and Tier 4 focus has earned Carl an exceptional record in business process improvements, operations management and lean manufacturing. Carl is a nationally recognized manufacturing expert and a regular speaker at ERP conferences.
Carl
can be reached by phone at 410-795-0866 or by email at Carl.Livesay@ERPSearch.com

 
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