Demand-driven Manufacturing and Warehousing: Challenges and User Recommendations

ASW Manufacturing and Warehousing

The global provider of enterprise resource planning (ERP) and supply chain management International Business Systems (IBS) offers a modular solution called ASW Manufacturing, which was developed as a demand-driven manufacturing solution geared to handle very fast manufacturing cycles and short lead times, small orders of custom products, and other customer demands. This is because with manufacturing resource planning (MRP) attaining and maintaining agility requires a lot of re-planning to meet customer needs, which causes the so-called "nervousness" of the system. IBS does offer flexible rescheduling tools that integrate with existing MRP systems for companies that have already invested in such systems. Given IBS does not compete in complex engineer-to-order (ETO) manufacturing environments, its manufacturing capabilities revolve around planning, execution, and monitoring high volume light manufacturing and assembly operations. It lets actual demand drive the user enterprise's production, ensuring supply chain flexibility, while planning on several levels and time frames to ensure maximum agility. The system also can configure and build products to company-specific requirements to effectively plan capacity, while handling complex product structures.

Demand-driven manufacturing is related to warehousing management, since the warehouse is no longer a static storage facility. It now has to use near real-time data to closely match supply to demand, eliminate the need to hold excess inventory, and increase the flow of goods throughout the supply chain. Therefore, due to the supply chain execution (SCE) software's capability to handle these complex requirements, there has been a trend of postponing many light manufacturing operations, such as final assembly, customized packing, labeling, engraving, etc. from shop floors to warehouses and distribution centers (DC). Consequently, a warehouse management system (WMS) package plays a key role in any company's manufacturing postponement strategy to delay the customization of products until after the products, or a set of common components, have left the manufacturing plant. To meet this need, IBS has added more functionality to its WMS module. The value-added services capability, which includes, kitting assembly and disassembly, multiple/multi-level bills of material (BOM), special instructions and labeling should help IBS' customers reduce the costs associated with their supply chains. In the supply chain, the most significant facilitators is postponement, and that is where kitting helps because it allows enterprises to keep their products in a more generic state for as long as possible.

The ASW Warehousing solution comes in two versions, including one for traditional and highly automated environments, and cover all the necessary functionality for efficient operations and management of warehouses. They provide the tools and functions for optimizing the use of space, while automating reception, put-away, location replenishment, picking, warehouse maintenance, packaging, shipping, radio frequency (RF), storage and product definition, and warehouse administration and monitoring. IBS' WMS process helps ordered be picked faster and with increased accuracy. Processes are based on product movement frequency, optimized resource activity through precise and accurate instruction handing. Fast return on investment (ROI) with staged implementation possibilities can be achieved.

Ultimately, the ideal WMS keeps items in the warehouse are moved quickly and as accurately as possible. The application must update all the quantities for a particular customer in real time, at the moment of picking. The system then makes up the work orders sequentially, and wirelessly relays this information to the screen of the forklift operator in the warehouse. The first item listed is the shipping box/package, which the operators picks up and labels. As the operator scans the bar code to confirm that the item has been picked, the next package in the queue and its location appear on the screen. Once the shipping box is full, it is sent to the packaging station where cushioning material and out packing material seal the package. From there, the packages are driven either directly onto a trailer or to a staging area awaiting the truck.

Employees, ranging from truck drivers to warehousing shift managers, only see the information they need, but can access more information, if necessary. As items move, a replenishment list is created so operators can move items from storage to the picking shelves. For more of pertinent information, see ERP and WMS Co-Existence: When System Worlds Collide.

Additionally, the IBS ASW suite has a pervasive built-in event or alert management, with triggers in the system to warn users of problems in the supply chain, enabling them to respond accordingly before it impacts the customer. This management by exception monitors critical or sensitive activities with exception rules and notification via multiple channels, and with reaction monitoring and audit trail. Some user-definable alert examples take place when a critical purchase order is not delivered or is late, when the particular customer account fails the credit check, or when an order fails margin limits.

This is Part Four of a four-part note.

Part One introduced the company.

Part Two presented ASW features.

Part Three discussed the market impact.

Challenges

Despite its promising initiatives and products IBS still faces problems: limited financial resources to adequately fund multiple key strategic initiatives, fledgling channel and brand recognition, and formidable competition within its target market (particularly the North American market) are the challenges the company has yet to overcome. Given IBS' ambitious plans to deliver a multi-platform object-based version of ASW built within the IBM WebSphere framework, and the aggressive spending by many of its larger competitors, IBS' research and development (R&D) spending levels might fall short of what is needed to keep IBS competitive. Because its resources will have to be handled prudently and sparingly, the R&D work of IBS will likely remain better suited to the more conservative mid-market companies that do not want to be on the "bleeding edge" of technology, and prefer to work with tried-and-true technology solutions.

Further, IBS is still largely dependent on the market in Sweden, which represents more than 50 percent of the IBS customer base. While non-Swedish markets are growing for IBS, many are not yet large enough to offset any major slowdown in the Swedish business.

Moreover, IBS has a low profile in the ERP and SCM markets, due to its traditionally low-key sales and marketing. Also, in many countries outside Sweden, IBS has had some irregular financial performances during the past several years, which the vendor will likely address with more spending on marketing and with more focus on select market segments. However, compared to many of its competitors that have more momentum in the overall market and are better known in the countries where IBS is attempting to break into, IBS will more likely emerge as a niche player rather than a global market leader for enterprise applications.

As a matter of fact, how many people know that IBS' SCM leadership in Europe (in terms of related revenues), is second only to SAP and ahead of the likes of Oracle, Swisslog, Manhattan Associates or i2 Technologies? How many people know about IBS' SCE leadership worldwide, being arguably third only to SAP and Manhattan Associates (again in terms of pertinent revenues), and again being ahead of the likes of Oracle, Swisslog, and Manugistics? Furthermore, IBS is under siege in its home market—Intentia and IFS are well entrenched in the manufacturing and some distribution sectors. SAP, SSA Global (owing to a slew of SCM acquisitions, such as of former EXE Technologies, CAPS Logistics and Arzoon), Oracle (especially through the former J.D. Edwards' products) and Adonix, have also respectively, moved in some European regions. Most significantly, the protracted sole reliance on the IBM iSeries platform still limits the number of deals that IBS is invited to compete for. Moreover, because IBS will not have a proven multiplatform capability until late 2006 at best, its market potential is limited to only those enterprises that are 100 percent committed to iSeries, which is a low-growth, but loyal, installed base, which is preciously the market IBS intends to address with its new focus.

Strategic partnerships, an essential ingredient to success, is another area that IBS has to improve. Traditionally, the vendor has partnered only where it was absolutely necessary, for example, in the area of electronic data interchange (EDI) or messaging, or when a customer would demand some. While IBS has not made public any formal product development or system integration partnering strategy, the vendor should increase the number of product partners it works with, and adopt a more partner-friendly strategy in the future. So far, IBS has occasionally partnered with former Synon, Premenos Technology (now part of Harbinger), or Frontec AMT for application messaging technology, but these are often one-off relationships (with the prominent exception of IBM) based on the requirements of an individual customer.

Still, IBS will likely continue with its approach to implementations, in that it does its own implementations, since the typical IBS customer is seeking a single, total solution provider, and the vendor has been able to derive more revenue by bundling hardware, software and services together. Thus, despite the inevitable challenges, IBS remains a stable company, as it has long demonstrated its ability to maintain a low-margin, relatively low-growth business.

User Recommendations

IBS' target market, multisite, and multinational distribution and manufacturing companies and their divisions within the IBS' industries and geographic regions of focus, should consider the company's value proposition, but avoid selecting it without looking at what the other vendors have to offer. IBS often comes ahead of larger global players in terms of functional fit, pricing, and understanding of the local requirements in the distribution area. However, customers outside IBS' successful geographies may want to do exercise due diligence and check its regional support before moving forward.

Enterprises that will find ASW and Virtual Enterprise functionality most appealing are technology conservative and risk-averse midsize companies with dispersed supply chains requiring an IBM iSeries-based solution to run in a sales office or a country sales operation where there is little or no IT resources, and where fast implementation and ease of operations are more preferable than depth of functionality and the latest technology "bells and whistles". Enterprises seeking a complete extended-ERP solution covering complex engineering and project-based manufacturing, enterprises in countries beyond IBS' current reach should evaluate alternatives. Because of its single supplier approach, the vendor should be evaluated in terms of the TCO for the entire solution (i.e., the hardware, the software, and the service and support). Yet, in situations where modifications to ASW are necessary, the resulting solution can see quite a higher total cost of ownership (TCO) over time, as it is costly to make the initial modifications to the package, and then expensive to maintain them during the entire life of the system.

On a more general note, manufacturers and distributors should understand the part and parcel of a more complete demand-driven solution, so that they can decide how much functionality they need for their business. Although many ERP and SCM vendors have been professing lean or demand-driven functionality, most of them still support some nuggets of pseudo just-in-time (JIT) ways of accommodating mass customization. Supporting kanbans or vendor managed inventory (VMI) to push inventory elsewhere (e.g., suppliers) rather than to reduce stock across the entire supply chain is a far cry from a truly supported lean or demand-driven manufacturing. On the other hand, MRP should not be discounted as useless just like that, since it will often have an important purpose that could and should be used together with lean or demand-driven practices. For example, MRP will typically handle planning, while lean deals with the execution. Manufacturers must also be fully aware of whether their system uses actual demand, sales forecasts, or a combination of two, in order to populate their master production scheduling (MPS).

Also, manufacturers need to do some preliminary work before even thinking about deploying flow manufacturing software, such as adapting their plants to a flow production model. In other words, they will have to operate in work cells that build families of products (rather than functional work centers producing large batches of components/products), and they will have established rules for sending replenishment signals to their internal, preceding work stations, and external suppliers. These changes will not happen overnight, and the process should begin with the conversion of a few appropriate products with relatively simple production processes, and then progressing to other product lines. Thus, many manufacturers happen to be in a hybrid production mode, with a part of the plant running according to the flow principles and the rest using traditional MRP methods.

One can never overemphasize the need for complete understanding of internal needs—from operations to IT to board level—and how everyone has to be on the same wavelength. While collaboration throughout the supply chain remains the imperative, collaboration within the company is just as important.