Acquisitions and mergers are rare in the steel industry, as they come few and far between due to steel's being such a small vertical. When an acquisition happens, which party really benefits in the end—the industry, the customer, or the organizations? To understand the scope of the recent acquisition of Advance Information Systems (AIS) by Products and Systems in Information Technology (PSI) AG, we need to take a closer look at the acquired company to understand the offerings, and how each entity involved will benefit from the acquisition.
The metals industry has seen its fair share of price drops due to recent economic events. As the economy turns and demand picks up, the steel manufacturing industry will need to realign cost and production in the most effective way possible. More and more effort is being made to measure and monitor plant floor operations in conjunction with the actual sales of and demand for the product. Another effort steel manufacturers are making is toward bringing efficiency into plant operations and energy consumption. Now, steel manufacturers aren't worrying only about what to produce and when to produce it, but also how to use the least amount of energy in operations and how to waste less energy in order to provide products that are manufactured as economically, efficiently, and cost-effectively as possible.
There are far too few vendors with expertise in and knowledge of the steel industry and steel manufacturing processes. But when one industry-specialized vendor acquires another specialized vendor, does it result in the delivery of a less imitable product for that industry? In the case of AIS and PSI, the acquisition is favorable for both parties and for the industry. So why did one industry-specific vendor acquire the other? Understanding such a move requires us to figure out if, by moving in this direction, PSI will be able to gain a leadership role by offering the only best-of-breed supply chain and manufacturing execution system (MES) solution for the steel industry. Let's take a closer look at the organization that has been acquired to become part of this best-of-breed solution offering.
AIS is a privately held company headquartered in Linz (Austria), with subsidiaries in Belgium, Russia, and India, and local presence in Latin America. AIS is a provider of IT solutions and services, focusing mainly on midsized to large organizations in the steel industry. AIS has more than 60 customers in over 27 countries and more than 100 employees worldwide. The annual revenue for 2007 was around 15 million (EUR).
AIS's major strength lies in developing and implementing a decision support solution for production planning and supply chain logistics. Many organizations have put their trust in the company's SteelPlanner suite of supply chain management (SCM) and MES solutions, which have made the company one of the leading providers of software solutions to the steel industry.
History of the Company
AIS has more than 20 years of steel industry experience in metallurgy and operations; its technological knowledge is evident (as I saw in a demonstration of one of its products) in its one-of-a-kind IT solution for production planning and scheduling. AIS helps organizations achieve their goals of reducing inventory and operational costs, and improving quality in processes and services. The company's primary focus has been on providing MESs and advanced planning and scheduling (APS) solutions. As part of Siemens VAI, AIS developed unique expertise in production planning and control, which helped it develop the SteelPlanner suite, a dedicated MES solution for the steel industry. To further develop the SteelPlanner product, VAI Metal Technologies acquired AIS Belgium in 2000 to include the state-of-the-art APS optimization capability. As the company evolved in 2004, AIS branched off, first from MCE AG and then from VAI to become a more independent provider of MES and SCM IT solutions. AIS was taken over by Riverside in 2006, with the aim of better positioning itself financially in the steel industry market space. In August 2009, PSI acquired AIS to further its offerings in the steel industry.
The AIS Product
SteelPlanner is the name of the main AIS product. SteelPlanner contains all the functionality required to integrate corporate and financial systems with shop floor automation systems. SteelPlanner is capable of planning, controlling, and optimizing the business processes of the steel industry only.
SteelPlanner was developed through collaboration between key players in the steel industry and AIS's expert developers. Due to the nature of the difficulties involved in steel production, an organization's requirements need to be taken care of in a suitable system—in other words, SteelPlanner has capabilities that address the complexity of steel production, with process issues ranging from raw material stocks to final product delivery.
The modules in SteelPlanner are dedicated to solving problems in areas of
- sales forecasting and sales planning
- order management and fulfillment
- rule-based production order generation
- capacity planning and optimization
- campaign sequence planning and optimization
- cross line material flow synchronization
- steel plant and caster scheduling and optimization
- hot mill scheduling and optimization
- cold mill and processing line scheduling and optimization
- material allocation and optimization
- production tracking and recording
- production and quality supervision
- materials management
- transport management
- dispatch management
One way AIS develops its product and services is through feedback from its clients. Many requirements specific to the customers' business needs are developed into the main SteelPlanner suite so that a customer can have a customized solution and not lose core business processes. But for future functionality, the research and development (R&D) teams at AIS consider all custom and major business requirements before making a functionality standard in the source code for other users in the steel industry; the functionality is evaluated and tailored for the general steel industry and integrated into product development.
Why AIS for Steel Manufacturers
AIS has tailored its product specifically for steel manufactures, in which industry the company has extensive knowledge. The team of individuals from all areas (i.e., R&D, marketing, and sales and operations) are dedicated to providing a best-in-class solution (one that is superior within certain categories). AIS's solution is backed up by strong customer references and several of AIS's customers base have partnered with it in developing a state-of-the-art supply chain solution. As suggested in an August 2009 press release, PSI knows that it will be beneficial to integrate the human capital of the two companies to drive greater return on investment (ROI) for their respective customers.
From PSI's perspective, the benefit of acquiring AIS is to provide the metal industry with enhanced products and services. AIS brings value to a company's entire supply chain and manufacturing operations. The SteelPlanner product is easy to configure and integrate with other enterprise applications. After interviewing a few of AIS's client references, it was apparent that the AIS product team has been able to deliver a high quality solution to its user base, by resolving issues as they arise at the various stages of implementation or post-implementation. When issues do arise, the AIS team is available to resolve those issues in real time. AIS is fast and flexible in addressing all issues a customer may have related to the software solution or implementation services.
Another benefit for manufactures is that the SteelPlanner product is modular, so if an organization only needs to optimize one process in its value chain, the product can add value one module at a time. Many SteelPlanner customers opt to adopt the modular approach due to the complexity of the manufacturing process; organizations often like to receive ROI on an initial investment before moving forward with implementing changes to the whole supply chain.
The SteelPlanner solution can be implemented and fine-tuned to the needs of the adopting organization. The AIS team has experience implementing to a wide variety of customers with multiple plant and multilayer planning methods. The AIS solution offers minute-by-minute planning, backward and forward scheduling, order visibility, available-to-promise, multisite planning, cost optimization, scenario planning (what-if analysis), variable lead-time planning, and variable bucket planning, based on the manufacturing capacity of the plants or factories. As mentioned above, the solution is modular so any module can be used in conjunction with the users' current enterprise resource planning (ERP) applications. As the AIS solution can be integrated with other systems, there is no need to move data or files around to get the full picture of the state of manufacturing and the supply chain.
Possible Challenges for AIS
While AIS has considerable knowledge of the steel industry and is experienced in manufacturing and SCM, AIS had no plan to diversify its product and industry range before the acquisition. Due to the limited number of potential customers in the steel industry, many MES and APS vendors with products that address the needs of the industry are moving towards marketing their products in multiple vertical industries. For example, Quintiq is focusing not only on steel, but also on logistics and a variety of process manufacturing industries.
PSI's focus, even after the acquisition of AIS, is to remain primarily on the steel industry by specializing only on specific metal-related verticals like construction and automotives. PSI's and AIS's combined solution offering will be much more "narrowed down" to address the metal industry and vertical markets, which could increase the challenge of finding new customers in an already saturated market. Adapting their offering to other process manufacturing industries would allow PSI to increase future financial growth.
Many APS, MES, and SCM vendors are partnering with larger or mid-market ERP providers to better position their product offerings. Prior to the acquisition, AIS wasn't planning to enter into a partnership with an ERP or any other vendor. But now, with AIS solution offerings under the umbrella of PSI, the company will need to change a few of the solution's technological aspects in order to be able to integrate with SAP ERP applications. As well, PSI has technological development similar to AIS, but services a variety of market spaces with a variety of solution offerings (i.e., PSI provides the metals industry not only with planning and scheduling modules, but also with energy management and infrastructure management capabilities). PSI can be fully integrated with SAP solutions.
AIS's Organizational Strategy and Future Trajectory
Even though AIS has been acquired by PSI, during a post-acquisition conference call with AIS I learned that both organizations' strategic approach for increasing the quality of internal resources and services is to use experiences gathered during customer deployments. Also, the product development strategy takes into account things learned through what-if analysis, implementations, and process reengineering. Previously, AIS's overall strategy consisted of building functionality significant to the steel industry; but since its acquisition, the strategy has not changed. PSI's focus has been production management and international presence in metals.
AIS solutions will be incorporated into PSI's solution offerings. The plan is to develop a single business framework that can support multiple user interfaces (UIs) that can be adapted to any organizations' requirements, regardless of size or location. According to AIS, the next phase of technological enhancements for its solution is to have an independent operating system and database to accommodate practically any technological setting and any size of manufacturing. This enhancement will provide the user base, as well as prospect customers, with a higher level of application reliability, scalability, and flexibility, combined with a user-friendly experience.
The current framework is in C++, with the intent being to move towards leveraging Microsoft .Net and Web Services technology. Most of the manufacturing industry has been slow in adapting to Web Services; the new trend is to have everything online and in real time. AIS will not be pushing manufacturers to jump at every new capability coming online for SteelPlanner solutions; AIS wants steel manufacturers to become accustomed to these changes in their own time.
AIS Marketplace Position
Post-acquisition, as stated in the conference call, AIS does not plan to shift its focus, as it would still like to be known as best-of-breed in SCM and MES for the metals industry. AIS has been offering its clients a unique pricing structure—no two AIS customers have the same pricing structure. The price tag for each AIS solution varies according to each customer's needs. AIS does provide an out-of-the-box solution with minimal customization, but the company is also capable of customizing to the specific requirements of each unique customer base.
AIS provides its customers with more than just a system or solution, it provides them a superior level of customer service and business process consulting. All of AIS's products present quantifiable and measureable results which can directly impact the bottom line of steel industry manufacturers—in other words, these manufacturers can see improved productivity and yields, and lower work-in-process (WIP) inventory and finished good inventory, etc.
Prediction
The market space for the steel industry will be harder to penetrate in the next three to five years, as most steel manufacturers will be using a planning and scheduling software system. The demand for software specifically for the metals market will shrink as more steel manufacturers come onboard with some kind of MES or APS tool. AIS has been acquired by PSI, but will continue marketing and selling its product and services to steel industry; as noted above, AIS will lose out on new growth opportunities in other sectors of process-based industries.
AIS's product is extremely customizable and modular, meaning it could be marketed for a variety of process industries. While it is clear that the majority of AIS's expertise lies in the steel industry, the product focus could be customized to a variety of specialized processes industries.
The compatibility of multiple technology platforms and more flexibility for data sharing and visibility have become critical for customers. It's key that the SteelPlanner solution be more scalable with regard to real-time changes and updates. This can be accomplished by incorporating the PSI Business Management Cockpit technology, which will further enable the customer bases of both companies to handle more complex fluctuations in sales and demand.
PSI and AIS both have a good share of the marketplace today, but no one can predict the future of steel prices. If the cost of steel goes down, there will be a corresponding downturn in the number of companies in the steel industry implementing solutions like SteelPlanner, as many will turn away from major system implementations for budgetary reasons.
User Recommendations and Summary
Acquisition and mergers usually bring some uncertainty to the table, in terms of what will stay in the product line, which company's human capital will be retained, what kind of expertise will be used to further the product and service offerings, and which features will stay and which will be dropped completely. With the acquisition of AIS, it's clear that the direction PSI has taken is to become the best-of-breed solution within the production and energy management space for metals industry—not just the steel industry.
When considering end-to-end visibility in manufacturing planning, it's best to look at best-of-breed solutions that can integrate with a company's current systems. It's easier to implement a solution that has partnership or alliance with other providers' solutions, because bundled or packaged services might be available. This way (i.e, if sales and planning modules are working via integration with inventory and finance), real-time dataflow and other compatibility issues that could arise with stand-alone solution providers will be eliminated. Being acquired by PSI will help AIS position its MES and APS applications as partner solutions to major ERP providers.