PeopleSoft's Manufacturing Ploy
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 great part about
retaining its big five (or big four, or big three) seat and about the need to
be bigger within shrinking market opportunities.
However,
even before the mega merger PeopleSoft had already set it sights on a bigger
manufacturing presence. First off, a year ago or so, PeopleSoft appointed Carol
Ptak to head up its global manufacturing division. Ptak was the past president
of APICS, high-profile manufacturing expert with a number of acclaimed published
works, and the co-author of the bestselling book Necessary but Not Sufficient
(with another recognized theory of constraints [TOC] guru E. Goldratt),. At
its recent PeopleSoft Connect US and European user conferences,
PeopleSoft repeatedly pointed out that it has been very serious about the manufacturing
industry. In hindsight, Ptak's hiring followed up by the high profile acquisition
of mid-to-large ERP system developer J.D. Edwards this summer, and most recently
demand flow and lean manufacturing software solution from JCIT, might indicate
some deeply thought out process rather than a number of impulse initiatives
from the past.
Ptak
is the VP & Global Industry Executive but the actual relevant product development
is still driven by the SCM product pillar under Patrick Quirk. He is one of
the other key manufacturing personnel that PeopleSoft has added in the last
few years, prior to the J.D Edwards acquisition. The whole move to lean manufacturing
has been driven by several people and Craig Conway personally recruited Quirk
to drive manufacturing applications development. Quirk is the VP and general
manager of PeopleSoft's supply chain management division. He leads the strategic
direction, product development, global marketing and customer support of PeopleSoft's
supply chain management solutions. Prior to joining PeopleSoft, Quirk was the
VP of Strategic Accounts at i2 Technologies, where he managed deployments at
Dell, IBM, HP, and Sun
Microsystems.
To be fair, PeopleSoft, although known primarily for its HR, financials, and CRM software; and its publicized leadership in pure Internet architecture, had manufacturing-oriented ERP functionality way back in its PeopleSoft 7 release. The functionality was initially built in the mid 1990s, when industry was moving away from traditional materials requirements planning (MRP) or advanced planning and scheduling (APS)-based inventory management to more actual demand-driven management.
Although increasingly professing manufacturing interests, PeopleSoft in 2002 still saw the strongest focus on the financial services sector, followed by professional services, health care and higher education, and then manufacturing, distribution, and retail. Nevertheless, the vendor had manufacturing functional coverage within its ERP suite and was able to claim coverage of many common manufacturing styles. Looking at the high-tech sector, for example, it had the support for multi-mode manufacturing, global supply chain visibility, and APS optimization. The PeopleSoft industrial products offering handles mixed-mode manufacturing dealing with make-to-order (MTO), private label, custom-made, original equipment manufacturer (OEM), and catalog-standard components, whereas its utilities suite focuses more on the web-based solutions and analytics for distributed asset management and optimization. Even with all this functionality, the vendor had not invested as much in the people and execution as it had in for example, the financial and service sectors.
Furthermore,
the elements of lean manufacturing functionality such as "flat" bills of materials
(BOMs), product family planning, and "phantom" BOMs, which were introduced within
the PeopleSoft 7.5 release as the PeopleSoft Flow Production
System (based on the Toyota Production System), had
never made it into PeopleSoft 8 due to all too common "other priorities," which
again might testify to PeopleSoft's earlier non-manufacturing focus.
This
is Part Three of a four-part note.
Part
One detailed recent announcements.
Part
Two discussed the market impact.
Part
Four will present challenges and make user recommendations.
Boosting Credibility in the Manufacturing Industry
Letting
bygones be bygones and buying JCIT's technology should further bolster PeopleSoft's
credibility in manufacturing. On the other hand, for J.D. Edwards, manufacturing,
asset-intensive operations, and SCM have always been core competencies and thus,
its purchase has already given PeopleSoft royal credibility—particularly with
the company's unrelenting approach in continuing to promote all its combined
product lines, as indicated earlier. Consequently, the manufacturing strategy
will be driven be the Denver-based Enterprise One organization, led by Les Wyatt,
VP and general manager of current PeopleSoft's Enterprise One division. He is
a former J.D. Edwards' veteran, with nearly twenty-five years in technology
marketing, including twelve years of software-industry experience. Formally
educated in mathematics and computer science, most of Wyatt's experience has
been in progressive marketing roles, owing to his intimate knowledge of the
e-commerce and enterprise software industry. PeopleSoft indeed pledges to explore
the power not in consolidating these platforms, but rather in enabling interoperation
between them at the people, process and data levels, by leveraging a mix of
common portal technologies, Web services and data warehouses—with common a look
and feel where appropriate. Also, PeopleSoft touts the potential of transferring
"domain expertise" and technology between the systems to expand each one's functionality
natively—and only then building additional tools on top. An example of the first
would be the PeopleSoft SRM infusion into PeopleSoft EnterpriseOne
(the former OneWorld product), while, conversely, PeopleSoft
CRM will benefit from the service and warranty management capabilities of J.D.
Edwards. An example of the latter is the forthcoming graphical Solutions
Modeler application, and several imminent analytics and portal applications.
PeopleSoft
and J.D. Edwards have also both been renowned by their respective integration
capabilities, which should come in handy particularly now. As for PeopleSoft's
technological foundation, the product is portal based and requires only a browser,
it is scaleable, multi-lingual (with the support for Unicode, which is yet to
be delivered by competitors en mass), with embedded security, and founded on
open technology (e.g., XML, SOAP, UDDI, Java, etc.), and while PeopleSoft's
wholehearted endorsement of Web services. PeopleSoft's architecture should challenge
competitors' offerings with its advanced homegrown XML messaging hub middleware
called PeopleSoft Integration Broker, and application programming
interface (APIs) options that promise to ease bidirectional integration (either
via application messaging, business component interlinks, an application engine,
or workflow).
Further
illustration of integration is the ability to have elements of the portal delivered
as Web services and the creation of a standard interface for the portlets (Pagelets
in PeopleSoft's case) displayed in the portal window. PeopleSoft's focus on
supporting the above trends and on delivering the portal as an overlaying personalized
user interface may prove to be a crucial bet. An intuitive portal might prove
to be a simple and effective way to integrate process-centric information from
disparate systems, and possibly to subtly "hijack" the user base of other back-office
systems, as elements of different vendors' products should become interchangeable.
Having garnered a deep set of integration capabilities, and many of the above
features such as Intelligent Context Manager, might differentiate
PeopleSoft within the enterprise portal market, where together with SAP,
it remains at the forefront of ERP vendors' portal offerings.
Using
a deliberate approach of not jumping injudiciously on every technology bandwagon,
the former J.D. Edwards had by-and-large successfully taken its customers from
mainframe-based systems to the Web without resorting to a rip-and-replace'
strategy (in an evolutionary rather than revolutionary manner); and the company
did this while delivering an increasingly broad set of solutions. The company's
applications are 100 percent web-enabled using Java 2 Enterprise Edition (J2EE)
and HTML. All of its applications also work on Microsoft Windows CE
at the lowest user interface (UI) level. Meanwhile, extensible markup language
(XML) is native to the product. It fully supports mobile technologies, particularly
in applications like its CRM, rendering it a technology-agnostic suite supporting
all of the leading industry-accepted platforms. The company had instead tried
to differentiate itself from competitors by embedding enterprise application
integration (EAI) into its former OneWorld Xe product through its external process
integration (XPI) layer—an XML-based interoperability engine and architecture
that handles data, process, and workflow integration between enterprises.
Impact of JCIT Acquisition
With
the acquisition of JCIT's Demand Flow however, PeopleSoft has joined the selected
few ERP and niche flow specialist software vendors explicitly able to deliver
comprehensive lean manufacturing support (for example, Oracle, American
Software, QAD, Baan/SSA Global, SoftBrands,
SAP, Factory Logic, Cincom,
CellFusion, Invistics, DTAKT Systems,
Pelion Systems, Portico, etc.), given the
JCIT's technology, combined with PeopleSoft's existing product lines, should
help its user organizations become lean, both in production plants and their
supply chains, and thereby be responsive to frequent changes in production mix
and volume while still reducing operational costs. As mentioned earlier, both
PeopleSoft Enterprise and EnterpriseOne products already had some nuggets of
lean functionality, like kanban planning, line design and balancing, flat BOMs,
and backflushing (automatic post-deduct inventory transaction processing).
The lean philosophy has lately been getting an increased interest with the prospect of breaking like a huge wave across industry, given that the ERP systems of the 1990s have been burdened with a liability of carrying on some well-publicized MRP problems like complex BOMs; inefficient workflows; and unnecessary (i.e., no value-adding) transactions, activities, and data collections. While several years ago prospects were inquiring about lean capabilities mainly in a tentative way, they seem to be increasingly requesting these capabilities nowadays. Thus, with the JCIT product acquisition, PeopleSoft gains an upper hand to deliver technology, consulting, and education that should enable companies to transform themselves into demand-driven enterprises.
For
a detailed discussion of lean manufacturing systems and traditional MRP see
"Pull
vs Push: a Discussion of Lean, JIT, Flow, and Traditional MRP".
Indeed, JCIT has been the pioneering source of the philosophies and techniques behind flow manufacturing. Flow manufacturing is a method that replaces shop-floor silos (i.e., machines grouped by their function) and traditional scheduling and forecasting with process-based or product family-based production lines (often referred to as cells) designed to fill orders based on daily demand. The idea is to be flexible enough to keep work-in-progress (WIP) moving smoothly and continuously, while eliminating bottlenecks and the underutilization of capacity. This particular flow derivative of the lean philosophy was developed and refined by John Costanza. Mr. Costanza leveraged what he learned from his exposure to the Toyota Production Model and what he subsequently applied while working at Hewlett-Packard to develop specific disciplines and mathematical techniques for implementing demand pull and continuous flow concepts. He named this methodology Demand Flow Technology (DFT), and started Englewood, CO-based John Costanza Institute of Technology (JCIT) in 1984, which has educated thousands of manufacturers.
The
term flow manufacturing is closely related and thus often somewhat confused
with other demand-driven manufacturing strategies that also streamline processes
and eliminate waste. These strategies, such as agile, just in time (JIT), and
lean manufacturing, all use kanban signals to replenish supplies and are subject
to continuous improvement. For more detail on JIT and lean manufacturing and
on their impact on ERP, see Trends
Affecting Manufacturers and ERP.
However,
flow manufacturing leverages some additional techniques to help manufacturers
create any product on any given day (i.e., through the so called mixed-model
production), while keeping inventories to a minimum and shortening cycle times
to fill customer orders ever more quickly. Flow manufacturing in particular
leverages mathematical tools to automate some of the aspects of lean manufacturing.
For example, a mathematical model determines the daily production commensurate
with demand, defining line designs so that materials flow at a steady rate to
meet demand, and improving throughput by way of proper sequencing. The idea
is to synchronize product assembly as to be able to make each like product unit
at a consistent rate to meet the particular day's demand. The takt time (i.e.,
the available production time divided by the rate of customer demand) and total
product cycle time (TPCT) are used to determine how to sequence the flow of
products, to decide what type of kanbans to use and what resources are needed,
and to make other decisions related to line design. The Japanese word kanban,
loosely translated, means card, billboard, or sign, and the term is often used
synonymously for the specific JIT scheduling system developed and used by the
Toyota Corporation in Japan. It is a pull system in which work
stations signal with a card that they wish to withdraw parts from feeding operations
or suppliers.
Later in its history, JCIT started providing a software package based on its Demand Flow Technology, but the institute has been much better recognized for its education and consulting work in the area of flow manufacturing. The company still trains an army of manufacturers on the philosophies and techniques of DFT while the consulting services help design and implement flow lines at manufacturing sites. As discussed earlier, DFT calls for the complete transformation of production facilities into flow lines and cells, and proposes that the best schedule is no schedule at all. In fact, early in its history, owing to its founder's flow practices zealotry, JCIT was known for its disdainful attitude towards the use of sophisticated software in a flow production environment. However, this is not the case any more, as both JCIT and the manufacturing software industry have meanwhile evolved. Visual and user-friendly software (for example, with drag-and-drop facility to design production lines or routings) has the potential of simplifying these complex calculations, going beyond what people can do manually or via spreadsheets. No longer run by its founder Constanza, the institute has become quite amenable lately to the idea of partnering with software companies. Costanza meanwhile changed his stance on software usability and in 2000 he even took the JCIT software development unit with him to create a commercial flow manufacturing software vendor called DTAKT Systems.
Back
in 1996 the JCIT announced the availability of the FlowPower Eagle Business
system, which was designed to support its DFT methodology for demand-driven
manufacturing and to replace MRP/ERP systems. This system, written in Microsoft
Visual Basic and running on Windows NT, aimed at replacing
the range of core ERP functionality with the "push" philosophy, from order entry
to shipping including purchasing and production planning, and execution. Unlike
most traditional ERP systems, FlowPower also provided some flow process design
capabilities for mixed-model flow, line design and kanban sizing. Since the
product never provided financial applications, JCIT has since announced a number
of partnerships for financial and other complementary applications. In addition
to evangelizing flow manufacturing through consulting to manufacturers, both
American Software and Oracle, which are still regarded as forerunners regarding
their flow manufacturing capabilities, picked JCIT's brains to devise their
flow software packages. JCIT is also a reseller of both Portico and Pelion's
software, while the partnership with Factory Logic has been in the works, which
might in part explain the institute's willingness to sell its proprietary software
to PeopleSoft.
This
concludes Part Three of a four-part note.
Part
One detailed recent announcements.
Part
Two discussed the market impact.
Part
Four will present challenges and make user recommendations.