complexity in industrial erp: getting back to one version of the truth

Complexity in Industrial ERP:Getting Back to One Version of the Truth

November 2012

Background

In September 2012, a study was conducted among executives and professionals at middle market to large manufacturers to better understand how well current ERP options meet the needs of companies in selected industries

This study illuminates: • How companies in a number of industries face

increasing complexity by way of diversification towards more demanding business models.

• The fact that integration is key to supporting these new and complex business models and processes.

• The degree to which more complex industrial businesses are now forced to rely on a variety of different enterprise software applications. This increases license and maintenance cost and non-value added work while decreasing efficiency.

This study was conducted by IFS

North America and Mint Jutras, an independent research-based consulting firm

that specializes in analyzing the

business impact of enterprise applications.

Methodology

• A survey was sent to subscribers of specialized industrial publications.

• Sample size: 200.

• Respondents were screened for involvement in enterprise software decisions and for company size of greater than $100 million in annual revenue.





Methodology

• Frequencies on the data were run to reflect the differing technological approaches taken by some specific types of companies, including:

– Companies engaged in engineer to order manufacturing.

– Companies delivering projects as an engineering, procurement, and construction contractor.

– Those involved in batch process, which would cause them to be involved heavily in enterprise asset management of process manufacturing plants and equipment.





Major Areas Explored

– How complex is the modern manufacturing and industrial environment?

– How does this complexity affect the number and type of enterprise software applications respondents use to run their business?

– How can industrial companies better manage this complexity?

Applications such as: Enterprise Resource

Planning (ERP) Project and portfolio

Mgt (PPM) Customer Relationship

Mgt (CRM) Enterprise Asset

Management (EAM) Computerized Maint.

Mgt System (CMMS) Supply Chain Mgt (SCM)

Key Findings– Most manufacturers must deal with managing a variety

of styles of manufacturing including multiple flavors of “to order.”

– Batch process manufacturers, engineer to order manufacturers and engineering, procurement and construction contractors all are involved in multiple other business processes.

– This creates a need for multiple enterprise applications; companies average 3.24 different types of applications -and as many as 7.

– The better an enterprise software environment facilitates project management in an integrated way, the better it meets a variety of complex needs.

Why Is This Important

– The promise of an enterprise solution like ERP is to pull the entirety of key enterprise data and processes into a single application. This yields:

• Enhanced visibility for corporate management

• Improved access to operational data for middle market managers.

• A consistent, streamlined work environment for individual contributors.

• Increased diversification and complexity causes the business’ needs to grow beyond the capacity of their existing systems, and they augment them with additional applications.

– This threatens to defeat the purpose of the enterprise system.

Company Size (Annual Revenue)

$2.5 Billion or more, 29%

$1B -$2.49B, 12%

$500M -$999.9M, 13%

$250M -$499.9M, 20%

$150M -$249.9M, 10%

$100M -$149.9M, 16%

Manufacturing Styles

12%

15%

27%

31%

32%

36%

36%

48%

66%

0% 10% 20% 30% 40% 50% 60% 70%

Engineer Procure Construct

Design Fabricate Install

Continuous Process

Configure to Order

Custom Manufacturing

Engineer to Order

Batch Process

Make to Stock

Make to Order

Respondents were allowed to select all that apply. On average each respondent selected

3.26 different styles, adding to the complexity of the environments.

ETO is Typically Combined with Other Styles -Adding More Complexity

14%

21%

33%

43%

50%

79%

100%

0% 20% 40% 60% 80% 100%

Continuous Process



Configure to Order

Make to Stock

Make to Order

Engineer to Order

ETO is Typically Combined with Other Styles -Adding More Complexity

• Engineer to Order manufacturers are really multi-mode manufacturers as they combine ETO with other styles as well.

• This increases complexity.

• Among participants reporting involvement in engineer to order:

– 79% also do make to order

– 50% also have some element of make to stock

– 43% configure to order.

– 33% are doing some level of custom manufacturing. Custom manufacturing differs from ETO in that the specification or design is generally provided to a custom manufacturer whereas an ETO manufacturer typically needs to design a product or system to meet specific deliverables.

Batch Process is Typically Combined with Other Styles - Adding More Complexity

13%

29%

31%

32%

32%

45%

71%

100%

0% 20% 40% 60% 80% 100% 120%


Configure to Order

Continuous Process

Engineer to Order


Make to Stock

Make to Order

Batch Process

Batch Process

Some of these styles require VERY different

approaches and types of enterprise software

functionality.

Batch Process is Typically Combined with Other Styles - Adding More Complexity

• Batch process is normally associated with a more repetitive manufacturing environment. This data, however, suggests that in the modern batch process environment, make to stock is not the default method.

• Among batch process manufacturers, 71% are making to order – and this was the most common business model associated with batch process.

• Other associated business models include make to stock, custom manufacturing, and even engineer to order.

• Engineer to order can be a factor for process manufacturers involved in:

– Adhesives

– Explosives/Energetics

– Chemicals

– Lubricants

EPC Involves Multiple Other Styles -Adding More Complexity

Multiple business models are a necessary part of EPC. Process was a surprise here, but perhaps shouldn’t be

given large diversified industries.

37%

40%

43%

47%

50%

50%

53%

70%

100%

0% 20% 40% 60% 80% 100%

Batch Process

Continuous Process

Make to Stock


Configure to Order


Make to Order

Engineer to Order



EPC Involves Multiple Other Styles -Adding More Complexity

Multiple discrete manufacturing models are a necessary part of EPC. Batch process may be listed due to the diversified nature of these companies.

• Engineering, procurement and construction is the most complex business model among those dealt with in this study.

– Engineering drives design data and product data management requirements.

– Construction drives project management and subcontract management requirements.

– Fabrication or manufacturing requires standard manufacturing and shop floor management functionality.

• Companies doing engineering, procurement, construction are using the largest number of different types of applications.

Processes Important to Your Business

16%

30%

30%

33%

35%

45%

47%

49%

52%

58%

67%

0% 25% 50% 75%

Satisfying defense MFG business req'ts

Aftermarket service or support

Field Service Management

Recipe management

Vendor-managed inventory

Planning or project mgt for new capital assets

Mgt of one-off projects (engineering or fabrication)

Mgt of outside manufacturing

Maintenance of capital assets

Lean manufacturing

Repetitive or continuous process MFG

Important Business Processes

• It is remarkable how many different processes there are and the degree to which they overlap.

– Repetitive manufacturing.

– Continuous processes.

– Lean manufacturing. Lean is often associated with inventory reduction in repetitive discrete manufacturing environments, but this data reminds us it is also relevant to process manufacturing and to project-driven discrete.

– Process manufacturing.

– Asset management is particularly important in a process environment, because the machines are delivering as much or more value than people. Intelligent maintenance of those capital assets on an ongoing basis is critical.

Complicating Factors

• Virtually everyone today has to deal with some level of outside manufacturing, whether it is offshore, near-shore or on shore. More than half of respondents reported managing manufacturing contractors as a key process.

• Field service as a discipline requires effective scheduling and management of engineers in the field. This extends the application environment into new functions including dispatch, geospatial analysis and mobile work order reporting, management of mobile inventories, etc.

• Field service management, vendor managed inventory, aftermarket service or support and capital projects management all require increasing degrees of involvement with the enterprise data from outside the four walls of facility.

• Defense department requirements for manufacturing tends to be extremely complex, particularly in the project reporting and control.

Which Processes Produce the Most Software Complexity?

3.1

4.0

7.0

5.1

0.0 2.0 4.0 6.0 8.0

Nu

mb

er o

f A

pp

licat

ion

s

After Market Service

Defense Department Requirements

Maintenance of capital assets

One off projects


• Several specific business processes stood out as the most complex, requiring the largest number of software applications.

• Companies in these industries may need to find enterprise applications that better support their unique needs in order to:

– Reduce software license and maintenance costs by cutting down on the number of different software products they run.

– Eliminate duplicate data entry and non-value added work.

– Eliminate data silos that prevent thorough, real time visibility of the business.

– Increase the ability of different parts of the business to collaborate and work together.


• Aerospace and Defense and After Market Service are the two most demanding, followed by Asset Management and project environments like Engineer to Order and Engineering Procurement Construction.

– Regulation originating with the defense department or ministries of defense requires very specialized reporting, control, and inventory segregation.

– Combine this with the very complex projects that characterize the defense environment and we see why they are running on average 7 different types of applications

– Companies involved with the after market service are field support, may require depot repair, customer relationship management, contract management, tools to ensure they meet specific service level agreements – plus maintenance, repair and overhaul and other functionality. That is why on average they are running 5.1 different types of applications.


• Companies involved with maintenance of capital assets also face a complex enterprise software environment, with an average of 4 types of enterprise software in place.

• Companies managing one-off projects are actually using relatively few different types of applications at only 3.1. Based on the data, they are probably not using enough and they don’t have the level of control that they need given what we have found about the lack of integration between project management tools and ERP.

• The kinds of applications that are in place across respondent firms range from ERP to supply chain management to manufacturing execution, computerized maintenance management systems, product lifecycle management or product data management and others.

Enterprise Applications in Place

• ERP is the most widely used application of any in this study. At 71%, this falls within a range seen in other studies that show between 70% and 80% of manufacturers have implemented ERP. That percentage drops outside of the manufacturing space.

• Because ERP solutions have grown in footprint, over time, different applications could be included as part of an ERP platform. This is generally a positive because a company running a broader footprint of ERP will not have to integrate ERP with various other applications.

• In some demanding environments, however, ERP is not satisfying requirements for human capital management, project portfolio management, field service management, product data management, etc. This would force a company to implement additional software products.

• Greater complexity drives the implementation of more and more enterprise software products.

Enterprise Applications in Place

7%

12%

15%

19%

23%

26%

27%

29%

29%

40%

71%

0% 25% 50% 75%

Other

Field Service Mgt (FSM)

Project Portfolio Mgt (PPM)

Human Capital Mgt (HCM)

Enterprise Asset Mgt (EAM)

CRM

Product Data Mgt (PDM)

CMMS

MES

Suppy Chain Mgt (SCM)

ERP

All Respondents

On average companies have a total of 3.24 different enterprise application products implemented.

Role of Projects

• Project management plays a key role in many of the different business models dealt with in this study.

– Very few respondents report strong integration between systems used for project management and their enterprise systems like ERP, EAM, etc.

– On the whole, greater integration between project management functions increases the degree to which an enterprise software system supports business processes.

– Only 4% report that they use a module within their ERP system for project management, which would constitute the highest level of interactivity between projects and other business functions.

What Level of Integration?Between Project Mgt & Enterprise System of Record

39%

30%

13% 14%

4%

0%

10%

20%

30%

40%

None Selective integration

Financial integration

Full integration Embedded as a native part of

ERP

All Respondents

Project Integration Matters

TotalFull or

embedded

Partial

integrationNone

How well does your business software facilitate

these important processes? (Rate on scale of 1 to

5 with 1 being no support and 5 being very well

Level of Integration

Management of repetitive manufacturing or

continuous process manufacturing3.70 4.05 3.77 3.45

Management of one-off projects like

engineering or fabrication3.31 3.81 3.51 2.84

Recipe management as used in batch

manufacturing3.50 3.74 3.62 3.25

Management of outside manufacturing

partners and suppliers3.19 3.76 3.36 2.74

Aftermarket service or support through

maintenance contracts, repair,

replenishment, etc.

3.26 3.59 3.53 2.70

Field Service Management 3.24 3.54 3.33 2.93

Maintenance of capital assets, i.e.

manufacturing equipment3.33 3.67 3.55 2.90

Planning or project management for new

capital assets including manufacturing

facilities, refits, rebuilds, etc.

3.30 3.82 3.53 2.76

Satisfying defense manufacturing business

requirements3.33 3.63 3.57 2.75

Vendor-managed inventory 3.22 3.77 3.34 2.75

Lean manufacturing 3.20 3.75 3.29 2.84

About IFS

IFS is a public company (OMX STO: IFS) founded in 1983 that develops, supplies, and implements IFS Applications™, a component-based extended ERP suite built on SOA technology.

IFS focuses on agile businesses where any of four core processes are strategic: service & asset management, manufacturing, supply chain and projects.

The company has 2,000 customers and is present in more than 50 countries with 2,800 employees in total.

Contact Information:Charles Rathmann, Analyst

IFS North America262.317.7419

[email protected]

complexity in industrial erp: getting back to one version of the truth

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