Rethink your business on the web
The Internet will change everything sooner than you might think. And enterprise software vendors' CEOs say now is the time to rethink. Brian Tinham reports
If they do nothing else, manufacturers should now be rethinking their businesses, recognising that even in the mid-market the Internet will change everything. They should also be looking at integrating their internal islands of IT and their external supply chains - building a responsive, inclusive foundation before venturing into e-business. That's the consensus from CEOs of enterprise system (ERP) software vendors.
Doug Massingill, CEO of JD Edwards, says manufacturers are going to have to deal with the rising tide of web-based industry trading exchanges, like that for automotive, now embracing Ford, GM and DaimlerChrysler.
And he says this is just the tip of the iceberg - citing the impact of the web on, for example, customer relationship management (CRM), planning and even getting products to market - all of which will require new thinking.
Steven Sasser, president and CEO of US-based Symix, is passionate on the subject: "The business is going to be the network," he says. "The Internet will be part of every business, so everyone will be in e-business, just like everyone is a phone company" And he insists, "you have to ask yourself, `how are you going to compete?'."
Sasser is emphatic: "You must do your IT investment thinking now There's an industrial revolution going on: you've got to add, change and delete processes, relationships and assets:'
Bjorn Algkvist, CEO of Swedish Intentia, agrees. "e-business will have an enormous impact: and that means reconsidering your technology and your infrastructure. It's one of the most important strategies for manufacturers."
Sasser lists the essentials: "work out how you're going to communicate with and manage your customers, your distribution channels, inside your four walls - and your suppliers: everything. [ERP] isn't just about internal business processes any more. It's how are you going to operate faster than ever before?" His advice: "Prioritise - decide what's my new vision for the business; how will it change with the web. What are my strengths and weaknesses?"
The point is the Internet is a commodity no-one can ignore. There are opportunities and threats, and companies must start to review what the external world will look like in terms of partners, suppliers and customers - and what they'll need in terms of IT Once they've done that, the transformation can take more time.
There are several issues; and first is external inter-enterprise integration between partners on the supply chain. You'll need to consider the tightness you want and what's an acceptable level of trust. But from an IT perspective, Massingill says: "Everyone needs a strategy that recognises that it's a homogeneous world [of different systems out there. So EAI (enterprise application integration) is very important." But he adds: "You need active business processes - transactions with events. How messages flow between systems is what moves you from integration to interoperability"
Algkvist is pragmatic: "Manufacturers are going to have to extend their processes into customers and partner organisations.Today we are still doubling up on work - like quality inspection: we're wasting resources and making for longer lead times. Companies have to invest in IT and better business practices to make partner/supplier alliances work."
Sasser puts it another way: "You're going to need more and better supply chain information so that you can make and keep promises.You're going to need to be better and faster - you don't want to compete on price only: service is a big differentiator. So you need supply chain knowledge, customer insight and advanced planning and scheduling (APS)." And he also throws in CRM "to help the sales force", better knowledge management and business intelligence software for good measure.
Then there's inside the four walls. Algkvist makes the point that once you are web-connected you must expect a dramatic increase in the number of transactions (sales orders, invoices, works orders, procurement requisitions, etc) and a cut in average order size.You must also gear up to cut lead times, because customers will expect faster service. And that means scalable, integrated internal IT able to take the peaks and troughs, and deliver better quality, real time information throughout the business.
`Available-to-promise' (ATP), for example, requires the sales department to have visibility of finished product or module inventory, production schedules, quality information and so on.You need integration, in Algkvist's words, "from order quotation to manufacturing and processing, logistics and back again". And that in turn means that you can't let your IT strategy focus on, for example, CRM, e-procurement, or manufacturing in isolation.
And what about manufacturing? Massingill says that manufacturers must ask themselves, `can I provide world class business processes?', and `can I produce things more efficiently than anyone else?'.The point is that in an Internet economy you have to compare yourself with global players and be sure you have lean and effective processes.
So while the sexy bit is almost invariably the systems outside the factory for most manufacturers there are serious and necessary improvements still to be made within it.
Massingill makes the simple but salient point: "The assumption is that [manufacturing] is unimportant. But if you can't get product manufactured and out to the warehouse, shipping bay transportation, or whatever, you're not going to be around."
The factory has always been the poor relation. Projects here are not expensive (compared with enterprise systems), often involving simply better shop floor data collection, work cell information devices and electronic links between the shopfloor, planning and enterprise systems. And they are capable of delivering ROI within months. More to the point now, where manufacturers are currently operating blind on two to three week cycle times, with inventory to carry them through demand peaks, that is going to have to come down potentially to two or three days. If that's a frightening thought then it's time to look at your IT strategy here.
Lastly Algkvist counsels considering your strategy for logistics. "More and more, manufacturers will find it's actually a logistics game: a higher proportion of your costs will be there because of the lower order quantities and shorter delivery times," he says.
And as Symix's Sasser says: "The hardest thing is to stop seeing IT as a cost - it's not: it's an investment. Successful companies in the US spend up to three percent of their revenue on IT It makes an obvious difference."