Time to Lean on IT

Maruti Udyog Ltd... when MUL decided to go in for an automated management
system about a decade ago, there was no ERP vendor support available in the
country. Without losing time, the company decided to go it alone and work things
in-house. Using a combination of software from Oracle and Computer Associates,
the company built apps that facilitated  and integrated its business
processes.

At
ICI Paints, the entire manufacturing process–from dumping of raw material in
precise quantities into dispensers to filling of final product in cans or
containers–everything is totally automated. ICI Plc, the parent company in the
UK, developed this software–Sequin–in-house. But the core of the
manufacturing technology infrastructure at ICI is BPCS ERP package from SSA
Global Technologies. BPCS handles the manufacturing resource planning and master
production scheduling–in other terms, the entire production scheduling. The
recipes for manufacturing paints are also contained in the BPCS, and they are
communicated to Sequin through BoMs. Sequin handles the manufacturing
instructions sequence by sequence.

With a turnover exceeding $8 billion, BPCL is the only Indian petroleum
company to be listed in the Forbes’ International 800 ranking. BPCL has 4,500
petrol pumps, 1,000 kerosene dealers and 1,400 LPG distributors. The company
also supplies fuel directly to hundreds of industries and international and
domestic airlines. One of the primary concerns was the need for a communication
mechanism–to cut down on the response time. To facilitate communication and
information dissemination within the organization, one of the first changes to
affect employees on a wide scale was the decision to implement a messaging
infrastructure and an Intranet. BPCL uses the Internet to reduce turnaround
time, besides expanding its customer base.

Even as standalone case studies, these underline the potential that exists in
India. Giant strides towards global competitiveness–at least in terms of the
process and design, if not also in terms of cost, product quality, or marketing–have
been enabled by largescale IT adoption in the sector. The culture of using
global packaged software applications has now begun seeping into the bottom of
the pyramid, populated by scores of fabrication and process houses. IT solutions
in the form of ERP for handling business transactions and CAD/CAM for product
design still makes up a large chunk of technology deployed by Indian
manufacturing organizations. An IDC India end-user survey of 200 enterprises
pointed to these three factors as the triggers for selection of an ERP solution:

• Industry-specific and mission-specific functionality;

• Compatibility with current platforms–the ability to
  handle different types of databases; and

• Degree of customization possible.

Delivery in the key

Business benefits aside, the right ERP should be able to deliver well on
three necessary but not sufficient objectives–consistency and reliability of
data across the organization; streamlined transaction processing; and
operations-level reporting. The five reasons most undertake an ERP project are
integration of financial information; integration of customer order information;
standardization of and speed in core business processes; reduction in inventory
and non-performing assets; and standardization of HR information.

Says Hari Padmanabhan, president (enterprise solutions) at ICICI Infotech,
"Organizations large and small find ERP the best tool to move money from
the cost-line to the bottomline." The larger part of the Indian ERP story
is just three to four years old. And such organizations now stand to gain even
more from refinements on top of the basic ERP. These are typically enterprise
applications in the area of customer relationship management, supply chain
management, business intelligence, enterprise portals and knowledge management,
amongst others. Traditional ERP vendors like SAP, JDE, Oracle, Baan and
PeopleSoft also claim to deliver these functionalities as part of the ERP
offering. The term ERP II is used to denote the new-age ERP–with commerce and
collaboration capabilities.

The IDC India report also states–"Post-Internet meltdown and economic
slowdown, many organizations have realized the need to put their house in order
and operational efficiency has become critical for survival. The Indian economy
has become much more integrated with the world economy at large and therefore,
Indian businesses need to respond faster to changing business conditions."

Key trends, according to IDC India, are:

• Larger organizations are trying to extend the reach of their ERP systems
  to cover the supply chain as well as automate some of their interfaces with
  their customers;

• SMEs are actively trying to automate their business
  processes;

• Organizations are also trying to explore the use of
  Internet to manage their business processes; and

• Mid-tier vendors are aggressively expanding the market
  through extended offerings and adding functionalities to existing products.

Explaining the ERP adoption by mid-market companies,
Padmanabhan says, "These organizations have the required global mindset,
the linkages are well understood, the appreciation is there at the top level,
the suffering under a silo-based approach–all are understood. A suitable
product that is easy to acquire and deploy, therefore, helps."

ICICI Infotech and Eastern Software Systems are the new breed
of vendors that have a mid-market ERP product available for the domestic market.
Such vendors are experiencing galloping growth. ESS, with its product Ebizframe
(ERP), has a customer base of over 220 clients across industry verticals like
auto ancillary, manufacturing, heavy engineering, chemicals, retail and
garments, including retail and manufacturing.

After putting in the ERP, companies look for refinements that
are possible. For manufacturing companies, managing their supply chain provide
the greatest benefit. Supply chain management is a complex discipline in itself;
a science practiced at the level of an art. At the very basic, SCM by definition
covers the following areas:

• Plan to meet customer demand;

• Pricing, payment and delivery processes with chosen
  suppliers;

• Activities necessary for production, testing, packaging
  and delivery;

• Logistics dealing with delivery to meet customer demand;
  and

• Network to receive defective products and excess
  inventory returns.

We have quite a few success stories with integrated supply
chain solutions. Asian Paints experienced significant inventory reductions at
all levels–raw material, intermediate, and manufactured goods; improved
forecast accuracy; and improved plant throughput. Hindalco, the Aditya Birla
Group company, had a breakthrough with an e-procurement solution for certain
standard raw material items–for which there were five to six suppliers. It
developed an in-house reverse auction software and has reported savings to the
tune of 3-10% in costs of various items.

Marico Industries has improved its distribution function and
can measure the effectiveness of its sales partners through mySAP SCM. Marico’s
supply chain consists of five factories, 15 contract manufacturers, two
consolidation centers, 30 depots, 100 super-distributors, 750 distributors,
2,400 stockists, 25,000 wholesalers and 1.4 million retailers.

Meanwhile, the CRM market in the counry–though in its
nascent stages–is an area of high interest among both vendors and users. CRM
will become more integrated with enterprise resource management (ERM),
e-commerce, and supply chain automation (SCA) applications, thus driving the
demand for all four.

With large organizations finishing off with their back-office
integration and looking at optimizing the front office now, and most small and
medium enterprises looking at customer retention as a focus area, the market is
expected to grow rapidly.

Easwardas Satyan

Gartner Dataquest Perspective

The top IT priorities suggest that manufacturers are focussed on practical
"back-to -basics" solutions and technologies that help them address
their most salient business and technology issues:

The Top Five IT Priorities in Manufacturing: Manufacturers declare security, enterprise resource planning, Web services, datawarehousing and IT architecture design to be their top IT priorities in the new year, 2003-04. From December 2002 through January 2003, Gartner Dataquest fielded its annual manufacturing end-user survey to identify the industry’s key business issues, technology drivers, and IT spending priorities. Note: Responses were rated on a 7-point scale in which 7 were "extremely important" and 1 was "not at all important." The five highest-rated projects are shown based on a sample of 35 respondents. Source: Gartner Dataquest (February 2003)

n Get more out of enterprise
data. As in other industries, the manufacturing vertical market needs to
overcome the problems associated with siloed IT architectures that result in
multiple versions of data, making it almost impossible to access
"truth."

n Pry value out of existing
investments. Few "hot" new apps or technologies exist in the market,
and manufacturers are not inclined to invest heavily in them beyond business
case development or pilots. They prefer to spend more on incremental investments
that drive additional benefits or ROI from previous IT purchases.

n Cautiously experiment with new
technologies. Despite limited tolerance for risk, manufacturers are exhibiting
incipient signs that they are ready to test-drive new technologies. Interest in
Web services is an unambiguous indicator. However, these data should not compel
IT vendors and service providers to anticipate wholesale adoption of Web
services in this vertical market. Instead, they should plan for pilots of
non-critical business functions.

n Rethink and streamline the IT
architecture in line with corporate directives to cut costs, manufacturers are
endeavoring to categorize, weed out, upgrade and integrate the numerous
applications and technologies in their IT portfolios. A more streamlined
portfolio would help cut the cost of internal and external services for
activities such as systems integration, applications development and product
support and would foster more-efficient and effective IT decisions in the
future.

n Do it all in a secure way.
Security is the most critical priority for manufacturers across the board. The
survey data indicate that manufacturers anticipate the government to issue
regulations that would require more-stringent IT security in the coming year.
Trading partners, likewise, are increasingly demanding manufacturers to
demonstrate the security of information systems before the partners share data
and transactions.

Geraldine Cruz (Gartner Dataquest)

Global Thought: What’s on the Top Minds?

With Japanese automakers delivering the ten-day car, agile manufacturing
seems to be the predominant idea among the leadership

In 1991, agile manufacturing, a flexible way of creating a product while
keeping the customer involved in the process, debuted as a conceptual framework
for efficient manufacturing and greater productivity. The overriding strategy
supporting agile manufacturing is mass customization. "The key is to be
able to respond to the individual needs of customers, while still engaging in
mass production," says Steven L Goldman, an Andrew W Mellon distinguished
professor in humanities at Lehigh University in Bethlehem, Pa. "The basic
idea is to get the right product to the right person, at the right time,"
echoes Peter G W Keen, author of the book Every Manager’s Guide to Business
Practices.

Agile manufacturing also takes advantage of strengths in information
technology. Key IT enablers for agile manufacturing strategies include
enterprise resource planning, product data management, object technology,
supply-chain software and intranets and extranets. The major catalyst for agile
manufacturing was the rise of overseas competition, particularly from countries
like Japan and Germany. Under pressure from Congress to award weapons contracts
to US manufacturers, the Pentagon turned to the Iaccoca Institute for thoughts
on how to help increase industrial efficiency and productivity. After convening
more than a dozen top US manufacturers, the Iaccoca Institute issued a report in
1991 outlining a long-term vision for agile manufacturing. Big practitioners of
agile manufacturing include General Electric, Ford Motor Co, The Boeing Co and
Caterpillar Inc.

Modularization is another way of doing agile manufacturing. It involves
building products from components. Customers can then pick and choose the
components that will appear in the items they purchase. GE was one of the first
companies to pursue modularization. "In the mid-1990s, GE’s locomotive
division was in doldrums," Goldman recalls. Then GE began selling railroad
car "components" in a choice of color combinations, a tactic that
turned out to be a big hit with the division’s mainly overseas customers. At
the same time, the locomotive division cut its time to market roughly in half.

Modularization is supported by business strategies like concurrent
operations, in which company divisions such as manufacturing, design and
marketing work collaboratively, often sharing things like product ideas and
production schedules over IT systems–product data management, for example.
Increasingly, concurrent operations are being extended outward to partners like
suppliers and subcontractors through technologies such as supply-chain software
and Web-based e-commerce.

Another model within agile manufacturing is virtual manufacturing, which
means a company doesn’t do all its own manufacturing. Instead, it outsources
some or all the work to subcontractors. Most car companies are adhering to the
virtual manufacturing model. That allows the car company to focus on services
like product design and marketing. Daimler Chrysler is already manufacturing
less than 30% of the parts used in its cars; Volkswagen AG, less than 12%.

Toyota Motor Corp is looking at "the five-day car" and possible
sales of autos over the Internet. US manufacturers are feeling pressure to
reduce their current production cycle of about six weeks to one week or less. So
one of the latest trends is to further speed up time to market by outsourcing
not just the manufacturing of individual auto components, but also the assembly
of multiple car parts into sub-assemblies.

Agile manufacturing is a recent movement viewed by the auto industry, which
shares with the consumer electronics industry the distinction of being the
pacesetter in manufacturing process innovation, as the next step in its
development. It represents the demise of the century-long tradition of
manufacturing driven by scale. It aspires to total flexibility without
sacrificing quality or incurring added costs. Agile manufacturing is contrasted
with lean production, Toyota’s composite of tools, culture, and organizational
philosophy that ensures high quality, low cost, and continuous and sustained
improvement. The Japanese Manufacturing 21 (twenty-first century) consortium
defines it in terms of nine major challenges to car makers, one being the
three-day car, three days from customer order for a customized car to dealer
delivery. The goal is practical; leading Japanese automakers can deliver the
ten-day car now.

US firms moving in the same direction have a strong advantage over Japanese
companies in some areas relevant to the nine challenges of Manufacturing 21.

• Break dependency on scale and economies of scale.
• Produce vehicles in low volumes at reasonable cost (Nissan’s Intelligent
  Body System, a Lego-block approach that favors existing over newly designed
  body components, leaves tooling as the only major expense for a new model).
• Guarantee the three-day car.
• Replace large centralized with distributed clusters of mini-assembly
  plants located near customers (as much as five days’ time is required to
  ship cars to dealers; Japan’s horrendous traffic congestion has become the
  weak link in just-in-time inventory management, with suppliers unable to
  deliver on time).
• Be able to reconfigure components in many different ways.
• Make work stimulating (those who carry out Lego-block production should
  not be treated as Lego blocks).
• Turn the customer into a "prosumer," an ugly neologism that
  means proactive something; the idea is that the customer will take an active
  role in the product design by, for example, configuring options at a
  computer in a dealer showroom.
• Streamline ordering systems and establish close relationships with
  suppliers.
• Manage the massive volumes of data generated by the production system so
  as to be able to analyze that data quickly and agilely.

Agile production would appear to be the blueprint for future manufacturing.
Managers in every industry would do well to incorporate the essence of the
Manufacturing 21 challenges into their agendas. Publishing, retailing, and
banking are but a few of the industries likely to rally around agility.

Japanese companies invented just-in-time manufacturing, lean production,
flexible manufacturing, and many of the tools of total quality management. Even
as the rest of the world catches up and some companies overtake them, they are
positioning for the next leap forward. So, too, are their American competitors.
The three-day car is coming. Flexible manufacturing is adaptive; agile
production is adaptive and faster. The aim of lean manufacturing is to keep
production steady and predictable and minimize cost and waste in a world of
business that is increasingly unpredictable and unsteady.

Source: Adapted from various research documents on WWW