As manufacturers grow in size, so does the complexity of running their business. These businesses face a number of manufacturing problems that were not there at their inception. This blog post discusses seven major manufacturing problems that medium and large manufacturers face that threaten to disrupt their processes and operations, and outlines how enterprise resource planning (ERP) software systems can help address them and allow for business growth.
1- Use of Legacy Systems
Many medium and large companies were in existence before comprehensive software solutions were available. These companies sustained their business activities by typically using a number of software solutions that were not well integrated, cost-effective, or user friendly, and that generated large amounts of unstructured data. Today’s medium and large manufacturers often find that these legacy ERP systems cannot fully meet their complex needs, and consider them largely obsolete.
Although many users are still satisfied with these legacy systems, companies are finding them increasingly difficult to maintain. However, they want to build on them, as they are incredibly stable but are dramatically outdated and not very flexible. They also lack specialists on the job market, as younger generations don’t seem eager to want to deal with these older technologies.
Two strategies are available for resolving this situation. The first is the revitalization of the existing software, including upgrades (with new user interfaces, features, and functions), and the addition of newer technology pieces. The second is the complete replacement of the legacy system with a new software system. But for large businesses, even the smallest change can wreak havoc on operations.
In addition, a system replacement is a lengthy process. During this time, a company’s business environment may undergo dramatic changes that may impact the company’s general strategies and information technology (IT) approaches. This in turn may prolong the timeline of the project and call its viability into question in the new company climate. All projects should thus be done as fast as possible, regardless of the size of the company, and for larger enterprises, this becomes a more intensive and expensive task.
2- Compliance with Laws and Regulations
As manufacturers continue to develop new products and expand their businesses into new frontiers, the more complicated it is to comply with local and international laws and regulations. Such standards have the potential to affect all major activities in the manufacturing sector—from procurement and production to distribution and retail, asset management, and human resources. As medium and particularly large companies often operate in more than one region or country, they must follow the rules of the governing legislation while complying with various security, financial, safety, workforce, and many other local, national, and multinational standards. These regulations are intended for the general purpose of providing a business environment that stimulates and often directs the production of goods and services that are of the highest quality and are safe for consumers, society, and the environment. And, of course, different countries have different regulations. Even in countries with similar general compliance standards, differences in specific regulations exist, as, for instance, in the layout of safety documents or the details included in accounting reports. Conformance regulation rules bring an additional layer of complexity to large multinational businesses that produce a wide range of products or render multiple services to their customers. The myriad compliance requirements documents must be properly stored and maintained. And these requirements must be properly applied and followed, and corresponding transactions typically need to be fully auditable. For large organizations, it is also important that internal standards, policies, and procedures be subsumed under the compliance standards of the governing legislation. Although internal rules are typically created with regulatory requirements in mind, they can be extended and modified based on the company’s specifics, strategy and standards, best practices, and traditions. And it is expected that all company branches and subdivisions will comply with these rules. Manufacturers must comply with governmental rules and regulations regarding the manufacturing, tracking, and storing of their products. As such, business processes must be designed in accordance to the governing legislation and standards. A central repository that hosts compliance documents and standards is strongly recommended, and an ERP system could be a good tool for integrating business processes with supporting documentation. On the other hand, as compliance standards are usually divided by vertical industry, and in some cases by market niche, it makes perfect sense for medium and large manufacturers to consider switching to a new ERP system that is specifically designed or deeply configured to that vertical industry. Such vertically oriented software packages usually handle compliance issues better and easier than broader packages.
3. (Re)engineering Business Processes
Medium and large manufacturing companies must continuously adapt to the ever-changing business environment by defining new workflows and procedures and restructuring existing ones. As companies become larger, more people, assets, and partners will be involved in any change dictated by the market. This would not only drain the company’s resources and finances, but also exacerbate the logistical complexity of defining, testing, and implementing new business processes across multiple business units.
In recent years, the ease of accommodating changes to the business environment has become one of the most important capabilities of ERP software for manufacturing companies of any size and in any industry. There are a few reasons for this.
Firstly, manufacturing businesses often need to be able to perform massive and widely expanded operations or transactions in different ways according to geography, generally accepted business practices in certain locations, or regional regulations, etc. Software systems therefore should have the technical capability to accommodate a variety of procedures in different ways.
Secondly, manufacturing businesses often face many high-impact changes to their processes. To remain competitive, a company has to be able to quickly adapt its processes to constantly changing business environments. For larger enterprises, this becomes an especially difficult task given the scale of the organization, number of sites, processes, and users. Thus, flexibility and versatility are vital attributes of software systems catering to these organizations. Other important attributes include an easy-to-learn and a non-anfractuous user interface with a decent logic, along with user ability to modify screens, existing documents, and material flows.
Certainly, the more readily the system can adapt to reflect the new business reality, the better and more effective it will be. Moreover, organizations that implement an ERP system with a thoroughly planned business process structure in place enable ideas and information sharing among the distinct business units and subdivisions of the company, thereby facilitating business transitions.
4. Impact of Mergers and Acquisitions
Mergers and acquisitions are one way for companies to realize growth and expand their business activities. During this process, however, the two manufacturing companies must integrate the operations of different departments, plants, or sites, which often operate in different languages and regions, and use different business processes and software solutions. This process becomes more complicated as the size of the merging companies increases. And any issues that remain unresolved following a merger or acquisition have the potential to derange all entities.
Mergers and acquisitions are associated with a number of major decisions, and those relating to an ERP system have to do with which software system will be used after the deal and how. The newly established enterprise can choose to accept the currently existing ERP systems as the new standard, retiring all others; implement a brand new ERP software; or integrate the existing applications. Though all these strategies are viable, they require huge efforts from IT and other subject matter experts, and may take months or even years to complete.
The goals of mergers and acquisitions are to gain better financial results, synergize business activities, more effectively develop products, and better manage overall company costs (economy of scope and economy of scale). However, those targets are not easy to reach from the ERP perspective. Again, the large scale of the business presents a major challenge in this regard. To optimize process efficiency and achieve full potential of the ERP system, business processes need to be carefully revisited and only the most effective retained. Considering the large number of processes to go through, even reconfiguration of the business model can easily take months, or even years. In addition, it will take the company years to address the technical, implementation, and integration issues that will inevitably arise once the system is actively in use.
To accommodate the merger and acquisition requirements of large businesses, an ERP system should be flexible enough to be fully integrated with other applications, including other ERP systems. It also must be easy to modify within the current business structure and internal processes according to changing business realities.
5. Offshoring and Re-shoring Initiatives
To reduce production costs, companies continue to move some or all of their production facilities to countries with lower labor costs. Manufacturers with headquarters and subsidiaries or plants on different continents may find it difficult to manage certain activities, such as quality control and delivery time.
With the goal of reducing production costs and succeeding in an environment of tough global competition, businesses have had to build massive transportation and logistics networks that support the sourcing, manufacturing, and distribution of their products. The entire logistics industry has been rebuilt to serve the booming transportation and delivery requirements of the global players. Global outsourcing has allowed manufacturers to skip the “anxious and unexciting matter” of manufacturing products, which requires capabilities for manufacturing planning, shop-floor monitoring, and managing shop-floor personnel. Information technologies have played an important role. The explosive development and general availability of information technologies in general and ERP, supply chain management (SCM) software, and internet-based communication tools in particular have made global outsourcing a reality.
However, global outsourcing has brought considerable macro-economic problems both to developed countries, with unbalanced trade budgets and lost manufacturing facilities and skills, and to developing countries, with citizens destined to be part of a cheap labor force. Companies that are actively outsourcing their manufacturing needs are faced with a number of challenges:
Unexpected rise in logistics, quality, and general management costs
Notable reduction in the quality of the outsourced goods and products
Inadequate response to changing demand and quality issues due to cumbersome and slow supply chains
Many global and regional companies therefore have already started revisiting their manufacturing and outsourcing strategies. An obvious response to these challenges is to shorten supply chains and bring the manufacturing of all or some products closer to their customers, and to implement modern information and management technologies in parallel. a new paradigm for the modern, agile, and end value–focused medium and large manufacturing business would entail the following:
Deepening interrelationships between companies within the supply chain
Dramatically shortening production and delivery time
Attracting more educated and result-oriented human resources (HR) personnel
Dramatically reducing inventory
Implementing newly developed and forward-thinking manufacturing methods and technologies (i.e., smart manufacturing or manufacturing 4.0)
To achieve this, manufacturers will need to carry out those manufacturing processes they were previously outsourcing or managing overseas. Their ERP and shop-floor control systems will thus need to be powerful and capable of supporting those processes and associated large amounts of manufacturing data, and integratable with ERP solutions of suppliers and partners within supply chains.
As manufacturing supply chains become simpler, shorter, and overall more transparent, many extraneous supply chain elements can be eliminated and relevant SCM software parts simplified. Many SCM systems can be replaced by a single ERP system that is powerful yet agile and scalable enough to process the amount of data as well as supply chain and distribution events needed. A business will be better served by the ability to react immediately to changes in demand by revisiting a bill of material, adjusting manufacturing processes, and delivering finished goods within hours instead of weeks, or even months.
6. Limitations of IT Infrastructure
While cloud software solutions may offer advantages compared with on-premise systems, large businesses still face several limitations with cloud computing due to their size, scale of businesses, and significant investments into previously deployed solutions.
Manufacturing companies need a physical infrastructure regardless of the software type, delivery model, technical specifications, etc., they are using. Medium and large manufacturers are not ready to part with their IT infrastructure, as they have invested substantial financial and time resources in it. Thus, their strategy typically involves retaining functional components and gradually replacing only obsolete or nonfunctional equipment.
Manufacturing IT services typically comprise a mix of operations performed by internal staff and external providers. Although all medium and large manufacturing companies have some IT personnel in place, most have opted to outsource some of their internal support and maintenance operations.
7. Inadequate Collaboration Practices
As medium and large manufacturers have complex operations and involve numerous employees as well as external partners, collaboration plays an important role in streamlining their businesses. As such, internal and external collaboration practices directly affect the core activities of manufacturing companies. They are also the tools to obtain feedback (both internal and external) in order to enhance customer service, product development, or other business areas. While improved internal communications based on social media, and enhanced collaboration with business partners can increase operational efficiency, there may be privacy and security concerns.
Still, medium and large manufacturers rarely have well-defined strategies and policies for collaboration. Furthermore, ERP software vendors cater to such requirements increasingly better but still do not always have adequate and robust offerings for both social media and collaboration.
Social media is not only a popular and widely used forum, but also a great source of traceable and auditable information that can prove to be extremely valuable to manufacturing companies, and a perfect way of communicating directly with customers. From end-user communities to unstructured data that can be found on Twitter and Facebook, companies can gather direct consumer feedback regarding the products and services. This feedback can be used for several purposes:
Improve the quality of the products
Design new products
Enhance the customer service experience
Stay current of changes in customers’ purchasing behavior
Collaboration can be the differentiator between a successful company and its lagging competitors. Extensive collaboration can empower a company to produce more innovative products, run the business with better processes, and have employees work more efficiently. A culture of ideas and information sharing, along with the right tools and processes in place, can enable employees to be more productive, which can have a huge impact on business growth.
Collaboration may include partners, and even communities of users, and prospects and customers.
Medium and large manufacturers should take advantage of both collaboration and social media tools to improve the overall business performance of the company. They must first address the following challenges:
A culture of collaboration is not something that companies can build quickly and without huge efforts. It may also require disruptions to business activities, and may distress those employees who are less prone to adopt collaboration tools. However, newer approaches of internal collaboration such as social collaboration tools are capable of totally replacing conventional email-based and telephone-based corporate interaction practices, especially if those tools are fully integrated with ERP and other important corporate systems.
Most vendors provide at least some services that can help customers understand how they can use social media and collaboration tools. When it comes to designing and implementing business processes and infrastructure for social media and collaboration, ERP vendors struggle with defining a consistent way of helping their customers with social media. Third-party consulting companies often need to be involved.
Different vendors have different approaches to social media and collaboration. While collaboration has always existed in business—most often in an informal way, social media is rather new and still seen as more suitable for entertainment than for business.
The incorporation of social media into corporate-wide software may help manufacturers address these business challenges. Direct integration of social media and monitoring tools with sales and CRM software solutions allows companies to obtain direct customer feedback, which can lead to better or targeted product development, and to stay in touch with their customers during the entire product lifecycle. Moreover, direct customer communication channels affect existing supply chains, and may transform them into more agile and end customer–focused chains.
A modern ERP system for large-scale manufacturing businesses can help support medium and large manufacturers address various challenges—from compliance to internal communication tools. Because of the rising global-scale competition, manufacturing companies nowadays cannot afford to use inflexible, heavy systems that are extremely difficult and time-consuming to implement, configure, and modify. There is a real demand for software systems that are capable of supporting diversified and geographically expanded manufacturing operations while remaining relatively simple, agile, and easy to implement and modify. These systems also need to have easy-to-use logic that can be easily learned and can accommodate users in many countries with different levels of computer knowledge and cultural differences. Using such ERP systems will enable medium and large manufacturers to continue developing and producing high-quality products and services and achieve business growth—while undergoing structural and procedural changes to their business and IT infrastructure and adapting to current complex manufacturing requirements in today’s dynamic and collaborative business environment.
About Technology Evaluation Centers (TEC)
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