Mid-market firms can now enjoy enterprise resource planning benefits

Early adopters of ERP systems might be forgiven for thinking that the whole of the Western world had long since embraced some form of enterprise software. Those same visionaries may now be debating the merits of blade servers or looking forward to the brave new world of grid computing.

However, it is worth remembering that a lot of businesses are only now beginning to come to terms with the need for an ERP strategy. Motoring enthusiasts in Britain may remember the mid-90s episode of the BBC TV series Troubleshooter, in which business guru and former ICI chairman Sir John Harvey-Jones visited the Morgan factory.

Morgans are small sports cars, still largely based on 1930s designs and much revered by enthusiasts. So much so, in fact, that at that time you had to wait eight years for delivery. Harvey-Jones was brought in to see whether the company could do anything to improve its business efficiency.

In the parts department of the rambling factory, he asked the stores manager what system he used for ordering components for the assembly line. The man looked up at some shelves over his head, filled with a few silencers and sundry lengths of exhaust pipe. 'Well,' he replied, 'I look up and if I see that stocks are running a bit low, I order some more.'

The knighted guru stared back with incredulity, not knowing whether to laugh or cry. Ultimately, his recommendations to Morgan's management were deemed so radical and downright disrespectful that they were dismissed out of hand and his request for a follow-up visit a year later was turned down flat.

Unfortunately, there are lots of Morgan-style companies across the length and breadth of Europe, Middle East and Africa resisting the winds of change and preferring to stick to tried and tested largely manual methods of running their businesses. Some may be forgiven, since the large up-front investment needed was simply not an option for most, and the software vendors have focused primarily on larger businesses whose needs were greater and pockets deeper.

Now, however, they are turning their attention to smaller companies in the 'mid-market': those employing up to 500 people and with turnover up to $100 million. Squeezed on one side by an adverse economic climate and on the other by competition from low-cost countries, they see the need to optimise every aspect of their businesses, from procurement and recruitment to accounting and the whole supply chain. Their needs can now be met for a relatively small investment of $100,000 or less, which makes state-of-the-art solutions not only available but also affordable.

Before these new entrants bite off the arm of the nearest software salesman, however, how have their larger counterparts been faring since they embraced ERP in general and supply chain management in particular? The results speak for themselves: research by Accenture has shown that the stock prices of public companies that invested in getting their operating model right with the aid of ERP and supply chain technology outperformed their rivals by 20 to 25%.

This demonstrates that companies with the right supply chain model will win in their vertical markets, because the overall cost of serving their customers will be lower. They will have the most efficient turns of inventory and the highest working return on assets. Leveraging that advantage delivers better market results.

Companies that complain that ERP or SCM have not delivered against their expectations - and there are some - are suffering primarily from one of two problems: either the expectations were unrealistic in the first place, or they have failed to optimize their business processes and take advantage of those provided by best in class ERP solutions. Good ERP systems tend to address both planning and execution, and these applications need to be integrated throughout the organization.

A recent Meta Group report observed: 'Linkages between supply chain planning and execution systems must occur both at the data and the process levels. Data-level integration enables the transportation plan to be delivered to the warehouse management system for order pick sequencing. Process-level integration enables transportation planning and the warehouse management system to negotiate the optimal cost trade-offs between the size of a pick wave and the optimal transportation loading plan.'

The way to eliminate these problems entirely is to use the same data as the rest of the ERP system, with no data replication or batch interfaces. Oracle Transportation, for example, is designed to integrate with the entire enterprise, allowing data to be pulled from any transaction source and helping to deliver the true promise of seamlessness, reduced cost and greater efficiency.

The benefits of getting it right are being felt increasingly by businesses all over the world. Everything from running shoes to computer keyboards these days is made to order and shipped directly to the final destination, often eliminating one or more distribution centres from the mix, with consequent savings in time and cost.

The move from traditional manufacturing to more modern, leaner practices is a lot easier than it may seem. The increasing sophistication of packaged software applications means that manufacturers for instance can move incrementally to a fully Internet-enabled supply chain, addressing one aspect of their operations at a time.

The first step should be an investment in a core manufacturing management system. So-called 'lean' manufacturing practices such as build-to-order and build-to-replenish need a robust management system that can help improve the flexibility and efficiency of existing factories.

The latest software systems can pinpoint the best manufacturing method for each product - whether it be discrete, assemble-to-order, engineer-to-order, repetitive, process, lot-based or flow. This allows manufacturers to create highly customised, hybrid manufacturing environments where continuous improvement programmes can be linked to organisational goals.

A core manufacturing management system provides a basis for building out the Internet-enabled supply chain using compatible software components. One example is the ability to offer the customer an intuitive interface that allows him to input the exact product configuration he requires. Such software is already in use by large manufacturers and their feedback has been used to refine the products for the wider market.

A further step towards building a fully Internet-enabled supply chain is to link sales forecasts, with customer orders and production by means of an order management system that can automatically produce a bill of materials from the configured order and route the order through the system by means of a workflow engine.

One company doing just that is American Power Conversion Corporation (APC), a global provider of power protection products and services. Using Oracle Order Management, the company can source customer orders from EDI transactions, the APC web store or by manual entry. Internal replenishment orders are planned automatically.

The software's ability to handle all these inputs seamlessly while supporting a complex mix of pick-to-order, assemble-to-order and standard item shipments makes it a key element in APC's supply chain solution.

A further step towards the Internet-enabled supply chain comes with a new category of software that is often referred to as PLM, or Product Lifecycle Management.

The French construction group Technip-Coflexip has been using online PLM software to manage the myriad sub-contractors it needs to design and build oil refineries and industrial facilities for customers all over the world.

All authorised parties have access to Technip-Coflexip's commercial and technical information via a secure website, enabling the company to respond more quickly than its competitors to RFQs, consolidate materials purchase across multiple projects and virtually eliminate paper trails, faxes and telephone calls.

Technip-Coflexip's development director, Philippe Deschamps, says that this Internet-based approach allows the company to work on three projects simultaneously, rather than one at a time as in the past.

Larger companies such as APC and Technip-Coflexip have paved the way for others in adopting Internet-based software to drive down costs and optimise operational efficiency. Our research shows 46,000 mid-market manufacturing firms in Western Europe, and new pricing levels for applications software are making state-of-the-art solutions affordable for them all.