The need for automated inventory management was highlighted in the 1960s by the high cost of inventory shortages in manufacturing operations with long, expensive set-up cycles – for example automotive manufacture. Computers were already used to schedule production and Material Requirements Planning (MRP) applications were developed to schedule materials using exploded Bills of Materials (BoM) and lead time information.
It was soon discovered however that this approach did not address excess inventory levels as materials sat waiting for a production line slot where there was insufficient capacity. Capacity Resource Planning (CRP) methods were incorporated to solve this and the applications became known as Manufacturing Resource Planning (MRPII) systems. Properly applied, MRPII resulted in lower inventory, shorter lead times, better utilisation and improved customer service.
Over time, these applications were extended to cover more management functions including order processing, financials, engineering, quality assurance and marketing and in the 1990s, were again re-labelled – this time as Enterprise Resource Planning (ERP) systems. By this time, the original MRPII-type functionality was often no longer the key element and systems were available for most modes of manufacturing. Crucially, the efficiencies to be gained from a successful ERP system implementation soon made them essential to maintain competitiveness.
The original applications were expensive and developed for large mainframe computers so take-up in the Small to Medium sized Enterprise (SME) market was initially low until personal computers became more widespread in the 1990s. During this decade, the technology continued to migrate downwards along with the proliferation of local area networks, the Graphical User Interface (GUI) and computer literacy. Implementation of accounting software was often a pre-cursor to the more extensive computerisation of manufacturing management through ERP.
During this downward migration of ERP technology it became apparent that software and implementation techniques designed for larger organisations were not necessarily appropriate for smaller ones. In the SME market, financial resources for both hardware and software investment were usually constrained and staff resources for implementation projects and system management were more likely to be scarce.
This has been addressed by the emergence of vendors dedicated to the smaller manufacturer, employing the latest technologies to minimise hardware requirements, reduce development costs, maximise ease of use and automate system management. Factor in the latest implementation methodologies, applied by experienced SME manufacturing consultants, and it is clear that the special requirements of the SME are no longer being ignored.
As a result, manufacturing ERP can now assist the SME in achieving manufacturing excellence and is rapidly becoming indispensable to maintain a competitive edge. Even organisations with only a handful of employees are now realising significant benefits in terms of increased efficiency by use of the latest systems. Future pressures on manufacturers, competitiveness in the marketplace and further developments in information technology are likely to accelerate this trend, leading to universal adoption of manufacturing ERP.
In the case of the very largest manufacturers, it is still not unknown for in-house IT resources to design, deploy and develop business software to the exact needs of their organisation. Most companies however have come to recognise the significant advantages of sourcing business applications from established vendors, albeit with varying degrees of process-specific customisation depending on the size of the organisation, and hence the available budget for programming services.
These advantages range from generic functionality already in place, through vendor experience in similar industries, to long term stability and hence security of support. One of the key reasons given for change from in-house or locally written systems is the loss of key project members, through staff turnover or a local IT provider no longer trading.
As a result, the late 1990s saw an established and growing market place with a wide range of applications and vendors to choose from, with growth further fuelled by the looming “Millennium Bug” (Y2K) issue. The net result of Y2K however, was to bring forward the decision process for ERP projects in some cases and in others, to divert IT resources into necessary infrastructure investment. The ensuing lack of confidence in IT investment (worsened by uncertainty arising from e-commerce hype and subsequent disillusionment) led to a significant shake-out amongst ERP vendors, with the usual round of down-sizing, acquisitions and mergers.
In order to establish the winners and losers from this process it is worth asking some searching questions of prospective vendors, such as
- How long has the business been trading in its current form?
- How many times has the business changed hands?
- Has there been any significant new product release in your area of interest since Y2K?
- Is the product under scrutiny subject to ongoing development or just part of the portfolio through acquisition?
The answers to these questions may help identify the degree of stability of the vendor and the level of commitment to a future in manufacturing ERP and it is their future you are being asked to invest in.
ERP vendors can be divided into three broad categories:
- Those supplying large, tier-one, multinational corporations with budgets from £0.5m upwards.
- Mid-range vendors, serving organisations prepared to invest around £50k – £500k.
- Those addressing the remaining Small to Medium sized Enterprise (SME) market.
Even allowing for overlap, what can’t be denied is that the first two categories are assiduously trying to move downmarket as demand levels out and market saturation occurs.
SME manufacturers therefore should try to establish the track record of vendors with respect to organisations of a similar scale. What proportion of the vendors existing sites fall within your category? What is the average number of site concurrent users for the product and is it of the same order as yours? Is the vendors experience of SME’s relatively new or were they addressing that market from the outset?
Other useful indicators of a good fit with the SME are the use of manufacturing anf business management specialists early in the pre-sales process, rather than just sales executives and a general approach which suggests the vendor is mindful of the need to cut through the hype and address the real practical needs of your organisation. If the right vendor is selected, you are well on the road to a successful implementation.
A previous primer in this series (Vendor Selection) has already identified three common sources for manufacturing Enterprise Resource Planning (ERP) software – in-house bespoke systems (custom-written for a specific application), out-sourced bespoke systems and standard packaged systems.
Concerns that can lead to a preference for bespoke applications include unique requirements not widely available in packaged software, a reluctance to depend on an external provider for a business critical infrastructure element and a perception that development and maintenance costs can be minimised by coding in-house
Conversely, in addressing the first concern, there is a real risk of concentrating on special functions to the detriment of pursuing best practice in wider processing and also of cementing in legacy business practices with a resultant loss of flexibility and potentially improved efficiencies. While anxiety about the commercial risk associated with dependence on third parties is understandable, in reality the risk of losing or re-allocating in-house skills is usually higher. In the case of out-sourcing, it is worth questioning whether a local IT consultancy with a handful of end users (probably all using different applications) really provides more security than a vendor of the same or greater size supporting a larger, distributed user base, all on the same software platform.
In-house or out-sourced bespoke ERP software can indeed be less costly to develop than packaged solutions because the total function count can be restricted. The development costs however, are borne exclusively by the single end user, whereas in the case of packaged software, the costs are distributed across many end users. Maintenance costs can also appear lower for bespoke applications, particularly if (as is often the case) on-going development is reactive and minimal and also because real costs are often partially absorbed into general overheads. Software maintenance and on-going development for packaged products benefits from the input of a much larger number of users and is hence likely to progress at a faster rate and provide better value.
For the larger manufacturer, many of the above pitfalls with bespoke ERP software can be minimised due to substantial, well-funded IT departments, greater numbers of internal users and institutional continuous improvement programmes. For the manufacturing SME however, it is clear that packaged ERP software will deliver more functionality, better long-term security and a lower total cost of ownership (TCO).
Where does that leave the prospective implementer with unique processing and data requirements? Vendors of packaged solutions will usually offer customisation to fill this gap, often at significant additional cost. While this approach would appear ideal, it can lead to excessive upgrade costs due to high consultancy and programming requirements, particularly where the vendor is not also the author of the software. This trap can be avoided by ensuring that the software is designed to support customisation without core code changes, for example through the use of object-oriented design and a structured architecture including open source libraries, custom hooks and automated change management facilities. To maintain internal ownership, it is also important that these tools are accessible to, and usable by, the end user and that the full development environment is included in the installed software.
Manufacturing operations can be divided into two broad categories based on the mode of operation and dictated by the nature of the end product. Each category has particular implications for the implementation of manufacturing Enterprise Resource Planning (ERP) software and it is important to identify the relevant mode(s) before short-listing potential solutions.
Discrete manufacturing operations (including single product, batch mode and mixed-mode variants) manage the production of finished goods by breaking down the composition of the product into a (usually multi-level) Bill of Materials (BoM) structure and describing the manufacture of each node in the structure with a “process route” consisting of a (usually sequential) series of operations to be carried out at various work centres. The main characteristics of this category are that each product has a fixed, defined identity with a BoM and a process route, is manufactured singly or in batches using works orders and the time-phased introduction of materials to the production line is co-ordinated with the start of manufacture of the various modes in the BoM structure. A sales order is used to represent customer purchase order demand and invoicing usually takes place once finished goods are dispatched from inventory after manufacture.
Jobbing manufacturers however take a different approach. The job is broken down into various elements such as material requirements, work centre operations and other ad-hoc elements (feasibility studies, design exercises, stage payments etc). The job will typically have a start date, various material issue dates, operation timings and a completion date. Invoicing regimes often vary depending on contractual and cash flow implications. The main differences with discrete manufacturing are that there is usually no fixed product identity, BoM, or process route, therefore time phased material issues and operation timings are dictated by job elements and work orders are not normally required. The job itself represents the customer purchase order demand and invoicing can take place at any stage during the life of the job. The jobbing approach is widely used in sub-contract engineering, project and custom work.
Historically, the larger manufacturing ERP systems would cover both of the above categories on a modular basis or would be customised to accommodate different modes. Unfortunately, smaller manufacturers have traditionally been faced with a choice between jobbing based software and discrete manufacturing software and have often had to compromise accordingly.
As competitive pressures have forced manufacturers to diversify and offer complementary services to maintain customers, it has become unreasonable to expect them to jump into one camp or the other. This has led to the emergence of software for manufacturing SME’s that incorporate both of the above modes. Furthermore, manufacturers should expect full integration between the modes in material requirements planning, capacity planning, and invoicing etc.. For example, if a job element demands the production of a complex assembly, the assembly can be produced on a conventional work order and then issued to the job. In the leading systems it is even possible to design and manufacture a prototype using a job and then automatically convert it to a standard manufactured product, complete with top-level identity, BoM and process route and even generate a new sales order as part of the process.
After the selection phase of a project for the introduction of a new manufacturing Enterprise Resource Planning (ERP) software system, the implementation phase has to be carefully planned. An outline plan, including estimated resources and timescales, should already have been discussed during negotiations, along with the expected approach to the handling of legacy data and processes.
The implementation phase typically includes the following activities, some of which run concurrently:
- Project planning, installation, legacy data and process review.
- Process modelling (sometimes called the “conference room pilot”).
- Data preparation and transfer.
All of these should be designed to converge on an agreed go-live or switchover date. Sometimes a phased implementation will take place instead of the above “big bang” approach, gradually introducing system elements to business processes as an extended project. This approach is appropriate where an integrated business system is not already in use otherwise it may involve the “parallel running” of two systems which can strain internal resources. The personnel involved in this phase will usually include an internal project head and representatives from each functional area (the core internal project team), representatives from the software vendor along with IT support and data entry staff.
Like all Business Process Re-engineering (BPR) projects, ERP implementations can cause severe problems if not managed effectively. Paying attention to well-established critical success factors however can minimise this risks. Key factors include:
- The authority and mandate of the project leader to ensure activities are completed and milestones met.
- Adequate preparation, for example legacy process flow documentation
- Reassurance and training of key team members to reduce the fear of change and avoid resistance.
- Thorough testing before committing to final data structures and processes.
- Adequate time allocation for user training and practice.
All of these need to be backed up by effective project review and planning, clear communications and the avoidance of the tendency towards over-complication wherever possible (often called KISS – Keep It Simple Stupid!).
Many of the implementation methodologies in current use were developed for the larger organisation where internal resources can be temporarily re-allocated from routine operations and significant vendor resources budgeted for. In fact, some established management consultants expect an “Implementation To Software” (ITS) cost ratio of anything from 3:1 right through to 5:1, where the software licence cost actually becomes less than 20% of total project cost. Vendor implementation specialists can be present virtually full time for the life of a project and project timescales can extend to 12 months or more.
For the manufacturing SME this is clearly inappropriate as there is often no dedicated IT department and team members are expected to fit project activities around normal duties. It is important therefore to establish estimated resource requirements for the solution in mind and ensure that these are affordable. The ITS cost ratio for an appropriate solution is normally around 1.5:1, with project times of 6 -12 weeks being typical. With well-designed, modern ERP software it should be possible to implement with minimal or even zero vendor on-site assistance – ask potential vendors if they can give you examples of this. There are significant advantages in sourcing sensible and affordable levels of vendor consultant time though in terms of experience and formal methodologies, developed with the manufacturing SME in mind.
Early Enterprise Resource Planning (ERP) systems often started life as in-house development projects for large manufacturing organisations. Other products were developed for specific industries and only later, broadened to capture a wider market. Most of these pioneering systems were written for mainframe computers and then various flavours of Unix, almost exclusively with a crude ‘character’ interface. The connection of PC’s through local area networks (LAN’s) eventually led to DOS based systems with similar interfaces and functionality. Most of this software was coded before object-oriented development tools were available and hence do not benefit from the structured approach offered by this technology. This makes for cumbersome code that can be unreliable and costly to develop and maintain. Vendors however, cannot just discard this huge investment in legacy software.
To extend product lifecycles, Windows-based front-ends were later “bolted on” to some systems without improving the underlying code. It was the mid to late 1990’s before some of these legacy products were eventually re-written or replaced to take full advantage of the latest operating system (OS) architectures and object-oriented programming techniques but many are still on the market now.
In addition, there has been a tendency for larger businesses to demand custom functionality from which many vendors derived healthy revenues. This customisation typically ends up in the standard software leading to “bloatware” (overblown software containing an excess of little-used functionality). Such ERP software is going to demand substantial resources to operate, maintain, upgrade and develop. This can be exacerbated by high training and operational costs due to poorly designed user interfaces, and a bewildering array of superfluous functionality typified by “window clutter” and “menu sprawl”.
It is clear that, whilst larger manufacturing organisations can survive the high Total Cost of Ownership (TCO) of legacy ERP software, the Small to Medium sized Enterprise (SME) needs to look elsewhere. So what elements are going to characterise a development approach more in tune with the needs of the manufacturing SME? High on the wish list should be development focus – on manufacturing, on generic rather than industry-specific functionality, on features actually requested and used by clients and on relevance to the size of the organisation. This may be demonstrated by the software having a broad but cohesive feature set and a user base spreading across many industries and a development policy characterised by openness.
Another important area is the approach to customisation. If a vendor claims that even standard windows can be modified, this could point to long-term maintenance issues and expensive upgrades where modifications have to be re-coded to accommodate new versions. A much safer approach is to limit major customisation to additional windows and plug-ins and/or code that runs within a controlled customisation framework. A manageable methodology like this enables full vendor support to be maintained while allowing users to get the special functionality they need, even when they themselves manage and maintain the customisation.
This should all be supported by automated change management tools where simple point and click techniques are all that is required to re-install custom features into a new version and maintenance updates are delivered automatically over the internet, with minimal disruption to normal operations.
An initial survey of the Enterprise Resource Planning (ERP) software marketplace reveals a dominant financing model involving up-front software licence purchase, service invoicing and recurring re-licensing and support fees. Within this model, variations in the proportion of total costs allocated to the various elements exist but the basic model is almost universal.
Look a little harder however and occasional short-lived examples of software “rental” options can be found, where no initial investment is required and a regular subscription is paid instead. These can appear superficially attractive due to a number of claims made for them, along with explicit and implicit criticisms of the established model.
The main sales thrust of this approach plays to the fears of prospective implementers regarding the high degree of commitment involved. Subscribers are told that they can abandon the project at any time with no financial penalty beyond past rental payments and that this in effect gives them an opportunity to try the software out at minimal external cost. Criticisms are often made of the standard investment models usual approach to pre-sales, which typically involve comprehensive consultancy services (largely free at the point of delivery) to establish compatibility and build confidence before purchase.
A careful analysis however exposes some apparent weaknesses in the promotion of the rental model. Essentially, it relies on exploiting the perfectly reasonable concerns of prospective implementers, then rather than providing resources to materially assist them in making what is a complex and crucial decision, it offers them an illusory escape from serious investigation and commitment.
This philosophy extends into the initial implementation phase where the new user is largely left alone to “try things out”. While this can reduce external consultancy expenditure, it risks wasting internal resource effort and is hardly conducive to a well-optimised implementation. To make matters worse, in order to achieve this, the software has to be kept relatively simple (in effect, a dumbing-down) which can limit the configuration options available to the implementation project team for the purposes of fine-tuning business processes and for future process development.
It appears that the rental solution provider is actually shifting more of the selection and process testing functions on to the user, in return for reducing financial liability, but as would soon be discovered, only in the short term. It is clear that the main beneficiary of this approach is the rental provider and not the implementer. Successful implementation is usually the product of a co-operative project, drawing on the skills and experience of both internal team members and vendor consultants. Excluding these experienced consultants risks shallow integration within the organisation, disappointment and even total, and expensive, failure.
Tin considering the financial benefits, a comparison of long term costs shows that after 3-4 years, the rental option Total Cost of Ownership (TCO) overtakes and rapidly diverges from the standard model. As the typical ownership lifecycle for this type of software is 10-20 years, simplified software with arms-length support, at a much greater TCO, does not, and should not, look attractive. This perhaps is the reason why in a mature market, where trade-offs between customer and supplier have stabilised, the standard financing model is so dominant?
The first six primers in this series introduced manufacturing ERP systems and discussed various aspects of their evolution, supply, modes of operation, implementation and development. Several issues emerged that are particularly significant to those Small to Medium sized Enterprises (SMEs) considering selection and implementation and this final primer in the series lists key points to help selectors position Caliach Ltd and the Caliach Vision ERP system in relation to those issues.
The headings are those from the original documents for easy cross-referencing.
What is it?
Caliach Vision ERP is a manufacturing business management system designed from the outset for the smaller manufacturer, incorporating MRPII, order processing, financials, engineering data, quality assurance functions, customer and supplier relationship management (CRM/SRM) and much more. It is a cross-platform windows implementation for personal computers on local area networks (Microsoft Windows, Linux and MacOS) and was developed from the first windows based MRP system, CaliachMRP, originally released in 1990. Caliach Vision itself was released in 2001.
Caliach Ltd. has been serving the needs of manufacturing SME’s consistently since 1990 with only one change in ownership in 2020, constructively planned to retain the company’s position at the forefront of the most cutting edge technology. The client base is roughly 150 sites world-wide with more than 80% based in UK and it is steadily growing at a current rate of 10-15 sites a year. The company’s mission is, and will remain, the application of appropriate technologies to help SME’s achieve manufacturing excellence through practical, affordable management software and associated services. Manufacturing specialists are employed throughout to ensure this mission is executed effectively.
Bespoke versus Standard
Caliach Vision is a generic, off-the-shelf software package with all the associated benefits such as ease of implementation and maintenance, supported by a wide user base. The full development environment however is also included in the package and all reports and many other system elements are supplied in open-source so as to allow virtually unlimited extension of the software to customer requirements, either by in-house developers or Caliach Ltd.’s own customisation services. While core program functions are protected from modification to minimise support costs, the system has a wide range of switchable configuration options and custom programming traps, to accommodate variations.
Jobbing or Discrete
Caliach Vision incorporates both jobbing and conventional work-order based operational modes so as to accommodate manufacturers who are faced with a mixture of repeat orders, prototyping, one-off specials and service based activities. There is full integration of both, with material and capacity planning, invoicing and other system functions. Prototype orders produced under the jobbing system can be easily converted to conventional product and ordering structures by users as required.
Caliach Ltd. can provide examples of successful implementations requiring little or no on-site assistance. This is a direct result of ergonomic software design and a de-mystified approach to installation and configuration procedures, supported by comprehensive and accessible documentation. In most cases however, considerable savings in project time and internal resource allocation can be achieved under the prudent guidance of our consultants, drawing on their extensive industry experience.
The initial design criteria leading to the first release of manufacturing management software from Caliach Ltd. sprung directly from experience of establishing and running a manufacturing operation. At least half of all development inputs since have come from existing users through an open and structured wish list, with the balance of new ideas split between the requirements of new installations and both in-house and industry innovation. This approach has avoided the tendency towards overblown software (“bloatware”) seen in other applications and has helped to maintain a tight focus on the functions that are of real benefit to manufacturing businesses. Automated change management techniques are utilised to ensure that customisation is maintained as new releases are introduced.
Having established that Caliach Ltd and the Caliach Vision ERP product are closely aligned with the requirements of the forward-looking manufacturing SME, what is the next step towards a successful implementation?
Just contact us and talk to one of our manufacturing specialists who will be able to answer any questions regarding compatibility with your operation as well as provide more details of the product and benefits. You can browse our web site and download our demo software from there as well as work your way through our online tutorial which will help you better understand what it is your are seeing.
Once a genuine requirement and broad compatibility is established, a consultant can, without commitment or cost, arrange to visit you and review your needs in more depth. They will also be able to offer a comprehensive demonstration of the software while on your site. Following this, any special requirements can be discussed and reference site contacts provided if required.
It’s that simple – why wait any longer? Take your first step to manufacturing excellence, company growth and greater profitability right now.