7 manufacturing problems solved with ERP

The more manufacturers develop their activities, the more complex they become. These businesses face a number of manufacturing problems that didn't exist when they were launched. This article discusses seven major manufacturing problems that both large and small manufacturers face, and which threaten to bring their operations to a halt. It also shows how Enterprise Resource Planning (ERP) software can help solve them and stimulate business growth.

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The 7 manufacturing problems and their solutions

1. Use of historical management systems
2. Compliance with international laws and regulations
3. (Re)engineering business processes
4. Impact of mergers and acquisitions
5. Offshoring and repatriation initiatives
6. IT infrastructure limitations
7. Inappropriate collaborative practices

Problem #1: Legacy management systems

Needless to say, a large number of medium-sized and large companies already existed before the creation of complete software solutions. These organizations operated using multiple IT solutions that were neither integrated, cost-effective nor intuitive, and generated large volumes of unstructured data. Today, medium-sized and large manufacturers often find these legacy ERPs insufficient to meet their complex needs, and consider them obsolete.

Although many users are satisfied with these legacy systems, companies are finding them increasingly difficult to maintain. However, they are keen to continue using them, and to add to them, as these tools are particularly stable, but outdated and relatively inflexible. In addition, there are relatively few software specialists on the market, as the younger generations don't seem inclined to dabble in old technologies.

Two strategies are proposed to resolve this situation. The first is to revitalize existing software by updating it with new interfaces, functions and tools, and adding more modern technologies. The second is to replace all legacy systems with new software. However, in large companies, even the smallest change can have disastrous consequences for operations.

What's more, replacing a system can take time. During this interval, a company's activities may undergo considerable change, affecting its overall information technology (IT) strategies and approaches. This can greatly extend project timescales, calling into question the viability of the new business environment. All projects need to be completed as quickly as possible, whatever the size of the company. For larger organizations, this task becomes all the more intensive and costly.

Problem No. 2: Compliance with international laws and regulations

As manufacturers continue to develop new products and expand their activities across borders, it becomes increasingly complicated to comply with local and international laws and regulations. These standards can potentially affect all major manufacturing activities, from procurement and production, to distribution and sales, asset management and Human Resources (HR).

As medium-sized and large companies are often present in several regions or countries, they have to comply with the rules of applicable law, as well as with the various standards relating to safety, finance, employee rights, etc. on a local, national and multinational scale. These regulations are designed with the general aim of providing a stimulating business environment, sometimes imposing the production of quality goods and services that pose no risk to consumers, society or the environment. Of course, each country has its own regulations. Even in countries with similar compliance standards, there are differences between specific regulations, for example concerning the presentation of safety documents or the information to be included in accounting reports.

Compliance rules add a new layer of complexity for large multinationals, which produce a wide range of products or provide multiple services to their customers. The myriad of compliance documents required must be stored and maintained. These requirements must be enforced and complied with, and the corresponding transactions must be verifiable.

For large organizations, it is also important that internal standards, policies and procedures are drawn up, in line with the compliance standards laid down by the applicable legislation. Although internal rules are generally created with regulatory requirements in mind, they can be extended and modified on the basis of a company's specific features, strategies and standards, good practices and traditions. The organization's branches and subdivisions can be expected to comply with these rules.

Manufacturers must comply with government rules and regulations governing the manufacture, tracking and storage of their products. Thus, business processes must be designed in accordance with applicable legislation and standards. A central repository of compliance documents and standards is highly recommended. In addition, an ERP system can be a good tool for integrating business processes and the corresponding documents. On the other hand, since compliance standards are generally divided by industry vertical segments, and in some cases by niche markets, it makes sense for medium-sized and large companies to consider moving to a new ERP system, designed specifically for their industry sector. Vertical software generally handles compliance issues better and more easily than general-purpose software.

Problem #3: (Re)engineering business processes

Medium-sized and large manufacturing companies must continually adapt to the changing environment in which they operate, by defining new workflows and procedures and restructuring existing ones. The more organizations grow, the more individuals, assets and partners will be involved in the changes imposed by the market. Not only are company resources and finances affected, but the logistical complexity associated with defining, testing and implementing new business processes across different units is also exacerbated.

In recent years, ease of change in the business environment has become one of the most important capabilities of ERP software for manufacturing companies, whatever their size or sector of activity. There are a number of reasons for this trend:

• Firstly, manufacturing companies generally need to be able to execute large-scale operations or transactions, in different ways depending on geography, generally accepted business practices in certain locations, regional regulations and so on. Software must therefore be technically capable of adapting to a wide range of procedures.
• Secondly, manufacturing companies are often faced with major changes to their processes. To remain competitive, a company must be able to quickly adapt its processes to the constantly changing environment. For larger companies, this task is particularly difficult due to the sheer size of the organization, the number of sites, processes and users. Consequently, flexibility and versatility are essential attributes of the software used by these organizations. Other important features include ease of use and an intuitive user interface, as well as logic, the ability to modify screens, existing documents and material flows.

Certainly, the more the system can adapt to reflect the new business reality, the more efficient it will be. In addition, organizations that implement an ERP system, within a precisely planned business structure, facilitate the sharing of ideas and information between different business units and sub-divisions, thus improving transitions.

Problem #4: The impact of mergers and acquisitions

Mergers and acquisitions are a way for companies to grow and expand their business activities. During this process, however, the two manufacturing groups must integrate the operations of their different departments, plants or sites, which often operate in different languages and regions, and do not use the same business processes and IT solutions. This process becomes even more complicated as the size of the company increases with the merger. Issues that remain unresolved following the merger or acquisition can get in the way of all entities.

Mergers and acquisitions give rise to a large number of very important decisions, and those relating to ERP generally deal with the software to be used after the transaction. The newly-created company may choose to accept the existing ERP system and delete the previous ones, implement new ERP software, or integrate the applications then in place. While all these strategies are viable, they require considerable effort on the part of the IT department and other subject matter experts, and can take several months or years to deploy.

The aim of mergers and acquisitions is to achieve better financial performance, gain synergies from business activities, develop more efficient products and better manage the company's overall costs (economies of scope and economies of scale). However, these objectives are not easy to achieve from an ERP point of view. Here too, the company's large size poses a challenge. To optimize process efficiency and develop the full potential of the ERP system, business processes need to be carefully studied, and only the most efficient selected. Given the large number of processes to be analyzed, reconfiguring the business model can take months or even years. What's more, it will take the organization years to resolve the technical, implementation and integration issues that will inevitably arise once the system is ready for use.

To meet the merger and acquisition requirements of large groups, an ERP system must be flexible enough to be integrated with other applications, including other ERP systems. It must also be easily modifiable to adapt to the structure and business processes reflecting business realities.

Issue 5: Offshoring and repatriation initiatives

In a bid to cut production costs, companies continue to relocate some of their production sites to countries with lower labor costs. Manufacturers whose head offices and subsidiaries or factories are located on different continents may find it difficult to manage certain activities, particularly with regard to quality control and delivery times.

To reduce production costs and succeed in a highly competitive global environment, companies need to build strong transport and logistics networks to support the sourcing, manufacturing and distribution of their products. The entire logistics industry has been reshaped to meet the transport and delivery requirements of international players.

Global outsourcing has enabled manufacturers to free themselves from the "anxious and worrying" issue of product manufacturing, which requires skills in manufacturing planning, store supervision and sales staff management.

Information technology has played an important role. The explosive development and availability of information technology, in general, and specifically ERP software, supply chain management (SCM) and Internet-based communication tools, have made global outsourcing a reality.

However, global outsourcing has raised considerable macro-economic issues, both for developed countries, in terms of trade budget imbalances and loss of production skills and facilities, and for developing countries, with citizens destined to be integrated into low-cost workforces. Organizations that outsource their manufacturing face many challenges:

• unexpectedly high logistics, quality and general management costs
• significant reduction in the quality of outsourced goods and products
• inadequate response to changing demand and quality issues, due to slow and cumbersome supply chains
• difficulties inherent in managing manufacturing sites in third countries

Many international and regional companies have already begun to modify their manufacturing and subcontracting strategies. The obvious response to these challenges is to shorten supply chains and bring manufacturing of certain products closer to customers, while implementing modern information and management technologies. The new, modern, agile, end-product value-oriented environment for medium-sized and large companies would therefore involve :

• strengthening relations between companies within the same supply chain
• considerably shortening production and delivery times
• attracting better-trained, results-focused human resources
• drastically reducing inventories
• implement new manufacturing methods and technologies (intelligent manufacturing or manufacturing 4.0).

To achieve this, manufacturers will need to deploy processes previously outsourced or managed offshore. ERP and store floor control systems will therefore need to be powerful and capable of supporting these processes and the large volumes of associated manufacturing data, and be able to integrate with the ERP solutions of suppliers and partners within supply chains.

When manufacturing supply chains are simpler, shorter and generally more transparent, most of the extraneous elements can be eliminated and software simplified. Many supply chain management systems can be replaced by a single ERP system that is powerful, agile and scalable enough to handle the large volume of data and events associated with supply chains and distribution processes. A company will perform better if it is able to react immediately to changes in demand, modifying materials, adjusting manufacturing processes and delivering finished products in hours rather than weeks or even months.

Problem No. 6. The limits of IT infrastructures

While software solutions running in the cloud can offer advantages over local systems, large companies generally face limitations due to their size, the scale of their activities and the significant investments made in previously deployed solutions.

Manufacturing companies require physical infrastructures, regardless of the type of software, delivery model, technical specifications, etc. they use. Medium-sized and large companies are not ready to abandon their IT infrastructures, as they have invested a great deal of time and financial resources in setting them up. As a result, their strategy is generally to retain certain technical components and gradually replace obsolete or non-functional equipment.

Nevertheless, these manufacturers have highly sophisticated infrastructures. These companies frequently use a myriad of software solutions to meet their needs in accounting, customer relationship management (CRM), HR, business intelligence, product design and lifecycle management, and other areas. They also use network protocols, operating systems, databases, messaging and web servers, etc.

The IT services used in manufacturing are generally made up of several operations performed by in-house staff and by external suppliers. Although medium-sized and large companies have their own IT experts, most have chosen to outsource some of their support functions and maintenance operations.

Problem No. 7. Inadequate collaborative practices

Since the operations of medium-sized and large manufacturers are generally complex and involve numerous external collaborators and partners, collaboration plays an essential role in simplifying their activities. Internal and external collaborative practices directly affect the activities of manufacturing companies. There are also tools for obtaining feedback (internal and external) to improve customer service, product development or other business areas.

While improved internal communication, based on social networks, and increased collaboration with business partners can boost operational efficiency, there may be issues of confidentiality and security.

However, medium and large manufacturing companies rarely have well-defined collaboration strategies and policies. ERP software providers are becoming increasingly responsive to these requirements, but do not always offer social and collaborative tools.

Social networks are not only a popular and widely used tool, but also a source of traceable, verifiable and potentially valuable information for manufacturing companies, and a channel for direct communication with customers. From end-user communities to the unstructured data available on Twitter and Facebook, organizations can gather consumer feedback on their products and services. This feedback can be used for a variety of purposes:

• Improving product quality
• Design new products
• Improve customer experience
• Keep abreast of changes in customer buying behavior

Collaboration can be the differentiating factor between a successful company and its competitors. Establishing extensive collaborative networks can enable a group to produce more innovative products, operate with better processes, and have more efficient employees. A culture of sharing ideas and information, with the right tools and processes in place, can boost employee productivity, with a consequent impact on business growth.

Collaboration can involve partners, or even communities of users, prospects and customers.

Medium-sized and large manufacturing companies should take advantage of collaborative tools and social networks to improve overall business performance. They must first address the following challenges:

1. A collaborative culture is not something that companies can build quickly and effortlessly. It may require the suspension of business activities, and may be a hindrance to employees who are less inclined to adopt collaborative tools. However, recent approaches to internal collaboration, notably social collaboration tools, are capable of completely replacing the conventional business interaction practices of email and phone calls, especially if these tools are integrated with ERP and other systems used by the company.
2. Most suppliers offer services to help customers understand how to use social networks and collaborative tools. When it comes to designing and implementing infrastructures and business processes relating to social networks and collaborative tools, ERP system suppliers find it difficult to define a coherent way of helping their customers with social networks. Third-party consultants often need to be involved.
3. Each vendor has its own approach to social networking and collaboration. While collaboration has always existed in the business world - usually in an informal way - social networks are relatively recent and are still perceived as an entertainment tool by professionals.
4. Integrating social networks into the software used by companies can help manufacturers solve their problems. The direct integration of social networks and collaborative tools into sales and CRM software solutions enables companies to obtain direct feedback from their customers, which can improve or target product development, and keep them in touch with their customers throughout the product's lifecycle. In addition, direct customer communication channels affect existing supply chains, and can transform them into more agile, customer-oriented chains.

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Conclusion

Implementing a modern ERP system within large-scale manufacturing companies can help medium-sized and large manufacturing companies to overcome many challenges, from compliance to internal communication tools. Due to ever-increasing competition, manufacturers cannot afford to use rigid, cumbersome systems that are extremely difficult and time-consuming to set up, configure and modify. There is a real demand for software that can support diverse and geographically extensive manufacturing operations, while remaining relatively simple, agile and easy to install and transform. These systems also need to demonstrate intuitive logic, be easy to learn, and be suitable for users from many countries, with different IT skills and cultures. Using such ERP systems will also enable large and medium-sized manufacturers to continue to develop and produce quality goods and services, and secure their growth, while coping with changes to their business and IT infrastructures, and adapting to the changing and complex demands of today's dynamic and collaborative business environment.