Getting It Right: ERP Solutions for Mixed-mode Manufacturers

Mixed-mode manufacturers operate in both discrete and process environments. In the past, these organizations have not been well served by traditional discrete or process enterprise resource planning (ERP) solutions. But a recent trend in the ERP market has been the offering of software solutions by major discrete ERP vendors to the mixed-mode manufacturing sector. However, in terms of criteria and the overall weight assigned to them in a request for proposal (RFP), these vendors must consider the industry sector the mixed-mode manufacturer's operations serve, the manufacturing processes, government regulations, and the quality standards of the particular industry.

Key Differences between Discrete and Process Manufacturing

Discrete manufacturing uses bills of materials (BOMs); process manufacturing uses formulations, also known as recipes. A discrete manufacturer assembles products along a production sequence routing, whereas a process manufacturer blends in a batch.

In discrete manufacturing, a multi-level BOM is used to produce a finished good, indicating the base unit of measure with all the lower level assemblies and subassemblies featured below. In process manufacturing, all sequential steps are held within the product formula, including all relative secondary products. Batch sizes are based on specific units of measure and vary according to the formula and product yields. Process manufacturing systems must be able to track the equipment and materials used, equipment settings, and labor.

Table 1 lists examples of discrete and process manufacturing sectors.

Discrete Industry	Process Industry
aerospace manufacturing	lubricant manufacturing
automotive manufacturing	water treatment manufacturing
furniture manufacturing	mining companies
machines precision parts	organic and inorganic chemicals
electronics	pigments
	coatings and paints
	inks and dyes
	adhesive manufacturers
	oil and gas fields
	pool chemicals
	cleaning products and solvents
	pharmaceutical
	food and beverage
	biotechnology

Table 1. Discrete and process manufacturing sectors.

The Trouble with Traditional Discrete and Process ERP Systems

Because mixed-mode manufacturers fall somewhere in between discrete and process manufacturing, ERP systems geared solely toward one type or the other often fail to support key mixed-mode manufacturing processes, resulting in decreased productivity and customer satisfaction, not to mention a lower return on investment (ROI) for the manufacturer.

For example, the challenge faced by a mixed-mode manufacturer when attempting to use an ERP package designed for the discrete manufacturer is the system's limitations in being able to account for the following process manufacturing requirements:

• yield estimation of products per job

• calculation of the available to promise (ATP) inventory allocation of finished goods

• increase or decrease in production yields based on ingredient levels or on lot or batch size limitations

• governmental and regulatory compliance related to lot control and traceability, as well as product quality—issues that the pharmaceutical and the food and beverage industries in particular must consider

• maintenance and tracking of quantities and costs of raw material process variances within the manufacturing process

Furthermore, a mixed-mode manufacturer may encounter the problems of longer implementation time and additional expense with an ERP system designed for discrete manufacturers, as modifications to the core functionality of the system may be required.

System Flexibility

Mixed-mode manufacturers need an ERP system that can handle formulations, batching, and other practices specific to process manufacturing in addition to the specific requirements of discrete manufacturing. What compounds mixed-mode manufacturers' malaise with ERP systems designed specifically for either discrete or process manufacturing is that these systems lock the mixed-mode manufacturer into a single line of business. They force companies to work around the software used for their other product lines by constructing spreadsheets or databases to compile data from various sources. When an organization's business model changes, the organization is usually forced to choose a whole new ERP system. For a mixed-mode manufacturer, the way around this scenario is to implement mixed-mode enterprise software instead. Mixed-mode software enables companies to switch manufacturing styles, and provides the flexibility needed to meet market demands.

Since implementing an ERP system is a time-consuming and costly undertaking, collaborative effort and research by all departments involved is required before a system is selected. A review of the current business processes and a documented view of the processes each department seeks to improve are essential to making the right choice. This review must be aligned with management's long-term objectives for the organization.

One way to shorten this cycle within the scoping phase is to obtain vital, up-to-date market and software solution information. Organizations can purchase relevant information on software systems from reputable software evaluation companies to save time and gain firsthand knowledge on the ERP market, as well as the proper tools to evaluate the product offerings that match their criteria. The goal of this exercise is to avoid making a costly investment in a system that is not flexible and that was not written with the mixed-mode manufacturer in mind.

Key Benefits of a Mixed-mode ERP System

Following are some of the major benefits a mixed-mode ERP system can offer:

• elimination of duplicate data entry

• a Web portal or executive dashboard that displays accurate, real-time data on key costs and trends, in a concise, graphical format

• a common user interface and a single set of processing goals to reduce training costs and to smooth IT operations

• a phased implementation rather than a single implementation, which means that not all legacy systems require implementation, thus resulting in a smoother transition

• the ability to support both discrete and process manufacturing modes

Vendor Solutions for a Mixed-mode Environment

An organization's decision-makers must be educated about the software applications and their key features in order to make the right choice. Each of the five major ERP vendors mentioned below can address the needs of both large-scale and small to medium size businesses with its software packages. Listed are the types of packages these vendors offer, including key features and functionality.

1. Lawson Process Manufacturing
Based in Saint Paul, Minnesota (US), Lawar software has 40 offices worldwide. The vendor's software system has received broad industry acceptance, and features standard product functionality, along with a few interesting features. Lawson Process Manufacturing

• supports mixed-mode, discrete, and process manufacturing environments

• supports service-oriented architecture (SOA)

• offers a fully integrated suite of modules that can be integrated either individually or separately

2. Infor ERP XA
Infor, one of the world's largest providers of business software, is based in Atlanta, Georgia (US). The vendor has acquired and developed ERP systems to serve both discrete and process manufacturing. Infor ERP XA

• supports mixed-mode, discrete, and process manufacturing environments

• integrates with shop floor services and the supply chain to aid material supply, distribution, warehousing, and freight management

• supports SOA

• links to radio frequency identification (RFID) and transportation management systems (TMSs)

• supports lean manufacturing

3. SAP
SAP, headquartered in Walldorf (Germany), has applied a great deal of its research on process industries into its product offerings. SAP's software packages

• support mixed-mode manufacturing environments

• offer easier integration through merged companies

• receive maintenance and support directly from SAP

4. Epicor Vantage
An Irvine, California (US)-based firm established in 1984, Eprico serves the mid-market, with over 20,000 installations globally. An integrated, out-of-the-box solution, Epicor Vantage

• offers integrated workflow processes that work collaboratively across modules

• supports paperless transactions as well as SOA

• provides a built-in project management feature as part of its planning and scheduling module

• features vendor portals (from its eBusiness Suite), which enable vendors to manage issues

5. JD Edwards by Oracle
JD Edwards Enterprise One (formerly PeopleSoft) is a suite of modular, pre-integrated, industry-specific business applications designed on a pure Internet architecture. It is suited for organizations that manufacture, construct, distribute, service, or manage products or physical assets. JD Edwards Enterprise One

• offers an integrated modular approach

• provides manufacturing management dashboards with real-time metrics on key performance indicators (KPIs)

• features rapid deployment

• supports global installation based on localized versions of software available

An Analyst's View of Process Industry SMB Challenges

The process industry provides many of the products we use in our daily lives for food, shelter, and health. Such products are created as materials and transformed through the use of energy resources and chemical products. In addition, the process industry manufactures products that are essential to advanced industries such as computing, biotechnology, telecommunications, automotive, scientific, and space exploration.

These industries are facing major pressures not only to meet the present needs of our global economy, but also to do so without compromising future generations by ensuring that processes

* meet environmental guidelines
* optimize energy resources efficiently
* result in products that are safer, more reliable, and more functional
* provide features that meet both industry and consumers needs

This article focuses on how enterprise resource planning (ERP) vendors are helping the process industry meet both the needs of today and deliver on anticipated functional requirements that will help meet the needs of tomorrow.

Process Industry Manufacturing Challenges

Manufacturers in the process industry are at a difficult crossroads. Although the industry is not facing any imminent substantial decrease in its overall profit margins, there is concern in the industry according to a recent study by the Canadian Manufacturers and Exporters Association, which cites the following issues:

* increased global competition
* foreign currency fluctuation
* changing patterns of customer demand
* escalating business costs
* problems in implementing new technologies
* competitive business pressures
* shortage of skilled workers

To address these issues, process industry manufacturers and distributors must manage the following key activities, and ensure they use an enterprise system that supports these activities:

* Planning production for both materials and capacity—to develop a production plan, manufacturers must ensure that there are sufficient available resources and materials, production capacity, and labor.
* Inventory tracking and controlling work-in-process (WIP)—monitoring material consumption and tracking work order progress is the basis of manufacturers' being able to meet sales order, demand, and delivery dates.
* Replenishment and demand planning—the ability to review variances between forecasted and actual sales is the basis of managing vendor lead times and raw material replenishment.
* Managing the supply chain for order fulfillment—reviewing the global supply chain provides manufacturers with the ability to coordinate logistics and operational activity to meet customer order fulfillment expectations.

Specific Requirements of an ERP System for the Process Industry

Here's an overview of how some of the functionalities of an ERP system for process industries help manufacturers better perform the activities listed above.

1. Conversion process capability
In the process industry, the bill of materials (BOM) used in discrete manufacturing is replaced by the master product formula, or simply the formula. The formula requires a conversion table for measures, such as weights from grams to pounds, and must have the ability to record liquid units of measure, in both metric and US-standard. The formula must also record specific information related to product characteristics that can affect manufacturing processes. For example, in the blending process, the system can record product information such as percentage calculations of raw materials, and the effective specific gravity, potency, density, and number of reactives of those raw materials.

2. Interface to other modules
The master formula can also be linked to submodules like quality assurance (QA), procurement, inventory, and accounts payable (A/P) for government compliance and safety issues. Also, the manufacturer must be able to trace products in order to manage dating of inventory lot control and the amount of inventory available at the distribution level. Furthermore, there are government and regulatory concerns that deal with the nature of the materials, as there may be a controlled substance with specific shipping, handling, and storage regulations. Or, the manufacturing process may emit hazardous by-products. Or, there may be logistical concerns within the manufacturing process itself.
3. QA module and flexible formula adjustments
A process industry ERP system must also have a formulation-balancing operation based on the premise that the QA group tests random samplings of production batches. The system needs the ability to adjust, through a program logic control (PLC) interface, any variations in materials used and external factors such as humidity, temperature, cool-down speeds, etc. Also, the material flow and consumption is recorded back into the ERP system. The system's routing functionalities reflect those capabilities as a requirement or not, depending on the user's specifications.

4. Reworking all co-products and scrap materials
As a result of manufacturing processes, residual materials (by-products) may be created. These by-products can be collected as waste and reused. This is the case within the plastics industry, for which the collection and re-entry of materials into process creates very specific criteria. In the process industry, due to a continuous production flow operation, the production process generates a theoretical production yield, which may be calculated by the downstream packaging operation as units for case-pack quantities. The residual amount generated from the production process may vary within a percentage point, but in the downstream conversion process, the residual quantities may be aligned to complete full, case-size box quantities. By using flexible formulas, process ERP systems can demonstrate how the residual materials can be reworked from waste back into materials used in production.

5. Supply chain management (SCM)
Collaborative forecasting and planning are essential features of the process industry ERP system, especially for the automotive and consumer products industries. Some the most important functionalities include

* visibility over inventory across the global supply chain
* enterprise-wide planning in the areas of sales and marketing, procurement, and production
* the ability to integrate planning for what-if scenarios
* the ability to benchmark quality and vendor performance issues
* detailed reporting that highlights areas where parameters may be out of scope
* real-time available-to-promise (ATP) information for customer service
6. Process industry costing
The financial system for the process industry must also be able to provide for multiple-level formulas on the same production work order, and for outside processing at subcontract facilities. Given the nature of process industry products, most plants must operate on a continuous basis, which drives maintenance costs up. As a result, maintenance costs usually comprise 30 percent of a process industry plant's operating budget. Thus, an ERP system must integrate with some type of best-of-breed system to meet the requirements of the operation, and with some form of asset management system, which takes into account predictive and preventative maintenance.

ERP System Constraints in the Process Industry

For lack of an available solution designed for their needs, some process manufacturers have attempted to implement an ERP system for discrete manufacturing. As there are several fundamental differences between the operations and practices of process and discrete manufacturing, opting for such a stop-gap measure is not always effective. Process manufacturers have no doubt noted the constraints that are placed on their operations as a result of using a system that was not designed for their needs.

The nature of the process manufacturing business is such that it is difficult to manage inventories and profits. Process manufacturers experience large quantities of finished product in transit and of raw inventory. The products often have low yields with substantial scrap (fine chemicals, pharmaceuticals, or plastics).

Business dynamics is putting demands on ERP systems to help with

* maintaining a lead over competition
* simplifying the product lines
* responding to shorter product life cycles
* providing mass customizations (car options, computer system accessories, etc.)
* complying with regulations compliances

In an attempt to meet these demands, many manufacturers have looked at ways to improve supply chain optimization by re-examining manufacturing processes, relocating closer to markets, and looking at cheaper energy, transportation, and labor. The businesses' needs are such that an ERP system must be powerful enough and diverse enough in functionality to do more than simple process manufacturing.
With ingenuity, many of the raw material manufacturers have turned to vertical market integration, moving from pure process manufacturing to mixed mode. Their factories now produce raw product for industry and sell finished goods by the item (counting). An example is toothpaste, where the finished good is sold by the pallet, case, or individual package. The ERP system must allow manufacturing processes to batch products in order to achieve product consistency (two examples are textiles, with "dye lots and finishing," and bakeries, with oven scheduling, and aerospace, with electroplating, etc.).

That some factors are out of the control of process manufacturing vendors is exemplified by the retail industry. In this industry, the vendor has a many-stop supply chain, and plays a role almost like that of the caboose at the end of a long train.

For example, chain stores track sales at the cash register, and use that information to replenish inventory from branch warehouses. The warehouses get their product from distributors. In the case of multilevel distribution networks, this explosion process percolates upward through the various levels from the retail store to regional warehouses (master warehouse, factory warehouse, etc.). The demand is input to the master production schedule at the level of the manufacturer. The process is not always real-time, meaning that a lot of product is out in the supply chain. This process of upward percolation is most common in the pharmaceutical and retail grocery industries. Since everyone in the supply chain strives to minimize and frequently turn inventory, any ERP system has to manage with these constraints.

As a side note, some manufacturers are trying to use real-time reporting to determine product consumption and demand. The information is more accurate and allows total reduction in the field, increased inventory turns, tailoring production to market preferences and better cash management.

Mixed-mode ERP systems are used by the processing industries for several reasons. First, there is no need to duplicate the data. For example, mature discrete ERP systems have well-optimized modules addressing finance, production planning, inventory management, sales, shipping, etc. The benefits of moving to a mixed-mode ERP product such as Syspro stem from the use of a common module to support production, sales, inventory, supply chain, finance, and analytics. These sophisticated discrete modules, adapted to accept process data, can go a long way toward helping the manufacturer reduce inventory, improve cash flow, and improve manufacturing yields.

The optimization of manufacturing and distribution processes for larger enterprises often involves business intelligence (BI) and business performance management (BPM) functions. These new ERP functions are typical of large manufacturers' systems, and are generally not affordable to SMBs.

Therefore, the SMB-oriented ERP system for process manufacturing needs to have extra capabilities that provide data for BI functionalities. The dynamics are such that this data is often industry-oriented (food versus chemical). ERP systems need to provide dashboards providing what-if scenarios to allow the manufacturer to improve competitiveness, while avoiding the cost of a full BI/BPM operational group.

Finally, a pure process ERP product has quantitative variables with large variations in values, leading to statistically large standard deviations. Statistical analysis for process optimization requires small standard deviations in order to make useful manufacturing recommendations. (Large standard deviations are indicative of large inventories in the pipeline, or variations in raw material quality.) Constraints on the quality of input data are essential to achieve any business improvements.

Following is a summary of constraint requirements of the ERP systems for process industries:

* have sophisticated data conversion algorithms (liters, gallons, and weights of mixes), allowing packaging size variations to be accurately reflected in the calculation of production batch sizes
* be real-time in execution on the production floor
* quickly create a new production schedule from new orders, allowing for extra production runs of the same product
* be responsive to changes in raw product concentrations
* provide a dashboard that gives management real-time views of pertinent business processes
* allow for varying manufacturing methods, such as continuous, make-to-order, make-to-forecast, and engineer-to-order
* function equally well in discrete and process industry modes, with reliable software bridges between the two

The extremely specialized nature of the process industries means that, among other factors, their regulatory compliance issues, best-practice scenarios, and concomitant enterprise software needs can vary greatly. Further, there are great differences amongst these factors for process manufacturing and discrete manufacturing, which means that process manufacturers are getting short shrift if they choose a solution designed for discrete. Though perhaps these are some of the reasons why vendors have sometimes shied away from providing ERP systems for SMB process industries, it seems that change is not only on the horizon but is well underway. If vendors continue to offer solutions that are versatile enough to address the needs of process, discrete, and mixed-mode manufacturers, the benefits will surely be experienced by vendors and manufacturers alike.