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ERP Options for Industrial Machinery and Components Manufacturers

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ERP Options for Industrial Machinery and Components Manufacturers

  1. 1. November, 2007 ERP Options for Industrial Machinery and Components Manufacturers Sector Definition Industrial Machinery and Components (IM&C) Manufacturers share the Aberdeen’s 2007 ERP in same pressures all manufacturers face today, in balancing stakeholders' Manufacturing Benchmark expectations of growth against the need to respond to increasingly Study captured responses from demanding customers. Like other manufacturers, this market segment views over 420 Industrial Machinery Enterprise Resource Planning (ERP) as a strategic weapon to streamline and and Components automate business processes in order to improve efficiencies, but requires Manufacturers. These responses provided an initial an expanded feature set to support the complexity of products and basis of data for the follow on processes in a primarily "to-order" environment. In an August 2007 Sector ERP in Industrial Machinery Insight Aberdeen posed the question, "Can ERP Simplify Complex and Components Manufacturing?" The report explored the specific needs of industries Manufacturing report. In characterized by both complex products and processes and made specific addition, Aberdeen re-surveyed recommendations to companies evaluating ERP options. This Sector Insight these participants to capture serves as a companion to the previous report identifying several of these supplemental data specific to ERP vendors prominently represented in the pool of IM&C Manufacturers the needs of this market participating in Aberdeen's July 2007 ERP in Manufacturing benchmark. segment. The Playing Field Aberdeen's "Can ERP Simplify Complex Manufacturing?" concluded that IM&C Manufacturers require specific functionality in order to streamline and simplify the business processes involved from the initial bid to the delivery At least 20% of the survey and service of a completed product. sample of each of the vendors presented in this Sector Insight Figure 1: "Currently Implemented" in IM&C Manufacturing was an Industrial Equipment Manufacturer. Figure 1 shows the percentage of IM&C 50% 44% Manufacturers represented in the survey respondents where 40% 37% these vendors' ERP systems are 31% 31% currently implemented. 29% 29% 30% Vendors are shown 24% 22% alphabetically. 20% 20% For a more extensive list of vendors which address the 10% needs of IM&C Manufacturers, please refer to Aberdeen's 0% October 2007 Research Cincom Epicor IFS Infor Lawson Oracle QAD SAP Visibility Preview ERP in Industrial Machinery and Components Source: Aberdeen Group, July 2007 Manufacturing © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  2. 2. ERP Options for Industrial Equipment Manufacturers Page 2 While many ERP products today will claim to serve the needs of this market, we observed nine (9) ERP vendors with a larger share of their customers in this market segment (Figure 1). At least 20% of the survey “Implementing ERP in our sample of each of these vendors was an IM&C Manufacturer. Given core business was an opportunity to revisit our Aberdeen's July 2007 ERP in Manufacturing benchmark found that processes, but we were functionality was the top selection criteria for 75% of all manufacturers and battling the pressure to get for 78% of IM&C Manufacturers, we can conclude that these vendors have it up and running quickly. successfully focused on addressing the needs of this market. Our biggest customers are in the Aerospace and Cincom led with the highest percentage with 44% share of survey Defense industry and respondents in IM&C Manufacturing and in fact another 44% in a second therefore we are faced industry (Aerospace and Defense) faced with similar complexity issues. with strict reporting and Also significant was the percentage of those currently evaluating these same regulatory requirements. We are now looking to solutions (Figure 2). In this case, Visibility and Epicor exhibited the largest expand our share of IM&C Manufacturers. Almost half (48%) of all companies currently implementation." evaluating Visibility ERP and 47% of those evaluating Epicor were IM&C Manufacturers. While Epicor's ERP portfolio of products consists of eight ~ CFO, Manufacturer (8) major product lines, 80% of IM&C Manufacturers evaluating Epicor were applies surface coatings to evaluating either Vista or Vantage, which today share the same code base jet engines and simply target either small or mid-size to large companies, respectively. Figure 2: "Currently Evaluating" in IM&C Manufacturing 60% 47% 48% Figure 2 shows the percentage 50% of IM&C Manufacturers 40% 38% 36% represented in the survey 33% 34% respondents currently 31% 30% evaluating these vendors' ERP 24% 20% systems. 20% Vendors are shown 10% alphabetically. 0% Cincom Epicor IFS Infor Lawson Oracle QAD SAP Visibility Source: Aberdeen Group, July 2007 ERP's Role ERP provides a necessary infrastructure, along with the transactional detail and system of record, that any manufacturer needs to run its business. With its roots in Material Requirements Planning (MRP), it has evolved to become ERP. It potentially touches every facet of industrial equipment manufacturing, from the front office sales and bidding process, through design and manufacturing, to shipping and logistics, as well as product warranty and support. This is also coupled with back office support from finance and accounting, as well as human resource management. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  3. 3. ERP Options for Industrial Equipment Manufacturers Page 3 Beyond the Basics Can ERP Simplify Complex Manufacturing? recommended IM&C Modules versus Extensions Manufacturers evaluating ERP to look specifically for functionality that will support the following: Aberdeen is careful to distinguish between a “module” • Shop floor control: Basic scheduling assuming infinite capacity and of ERP and an “extension”. All work order tracking are standard functionality; determine if more the modules of ERP use a single advanced finite scheduling is required and available. data base model. Integration is built in and there is little or no • Forecast and demand planning: Look beyond basic MRP to redundancy of data elements, determine any specific requirements you might have for a longer except where there is a specific and wider window into the future based on advanced forecasting, need. A module is built with sales, and operations planning. the same development tools, on the same architecture as • Supplier collaboration and scheduling: Seek to collaborate core ERP. While a module can with key suppliers sharing forecast demand. be implemented incrementally, • Project and program management: Look beyond simple its release cycle is in lock step with the remainder of the core desktop tools in order to share project plans across the enterprise. ERP modules. • Engineering change management: The very nature of a “to- The simplest definition of an order” environment implies the need to respond promptly to extension to ERP is an requests for product design as well as delivery date changes. enterprise application that • After market service planning and issue resolution: Make extends the functionality, but is sure service operations are well-supported and integrated with separate. manufacturing inventory and execution. • Product customization and / or configuration: Where possible, attempt to re-use product designs to reduce time from request for quote to bid and from order to completion. These needs might be met either through fully integrated and embedded ERP modules or through what Aberdeen refers to as extensions to ERP. Often the decision to purchase a module or an extension will be based on a combination of availability of necessary feature functionality, integration and cost. Figure 3 shows the adoption rates of ERP modules from 4 of the 9 vendors, each of which had sufficient survey respondents to make the percentages meaningful. These adoption rates are compared against the general pool of IM&C manufacturers. With few exceptions, we saw little variability across this vendor landscape. However, we did see customers of the biggest ERP vendors (SAP and Oracle) with the lowest adoption of the most basic of these modules, Shop Floor Control. While Infor and Epicor users are 7% and 19% (respectively) more likely than the average IM&C manufacturer to deploy this module. Oracle users, in particular, were more likely to concentrate primarily on the basic accounting functions, inventory control, and order management but were least likely to bring this level of control to the plant or shop floor. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  4. 4. ERP Options for Industrial Equipment Manufacturers Page 4 Figure 3: ERP Module Adoption Rates All IM&C respondents SAP Oracle Infor Epicor 90% % 80 80% % 72 % 67 70% % 53 60% % % % 41 50 % 49 % 49 % 50% 47 45 % % 39 40 % % 40% 34 36 % % % % 32 % 31 31 % 32 28 % % 28 % 30% 27 % 26 25 % % % 23 % % 24 22 21 21 19 20% 10% 0% Forecasting / Project Shop Floor Control After Market Engineering Product Demand Planning Management Service Change Configurator Management Source: Aberdeen Group, July 2007 Extending the footprint beyond the core ERP functionality can mean making Criteria for Best-in-Class decisions between ERP vendors and pure play or “Best of Breed” solutions. Aberdeen used four Key The trade-off between Best of Breed functionality and ease of integration is Performance Indicators no longer as simple as it once was. Over the generations, ERP has continued (KPIs) to determine Best-in- to expand, blurring the boundaries of core ERP functionality. At the same Class performance: time, the consolidation within the software industry is having a broad effect. √ Reduction in inventory ERP companies have also been gobbling up pure play or Best of Breed levels vendors that offer extensions to core ERP functionality. This is having a profound effect on the enterprise application vendor landscape and also on √ Inventory accuracy how ERP versus “Best of Breed” decisions are fundamentally made. More √ Percent of complete and and more companies are exploring the limits of these boundaries and on-time orders shipped weighing decisions that balance integration efforts against extended features, √ Manufacturing schedule functions and advanced technology. compliance Table 1: Modules versus Extensions Industrial Best-in-Class Equipment Industrial Manufacturers Equipment Manufacturers Forecasting & Demand Planning ERP Module 45% 58% Forecasting & Demand Planning Extension (not included as an ERP module) 21% 14% Supplier Collaboration and Scheduling ERP module 13% 22% Supplier Collaboration and Scheduling (not included as an ERP module) 8% 19% © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  5. 5. ERP Options for Industrial Equipment Manufacturers Page 5 Industrial Best-in-Class Equipment Industrial Manufacturers Equipment Manufacturers Project Management ERP module 28% 34% Enterprise or Desktop Project Management (not included as an ERP module) 39% 57% After Market Service: Field Service/Depot Repair ERP module 23% 26% After Market Service: Field Service/Depot Repair (not included as an ERP 21% 29% module) Engineering Change Management as an ERP module 39% 49% EDM/PDM/PLM (not included as ERP modules) 18% 27% Product Configuration ERP module 28% 36% Product Configuration (not included as an ERP module) 29% 43% Source: Aberdeen Group, November 2007 Aberdeen observed Best-in-Class IM&C Manufacturers more likely to deploy this selected functionality in all categories (Table 1). In the case of Forecasting and Demand Planning, Supplier Collaboration, and Engineering Change Management, we found a stronger preference amongst all IM&C Manufacturers for ERP modules, emphasizing the need for integration. The opposite proved true for Project Management. However, the predominance “We evaluated ERP systems of desktop tools, rather than enterprise project management applications in focused on their ability to use leads us to conclude these decisions are not based on specific functional satisfy our needs in manufacturing a customized, requirements but rather accessibility and ease of use considerations. highly engineered product. We found a relatively balanced approach to After Market Service and CRM modules were very Product Configurators, although with lower adoption rates. IM&C similar from one system to the Manufacturers are equally likely to implement modules versus extensions, next; however, the ability to handle project-based but in both categories, Best-in-Class were slightly more likely to seek the manufacturing was quite added functionality of a point solution. The fact that not all ERP vendors different. Our current ERP provide these modules is a contributing factor, as well as the fact that not all vendor doesn’t offer it, IM&C manufacturers require the use of these modules or extensions. prompting us to consider Product Configurators are only useful if the equipment being manufactured evaluating replacements. In is indeed configurable and some IM&C manufacturer choose to offer service doing so we will also consider through OEMs or dedicated service providers rather than provide that Field Service capabilities” service directly. ~ General Manager, Manufacturer of Sand-Blasting Case in Point Equipment Advanced Tooling Specialists, Inc. (ATS) was founded 14 years ago as a machine shop specializing in tooling for foundries. Today it operates as an Engineer-to-Order job shop which produces highly engineered complete "cells" which automate the manufacturing process of the foundry, significantly reducing labor in a hot, dirty, heavy environment that can be rife with repetitive motion injuries. In September 2001, ATS implemented ERP. "Improvements have been huge as we replaced manual systems and spreadsheets. ERP brought orderliness and control. Today we have accurate © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  6. 6. ERP Options for Industrial Equipment Manufacturers Page 6 estimates. We don't win business because we under-price it. We have our "If material is available and you ducks in a row," said Tim Sailer, Vice President. are managing your constraints, ATS selected a fully integrated system and have implemented Order Entry, work flows through the shop. We have a lot of control with estimating, shipping, inventory management, purchasing, shop floor control, little effort." scheduling and financial applications, in addition to Customer Relationship Management (CRM). "Scheduling capabilities were a big part of the reason ~ Tim Sailer, Vice President, we chose this ERP package, including support for Theory of Constraints. Advanced Tooling Specialists, Inc. Current volumes still permit ATS to manage after market service manually, but as the business scales, this will become harder to do and the company will be in the market for a solution. "We will probably look to our ERP provider for this functionality. We are not big enough to want to integrate." Aberdeen Conclusions and Recommendations IM&C Manufacturers may face business pressures similar to other manufacturers, but require specific functionality in addressing the added challenges of operating in the potentially unforgiving make-to-order, configure-to-order, or engineer-to-order world of complex products and processes. A combination of ERP modules and extensions provides the necessary tools to streamline and automate both manufacturing and non-manufacturing business processes in order to improve efficiencies while satisfying customer and stake holder's expectations. Items to consider in evaluating vendors: • While much of ERP functionality today is a commodity, do not take stated features for granted. Demand to be shown a “day in the life” of functional users. • Evaluate the domain expertise as well as the financial strength and stability of the ERP vendor carefully. Not all will be equal in knowledge, experience, or strength. • Be rigorous in checking references specific to your industry. Where possible, do not rely on the software vendor to supply these references. Attend a user group meeting and talk with others with similar needs. For more information on this or other research topics, please visit: www.aberdeen.com. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a
  7. 7. ERP Options for Industrial Equipment Manufacturers Page 7 Related Research Can ERP Simplify Complex The Cost of ERP Functionality; August Manufacturing?; August 2007 2007 The 2007 ERP in Manufacturing ERP in Industrial Machinery and Benchmark Report; July 2007 Components Manufacturing; November 2007 Author: Cindy Jutras, Vice President & Group Director cindy.jutras@aberdeen.com Founded in 1988, Aberdeen Group is the technology- driven research destination of choice for the global business executive. Aberdeen Group has 400,000 research members in over 36 countries around the world that both participate in and direct the most comprehensive technology-driven value chain research in the market. Through its continued fact-based research, benchmarking, and actionable analysis, Aberdeen Group offers global business and technology executives a unique mix of actionable research, KPIs, tools, and services. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provides for objective fact based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. © 2007 Aberdeen Group, Inc. Telephone: 617 723 7890 www.aberdeen.com 091707a

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