Don't shoot the IT guy: ERP selection and project management implementation in high-tech manufacturing

Zetter: Hello, I’m Mark Zetter president with VentureOutsource.com. Our topic today is enterprise resource planning systems, better known as ERP. And I’m speaking with Frank Scavo president of Strativa, a management consulting firm. Frank is also the president of Computer Economics, an IT research firm. Frank is a recognized analyst in the ERP software sector.

Before we begin our conversation, if someone in our audience has suggestions for future conversation topics or feels there’s a particular person they feel would be well suited for an upcoming conversation, email us your comments or suggestions to insight@ventureoutsource.com.

The short take on ERP is it is software that helps companies manage information. But effective enterprise resource planning is way more complicated than this.

Effective ERP systems can auto manage the integration and reporting of information across company internal functional groups, like finance and accounting; manufacturing, HR, sales, management of customer relations, project and supply chain management, to name a few.

Plus, ERP software systems also integrate internal, external information.

Essentially, ERP manages and executes information flow between all internal company functions, while also managing connections to stakeholders outside the immediate enterprise.

Enterprise system software is a multi-billion-dollar industry and some say IT investments have become the largest category of capital expenditure in the United States-based businesses over the past decade.

In addition to managing internal and external information across an organization’s enterprise, more specific to the interests of our audience, many technology OEMs and contract electronics manufacturing services, or EMS, providers can have multiple product design and manufacturing locations and multiple geographies in countries with each transacting multiple currencies, which can wreak havoc on company finance and accounting functions.

Add to this, companies seeking an ERP solution often desire, or require, different user system functionality for their specific enterprise systems. Demand for, and user customization, can vary.

Additionally, recognizing benefits when choosing either cloud-based or on-premise ERP systems is not always straightforward.

Listeners can quickly see how navigating an ERP decision tree can be challenging to say the least.

ERP systems used to be only for large enterprises. Today, tech manufacturing, and companies of all sizes and in other industries, are benefiting from implementing ERP systems.

Frank is here to talk ERP, or at least as much as we can in 30 minutes.

I’d like to add, listeners will be able to post their questions to the discussion transcripts once we publish it. You can also ask Frank questions / contact him directly in GlobalNet community.

We’ll start with a question that came in, in the form of a website reader’s search through the Website. The site user was asking about whether ERP systems are able to manage actual individual SMT equipment in an automated PCBA line and I’m not sure of the answer to that but Frank can you speak to that just for a moment?

Scavo: Sure, well, Mark, thanks very much. The question is, the way I heard it there, regards manufacturing execution systems.

So traditionally, ERP systems were really more for managing back office transactions, as far as managing the production line and managing manufacturing equipment, that generally is the function of what we call manufacturing execution systems.

Typically, ERP, in terms of how it’s defined, does not take on that responsibility but would have, potentially, interfaces with production equipment and other forms of numerical control or production operation.

“…moving more and more toward mobile, the cloud deployment, the social and the business analytics is where much of the activity and attention is now being placed.”

Zetter: With regards to some of the features – specific ERP offerings, what would you say are three or four of the ‘must haves’ or most attractive [features], specific to electronics manufacturers, that are looking at ERP systems?

Scavo: ERP systems really started in the manufacturing industry and over two or three decades or more they have evolved into some pretty industry-specific functionality.

So I think it’s important, as your pointing out there, we need to look at what is appropriate for electronics manufacturers or contract manufacturers and so on.

I think the things I would look at in terms of when I’ve worked with these kinds of companies is strong integration with the engineering functions.

Many times electronics manufacturers have a high degree of engineering change and that needs to be managed in conjunction with say the PDM system; the product data management or product lifecycle management (PLM) system. That’s one thing I would look at on the front end.

Taking designs from engineering in terms of bill of material – engineering bills of material, synchronizing with manufacturing, the bills of material…if the electronics manufacturer has a product that is maintained in the field then it’s important to also have good integration with back-end systems that provide repair center, or field service systems…

Zetter: Reverse logistics.

Scavo: Reverse logistics, taking material back from customers. Many European systems do a good job of shipping product, but then they get weak on taking product back from customers or distributors. And we know in electronics that can be a normal course of business.

It’s not just in the case of product recalls, and so on…they may be putting material out on consignment, there may be redistribution involved in moving stock from one distribution location to another…so I think the strong tie in with logistics is important.

Back on the engineering change issue, it’s important also in some types of manufacturing of electronics, to be able to maintain more than one revision level in production.

You may be shipping product under one revision but introducing the same product under the next revision.

I think that’s important and then there are traceability issues.

You have warranty – some products that are supplies – supplier items that are provided to you under warranty that you need to track on a serial number basis and be able to make warranty claims as appropriate.

There are a lot of specific requirements when you get into any specific manufacturing vertical and I think electronics is no exception to that. You’ve got to really look for the types of features and functions that will make a difference to you.

Zetter: How about understanding your own operation before going out and speaking of providers and mapping existing processes, and then on top of that, choosing someone internal to help manage the implementation: project manager or project coordinator…

How would someone start to map out, what types of formats are involved, in mapping out existing requirements or to help determine existing requirements and then what are the top three skill sets you would be looking for in a project manager to manage?

Scavo: Let’s take those one at a time. You bring up two or three different areas there. Let me talk about the business process first because I think one of the things that companies underestimate is – especially in a little bit larger companies – in smaller companies it’s possible for one person to have a good grasp on the entire operation.

But in a larger companies that’s not true. There’s nobody that really has the complete picture so it is important as you point out to map the business processes to some level before you select an ERP system.

You need to understand your own business well enough to be able to define the requirements that you’re going to look for in ERP…

Zetter: But ‘how’ do you do this? How do you map it out? What is the physical…?

Scavo: Well, that’s the $64,000 question because I’ve seen two extremes.

I’ve seen one extreme where companies will go in and take a very cursory list of what they think are the requirements when shopping for software. They don’t really have an in-depth understanding.

On the other hand, I’ve seen companies go in and do a very exhaustive ‘as is’ analysis that takes months.

Without criticizing some of the service providers in this area, some of them like these kinds of projects because the consultants can bring in a lot of junior people and set them loose to do process mapping.

Zetter: It sounds to me like addressing each functional group and asking each functional head to first write a long list of the things they think are important and then get a representative from each functional group to get in a meeting or a conference room.

And then all the functional groups decide on whittling down each longer list into a shorter list…

And then taking that shorter list and then discussing that with the project head, or an external consultant or… I’m trying to whittle this down to an approach that’s reasonable.

Scavo: I understand the process that you’ve outlined there in terms of starting with the long list and whittling it down.

The problem that I see in doing that – and let me suggest that I will get to the point in just a second about how I think it should be done, but let me just point out the issue here…

If you set department heads out in giving you a long list of requirements that they think are important you’re going to end up with a long wish list of things that’s kind of a mixed bag.

You’re going to have things that are absolutely essential to the business and you’re going to have a lot of things that represent deficiencies of the current system that are commonly addressed by modern manufacturing ERP systems. (See, also: How the cloud and globalization are shaping ERP functionality in electronics manufacturing)

So the challenge is in defining a list of requirements that are really, what I call differentiators.

There are things that, on the one hand, are not commonly provided by all manufacturing ERP systems. Things like serial tracking, lot traceability, PDM integration, things that are sometimes provided and sometimes not provided…international requirements… and also, things that make you unique as a business; the things that make you different from other OEMs.

You’ve got to have a certain amount of experience in understanding the ERP marketplace.

So I guess that leads to your issue about the project manager and the leader / the leadership committee on this type of project. (See, also: Becoming the best program manager in electronics manufacturing operations)

I think, you know going back to your question, who should you select for that role?

Zetter: No. How, how would you select? What are the three top criteria?

Scavo: Yeah, how? How would you select the right person for that role?

I think you have to look for two things.

I think you have to look for someone that has a good knowledge of the internal operations of that business. In some cases that will be the materials director or a person at a higher level than the manufacturing operations.

In some cases it could be somebody in the finance department, somebody that has been there for some time.

The other attribute, which sometimes conflicts with that, is someone that has been through an ERP implementation in the past and knows some of the pitfalls and things to watch out for.

So you want to combine ERP system industry knowledge along with good understanding of your internal operations and I think that is a good approach to take as far as the characteristics that you’re looking for.

“You want these projects to be about the business and not about the technology.”

Zetter: What names of providers are either suitable with their offerings, or are looking to get into the tech-manufacturing sector with their ERP system platforms?

Scavo: The list is long. It used to be even longer but as you may know, and many of your listeners may know, the industry has gone through some consolidation. A kind of changing of the guard over the last 20 years.

So many of the systems that existed you know 20 or even 30 years ago still do exist but they are in somebody else’s portfolio and may not be emphasized to the extent, or supported to the extent, that they were 20 years ago.

Today you have two large vendors of ERP systems. That’s SAP and Oracle.

SAP has developed its systems over a period of many years. And Oracle has its E-Business Suite which is its flagship application. [Oracle] has also been part of the movement toward vendor consolidation and has acquired a number of other ERP systems including J.D. Edwards and PeopleSoft. Those are two big names that some people would be familiar with.

And, it acquired a number of kind of point solutions and CRM and supply chain and PDM space as well. Oracle has quite a broad footprint of applications that it has built up through acquisition.

In addition, it’s also building out what its calling fusion applications with the next generation of ERP and enterprise system functionality.

And then I strongly recommend that companies look beyond that list.

There are a number of other vendors and it’s a long list. And if I list them – you know it’s not really possible for me to remember them and list them all but you have of course Microsoft, which has four ERP systems.

You have providers in the midmarket like Epicor, Infor, QAD, Sage, IFS is another one… that have served the manufacturing industry for many years – and still offer what I consider good solutions.

And then in addition to that you have a new breed of players that are the cloud providers or cloud only providers that I would prefer to them, like NetSuite is one that is moving up more strongly now into manufacturing.

The granddaddy of cloud ERP was really Plex. It started in the early 2000’s and they – they did a good job of transitioning from a purely on-premise vendor to a cloud solutions provider. They serve a lot in the automotive industry but they also do some work in electronics and in food manufacturing among others.

And then there’s the newer ones like Rootstock, Kenandy, Acumatica that are also there…

The market is very fluid and I think it’s important for electronics manufacturers or any company looking for an ERP system to first cast a wide net. Consider some of the names that maybe are not household names but still, might provide, good solutions.

Zetter: Regarding cloud versus on-premise, what would be some of the deciding factors for companies when looking at vendors, to decide either cloud or on-premise?

Scavo: Let me supplement what I just said. They have these newer, what I call cloud-only providers. Like NetSuite and Plex, but basically all of the traditional vendors of on-premise software also offer their solutions in a hosted deployment model, so they’re not native cloud systems. In other words, they’re not cloud only systems but you can get them in a host of deployment options.

They can also be considered if you’re looking for cloud solution. Your question was; why you would look at one or the other, was that the question?

Zetter: Sure and would customization be limited with one over the other: cloud versus on-premise?

Scavo: That used to be the case. You could pretty much get a hold of the source code for many of the on-premise systems. They would license that to you and you would go ahead and modify it.

On the one hand it allowed you to tailor the system to your specific needs. On the other hand it creates problems when you try to upgrade to the next version because now you’re having to retrofit all of those customizations and I’ve dealt with many companies that are in a real bind because they’re kind of orphaned back three or four levels and they have a very difficult time upgrading and now they’re looking at potentially a new system.

If they’re going to do that much work for an upgrade while not look at a new system. I’m not sure on the one hand customization is really that desirable. On the other hand, in terms of the cloud offering, all of these cloud vendors have introduced what’s called platform as a service (PaaS), which does allow you to modify or customize or enhance the functionality of the system with your customer-specific requirements.

NetSuite’s is a good example of that. They have what they call their SuiteCloud service which is a platform as a service and customers have built entire subsystems on that platform and those enhancements are carried forward with minimal disruptions in newer versions of the product.

Workday, SAP’s Business ByDesign, Plex, all of these systems have capabilities for customization for specific client requirement.

I don’t think it’s valid anymore to say that you know you have more flexibility with on-premise systems. One could argue that the tools that the cloud providers offer now are much more user-friendly and sophisticated to allow customization without locking you into an older version of the software.

Zetter: Would one type – cloud or on-premise – have an easier implementation process over the other type?

Scavo: They do. Having worked with these systems for over 30 years, implementation of the cloud systems are generally much easier than on-premise systems.

And there are a number of reasons for that.

For one thing, you take the whole infrastructure piece out of the equation. Now, you’re not talking about having a DBA (database administrator) on staff. You’re not talking about server administrators; you’re not talking about buying hardware, installing it, maintaining it…

All those steps of the installation of the on-premise system is just completely not addressed in a cloud system. You don’t have to worry about that, that’s the vendor’s responsibility.

The other part is that during an implementation, I’ve seen cases where the vendor is constantly issuing new patches and releases that have to be applied.

So, when you’re doing and on-premise implementation there’s a lot of wasted activity that goes on applying vendor patches.

You see a problem, you call the vendor and he’ll say, “Oh it’s in patch 1; 2, 3, 4.a, .b, .c… I’ll ship that to you.” And, then you get it. You have to apply it.

All of those activities, with a cloud deployment, are put back on the vendor’s responsibility. The project becomes much more of a business-facing project than a technical project, which is a great theme of successful ERP implementation.

You want these projects to be about the business and not about the technology. I think cloud encourages that.

Zetter: What changes, or future evolution do you see in ERP systems looking five years?

Scavo: That’s a good question. You know I think already you could consider ERP itself in the strict sense as a quite a mature technology.

The real action as far as innovation and kind of leading edge functionality is really coming in the solutions that surround ERP. Mobility applications is a big shift that is already starting to take place among the more forward thinking vendors.

If you have a certain number of users in your organization that are stationary…you’re at a machine work center or, their at a desk in accounts payable in the finance department, but you have a whole category of users that are either on the road, like salespeople, field service people or, are wandering around your facilities…Engineers are typically like that.

Many managers and executives are not at their desks most of the day but they’re constantly being called upon to do things like workflow approvals; purchase requests, HR approvals and so on… And, having these functions deployed on mobile devices such as smart phones and tablets like iPad and so on, really makes these systems much more accessible.

Business intelligence and reporting delivered on an iPhone or iPad or smart phone of some sort. This is really now becoming almost a requirement at a very basic level for ERP systems.

So, the mobile deployment, the cloud deployment that we’ve already talked about – social business – where you can collaborate using software and systems as part of the business process… This is also another area that is becoming imbedded within ERP and other enterprise systems, as well.

So I think moving more and more toward mobile, the cloud deployment, the social and the business analytics is where much of the activity and attention is now being placed.

So, you might say, well, then why do we even need ERP? ERP is a mature technology, it’s boring, it’s not really going anywhere. But that’s not the case because you need ERP systems as a transactional platform to do all these other cool things that people want to do. So, you need all of it, basically.

Zetter: Very good. Frank, is there anything else you would like to add it or you can share that maybe we haven’t touched on, you feel is important.

Scavo: I just touched on it briefly, but let me just kind of underline this because I don’t think they came out in my discussion so far which is that I think primarily ERP has to be a business led project.

I have seen very few of these systems fail because the software didn’t work as advertised.

Sometimes it happens. There are issues.

But those are things that, many times you can come out reference checking that the software has quality problems but I’ve seen many more of these projects fail because business leaders are not engaged and they delegate it to the IT department.

So to your audience out there I would say first and foremost make this a project about the business, about business process change, about change management and, let the technology support that, and I think you’ll be in good shape.

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