It's Less About Information Technology, and More about Business Process

part 1

By Harry F. Landsburgh, CPA

As manufacturers look to upgrade or change the software that supports their business activities, a new realization is impacting the decision making process.

Because of the quality and variety of software solutions for manufacturers in the marketplace, these decisions should be based primarily on how a manufacturer needs to do business today and in the future, as determined mostly by suppliers, customers and competitors. Once current and future business process needs are documented, finding the right technology to support the business model can be accomplished more successfully.

As recently as 10 years ago, a company would have been wise to apply hardware and software technology “as is” to support their business and change their business practices to take advantage of what was available in the marketplace. Modifications to software were costly and vendors had difficulty supporting software with different versions running at every client.

Ten years ago, the network marketplace was more evenly split between Microsoft and Novell with Novell having the more stable solution, but Microsoft was quickly changing the marketplace with its Windows solution. It was not uncommon for manufacturers to say that they liked the Windows product, but they were reluctant to change because Novell was just so stable. Many companies saw the direction of the marketplace changing to Windows but were reluctant to give up daily productivity.

In terms of out-of-pocket cost, hardware was increasing in price but delivering far more processing capability, in some cases just enough to keep up with the demands of the newly graphical software.

TODAY'S TECHNOLOGY

Fast forward. With the array of hardware, network and software solutions in the marketplace for manufacturers, the issues becomes less about finding the right technology and more about getting the expected value from a company's technology investment.

In order to meet or exceed its value proposition associated with a comprehensive systems upgrade, manufacturers need to decide how they want to do business today and in the future.

Without having a business process model to support with technology, it's difficult to justify the purchase and implementation of upgraded or new solutions since the value proposition is often difficult to quantify.

Who really influences what a manufacturer's business processes are today and will be in the future? In many respects, key determinations on this topic are made by a company's suppliers, customers and competitors. Meeting or exceeding the challenges of these influential groups is the goal of many manufacturers.

And as companies plan to meet the challenges presented in all aspects of their operations, technology is a key partner to the practices that take place in the business. More than ever, technology plays a supporting role in the “leaned out” operations of many manufacturing companies.

WORKING WITH SUPPLIERS

Acquiring the parts, assemblies and outside services needed to efficiently make the items your customers want combines approaches to inventory management and supplier responsiveness. Whether it's called supply chain management or purchasing, manufacturers still need to judge how much inventory to carry, obtain visibility of the need for parts, assemblies and outside services; and produce finished items on time, in the right quantity and with the highest quality.

Driving this opportunity are decisions about desired inventory levels of raw materials, work-in-process and finished goods. Managing vendor relationships is another critical aspect, as are the availability of parts, the price paid to acquire needed materials, the timing of the delivery of parts and services and the measurement of all these activities. After companies make decisions about inventory turn goals, policies and processes are put into place to guide the number of suppliers they choose to work with, manage blanket purchase orders, measure supplier performance and minimize the roadblocks to shipping product on time.

Once those goals are set, the next decisions relate to how technology can be applied to the achievement of these metrics. Having the right software functionality for inventory management, purchasing, BOMs and routers and visibility of the production process are essential tools to achieving the best possible performance.

Utilization of the Internet relative to remote visibility of supplier inventory quantities along with production and shipping schedules (Advanced Shipping Notices) is also critical. Properly secured access to the information of suppliers or their visibility of the manufacturers needs for parts and services are all part of a successful, state-of-the-art solution to supply chain opportunities. And as it should be, the business process is considered first and the technology tools are blended into achieving the desired results.

Let's look at models for three types of companies. The first has a more traditional MRP/ERP culture. This means that their push systems of manufacturing require them to have sufficient quantities of raw materials and subassemblies on hand to help them either to make product to customer order or make parts to stock to fill future orders. In these companies, traditional purchasing is often a blend of online visibility of both historical purchasing trends and current and anticipated orders from customers.

Decisions are made about the quantity of items to be purchased often by drilling down to individual item masterfile records to determine quantity price breaks before purchasing decisions are finalized. Purchasing personnel also review the Materials Requirements Planning (MRP) output showing need for parts as an important component of this decisionmaking activity. All this information is considered and (blanket) purchase orders are created to allow the company to obtain the parts that are needed as close to the time that they are needed for what appears to be the best possible unit price.

The second example is a make-tostock company that relies heavily on the forecasting technology available from ERP solutions in the marketplace today. These manufacturers need extensive forecasting capability and effective master production scheduling functionality to ensure that plans to make a forecasted quantity of items are able to be executed with parts available as needed and production capacity available to complete the manufacturing steps required as planned in the system. In these companies the forecasted orders literally drive purchasing to have parts and subassemblies available as planned by the ERP system so that production can take place as scheduled. Today's software can support this business model well also.

Finally, the Lean organization that has migrated to flow lines and work cells supported by Kanban systems has plenty of support from the software marketplace today. Technology has worked well in connecting suppliers to manufacturers so that electronic Kanban signals notify suppliers of the need to replenish materials based on negotiated price and terms. Flow lines and cells are continually being fed needed parts as two-bin Kanban systems signal either that stockroom, the warehouse, or even the supplier directly of the need to have product in the work area ready to utilize as demand pulls product through the factory (on a calculated takt time) and to the customer as required. In this structure the relationship between the supplier and the manufacturer is much more proactive and pre-structured with few needs to respond to stock out emergencies or failures to see the need for product due to clerical error or lack of timely information provided when needed.

Regardless of the current and future state business model identified above, technology offers significant support to forecasting, planning, negotiating and monitoring the relationship between multiple models of manufacturing planning and execution and the support needed from suppliers and outside service providers.

Harry F. Landsburg, CPA, is the Chairperson of the Pennsylvania IT Network (PAITN) and the Director of Business Process Technology Consulting for the Delaware Valley Industrial Resource Center (DVIRC) in Philadelphia. (hlandsburg@dvirc.org)