Software Selection for Manufacturing and High-Tech Organizations

W H IT E PA PE R SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS HIGHLIGHTS April, 2015 The nature of technological innovation and prevalence of economic uncertainty have transformed the environment for manufacturers from one that was rather slow-moving and monolithic to today’s fast- paced, hypercompetitive, time-sensitive, customer- demanding, increasingly nuanced global commercial ecosystem. Agility is the product of three foundational blocks—vision, knowledge, and flexibility—that effectively designed and developed software facilitates across the business. Gartner’s “Magic Quadrant for Single-Instance ERP for Product-Centric Midmarket Companies” focuses on ERP systems that support a single- instance strategy for multi- entity midmarket and upper- midmarket companies. Of the 10 companies evaluated, two were leaders. IFS Applications is one of the leaders. P1 P5 P8 CONTENT COMMON BUSINESS CHALLENGES .............................................................................. 2 COMPLIANCE ISSUES .................................................................................................. 2 RISING MARGIN PRESSURES ....................................................................................... 3 GREATER VISIBILITY AND MORE GRANULAR INFORMATION .......................................... 3 CONSUMER DEMAND .................................................................................................. 3 STANDARDIZATION ...................................................................................................... 3 DISRUPTIVE INNOVATIONS ........................................................................................... 4 HOW THE RIGHT SOFTWARE ADDRESSES BUSINESS CHALLENGES .............................. 5 10 KEY QUESTIONS TO ASK WHEN SELECTING ENTERPRISE SOFTWARE ....................... 6 ABOUT IFS ................................................................................................................ 10 1SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS 1 Smith, Matt, “Forget Laptops But Don’t Fall for Tablets: Hybrids Are the Future of Computing,” http://www.digitaltrends.com/computing/why-hybrids-are-the-future-of-computing, January 24, 2013 2 Hamblen, Matt, “PC Sales to Drop by 6% in 2014,” Computerworld, March 27, 2014. “TO EXIST IS TO CHANGE, TO CHANGE IS TO MATURE, TO MATURE IS TO GO ON CREATING ONESELF ENDLESSLY.” HENRI BERGSON Bergson’s comments on change were directed at the individual, but anyone involved in manufacturing will tell you that the philosopher’s observation applies directly to their business. In today’s accelerating and volatile global marketplace, manufacturers and high-tech companies understand that change is constant—and a constant challenge. The nature of technological innovation and prevalence of economic uncertainty have transformed the environment for manufacturers from one that was rather slow-moving and monolithic to today’s fast-paced, hypercompetitive, time- sensitive, customer-demanding, increasingly nuanced global commercial eco- system. Competition can come from anywhere on the globe at breathtaking speed, and risk and opportunity are usually, if not always, closely coupled. (It’s always interesting to note that the Chinese word for crisis contains the characters for both risk and opportunity.) Keeping risk at bay, and identifying and seizing opportunity are traits of companies that thrive in this difficult environment and steer a steady course in seas where potential crisis lurks. In our digital, data-driven world, software— particularly enterprise resource planning (ERP) software—is one of the princi- pal tools organizations leverage to keep the enterprise ship sailing boldly for- ward. ERP systems are one of the core business applications used by almost all companies that operate above a minimum complexity. The basic concepts and functionalities have been developed and implemented for more than 30 years, but the term ERP was coined by Gartner in 1990. In the original definition, which came from manufacturing resource planning (MRP II), ERP systems’ functionality normally covered finance and accounting (general ledger, accounts payable and accounts receivable), purchasing, HR management, sales SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS The nature of technological innovation and prevalence of economic uncertainty have transformed the environment for manufacturers from one that was rather slow- moving and monolithic to today’s fast-paced, hyper- competitive, time-sensitive, customer-demanding, increasingly nuanced global commercial ecosystem. 2SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS or customer order management, and operations management. Gartner now defines ERP in a broader sense as “a technology strategy that integrates a set of business functions, such as finance, HR, and purchasing, with operational aspects, such as manufacturing or distribution, through tight linkages from operational business transactions to financial records.”1 Because these systems are central to today’s enterprise operations, their selection must confirm that the features and functionality they provide take into account the rapidly changing nature of global manufacturing and help address the challenges that poses. As Gartner notes, companies “need ERP systems that support flexibility rather than inhibit it.”2 They need software that enables business agility. This paper explores some of the common business challenges faced by today’s manufacturing and high-tech organizations, how the right software addresses these challenges, and posits a number of key selection factors that will optimize ROI on software investment for those in the sector. COMMON BUSINESS CHALLENGES While each manufacturer has its specific needs and requirements, the nature of today’s competition presents a number of challenges that tend to be common across manufacturing organizations. Here are a few of the most prominent: COMPLIANCE ISSUES Regulations and regulatory compliance are particularly important in the manu- facturing sector. For example, according to the National Association of Manufacturers, the average manufacturing firm in the United States pays nearly twice the compliance costs of the average U.S. firm; small manufacturers pay nearly three times as much as the average.3 Additionally, as global trade increases, international standards take on greater importance. These can range from multiple ISO standards to directives that have been introduced by the European Union (EU) that are moving toward global recognition as de facto or de jure international standards. In certain vertical sectors such as medical device manufacturing, validation processes are critical. Keeping compliance with such regulations is an ongoing concern for manufacturers, not only from an adherence perspective, but also from a cost of documentation perspective. 1 “Magic Quadrant for Single-Instance ERP for Product-Centric Midmarket Companies,” Gartner (Christian Hestermann, Nigel Montgomery, Chris Pang, Michael Guay, analysts), November 24, 2014. 2 Ibid, p 2. 3 “Regulatory Reform,” National Association of Manufacturers, http://www.nam.org/Issues/Regulatory-Reform/ 3SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS RISING MARGIN PRESSURES Regardless of the specific sector, margins for manufacturers are being squeezed from multiple directions. In developed markets, top-line growth has slowed or declined, whereas in emerging markets, margins are threatened by rising labor costs, more expensive commodities, and cost of distribution.4 As such, manu- facturers need more granular information on what margins are being made when they’re taking or closing orders. If margins change based on a supplier’s increasing costs, the manufacturer needs to be made aware of that proactively, as it happens, so that action can be taken in response. GREATER VISIBILITY AND MORE GRANULAR INFORMATION A more project-based approach is rapidly emerging in manufacturing. Years ago, designers and engineers were just treated as overheads within the business. Today’s manufacturers want to know how much time and effort—specifically and from where—have gone into designing a new product. How much time (and money) was spent with a customer working on a product design? How much did we budget? What resources have been used so far? How many can we expect to use? This process can entail anything from finance doing credit checks to engineers doing drawings to prototype production to manufacturing set-up. Visibility of the time/expense plan is increasingly crucial for many manufacturers, and granular detail is key. CONSUMER DEMAND Many manufacturers now must account for individual consumers as well as traditional industrial customers. This trend is particularly growing in the environmental arena (perhaps to a greater degree in Europe than America), where consumers are demanding verification that what they are purchasing has been manufactured in a sustainable way. Increasingly, it’s important for manu- facturers to have eco-footprint information within their systems to report their carbon footprint, recyclable packaging used, etc. This information needs to be reportable internally, to shareholders, and more and more to the public at large. STANDARDIZATION Particularly as operations extend across disparate locations or geographical borders, manufacturers and high-tech organizations are looking for ways to standardize their business processes across multiple sites for consistency and 4 Margin Unlocked, EY, 2013. 4SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS cost reduction factors. This need extends from design to production to service, and applies to smaller manufacturers (e.g., a company building a product at two different local sites) as well as to global enterprises that may manufacture in one country and assemble in another. DISRUPTIVE INNOVATIONS Disruptive innovations are those that help create new markets and value net- works, eventually disrupting an existing market and value network (over a few years or decades), and displacing earlier technologies. When new technologies emerge, the decline of industries is neither rapid nor immediate; but successful manufacturers understand that growth demands innovation, and innovation in the sector cannot occur without embracing technologically-advanced manu- facturing capabilities.5 Perhaps the most visible of today’s disruptive technologies is additive manufacturing, also known as 3-D printing. In the future, smaller, highly specialized 3-D printing companies will emerge to serve a local area on demand. So instead of manufacturers buying components such as spare parts and having them shipped from afar, or buying a machine and putting it into the warehouse and taking up stock and cost from a financial point of view, they could wait until a part failed, send a command, and have it printed on demand within hours. At the moment, quality issues are the principal impediment to broad adoption of 3-D printing, but these issues will abate over time. Yet, while the technology has significant and transformative advantages (e.g., rapid prototyping, reduced lead times, rapid innovation, rapid manufacturing, mass customization, use of unique materials), it also brings new risk: according to studies, by 2018, 3-D printing will result in the loss of $100 billion due to counterfeiting of parts.6 This in turn will lead to more innovation to counter that risk, as manufacturers look to embed “plant DNA” in products to check for validity and contract adherence. The Internet of Things (IoT) is another development moving rapidly from the consumer venue to manufacturing. Sensors are being embedded to provide machine-to-machine communications for applications such as remote monitoring and control, enabling manufacturers to get information and act upon it remotely. This is speeding maintenance while driving down costs (e.g., no longer having to send engineers into the field for maintenance on remote installations) through preventive maintenance and improved asset management (i.e., asset self- management). 5 Disruptive Manufacturing, Deloitte LLP, https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/insights-and-issues/ca-en-insights-issues- disruptive-manufacturing.pdf. 6 “Gartner Says Use of 3D Printing Will Ignite Major Debate on Ethics and Regulation,” Gartner press release, January 29, 2014. 5SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS Agility is the product of three foundational blocks— vision, knowledge, and flexibility—that effectively designed and developed software facilitates across the business. 7 “Manufacturing’s three biggest disruptive technologies,” The Manufacturer, November 6, 2014. 8 Sud-on, P., Abareshi, A., Pittayachewan, S., and Teo, L., “Manufacturing Agility: Construct and Instrument Development,” World Academy of Science, Engineering and Technology, 82 2013, p 755. Other examples of disruption innovation range from those becoming more established (e.g., cloud computing) to nascent but potentially revolutionary developments such as nanotechnology. As with 3-D printing, nanotechnology has the potential to localize global supply chains with very direct paths from raw materials through to finished products.7 HOW THE RIGHT SOFTWARE ADDRESSES BUSINESS CHALLENGES The right business software supports manufacturing’s ability to meet emerging challenges and respond to constant change by providing the foundation for enterprise agility. The concept of manufacturing agility involves the develop- ment of manufacturing capabilities to achieve sustained competitive advantage in an unpredictable environment.8 Agility is the product of three foundational blocks—vision, knowledge, and flexibility—that effectively designed and developed software facilitates across the business. Vision is the ability to link business strategy and growth aspirations to technology investment, and to make informed decisions that prove effective over time. Clear vision enables a manufacturer to correctly assess and balance the risks and opportunities of disruptive technologies. The right business soft- ware helps focus and clarify vision. Knowledge is the ability to identify, understand, and predict new sources of threat or opportunity across quotidian business operations and projects. Knowledge enables business insight, the most valuable form of which comes from the ability to assemble a clear, comprehensive, and accurate view of the past, present, and future status of assets, infrastructure, and employees, across even the most complex global operations and projects. The right business soft- ware gathers, assembles, and disseminates knowledge in real time, where and when it is needed. Flexibility is the ability to take action rapidly when things happen, expectedly or unexpectedly, founded on technology that makes rapid and responsive change possible. The right software is a critical part of this technology. Vision and knowledge are not fully empowered unless an organization has the flexibility to rapidly change its shape or focus to seize new opportunity or mitigate risk. Flexible business technology is necessary for this, but so too is a business culture that embraces rather than hinders change and rapid response. 6SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS 10 KEY QUESTIONS TO ASK WHEN SELECTING ENTERPRISE SOFTWARE To see whether software under consideration is meeting the needs of today’s evolving manufacturing environment, the following questions are key: 1. DOES THE SOFTWARE SUPPORT RAPID BUSINESS CHANGE? An organization’s software should help it plan for change. Change is constant and the most dominant characteristic of today’s business environment, so the ability to plan for the unknown makes it possible for agile companies to thrive. Long-term planning is not about being able to predict every future, but being able to respond fast and smartly enough to capitalize on change. Effective software facilitates the ability to change—not only forecast infor- mation, but also supply and demand output, quickly, and provide visibility into what impacts the change will make. In today’s markets, where new product introduction is increasingly essential to growth, enterprise software should help facilitate and control new product introduction. 2. DOES THE SOFTWARE PROVIDE ESSENTIAL ACCESS TO DATA—THE RIGHT DATA FOR THE RIGHT PEOPLE AT THE RIGHT TIME? Data-driven decision-making is central to enterprise operations, but the proliferation of data can be overwhelming for users. Well-designed software delivers data to users in ways they can use it, wherever they are, whenever they need it, without delay or variation. Having data in a single place, accessible from any device, is key. A company doesn’t want to have to hold up production because it’s waiting for signoff from a production supervisor who is traveling on another continent. If he or she can review it on a smart- phone, the company can act now. With older software systems, this wasn’t possible. 3. DOES THE SOFTWARE ALLOW FOR FUTURE GROWTH? The boundaries between manufacturing and distributing organizations have been slowly disappearing; more manufacturing companies have been distributing and servicing their products, which has led to tighter integration of ERP, CRM, and supply chain management (SCM) solutions. Many companies that today are manufacturing only may be looking to add ser- vice as part of their portfolios. These companies are served by software that meets their current need but also has the capability to handle future develop- ment in the system. 7SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS 4. IS THE SOFTWARE APPEALING TO TODAY’S GENERATION OF WORKERS? As the manufacturing workforce ages, a younger generation is coming into the sector. The longstanding perception of manufacturing as a smokestack environment (i.e., dirty, greasy, unhealthy) is giving way to the reality of high-tech manufacturing, much more appealing to those that grew up in the digital age. When younger people come into manufacturing, they don’t want to work with a green-screen application; they want something that they are familiar with (i.e., graphic sophistication, touchscreens, apps to download onto a phone). How will younger workers—soon to be a majority in the workforce—respond to the software presentation? 5. IS THE SOFTWARE USABLE IN TODAY’S CHANGING WORK ENVIRONMENT? Related to the question above, usability speaks to the way work is done differently today, which is something influenced by the younger generation, but certainly not limited to them. Increasingly, the workplace is where we happen to be, which may not be within the “four walls” of the organization. This has certain implications for software. Is it mobile? Can it be accessed and comprehended by sophisticated and casual users on multiple devices: laptops, tablets, smartphones and, in the coming years, wearable technology like watches? Does it provide role-based portals and interfaces? Is it intui- tive to anyone who sits in front of it? 6. IS THE SOFTWARE’S CRM DISCRETE OR EMBEDDED? Customer relationship management is increasingly important in today’s manufacturing market, and nearly all software providers will have CRM as a separate but integrated package. But it’s still in a separate world. This becomes an issue when manufacturers set up more complex relationships (e.g., from opportunity to sales to contract delivery), which typically requires integration work. Further, there are user experience issues, including not being able to drill through CRM all the way to the back office, and not from the back office into CRM. When CRM is embedded in the enterprise software, those issues are taken off the table. There is no need for integration work. Users can now drill through in both directions, which can be an important advantage. 7. DOES THE SOFTWARE PROVIDE DEPLOYMENT OPTIONS? Single instance, on-premise enterprise systems are rapidly being relegated to the past as hybrid models continue to grow toward the norm. Whereas the majority of those hybrids are a combination of core and point solutions (on-premise) from multiple vendors, increasingly manufacturers will use cloud-based point solutions as an essential part of the hybrid approach. This is inevitable, particularly as manufacturing operations take on global scope. Does your software provide real deployment flexibility? 8SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS 8. DOES THE SOFTWARE SPEED EXECUTION OF TASKS? While provision of real-time data is increasingly a given for enterprise soft- ware, is this translating into faster execution of essential work? Consider financials. It’s not uncommon to find manufacturers where it takes over a week to do month’s end financials. Frankly, it should not take more than a day or two. When companies aren’t able to close their books until the middle of the next month, something isn’t right with the software system. Software should enable companies to have information they can believe and trust, in one system, so when they print out a trial balance they believe the numbers generated. There shouldn’t be a need to wait for information (e.g., for production to indicate how much WIP they have, or accounting to report accruals). Real real-time data is often overlooked these days, because companies are not used to it; but it’s still a shock when a company tells you it takes a week to do a month’s end report. 9. HOW BROAD AND DEEP IS THE SOFTWARE SOLUTION? Can the software system phase out the use of multiple systems, eliminating undue complexity and cost? Today many manufacturers are multi-modal: some products are made to order, some made to stock, some engineered to order, some assembled to order, and some configured to order. Can your software handle all these approaches? If you set an approach today, do you have the ability to easily change over in a week’s, month’s, or year’s time? A broad and deep solution will provide this capability. 10. CUSTOMIZATION OR CONFIGURATION? IS THE SOFTWARE EASY TO MODIFY? Because change will make it likely for a company to want to modify its software over time, how easy and how costly will it be to make that change? Best systems enable users to add their own fields, events, and so on without having to go back to the software provider for customization. Configuration is part of the functionality out of the box and easy to do, not part of an upgrade or requiring additional costs. CONSIDER INDEPENDENT ASSESSMENT Finally, companies are well served by looking to respected analysts who assess the status of software providers. Of those who study enterprise software and systems, the best known and perhaps most highly respected is Stamford, Connecticut-based Gartner. Gartner’s “Magic Quadrant for Single-Instance ERP for Product-Centric Midmarket Companies” focuses on ERP systems that support a single-instance strategy for multi-entity midmarket and upper-midmarket companies. Gartner’s “Magic Quadrant for Single-Instance ERP for Product-Centric Midmarket Companies” focuses on ERP systems that support a single-instance strategy for multi-entity midmarket and upper-midmarket companies. Of the 10 companies evaluated, two were leaders. IFS Applications is one of the leaders 9SOFTWARE SELECTION FOR MANUFACTURING AND HIGH-TECH ORGANIZATIONS Companies are evaluated on multiple aspects of two parameters (ability to execute and completeness of vision), then mapped in an X-Y grid to create a quadrant: niche players (low on both parameters), challengers (high on ability to execute, low on completeness of vision), visionaries (low on ability to exe- cute, high on completeness of vision), and leaders (high on both parameters). Of the 10 companies evaluated, two were leaders. IFS Applications is one of the leaders. This is how Gartner describes IFS strengths: • IFS Applications is a broad and scalable global ERP system, with 43 countries supported in the core and 19 more with localization packs, some of them supported by partners. • IFS Applications is based on a modern and consistent service-oriented architecture (SOA), which allows for modular deployments and for IFS- built modernizations (for example, user interface, mobility, cloud enable- ment) across the entire suite. • IFS is improving its partnerships with some global SIs, such as Infosys and Tech Mahindra, but also engaging in more regional agreements with Accenture, Capgemini, and KPMG. Some of these companies are starting to take more responsibility by leading entire projects, not only supplying resources to IFS-led projects. • After transforming its entire user interface in v.8 into one of the most user-friendly UIs in this Magic Quadrant, IFS is undertaking further modernizations of its already strong architecture to come closer to Gartner’s vision of a model-driven packaged application. • IFS focuses on some core industries, mainly asset-intensive and complex project-based manufacturing and service companies, but also builds out a presence in process industries, such as food and beverage and chemicals. This focus is supported by an industry-oriented service organization with expertise highly rated by customers. En 03 50 -1 P ro du ct io n: IF S Co rp or at e M ar ke tin g, A pr il 20 15 . www.IFSWORLD.com COPYRIGHT © 2015 INDUSTRIAL AND FINANCIAL SYSTEMS, IFS AB (PUBL). IFS AND ALL IFS PRODUCTS AND SERVICES NAMES ARE TRADEMARKS OF IFS. ALL RIGHTS RESERVED. THIS DOCUMENT MAY CONTAIN STATEMENTS OF POSSIBLE FUTURE FUNCTIONALIT Y FOR IFS’S PRODUCTS AND TECHNOLOGY. SUCH STATEMENTS ARE FOR INFORMATION PURPOSES ONLY AND SHOULD NOT BE INTERPRETED AS ANY COMMITMENT OR REPRESENTATION. THE NAMES OF ACTUAL COMPANIES AND PRODUCTS MENTIONED HEREIN MAY BE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS. IFS AB ©2015 IFS is a globally recognized leader in developing and delivering business software for enterprise resource planning (ERP), enterprise asset management (EAM) and enterprise service management (ESM). IFS brings customers in targeted sectors closer to their business, helps them be more agile and enables them to profit from change. IFS is a public company (XSTO: IFS) that was founded in 1983 and currently has over 2,700 employees. IFS supports more than 2,400 customers worldwide from local offices and through a growing ecosystem of partners. 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