Jim Bianco likes to tell about the Friday morning two years ago, in April 1997, when his Iowa Spring Manufacturing Inc. received an urgent request from a Detroit automaker. It was 9 a.m., and the company on the phone was the one holdout among the Big Three that didn't use Iowa Spring as a regular supplier. But now a purchasing agent of the carmaker was explaining that a wire-forming machine was down. He wanted to know if Iowa Spring could make and deliver 15,000 parts by Monday morning.
The request started a chain of information checks and transactions among Iowa Spring computer-software systems that handle inventory, raw-material requisitions, work orders, machine scheduling, personnel, shipping and some other data-processing chores. In a little more than an hour, the system had worked up an answer: The company could change over its manufacturing equipment, bring in an extra shift, and fill the emergency order.
"We were in production that same afternoon," says Mr. Bianco, who is founder and president of the coil-spring supplier located in Adel, IA, near Des Moines. "We couldn't have done that without our computer system."
The episode illustrates the usefulness and even the allure of a class of software called enterprise resource planning, or ERP. It's packaged software for business management, meaning it comes pre-written by independent software vendors. It's also very ambitious.
Typical ERP packages consist of multiple, separate parts that, when added together, cover all the major data processing duties within a manufacturing company.
Thus, one part of an ERP package can handle manufacturing management functions, such as order scheduling and sequencing. Another performs financial functions like general ledger and accounts payable and receivable. Other parts do human resources computer duties, like payroll and time and attendance, while others are involved in the engineering, procurement and sales areas of a corporation.
Contemporary versions of the software typically run on client/server computing networks: personal computers tied into networks that connect the PCs to each other, and to the more powerful, server computers that feed them information. Costs of ERP systems vary dramatically, depending on the scope and power of the system, the number of departments covered, the number of users that will ply the system, additional hardware that may be needed to run it, and other factors. Of the dozens of systems available, some are tailored for small companies, while others are scaled for the largest manufacturers.
Without ERP, Mr. Bianco figures that Iowa Spring would have consumed an entire day chasing down and then analyzing printouts and reports from the various departments involved in filling a production order. But Iowa's ERP software - a product called Time Critical Manufacturing from Effective Management Systems Inc. (EMS) in Milwaukee - electronically connects business functions so that vital information can flow from one to another without all the human intervention. It's this level of built-in integration that characterizes ERP software.
It's the power of software integration that is attracting more and more companies in the automobile industry. Consider Visteon Automotive Systems, Dearborn, MI, the component-selling operation of Ford Motor Co. Shortly after its formation in September 1997, the unit realized that it would need an ERP system to compete for parts business outside Ford. It purchased a system from SAP AG of Waldorf, Germany, in the first quarter of 1998.
"We need to move very, very quickly to support our growth," says Alex Preston, Visteon vice president-supply and process leadership. The operation expects its 1999 performance to mirror the $2 billion in sales growth experienced last year. That will come primarily from sales outside of Ford, says Mr. Preston. But before SAP, Visteon didn't have business systems to support outside sales. The ERP installation not only gives Visteon those updated business system capabilities, but also provides a data flow that can rapidly move through all aspects of the organization.
"We subscribe to the view that an integrated, enterprise-wise set of data gives us much more control," says Mr. Preston.
Of course, the organizational efficiencies that come from ERP software have their price. Certainly the biggest one is system setup and installation - a process the software industry calls implementation. In one celebrated case, Owens-Corning underwent a two-year, $100-million implementation that the Wall Street Journal called "the corporate equivalent of the root canal."
At Visteon alone, implementation won't be complete until later this year. Then the company will begin a second phase, in which SAP software replaces the internal data-processing system that Visteon still uses to support its internal, Ford business. The installation touches 82 locations, scattered across 21 countries. "Just to physically get around to 82 locations takes some time," Mr. Preston says. Obviously, smaller systems typically go in faster.
Like almost everything else to come out of the computer industry, ERP travels with some characteristic hype and confusion. A host of software companies are clamoring to sell ERP packages to automakers and their suppliers. Within the last year or two, some of the most powerful ERP vendors - such as the Germany based SAP or Oracle Corp. of Redwood Shores, CA - have set up sales and service centers around Detroit to woo automakers.
ERP software isn't new. Early renditions appeared in the early '90s. But the auto industry lags many other manufacturing sectors in embracing this current generation of business-management software, observes Lisa Williams, senior analyst at The Yankee Group, Boston-based technology consultants and market analysts.
That's changing now. Ms. Williams expects worldwide auto industry investments in ERP software and related services to more than triple from their 1997 level, reaching nearly $3 billion by 2001 (see table).
One reason for the upsurge: Leading ERP system suppliers have recently adapted their products to the specific needs of automotive manufacturers.
"There are now functions within the R/3 system that are purposely designed for automotive suppliers," explains Paul Hebeler, automotive industry segment manager of SAP America, Newtown Square, PA. R/3 is the name of the ERP package offered by SAP, the world's largest supplier of the software.
For example, today R/3 and a number of other ERP systems support accumulative accounting. But less than two years ago very few ERP packages recognized it. A practice unique to carmaking, accumulative accounting lets automakers issue one purchase order to cover an entire model year. Suppliers must then keep running tallies of the parts as they're delivered against each order.
"A standard ERP system doesn't understand that," explains Michael Ger, senior director of automotive solutions for Oracle. "But a system would be of limited value to the industry unless it accommodated this automotive-specific requirement."
But beyond anything the ERP community is doing to attract automotive customers, changes within auto manufacturing itself are pushing companies toward the efficiencies that ERP promises.
It is being touted as a means of helping suppliers at all levels meet the growing pressures to reduce costs and improve the service they provide to OEMs and other customers. What's more, as large, Tier 1 suppliers evolve into system suppliers that engineer and produce complex modules for their OEM customers, ERP systems can help them manage and coordinate business operations that grow increasingly complex.
"As we move more toward a modularity strategy, additional responsibilities are being asked of Tier 1 suppliers. Those responsibilities translate into a requirement for ERP," says Doug Maulbetsch, general director-business services, supply-chain management for General Motors Corp. "It integrates your supply and demand functions, so your order flow as well as your material flow are efficient," he says.
It only sounds like magic. When you break it apart and look at the separate pieces that make up an ERP package - or ERP suite, as the software industry terms it - there are few mysteries.
Generally the individual modules that make up an ERP product handle the same data-processing tasks that are already commonly computerized. Naturally the many packages available differ in the functions they perform. But the core functions of an ERP package encompass manufacturing, human resources and financials.
A labor module may run a company's payroll. An engineering module may index CAD drawings. The accounts payable module kicks out checks, while accounts receivable sends invoices. For the most part, a company could buy separate software systems to perform the business functions covered by an ERP application. But with ERP, you buy them all from one source. And because they're members of the same family, the software modules are integrated so that they work together.
That integration lets companies automate not only business processes within their individual domains, but also the critical information exchanges from one to another. "Right now, all of the pieces are separate, and they're poorly integrated or not integrated," explains Ms. Williams, the Yankee Group analyst, describing typical business processes pre-ERP.
When information needs to move from one system to another - say to convert an incoming order into work instructions for the shop floor - companies typically print them out. "Then somebody carries it over and it has to be typed into another system."
With ERP, such handoffs can happen automatically. That reduces the possibility for errors, and it increases the speed of internal business transactions. Companies using ERP can respond more quickly to incoming orders and other customer requests.
"We're able to take an EDI transmission from any of the automotive companies, convert that into a combination of firm requirements and forecasted requirements, and generate internal orders for our own work centers, as well as orders for our suppliers," explains Mike Rainwater, director of information technologies for Aeroquip Vickers Inc., a diversified automotive supplier based in Maumee, OH. The company uses the MFG/PRO ERP product from QAD Inc. of Carpinteria, CA. "Without an ERP package, it would be impossible to do that manually on a daily basis," says Mr. Rainwater.
At Iowa Spring, the benefits of ERP show in order processing. Before ERP, it linked its information systems with the EMS software. "We'd receive an order on Monday and it might be Thursday before we could run the order because of all the clerical process time it required," says Mr. Bianco. That could make for some serious downtime because of the resulting scheduling inefficiencies.
Now, orders travel to the shop floor in five minutes. "The turnaround on processing the paperwork is tremendous," Mr. Bianco says. He credits the system for also helping to improve on-time delivery, shorten manufacturing lead times and improve customer service. Because of the on-line links between shop-floor information systems and office systems, he explains, customers calling to inquire about orders - totaling nearly 50 a day - get immediate answers.
Clerks taking the calls can retrieve order status without leaving their computers. Before the ERP system was running, "we'd send a runner into the plant to find the job, come back to tell us its status, and then call the customer," says Mr. Bianco.
Mercifully, Iowa Spring didn't suffer the headaches many other companies complain about when getting started with ERP. Its history with EMS goes back to 1986, when Iowa Spring bought the manufacturing resource planning package that the software vendor then offered. As EMS became an ERP supplier by appending more functions onto its original application, the spring maker gradually added new modules.
Newcomers to ERP shouldn't expect things to go as smoothly. "This isn't a walk in the park," notes Aeroquip Vickers' Mr. Rainwater, who has garnered much experience installing the MFG/PRO system in the company's 30 sites now using the software.
Although they're called "packaged" applications, ERP systems don't pop out of the box ready to use. They need to be customized to meet the individual processes and practices of each company. For example, a system may require programming to recognize a unique part-numbering scheme.
The software business uses the term "consulting" to cover the implementation of a new system. It can involve everything from installing and adapting hardware, customizing and loading software, training personnel to use it, and more.
It's not cheap. The Yankee Group's Ms. Williams points out that the average consulting cost is double the price of the software license itself. It can go much higher. o
