Putting ERP To Work

Putting ERP To Work

How three manufacturers are using ERP to improve financial performance.

Only 33% of the plants surveyed this year by IndustryWeek and the Cleveland-based Manufacturing Performance Institute said they had ERP systems in use, far less than the 48.2% that said they were using CAD and other design systems or the 44.4% that were using material requirements planning (MRP). Add ERP II to ERP and usage came to only 37.3%.

What's more, there's reason to believe many manufacturers, even those who repeatedly insist better financial performance is their ultimate goal, aren't making the most of their ERP systems. While two-thirds of manufacturers say their ERP selections are based primarily on the functions the systems offer, on average the manufacturers use less than 30% of the features and functions of their systems, according to a research report released this fall by the Aberdeen Group, Boston.

See Also

ERP Breaks Barriers

Points To Consider When Investing In ERP

ERP Benefits

Improving Financial Performance

Setting Your IT Priorities
Credit some of that underperformance to manufacturing managers with limited strategic vision and to systems consultants focused more on generating volume than providing value to customers. Bills of goods have been offered -- and bought -- even though no company can really afford to do so.

Nevertheless, several manufacturers have instructive stories to tell. The following are three North American ERP projects, at various stages of implementation, from which other manufacturers can learn.

Canadian General-Tower
Trimming Costs By $750,000

A Canadian auto parts maker that produces vinyl fabric and interior trim for cars and light trucks in North America, Canadian General-Tower had a systems problem. Two years ago, when Tim Armstrong joined the Cambridge, Ontario-based company, it was running a COBOL-based program on 20-year-old hardware. It was not so much an ERP system as it was an antiquated MRP system with technology at the end of its life.

Tim Armstrong, Canadian General-Tower
"Components of it were built for one application, but because of business needs we'd patchworked together a whole bunch of components to make them do other things. [It was] very inefficient and fraught with data integrity issues," says Armstrong. "I'd go into meetings and we'd spend more time arguing about who had the right data than understanding a problem and resolving it."

Today, Canadian General-Tower is more than a year into the implementation of a Microsoft Dynamics AX system. All of the financials were running off the new system this fall -- as were warehousing, order fulfillment, and EDI. By early 2007, the production reporting and manufacturing components of the system are expected to be up and running. Both Canadian General-Tower and Microsoft figure the new system will save as much as US$750,000 (C$850,000) compared to the annualized cost of continuing to operate the old system. "And that's only the hard costs in the IT department," notes Armstrong. "The bigger savings are going to be in the process efficiencies we're gaining from the software." Once system implementation is completed, "the payback on this thing is somewhere between three and nine months," he figures.

Among other benefits, its new system with new data coding allows Canadian General-Tower to get a true sense of where the market is and of what impacts the markets are having on differing manufacturing streams, says Armstrong. "The original underlying assumption was that marketing streams and product streams align," he relates. "The reality is that they don't in our manufacturing process. They criss-cross."

Caraustar Industries
Looks Good On Paper

From 1992 until 2002, Atlanta-based Caraustar Industries, now a $1 billion company, had basically been run as a holding company. But in 2002 Congress passed the Sarbanes-Oxley legislation, imposing stricter governance rules and triggering tighter financial requiring controls. Caraustar, a vertically integrated paper producer, wasn't able to meet the measure's requirements with the myriad of non-integrated systems that had come with years of acquisitions. "It was very inefficient, which is an unsustainable situation in our industry, which is a very low margin, high volume type of business," says Ronald Domanico, Caraustar's CFO. "The first question I asked myself was [whether] I felt capable of finding a solution without external help, and [the answer] was a quick, No." In January, 2005, Domanico turned to Tatum LLC, an Atlanta-based IT consulting firm, because, he says, "I really wanted to bring in some expertise that didn't have a vested interest in selling me a solution."

Ronald Domanico, CFO, Caraustar
The solution Tatum recommended and Caraustar implemented is an Oracle JD Edwards ERP system. "The JD Edwards package fit the hardware profile... but more importantly had really deep manufacturing roots and some significant references in the pulp and paper space," says Dan Gingras, a partner at Tatum.

Domanico says that Caraustar did not have specific quantitative goals for the new system, deigned to encompass about 100 plants, but rather wanted to minimize its capital expenditure, to gather all the data in a single system and to minimize future processing costs.

With its system literally a work in progress, Caraustar expects to begin running four finance modules and an HR/Payroll module on Jan. 1, 2007. Implementation of the manufacturing module will follow in another couple of months. "What we really want to do is skinny down the supply chain. We want to increase the efficiencies and flow inter-plant demand automatically-and do all the standard things you in a manufacturing company," states Tatum's Gingras. "Those benefits are really going to come as we roll out the manufacturing plants, starting in March. And that's probably going to take the rest of the year to do."

Stolle Machinery Co. LLC
Out of many, one.

The Latin motto of the United States, E Pluribus Unim, applies as well to the IT challenge that confronted Stolle Machinery Co. LLC, a Centennial, Colo.-based company that designs, manufacturers and distributes can-making equipment to the food and beverage industry.

Michael Kalkman, ERP manager, Stolle Machinery Co. LLC
Having been divested by Aluminum Company of America in January 2004, Stolle by November of that year needed not only to replace an outmoded IT system but also to accommodate an acquisition and to integrate three different systems. It needed to make one out of many.

"The best thing that the old systems did were the accounting functions," says Michael Kalkman, ERP manager at Stolle. "They didn't do anything for your operations people --or did very little. If anyone had to do any kind of analysis, it was days, weeks [or] months --if it ever got done." By November of 2004, there were five different divisions to Stolle. "Instead of acting like five $40 million companies, we wanted to start acting like a single $200 million company," stresses Kalkman. "Instead of treating our customers and supplier bases in different ways, we wanted to present that united front and adopt the same processes."

ERP Underutilized
Only about a third of U.S. plants employ enterprise resource planning.

Plant Size

Percent
using
ERP

<100 employees 22.7%
100-249 employees 34.7%
250-499 employees 47.9%
>500 employees 53.2%
All plants 33%
Source: IndustryWeek/ Manufacturing Performance Institute 2006 Census of Manufacturers.
So Stolle took a break in the implementation of the IFS systems it had started to install in April 2004. The decision was made to more aggressively integrate Stolle's different divisions in its enterprise-wide solution -- and to upgrade to a more current version of IFS Applications.

In July of 2005 implementation was complete at Stolle's Colorado facilities and by March of this year Stolle's Ohio divisions were running IFS applications, bringing the total number of users across the company to 240.

"Our profits have gone up significantly," observes Kalkman. "Last year was our best year ever; this year is going to be better than last year; and we're forecasting next year to be better than this year." But he hesitates to attribute such improving financials directly to the new ERP system. He will say, however, this past September's acquisition of Stolle by Littlejohn & Co. LLC, a Greenwich, Conn., private investment firm, would not have happened without ERP's controls. "There would have been no reliability as to what our cost structure was or where the opportunities were in the company," says Kalkman.

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