ERP, MES: When accountability meets agility
Before the advent of enterprise resource planning (ERP), many businesses implemented manufacturing resource planning (MRP) solutions to optimize materials utilization, map out financials, and generate “what-if” scenarios. MRP offered the promise of greater control of inventory, raw materials, parts and subassemblies, and a methodology for managing production and delivery scheduling. My issue with MRP is it attempts to drive the shop floor from forecasts. What we’ve learned over the years is that if there are any errors in the chain of data generated by the system—from inventory accounting to source material to scheduling—the results can be disastrous.
For decades, the Holy Grail quest for the manufacturing enterprise has been seamless integration of the executive suite with the plant, the so-called top-floor to shop-floor operational paradigm. What has evolved over the years is a veritable alphabet soup of systems, technologies, and methodologies, such as ERP, MRP, MRP II, MES, MOM, QMS, CRM, OEE, POM, PLM, and MOE, with a heavy dash of ISA and ANSI standards and specifications.
To be sure, manufacturing depends on a variety of applications, systems, and tools to manage everything from balance sheets to plant floor process and control. ERP systems are generally considered the backbone of most manufacturing operations because they offer an orchestrated approach to a host of business functions, including order processing, product purchasing, accounts payable/receivable, profitability calculations, forecasting, inventory control, sales, product distribution, and even customer relationship management. Most businesses cannot achieve maximum efficiency, profitability, and competitiveness without some form of ERP, even if it is relegated to a rudimentary accounting package.
Manufacturing industry consultant Jeff Wolfberg recalls a Tennessee-based tools and equipment company that was serving industrial and automotive sectors. It handled machining, stamping, and assembling finished products and had lead times of four to six weeks. Based on the production forecast, if there was as much as a 15% monthly variation in actual sales requiring physical product shipment, the company was out of stock 50% of the time. Under that scenario, why bother with a manufacturing automation system if such a small variation triggers a considerable out of stock condition? Wolfberg noted that even when management fine tunes the system, such forecasting tends to encourage manufacturers to build inventories and, as a result, tie up working capital. In this case, the captive $14 million in inventory was a considerable sum for a $40 million company.
While MRP systems paved the way for today’s more comprehensive and fully integrated business ERP solutions, the issues remain the same: a successful business outcome is inexorably linked to the quality and analysis of the data collected by manufacturing technology systems. That’s why today’s emphasis on lean manufacturing and just-in-time business process strategies has opened more doors for the deployment of manufacturing execution systems (MES), which deliver the necessary agility required to keep pace with the new ultra-dynamic of today’s rapidly changing manufacturing ecosystem.
Two technology categories
To appreciate the relationship between ERP and MES, it’s important to understand the unique capabilities that distinguish these two technology categories and the complexion of the new business environment. In terms of trends, manufacturing has transitioned from local, stand-alone plant facilities to a global production network laced inextricably by a vast, interconnected supply chain. Today’s demand-driven supply chain reflects everything required to fulfill customer requirements, and companies are targeting their core competencies with an eye toward leveraging partnerships to achieve higher levels of efficiency, productivity, and profitability.
This robust, global network resource is part of the impetus behind management recognition that an enterprise may have strengths in final assembly or design and marketing, but also needs to leverage the global network for volume production of commodity components via outside manufacturing partner specialists. The result has been increased outsourcing and offshore production on a worldwide stage where the pool of resources can enable a company to achieve cost and agility objectives that play an essential role in how a nimble manufacturing concern today can quickly adjust business operations and plant floor processes to maintain a competitive edge in the future. Ultimately, moving production offshore offers a manufacturing enterprise a means to minimize capital investment and avail itself of new options for operational flexibility.
If you look at major high tech-brands, such as Apple, Dell, Sony, and Toshiba, and how their products are actually made, you will find a near 60% overlap in their supply networks in terms of shared organizations, resources, strategies, and operations, according to Karim Lokas, vice president of product strategy and marketing at Camstar Systems. This network effect is very powerful in terms of how companies solve manufacturing challenges. “Because of these changes in globalization, outsourcing, and networking, we need to collaborate more aggressively because we are ultimately now interdependent on our supply chain partners,” Lokas says. The new global marketplace, focused customer demand, and product fulfillment challenges have enriched this worldwide network and offer manufacturers new strategies for planning, sourcing, parts assembly, final manufacturing, quality control, and distribution and logistics, plus aftermarket activity such as product returns, service, and warranty repairs.
In this global model, companies can no longer collaborate solely with their internal manufacturing specialists, plant technicians, quality control experts, and design engineers. They have to engage with their supply chain partners on sourcing or distribution, or even production if they have outsourced to a contract manufacturer. Collaboration adds a new, important dimension to the process and radically alters the speed at which products are developed and introduced into the marketplace. This new, competitive landscape also means that products are introduced and obsoleted in record time, supply chains are created and dissolved quickly, volumes fluctuate dramatically, previously impractical levels of product configuration are now possible, and companies can uncover profitable segments through niche market opportunities.
From humble beginnings
ERP systems were developed from systems that initially only required managing the general ledger, inventories, and accounts payable/receivable, with enhancement add-ins for functions such as customer relationship and product lifecycle management. ERP grew out of a static, structured process in which accountants were not paid to be creative, and for good reason. That information was then linked to an MRP to assist production line managers build products.
MES evolved during the same period, but for a different set of users and applications. MES was effectively born in the factory. MES has tracked closely with manufacturing growth as volumes scaled and variations increased. Plant managers realized that businesses could no longer rely on ad hoc processes and people to manage this new manufacturing dynamic, simply because traditional strategies could not scale operations cost-effectively, provide real-time plant floor intelligence, reduce variability, and also remain highly adaptable to allow for configuration options, product introductions, equipment changes, and new lines. That’s where MES becomes an essential companion to a well-established ERP system.
Even when MES has not been “technically” implemented, companies may still have systems that are performing various MES processes. For example, the South African mining industry depends on real-time data during precious metals production. “The mining industry doesn’t work with the concept of demand-driven supply chains,” says Deon Barnard, divisional manager of sales and consulting for South Africa-based EOH. “But they have a focus on accurate data from the field. For example, once gold-bearing rock is mined, the company wants to know every process detail and all associated costs for each ounce produced.” Barnard noted that when he consults with mining companies, instead of MES the discussion focuses on operational intelligence and dashboards—the business drivers of that industry.
MES is evolving very rapidly along with ERP. In many respects, ERP and MES are different, yet they are extremely complementary. ERP is very good at allowing you to lay out your organization and your financials, products, and inventories, as well as generate your balance sheet, top-level planning, and forecasting. MES is focused on fulfillment in terms of how a business makes products to a specific demand in the most cost-effective way possible and with the highest quality. The interaction between ERP and MES reflects a natural symbiosis that is vital to the success of a manufacturing enterprise operating in a collaborative, global supply chain network and with a mission to drive resilient yet agile manufacturing business initiatives.
Chaos in the plant
A U.S. manufacturer of life-saving heart defibrillators and other medical devices opted to leverage its ERP system to build a competitive marketing strategy offering customers a range of configuration options. The firm, with more than $400 million in annual revenue, easily mapped out the accounting issues, costing, planning, and forecasting via ERP. But when the firm transitioned its marketing plans to the shop floor, the back-office permutations ended up with more than 200 configurations of the product. Yields dropped, quality issues surfaced, and the plant floor was overrun with operator confusion. Despite the great sales and marketing strategy driving the top line, the objective was difficult to implement in a high-change, high-configuration environment. The solution was the installation of an MES, which took the complexity driven by the marketing strategy and created an adaptable system to guide and enforce the process while allowing for variability. Shortly after installation, yields increased by more than 20%. The company leveraged the intelligence gleaned from the MES and the financials forecasted in the ERP system to build a profitable corporate growth plan.
In the new ERP-MES manufacturing environment, the time dimension is critical. Rapid change in the supply network is putting greater focus on today’s shrinking response times. Globalization requires implementation of MESs that enable plant managers to respond immediately to new shop floor and supply chain dynamics. This manufacturing sprint presents a constant stream of decision points on the factory floor, which demand solid data in the right context and at the right time; otherwise, the entire organizational pyramid suffers.
The MES is focused on the minutes and seconds of real-time operations, not the days and weeks typical of the ERP time scale. The MES captures data and instills in it context and meaning within the business model so that managers can make highly informed decisions. In contrast to the ERP system, the MES solution needs to be distributed rather than centralized simply because the demand-driven supply chain is decentralized. Ideally, the MES needs to be a combination of a cloud-based solution and an on-site installation. For example, a global company in the chemicals business transfers information from control systems at the point of consumption through the cloud so operators and MESs at a centralized location can monitor inventory levels at different customer sites to refill storage tanks on demand.
A product in there somewhere
It’s important to remember that there is a product at the center of manufacturing technology, which is planned, executed, marketed, and sold. The relationship between ERP and MES is directly related to planning and execution. Typically the ERP system generates production plans, and then transfers them to an MES. The MES, coupled with the supply chain in a global environment, then enables product demand to be fulfilled. How does a company then use these systems to generate high-quality products cost effectively and with the resources at hand? The MES delivers real-time intelligence to the ERP, which then takes that baton and crunches the numbers for job costing calculations and inventory management records, and aggregates data to present a rich financial tableau of enterprise operations.
As ERP has evolved from its MRP roots; MES is undergoing similar transformations. MES is no longer a plant-centric solution. In many respects, MES should really be called a supply network execution system. MESs today are oriented toward being very intuitive, direct, and focused at the job at hand. On the other hand, an ERP is very focused on the process, the transaction, and the nature of each transaction. ERP orients managers to the process and the system while MES revolves around production and the shop floor operator. ERP is focused on back-office accountability; MES is immersed in the agility and mobility of the globally connected plant floor. Both are unique, yet they are intrinsically linked to overall business success.
John Weber is CEO of Software Toolbox, a provider of software products that enable manufacturers to connect, organize, aggregate, and leverage crucial real-time plant floor information.