ERP in Complex Manufacturing

March 2011 Kevin Prouty

~ Underwritten, in Part, by ~

ERP in Complex Manufacturing Page 2

Executive Summary
Complex manufacturers face both similar and at the same time different challenges compared to other manufacturers. Complex manufacturers must contend with a highly engineered environment that requires significantly more collaboration internally and with customers. Aberdeen's research conducted among 127 complex manufacturing companies revealed that Best-in-Class complex manufacturers drive more ERP usage and push IT and business leaders to operate in a collaborative and cooperative environment. The result is a highly flexible and optimized operation that continuously improves and prepares for growth. Research Benchmark Aberdeen’s Research Benchmarks provide an in-depth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations

Best-in-Class Performance
Aberdeen used the following four key performance criteria to distinguish Best-in-Class companies: • 22% decrease in inventory levels • 97% inventory accuracy • 96% internal schedule compliance • 97% on-time shipments

Competitive Maturity Assessment
Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics: • Best-in-Class complex manufacturers use 15% more ERP functionality than all others • The Best-in-Class are 1.5-times more likely to have IT measured on operational continuous improvement as part of ERP • The Best-in-Class are three-times as likely as all others to measure the success of ERP through quantifiable business metrics

Required Actions
In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must: • Push IT and business leaders to share risk and reward of ERP implementations and operations • Drive ERP usage to as many users as possible to extend the benefits of ERP capabilities • Improve remote and / or mobile access to ERP data

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This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objec tive fact-based research and and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

....................................................................................... 4 The Maturity Class Framework......................................................................................... 6 Table 3: The Competitive Framework.........................................................................................................20 Appendix A: Research Methodology............................................. 4 Figure 2: Top Business Drivers Over Three Years...... 2 Best-in-Class Performance...............................................................................................................17 Figure 9: Process Automation for Project Management......................................................................................... 2 Chapter One: Benchmarking the Best-in-Class.................................... 6 Best-in-Class Strategies...........20 Best-in-Class Steps to Success .................23 Table 7: The Competitive Framework Key .........................................................................................................................18 Tables Table 1: Top Performers Earn Best-in-Class Status.......23 Table 8: The Relationship Between PACE and the Competitive Framework .......................................................................................................................................19 Industry Average Steps to Success ........................................................... 2 Competitive Maturity Assessment......25 Figures Figure 1: Top Business Drivers for Complex Manufacturing ..........22 Appendix B: Related Aberdeen Research..........23 © 2011 Aberdeen Group........11 Table 4: ERP Usage in Complex Manufacturing .. 5 The Best-in-Class PACE Model .......................................................... 4 Business Context ......16 Table 5: Measured Benefits........................................ERP in Complex Manufacturing Page 3 Table of Contents Executive Summary ..............................................13 Figure 6: Organizational Capabilities ......12 Chapter Three: Required Actions ................................................................. 8 Figure 5: Process Capabilities.................................15 Figure 8: Tools Used for Project Management ..........................................................19 Laggard Steps to Success.........................................11 Capabilities and Enablers ......... 7 Chapter Two: Benchmarking Requirements for Success.................................... 5 Figure 3: Top ERP Strategies for Complex Manufacturing...................................................................... 2 Required Actions..........................................15 Figure 7: Real-time Visibility from Quote to Cash............................................................................................................................................... 7 Figure 4: Top Challenges Related to Project Management Telephone: 617 854 5200 Fax: 617 723 7897 ........ 6 Table 2: The Best-in-Class PACE Framework ................aberdeen....................10 Competitive Assessment ............................................................................................................17 Table 6: The PACE Framework Key ......................................................................................................................................................................................................................................................24 Featured Underwriters.................................................................................................................................................................. www.........................................................................................................

Industrial Equipment Manufacturers (IEM). February 2011 While compared to all other types of manufacturing. Figure 1: Top Business Drivers for Complex Manufacturing 42% 46% 29% 30% Fast Facts Best-in-Class ERP implementations in complex manufacturing slash 100% more costs (than all other companies): v 120% more inventory cost reductions v 80% more manufacturing operational cost reductions v 150% more administrative cost reductions At the same time. capital equipment manufacturers.ERP in Complex Manufacturing Page 4 Chapter One: Benchmarking the Best-in-Class Business Context An improving economy. Sonic Manufacturing 0% 10% 20% 30% 40% 50% Percentage of Respondents Source: Aberdeen Group. even though cost was still the number one driver in 2010. and the view that growth is returning is fueling a shift in business drivers in complex manufacturing. Complex manufacturing includes Aerospace and Defense (A&D). they produce 100% better schedule improvements with over 170% improvement in time to decision Must reduce costs We need to be easier to do business with (improve overall customer experience) Need to manage growth expectations 29% 33% 27% 17% 23% 19% 17% All Manufacturers 33% All Complex Manufacturers Must improve customer response time Interoperability issues across multiple operating locations Pressure to innovate to deliver more va lue "The company needed to keep control of scale and keep control of their Telephone: 617 854 5200 Fax: 617 723 7897 .” ~ David Ginsberg. Vice President of Supply Chain Management. As Figure 1 shows. This trend has continued over the last three years. The © 2011 Aberdeen Group. This was not possible with simply spreadsheets…They needed automated tools for cleansing data and keeping the business moving…It became clear that the right ERP solution would be important to enable the business to meet its goals and grow. www. managing growth and a focus on customer management show that complex manufacturers see 2011 as a time to take advantage of the growth of their customers. These types of companies have several common traits: • High amount of engineering cost and effort in design and installation • Low volume and high complexity of product • Companies are consumed by change management • Highly iterative and collaborative customer engagement model Aberdeen's December 2008 ERP in Complex Manufacturing: Improving Collaboration and Visibility report showed that the cost far outweighed other business drivers in influencing Enterprise Resource Planning (ERP) decisions.aberdeen. and some telecommunications equipment producers. complex manufacturers have a little more focus on customer engagement.

www. and installation. but its heading back in that direction after a hiatus in 2009. Note that cost consistently remains the primary driver.ERP in Complex Manufacturing Page 5 iterative nature of highly engineered products and more project-based manufacturing entails significant focus on communicating with the customer throughout design. Significantly. But. Figure 2 compares the responses regarding the top two business drivers from 2008 to 2010. the divergence in operating results from different levels of maturity of an ERP implementation can be seen. The Maturity Class Framework Aberdeen used five key performance criteria to distinguish the Best-in-Class from Industry Average and Laggard ERP implementations (Table 1). cost still rules the day as the number one business driver and balancing cost while preparing for customer growth is a challenge complex manufacturer's face more in 2011 than in 2008 and 2009. Looking at it from an historical perspective. © 2011 Aberdeen Group. This report analyzes survey responses from 127 complex manufacturers from Aberdeen Group's fifth annual survey. but also because a well executed ERP implementation can have a very significant impact on these metrics. 2010 is no where near 2008 in terms of focus on customer experience. But also note the significant shift in customer experience downward in 2009. production. February 2011 The shift to a more growth-oriented strategy is forcing complex manufacturing companies to shift strategic actions and rethink their infrastructure Telephone: 617 854 5200 Fax: 617 723 7897 . These Key Performance Indicators (KPIs) were chosen not only because every manufacturer should be measuring them. in the end.aberdeen. Figure 2: Top Business Drivers Over Three Years 45% 45% 42 % 36% 27% 32 % 27% 24 % 36% Must reduce costs Need to be easi er to do busi ness with (improve overal l cu stom er exp erience) * Must improve customer response time 2010 2009 N eed to m an age growth expectations Interoperabili ty is sues ac ros s m ul tiple ma nufacturing locations 28% 28% 31 % 19 % 24 % 22 % 2008 0% 10% 20% 30 % 40% 50% Percentage of R espondents Source: Aberdeen Group.

Forecasting / Demand Planning. Accounts Receivable. Fixed Asset Management. Sales and marketing. implementation and beyond Time to Value was / is measured for initial implementation From summary data.” ~ IT Director. Table 2: The Best-in-Class PACE Framework Pressures Actions Capabilities Must reduce costs Standardize and streamline business processes Provide visibility to business processes across functions and departments Standardized enterprise-wide procedures for order management. February 2011 © 2011 Aberdeen Group. Project Management. Telephone: 617 854 5200 Fax: 617 723 7897 . CRP. Human Resources. After Market Service.ERP in Complex Manufacturing Page 6 Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Mean Class Performance 22% reduction in inventory levels Best-in-Class: 97% inventory accuracy Top 20% 3. Supplier collaboration / scheduling. MPS. EAM. These can be summarized as shown in Table 2. Accounts Payable. Payroll Business Intelligence platform and tools Workflow automation / Business Process Management Event Management (Triggers & Alerts) Management. February 2011 “Our new ERP system allowed us to reduce stock outs and admin costs while improving inventory accuracy and on time shipments. a combination of strategic actions.0 days to close a month 85% manufacturing schedule compliance 91% complete and on-time shipments 0% reduction in inventory levels 87% inventory accuracy 7. DRP. ECM.6 days to close a month of aggregate 96% manufacturing schedule compliance performance scorers 97% complete and on-time shipments Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers 10% reduction in inventory levels 94% inventory accuracy 5. BI and others Source: Aberdeen Group.aberdeen. small telecomm maker. procurement. Shop Floor Control. Order Management. decision-makers can drill down to transactions that form the fiscal and operational audit trail Enablers Integrated ERP modules: General Ledger. Purchasing.3 days to close a month 70% manufacturing schedule compliance 81% complete and on-time shipments Source: Aberdeen Group. MRP. organizational. knowledge and performance management capabilities. product configurator. Inventory Control. and enabling technologies are required. cash collection and financial reconciliation Real time visibility into status of all projects and processes from quote to cash ERP implementation has the continued commitment and attention of senior management throughout selection. southeast US The Best-in-Class PACE Model To achieve these types of benefits from an ERP solution.

aberdeen. Also. have already provided significant visibility into key business processes. 127 15 % Be s t. as we will see when we look at capabilities.ERP in Complex Manufacturing Page 7 Best-in-Class Strategies We typically see only slight shifts year-over-year in the strategic actions that companies take to leverage ERP towards their business goals. including standardizing business processes. Interestingly. Areas where other complex manufacturers focus ERP efforts over Best-inClass companies are around visibility into processes and optimizing current “We now have timely views of customer and product profitability based on accurate data. n = 127 Percentage 60% 80% 100% Percentage of Respondents. Almost twice as many Best-in-Class companies as other complex manufacturers look at ERP to address reducing the number of separate systems they have. Industrial Equipment Manufacturer Telephone: 617 854 5200 Fax: 617 723 7897 . Best-in-Class companies are already aligning themselves for growth by using the cash reserves they have and the credit they have available. They are multimode in their operations and this © 2011 Aberdeen Group. Complex manufacturers are not called complex just because they produce complex products. Best-in-Class companies. The other key area where Best-in-Class companies focus is consolidating and integrating disparate systems. as to using existing capacity. Figure 3: Top ERP Strategies for Complex Manufacturing Streamline and accelerate Streamline and efficiency processes to improveaccelerate and productivity processes to improve efficiency and productivity Standardize business processes Standardizevisibility to business Provide business processes Provide visibility to business processes across functions and departments processes across functions and Optimize the use of current departments Optimize the use of current capacity capacity Integrate disparate enterprise Integrate applications disparate enterprise applications 8 0% 7 1% 0% 8 7 1% 64% 5 86% % 4 58% 46 % 46 % 36% 3641% % 24 % 1 3 64% % -C la ss Be s “[Our ERP implementation] has provided us with the ability to accurately schedule material requirements as well as accurately plan for capacity -C la ss Figure 3 shows that the top action among respondents is still streamlining and continuous improvement for all maturity classes. So these companies focus ERP on growing and planning for growth. Other complex companies are still recovering and focusing ERP on planning with what capacity they already have available.” ~ Executive VP. www. They also have very complex operations when compared to other manufacturers. while Best-in-Class companies have already significant inroads there. Other complex companies are still moving forward with visibility as a key initiative. But we do see some fairly significant divergence between Best-in-Class companies and all other complex manufacturers in how they view ERP and its role in their strategies. Industrial Equipment Manufacturer 15 % % 3 6 % l O th e rs Al 24 0% 20% 40% 60% 80% 100% Al l O th e rs 0% 20% 40% of Respondents. n =February 2011 Source: Aberdeen Group. we see a significant gap between Best-in-Class and all others in their focus on anything related to business processes.” ~ Managing Director.

6 . They typically have a significant component of project-based manufacturing and either need to select an ERP system that supports that type of manufacturing.6 3.23. Figure 4 shows the top challenges manufacturers have in managing projects.5 3. or support the project-based processes through manual operations. Executing the Project Plan: When Projects Are Your Business. Figure 4: Top Challenges Related to Project Management Current standards or best practices not enforced enterprise wid e Project plans and resource scheduling are not aligned Implementing effective change management procedures Inefficient a nd / or manual project manageme nt processes No real-time visibi li ty into proje ct costs and budgets 3. like project-based.aberdeen.8 R ating in Importance 1 to 5 with 1 being least and 5 being most Source: Aberdeen Group. also called engineer-to-order. Aberdeen's recent report. etc.63 3. But a key mode of manufacturing that is usually the dominant mode is project-based manufacturing.4 3.43. highlighted some key information about how manufacturers view project management. www. make-to-stock. Aberdeen Insights — Project Management Complex manufacturers are unique from other types of manufacturers in that they typically use multiple modes of manufacturing.6 3.ERP in Complex Manufacturing Page 8 can cause significant issues when selecting and implementing an ERP system. 2010. Visibility in processes and standardization of processes is critical to efficient operations. customize an ERP Telephone: 617 854 5200 Fax: 617 723 7897 . December. December 2010 continued © 2011 Aberdeen Group. assemble-to-order.

ERP in Complex Manufacturing Page 9 Aberdeen Insights — Project Management While many of the same terms come up in project management discussions as in ERP discussions. Change management is a key area where project management and ERP overlap. It is an area of significant interest amongst ERP vendors and we are seeing more ERP vendors support project-based manufacturing. But typically those tools are not pre-built or configured to handle the needs of project-based manufacturers. change management processes related to projects. You can see that several of the tools are inherent to most ERP Telephone: 617 854 5200 Fax: 617 723 7897 . You can also see that complex manufactures have a greater demand for those tools. www. note the challenges around change management. and specifically. we will see what the top performers are doing to achieve these gains.aberdeen. In the next chapter. © 2011 Aberdeen Group.

These included a low price point.ERP in Complex Manufacturing Page 10 Chapter Two: Benchmarking Requirements for Success While the selection and implementation of an ERP system is a life changing experience for those involved in any company. Fast Facts v Best-in-Class complex manufacturers average 29% higher ERP usage in their company than Laggard companies v Best-in-Class complex manufacturers are 32% more likely to have standardized cash management process than Laggards v The Best-in-Class are eighttimes more likely than Laggard companies to have quantifiable metrics for their ERP implementation continued © 2011 Aberdeen Group. medical equipment. First was selecting an ERP to implement. They needed custom reports that could be delivered within minutes. Sonic Manufacturing was looking for a few things when it chose its ERP solution. and ease of use with easy access to data including integration to third-party software and services. green technology. This was not possible with spreadsheets. you need proper processes. planner. the benefits were clear. This includes automotive. With numerous active clients and over 200 employees. for a complex manufacturer it can set the foundation for growth and continuous improvement. Ginsberg said. Case Study — Sonic Manufacturing Founded in 1996. They needed fast access to accurate data. the company has quickly grown over the past 15 years. purchase cost. and lead time attached to it. David Telephone: 617 854 5200 Fax: 617 723 7897 . “To manage materials like we do. aerospace and defense. They wanted to make sure that the solution was fully featured without sacrificing anything else. Aberdeen’s research shows that Best-in-Class companies typically see almost 20% reduction in operational and administrative costs after ERP start up.” The company needed to keep control of scale and keep control of their business. buyer. industrial security. quick implementation. computing. It became clear that the right ERP solution would be important to enable the business to meet its goals and grow.” This becomes very difficult to keep track of without an advanced solution.aberdeen. and networking and wireless. www. “Every part has a source of supply. It was important for the company to be able to keep track of a large amount of materials that may be moving quickly through the business. Sonic Manufacturing is a turnkey contract partner that builds products for other businesses that do not have the necessary manufacturing resources. the company realized that there were some things that needed to be done if it ever planned on being anything more than a small shop. About one year after the business was founded. He said. They needed automated tools for cleansing data and keeping the business moving. Once they selected and implemented the solution. has been with the company throughout this period of growth. Communication between team members was key. Vice President of Supply Chain Management. biotech.

Sonic Manufacturing serves its customers better. (4) technology (effective use of modules of and extensions to ERP). Each part is now easy to track with all the necessary information attached to it. each class also shared characteristics in five key categories: (1) process (demonstrated ability to standardize processes and ERP implementation). People can now look at their work and tell if they are doing it right or wrong. The company is now able to bring 1. cash collection. Table 3: The Competitive Framework Best-in-Class Average Laggards Standardized enterprise-wide procedures for procurement. and custom reporting in minutes. The ERP solution “answers questions quicker.ERP in Complex Manufacturing Page 11 Case Study — Sonic Manufacturing Ginsberg states that the benefits Sonic Manufacturing gained from its ERP implementation “are phenomenal. which cuts out waste. Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed complex manufacturing companies to determine whether their performance ranked as Best-in-Class. runs more smoothly.5 to 2 million parts through its manufacturing line per week with a staff of 10 in procurement and planning. and has grown as a business. This has allowed them to keep over 40 accounts happy. or Laggard. exports. Industry Average. These characteristics (identified in Table 3) serve as a guideline for best practices. www. (3) knowledge management (providing visibility in order to drive decision-making). In addition to having common performance levels. (2) organization (executive commitment and assigned ownership of ERP implementation). and (5) performance management (the ability of the organization to measure its results to improve its business). “The whole thing comes together to help us gel as a business. process.aberdeen.” Inventory accuracy is now in the 98% range.” With these types of organizational.” said Ginsberg. and financial reconciliation 96% 79% 64% Process Standardized procedures for order management and delivery across similar businesses within the enterprise 77% 71% 49% Standardized enterprise-wide procedures for production planning and execution across similar businesses 69% 52% 34% © 2011 Aberdeen Telephone: 617 854 5200 Fax: 617 723 7897 . According to Ginsberg. and visibility improvements. and correlate directly with Best-inClass performance across the key metrics. gives us embedded queries.

6 modules implemented1 Average of 11. and delivery organization 72% 52% 46% From summary data. Aberdeen’s analysis demonstrates that very significant benefits can be gained from an integrated ERP solution. decision-makers can drill down to transactions that form the fiscal and operational audit trail 73% 57% 30% Real time visibility into status of all processes from quote to cash 50% 39% 22% ERP Usage: Average of 12 modules implemented1 Modules Included in ERP Usage: v General Ledger v Accounts Payable v Accounts Receivable v Fixed Asset Management v Material Requirement Planning (MRP) v Capacity Requirements Planning (CRP) v Distribution Requirements Planning (DRP) v Master Production Schedule (MPS) v Forecasting / Demand Planning v Human Capital Management v Order Management v Project Management v Shop Floor Control v Purchasing v Inventory Control v After Market Service v Engineering Change Management v Enterprise Asset Management v Supplier Collaboration / Scheduling v Event Management v Workflow Technologies v Sales and Marketing v Product Configurator v Payroll Knowledge Average of 11.2 modules implemented1 Technology 81% of functionality available deployed 42% weighted average of ERP usage2 75% of functionality available deployed 36% weighted average of ERP usage2 70% of functionality available deployed 30% weighted average of ERP usage2 Performance Quantifiable business benefits resulting from overall implementation of ERP are measured 62% 35% 8% Time to Value was / is measured for initial implementation 46% 25% 14% 1. logistics. including: • Quantifiable cost savings and schedule improvements • Streamlining and automation of manual processes © 2011 Aberdeen Group. Calculated as: avera ge number of modules / 24 X percent of functionality used Source: Aberdeen Group.ERP in Complex Manufacturing Page 12 Best-in-Class Average Laggards Line of business ultimately owns the success of the ERP implementation 77% 68% 35% Organization Cross-functional continuous improvement teams are responsible for improving operational performance 77% 50% 43% Manufacturing operations are integrated and coordinated with customer service. www. The number of modules is based on a set of 24 generic modules (see sidebar) Telephone: 617 854 5200 Fax: 617 723 7897 . February 2011 Capabilities and Enablers Based on the findings of the Competitive Framework and interviews with end users.

If you remember the key strategic actions in Figure 3 above. we can see the details of that focus. It also allows faster analysis of process changes and their impact on overall corporate "ERP was just an IT project until I was told I would be responsible for its measured success. from quote to cash to service • Consolidation and compliance with fiscal reporting requirements • Better control over inventory and manufacturing schedules • Improved customer service and response times • Alignment of IT and business leaders on implementation and continuous improvement related to ERP Process Standardized business processes are the cornerstone for Best-in-Class performance. www. you'll note that streamlining and standardizing business processes were a significant focus for all complex manufacturers. These cash management processes are usually the first process many companies © 2011 Aberdeen Group.” ~ Plant Manager. Aberdeen compares the standardization of three different groups of processes across the competitive framework: those that are purely back-office processes. those that are more customerfacing (in terms of delivery) and those procedures that relate directly to manufacturing or production.aberdeen. and financial similar businesses within executi on across simi lar reconciliation the enterprise busi nesses withi n the enterprise Source: Aberdeen Group. but especially for Best-in-Class companies. especially in the back office and cash management processes. cash delivery / fulfillment across production planning and col lection. Now looking at Figure 5. Fortune 1000 Materials Company Telephone: 617 854 5200 Fax: 617 723 7897 . Best-in-Class companies already have a significant number of standardized processes. February 2011 In Table 3 and Figure 5 above. Figure 5: Process Capabilities Best-in-Class Complex Industry Average Laggard 100% 96% 79% 64% 77% 71% 49% 69% 52% 34% 20% 30% 40% 50% 60% 70% 80% 90% Standardized enterpriseStandardized procedures S tandardi zed enterprisewide procedures for for order management and wide procedures for procurement. Then it became the most important tool I had to run the plant. Having one set of standard processes makes it much easier to move continuous improvements throughout the organization.ERP in Complex Manufacturing Page 13 • Visibility to data and also to business process status.

training. Once again.aberdeen. Having knowledgeable business people heavily involved in the selection process tend to lead to selecting an ERP system that is more functionally fit for purpose. product lines. Seventyseven percent (77%) of Best-in-Class companies measure IT on the operational impact of the ERP implementation. Small Tooling and Machinery for the Packaging Industry © 2011 Aberdeen Group. www. Organization Organizational capabilities are often overlooked in ERP implementations. a stark contrast is shown where business leaders are held accountable for the success of the ERP implementation. The final factor is time spent maintaining. Many times. "We measure the success of our ERP implementation by the amount of time we spend creating each component of our business: quote. The second key capability in Figure 6 is around cross function collaboration and coordination. The other cross-functional capability is continuous improvement.ERP in Complex Manufacturing Page 14 standardize because they relate directly to overall company performance and reporting. Best-in-Class companies are heavily committed to having both IT and business involved in the selection and implementation of the ERP system. Best-in-Class companies are over twice as likely to make line of business leaders accountable for the ERP implementation's success. continuous improvement is left to the operational side of the business with IT playing a supporting role. accounting information. It also leads to a lot less finger pointing and a more cooperative implementation environment. But when it comes to ERP and its impact on operations. and procedural-izing the system and the personnel required to use the system. it is very important that IT be involved and be measured on ERP's impact on operational performance. You will also note that customer management and production planning process are heavily standardized in Best-in-Class companies. invoice. but to a lesser extent than the cash management processes. inventory Telephone: 617 854 5200 Fax: 617 723 7897 . versus only 43% of Laggard companies. We also consider the ease of tracking jobs. As you can see in Figure 6. and purchased components. different locations. One of the quickest hits for Laggard companies to improve the chances of a successful ERP implementation is to make the measured results of the ERP implementation a high priority goal of all business leaders. but it's these capabilities that allow Best-in-Class companies to manage and leverage ERP to its fullest. This leads very quickly to ERP implementations being viewed as just another IT project by the business managers. That is because as companies get larger and more distributed. order. PO. and production methods necessarily have to accommodate more diverse operating environments. job.” ~ CEO.

Quote to cash in complex manufacturing entails the traditional cash management processes. Project cash management includes project budget tracking and earned value tracking. February 2011 Knowledge Management One area where the Best-in-Class outpaces all other complex manufacturers is in visibility into key processes. decision-makers can drill down to transactions that form the fiscal and operational audit trail Real time visibility i nto status of all processes from quote to cash Source: Aberdeen Group. It also must handle field service and implementation management.ERP in Complex Manufacturing Page 15 Figure 6: Organizational Capabilities Best-in-Class Complex Industry Average Laggard 82% 81% 77% 77% 68% 59% 50% 43% 35% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cross functional teams Cross-functional o f IT and line o f business co ntinuous impro veme nt ind ividuals involve d in teams are responsible both the selection and for improving operational implementation of ERP performance Line of business ultimately owns the success of the implementation n = 127 Source: Aberdeen Group. As Figure 7 shows. Best-in-Class companies are 59% more likely than all others to allow drill down capabilities and 56% more likely to implement real-time visibility into all stages of the quote to cash process. February 2011 © 2011 Aberdeen Group. Figure 7: Real-time Visibility from Quote to Cash 73% Best-in-Clas s All Others 50% 46% 32% 25% 50% 75% 0% From summary Telephone: 617 854 5200 Fax: 617 723 7897 . but also includes a heavy dose of project cost and cash management. An example is the quote to cash process.aberdeen. This area in particular for complex manufacturers is slightly unique to this industry. www.

Complex manufacturers. Table 4: ERP Usage in Complex Manufacturing Best-in-Class Complex All Complex All Manufacturing 12 modules implemented 11. Calculated as: average number of modules / 24 X percent of functionality used Source: Aberdeen Group. Multi-mode means they have to use ERP functions that cover all aspects of manufacturing. This is easily explained by looking back again at the complexity of these manufacturers’ environment. A good example of this is an aftermarket service module.” All the modules of ERP use a single data base model.aberdeen. It is interesting to compare complex manufacturing and all other manufacturing. A module is built with the same development tools on the same architecture as core ERP." ~ Leonard Hartka. use more modules and have higher usage rates of ERP than other types of manufacturers. © 2011 Aberdeen Group.3 modules implemented 81% of functionality available deployed76% of functionality available deployed74% of functionality available deployed 42% weighted average of ERP usage 37% weighted average of ERP usage 33% weighted average of ERP usage 1. Aberdeen's preferred method of measuring ERP usage has been based on the number of modules implemented in combination with the percentage of functionality available (from those modules) that is actually used. our business processes are now streamlined. Table 4 shows that complex manufacturers overall use more total ERP modules on average and have just under 10% average ERP usage. "With an ERP system. and all users are pleased with daily processes and reports. Sun Automation Measuring the Effect of ERP It is important to note that the benefits of ERP. But a company producing and servicing a large and complex piece of equipment in the field will almost always implement and use the service module.6 modules implemented 11. implemented and measured properly. from planning and inventory to project-based functions. Integration is built in and there is little or no redundancy of data elements. we maintain accurate inventory. Best-in-Class companies go even further with 42% ERP usage against on 37% for all other complex companies. www. we have valid projections. on average. are real and tangible. except where there is a specific need. While a module can be implemented incrementally. The number of modules is based on a set of 24 generic modules (see previous sidebar) 2. Other ERP modules and functions that are only used sporadically in most manufacturing companies become mandatory in a complex manufacturer. engineering jobs are configured at quote level. Director. its release cycle is in lock step with the remainder of the core ERP Telephone: 617 854 5200 Fax: 617 723 7897 . February 2011 Aberdeen is careful to distinguish between a “module” of ERP and an “extension.ERP in Complex Manufacturing Page 16 Technology Since 2006. Table 5 highlights some of the KPIs that companies use to measure their overall performance and the impact of their ERP implementation. Quite a few manufacturers will never implement a service module if they are only making components supplied to another company.

Aberdeen Insights — Technology Because most complex manufacturing companies have a heavy focus on project-based manufacturing. Critical KPIs like operating costs show a 20% improvement in Best-in-Class companies while Laggard companies actually show a slight increase in operational costs. February 2011 Workflow automation tools Change Management continued Telephone: 617 854 5200 Fax: 617 723 7897 © 2011 Aberdeen Group. project management tools play an important role in operating and measuring these companies. February 2011 Best-in-Class companies come out ahead of all others in every measurable category. even Laggard implementations show some positive improvement in certain categories. On the other hand. Figure 8: Tools Used for Project Management 65% 68% 61% 55% 47% 51% 44% 35% 28% 20% 40% 0% 60% 80% All Complex 49% Project Templates Document Management Collaboration tools Source: Aberdeen Group. While Best-in-Class ERP implementations have a pronounced and positive effect on a company's bottom line.4% reduction in operating cost Laggard: 8% reduction in administrative cost Bottom 30% of aggregate 0% reduction in inventory cost performance 7% improvement in complete and on time shipment scorers 7% improvement in manufacturing schedule compliance Source: Aberdeen .0.ERP in Complex Manufacturing Page 17 Table 5: Measured Benefits Definition of Maturity Class Mean Class Performance for Complex 20% reduction in operating cost Best-in-Class: 18% reduction in administrative cost Top 20% 22% reduction in inventory cost of aggregate performance 24% improvement in complete and on time shipment scorers 20% improvement in manufacturing schedule compliance 13% reduction in operating cost Industry Average: 10% reduction in administrative cost Middle 50% 10% reduction in inventory cost of aggregate 15% improvement in complete and on time shipment performance 11% improvement in manufacturing schedule compliance scorers -. www. administrative costs showed an 18% improvement in Best-in-Class companies and 8% improvement in Laggard companies.

but they tended to be somewhat light and very transaction-oriented. Process automation is what ERP was built for and should always be considered by projectbased manufacturing companies. © 2011 Aberdeen Telephone: 617 854 5200 Fax: 617 723 7897 . More ERP vendors are now providing more robust project management tools. but ERP systems still live somewhat in the transaction world. www. Figure 9: Process Automation for Project Management 44% 37% 32% B e st . Many ERP systems have had project management functions. Almost two-thirds indicate they use both document management and project templates.ERP in Complex Manufacturing Page 18 Aberdeen Insights — Technology Figure 8 shows what project management tools are important to complex manufacturers compared to other manufacturing companies. or earned value management. February 2011 How many of these processes are automated is also a consideration. As can be seen. and as could be expected. They typically don't have templates. But around half of the complex companies rely on both collaboration tools and some form of change management -C l as s A ll O the rs 42% 40% 28% 30% 30% 31% 22% 22% 25% 10% 20% 0% 30% 40% 50% Project Scheduling Resource / Workforce scheduling Project Costing Project Management and Reporting Time Tracking agains t projects Expens e tracking against projects Source: Aberdeen Group. complex manufacturers are much more concerned about the tools needed to manage projects.aberdeen. detailed resource tracking. Figure 9 shows that complex manufacturers have significantly higher levels of automation than the rest of manufacturing.

© 2011 Aberdeen Group. • Measure. or Industry Average to Best-in-Class.aberdeen. Only 8% of Laggard companies effectively measure the progress and results in a quantifiable manner. Less that 50% of Laggard companies have standard order fulfillment processes and only a third of them have standardized production planning processes. the following actions will help spur the necessary performance improvements. This makes it very difficult to propagate continuous improvement results across the company. ERP is being set up to not meet expectations. In fact. Fast Facts v Best-in-Class complex manufacturers use 15% more ERP functionality than all others v The Best-in-Class are 1. ERP plays a critical role in providing a foundation for growth and disciplined consistency in business processes.ERP in Complex Manufacturing Page 19 Chapter Three: Required Actions While complex manufacturers operate in an environment of multiple manufacturing modes. www. Many of the following actions have been consistently appearing in Aberdeen research over the last five years. with only 11% of Laggard companies actually measuring ROI on ERP implementations. One of the key strategic actions that all complex manufacturers are focused on is the streamlining of business processes. Only 35% of Laggard companies put ownership of the implementation on the business leaders compared to over 80% in both categories for Best-in-Class companies. ERP implementations in Laggard complex manufacturing companies tend to drive ERP into the business with a lack of collaboration with the business leaders of the company. This is tied in directly with standardizing business processes. Aberdeen continues to hear and see that ERP implementations struggle as much because of the implementation methodologies as steering the ship blind. Through both the survey data and case studies. growing revenue while reducing costs.5times more likely to have IT measured on operational continuous improvement as part of ERP v The Best-in-Class are threetimes as likely as all others measure the success of ERP through quantifiable business metrics Laggard Steps to Success • Make line of business own the implementation. skeptical users. and then keep measuring. measure again. As with other manufacturing Telephone: 617 854 5200 Fax: 617 723 7897 . But that does not make them any less critical to complex manufacturers that are continuously improving their businesses and continue to look for innovative ways to operate. Only 59% of Laggard companies have collaborative teams of IT and business involved in ERP selection and implementations. • Standardize on standardization. and looking at the wrong results. they have the same goals as all other manufacturing companies. It also makes it hard to coordinate multiple locations and operations in supply chain and procurement operations. This leads to false expectations. Whether a complex manufacturing company is trying to move the performance of its ERP implementation from Laggard to Industry Average.

"The entire company relies on the data in the system and could not survive without it. Compare this to almost two-thirds of Best-in-Class complex manufacturers being able to actually measure the impact of ERP on operational costs. and same-day shipment for build to stock product. Best-in-Class companies have 42% weighted ERP usage compared to 37% usage for Industry Average complex companies. Industry Average companies must do a better job at measuring and quantifying their ERP impact." ~ Steve Crow.ERP in Complex Manufacturing Page 20 Industry Average Steps to Success • Measure just like everyone else. When looking at organizational capabilities. • Continue to broaden and deepen ERP usage. Senior VP. slows decision-making. This limits user access to timely information. To take that next step to improve the ERP implementation. only 25% of Industry Average companies were able to quantify it. it only makes sense to get as much out of the system as possible. it is imperative that they continue driving ERP throughout their operations. But the opposite is not true. Industry Average companies must align the ultimate objects of IT in the ERP implementation to operational improvement. Even though the Best-in-Class have significantly more usage of ERP than any other class. Life Tech Best-in-Class Steps to Success • Get more people using it. That next step to success for companies that have average ERP implementations is to keep measuring. Industry Average complex manufacturers must get more out of their ERP system. This theme is repeated through out comparison of measureable ERP impact. Best-in-Class companies are slightly better at providing access to ERP and overall visibility into specific processes. For example. We meet most of the benchmark standards for running a system such as full top-to-bottom integration. • IT must be part of the ongoing solution. Only about 50% of Industry Average companies have IT committed to operational improvements related to ERP. But they are actually no better than any other class in using the internet and mobility for ERP. While better than average manufacturing companies. and inhibits continuous © 2011 Aberdeen Group. This tends to make IT view ERP as an IT project. That means that all the benefits that have been documented in Table 4 are not reaching everyone they Telephone: 617 854 5200 Fax: 617 723 7897 . • Visibility from anywhere. while almost all average complex manufactures felt they had achieved operational cost benefits. To become Best-in-Class. Not doing it is leaving continuous improvement on the table. better than 98% inventory accuracy. Industry Average complex manufacturers are not that far behind Best-in-Class companies in getting business leadership involved in and committed to the success of ERP. With the defined improvements and improved operational performance that Industry Average complex companies see with ERP. it is still only at 42% weighted average and using only 81% of available functions.aberdeen. With the incredible improvements that Best-in-Class companies have seen form their ERP implementations. www.

Aberdeen Insights — Summary ERP has become and will continue to be the foundation for growth and continuous improvement for all manufacturing companies. Complex companies need ERP for both its ability to lay the ground work for consistent business Telephone: 617 854 5200 Fax: 617 723 7897 .ERP in Complex Manufacturing Page 21 improvement. Best-in-Class companies can drive more ERP usage and increase access to critical information by pushing out newer access technologies to its users. as well as its ability to provide a window into the product. Best-in-Class complex manufacturers drive continuous improvement and performance by taking advantage of ERP's collaborative and disciplined framework. © 2011 Aberdeen Group. www.aberdeen. and projects. operations. performance.

and Africa (11%). and the intentions of more than 127 complex manufacturers using ERP. operations (19%). and Telephone: 617 854 5200 Fax: 617 723 7897 . • Department / function: The research sample included respondents from the following departments or functions: corporate management (17%). © 2011 Aberdeen Group. gathering additional information on ERP strategies.000 employees). Aberdeen examined the use. IT (34%). EVP / SVP / VP (15%). 39% were from midsize enterprises (annual revenues between $50 million and $1 billion). and to provide a framework by which readers could assess their own management capabilities.aberdeen. Director (15%). and staff and other (21%). • Geography: The majority of respondents (86%) were from North America. and results. if any. 53% were from midsize enterprises (headcount between 100 and 999 employees). www. and other (13%). the experiences. the Middle-East. Responding enterprises included the following: • Job title: The research sample included respondents with the following job titles: C-Level (20%). Aberdeen supplemented this online survey effort with interviews with select survey respondents. and 52% of respondents were from small businesses (annual revenues of $50 million or less). • Headcount: Eighteen percent (18%) of respondents were from large enterprises (headcount greater than 1. Remaining respondents were from South America (1%). experiences. logistics / supply chain (10%).ERP in Complex Manufacturing Page 22 Appendix A: Research Methodology Between May 2010 and January 2011. the Asia-Pacific region (2%). that have been derived from ERP initiatives The study aimed to identify emerging best practices for ERP usage in complex manufacturing. • Company size: Nine percent (9%) of respondents were from large enterprises (annual revenues above US $1 billion). and the financial implications of the technology v The structure and effectiveness of existing ERP implementations v Current and planned use of ERP to aid operational and promotional activities v The benefits. Study Focus Responding executives completed an online survey that included questions designed to determine the following: v The degree to which ERP is deployed. finance / administration (7%). Manager (29%). and 29% of respondents were from small businesses (headcount between 1 and 99 employees).

applications. market positioning. partner interfaces. such as product / service strategy. align the corporate business model to leverage industry opportunities.g.g. training and support. skilled people.aberdeen. February 2011 © 2011 Aberdeen Group. Performance — What do you measure? How frequently? What’s your actual performance? Source: Aberdeen Group.g.. or business operations (e. changing customer preferences.g. financial strategy. development platform. www. viable products / services. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions. capabilities. user Telephone: 617 854 5200 Fax: 617 723 7897 . target markets. competitive) Actions — the strategic approaches that an organization takes in response to industry pressures (e. and sales strategy) Capabilities — the business process competencies required to execute corporate strategy (e. technology. February 2011 Table 8: The Relationship Between PACE and the Competitive Framework PACE and the Competitive Framework – How They Interact Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance.ERP in Complex Manufacturing Page 23 Table 6: The PACE Framework Key Overview Aberdeen applies a methodology to benchmark research that evaluates the business pressures. Technology — What level of automation have you Laggards (30%) — Practices that are significantly behindused to support this process? How is this automation the average of the industry.. and result in average industry data and intelligence required to manage this process? performance. and management) Source: Aberdeen Group. February 2011 Table 7: The Competitive Framework Key Overview The Aberdeen Competitive Framework defines enterprises In the following categories: as falling into one of the following three levels of practices Process — What is the scope of process and performance: standardization? What is the efficiency and Best-in-Class (20%) — Practices that are the best effectiveness of this process? currently being employed and are significantly superior to Organization — How is your company currently the Industry Average. and result in the top industry organized to manage and optimize this particular performance.. data cleansing. These terms are defined as follows: Pressures — external forces that impact an organization’s market position. process? Industry Average (50%) — Practices that represent the Knowledge — What visibility do you have into key average or norm. economic. competitiveness. political and regulatory. brand. ecosystem partners. and result in below average integrated and aligned? performance. actions. financing) Enablers — the key functionality of technology solutions required to support the organization’s enabling business practices (e. network connectivity.. and enablers (PACE) that indicate corporate behavior in specific business processes. Source: Aberdeen Group. go-to-market.

archived. (kevin.aberdeen. August 2009 • Measuring the ROI of ERP in SMB: Keeping ERP Projects Alive When You Need Them the Most. visit Aberdeen http://www. That's why our research is relied on by more than 2. As a Harte-Hanks Company. or transmitted in any form or by any means without prior written consent by Aberdeen Group. Aberdeen's research has been helping corporations worldwide become Best -in-Class. Inc. December 2010 • SaaS ERP: Trends and Observations. Aberdeen’s research provides insight and analysis to the Harte-Hanks community of local. Aberdeen Group's methodolog ies provide for objective fact-based research and represent the best analysis available at the time of national and international marketing executives. 90% of the Fortune or call (617) 854-5200.aberdeen. or to learn more about Harte-Hanks.000 companies. (2011a) © 2011 Aberdeen Group. www. distributed. December 2008 • ERP in SME: Fueling Growth and Profits. This document is the result of primary research performed by Aberdeen Group. Inc.harte-hanks.000. December 2009 • Beyond the Total Cost of ERP Ownership. Enterprise Applications. and 93% of the Technology 500. Author: Kevin Prouty. Having benchmarked the performance of more than 644. June 2009 • Enterprise Solution Strategies: The Value of an Integrated Suite. August 2010 Information on these and any other Aberdeen publications can be found at www. regional. the entire contents of this publication are copyrighted by Aberdeen Telephone: 617 854 5200 Fax: 617 723 7897 .com) For more than two decades. September 2009 • ERP in the MidMarket 2009: Managing the Complexities of a Distributed Environment. Combined.ERP in Complex Manufacturing Page 24 Appendix B: Related Aberdeen Research Related Aberdeen research that forms a companion or reference to this report includes: • ERP in Manufacturing 2010: Measuring Business Benefit and Time to Value.5 million readers in over 40 countries. and may not be reproduced. Unless otherwise noted. we help our customers leverage the power of insight to deliver innovative multichannel marketing programs that drive business-changing results.aberdeen. June 2010 • Executing the Project Plan: When Projects Are Your Business. March 2009 • Enterprise Applications: The Cost of Keeping Current…Or Not. For additional information. Research Director. January 2009 • ERP in Complex Manufacturing: Improving Collaboration and Visibility. Aberdeen is uniquely positioned to provide organizations with the facts that matter — the facts that enable companies to get ahead and drive call (800) 456-9748 or go to http://www.

These individuals and organizations share Aberdeen’s vision of bringing fact based research to corporations worldwide at little or no cost.infor. more collaborative relationship with their business software provider. For additional information on Infor: 13560 Morris Road Suite 4100 Alpharetta.8000 Fax: 678. GA 30004 Toll Free: 866.319.000 customers a © 2011 Aberdeen Group.ERP in Complex Manufacturing Page 25 Featured Underwriters This research report was made possible. There is a better way. Infor provides more than Telephone: 617 854 5200 Fax: 617 723 7897 . to find it visit www. Infor software is simple to buy.8682 www. Underwriters have no editorial or research rights. Solution providers recognized as underwriters were solicited after the fact and had no substantive influence on the direction of this report. not revolution. easy to deploy and convenient to sales@infor. and the facts and analysis of this report remain an exclusive production and product of Aberdeen Group. It is software created for evolution.319.aberdeen. in part.244. with the financial support of our underwriters.5479 Telephone: 678.infor. www. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge.

enterprise resource planning (ERP) modules such as accounting and info@plex.8001 Europe: Telephone: 617 854 5200 Fax: 617 723 7897 .plex.aberdeen. and supply chain management (SCM) modules such as supplier quality and traceability.454. Plex Online includes over 350 functional modules to manage operations from the shop floor to the top floor.416160901 www.7539 International: 248. MI 48326 Telephone: 888. a software as a service (SaaS) solution for manufacturers. customer relationship management (CRM) modules such as order entry and © 2011 Aberdeen Group. is the developer of Plex Online. www. For additional information on Plex Systems: 1731 Harmon Road Auburn Hills. including manufacturing execution system (MES) modules such as quality management and machine integration. Inc.ERP in Complex Manufacturing Page 26 Plex Systems..89.