Friday, April 24, 2009

Streamlining Manufacturing Processes with SOA Frameworks

Streamlining Manufacturing Processes with SOA Frameworks

SOA platforms and frameworks can dramatically simplify the 'default' manufacturing business processes implemented on an ERP system.

Most medium to large manufacturing companies (and many smaller ones as well) use some form or ERP system to help manage the data and processes related to their businesses. While ERP systems have strong transactional capabilities and are good at tracking and storing data, most of them have relatively poor process management capabilities, forcing users to tailor their businesses to the software rather than molding the software processes around what's required by the business.

For example, some of the most popular enterprise ERP systems ship with a rich set of process templates for Dispatch, Invoicing, Production Planning, Logistics, Stock Allocation and several other functions. However, they are designed around the concept of "Separation of Duty," where an assumption is made that every step in a business process may potentially be executed by a different party; in the majority of cases, however, a single person executes a process (for instance, an invoicing process), in which case the process can be dramatically simplified. Moreover, changes to default process templates in the ERP system are difficult and time-consuming, often requiring significant programming in proprietary languages such as "ABAP." Finally, integration with third party enterprise applications remains a significant challenge in the enterprise ERP world.

Enter SOA. SOA platforms and frameworks can dramatically simplify the 'default' manufacturing business processes implemented on an ERP system. In this article, we examine how the world's third-largest distiller, United Spirits Ltd., optimized a number of critical business processes via an SOA framework, saving well over $750,000 in the first year alone. The company in question uses a popular (and expensive) ERP system but the discussion on simplification of the process applies equally well to other ERP systems as well.

Invoicing and Dispatch

The default invoicing and dispatch process implemented over the existing ERP system within the company requires five steps and nine screens for each invoice creation. Designed for generality, where multiple people may be needed to execute separate steps, this process takes 12 minutes per invoice on average. Moreover, significant (and expensive) training is required for each person creating an invoice, making it difficult to scale the invoice creation process across offices located in different geographical locations.

When implemented over an SOA framework, the entire invoice-creation process is reduced to just two steps with two screens, requiring only 2 minutes per invoice. Invoicing data is now entered into customized HTML screens and the SOA framework manages the details of updating the ERP system by making the appropriate API ("BAPI") calls at the backend. The result is a dramatically simplified invoice creation process that requires no ERP-specific training, can be easily scaled across different geographical locations and is over 600% more efficient.

As an example, USL generates over 7,000 invoices per month. With the new, optimized SOA-based invoicing process, USL saves over 150 man-days per month. Moreover, non-tech-savvy personnel in remote locations and factories can easily create dispatch requests and invoices; this was not possible earlier since such personnel had to be pre-trained on the ERP system interfaces -- a difficult and expensive proposition.

Lifting Plans and Bulk Orders

A Lifting plan is an estimate of the sales that will possibly be made over a quarter, half-year or other fixed term. A bulk order is an estimate of what will be lifted in a larger order.

Lifting plans and Bulk Orders are both critical processes in the sales organization of most manufacturing companies. Very often, however, the IT systems of the manufacturer do not support the Lifting Plan and Bulk Order concepts. Even sophisticated ERP systems have inadequate support. For instance, in some ERP systems, the concept of a Bulk Order is tied to a single unit or plant and its functionality is inflexible and cannot be easily customized to match the needs of the business.

SOA technology helps resolve the problems created by inflexible IT systems. It is now possible to create application flows that compare the Lifting plan and Bulk Orders for each salesperson against actual orders, with the results being fed directly to the automated invoicing process discussed in the previous section. Further, the SOA systems enable managers to track differences between actual invoiced orders and the Lifting plan / Bulk Orders for each salesperson, enabling closer monitoring and better tracking of sales and salesperson performance. Benefits include fully automated processes with the Lifting plan and Bulk Order concepts integrated with invoicing and report generation and easy modification of processes without programming.


Manufacturers normally ship goods on a regular basis to multiple distributors mostly via road and rail and sometimes by ship. In the typical case, distributors send trucks to a multiple manufacturing plants to pick up goods. Each distributor has a credit limit with the manufacturer. It this limit is exceeded, an explicit approval is normally required from a company manager to raise the credit limit.

The problem of securing credit change approvals efficiently is complicated due to several reasons: distributor vehicles may arrive at a company's production facilities at night; ideally, decisions on approvals should be made quickly since delayed approvals cause significant disruption and loss of profits for both the distributor and the manufacturer. Unfortunately, even with the powerful ERP systems that most manufacturers use today, the approval process is complicated: company managers need to manually log on to the ERP system to approve credit; bad internet connectivity can often prevent access to central company IT systems from remote locations; plus, the ERP interfaces used are typically poor and difficult to learn, requiring companies to spend significant time and resources in manager training.

SOA applications alleviate this situation by easily enabling approval requests on mobile phones. The initial approval request is processed by an SOA flow and placed on a portal that can be accessed by company provided mobile phones. The SOA flow then generates an SMS (Short Message Service) message that is sent to the GPRS-enabled mobile phone of the manager, who then accesses the secure portal by clicking a link in the SMS. The manager can now approve or reject the request in the portal directly over his/her mobile phone. Once the request is handled, the SOA flow automatically updates the company ERP system at the backend with the approved/rejected notice.

This process of using SOA flows to manage approval requests has several benefits. Managers no longer need to access the company ERP system via cumbersome client applications; all relevant information now available on their mobile phones. The learning curve is much lower, as are licensing costs (since fewer ERP client licenses are needed). There is also a significant cost and time saving for distributors due to faster turnaround times for approval requests.

Order Processing and Stock Allocation

Problems with enterprise ERP systems often have a negative impact on the stock allocation and order processing in a manufacturing unit. For instance, many ERP systems allocates stock immediately for any sales order by default. If orders are processed using the default templates, then by the time one reaches the last order in a batch, one may have run out of stock. Also, orders with higher priority that arrive in the middle of the batch cannot be processed because available stock has already been pre-allocated to previous orders. In such cases, the "rollback" needs to be performed manually -- a cumbersome and error-prone process.

All of these problems make it impractical to enter all orders into the ERP system in a single shot. In the typical case, orders not entered into the system until they are ready for dispatch. The lack of prioritized allocation of stock based on how the company wants to run its business is also a major hindrance.

Enter SOA. Using SOA flows, all orders can be entered into the system as they are produced. The orders are 'held' within the SOA flow while they are prioritized. Additional SOA flows are used to prioritize orders before any stock is allocated to each order. Once the orders are prioritized, a third SOA flow is invoked to pick up an order, allocate stock to it "just in time" and send it for invoicing via the optimized 2-step invoicing process discussed earlier in this article.

The benefits of this approach include, among others, highly flexible order processing tailored to enterprise needs, easier and flexible order prioritization, no manual rollbacks and "Just in time" stock allocation.

New Regulations

In almost any jurisdiction globally, new regulations (especially tax regulations) often have revenue implications for manufacturers. For instance, consider a manufacturer that outsources a task to a third party contract manufacturer (CM). For convenience, the manufacturer instructs the CM to sell directly to and end-user or distributor, collect the revenue and pay the Manufacturer its share after keeping the CM commission.

This process works well as long as there's no change in prevailing tax regulations. If for instance, as was the case in a European jurisdiction recently, the payment from the CM to the Manufacturer becomes subject to a new tax regulation (such as Service Tax), the CM has to deduct the new tax from the payment to the Manufacturer. The Manufacturer thus loses money unless the Manufacturer directly sells to the End-user.

A solution to this problem requires custom business processes to be implemented to "reroute" cash flows to legally circumvent a regulation. Using the previous example, a new business process is required to re-route the payment as follows: Manufacturer sells direct to End-user; Manufacturer instructs CM to dispatch goods to the End-User; Money flows from End-User to Manufacturer and from the Manufacturer to the CM, thereby avoiding the service tax.

Existing ERP systems cannot easily handle process-change-requests such as the above. A flexible SOA system, however, can implement such changes within days if not hours. The benefits include rapid, automated business process changes to circumvent new regulations, leading to added business flexibility and profitability


In this article, we have discussed several real, practical business problems that plague manufacturers every day. All of these examples have been taken from a large manufacturer -- specifically, USL -- the world's third-largest distiller of spirits. By moving to a flexible SOA platform, USL saved over $750,000 in the first year alone (on an investment of less than $200K) by optimizing its Invoicing, Logistics, Order prioritization/Stock Allocation and other processes. USL believes that in the coming years it will save several million dollars a year because of the flexibility of its SOA platform.

Atul Saini is the CEO and CTO of Fiorano Software Inc., a provider of enterprise class business process integration and messaging infrastructure technology.

Inventory Optimization -- It's All About Uncertainty

Inventory Optimization -- It's All About Uncertainty

A multi-echelon inventory optimization solution can drive global supply chains to peak efficiency by recommending precise inventory levels, lot sizes, replenishment plans and locations from end to end.

Every large enterprise today has an Enterprise Resource Planning (ERP) system as part of its core technology infrastructure. A common characteristic of ERP systems is that they manage lots and lots of static details that, once recorded, do not change. When supply chain operations fall under the ERP umbrella, the ERP systems can come up woefully short due to volatility and uncertainty for which they have no solution. ERP systems can only help companies have the right products at the right locations at the right time if supply and demand conditions cooperate by not changing.

In realty, of course, almost everything in the supply chain environment changes all the time. For instance, a transportation problem may trigger the need to find a different supplier or transportation mode, having much the same impact as a sudden labor strike. In fact, supply chains are already stretched to their limits, with factors such as fuel costs, working capital, credit scarcity, global labor rates, raw materials, exchange rates, customer demand, and many others in a perpetual state of flux. The only way to give the supply chain a competitive edge is to augment the capabilities of the ERP system: to monitor and respond quickly to changes in critical supply chain factors.

That's not easy in today's fast-changing economic, regulatory and globalized world. Volatility and uncertainty pummel the network of suppliers, producers, wholesalers, distributors, and retailers that convert raw material to finished products for our homes and offices. That supplier in China may ship you 100,000 units this week, but only 20,000 units next week. That shipment may take 10 days to arrive or 20. Demand can be steady for weeks, then spike or drop unexpectedly, confounding the forecasts and causing excess inventories or product shortages. Businesses are struggling with these issues, and losing the battle precisely because their ERP systems were designed to manage constants but are faced instead with volatility, uncertainty and change.

With Necessity Comes Invention

Technologies such as inventory optimization have emerged that augment and complement ERP systems to bridge the 'volatility-uncertainty gap.' Inventory optimization technology uses sophisticated mathematics to model crucial aspects of supply chain behavior and analyze how different parts of the chain depend on each other. Inventory optimization intelligently quantifies and 'dollarizes' the effects of volatile shipment lead times, fluctuating demand, imperfect forecasts and many other factors. The result is a set of recommendations for inventory levels and policies that minimizes the amount of working capital tied up in inventories while guaranteeing that customer service levels are met.

Managing inventory can be a daunting task for an enterprise with tens of thousands of products that are spread across hundreds of locations. The challenge is even greater when the locations are situated in different tiers or echelons of the enterprise's distribution network. In such multi-echelon networks, new product shipments are stored at a central facility, and then sent to local distribution centers prior to being shipped directly to the customer or store. All locations may be under the internal control of an ERP system that lacks visibility up and down the supply chain and across multiple levels. This system cannot create successful replenishment strategies for multiple echelons.

In this case, inventory optimization complements the ERP system by taking available (and often incomplete or flawed) supply, demand, forecast and production data from the ERP and related transactional systems, and returning optimal inventory targets back, right down to the individual product level. Inventory optimization tools formulate optimal policy decisions and can feed them into the ERP system for execution. To the ERP system it looks just like business-as-usual -- more detailed facts to handle -- because the optimization "magic" was done outside the system, where the factors of change and volatility were transformed into fact-like data the ERP system knows how to process.

With a multi-echelon approach to inventory optimization, demand forecasting and inventory replenishment decisions can be made at the enterprise level. Each echelon has visibility into the other echelon's inventory. The primary customer demand signal and other information at the distribution centers drive the forecasts in all echelons. In each echelon, order cycles are synchronized and replenishment decisions account for lead times and lead-time variations of all suppliers.

The only way to thwart the problems caused by volatility and uncertainty is to gain visibility into all the factors needed to improve inventory decisions across the supply chain. A multi-echelon inventory optimization solution can drive global supply chains to peak efficiency by recommending precise inventory levels, lot sizes, replenishment plans, and locations from end to end -- and help inventory planners decide where and how much stock to maintain to buffer against uncertainties.

For several years supply chain managers at industry-leading companies have been implementing inventory optimization programs to complement their ERP systems. The results are compelling: many have reduced inventory by 20-30%, dramatically improved service levels, and reduced cycle times by 15-20%. At a time of unprecedented uncertainty, it's one fact that has been reassuringly reliable.

Fred Lizza is CEO of Optiant. Optiant provides a robust multi-echelon inventory optimization solution called PowerChain.

Thursday, April 23, 2009

The Competitive Edge -- The Trillion-Dollar Club and the Health of U.S. Manufacturing

The Competitive Edge -- The Trillion-Dollar Club and the Health of U.S. Manufacturing

The United States must take steps now to participate in the high-growth promise of these emerging economies.

The Peterson Institute for International Economics (IIE) has taken to calling six large emerging economies the "Trillion-Dollar Club," as all have, at least before the current recession, passed this threshold in national output. This group of nations -- to which I would add the Association of Southeast Asian Nations, or ASEAN -- is crucial to near-term global economic recovery, to the long-term health of the global economy, and especially to U.S. manufacturing.

Together, ASEAN plus the six -- China, Russia, India, Brazil, Mexico, and South Korea -- account for about 20% of world GDP. Emerging markets grew at an 8.3% rate in 2007, compared with 2.7% for the advanced economies. In contrast to the financial crisis of 1997 when many emerging markets were at the epicenter of the crisis, most of these countries have shown relative stability in the current recession -- in large part due to the lessons they learned in 1997.

Indeed, they could well help lead the world out of the 2008-2009 downturn. China especially has a robust stimulus plan in effect which IIE's Nick Lardy estimates will lead to a bottom in that country's slowdown this spring and a return to as much as 9% growth in the second half of 2009. India, Korea, and Brazil all have withstood the worst of the downturn and, together with ASEAN, could recover quickly if the massive stimulus in the United States and China manages to turn these economies around.

As we look beyond the debilitating recession still plaguing us, the six plus ASEAN will be a prime pillar of growth. The collective GDP of this somewhat artificial grouping is large enough to be an "engine of growth," has a higher potential growth rate than the debt-ridden and consumption-saturated industrial countries, and so is likely to be the primary focus of increased demand for manufactured goods once global recovery begins.

To take advantage of the growth opportunities, however, U.S. manufacturers will have to regain lost market shares both domestically and, especially, in Asia. About 30% of U.S. exports went to this grouping in 2008, but only 18% if free-trade partner Mexico is excluded.

Moreover, we have lost market share in the vital Asian region, primarily to China. Between 2000 and 2008, China increased its exports to other Asian destinations by 400%, while we saw an increase of only 19%. China now has more than twice the U.S. market share in Asia, the fastest-growing and most populous region in the world.

Several steps are needed to promote U.S. competitiveness in these markets. China, Korea, Japan and ASEAN have been aggressive in recent years in building a web of free-trade agreements (FTAs) spanning most of Asia. India is now negotiating entry into this network. At a minimum, the United States will have to find a way to join this free-trade network, or risk losing even more market share. A vital first step is ratifying the U.S-Korea FTA. Our trade with FTA partners is largely in balance.

Additionally, we will have to find a global path to rebalance the undervalued Asian currencies, an action which also will contribute to global economic stability in the coming decades and, hopefully, accelerate consumption growth in Asia.

Finally, in terms of domestic policy, the United States cannot keep undermining the competitiveness of manufacturers by raising taxes, imposing ever tighter controls on the energy economy, and stifling innovation through tighter regulation of private firms.

Dr. Duesterberg is president and CEO of the Manufacturers Alliance/MAPI, an executive education and business research organization in Arlington, Va.

Global supply chains and the CIO

Global supply chains and the CIO

InformationWeek has a very interesting and timely article entitled “Global CIO: Global supply chains and the CIO.” This discussion goes hand in hand with what I’ve been thinking (and blogging) about recently. (See my post last month “The right supply chain management priorities during the downturn position you for future success“) Our natural inclination during a recession is to batten down the hatches and wait out the storm. Stop all spending, suspend projects, layoff anybody not critical to the functioning of the business. The question to ask is “How does this strategy position my company after the recession ends?” Don’t get me wrong. Companies should always be looking at trimming projects, processes and people that don’t contribute value to the organization. Cut out the fat so to speak. However, when these cuts start cutting into meat and bone, you’ve left your company weaker rather than stronger.

In fact, recessions are exactly the time to make careful, strategic investments in your business. In your article, you’ve identified some great areas on which to focus, both for cost cutting and for strategic investment. Some additional areas of investment are as follows;
  1. Implement lean manufacturing: Take apart your processes, examine each piece, identify which steps add value to the customer and which steps are waste. Then you put the process back together, keeping the parts that add value and discarding the steps that don’t. Once you have your internal processes in order, reach out to suppliers and customers to help them improve. Then you continuously improve. Sounds simple but it’s devilishly difficult to do – especially when you are struggling to meet demands. But then again, in a down market meeting demands isn’t such a big issue…
  2. Implement Sales and Operations Planning (S&OP): S&OP provides two key benefits; visibility to demand and supply projections into the mid to long term (typically 12- 18 months) and the ability to bring the various departments together (Sales, Marketing, Supply Chain Management, Finance) to define a plan that all understand and agree to.
  3. Implement a Supply Chain Risk Management process: Companies that have the tools and processes to predict and mitigate risk as well as respond quickly when the unexpected happens will be able to survive a supply chain event relatively unscathed.
  4. Implement tools and processes to help you respond to change: Successful companies have tools and processes that allow them to very quickly react to change and re-align on a corrected course. To successfully respond to changes you need tools that deliver supply chain visibility, provide the ability to simulate changes and responses, enable collaboration with your team inside and outside the company and provide alerting mechanisms to let you know when something has happened.
The interesting thing about these investments is that while they position your company for growth when the recession ends, they also are excellent tools to help you manage your business during the recession. And that can’t hurt.

John Westerveld is a Product Manager for Kinaxis, provider of the on-demand RapidResponse service that empowers multi-enterprise manufacturers with the collaborative and integrated demand-supply planning, monitoring, and response capabilities.

PepsiCo, GlaxoSmithKline

PepsiCo shook up the fizzy-drinks industry by offering $6 billion in cash and shares to take full ownership of its two biggest bottlers. Tighter control of its distribution system will help PepsiCo to ship products to big retailers more efficiently.

GlaxoSmithKline (GSK), a drugs giant, agreed on a $3.6 billion deal to buy Stiefel Laboratories, a dermatology firm. The purchase is part of a strategy to reduce GSK’s reliance on blockbuster drugs by focusing more on consumer health-care products.

Tuesday, April 21, 2009

China cars: Double standards

April 16th 2009
China is the world's second largest car producer, yet its cars are supposedly still not safe enough for western markets. What is going on?

China has overtaken the US as the world’s largest new vehicle market, and is already the world’s second-largest producer of cars. Yet this size appears to mean nothing abroad, with Chinese car-makers not even registering in the world’s dominant three markets of North America, western Europe and Japan. Now, one Chinese car-maker’s renewed – and once again failed – attempts to pass European safety standards are leading to accusations of foul play from certain motoring groups.

A total of 1.1m new vehicles were sold in China in March 2009, a monthly record and far outnumbering the 857,735 sold in the depressed US market. This is now the third month running that China has outsold the US, making it the world’s largest new vehicle market, while it is second only to the US in terms of production. Yet the profile of Chinese car-makers abroad is still spectacularly low, with Chinese brands woefully under-represented in all corners of the world apart from the handful that are very slowly starting to appear in Russia, the Ukraine and a few other Eastern European and South American markets.

Of course, the Chinese market itself is not dominated by domestic players. Germany’s Volkswagen Group is by far the largest seller of cars in China, followed by various Japanese, Korean and US car-making groups, including General Motors, Toyota, Honda, Nissan and Hyundai. If Chinese consumers themselves prefer to buy established, foreign brands with their attractive designs and more sophisticated technologies then what hope do the Chinese manufacturers have in penetrating the sophisticated home markets of their older and more established rivals?

The marriage of Chinese carmakers to Western counterparts was supposed to address some of these issues, by allowing local car-makers to tap into the technological expertise of their more experienced partners. Germany's Volkswagen hooked up with First Automotive Works (FAW) and Shanghai Auto (SAIC), which is also a joint venture partner of GM of the US. Japan's Honda and PSA of France have both joined forces with Dongfeng, while Germany's BMW is in bed with Brilliance Auto. There are countless other Chinese/western car and commercial vehicle making alliances. Yet in reality, the Western brands have benefited more from these alliances in terms of their access to the vast Chinese market than has happened the other way round.

Playing Fair?

Branding and perception issues aside, one of the biggest challenges that Chinese car-makers have is matching the stringent safety standards insisted upon by US, European and Japanese authorities. So far, they have failed miserably in this area. This was exemplified best by the experience of Chinese car-maker Brilliance Auto, which in 2007 was forced to put its European export plans on hold after one of its cars allegedly recorded the worst crash test results in the history of one European motoring association.

The treatment that Brilliance has received ADAC – which is Germany's and Europe’s largest consumer motoring body - has been questioned, however. The video of the disastrous crash test, which was supposedly carried out under Euro-NCAP conditions found its way onto YouTube, thereby ensuring global damage of the Brilliance brand and obliteration of the name in Europe. A subsequent test carried out in Spain which gave the same Brilliance BS6 car three Euro NCAP stars, as opposed to the one star it received in Germany, attracted nowhere near as much attention.

More recently, ADAC subjected another Brilliance car – the new BS4 – to more Euro NCAP style testing. Yet again, the car failed miserably, gaining no stars whatsoever this time, despite the fact that the BS4’s safety credentials were significantly improved on those of the BS6 which was originally tested.

As acknowledged by ADAC, however, the conditions of the new test were somewhat unfair. Although the BS4 was introduced in October 2008 when the old Euro NCAP rules were in place, the car was tested under the brand new, and considerably more stringent Euro NCAP rules. Under the old rating system, the car would have been awarded three stars, the same as a number of other European best-sellers including several Audi, Fiat and VW models.

ADAC’s treatment of Brilliance has led some to criticise it of foul play, even including one leading German business magazine. A lack of electronic stability control (ESC – or sometimes referred to as ESP) on the car, which seemed to automatically disqualify the BS4 from gaining any stars in ADAC’s eyes was judged as particularly unfair. The new Euro NCAP rules actually state that a car without ESP cannot be awarded the full five stars, no matter how well it performs on other tests but not that it should fail outright. More to the point, ESP is not even mandatory yet in the EU, although it is likely to made so in the future.

The fact that the tests were not carried out by Euro NCAP itself raises more questions. Indeed, Brilliance does not feature anywhere on Euro NCAP’s website, leading to suspicions about the accuracy of ADAC’s interpretation of Euro NCAP style testing. Perhaps most ironic of all is that Euro NCAP is not even an official standard, and there is no legal need for a car to pass its tests before it can be sold in Europe.

It is clear that the road into western Europe, not to mention the other difficult-to-crack markets of the US and Japan, is going to be a long and arduous one for Chinese car-makers, and indeed for manufacturers from other emerging markets. National motoring groups such as ADAC with their own agenda and keen to protect the interests of their domestic industries will not be making it any easier. As always, politics are at play here just as much as genuine safety concerns.

On the upside, the initial positive press that other non-established brands and cars have so far gained – notably India’s Tata Nano – suggests that new brands from emerging markets do have a chance of success if the process is managed well. Brilliance itself is not giving up, with the head of its European importer – himself a former VW board member - recently talking up the brand’s imminent European success, not least as it prepares a whole range of models to compete in Europe. With the recession and credit crunch tightening up purse strings in all markets, this could pose an opportunity for lower-cost emerging market brands to strike. But before they do so, they must be armed with a full set of ammunition, ready to fight off their adversaries