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ERP in Complex Manufacturing

March 2011

Kevin Prouty

~ Underwritten, in Part, by ~


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ERP in Complex ManufacturingPage 2

Executive Summary

Research BenchmarkComplex manufacturers face both similar and at the same time different

challenges compared to other manufacturers. Complex manufacturers mustcontend with a highly engineered environment that requires significantlymore collaboration internally and with customers. Aberdeen's researchconducted among 127 complex manufacturing companies revealed thatBest-in-Class complex manufacturers drive more ERP usage and push IT andbusiness leaders to operate in a collaborative and cooperative environment.The result is a highly flexible and optimized operation that continuouslyimproves and prepares for growth.

Aberdeens Research

Benchmarks provide anin-depth and comprehensivelook into process, procedure,methodologies, andtechnologies with best practiceidentification and actionablerecommendations

Best-in-Class Performance

Aberdeen used the following four key performance criteria to distinguishBest-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 performanceshared 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 thisreport, 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 benefitsof ERP capabilities

Improve remote and / or mobile access to ERP data

2011 Aberdeen Group. Telephone: 617 854 5200This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objec tive fact-based research and

represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc.

and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

www.aberdeen.com Fax: 617 723 7897


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Table of Contents

Executive Summary ....................................................................................................... 2

Best-in-Class Performance..................................................................................... 2Competitive Maturity Assessment....................................................................... 2

Required Actions...................................................................................................... 2

Chapter One: Benchmarking the Best-in-Class.................................................... 4

Business Context ..................................................................................................... 4

The Maturity Class Framework............................................................................ 5

The Best-in-Class PACE Model ............................................................................ 6

Best-in-Class Strategies........................................................................................... 7

Chapter Two: Benchmarking Requirements for Success.................................10

Competitive Assessment ......................................................................................11

Capabilities and Enablers ......................................................................................12

Chapter Three: Required Actions .........................................................................19Laggard Steps to Success......................................................................................19

Industry Average Steps to Success ....................................................................20

Best-in-Class Steps to Success ............................................................................20

Appendix A: Research Methodology.....................................................................22

Appendix B: Related Aberdeen Research............................................................24

Featured Underwriters..............................................................................................25

Figures

Figure 1: Top Business Drivers for Complex Manufacturing ............................. 4

Figure 2: Top Business Drivers Over Three Years............................................... 5

Figure 3: Top ERP Strategies for Complex Manufacturing.................................. 7

Figure 4: Top Challenges Related to Project Management ................................. 8

Figure 5: Process Capabilities...................................................................................13

Figure 6: Organizational Capabilities ......................................................................15

Figure 7: Real-time Visibility from Quote to Cash..............................................15

Figure 8: Tools Used for Project Management ....................................................17

Figure 9: Process Automation for Project Management....................................18

Tables

Table 1: Top Performers Earn Best-in-Class Status.............................................. 6

Table 2: The Best-in-Class PACE Framework ....................................................... 6

Table 3: The Competitive Framework...................................................................11

Table 4: ERP Usage in Complex Manufacturing ...................................................16

Table 5: Measured Benefits.......................................................................................17

Table 6: The PACE Framework Key ......................................................................23

Table 7: The Competitive Framework Key ..........................................................23

Table 8: The Relationship Between PACE and the Competitive Framework.........................................................................................................................................23

2011 Aberdeen Group. Telephone: 617 854 5200



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Chapter One:Benchmarking the Best-in-Class

Business ContextFast Facts

An improving economy, and the view that growth is returning is fueling ashift in business drivers in complex manufacturing. Complex manufacturingincludes Aerospace and Defense (A&D), Industrial Equipment Manufacturers(IEM), capital equipment manufacturers, and some telecommunicationsequipment producers. These types of companies have several commontraits:

Best-in-Class ERPimplementations in complexmanufacturing slash 100%more costs (than all othercompanies):

v 120% more inventory cost High amount of engineering cost and effort in design and installation reductions

Low volume and high complexity of product v 80% more manufacturing

operational cost reductions Companies are consumed by change management

v 150% more administrative Highly iterative and collaborative customer engagement modelcost reductions

Aberdeen's December 2008 ERP in Complex Manufacturing: ImprovingCollaboration and Visibility report showed that the cost far outweighed otherbusiness drivers in influencing Enterprise Resource Planning (ERP) decisions.This trend has continued over the last three years. As Figure 1 shows, eventhough cost was still the number one driver in 2010, managing growth and afocus on customer management show that complex manufacturers see 2011as a time to take advantage of the growth of their customers.

At the same time, they produce100% better schedule

improvements with over 170%

improvement in time to

decision

Figure 1: Top Business Drivers for Complex Manufacturing

"The company needed to keepcontrol of scale and keepcontrol of their business. Thiswas not possible with simplyspreadsheetsThey needed

automated tools for cleansingdata and keeping the businessmovingIt became clear that

the right ERP solution would beimportant to enable thebusiness to meet its goals andgrow.

42%Must reduce costs46%

We need to be easier to do business29%with (improve overall customer30%

experience)

Need to manage growth expectations29%

33%

33%

Must improve customer response time27%

All Complex

ManufacturersInteroperability issues across multiple

17%operating locations 23% ~ David Ginsberg, Vice

President of Supply ChainPressure to innovate to deliver more All Manufacturers19% Management, Sonic

va lue 17%

Manufacturing0% 10% 20% 30% 40% 50%

Percentage of RespondentsSource: Aberdeen Group, February 2011

While compared to all other types of manufacturing, complexmanufacturers have a little more focus on customer engagement. The




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iterative nature of highly engineered products and more project-basedmanufacturing entails significant focus on communicating with the customerthroughout design, production, and installation. But, in the end, cost still

rules the day as the number one business driver and balancing cost whilepreparing for customer growth is a challenge complex manufacturer's facemore in 2011 than in 2008 and 2009.

Looking at it from an historical perspective, Figure 2 compares theresponses regarding the top two business drivers from 2008 to 2010. Notethat cost consistently remains the primary driver. But also note thesignificant shift in customer experience downward in 2009; 2010 is nowhere near 2008 in terms of focus on customer experience, but its headingback in that direction after a hiatus in 2009.

Figure 2: Top Business Drivers Over Three Years

45%Must reduce costs 45%

42 %

36%Need to be easi er to do busi ness with27%(improve overal l cu stom er exp erience) *

32 %

27%Must improve customer response time 24 % 2010

36%

28% 2009N eed to m an age growth expectations 28%

31 %

200819 %Interoperabili ty is sues ac ros s m ul tiple

24 %ma nufacturing locations22 %

0% 10% 20% 30 % 40% 50%

Percentage of R espondents

Source: Aberdeen Group, February 2011

The shift to a more growth-oriented strategy is forcing complexmanufacturing companies to shift strategic actions and rethink theirinfrastructure needs. This report analyzes survey responses from 127complex manufacturers from Aberdeen Group's fifth annual survey.

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). TheseKey Performance Indicators (KPIs) were chosen not only because everymanufacturer should be measuring them, but also because a well executedERP implementation can have a very significant impact on these metrics.Significantly, the divergence in operating results from different levels ofmaturity of an ERP implementation can be seen.




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Table 1: Top Performers Earn Best-in-Class Status

Definition of

Maturity Class Mean Class Performance22% reduction in inventory levels

Our new ERP system allowed

us to reduce stock outs andadmin costs while improvinginventory accuracy and on timeshipments.

Best-in-Class: 97% inventory accuracyTop 20%

3.6 days to close a monthof aggregate

96% manufacturing schedule complianceperformance scorers97% complete and on-time shipments

10% reduction in inventory levels ~ IT Director, small telecommIndustry Average: maker, southeast US94% inventory accuracy

Middle 50%5.0 days to close a month

of aggregate85% manufacturing schedule complianceperformance scorers91% complete and on-time shipments

0% reduction in inventory levels

Laggard: 87% inventory accuracyBottom 30%

7.3 days to close a monthof aggregate

70% manufacturing schedule complianceperformance scorers81% complete and on-time shipments


The Best-in-Class PACE Model

To achieve these types of benefits from an ERP solution, a combination ofstrategic actions, organizational, knowledge and performance managementcapabilities, and enabling technologies are required. These can besummarized as shown in Table 2.

Table 2: The Best-in-Class PACE Framework

Pressures Actions Capabilities Enablers

Must reduce Standardize and Standardized enterprise-wide Integrated ERP modules: Generalcosts streamline

businessprocesses

procedures for order management,procurement, cash collection andfinancial reconciliation

Ledger, Accounts Payable, AccountsReceivable, Fixed Asset Management,MRP, Shop Floor Control, Purchasing,Inventory Control, After Market Service,ECM, CRP, DRP, MPS, Forecasting /Demand Planning, Human Resources,Order Management, ProjectManagement, EAM, Suppliercollaboration / scheduling, Sales and

marketing, product configurator, Payroll

Provide Real time visibility into status of allvisibility tobusinessprocessesacross functionsand

departments

projects and processes from quote tocash

ERP implementation has the continuedcommitment and attention of seniormanagement throughout selection,

implementation and beyondBusiness Intelligence platform and toolsTime to Value was / is measured forWorkflow automation / Businessinitial implementationProcess ManagementFrom summary data, decision-makersEvent Management (Triggers & Alerts)can drill down to transactions that form

the fiscal and operational audit trail Management, BI and others





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Best-in-Class Strategies

We typically see only slight shifts year-over-year in the strategic actions thatcompanies take to leverage ERP towards their business goals. But we do see

some fairly significant divergence between Best-in-Class companies and allother complex manufacturers in how they view ERP and its role in theirstrategies.

Figure 3: Top ERP Strategies for Complex Manufacturing

Streamline and accelerate

Streamline and accelerate 8 0%

8 0%

processes to improve efficiency and

processes to improve efficiency and7 1%

7 1%

[Our ERP implementation] has

provided us with the ability toaccurately schedule materialrequirements as well asaccurately plan for capacity

requirements.

productivity

productivity 6 4 %

6 4 %

Standardize business processes

Standardize business processes 5 8 %

5 8 %Provide visibility to business

Provide visibility to businessprocesses across functions and

processes across functions and46 %

46 %departmentsdepartmentsOptimize the use of current

Optimize the use of current3 6 %

3 6 %

3 6 %

3 6 %

~ Managing Director, Industrialcapacity

capacity4 1 %

4 1 %

Equipment ManufacturerIntegrate disparate enterprise

Integrate disparate enterpriseBe s t- in -C la ss

Al l O th e rs

Be s t- in -C la ss

Al l O th e rs

24 %

24 %applications

applications15 %

15 %0% 20% 40% 60% 80% 100%

0% 20% 40% 60% 80% 100%Percentage of Respondents, n = 127

Percentage of Respondents, n = 127Source: Aberdeen Group, February 2011

Figure 3 shows that the top action among respondents is still streamliningand continuous improvement for all maturity classes. Interestingly, wesee a significant gap between Best-in-Class and all others in their focus onanything related to business processes, including standardizing business

processes. The other key area where Best-in-Class companies focus isconsolidating and integrating disparate systems. Almost twice as manyBest-in-Class companies as other complex manufacturers look at ERP toaddress reducing the number of separate systems they have.

Areas where other complex manufacturers focus ERP efforts over Best-in-Class companies are around visibility into processes and optimizingcurrent capacity. Best-in-Class companies, as we will see when we look atcapabilities, have already provided significant visibility into key businessprocesses. Other complex companies are still moving forward with visibilityas a key initiative, while Best-in-Class companies have already significantinroads there. Also, as to using existing capacity, Best-in-Class companiesare already aligning themselves for growth by using the cash reserves they

have and the credit they have available. So these companies focus ERP ongrowing and planning for growth. Other complex companies are stillrecovering and focusing ERP on planning with what capacity they alreadyhave available.

We now have timely views of

customer and productprofitability based on accuratedata.

~ Executive VP, IndustrialEquipment Manufacturer

Complex manufacturers are not called complex just because they producecomplex products. They also have very complex operations when comparedto other manufacturers. They are multimode in their operations and this




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can cause significant issues when selecting and implementing an ERP system.They typically have a significant component of project-based manufacturingand either need to select an ERP system that supports that type of

manufacturing, customize an ERP system, or support the project-basedprocesses through manual operations. Visibility in processes andstandardization of processes is critical to efficient operations.

Aberdeen InsightsProject Management

Complex manufacturers are unique from other types of manufacturers inthat they typically use multiple modes of manufacturing, like project-based,make-to-stock, assemble-to-order, etc. But a key mode of manufacturingthat is usually the dominant mode is project-based manufacturing, alsocalled engineer-to-order. Aberdeen's recent report, Executing the ProjectPlan: When Projects Are Your Business, December, 2010, highlighted somekey information about how manufacturers view project management.

Figure 4 shows the top challenges manufacturers have in managingprojects.

Figure 4: Top Challenges Related to Project Management

Current standards or best practices3.6not enforced enterprise wid e

Project plans and resource scheduling3.6are not aligned

Implementing effective change3.6management procedures

Inefficient a nd / or manual project3.5manageme nt processes

No real-time visibi li ty into proje ct costs3.4and budgets

3.23.43.63 .8

R ating in Importance

1 to 5 with 1 being least and 5 being most

Source: Aberdeen Group, December 2010

continued




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Aberdeen InsightsProject Management

While many of the same terms come up in project management

discussions as in ERP discussions, note the challenges around changemanagement. Change management is a key area where projectmanagement and ERP overlap. It is an area of significant interest amongstERP vendors and we are seeing more ERP vendors support project-basedmanufacturing, and specifically, change management processes related toprojects.

You can see that several of the tools are inherent to most ERP systems.But typically those tools are not pre-built or configured to handle theneeds of project-based manufacturers. You can also see that complexmanufactures have a greater demand for those tools.

In the next chapter, we will see what the top performers are doing toachieve these gains.




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Chapter Two:Benchmarking Requirements for Success

While the selection and implementation of an ERP system is a life changingexperience for those involved in any company, for a complex manufacturer itcan set the foundation for growth and continuous improvement. Aberdeens

research shows that Best-in-Class companies typically see almost 20%reduction in operational and administrative costs after ERP start up.

Fast Facts

v Best-in-Class complexmanufacturers average 29%higher ERP usage in theircompany than LaggardcompaniesCase StudySonic Manufacturing

v Best-in-Class complexFounded in 1996, Sonic Manufacturing is a turnkey contract partner thatbuilds products for other businesses that do not have the necessarymanufacturing resources. This includes automotive, aerospace anddefense, computing, green technology, industrial security, medicalequipment, biotech, and networking and wireless. With numerous active

clients and over 200 employees, the company has quickly grown over thepast 15 years.

manufacturers are 32%more likely to havestandardized cashmanagement process thanLaggards

v The Best-in-Class are eight-times more likely than

Laggard companies to have

quantifiable metrics for their

ERP implementation

David Ginsberg, Vice President of Supply Chain Management, has beenwith the company throughout this period of growth. About one yearafter the business was founded, the company realized that there weresome things that needed to be done if it ever planned on being anythingmore than a small shop. First was selecting an ERP to implement.Ginsberg said, To manage materials like we do, you need properprocesses. The company needed to keep control of scale and keep

control of their business. This was not possible with spreadsheets. Theyneeded fast access to accurate data. They needed automated tools forcleansing data and keeping the business moving. It was important for the

company to be able to keep track of a large amount of materials that maybe moving quickly through the business. He said, Every part has a sourceof supply, buyer, planner, purchase cost, and lead time attached to it.This becomes very difficult to keep track of without an advancedsolution. Communication between team members was key. It becameclear that the right ERP solution would be important to enable thebusiness to meet its goals and grow.Sonic Manufacturing was looking for a few things when it chose its ERPsolution. These included a low price point, quick implementation, andease of use with easy access to data including integration to third-partysoftware and services. They wanted to make sure that the solution wasfully featured without sacrificing anything else. They needed customreports that could be delivered within minutes. Once they selected andimplemented the solution, the benefits were clear.

continued




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Case StudySonic Manufacturing

Ginsberg states that the benefits Sonic Manufacturing gained from its ERP

implementation are phenomenal. Inventory accuracy is now in the 98%range. The company is now able to bring 1.5 to 2 million parts throughits manufacturing line per week with a staff of 10 in procurement andplanning. This has allowed them to keep over 40 accounts happy. Peoplecan now look at their work and tell if they are doing it right or wrong,which cuts out waste. The ERP solution answers questions quicker,

gives us embedded queries, exports, and custom reporting in minutes,

said Ginsberg. Each part is now easy to track with all the necessaryinformation attached to it. According to Ginsberg, The whole thing

comes together to help us gel as a business. With these types of

organizational, process, and visibility improvements, Sonic Manufacturingserves its customers better, runs more smoothly, and has grown as abusiness.

Competitive Assessment

Aberdeen Group analyzed the aggregated metrics of surveyed complexmanufacturing companies to determine whether their performance rankedas Best-in-Class, Industry Average, or Laggard. In addition to havingcommon performance levels, each class also shared characteristics in fivekey categories: (1) process (demonstrated ability to standardize processesand ERP implementation); (2) organization (executive commitment andassigned ownership of ERP implementation); (3) knowledgemanagement (providing visibility in order to drive decision-making); (4)

technology (effective use of modules of and extensions to ERP); and (5)

performance management (the ability of the organization to measure itsresults to improve its business). These characteristics (identified in Table 3)

serve as a guideline for best practices, and correlate directly with Best-in-

Class performance across the key metrics.

Table 3: The Competitive Framework

Best-in-Class Average Laggards

Standardized enterprise-wide procedures forprocurement, cash collection, and financial reconciliation

96% 79% 64%

Standardized procedures for order management and

delivery across similar businesses within the enterpriseProcess77% 71% 49%

Standardized enterprise-wide procedures for productionplanning and execution across similar businesses

69% 52% 34%




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Best-in-Class Average Laggards

Line of business ultimately owns the success of the ERPimplementation

77% 68% 35%

Cross-functional continuous improvement teams areresponsible for improving operational performanceOrganization

77% 50% 43% Modules Included in ERP Usage:Manufacturing operations are integrated and coordinatedwith customer service, logistics, and delivery organization

v General Ledger

v Accounts Payable72% 52% 46%

v Accounts ReceivableFrom summary data, decision-makers can drill down totransactions that form the fiscal and operational audit trail v Fixed Asset Management

73% 57% 30% v Material RequirementKnowledge

Planning (MRP)Real time visibility into status of all processes from quote

to cash v Capacity Requirements50% 39% 22% Planning (CRP)

ERP Usage: v Distribution RequirementsPlanning (DRP)Average of 12 Average of 11.6 Average of 11.2

modules

implemented1

modules

implemented1

modules

implemented1v Master Production Schedule

(MPS)81% of 75% of 70% of

v Forecasting / DemandTechnology functionalityavailabledeployed

functionalityavailabledeployed

functionalityavailabledeployed

Planning

v Human Capital Management42% weighted 36% weighted 30% weighted v Order Managementaverage of ERP

usage2

average of ERP

usage2

average of ERP

usage2 v Project Management

Quantifiable business benefits resulting from overallimplementation of ERP are measured

v Shop Floor Control

v Purchasing62% 35% 8%Performance

v Inventory ControlTime to Value was / is measured for initial implementation

v After Market Service46% 25% 14%

v Engineering Change1. The number of modules is based on a set of 24 generic modules (see sidebar) Management

2. Calculated as: avera ge number of modules / 24 X percent of functionality usedv Enterprise AssetSource: Aberdeen Group, February 2011

Management

Capabilities and Enablers v Supplier Collaboration /SchedulingBased on the findings of the Competitive Framework and interviews with

end users, Aberdeens analysis demonstrates that very significant benefitscan be gained from an integrated ERP solution, including:

v Event Management

v Workflow Technologies

Quantifiable cost savings and schedule improvements v Sales and Marketing

v Product Configurator Streamlining and automation of manual processes

v Payroll




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Visibility to data and also to business process status, 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 andcontinuous improvement related to ERP

Process

Standardized business processes are the cornerstone for Best-in-Classperformance. Having one set of standard processes makes it much easier tomove continuous improvements throughout the organization. It also allowsfaster analysis of process changes and their impact on overall corporateperformance.

Figure 5: Process Capabilities

Best-in-Class Complex Industry Average Laggard96%

100%

79% 77%71% 69%

64%

52%49%

34%

20%

30%40%50%60%70%80%90%

Standardized enterprise- Standardized procedures S tandardi zed enterprise-

wide procedures for for order management and wide procedures forprocurement, cash delivery / fulfillment across production planning and

col lection, and financial similar businesses within executi on across simi lar

reconciliation the enterprise busi nesses withi n the

enterprise


"ERP was just an IT projectuntil I was told I would beresponsible for its measuredsuccess. Then it became themost important tool I had to

run the plant.

In Table 3 and Figure 5 above, Aberdeen compares the standardization ofthree different groups of processes across the competitive framework:those that are purely back-office processes, those that are more customer-facing (in terms of delivery) and those procedures that relate directly tomanufacturing or production.

If you remember the key strategic actions in Figure 3 above, you'll note thatstreamlining and standardizing business processes were a significant focusfor all complex manufacturers, but especially for Best-in-Class companies.Now looking at Figure 5, we can see the details of that focus. Best-in-Classcompanies already have a significant number of standardized processes,especially in the back office and cash management processes. These cashmanagement processes are usually the first process many companies

~ Plant Manager,

Fortune 1000 MaterialsCompany




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standardize because they relate directly to overall company performanceand reporting.

You will also note that customer management and production planningprocess are heavily standardized in Best-in-Class companies, but to a lesserextent than the cash management processes. That is because as companiesget larger and more distributed, different locations, product lines, andproduction methods necessarily have to accommodate more diverseoperating environments.

Organization

Organizational capabilities are often overlooked in ERP implementations,but it's these capabilities that allow Best-in-Class companies to manage andleverage ERP to its fullest. As you can see in Figure 6, a stark contrast isshown where business leaders are held accountable for the success of theERP implementation. Best-in-Class companies are over twice as likely to

make line of business leaders accountable for the ERP implementation'ssuccess. This leads very quickly to ERP implementations being viewed as justanother IT project by the business managers. One of the quickest hits forLaggard companies to improve the chances of a successful ERPimplementation is to make the measured results of the ERP implementationa high priority goal of all business leaders.

"We measure the success ofour ERP implementation by theamount of time we spend

creating each component ofour business: quote, order, job,PO, invoice. We also considerthe ease of tracking jobs,accounting information,inventory control, andpurchased components. Thefinal factor is time spentmaintaining, training, andprocedural-izing the system andthe personnel required to usethe system.

The second key capability in Figure 6 is around cross function collaborationand coordination. Once again, Best-in-Class companies are heavilycommitted to having both IT and business involved in the selection andimplementation of the ERP system. Having knowledgeable business peopleheavily involved in the selection process tend to lead to selecting an ERPsystem that is more functionally fit for purpose. It also leads to a lot less

finger pointing and a more cooperative implementation environment.

~ CEO, Small Tooling andMachinery for the Packaging

Industry

The other cross-functional capability is continuous improvement. Seventy-seven percent (77%) of Best-in-Class companies measure IT on theoperational impact of the ERP implementation, versus only 43% of Laggardcompanies. Many times, continuous improvement is left to the operationalside of the business with IT playing a supporting role. But when it comes toERP and its impact on operations, it is very important that IT be involvedand be measured on ERP's impact on operational performance.




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Figure 6: Organizational Capabilities

Best-in-Class Complex Industry Average Laggard100%

82%81% 77% 77%

68%

59%

50%43%

35%

20%

30%

40%

50%

60%

70%

80%

90%

Cross functional teams Cross-functional Line of business

o f IT and line o f business co ntinuous impro veme nt ultimately owns the

ind ividuals involve d in teams are responsible success of theboth the selection and for improving operational implementation

implementation of ERP performancen = 127


Knowledge Management

One area where the Best-in-Class outpaces all other complexmanufacturers is in visibility into key processes. An example is the quote tocash process. This area in particular for complex manufacturers is slightlyunique to this industry. Quote to cash in complex manufacturing entails thetraditional cash management processes, but also includes a heavy dose ofproject cost and cash management. Project cash management includesproject budget tracking and earned value tracking. It also must handle fieldservice and implementation management.

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 implementreal-time visibility into all stages of the quote to cash process.

Figure 7: Real-time Visibility from Quote to Cash

7 3 %

Best-in-Clas s All Others

5 0 %4 6 %

3 2 %

2 5 %

5 0 %7 5 %

0 %

From summary data, decision-makers

can drill down to transactions that form

Real time visibility i nto status of all

processes from quote to cash

the fiscal and operational audit trail





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Technology

Since 2006, Aberdeen's preferred method of measuring ERP usage has beenbased on the number of modules implemented in combination with the

percentage of functionality available (from those modules) that is actuallyused. It is interesting to compare complex manufacturing and all othermanufacturing. Table 4 shows that complex manufacturers overall use moretotal ERP modules on average and have just under 10% average ERP usage.Best-in-Class companies go even further with 42% ERP usage against on 37%for all other complex companies.

Table 4: ERP Usage in Complex Manufacturing

Best-in-Class Complex All Complex All Manufacturing

12 modules implemented 11.6 modules implemented 11.3 modules implemented81% 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. The number of modules is based on a set of 24 generic modules (see previous sidebar)2. Calculated as: average number of modules / 24 X percent of functionality used


Aberdeen is careful to distinguish between a module of ERP and anextension. All the modules of ERP use a single data base model.

Integration is built in and there is little or no redundancy of data elements,except where there is a specific need. A module is built with the samedevelopment tools on the same architecture as core ERP. While a modulecan be implemented incrementally, its release cycle is in lock step with theremainder of the core ERP modules.

Complex manufacturers, on average, use more modules and have higher

usage rates of ERP than other types of manufacturers. This is easilyexplained by looking back again at the complexity of these manufacturers

environment.

Multi-mode means they have to use ERP functions that cover all aspects ofmanufacturing, from planning and inventory to project-based functions.Other ERP modules and functions that are only used sporadically in mostmanufacturing companies become mandatory in a complex manufacturer. Agood example of this is an aftermarket service module. Quite a fewmanufacturers will never implement a service module if they are onlymaking components supplied to another company. But a company producingand servicing a large and complex piece of equipment in the field will almostalways implement and use the service module.

"With an ERP system, ourbusiness processes are nowstreamlined, we maintainaccurate inventory, we havevalid projections, engineeringjobs are configured at quotelevel, and all users are pleasedwith daily processes andreports."

~ Leonard Hartka, Director,Sun AutomationMeasuring the Effect of ERP

It is important to note that the benefits of ERP, implemented and measuredproperly, are real and tangible. Table 5 highlights some of the KPIs thatcompanies use to measure their overall performance and the impact of theirERP implementation.




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Table 5: Measured Benefits

Definition of

Maturity Class Mean Class Performance for Complex20% reduction in operating costBest-in-Class:

Top 20% 18% reduction in administrative cost22% reduction in inventory costof aggregate

performance 24% improvement in complete and on time shipmentscorers 20% improvement in manufacturing schedule compliance

13% reduction in operating costIndustryAverage: 10% reduction in administrative cost

Middle 50% 10% reduction in inventory costof aggregate 15% improvement in complete and on time shipmentperformance 11% improvement in manufacturing schedule compliance

scorers

-.0.4% reduction in operating costLaggard:

8% reduction in administrative costBottom 30%of aggregate 0% reduction in inventory costperformance 7% improvement in complete and on time shipment

scorers 7% improvement in manufacturing schedule compliance


Best-in-Class companies come out ahead of all others in every measurablecategory. Critical KPIs like operating costs show a 20% improvement inBest-in-Class companies while Laggard companies actually show a slightincrease in operational costs. On the other hand, administrative costsshowed an 18% improvement in Best-in-Class companies and 8%improvement in Laggard companies. While Best-in-Class ERPimplementations have a pronounced and positive effect on a company'sbottom line, even Laggard implementations show some positive

improvement in certain categories.

Aberdeen InsightsTechnology

Because most complex manufacturing companies have a heavy focus onproject-based manufacturing, project management tools play an importantrole in operating and measuring these companies.

Figure 8: Tools Used for Project Management

65% 68% All Complex61% 55%

51% 49%47%44%

35%28%

20%

40%

60%

80%

0%

Project Document Collaborat ion Workflow Change

Templates Management tools automation Managementtools

Source: Aberdeen Group, February 2011continued




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Aberdeen InsightsTechnology

Figure 8 shows what project management tools are important tocomplex manufacturers compared to other manufacturing companies. Ascan be seen, and as could be expected, complex manufacturers are muchmore concerned about the tools needed to manage projects. Almosttwo-thirds indicate they use both document management and projecttemplates. But around half of the complex companies rely on bothcollaboration tools and some form of change management tool.Many ERP systems have had project management functions, but theytended to be somewhat light and very transaction-oriented. They typicallydon't have templates, detailed resource tracking, or earned valuemanagement. More ERP vendors are now providing more robust projectmanagement tools, but ERP systems still live somewhat in the transactionworld.

Figure 9: Process Automation for Project Management

44%42% 40%B e st - in -C l as s A ll O the rs37% 32%

30% 30% 31% 28%

22% 22% 25%

10%

20%

30%

40%50%

0%

Project Resource / Project Project Time Expens e

Scheduling Workforce

scheduling

Costing Management Tracking trackingand agains t against

Reporting projects projects


How many of these processes are automated is also a consideration.Figure 9 shows that complex manufacturers have significantly higherlevels of automation than the rest of manufacturing. Process automationis what ERP was built for and should always be considered by project-based manufacturing companies.




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Chapter Three:Required Actions

While complex manufacturers operate in an environment of multiplemanufacturing modes, they have the same goals as all other manufacturingcompanies; growing revenue while reducing costs. As with othermanufacturing companies, ERP plays a critical role in providing a foundationfor growth and disciplined consistency in business processes. Whether acomplex manufacturing company is trying to move the performance of itsERP implementation from Laggard to Industry Average, or Industry Averageto Best-in-Class, the following actions will help spur the necessaryperformance improvements.

Fast Facts

v Best-in-Class complexmanufacturers use 15%more ERP functionality thanall others

v The Best-in-Class are 1.5-times more likely to have IT

measured on operational

continuous improvement as

part of ERPMany of the following actions have been consistently appearing in Aberdeenresearch over the last five years. But that does not make them any lesscritical to complex manufacturers that are continuously improving their

businesses and continue to look for innovative ways to operate.

v The Best-in-Class are three-times as likely as all others

measure the success of ERP

through quantifiable business

metricsLaggard Steps to Success

Make line of business own the implementation. ERP

implementations in Laggard complex manufacturing companies tendto drive ERP into the business with a lack of collaboration with thebusiness leaders of the company. Only 59% of Laggard companieshave collaborative teams of IT and business involved in ERPselection and implementations. Only 35% of Laggard companies putownership of the implementation on the business leaders comparedto over 80% in both categories for Best-in-Class companies.

Measure, measure again, and then keep measuring. Throughboth the survey data and case studies, Aberdeen continues to hearand see that ERP implementations struggle as much because of theimplementation methodologies as steering the ship blind. Only 8%of Laggard companies effectively measure the progress and resultsin a quantifiable manner. This leads to false expectations, skepticalusers, and looking at the wrong results. In fact, with only 11% ofLaggard companies actually measuring ROI on ERP implementations,ERP is being set up to not meet expectations.

Standardize on standardization. One of the key strategic

actions that all complex manufacturers are focused on is thestreamlining of business processes. This is tied in directly withstandardizing business processes. Less that 50% of Laggard

companies have standard order fulfillment processes and only athird of them have standardized production planning processes. Thismakes it very difficult to propagate continuous improvement resultsacross the company. It also makes it hard to coordinate multiplelocations and operations in supply chain and procurementoperations.




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Industry Average Steps to Success

Measure just like everyone else. That next step to success for

companies that have average ERP implementations is to keepmeasuring. For example; while almost all average complexmanufactures felt they had achieved operational cost benefits, only25% of Industry Average companies were able to quantify it.Compare this to almost two-thirds of Best-in-Class complexmanufacturers being able to actually measure the impact of ERP onoperational costs. This theme is repeated through out comparisonof measureable ERP impact. To take that next step to improve theERP implementation, Industry Average companies must do a betterjob at measuring and quantifying their ERP impact.

"The entire company relies onthe data in the system andcould not survive without it.We meet most of thebenchmark standards forrunning a system such as fulltop-to-bottom integration,better than 98% inventoryaccuracy, and same-dayshipment for build to stockproduct."

IT must be part of the ongoing solution. When looking at ~ Steve Crow,organizational capabilities, Industry Average complex manufacturersare not that far behind Best-in-Class companies in getting business

leadership involved in and committed to the success of ERP. But theopposite is not true. Only about 50% of Industry Averagecompanies have IT committed to operational improvements relatedto ERP. This tends to make IT view ERP as an IT project. Tobecome Best-in-Class, Industry Average companies must align theultimate objects of IT in the ERP implementation to operationalimprovement.

Senior VP, Life Tech

Continue to broaden and deepen ERP usage. While better

than average manufacturing companies, Industry Average complexmanufacturers must get more out of their ERP system. With thedefined improvements and improved operational performance thatIndustry Average complex companies see with ERP, it only makessense to get as much out of the system as possible. Best-in-Classcompanies have 42% weighted ERP usage compared to 37% usagefor Industry Average complex companies. That means that all thebenefits that have been documented in Table 4 are not reachingeveryone they should.

Best-in-Class Steps to Success

Get more people using it. Even though the Best-in-Class have

significantly more usage of ERP than any other class, it is still only at42% weighted average and using only 81% of available functions.With the incredible improvements that Best-in-Class companieshave seen form their ERP implementations, it is imperative that theycontinue driving ERP throughout their operations. Not doing it is

leaving continuous improvement on the table.

Visibility from anywhere. Best-in-Class companies are slightly

better at providing access to ERP and overall visibility into specificprocesses. But they are actually no better than any other class inusing the internet and mobility for ERP. This limits user access totimely information, slows decision-making, and inhibits continuous




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improvement. Best-in-Class companies can drive more ERP usageand increase access to critical information by pushing out neweraccess technologies to its users.

Aberdeen InsightsSummary

ERP has become and will continue to be the foundation for growth andcontinuous improvement for all manufacturing companies. Complexcompanies need ERP for both its ability to lay the ground work forconsistent business processes, as well as its ability to provide a windowinto the product, operations, performance, and projects. Best-in-Classcomplex manufacturers drive continuous improvement and performanceby taking advantage of ERP's collaborative and disciplined framework.




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Appendix A:Research Methodology

Between May 2010 and January 2011, Aberdeen examined the use, theexperiences, and the intentions of more than 127 complex manufacturersusing ERP.

Study Focus

Responding executivescompleted an online surveythat included questionsdesigned to determine thefollowing:

Aberdeen supplemented this online survey effort with interviews with selectsurvey respondents, gathering additional information on ERP strategies,experiences, and results.

v The degree to which ERP isResponding enterprises included the following:deployed, and the financialimplications of thetechnology

Job title: The research sample included respondents with the

following job titles: C-Level (20%); EVP / SVP / VP (15%); Director(15%); Manager (29%); and staff and other (21%). v The structure and

effectiveness of existing ERPimplementations Department / function: The research sample included respondentsfrom the following departments or functions: corporatemanagement (17%); finance / administration (7%); IT (34%);operations (19%); logistics / supply chain (10%); and other (13%).

v Current and planned use ofERP to aid operational andpromotional activities Geography: The majority of respondents (86%) were from North

America. Remaining respondents were from South America (1%);the Asia-Pacific region (2%); and Europe, the Middle-East, and Africa(11%).

v The benefits, if any, that havebeen derived from ERPinitiatives

The study aimed to identifyemerging best practices forERP

usage in complexmanufacturing, and to provideaframework by which readerscould assess their ownmanagement capabilities.

Company size: Nine percent (9%) of respondents were from large

enterprises (annual revenues above US $1 billion); 39% were frommidsize enterprises (annual revenues between $50 million and $1billion); 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 1,000 employees); 53% werefrom midsize enterprises (headcount between 100 and 999employees); and 29% of respondents were from small businesses(headcount between 1 and 99 employees).




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Table 6: The PACE Framework Key

Overview

Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities,and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined asfollows:

Pressuresexternal forces that impact an organizations market position, competitiveness, or business

operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive)

Actionsthe strategic approaches that an organization takes in response to industry pressures (e.g., align the

corporate business model to leverage industry opportunities, such as product / service strategy, target markets,

financial strategy, go-to-market, and sales strategy)

Capabilitiesthe business process competencies required to execute corporate strategy (e.g., skilled people,

brand, market positioning, viable products / services, ecosystem partners, financing)

Enablersthe key functionality of technology solutions required to support the organizations enabling business

practices (e.g., development platform, applications, network connectivity, user interface, training and support,

partner interfaces, data cleansing, and management)


Table 7: The Competitive Framework Key

Overview

The Aberdeen Competitive Framework defines enterprisesas falling into one of the following three levels of practicesand performance:

In the following categories:

ProcessWhat is the scope of process

standardization? What is the efficiency and

effectiveness of this process?Best-in-Class (20%)Practices that are the best

currently being employed and are significantly superior to

the Industry Average, and result in the top industry

performance.

OrganizationHow is your company currently

organized to manage and optimize this particular

process?

Industry Average (50%)Practices that represent theaverage or norm, and result in average industry

performance.

KnowledgeWhat visibility do you have into keydata and intelligence required to manage this process?

TechnologyWhat level of automation have you

used to support this process? How is this automation

integrated and aligned?

Laggards (30%)Practices that are significantly behind

the average of the industry, and result in below average

performance. PerformanceWhat do you measure? How

frequently? Whats your actual performance?


Table 8: The Relationship Between PACE and the Competitive Framework

PACE and the Competitive FrameworkHow They Interact

Aberdeen research indicates that companies that identify the most influential pressures and take the mosttransformational and effective actions are most likely to achieve superior performance. The level of competitiveperformance that a company achieves is strongly determined by the PACE choices that they make and how well theyexecute those decisions.





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Appendix B:Related Aberdeen Research

Related Aberdeen research that forms a companion or reference to thisreport includes:

ERP in Manufacturing 2010: Measuring Business Benefit and Time to

Value; June 2010

Executing the Project Plan: When Projects Are Your Business; December

2010

SaaS ERP: Trends and Observations; December 2009

Beyond the Total Cost of ERP Ownership, June 2009

Enterprise Solution Strategies: The Value of an Integrated Suite;

September 2009

ERP in the MidMarket 2009: Managing the Complexities of a Distributed

Environment; August 2009

Measuring the ROI of ERP in SMB: Keeping ERP Projects Alive When You

Need Them the Most; March 2009

Enterprise Applications: The Cost of Keeping CurrentOr Not; January

2009

ERP in Complex Manufacturing: Improving Collaboration and Visibility;

December 2008

ERP in SME: Fueling Growth and Profits; August 2010

Information on these and any other Aberdeen publications can be found at

www.aberdeen.com.

Author: Kevin Prouty, Research Director, Enterprise Applications,([email protected])

For more than two decades, Aberdeen's research has been helping corporations worldwide become Best -in-Class.

Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide

organizations with the facts that matterthe facts that enable companies to get ahead and drive results. That's why

our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of

the Technology 500.As a Harte-Hanks Company, Aberdeens research provides insight and analysis to the Harte -Hanks community of

local, regional, national and international marketing executives. Combined, we help our customers leverage the power

of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional

information, visit Aberdeen http://www.aberdeen.com or call (617) 854 -5200, or to learn more about Harte-Hanks, call

(800) 456-9748 or go to http://www.harte-hanks.com.This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies

provide for objective fact-based research and represent the best analysis available at the time of publication. Unless

otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be

reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by

Aberdeen Group, Inc. (2011a)




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Featured Underwriters

This research report was made possible, in part, with the financial support

of our underwriters. These individuals and organizations share Aberdeensvision of bringing fact based research to corporations worldwide at little orno cost. Underwriters have no editorial or research rights, and the facts andanalysis of this report remain an exclusive production and product ofAberdeen Group. Solution providers recognized as underwriters weresolicited after the fact and had no substantive influence on the direction ofthis report. Their sponsorship has made it possible for Aberdeen Group tomake these findings available to readers at no charge.

Infor provides more than 70,000 customers a better, more collaborativerelationship with their business software provider. Infor software is simpleto buy, easy to deploy and convenient to manage. It is software created forevolution, not revolution. There is a better way, to find it visit

www.infor.com.

For additional information on Infor:

13560 Morris RoadSuite 4100Alpharetta, GA 30004Toll Free: 866.244.5479Telephone: 678.319.8000Fax: 678.319.8682

www.infor.com

[email protected]




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Plex Systems, Inc., is the developer of Plex Online, a software as a service(SaaS) solution for manufacturers. Plex Online includes over 350 functionalmodules to manage operations from the shop floor to the top floor,including manufacturing execution system (MES) modules such as qualitymanagement and machine integration, enterprise resource planning (ERP)modules such as accounting and finance, customer relationship management(CRM) modules such as order entry and tracking, and supply chainmanagement (SCM) modules such as supplier quality and traceability.

For additional information on Plex Systems:

1731 Harmon RoadAuburn Hills, MI 48326Telephone: 888.454.7539

International: 248.391.8001Europe: +49.89.416160901

www.plex.com

[email protected]



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