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IT's in the clouds

By Paul Gander, 27-Feb-2012

Related topics: Supply Chain

Specific IT linking production to the supply chain is no longer a luxury, and no longer just for the largest multi-site businesses. For a small operation, the right system with the right features can be a huge differentiator, helping to open doors to downstream customers.

"For niche providers, access to shelf-space at the larger retailers presupposes a good grasp of your supply chain, with tightly integrated EDI (electronic data interchange)," says Steven Hargreaves, group product director at software and services supplier Solarsoft Business Systems. "We do a lot of work with other sectors such as automotive, and food and beverage is just as complex," he adds. "If you get your supply chain right, there's a huge opportunity to play with the big boys."

But with so many options available, which solution do you pick, and what level of sophistication do you go for? Even for a company with its own IT specialists, the answers are not clear-cut. For a start-up without that sort of expertise, the choices can be baffling.

Nor are these systems only appropriate for dealing with the multiples. Fairfax Meadow is a Derby-based butcher supplying the catering industry with cuts of meat, but it also makes its own sausages and burgers. It installed Microsoft Dynamics AX 4 in 2009, and is now in the process of moving to the latest version AX 2012. It has been helped in this implementation by support partner Columbus IT.

"One of the reasons why we did this, of course, was to give ourselves a competitive advantage," says Tony Carlisle, IT manager at Fairfax Meadow. "There are really two different types of route you can take: the big international suppliers of packages such as Microsoft, SAP and Oracle, and the niche food and beverage packages from UK-based implementers.

"We selected a UK implementer, a branch of an international supplier with a more generic 'portable' package to allow the option of moving to another reseller if something happened to the original."

But as he says, the bulk of his company's competitors have opted for niche solutions. Many of these providers are now well-established, with specific offerings for the food and beverage industry.

"We develop our products in a sector-specific way, attuning them to the particular needs of that industry," says Hargreaves. "This differentiates us from something like Sage or Microsoft, which are generic and would probably need to be adapted." So, for instance, a recipe-based approach taking into account by-products and the need for traceability would be integral to the package.

That said, the big suppliers are not standing still. They are eager to maximise their opportunities among small to medium-sized enterprises (SMEs), not only by offering lower-cost options and faster implementation times, but also by integrating industry-specific features.

Carlisle cites Fullscope process manufacturing software. Over the past few years, Microsoft has fully integrated this into its own system.

"When processing sales orders, stock and purchases, it uses two units of measure, count and catch-weight," he says. "It also handles reverse bills of materials." These, he explains, capture the data relating to a cut of meat which is subsequently broken down by Fairfax Meadow into, for example, a given number of steaks, mince and diced product.

He adds: "When we move to AX 2012, as it has been extensively developed by Microsoft, we won't need those additional modifications to our own software which allowed Fullscope to be extended, with the help of Columbus, to fit our business better."

"Microsoft has developed user roles within its software, where the information displayed on screens is more contextually aware of its users' needs," says Martin Burden, business development manager for Columbus. "To achieve this, Microsoft went into the field to study thousands of people across every imaginable job role and industry to create each persona."

As Fairfax Meadow explains, some companies use a manufacturing execution system (MES) alongside their enterprise resource planning (ERP) software, feeding data back into it. Equipment suppliers can add value by offering this as an option, building from the ground upwards. "But now companies such as Microsoft are starting to put in standard functionality to allow connection to shop-floor data capture devices such as weighing, as a way of linking in directly to MES systems," says Carlisle.

In fact today, this type of on-premise software represents only half the story. Increasingly, companies are considering cloud-based alternatives accessed via the Internet.

Cloud computing

Roman Bukari, who works for California-based cloud computing specialist NetSuite, says: "There's been a dramatic shift over the last few years. The question used to be whether you would even consider putting your business in the cloud. Today, the question is more 'How quickly do I get there?'"

Nor are users restricted to working with cloud pioneers such as NetSuite. Software companies large and small have been falling over each other to offer web-based alternatives alongside their on-premise core offering.

Once up there in the cloud, you could be using either software as a service (SaaS) or a hosted option, though according to Solarsoft, this distinction could ultimately come down to the payment plan. "Hosting is a growing part of our business," says Hargreaves. "The key thing with this or SaaS is that the user does not need to worry about the technology, about servers, about talking to service providers. It can be ideal for SMEs."

Consultant Matthew Stephenson, an associate with Deloitte, adds: "Typically, the more mature ERP products will be more likely to have moved away from a 'one size fits all' approach to one that is more tailored to vertical industry sectors. However, SaaS solutions are developing very fast, and might offer more rapid implementation." They need to be evaluated carefully, he adds, to ensure they meet the user's requirements.

Cutting across all these options is the question of what benefits a given system brings to a specific end user's business, and how those benefits can be quantified. These questions tend to hinge on the single criterion of cost-reduction, says Stephenson, which he calls "a one-dimensional view of the world". Potential flaws include the understatement of costs (particularly implementation costs) and overestimates of savings.

More importantly, this view ignores any strategic considerations other than costs. "How can IT help me form a closer relationship with my customers? Help me innovate and get new products to market more quickly? Expand into new markets? Ultimately, grow market share and revenues, not just manage my cost base? These should be the key questions," he says.

For Fairfax Meadow, Carlisle says: "The justification was that, if we had a more powerful system, we'd be able to put more volume through and increase turnover for the same level of cost. Also, in our industry, customers have developed their systems and are sending orders electronically which, with our system, we can handle easily. Finally, our previous system didn't work well in the manufacturing area, and the current system has powerful manufacturing resource planning (MRP) functionality."

Measuring payback

Solarsoft points out that historically it has been difficult to measure the payback or return on investment (ROI) from ERP. But here, says Hargreaves, the complementary use of MES alongside ERP systems is making a major difference. "Working automatically, MES collects vastly more data than older manual systems," he says. "So it provides a really solid basis for measuring improvement over time. It can include overall equipment effectiveness, which in turn can provide measures such as yield."

Much of this is about having the tools to make gradual efficiency improvements. "The 'Big Bang' idea is no longer seen as being the answer in IT," he says. "It's about incremental changes."

For smaller companies, says Hargreaves, the cloud option may appear the most sensible, since payment is geared to usage. But finance directors tend to look 10 years out rather than five. At that point, he says, the question will often come up: 'Wouldn't it make more sense to buy the software outright?'.

Bukari at NetSuite says: "I love that question. After all, you buy it once, and that's it right? With on-premise, you buy a server, you have to replace it. Last I heard, the IT manager gets paid more than once. There are higher utility bills. Sure, you buy the software once, but then there are support fees."

The purchase and successful implementation of an ERP system, says Columbus, can be one of the costliest, most labour-intensive and stressful investments that a business makes. Whichever route is chosen, it advises, identifying the real costs of the project and budgeting accordingly are of paramount importance.