Cincom In-depth Analysis and Review

Conquering Complexity in RealTime Using Two-Tier ERP Strategies Best Practices of Complex Manufacturers

WHITE PAPER

SIMPLIF ICATION THROUGH INNOVATION®

Table of Contents

Bottom Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Using Two-Tier ERP Strategies to Make ManufacturingStrategic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Conquer Complexity that Can Kill a Company if LeftUnchecked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Aggressively Intelligent in Using Two-Tier ERP for Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Increasing Financial Performance by Capitalizing on the Intelligence and Knowledge of Teams Instead of Relyingon Cost Reduction Alone . . . . . . . . . . . . . . . . . . . . . . . . . . 4

A Passion for Measuring Results and Continually ImprovingIs Engrained in Their Cultures . . . . . . . . . . . . . . . . . . . . . . 5

Has Defined Critical Success Factors for Two-Tier ERPStrategies and Lives by Them . . . . . . . . . . . . . . . . . . . . . . 6

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Cincom In-depth Analysis and Review

Conquering Complexityin Real Time Using Two-Tier ERP StrategiesBest Practices of Complex Manufacturers

By Louis Columbus

WHITE PAPER

1 Conquering Complexity in Real Time Using Two-Tier ERP Strategies

Conquering Complexity in Real Time Using Two-Tier ERP Strategies 2

Opportunities.They’re everywhere. Spot-ting and acting on them takes enterprisesystems that can cut through complexityand allow a business to quickly achieveits goals.

From opening a new manufacturing, distribution or salescenter in an emerging, high-growth region of the worldto outpacing competitors by sheer efficiency and focus, the race is on. Never before has time been so precious aresource, so costly to replace and so absolutely essentialfor capitalizing on opportunities. The old model of inflexi-ble, uncustomizable, slow-to-react ERP systems is quicklygoing away. ERP systems the heart of many complex manu-facturers must be agile; focused on customers; and capa-ble of being quickly integrated to, reconfigured and mostimportantly aligned to strategynot just there to deliverdata-processing dial tones in the form of routine reportsthat reflect the past.

This white paper is for companies that are out to conquercomplexity and become more competitive now.

By concentrating on steps you can take today to transformyour complex business and make it more competitive, responsive and opportunistic your company will more ef-fectively use the ERP systems it has. It’s time to challenge

the status quo and confront complexity for what it isa majorroadblock in your company to achieving its objectives andgoals. And, using two-tier ERP systems to scale globally cansave your company potentially thousands of hours and mil-lions of dollars in lost opportunities.

Here are the best practices that complexmanufacturers are using to get the mostvalue from their two-tier ERP strategies:

1. Using two-tier ERP strategies to make manufacturingstrategic – HP, IBM, Schindler, Toshiba and many othersare doing this with exceptionally strong results. In speak-ing with several CIOs about this strategy, a few have men-tioned the Harvard Business Review article, “Making theMost of Foreign Factories,” by Dr. Kasra Fedrows. Dr.Fedrows has done decades of research on what makesdistributed manufacturing centers globally successful. Hisdefinition of the role of foreign factories is graphicallyshown in the following figure. Source: (Fedrows, 1997). Hehas found several critical success factors that are includedin the framework, which is also included in this white paper.

From nearly two decades of research, Dr. Fedrows hasfound six dominant strategic roles of global factories.From the outpost to the lead roles of global factories, themost critical dimension is access to skills and knowledge.Dual-tier ERP systems are what create lead factories thosethat are delivering innovations in process and productstrategy. And what’s making lead factories possible is thereal-time data delivered by dual-tier ERP strategies.

Bottom LineBecoming more demand-driven, staying focused onemerging markets and attaining higher levels of per-formance all start by using two-tier ERP strategies asfoundations of strategic growth.

The Roles of Global Factories:a Strategic Matrix

Reprinted with permission from "Making the Most of Foreign Factories"by Kasra Ferdows, “Harvard Business Review” March/April 1997. © 1997by the Harvard Business Publishing Corporation; all rights reserved.

2. Conquer complexity that can kill a company if leftuncheck – Complex manufacturers that are attaining best practices with their two-tier ERP strategies are focused on how to simplify every phase of their valuechain. From the upgrading of legacy systems to the real-time integration of information workflows across departments, divisions and global subsidiaries, thesecomplex manufacturers are attaining a very high level of competitive efficiency. Examples of companies in this area include Cisco with its real-time updates onbuild-to-order production workflows, Dell and its highlyintegrated supply chain, Goodrich, Greenheck Fan, Har-ris Corporation, Michelin and others.

From the excellent study, “In Pursuit of Operational Excellence: Accelerating Business Change through Next-Generation ERP,” by IDC Manufacturing Insights,the traditional ERP limitations of complex manufacturersare shown below. Respondents ranked the first, secondand third weaknesses or limitations of their ERP systems.Rank 1, Rank 2 and Rank 3 in the figure below indicatethese rankings.

The top three impediments to getting more value from existing ERP systems include the following:

1. Existing ERP systems are too complex to integrate seamlessly with other existing applications (23.3%).

2. Financial ERP and operational capabilities are weak or nonexistent (20.1%).

3. It’s too complicated and expensive to upgrade (18.4)

It’s important to look behind these statistics to see what’sdriving them.

In many instances, it’s the needs of different departments,divisions and country subsidiaries that are outpacing the centralized ERP systems, and that is a main factor that’sdriving the growth of dual-tier ERP systems.

3. Be aggressively intelligent in using two-tier ERP forcompetitive advantage –Two-tier ERP systems will continue to gain in importance as a means to addressnew market requirements, replace aging legacy systemsthat are losing their effectiveness and support new busi-ness models. Here are how complex manufacturers aremaking two-tier strategies pay by streamlining operationswhile gaining customer insights at the same time.

• By relying on a two-tier ERP strategy, Schindler was able to displace the long-standing rival in Indiaby cultivating a local supply chain. The competitor,who was U.S.-based, was completing sub-assemblywork in the Midwest and shipping components to Indiafor final assembly at customer sites. By using a two-tierERP strategy and sharing a common system of recordthrough Master Data Management (MDM) with its European headquarters, this elevator company wassuccessful in displacing 34% of the low-end elevatorsthroughout southern India.

• HP’s reliance on a two-tier ERP strategy in itsprinter production operations led to innovations in process management and new product develop-ment. What was remarkable about visiting the HP manufacturing plant in Malaysia was how quickly theentire facility could translate little advances in produc-tion processes into cost and time savings. The HPMalaysia plant is well-known for this ability to innovateand educate other manufacturing centers of these advances. Its ability to innovate would not have beenpossible without HP having chosen a two-tier ERPstrategy for its Malaysian operations. Dr. Fedrows hasalso visited this plant and written about it in the article,“Making the Most of Foreign Factories.”

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