Radical evolution ahead for ERP/MRP solutions

SUMMARY:

Rampant change in what has been a steady part of the enterprise brings fresh challenges for ERP/MRP. This is one panel’s analysis

SuiteWorld-panel
SuiteWorld Panel – 2015 – photo by Frank Scavo

I was recently part of an analyst panel at the NetSuite SuiteWorld event. Our task was to discuss the future of manufacturing as it enters the “Fourth Industrial Revolution”. My colleagues included Ben Kepes, Estaban Kolsky and Ben Roepke.

The points raised by the panel have some far-reaching implications for the application software space. A sampling of these included:

  • Industrial revolution waves (like Manufacturing itself) have always followed changes in power/utilities. The first wave required manufacturers to locate adjacent to moving water sources to power water wheels and move machinery. The second wave used steam power to drive the wheels of production. Steam power gave some manufacturers the ability to locate their plants away from rivers and closer to customers as long as there was plentiful coal, wood or oil nearby. The third wave was propelled by electric power grids. In that generation, manufacturing could be anywhere where producers could tap into the grid. And, now, companies are seeing a different ‘utility’ driving the creation of goods: the cloud. Now, while cloud computing differs from an electrical utility, it does provide the power of vast computational, storage and analytical tools that permit firms to design, make and price goods better than ever. It also provides a networking ability that permits firms to co-design and co-innovate with customers, engineers, freelancers, creative types and more as long as they have reliable access to an internet connection.
  • For the production of many repetitive goods, 3-D printing will absolutely upend what we believe manufacturing to be. If you were to open an automotive assembly plant in the next few years, you might not need all of those tier 1, 2 and 3 suppliers. Nope, you’d have a building adjacent to your assembly line that would contain hundreds of 3-D printers. As soon as you could design a car and its components, you could make them. Who would need JIT, transportation management, inventory management, Kanban, etc. in that world?
  • 3-D printing also makes us re-think what it is that a manufacturer will actually produce. In the future, a great manufacturer may be a company that can develop brilliant product specifications and designs. Customers will need to license these specs so that they can print them at their home, office or assembly facility. ERP/MRP software will need functionality to track, monetize, license and manage intellectual property. All that logic to handle raw material supply chains, inventory movements, cost accounting, etc. would be irrelevant. What will be needed is more of the functionality that a movie studio uses.
  • The transitions from third to fourth generation manufacturing will be messy. The changes will be profound and not necessarily hit all products, industries and manufacturing methods equally or at the same time. For example, companies that prepare and package food may be minimally impacted while firms that are in the casting and forging space could be in for a shock.
  • IoT (Internet of Things) and the massive amounts of data it brings will make old school ERP immediately seem obsolete. A couple of years ago, I saw a mid-market manufacturer using point-of-sale data to optimize their production and product mix. They couldn’t do this analysis in their ERP software so they acquired an in-memory cloud tool to put their point of sale and ERP data in one place. Bolt-on solutions will never be as cost-efficient, real-time or valuable as a product that is an integral part of an ERP solution. It’s time for ERP vendors to retool their product line to run in a cloud, with in-memory technology, etc. A flat file or RDBMS ERP is looking pretty long in the tooth these days.

So, what’s an ERP vendor to do?

Mfging-plant
Quiet manufacturing plant – photo by Brian Sommer

This is a time for ERP software vendors to do some particularly solid strategy work. They should:

  • Convene focus groups of manufacturing executives, technology innovators, etc. The purpose of these focus groups are to brainstorm and develop alternative scenarios that might unfold in the market and determine the timing, probability and leading indicators pointing to the forthcoming shift in production methods.
  • Determine what new functionality manufacturers will soon need. Interestingly, all of the prior methods, tools, etc. will continue to be of value to a smaller group of companies but what else will be required? For example, think about the 4th generation manufacturer above that licenses designs for its products to be made on 3-D printers. Does that manufacturer/designer face product liability issues if a customer uses sub-par materials in their 3-D printer? How does this licensor of designs protect their firm?
  • Dramatically reduce the cost of IT for those manufacturers that will face competition from alternative production sources. If anything moves ERP/MRP to the multi-tenant cloud world, this has to be the driver. Manufacturers will need to reduce the cost of many back office functions and technologies to new lows in order to remain competitive. The days when manufacturers could afford the luxury of having their own data center are coming to a close. For a space that has so powerfully learned the lesson of economies of scale, manufacturers must now embrace the scale benefits of cloud providers to reduce their IT cost.
  • Seriously rethink what cost accounting and sales look like in the 3-D printer world. When parts have virtually zero labor costs included, virtually no scrap or rework, what is left for cost accountants to quantify or do? There may only be two costs that matters and that’s the raw material for the printer and electricity. The opportunity to be more efficient than a competitor may be lost. So, how will manufacturers compete in the future: cost (no), quality (no), service (possibly). In fact, great manufacturers will need capabilities to generate product as close to the point of need as possible, make it on-demand and deliver it right away. This reduction of the conversion cycle will impact sales forecasting, production scheduling and other functions immensely. Will the software evolve accordingly?
  • Rapidly develop a game plan for the use, acquisition and deployment of big data. The time for talking about in-memory, IoT and analytics is over. This is the time to find an ERP vendor that gets fourth generation of ERP. It’s also time to acquire new skills in statistics, social sciences, analytics, etc.

Well, let’s see which vendors and companies are in this race and who’ll be left curbside…

Disclosure: NetSuite is a premier partner at time of writing and covered most of the author’s T&E for attendance at SuiteWorld.

Image credits – as noted in captions.