Advanced Manufacturing - Manufacturing

Manufacturers that only put corporate brochures online are missing the point, and might miss the boat.

The Internet has forever changed the way that manufacturing organizations do business. The Web's global access to people, data, software, documents and multimedia have allowed organizations to shorten the development cycle for new products, decrease the costs associated with procuring parts from suppliers, and achieve lead time reductions while providing personalized service and support. But achieving success on the Internet doesn't happen without clear strategic objectives and a considerable commitment of resources. Manufacturing corporations involved in e-commerce must rethink their vision for the future, says Richard Mathieu, the author of "Manufacturing and the Internet." His article offers an overview of what leading manufactures are doing online.

The beauty of the Internet is in its simplicity. The Internet is a packet switched network, developed in the 1960s, in which data is broken up into pieces, addressed and numbered, and directed by routers to its destination.

The Internet offers distinct advantages over the traditional telephone system for computer-based communications. First, the phone network is a circuit-switched network where each communication requires a circuit to be dedicated solely to that communication. Circuit-switched networks were okay for phone calls, but aren't efficient when large amounts of data are transmitted.

The World Wide Web has allowed portable, platform-independent, and content-independent applications to be created using the Internet. The birth of the Mosaic graphical Web browser in 1993 allowed a new type of client/server architecture where thin, portable, universal "client" computers were able to access server computers.

This relatively simple technology lets people effectively construct interconnected webs of hyper-linked nodes that mirror the distributed nature of information.

Web technology isn't just a way to publish electronic documents. It is also a way to build networked applications that allow internal and external users to have ubiquitous access to your computers. The implications of this are profound. Web-based client/server applications are now being developed that interactively access databases, pictures, sounds and video. These innovations have substantially changed the capabilities and competencies needed by today's manufacturing organizations.

The Internet and the Web have provided new strategic opportunities for manufacturing organizations.
Information technology is no longer an afterthought in forming business strategy, but must be used to break traditional barriers to business success. The Internet is being used to break geographic, time, cost, and structural barriers.

The tough task for management is to align their business strategies, processes, and information technology applications. In manufacturing, the efficient and effective management, manipulation, and use of information is essential to economic vitality and growth. A competitive battle is being played out against a backdrop of companies seeking to leverage the Web for uses other than simply posting information.

The following three paradigms are designed as a strategic guide to help the manufacturing professional focus on the real issues related to manufacturing and the Internet.

Paradigm 1: Packaging information, providing access to information, and information e-tools are becoming critical differentiators in the customer's purchase decision of manufactured products.

Each manufactured product has an associated set of information related to that product. CAD drawings, inventory levels, production plans, spare parts catalogues, assembly instructions, owner's manuals and the bill-of-material are just some of the valuable information elements that may be associated with a manufactured product.

Manufacturing organizations are looking for ways to reduce distribution costs, speed products to market, and to get the right products to the right place at the right time, price and cost. To achieve these goals, enterprises are rethinking their relationships with customers, retailers and distributors. The more efficient the relationships with partners, the greater the competitive edge these organization's will enjoy. The secret to building this competitive advantage centres on providing controlled access to the intellectual property of the organization.

Product information for customers

Websites can be used for more than simply advertising and selling products to customers. Customers often desire follow-up support for their purchases. For example, Bissell, Inc., (www.bissell.com) a manufacturer of vacuum cleaners, deep cleaners and sweepers, supports their customers with online user guides, a replacement part catalogue, online product registration, and a product accessory catalog.

In the electronics industry, AMP, a leading supplier of electrical and electronic connectors and interconnection systems, uses its website to support its customers, typically design engineers, in the aerospace, automotive, computer networking, consumer goods, industrial, power utilities and telecommunications industries.

AMP (www.amp.com) constructed a custom database that enables information in a product catalogue to be put into a searchable form. A search engine called StepSearch creates each page on the fly, based on the information the customer is looking for. Drawing specifications, product availability, pricing information, a competitor cross reference database, and a technical glossary are also provided to assist the customer with the selection and use of AMP's products.

Information for suppliers
Herman Miller, Inc., (www.hermanmiller.com) a multinational provider of office furniture and services, has developed a web-based "portal" for suppliers that helps users make fast, well-informed business decisions and eliminates multiple points of contact. Herman Miller's extranet, reduces production cycle time and raises product quality by providing suppliers with access to receipt, quality, material inventory, invoice and payment information.

Product information for distributors

Websites can also be used effectively to support an organization's distributors. The Fruit of the Loom's Activewear division is a manufacturer of T-shirts, fleecewear and knit sport shirts in the imprinted sportswear market.

The Activewear website (www.fruitactivewear.com) supports their network of wholesalers by allowing users, typically retailers, to locate specific products in stock using a "Product Locator". Wholesalers are sorted by zipcode to help find products located closest to the user.

Information-based services

It is reasonable to assume that within a short period of time, most major purchases will be accompanied by some kind of Internet-linked service.

Drew Rosen (1997) states that "what counts most is the service actually built into the product -- the way the product is designed, delivered, billed and bundled, explained and installed, repaired and renewed." The value-added customer services associated with a manufactured product will typically be information intensive. One good example of this is the OnStar (www.onstar.com) communications accessory that comes as an additional feature on many General Motors vehicles.

OnStar combines wireless technology with attentive, personal service to bring you enhanced safety, security and convenience. Using a Global Positioning System, satellites are able to locate the customer's vehicle, diagnose the engine, and control minor vehicle operations.

In the computer industry, IBM (www.ibm.com) provides product updates online and computers can be automatically diagnosed and fixed.

Paradigm 2: Deploy packaged enterprise software applications for data and process standardization and integration. Deploy customized Web-based client/server applications to support strategic value-added business processes. Remember that today's strategic Internet application is tomorrow's new feature in an enterprise software package.

According to a 1999 survey by InformationWeek, manufacturing organizations are increasing the share of revenue spent on IT from two percent (1998) to 2.5 percent (1999) and expect 25 percent of their revenue to come from e-business.

Manufacturing companies are deploying information technologies to gain an edge over competitors by reining in costs, assuring quality products, guaranteeing quick product delivery, and improving customer service.

Two technological developments are playing a major role in the growth of information technology in manufacturing organizations:

Packaged enterprise software

Packaged enterprise software includes Enterprise Resource Planning (ERP) applications, Supply Chain Management (SCM) applications, and other pre-built applications, for example, in product data management and capacity scheduling. Enterprise software helps companies establish common sets of data and establish business process standards across business units. Sharing information also allows for coordination of production and customer service across global operations.

One of the most significant technological events of the 1990s was the widespread adoption of ERP systems by industry. ERP vendors SAP, Oracle, PeopleSoft, J.D Edwards and Baan have developed integrated application suites that unite major business process such as order processing, general ledger and production using a framework of applications devoted to finance, accounting, human resources, and manufacturing resource planning. Installation of ERP systems has not been painless.

Failed installations have resulted from the failure of organizations to realize the impact that ERP systems have on people, business processes and procedures. Yet the overall success of enterprise systems in many businesses has been tremendous. One successful example is Meritor Automotive, Inc. (www.meritorauto.com), a large automotive component supplier, who installed Oracle's ERP software, QAD, Inc.'s manufacturing software, MatrixOne Software's product data management software, and Thru-Put Technology's capacity-scheduling system. This set of packaged enterprise software systems has allowed Meritor to standardize and integrate global business processes in the areas of order fulfillment, accounting, production and product design.

Web-based applications

Once companies have built their packaged enterprise systems, the next step is to deploy Web-based applications that present ERP data to internal or external users. For example, Kohler Company (www.kohlerco.com) was able to Web-enable their SAP ERP system so that users in the technical services division could access tactical business information.

Specifically, Kohler created a data warehouse with data extracted from the ERP system. Users can now directly query the data warehouse without having to request the use of a full-time business analyst.

Packaged software systems such as SAP and Oracle are adding Web-based features to their ERP suites. Applications that are ideal for Web-based platforms, however, often pertain to non-industry standard business processes that may be unique to specific organizations.

According to Kalakota and Robinson (1999) Web-based business applications that feed off of existing packaged enterprise systems will fall into three general categories:

Selling chain applications streamline the order cycle by moving information faster among respective buyers and sellers so that buyers can make quicker more confident decisions.

Supply chain management applications streamline the flow of goods from upstream suppliers to manufacturers, distributors and end customers. Supply chain applications must increasingly support the integration of business processes, such as co-manufacturing, co-packing, and collaborative product design, with those of key business partners.

Knowledge-tone applications focus on personalized decision support, modelling, information retrieval, data warehousing, what-if scenarios and reporting.

The objective of these applications is to make effective use of the tremendous stores of data generated by enterprise software systems. The core technologies for knowledge-tone applications are data warehouses that extract, cleanse and aggregate data from multiple operational systems.

For example, Lexmark International (www.lexmark.com) a developer and manufacturer of laser printers, developed an inventory management application that uses a data warehouse of retail sales information to enable executives to refine marketing campaigns, develop optimal pricing schemes, rationally allocate inventory, and proactively schedule factory production.

Customized software applications are often more expensive to develop than packaged software because the software is tailored to the company's specific operations. Many times these higher costs cannot be avoided, because no packaged software exists for the task the company envisions. The capabilities of enterprise software applications, however, are continuing to grow. Thus the warning: today's customized Web-based application may be a feature in tomorrow's packaged enterprise system.

Paradigm 3: Inefficient buying, redundant processes, non-strategic sourcing, and maverick buying are symptoms of poor procurement practices. The ability to tie efficient procurement strategies and business workflow together with robust technology implementation will truly differentiate market leaders. (Kalakota and Robinson, 1999)

Electronic procurement is a broad area that incorporates automation of traditional procurement processes. The ultimate objective of eprocurement systems is to combat high procurement costs and lengthy cycle times to ensure smooth delivery of material and services. The Forrester Research Group estimates that in the U.S. revenue from eprocurement services will grow from $441 million in 1999 to more than $5 billion in 2003.

Online trading exchanges

Web-based business-to-business trading exchanges promise better prices for buyers, more channels for suppliers, and cost efficiencies throughout the trading process. All exchanges will provide requests for information (RFIs), request for proposals (RFPs), auctioning, customer and channel management, and ways to assess participant's performance.

According to the Yankee Group and AMR Research, there are now approximately 500 to 600 trading exchanges. The biggest predictors of success will be the volume of trading on the exchange, the existence of prior business relationships of the participants, and the presence of one or more big named companies.

Perhaps the most visible attempt to consolidate procurement processes is the auto exchange developed by Ford, General Motors and DaimlerChrysler. The goal of the auto trade exchange is to cut costs by streamlining the purchasing process while letting suppliers pocket savings by leveraging the automakers' buying power for additional discounts. The exchange provides the opportunity for suppliers to buy, sell and auction at very large volumes.

Covisint, (www.covisint.com) as the joint venture is now known, will have a potential market capitalization of $30 to $40 billion with annual revenues of about $3 billion.

Buy-side procurement solutions

A buy-side procurement application streamlines and integrates the entire procurement process. It will automate the selection and purchase of goods from the desktop, integrate the sourcing, ordering, and payment process, and will electronically send and receive purchase orders, invoices, shipping notices and acknowledgements.

For example, Lockheed Martin, Corp. (www.lockheedmartin.com), a large aerospace and defense company, has built a Web application called SupplierNet that gives more than 50 business units a central source of information about suppliers and is directly tied to the firm's procurement system.

Texas Instruments (www.ti.com) installed an eProcurement system by Intelisys Electronic Commerce, Inc. that allowed automated procurements so that the purchasing department no longer had to act as an intermediary between buyer and seller. Texas Instruments managers estimate that they are saving about $100 per transaction to manage direct and capital equipment purchases than they would by simply using the procurement features found in their SAP system.

To survive all these changes, manufacturers must implement strategies that:

Richard G. Mathieu is an associate professor of Management Information Systems at Saint Louis University in Saint Louis, Missouri. He has published numerous articles on critical success factors in the development and implementation of information systems in manufacturing. His book, "Manufacturing and the Internet" was honoured with a first place award in the Association Trends 1996 publications contest. You can reach him by email at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .