The automotive industry has typically lagged beyond others in the use of ERP systems, particularly for functions beyond accounting or demand management. That is starting to change, with India and China leading the way
When the Ohio-based, plastic injection moulding company, Nissen Chemitec America, began looking for a replacement ERP (enterprise resource planning) system, two requirements topped its checklist. First, the system needed to be attuned to the needs of plastics manufacturers. And second, it needed to be compliant in areas such as quality, logistics, and order management.
“We wanted a system that understood our particular business: if a system didn’t understand the concept of family moulds or multiple cavitations running at the same time, it would have cost us more in terms of efficiency and maintenance,” says Mike Hopkins, production control and management information systems manager at Nissen. “But as a supplier to major automakers, we also had to comply with our automotive customers’ quality standards and business transaction requirements.”
A good EDI capability, for instance, was a ‘must have’. The company’s main automotive customer is the Honda Motor Company of America, which has a high level of EDI usage. And a Honda stipulation is that Nissen must send out an EDI shipment message within five minutes of a truck leaving for one of the three Honda plants that the company serves.
Under its previous ERP system, EDI messages had to be coded manually, and sent by modem–a process which left plenty of potential for error, as well as incurring a cost of between $3,200 and $3,600 a month. And with one of the Honda plants just 40 minutes’ drive away, the shipment could easily arrive before the error was trapped.
After an extensive trawl of the marketplace, Nissen made a surprising choice: the EnterpriseIQ ERP system from the California-based vendor IQMS, a company that it hadn’t previously been aware of. But IQMS had invested heavily in offering automotive-specific capabilities such as EDI and AIAG labelling–even when, as with the in-built RFID functionality, the provision outstrips actual customer usage.
“Once the initial trading relationship is set up, everything after that is fully automatic–full inbound EDI and outbound EDI,” says Glenn Nowak, vice-president of sales at IQMS, adding that over a third of the company’s customers undertake some automotive work, with around 15% being tier ones.
And true to IQMS’s promise, Nissen saw an immediate improvement, with EDI messages being automatically generated as parts were completed and shipped. “We literally turned the IQMS system on and started shipping error free immediately,” says Hopkins. Better still, the costs of sending those EDI messages dropped by 90%, with the error-rate dropping to almost zero.
An historically limited use of ERP in automotive
Yet Nissen’s story is by no means unique. The failure of ERP vendors to address the automotive industry’s logistics requirements has been a source of significant frustration. Even a decade ago, ERP systems struggled to be relevant for automotive manufacturers–not just for OEMs, but even tier one and tier two suppliers. Lacking the facilities to fully cope with such features of the automotive industry as broadcasts, sequenced shipping, EDI and kanbans, their shortcomings forced manufacturers to either rely on niche systems that did offer these capabilities, or to continue to use years-old, homegrown legacy systems.
“The automotive and aerospace sectors have been the last holdouts–the dark continent, if you will–where ERP vendors have been reluctant to tread,” says Farhan Mirza, principal at consultants AT Kearney. Famously, he points out, SAP was replaced by Baan at Boeing because it possessed better engineering change management functionality, and so was more suitable for the sector.
That said, he notes, the ERP industry’s dominant players don’t entirely lack automotive customers even among the major carmakers. Volkswagen and BMW, for instance, were early adopters of SAP, the ERP industry’s 800lb gorilla. And Oracle, the number two player, numbers no fewer than 35 of the world’s top 40 carmakers among its customers.
But these are essentially niche applications, he stresses: traditional ERP stalwarts such as financial accounting, or–moving closer to logistics–application areas such as demand management, spare parts management and procurement support. End-to-end supply chain management, in short, they most certainly aren’t.
“From a supply chain perspective, the coverage of the automotive landscape by the major ERP vendors is very different from their coverage of other industries and sectors,” agrees Rajeshwar Dayal Mitra, head of the supply chain management practice at the India-based outsourcing and consultancy firm Wipro Technologies. “Even among the major players, support for such things as broadcasts and sequenced shipping still contains significant gaps.”
Configurability more than customisation
That said, ERP vendors have been striving to close those gaps. Compared to ten years ago, for instance, out-of-the-box ERP systems now come much closer to being fit-for-purpose for automotive manufacturers.
“A decade ago, self-billing was difficult to manage within an ERP system–and now it’s standard,” says Antony Bourne, global industry sales director at European ERP vendor IFS, headquartered in Sweden, which offers a bundled suite of automotive-friendly applications under the banner IFS Applications for the Automotive Industry. “Likewise, Odette, VDA and AIAG labels: not so long ago, automotive companies had to use a third-party package to print these, and now they’re standard ERP functionality, available out of the box.”
Even so, the industry’s report card still shows plenty of unfinished business. One insight into the adequacy of ERP vendors’ offerings is that best-of-breed supply chain vendors still hold considerable sway in the automotive market.
“Three or four years ago, everybody thought that thirdparty best-of-breed vendors would die out, with the business going to ERP vendors–but that’s not been the case,” says Frank Gesoff, general manager of Barloworld Supply Chain Software, a specialist inventory management and supply chain optimisation vendor, and part of the worldwide Barloworld logistics group.
“In areas such as optimisation, vendor-managed inventories, and collaboration, third-party vendors have been doing a better job than the ERP market–and ERP vendors are either partnering with third-party vendors to provide a solution, or being relegated to providing the transactional layer and framework for those solutions.”
Supply chain planning and execution vendor i2, for instance–recently acquired by JDA–counts a number of the world’s leading carmakers among its customer base, linking the manufacturers’ in-house developed systems to its own specialist capabilities to provide the requisite supply chain functionality.
General Motors, for example, sequences all its assembly plants with i2 software, explains Kelly Thomas, a former i2 executive and now senior vice-president of discrete manufacturing marketing at JDA. Nissan uses i2 software for factory planning and scheduling, he adds, while Honda relies on i2 for order-to-delivery functionality.
“The automotive industry–especially at the OEM level–wants to see a high degree of configurability in the applications that they buy,” asserts Thomas. “They aren’t keen on customisation, but they do want the ability to fine-tune applications to their needs.”
Which, it turns out, has provided profitable opportunities for those second-tier and midmarket ERP vendors who are prepared to put the effort in to develop and support those capabilities.
California-based QAD, for instance, claims the automotive industry as one of just a small handful of core sectors it supports, with 1,100 automotive industry customer sites in over 50 countries worldwide–including seven of the top ten global automotive suppliers.
To develop its well-regarded JIT sequencing capability, for example, QAD worked closely with the European operations of Johnson Controls, with the two companies pooling their expertise to jointly define the solution. Critical to its success: support for mixed-mode manufacture, with manufacturing batch sizes and order lot sizes increasing as demand moves up the supply chain from OEM to tiers one, two and three.
American ERP vendor Infor is another vendor with a deep bench of automotive capabilities. Here, the go-to-market model has been to acquire well-regarded niche ERP and best-of-breed vendors, and bundle the various products together into industry-specific solutions in a way that provides functionality that is both broad and deep.
In the case of the automotive industry, the offering is Infor Automotive Essentials, used by 14 of the world’s top 25 automotive suppliers as well as thousands of other automotive companies around the world. Containing a core ERP offering–Infor ERP LN, the former Baan offering–it includes fully-integrated EDI, materials tracking, logistics management, supplier relationship management and QS9000/TS16949 quality management capabilities.
“We’re winning new business in the automotive sector–even in today’s market,” says Wolfram Schmid, Infor’s Germanybased director of solution marketing for the automotive industry. Analyst group Gartner, he adds, have recently ranked Infor’s ERP LN assembly control capabilities very highly in a survey of the ERP market’s assembly sequencing capabilities.
India and China are moving ahead of the West
What’s clear, though, is that neither the ERP industry nor its automotive customer base can afford to rest on their laurels. ERP vendor IFS, for instance, is seeing a growing interest in what it’s terming ‘project-based manufacturing’, a concept that turns out to have distinct logistics appeal.
“We’re seeing customers increasingly want to capture and track the costs and profitability of particular ‘projects’– customising and shipping a series of vehicles to a particular market, for instance,” says IFS’ Bourne.
Recent customer win Huf Hülsbeck & Fürst, for example, a German supplier of vehicle locks and security devices to OEMS such as Audi, BMW, Peugeot and Ford, is actively using its new IFS system to track the costs and time involved in developing new locking systems, he relates. “If you’ve got a system that can genuinely track those costs, then it’s a better approach than just regarding R&D as an overhead,” argues Bourne.
Cost of ownership is another piece of unfinished business. Despite the progress of recent years, automotive ERP systems remain costly and complex.
“One global tier one manufacturer that we know has 32 separate ERP systems–while another has 80 instances of a single ERP system,” says Steve Keifer, vice-president of industry marketing at EDI and e-commerce specialist GXS. “Consolidation is a huge opportunity–not least because it provides a chance to re-evaluate the entire B2B [business-tobusiness] communication platform.”
Rajesh Murthy, vice-president and global head of the SAP practice at Infosys, agrees. Pointing to one large German automotive client–believed to be Daimler–with more than 200 live SAP systems in use, he sees a sharp distinction between the approach taken towards ERP in the West, and the approach emerging in the East.
“In the West, the focus is on getting value-for-money from what you’ve got. Typically, Western automotive companies have implemented a lot of systems–probably too many–which has led to a complex IT landscape that they are trying to simplify,” he notes.
“In the East–notably in China and India–the approach is more standardised, with a lot more ‘out of the box’ implementations, which helps companies to more quickly adopt best practice as it evolves and changes,” he adds. “This in turn will increasingly make them more competitive than Western manufacturers, who will struggle to adopt the same best practices so readily.”
It’s a view largely corroborated by Junsong Peng, SAP’s Shanghai-based industry principal for the automotive, industrial machinery and component market sectors. Originally, he notes, the Chinese automakers and tier one suppliers adopting ERP–SAP, in particular–were those manufacturers that were foreign-owned or joint ventures. Chery was the first domestic manufacturer to do so, in 2000, followed by Geely in 2002.
“After 2002, there was an explosion of interest, with most of the top 40 Chinese automakers using ERP, with only a small minority, around 15% or so, restricting this use to just the finance-related modules,” sums up Peng. “Today, the range of functionality is very broad, and the implementation timescale has reduced to between six and seven months.”
And while the average implementation still lags behind the West in terms of quality and breadth of capability, the implementation time of around six months that the best of those domestic Chinese manufacturers can achieve is entirely on a par with Western practice.
All of which isn’t without a certain irony. After years of looking to the West for an IT role model, Eastern manufacturers–with greenfield installations and lack of legacy baggage–could well become an ERP role model themselves.
