Manufacturing Matters, But Who Can Deliver?

Manufacturing is finally garnering its long overdue share of the application software budget, claiming the No. 1 spot ahead of enterprise resource planning (ERP). The primary driver of this rediscovery of manufacturing is the need for asset productivity in an increasingly demand-driven economy in which manufacturing agility, rather than expensive and risky finished-goods inventory, has become the key to delivering the holy grail of the "profitable perfect order."

Put simply, this means getting the right product to the right customer at the right time-and doing it profitably. Much shorter product lifecycles and order lead times, combined with a proliferation of configurations, have made it increasingly expensive and risky to keep inventory of finished goods. With overcapacity in many industries, capital investments haven't been possible to adapt plants to accommodate higher product mix and more frequent changeovers. Manufacturing operations software can help wring the most out of both physical and human assets, and that's why manufacturing software investment priorities have risen so dramatically. Software applications that reduce manufacturing cycle times and change-overs, catch quality issues during production rather than after, support lean inventory management and production scheduling, and keep assets running at their optimal levels will all see an increased level of investment this year.

A glance at the chart below suggests that quality management (26%) and manufacturing execution systems (MES) (25%) vendors will be the primary beneficiaries of the rediscovery of manufacturing, with over 50% of the manufacturing operations budget being associated with these traditional manufacturing software categories.

Manufacturing Operations Software Categories, 2007

However, our research over the last year has revealed a significant change in the dynamics of the manufacturing software market:

• The large automation vendors finally woke up to the fact that they can leverage their global supply chain and services organizations to address the growing need for enterprise manufacturing execution and intelligence software.
• ERP vendors also woke up to their growth opportunity in the untapped market of plant workers (see also "Different Priorities").

As this plays out, automation vendors and pure-play manufacturing independent software vendors (ISVs) are going to have to increase their investments in both functionality and services to support multi-site rollouts, as ERP vendors apply their R&D and marketing prowess on extending their footprints deeper into manufacturing. Paper-on-glass MES (meaning there is little automation -- still paper-intensive), enterprise quality management and enterprise manufacturing intelligence (EMI) are already being addressed by some ERP vendors, and automation vendors are coming to terms with the realization that their biggest competitor may actually be the incumbent ERP.

Despite developments from both of these significant vendor camps, our research also shows that almost two-thirds of the manufacturing investment will be on in-house custom applications development, or on the extensive customization of various manufacturing applications.

In short, it's a market ripe for efficient development of composite applications, and for third-party service providers that can step up to support multi-site rollouts of these composite applications integrated with ERP.

Composite Applications -- Best Of Both Worlds

While vendors from the predominantly Microsoft-based manufacturing operations camp have been busy service-enabling their applications for several years now, the major ERP providers are now seeing service oriented architectures (SOA) as an opportunity to extend the reach of their platforms. Manufacturing operations is clearly in their crosshair.

SAP has the most visible foothold in this area, ramping up collaborative development activities with its growing ecosystem of xMII and Shop Floor Partners to craft composite applications that target not only manufacturing intelligence, but quality, plant maintenance, manufacturing intelligence and lean scheduling (bolstered by their announced acquisition of Factory Logic). Meanwhile, Oracle has made no secret that it is enhancing its already deep manufacturing capabilities. The company is staking its manufacturing operations software claims with tightly integrated and flexibly configurable Oracle MES functionality available in Release 12 of its E-Business Suite. In addition, Oracle's integrated enterprise asset management (EAM) capability is gaining traction with mid-market producers.

Does this mean that the era of pure-play manufacturing software ISVs is at an end? Hardly. Users should expect to see the rapid emergence of a new generation of composite applications designed to be woven into larger SOA frameworks provided by the ERP vendors. With that end in mind, those working hard to deliver a comprehensive manufacturing SOA on Microsoft.NET technologies include Apriso, Aspentech, Brooks Software, Camstar, GE Fanuc, Iconics, Invensys and Siemens. Those working on Java-based approaches include Eyelit, Pavilion Technologies, Rockwell Automation (working with IBM technology to deliver its FactoryTalk services), Starthis and Visiprise.

Quality Management Still A Work In Progress

Traditionally, quality management applications were implemented separately from ERP and MES applications, but today's buyers are adopting a more holistic approach. Merging quality management and production execution applications into a common architecture allows manufacturers to bring better quality products to market at an accelerated pace and create significant cost savings. Yet, narrow organizational focus on compliance has hindered organizations from internalizing "quality and compliance" as natural outcomes of operations excellence. The opportunity is there to have processes in control, eliminate waste and variability, and mind costs at the same time.

Despite the above trend, more mature organizations are shifting from reactive to proactive strategies, viewing "quality and compliance" as a byproduct of operations excellence rather than an after-the-fact auditing competency. But most organizations are still ill-prepared to implement true enterprise quality policies, metrics and management architectures, having dealt with quality for so long as a bolt-on versus an integral element of core business processes. Compounded by the challenges associated with the global nature of supply networks, organizations are encouraged to discern between procedural quality and product quality processes in order to define their boundaries.

Lean Manufacturing: Opportunity And Dilemma

Despite the hype and interest, adoption and penetration of lean practices is not pervasive across all styles of manufacturing. There is still confusion on what constitutes a lean practice, particularly as lean principles are now applied well beyond the four walls of manufacturing. We'd concur that there's broad adoption and penetration of Six Sigma best practices (64% from a recently completed survey on manufacturing operations; see Figure 3) and much activity in value stream mapping (53%). However, from our work with global manufacturers, few of the 43% who claim to be implementing pull-based lean manufacturing techniques using kanban loops, heijunka load leveling and takt times have gone beyond single-site implementations or pilots.

With the enormous interest in revitalizing manufacturing, what's holding back the mass adoption of lean principles? Frankly, few manufacturers have the luxury of low product mix, dedicated manufacturing lines for each product, and the stable demand scenarios around which many of the Toyota Production System (TPS) lean manufacturing techniques were developed and proven.

Many of the simple lean calculation techniques attributed to TPS are inappropriate for most of today's manufacturing realities, but the modified techniques that can help apply lean thinking to today's realities require complex math and sophisticated visualization techniques. These modified techniques can only be scaled to mass adoption using software. Hence the dilemma: Lean proponents brought up on simpler manufacturing scenarios strongly advocate simple manual tools and visualization cues, and find the thought of software for lean abhorrent.

Dedicated lean vendors, such as Factory Logic, Invistics, Pelion and Synchrono, as well as ERP vendors such as Cincom, Infor, Oracle, QAD and SAP, are offering to support CONWIP, flow path management, WIP inventory optimization and pull-based scheduling for today's complex lean manufacturing scenarios. You'll need their help if you want to scale lean thinking beyond pilot projects.

Market Dynamics And Brain-Drain Spark New Approaches

Amidst this backdrop of renewed interest in manufacturing operations, major producers are dealing with aging equipment assets, increased demands on existing production capacity, slender CAPEX budgets, and a retiring generation of seasoned maintenance personnel whose knowledge can't easily be replaced. As such, doing more with less is today's mantra for manufacturers who need to keep their assets running reliably and at optimal levels. This dynamic is forcing an evolution in the way companies approach the asset maintenance and management quandary.

ERP vendors across the board have continued to extend generalized inventory management, resource planning and work order dispatch capabilities to encompass maintenance (and production) operations. This has diminished the perception of incremental value that the stand-alone best-of-breed EAM applications offer for all but the most asset-intensive scenarios. In response to market pressures created by the ERP vendors, the three predominant (over $100 million in revenue) EAM software application providers -- Datastream (Infor), Indus (MDSI) and MRO Software (IBM) -- have, within the past year, merged with other entities.

At the same time, end users are experimenting with new service-based delivery models for maintenance and asset management. This is creating new opportunities for asset providers, specialty software providers of remote asset performance monitoring, condition monitoring, reliability-centered maintenance and third parties offering performance-based maintenance services.

On the pure software side of the equation, keep an eye on advanced asset monitoring, analytics and diagnostic offerings from vendors such as Matrikon, Meridium, OSIsoft and SmartSignal. In the continuous chemical process industries you'll find Avantis (an Invensys company) and Ivara EXP. The tools and technologies offered by these vendors give users the ability to monitor asset health in real time and perform diagnostics based on established operating thresholds and signatures.

Also look to asset providers such as Emerson, GE and Rockwell Automation for service offerings that build on embedded asset health monitoring to provide blanket performance-based maintenance and asset management contracts to end users. Sensors that can monitor asset health and interact with Internet-enabled applications to orchestrate field maintenance activities also are gaining acceptance beyond the oil and gas and refining segments where they originated. This is accelerating the emergence of service delivery management software applications that utilize data from the field to monitor asset health and orchestrate maintenance dispatch activities to widely dispersed, mobile field service organizations.

Going forward, look for unique business collaborations among ERP providers, domain experts like the large automation vendors, specialty software providers and experienced managed services providers like IBM. In the meantime, users should continue to seek approaches that will enable the thinning ranks of maintenance personnel to focus their energies on condition-based preventative activities to improve overall production reliability and asset performance, rather than fighting break-fix fires.