The advent of analytics, mobility and the Cloud is putting tremendous delivery pressure on manufacturing ERP systems. By Mehak Chawla
If there is one vertical that has been there and done that with respect to ERP, it is manufacturing. Today, ERP forms the backbone of a handsome number of manufacturing organizations in India. The numbers say as much. According to industry estimates, 70-75% of manufacturers use some form or the other of ERP. The adoption rate of ERP in manufacturing is 50% higher than the segment with the next highest rate of adoption, which happens to be wholesale distribution.
Let’s put this in perspective. According to Frost & Sullivan, the ERP market in India is estimated to grow at a CAGR of 19.2% to reach $184.7 million by 2013. Manufacturing, as a vertical, stands right at the top in terms of ERP adoption with close to a 40% share in the overall ERP pie, as per some experts, although there are no concrete figures.
Even though the sector is saturated in terms of ERP deployments, that doesn’t imply that things are static. Deployments are picking up in smaller organizations while larger ones are trying to extract the maximum value from their ERP systems.
There is also a drive towards bringing in niche, customizable and process-specific applications and integrating them with the base ERP system. Despite the near saturation in terms of license revenues, there is still a lot of ERP opportunity in the manufacturing domain. The vendors, small and big alike, are looking to capitalize on this potential.
Augmenting ERP
The manufacturing sector has been accorded the status of being the pioneer of ERP implementations in India. Comfortable with that tag, manufacturers are now spearheading ERP expansion. ERP deployments in the sector are flexing their wings, adding modules, deploying additional functionality, broadening user populations, moving on to mobile devices, taking advantage of the Cloud and getting integrated with other in-house systems to drive overall efficiencies.
However, the greater part of this story is being scripted by large enterprises. From a standard ERP implementation, most large enterprises have now matured to the point where they have integrated ‘smart’ machinery and assembly-line sensors into their functionality. These companies are beginning to exploit communication and mobile technologies and combining these with analytics to shorten the latency of decision-making while improving asset availability and output quality. All of this is leading to either ERP modernization or a complete overhaul, as the case may be.
Since the core ERP system has sunk its roots deep into the bedrock of most manufacturing firms, there is considerable innovation and experimentation happening around it. For instance, niche programs, including transport management and shipments etc, are being built around and integrated with the ERP system.
Thanks to technology donning the role of a differentiator in a highly competitive environment, expectations as to what a manufacturing ERP system can deliver have risen and vendors are consequently scrambling to load them with additional functionality. Balaji added, “Manufacturers have also been quick to embrace new technologies within Manufacturing ERP, such as e-commerce/Web stores, RFID-based product visibility, Electronic Data Interchange etc. Support for mobile devices such as Wi-Fi-enabled laptops, tablets and smartphones is an emerging trend.”
Abhay Karhade, Corporate CIO, Bombay Dyeing felt that, with so much data being generated and almost every kind of data being analyzed and pored over, business applications were starting to meld with each other. “ERP, CRM, SCM and BI are all parts of an ecosystem and no application works in isolation.”
In some areas, ERP is following patterns that are in sync with those of other business applications. Cloud deployments and mobility are the macro trends in the application space and ERP in manufacturing is no exception.
The key driver behind this expansion is that manufacturing as a segment often has cubes of data and is forever on the lookout to standardize and consolidate its information pool. As a result, analytics are increasingly coming into close contact with ERP.
The untapped mid market
SMB manufacturers are heavy users of Excel for BI but they are yet to graduate to full blown ERP. What is happening today at these companies is a bit of Google Docs, some Excel and, in some cases, Tally.
ML Girdhar, Partner, Piya Nutrition, a Nutraceuticals manufacturing firm, said, “We have a full solution of Tally that we use for our accounts, ledger, trial balance, payroll etc. Apart from saving us from paperwork and human error, this skeletal ERP also ensures a minimum level of compliance.”
There is, therefore, tremendous potential in the manufacturing SMB sector that application vendors are looking to tap. As a result the market is crowded with on demand, SaaS-based ERP solutions. Sanjay Kumar Pal, Director- Marketing, Microsoft Business Solutions, observed, “For the Indian SMB segment, there has been a constant rise in demand for ERP solutions largely due to the rising demands of manufacturing OEM, competitive pressure to drive operational efficiency and cost competitiveness.”
SaaS-based ERP is emerging as sort of a game changer for the Indian SMB. Cloud adoption is also becoming attractive for mid-market companies and it is proving to be a potent argument for vendors seeking to persuade companies who are in sticker shock after looking at the cost of a typical ERP deployment.
Khorana of Frost & Sullivan agreed, “The large base of emerging enterprises, which were unable to afford an ERP system earlier, are now adopting the application primarily on a SaaS model. The availability of ERP on a Cloud model, coupled with the increasing need to enhance operational efficiencies by integrating business processes and adopting best practices, is resulting in significant traction in the space.”
Global systems, local challenges
ERP customization continues to be the biggest pain point for manufacturers. Global vendors are pushing off-the-shelf solutions, with minimal or no tweaking at all, with a vengeance. Nevertheless, the implementation process often ends up changing the face of the solution that was initially purchased.
That every company has its own unique processes is a fact that applies to manufacturing more than it does to any other vertical. That ensures that no one suite fits all companies and that tailoring often turns into a complicated and expensive job.
Padmanabh of Gartner said, “Customization happens to be the most challenging aspect of deploying ERP in a manufacturing organization. Coping up with Indian localization is also one of the prime reasons for complicated implementations.”
Moreover, although the adoption rate of ERP in manufacturing in terms of licensing seems to have been rationalized, the end user participation remains abysmally low and that is forcing vendors to reconsider their approach. Pal of Microsoft observed, “Even though there has been a rapid growth in the number of SMBs deploying ERP solutions, the biggest challenge is that the solution is still perceived and implemented as a tool for top management.”
Due to this, vendors are being compelled to innovate. For instance, many vendors are working on the visualization aspect of business applications in order to make them more interactive.
Integration and collaboration challenges are also bothering the ERP managers at these companies, since there are a lot of apps that surround the core system and need to be synced with it. There is a greater need to collaborate with various systems including real-time systems, engineering systems, process optimization solutions, vendor systems etc. All these factors are compelling companies to extract greater efficiencies from their ERP.
Consolidation on the cards
The near saturation of licensing revenues for large manufactures, and the opening up of an opportunity in the mid market, is leading to some interesting things occurring in the vendor playbook. Although mega vendors like SAP and Oracle have a strong SMB focus, smaller regional vendors are also coming on strong in the mid market.
There is something for everyone in the manufacturing ERP pie. While the larger vendors continue to target the mid to large conglomerates and enterprises, using enhanced domain specific functionality as their calling card, smaller vendors are focusing on the bottom of the pyramid through pay-per-use models. The vendor focus on Cloud-based ERP offerings is also beginning to clarify. However, experts believe that Cloud ERP for manufacturing may not always be the most viable option because of the customization involved.
Khorana of Frost & Sullivan remarked, “Although the ideal scenario for deploying solutions in the Cloud model would be with minimal customization for a short implementation time, the high degree of variance within manufacturing business processes poses a significant challenge.”
When it comes to the choice of vendor, opinions vary. Niraj Shirgaokar, JMD, The Ugar Sugar Works, declared that he chose SAP primarily because it did not need a lot of customization in order to map onto his processes. “We wanted to integrate the various processes that ran in isolation and chose a standardized SAP ERP solution for that reason,” he said.
Balaji of Ramco was of the opinion that a few smaller vendors were beginning to give the larger players a run for their money. “Customers blame the larger vendors for inflexibility, neglecting customers’ interests and charging enormous amounts of money for their software and services.”
On the other hand, the solutions sold by smaller vendors lack functionality as compared to the established ERP suites and this often tilts things in the favor of the bigger players. “The big daddys win when the customer gets to know that the smaller vendors’ solutions lack the necessary rigor of a large ERP system, lack controls and business process validation. A few small players offer niche solutions to cater to particular functions of the industry. These solutions may not be fitting into the scheme of traditional ERP offerings. In such a case, collaboration between the niche offering and the ERP system are worth considering. Some smaller vendors that have solutions that satisfy rigorous business requirements and, at the same time, are more agile and less expensive, have tasted success in their niche areas,” added Balaji.
Almost all vendors now seem to be offering a strong basic functionality for manufacturing. However, the main functional differentiators between tier 1 and tier 2 vendors can be found when analyzing advanced manufacturing processes such as Engineer to Order (ETO) and process management of verticals with complex activities.
According to Vengadam of IFS, “While the applications developed by the small vendors offer some specific part of the solution, they don’t offer comprehensive coverage for all aspects of the business.
Apparently, the senior management of manufacturing companies are opting for global ERP applications as these are perceived to come with minimal customization and provide the benefits of best practices.
The vendor scenario is expected to witness some degree of consolidation. Bhattacharyya of Oracle said, “The acquisition of smaller vendors with niche solutions by market leaders could be a trend in the near future.”
Surround ERP
ERP has steadily evolved over the years to become the backbone of the manufacturing industry. Even so, there is a lot of noise that is being created around traditional ERP. Be it the addition of newer modules or modernization of the system to accommodate the wave of analytics and mobility, ERP is constantly evolving. As Karhade said, “ERP systems are undergoing a constant upgrade.”
Demand for ERP from SMB manufacturers is going to grow and a robust replacement market exists in larger enterprises. The ERP market is also expected to undergo a metamorphosis of sorts. Monolithic servers will be replaced by flexible, collaborative and easy-to-use Cloud offerings that will be light on the pockets of the customer as well. The road ahead for ERP in manufacturing will be landscaped around the Cloud, mobile and social applications.
So far, traditional enterprise systems have been plagued with problems of perpetual upgrades. The customers also felt that they were handcuffed to one vendor, while the enterprise applications themselves were never fully utilized. Customers are pointing a metaphorical pistol at the heads of vendors whose developers have to deliver. This is resulting in innovative stuff coming to market. For instance, SaaS solutions in the market are virtually eliminating maintenance fees, implementation time lines and the costs associated with both of these. The adoption of such solutions is already seeing traction. “Today, over 4,000 users run their mission-critical applications on Ramco’s Cloud, which provides them with anytime, anywhere access,” revealed Balaji.
Analytics is the other big trend that is molding ERP for this sector. Real-time information needs are demanding more agile core systems and ERP is slipping into a new avatar. By 2015, 20% of all ERP users are expected to use mobility for full-fledged access to the application. Innovative apps for mobile devices and tablets could be a burgeoning trend in this space. The future for ERP in manufacturing is going to be social, mobile and collaborative.