In the wonderful story of Alice in Wonderland, as Alice faced a critical fork in the road she asked the Cheshire Cat for directions. The famous response is as applicable to businesses today as it was then to Alice. "The road you take depends on where you want to go. If you do not know where you want to go then the road does not matter." For a manufacturing company the pressure for profits has never been higher. Business people are inundated in every business newspaper and magazine with a plethora of three-letter acronyms with the promise that this is THE way to sustained profitability. MRP, JIT, MES, ERP and TQM are just some examples, and now everything seems to have picked up a prefix of "e."
The advertising on television, radio, and newspapers declares that the world has entered a new age -- the age of "e" and the goal is to become an e-business. Significant confusion exists as to exactly what this means for the manufacturing business. Many businesses worry that they are falling behind in this e-age and they may never catch up. As soon as a new system is purchased, that technology is replaced by newer technology. While waiting for technology to stabilize a company can fall further and further behind. However, clearly with the recent failures of all the dot com companies, technology may be necessary but is not sufficient to ensure long term success. In this fast-paced hyper-competitive world, resources are getting scarcer and companies can't afford to make a mistake. So what can a manufacturing company do? Is e-business the goal? Do I need to replace everything I have done so far? Exactly, how does a company become an e-business? How will that provide a competitive advantage?
Like Alice, the first step is to clearly understand and articulate the desired destination. In the early 1980s Dr. Eli Goldratt wrote the now famous work for the manufacturing industry, The Goal. In it, he asserts that the goal of most companies is to make a profit now and into the future. Merely making a profit this quarter by manipulating the financial statements with short-sighted decision is not in alignment with the true goal -- quarter by quarter improvements in revenue and real bottom line results. Last year, Dr. Goldratt, in Necessary but not Sufficient with Ptak and Schragenheim, asserts that technology is necessary but not sufficient to achieving that goal of sustainable competitive advantage. Sustainable competitive advantage for the manufacturing company is when their product and service provide a solution for the customer. Worldwide the market has been moving from a product focus to a solution focus. Customers only care about their business or personal situation. When a supplier can provide a real solution to a real problem, that solution has value for the customer. Successful manufacturers worldwide are moving from touting features and functions to the customer and now position their product as part of a complete solution. Companies continuing to compare only product features and functions quickly discover that they face extreme downward price pressure, as their customers can easily compare their products to their competitor by leveraging the Internet. Developing that solution focus is not a trivial task. Defining that unique value proposition requires the focus of the entire executive staff to fully exploit the unique capability of the manufacturing company to define an offering that delivers real value to the market. Once this value proposition is defined, this becomes the focal point or goal for the entire company.
To truly achieve competitive advantage, a company must identify and exploit the constraints that are limiting its ability to achieve that goal. The constraint can be physical -- like a machine or work center -- or process oriented -- like the order management systems. In either case, the focus must be on how to integrate strategies relating to people, processes, and technology to drive real value to the bottom line -- now and into the future. This kind of sustainable competitive advantage has a name -- e-business. E-business is not just about a new acronym or the fastest and latest technology -- it is about real business. The best description came almost five years ago from another business visionary and chief executive of a manufacturing company, Lou Gerstner, CEO of IBM. He stated that "the new mantra is growth -- globalization, cycle times, speed, and competitiveness. What we keep saying is that e-business is not a technological change. It's a fundamental change in the way that business will be done -- aided, abetted, supported, and enabled by technology." The rest of the world is coming to realize how accurate Mr. Gerstner's prediction was.
An e-business is an organization that connects critical business systems directly to their critical constituencies (e.g., customers, employees, vendors, and suppliers) via intranets, extranets and the World Wide Web. This does not mean that the manufacturing company needs to throw away everything it has done and start all over. E-business is about leveraging what has already been done and taking it to the next level of providing value. Inherent in that connection is a win-win value proposition for both parties. This is because only when a win-win value proposition is present can a real sustainable competitive advantage be realized. The early adopters of this approach have helped defined a proven path for becoming an e-business. (Note: Check the Related Info column for case studies of other manufacturing companies who have successfully followed this approach.)
The ten steps that every manufacturing business must consider on its road toward e-business are:
Step 1. Plan for change.
Only one thing will not change in the near future and that is change itself. Just as tremendous change has already occurred in the last decade, the experts and futurists tell us that even more is to come. They project that we are currently in a disruptive change as significant as the Industrial Age. Available technology seems to be changing on almost a daily basis. Product life cycles are declining at an incredible rate.
At the same time skilled IT resources are becoming increasingly scarce. One study showed that over 20% of all potential IT jobs worldwide will go unfilled due to lack of available skilled resources. With all these changes in technology and applications, why would you want to waste valuable IT resources rewriting and debugging applications simply because the operating system has been revised? Why would you want to limit yourself to a single operating system that potentially could limit application choices in the future? Would it not make more sense to select a technological infrastructure that can morph with the state of the art applications and not require a major rewrite? Why not have a single server that is capable of running multiple operating systems simultaneously?
The visionary professionals who choose the IBM iSeries are already ahead of the competition. This unique platform supports applications written back to the days of the System 32 to still be run without modification on the most modern 64 bit model 840. The robust nature of OS/400 ensures that the programs run on the new server just as they ran on the older box without spending numerous hours reprogramming. In addition, with the technology independent machine interface (TIMI) functionality of OS/400, multiple operating systems like Linux, Unix, and all Windows-based applications can be run simultaneously on the same machine. The iSeries acts as a storage area network to these self-contained "servers" running native AS/400 legacy applications, Java, Websphere, Domino, Windows 2000 applications, AIX applications under PASE, and of course Linux. This incredible server can also share the database across these servers including updating among all the above functions (except Linux). This flexibility provides a unique capability to the IT department to respond to change. This unique server also provides the capability to dynamically partition the processors to shift between these self-contained "servers," as the load requires.
Step 2. Manage the performance of all your systems, networks, and applications -- as a single enterprise.
Early in the days of computers in manufacturing, the computer-aided design (CAD) systems could not directly connect to the computer-aided manufacturing (CAM) systems or to the programmable logic controllers. Various standalone systems were used on the shop floor and frustration reigned supreme as these "islands of automation" limited the company management's ability to access information. Simply getting a status of where an order was on the shop floor required manual expeditors to go look -- even with all the sophisticated technology in the equipment.
Similarly, today, there are clusters of servers dedicated to the Unix platform for web serving, others dedicated for the Windows-based applications (with backup servers for each application), and still others dedicated to mission critical business systems. Each cluster has its own management team and issues. The fast paced e-business world demands that information must flow seamlessly between systems and have these systems managed as a single enterprise.
The introduction of OS/400 V5R1 revolutionized the management of these islands of servers. With the high speed loop (HSL) capability and "storage virtualization," a series of Windows based servers can be linked at buss level communication speeds into a single IBM iSeries machine. The iSeries serves as a powerful yet cost efficient storage area network (SAN) and provides the "adult supervision" for the Windows servers. Fewer servers are needed since the data are stored on the iSeries server with its robust and secure management system while the processing occurs on the Intel processor. This configuration allows the automatic fail over of one Windows box to another such that the end user is unaware of any failure. In addition, the Windows servers can be rebooted remotely through a WAP enabled cell phone, wireless PDA, or other such enabled device. The days of returning to the office to perform system management are over when the iSeries is used to consolidate and manage other servers. Since fewer servers are needed, the storage is centralized on the iSeries, and the ease of system management, total system costs are significantly reduced in this configuration. (Click here for an example.)
Step 3. Overbuild for traffic.
A recent UPS commercial shows a dot com startup company management team as they receive their first order on their website. Quickly the order counter increases to 100, then 1,000 and then to tens of thousands. The dot com management team quickly realizes that they have a significant problem since they have insufficient logistics capacity to handle that volume. In the same way, as a manufacturing company moves to becoming an e-business, extreme volatility is experienced in transaction loads on their servers. Just as any good manufacturing manager would not purchase excess production capacity before it is needed, it does not make good business sense to purchase all the computing capacity one could potentially need in the beginning and all at once. Smart business people prefer to have capacity on demand available when needed and only pay for what is needed when it is needed. Since the availability of the server equates directly to the availability of the company, taking a server down to reboot to engage the capacity on demand feature is unacceptable. This capacity should be available on the fly as required.
Recent technological advancements supported by pricing structures has made dynamic capacity on demand a reality with the IBM family. A company can choose to pay for only that capacity they use during the month similar to the phone bill or other utilities. Another option is to bring capacity on line as required and pay for that addition when it is made. Unlike much of the competition, these servers do not need to be rebooted to activate this additional capacity. The expectation of high availability is a reality with the IBM family.
With the advanced operating system of the iSeries additional flexibility is possible. What other server in a single non-clustered system can install (and properly manage and make use of) 128GB of main storage and 18.9 TB of disk -- all without a person dedicated to such tasks. This self-managing server also has additional flexibility with its ability to dynamically change the processing power of the logical partitions (LPAR). For example, if the Linux partition experiences heavy loads during the day but light loads during the night and the Domino partition is the reverse, the same processors can be dynamically and automatically reallocated to reduce the amount of processing capacity that has to be purchased to support the operation. This can result in significant cost savings, as the processors are more fully utilized 24 hours a day. When you consider this is all running on a system that is fully 64-bit (hardware, operating system, database, applications, Java, PASE) and in its seventh generation of 64 bit, it is not surprising that companies with demanding requirements demand the IBM iSeries.
Step 4. Identify all key subprocesses.
Technology can only provide real bottom line return if it removes or expands a limitation that the company is facing to achieving its goal. The lesson of prioritizing and managing to bottlenecks was learned in the physical world of manufacturing. The same rules apply to the holistic world of managing the enterprise. If the business improves anywhere else but the bottleneck, then the investment cannot drive a bottom line return since no additional throughput will be achieved. This is exactly the same as the manufacturing approach. However, synergistic with the use of technology are business rules and subprocesses that must be addressed to be able to fully exploit that new capability. Simply implementing software without addressing the business rules and subprocesses is a guarantee for an expensive failure. Too many companies have purchased and implemented powerful (and expensive) software only to find that what they implemented looks exactly like how they did business before.
New software typically provides capabilities that the company did not have before. However, bottom line return is not possible unless the company exploits those new capabilities. In an ongoing company, though, certain business rules were developed (either formally or informally) that allowed the business to succeed without those capabilities. Unless and until those business rules are changed, the new capability of the software cannot be exploited to benefit the enterprise. Similar to value engineering a new product, taking a holistic view of the enterprise is needed to be able to take full advantage of the new capability that the hardware and software offer.
Step 5. Customer knowledge is everything on the web.
The new gold standard for an e-business is customer knowledge. As more companies embrace technology, customers are increasingly demanding highly customized and personalized interaction. Customers do not want to be treated as faceless replicas. On the other hand, customers do not want choices either. They want what they want, when they want it, and how they want it. Simple, right? WRONG!
This is a big shift from the last decade where the focus was internal to the company. Most manufacturing companies focused on how to become more efficient and reduce cost. This is the promise that ERP held to the market -- integrate your internal business functions and reduce costs. Some of the early adopters did achieve tremendous bottom line return. Upon examination these were very large, very divisionalized companies where a constraint to profitability was the lack of real time information across the enterprise. Since this is the core capability of an ERP system, it is not surprising that these companies drove significant cost reduction with the implementation of ERP. However, very few companies can achieve a significant bottom line return simply by focusing internally. This is exactly the reason that ERP failed to gain large market share in the small and medium sized manufacturing companies. They do not have the same difficulty with information and business function integration as the large companies.
However, competitive advantage can be achieved for a company of any size when the enterprise extends beyond its four walls with a unique win-win value proposition that solves the customer problem. To be able to identify and solve a customer's real business problem, extensive customer knowledge is required. This means that the internal business management systems must be extended with supply chain (SCM), business intelligence (BI), customer relationship management (CRM), and e-commerce (ECM) applications to provide this meaningful knowledge. This is not just about using all the latest three-letter acronyms. This approach uses real data and information to define the value proposition for the customer. Once the knowledge has been gained, it must be leveraged to provide a real solution for a customer's real business problem to result in significant opportunity.
Step 6. Scalability, availability and security are not optional.
The future is about growth -- not growth for the sake of growth but growth for the sake of sustained bottom line improvement by leveraging the existing business infrastructure to drive top line revenue. Growth of the business means growth of the IT infrastructure to support this increased level of business. Having to scrap applications and infrastructure because they cannot grow to support the business needs is a waste of time and money. This was covered in Step 1. At the same time, business processes are becoming increasingly reliant on computer availability and responsiveness. When the system goes down for any reason, your business goes down. If your business goes down, so does your bottom line.
According to a Gartner report, the iSeries experiences the highest availability for a non-clustered machine. Do not let the other servers' claims of high availability with the little asterisk fool you. That little asterisk that says only unplanned downtime should be considered does not understand the real needs of the business. Customers do not care why the system is down; they only care that they cannot place orders and that your competition is only a click away. Routinely, iSeries customers report that the average time between rebooting the server can be measured in years. In fact, wonderful stories are told about iSeries servers that have been inadvertently enclosed with no access during a remodeling job that were discovered years after the remodeling was completed when the machine was to be upgraded. Hanging an iSeries from the ceiling to save floor space in small retailers is not uncommon and is a clear testimony of the reliability of this server.
Almost daily we read about a website that has been defaced, a new computer virus, or hackers that have broken into core business systems. Due to the built-in security of the iSeries core operating system, there is a system-wide security enforcement that is second to none. In fact, there is no program available on the iSeries to ensure data integrity before doing a database backup or to check for viruses. This is because the iSeries does not need these functions -- it avoids the problems, rather than letting them occur, then trying to find and/or correct them -- just like a manufacturing company no longer reliant on inspectors to ensure quality because it embraced statistical process control techniques that have improved the process to the point where bad parts cannot be made. Zona Research wrote about the iSeries that "with OS/400 the scenario is differentvirus program would not execute." This unique capability makes the iSeries highly virus resistant because any entity received as a file cannot execute as a program, thereby containing the virus with no impact. In the year 2000, IBM offered a $500,000 reward to a select group if they could hack the iSeries. Contestants included ex-KGB agents (now ethical hackers), IBM research personnel, and other ethical hacking firms. After 9 months of trying, all contestants gave up without anyone succeeding. Isn't that the kind of robust performance you need for your mission critical systems? Don't your customers expect that level of reliability from the products that you manufacture?
In addition, the robust performance of the iSeries with the SPECjBB benchmark (7 of the top 10 positions including the top 3 benchmarks) for Java makes this the platform for the future. This truly leading edge hardware (fully 64-bit, using copper chips with silicon-on-insulator soon to run at speeds in excess of a Gigahertz, HSL technology and the 43.2 GB/second interconnect switch) has dominated the benchmark scene. Rather than designing to dominate one benchmark at the expense of others, this unique platform ranks high in the top-ten of various benchmarks. When this capability is integrated to the fully featured ERP systems available on the iSeries, the combination of robust performance and real time information can't be beat.
Step 7. Integrate e-business with core operations from the start.
The key word in e-business is connection. A common error is to have systems with manual intervention required to complete the transaction. As manufacturing companies expand to fill the needs of markets around the world, customers expect to be able to do business in their time zone -- not just yours.
Recent software developments have reinforced the IBM iSeries as the platform of choice for connecting core operations to customers. The introduction of Connect for iSeries allows even the smallest company an affordable connection to its trading partners. Recent developments of connect for iSeries include:
- Support for new trading partner protocols
- Open interfaces supporting private trading partner protocols
- Better application integration including outbound message handling
- Enhanced flow processing
- Mapping tools
- Improved catalog management capabilities
- Enhanced remote catalog or punchout support
- Support for the latest middleware from IBM
Connect for iSeries has also recently added support for the latest versions of the cXML protocol from Ariba and the mXML protocol from Metiom. In addition, this cost effective product has opened up interfaces to allow business partners the ability to create their own protocols to support point-to-point and private exchanges. Better integration with your back-end applications is now possible with the addition of a database connector type that allows you to map elements of incoming B2B messages to fields in your database tables. The outbound message handler provides the capability to initiate messages such as advanced shipping notices and invoices from back-end applications to buyers and trading partners. The iSeries Connect Flow Manager is enhanced to allow multiple back-end applications or database calls to be made for a single trading partner request. This allows for much more complex flow processing to be specified, thus greatly enhancing the flexibility of the product. Enhancements to the Business Process Editor tool make it even easier to create Application Connector Documents (ACDs) and multistep Process Flow Models (PFMs). New catalog features allow you to create and publish a subset of a catalog in order to provide categorizations appropriate for particular buyer organizations and customer-specific pricing. Catalogs can now generated from multiple database tables. iSeries Connect now has increased flexibility that enables integration with existing online catalog or storefront solutions Ariba and Metium marketplaces. The technology is now available for even the smallest company to connect directly to its customers and provide a unique win-win value proposition.
Step 8. Move quickly -- at web speed.
The advent of the Internet age has accelerated the unit of measure for time. Projects that were measured in months now take weeks. Similar to the demands for product development speed, no longer can a company afford to spend two years implementing applications. The integrated nature of the iSeries has been proven to speed application implementation. The iSeries value proposition is based on business benefits, not just meaningless indicators of processor speeds (MIPs). It takes state of the art technology to provide the integration that enables rapid implementation speed and ease-of-use capabilities. A Meta Group study (figure below) shows data that clearly demonstrates this. This increase in implementation speed comes from the integrated nature of the server including the database that requires little configuration and no database administrator. Remember that the iSeries can properly manage and make use of up to 128GB of main storage and 18.9 TB of disk - all without a person dedicated to such tasks. In addition, the operating system is fully tested and has been proven over the years to be very robust and reliable. Having the server always there and doing what it is supposed to be doing can drastically reduce implementation time.
The long history of proven application on the iSeries with thousands of implementations makes this platform well known and well understood - also shortening the implementation time.
The futurists are advising us that it will not be the big that will compete and win against the small, it will be the fast that will compete and win against the slow. Moving at web speed requires that everything in the infrastructure does what it is supposed to do -- not just 95% of the time but all the time -- 24 hours a day, 365 days a year, year in and year out.
Step 9. E-business transition is the same priority as business priorities.
During the ERP implementation decade of the 90s, the advice to manufacturing company project teams was that the project was second only to running the business. With e-business, this transition is the same priority as the business priorities because e-business is about transforming how we do business. Some writers still speak of the "new economy." There really is no "new" economy and "old" economy. There is only one economy and the same rules apply. The goal is to make money -- now and into the future.
Throughout this article, the interaction of technology with business rules has been stressed. Technology alone is not sufficient to achieve bottom line return. At the same time, the business manager must be concerned with the technology rather than relegating it to the glass house. Too many managers base their technology decisions on what they read in the paper or hear from their colleagues. But, back to the first question -- what is the goal? If the goal is to purchase and implement the same thing as everyone else -- then this is an excellent way to make a decision. Many companies are purchasing proprietary software because it is so dominant in the market as to be considered a standard. However, this software then sets (and changes) many of the standards, which then puts the company into a vicious cycle of having to expend scarce resources rewriting applications just to keep the business running.
Open standards based systems are the choice of a company executive who desires to keep what is there and move to the future rather than rewriting the past. Looking for a platform that runs the major open functions and applications like C++, SQL, ODBC, Java, JDBC, XML, Websphere, Apache, MQSeries, Domino, Linux etc, is the choice of this executive. For too long business executives relegated the platform decision to the IT staff, only to find out that this strategic decision locked into place constraints for the company's future. E-business is the way that the company will continue to survive and thrive into the future. The technology and business rules are synergistic and must be considered together to ensure that the desired vision can be achieved. This transformation is the priority as the business priority because this is HOW the business will be successful in the future.
Step 10. E-business is as much about vision as technology.
As Lou Gerstner said, e-business is not about technology -- it is about how business is being transformed. Even with the very best technology, software, and integration services, without a context of what is the desired vision and what that vision will mean to the company's future, success will not be achieved. Remember our friend Alice in Wonderland -- any road will do if you do not know where you are going.
Think about the necessary conditions to create a fire -- you must have fuel, an ignition source, and oxygen. The same logic applies to becoming an e-business. An e-business requires vision, aligned business rules, and supporting technology. The technology is the relatively easy part. The most difficult part is clearly identifying and articulating the unique win-win value proposition that the company can offer to its customers that solves the customer's real business problems. This is the vision that provides a context for everything else that is accomplished.
Implementation Common Sense
Common sense rules should guide a company of any size in its journey to e-business.
1. Have a clear idea of what is really needed. What are you trying to accomplish? It is easy to get carried away with excitement from a software demonstration. Remember that software sales personnel are very skilled in showing all the sizzle of their software. Sizzle may sell the steak but it won't last long. Have a clear idea of what is really needed to minimize the risk of purchasing something you really do not need.
Clearly identifying the task at hand and the desired result will prevent the common phenomenon called scope creep. Scope creep can be quite expensive and in the end not deliver what was really intended in the first place. This vision provides the context for the enterprise and for the use of the technology. The features and functions of the software should enable capability that is not available today. How do processes need to change? Remember that technology and business processes are inextricably linked. As technology changes so must the business processes to drive the expected bottom line results. Begin with the end in mind. Usually a company will not and should not purchase everything in a system it needs all at one time. A phased approach is needed but having an idea of where the big picture is headed helps save money in the long run. As discussed in the 10 points previously, making an iSeries platform decision helps provide maximum flexibility for the future at a minimum investment.
2. Does it make bottom line business sense? IT projects like any other business project should provide a bottom line return. Do not deceive yourself with soft numbers like integration of business functions or internal cost reductions. Insist on hard bottom line returns just like you do when developing and manufacturing a new product. In most companies the preferred goal is revenue growth rather than cost reduction since most companies are already running very lean. Recent advancements in technology supported by competitive pricing are providing wonderful opportunities for small companies to compete with much larger.
3. Do not overlook education and training. Education helps the affected people understand what is being attempted and why. Training provides the how. The very best technology can be purchased and without understanding the "what's, why's and how's," that investment may as well have been put in the dumpster. Just as you would not expect someone with only a rudimentary understanding of flight to get behind the pilot seat of a 747, or someone who can operate a manual press to operate a sophisticated CNC machine, you should also not expect your employees to pilot new sophisticated software. In the same way that pilots are trained on simulators such that when they fly the real thing, the plane does not crash, your people need educational opportunities that allow them to fail in a simulated environment. The lessons learned during those exercises provide the experience needed so that the mistakes are not made in the real world -- on your company.
4. Measure your success.The best measures are those that are important to the customer and the bottom line. Any technology selection and implementation should support the overall company objectives. A key requirement is useful information to enable these strategic decisions. Information is very different from data. Currently most senior managers are swamped with data coming from their installed ERP systems and starving for information. Without information, decisions are made based on gut feel and the traditional ERP cost accounting data and not on what will drive real bottom line return.
Every manager knows that all customers and suppliers are not created equal. However, how do we know which customers are the most profitable? Which supplier is the best? How can we quantitatively measure "the best"? This answer can only be determined in context of what is the goal and what is the company's constraint in reaching that goal. Technology should help provide those answers and should be measured by the same criteria as the rest of the business.
Summary
Technology is changing at an increasing rate. However, with the above proven approach, every size company can feel confident in its ability to evolve toward e-business. The challenge lies in articulating and elevating strategy and then identifying and exploiting the constraints to achieve that strategy. This is well beyond focusing on implementing and re-implementing ERP systems. Similar to how manufacturing companies leverage the Shewhart plan-do-check-act cycle for process improvement, the holistic approach can be thought of in terms of the e-business cycle.
1. Leverage what you have done already and the infrastructure you already have in place.
2. Transform those business rules and processes that are constraining your ability to reach the goal.
3. The next step is to build the necessary technology to support those new business rules.
4. Run that system in a secure scalable environment. Be sure to keep your eye on the goal rather than purchasing the latest fad that will cost more in the long run.
This brings you back to the beginning of leveraging what you have just done. This could include looking at what business rules need to be changed to fully exploit the newly available technology or focusing on the next constraint to achieving the goal.
Remember that the constraint that is preventing you from achieving real sustainable competitive advantage can be a physical one like production capacity or a procedural one like established business rules. These business rules may have been established to accommodate the needs of the business without the existance of the new capability provided by the technology. Once the new capability is available, then the business rules must be changed to fully realize and exploit the promised capability.
When the context has been established through the articulation of the vision then the information can be provided so that managers can make informed decisions about which road to follow. Each time this closed loop cycle is completed, significant bottom line results will be realized when the focus stays on the goal.
Real bottom line results are possible only when all the necessary conditions are present. Remember that fire can exist only when there is fuel, an ignition source and oxygen. When one element is removed, then fire is not possible. In the same way, significant bottom line requires a clear vision, aligned business rules, and appropriate technology. Remove one, and significant sustainable return to the bottom line is highly unlikely. By following the ten step plan outlined here, you can be well along your road to success. Enjoy your journey.
