Manufacturing/Engineering

Heavily dependant on IT

ERP, security and desktops are the top three technologies for the manufacturing/engineering segment and these will continue to attract IT investments. By Akhtar Pasha

This report aims at providing a detailed viewpoint on the status of IT spending, business imperatives driving IT spend and solutions adoption by the manufacturing/engineering industry vertical.

ERP adoption in this industry vertical has come of age, with 93 percent of the 40 respondents in manufacturing/engineering saying that they are using an ERP system to manage their transactional and operational processes. The study reflects the maturity of ERP and the need to have a single database as a key technology in the manufacturing/engineering vertical. There are numerous large businesses that are catering to the export market or are global suppliers to the world market and they have felt the need to have standard processes to manage all their operations and transactions. After ERP and databases, the next focus area is the supply chain. Almost half of the 40 respondents (45 percent) are using SCM. CRM and BI have 40 and 35 percent adoption respectively.

Going forward the investment pattern vis-a-vis enterprise application software changes drastically. Among the 50 manufacturing/engineering companies who are planning to invest in EAS, ERP is their top priority. 46 percent are planning to spend on a standard ERP product. CRM and SCM are the priority areas after ERP.

Problems that persist

Legacy applications and managing business growth continue to present hurdles for this sector.

To underscore this problem we spoke to many companies in the manufacturing/engineering vertical to gain insight into it. Take the case of Suzlon Energy; it is an integrated wind turbine manufacturer. Suzlon has a combined manufacturing base of 2,700 MW of annual capacity, and is undertaking an aggressive expansion program to expand its base to 4,200 MW of capacity by January 2008. The success of the company’s strategy is seen in its growing market share, repeat orders, and breakthroughs into new markets. As a player in the renewable energy space, Suzlon experienced great market traction. Business opportunities were pouring in from across the globe, and the company was also bolstering its research and operations capabilities by setting up offices globally. Given the nature of is business, the size of projects it handled and ambitious growth plans, the company realised that it needed robust systems to make available reliable information on operations in the right place and at the right time. The management felt that to focus on growing the business, the company needed to automate and integrate all its operations across locations so that it could close its books faster, improve operations control, manage inventory better and process orders faster to improve customer satisfaction.

Elaborates Dr VV Rao, Head-IT, Suzlon Energy, “The total disconnect between factories, the corporate headquarters and the branches was a big hassle for the management. This problem manifested across different functions and resulted in delays. Closing of books and generation of financial statements took an unacceptably long time. The management did not have current information on inventory or cash flows. If left unattended, this situation was sure to impact Suzlon’s ability to service its customers better.”

Prior to implementing SAP, Apollo Tyres had a FoxPro based legacy program running across all points of sale and manufacturing plants in the absence of a robust connecting network. Dheeraj Sinha, Head-IT, Apollo Tyres says, “Each of the 140 plus points across India had a different application being run with its own discrete database. The data was then collected from every point and collated and consolidated reports were created at the headquarters. This was an extremely tedious procedure. Most of the work, for example, demand planning, was being done using bulky spreadsheets—a time-consuming activity. The biggest drawback was that the discrete database system was preventing them from having a unique view of every customer. Every time a customer made a sale from a different location his profile was recreated in the system. This was creating a tremendous amount of duplication in the system. The ability to manage such a huge master database across the country and all its related applications was a huge overhead on the company. Critical business information like current stock levels, requirement planning based on restocking levels of each dealer were not available online.

Kirloskar Brothers Limited (KBL) manufactures pumps (Side Channel, Coupled and Monobloc Pumps, Submersible Pumps) and valves. It wanted to bring in a disciplined work culture, seamless synchronisation of processes, transparency, reduce communication gaps and thereby increase operational efficiency. The need of the hour was sharing of online and real-time information. Before SAP, discrete applications could not share information easily which hindered timely decision-making. Processes were inefficient due to the lack of integration between applications. KBL realised that it needed a single integrated technology platform to support its operations, and use IT as a key enabler to optimise business processes. Avinash Purandare, vice president, Corporate Information Centre, KBL says, “We align ourselves with the best practices. We were able to increase our turnover four times. This benefit of doing increased business is because of ERP.” Prior to SAP, there were delays and inaccuracies in the information flow at KBL. The implementation of mySAP ERP has led to faster and more proactive decision-making, as the management now has access to accurate, real-time data. Search times have reduced significantly, and users no longer get lost in a maze of information. Further, the latest data gives users a solid foundation for making important strategic and operational decisions.

“Before SAP, the annual balance sheet used to take 45 days to come out. It is now available on day 12 with the auditors’ clearance and can be declared to the stakeholders,” continues Purandare. The system is designed to provide financial reporting for each individual business unit as well as the consolidated corporate balance sheet under a single company code. Similarly, the time taken for creation of a purchase order has reduced. With ERP, inventory levels have reduced significantly and problems in operational processes can be prevented in time, boosting productivity levels. It has achieved integrated and improved inventory. Our operational time in terms of logistics operations has come down. The availability of accurate, consistent real-time data is a major advantage and it had led to an increase in productivity and there is smoother workflow between KBL’s inventory, sales and logistics processes.

C Nagendra, senior manager-IT, Bharat Fritz Werner Ltd., “We were growing at 30 to 35 percent annually and to maintain this growth rate we had to increase our production to maintain our profit lines, tap new markets and eliminate wastage which was two to three times our annual turnover (approximately Rs 6 to 8 crores) forcing us to increase our production. Business applications such as ERP helped us achieve our strategic direction.”

Growth through acquisition and exports

Tata Ryerson (TRyL) is in the business of steel processing and distribution and produces hot and cold rolled coils, strips, plates, sheets, blanks and structural. With the Ryerson plant in Mexico demonstrating the advantages of SAP’s ERP package, the selection of mySAP ERP at TRyL was a natural choice and Tata Technologies took on the responsibility of being the implementation partner. On one side transaction volumes were resulting in increased throughout putting pressure on the current hardware infrastructure that could not scale and the issue of an upgrade came up. Says C S Murthy, chief of Information management, TRyL, “With ERP, from the IT perspective, we do not need to know anything about the underlying operating system or database; we do not need experts because SAP provides all the support that we need—the warning signs, any drops in production and any other points that we need to address.”

TRyL adds substantial value to the material supplied by Tata Steel before it is dispatched to the customer. The ERP system shares all the information about material and customers online. For instance, the credit control limits of different customers can be checked before material is dispatched. Details of materials billed and shipments are shared from Tata Steel’s SAP system to TRyL’s. The implementation also made it possible for the company to change its production cycle as per customer requirements at any given time, altering its own production to suit their needs. This has translated into improved customer service and quality control.

ERP has played a key role in Apollo Tyres’ acquisition strategy. The company was looking at various global acquisitions to expand its market, and SAP has given it a robust and standardised platform on which it can build its new businesses. “There is an extreme sense of confidence that, thanks to SAP, mapping new opportunities and integrating the [third party’s] IT strategy with us will not be a problem. We are able to pull data from third parties’ systems or migrate their entire office to SAP,” says Sinha.

Kodak India was facing many issues prior to its ERP implementation. Explains Rajiv Rajda, vice president, Kodak India Pvt Ltd., “There was no standardisation of business processes within the group because of a legacy application being used. We wanted better forecasts, planning and inventory management so that we could close our books faster. We wanted to do all electronic transactions so that any information could be accessed with the click of the button. Additionally we import materials from Kodak global offices that needs to tracked and monitored shipment-wise because any hit in the supply-chain or shipment can affect our manufacturing.”

Nagendra pointed out the typical problems faced by the manufacturing/engineering vertical. We are in the implementation phase of SAP ERP. The choice of using a standard ERP was the result of strategic directions. For example our inventory levels were shooting up. It was Rs 10 crores of inventories annually which is very high for heavy machine (CNC) manufacturing such as ours. We wanted to capture the cost incurred at every stage of the machine manufacturing. In the legacy system it was not possible and was based on estimates and not actual figures. Additionally there was no vendor transparency—we were dealing with 500 odd suppliers. He adds that Bharat Fritz Werner’s spares parts business is also big. An hour of downtime could cost customers a large sum of money and the shelf-life of the machines is high. Each item/spare is tracked with batch number and a purchase order is issued against each item/spare and warranty terms so that any defective part if identified can be easily identified with the batch number. It can be tracked till the supplier-material level. “A PLM solution from Wrench and ERP for manufacturing has helped streamline our process from cradle (design of heavy CNC machines) to grave (end product),” says Nagendra.

IT security in extended ERP

Large businesses in India have increased their spending on IT security solutions last year growing significantly. Though spending on standalone anti-virus solutions still dominates the large business security pie. According to IMRB about 90 percent of 45 respondents in the manufacturing/engineering vertical are using standalone security solutions such as anti-virus, firewall and anti-spam. Large businesses are interested in reducing the number of different security products and brands that they use, because of the growing complexity of managing these standalone security ‘point’ solutions. This has led to the popularity of integrated security appliances which bundle multiple products such as anti-virus, anti-spam, email protection, firewall, VPN and IDS into one offering such as UTM. Though a small section of these companies are using it, many manufacturing companies are evaluating these appliances. So there is a good possibility of them buying UTM solutions. The investments in standalone, UTM and managed security services are expected to keep pace.

Interestingly one third of the manufacturing/engineering companies are outsourcing their security solution to third-party managed security services providers. T S Purushothaman, corporate head-IT & Systems, Britannia Industries Ltd says, “We have outsourced our security and management to HP Services and they are using products such as anti-virus, anti-spam, IPS and IDS from various security vendors to secure our 1,000 clients. The decision to outsource to a managed thirty-party security service provider such as HP Services was strategic in nature as it attracted a recurring cost of 8 to 10 percent of the total IT budget. Additionally getting security skills was tough and the training incurred additional cost, which is not our core expertise.”

Tata Ryerson is using standalone security solutions such as anti-virus and firewall. Kudermukh Iron Ore Company Ltd is using anti-virus, anti-spam and firewall products from different vendors to secure its 150 production systems (clients) in three locations—Bangalore, Mangalore and Kudermukh.

Kodak has multiple security solution such as anti-virus and anti-spam from vendors such as Symantec and McAfee. Firewall protection is from Cisco. The point security solutions are backed up security policies and audits making it difficult for anyone to breach IT security in the network. Any network intrusion can be detected with the IDS solution.

Nagendra makes an interesting point, “Being an engineering/manufacturing company we need to safeguard the IP that we create in the marketplace to remain competitive. Hence we take every node seriously and protect it from downtime as it could mean loss of productivity in monetary terms. We are using IT security from Nortel, Checkpoint, Spammer (anti-spam) to secure our clients.” Awareness of the loss in productivity and the damage that online viruses can inflict has resulted in data security becoming a focal point. However, though large businesses are open to considering investments in security solutions, their limited in-house IT skills and resources pose a major barrier in their deploying and managing a sophisticated security infrastructure. The shortage of qualified personnel even in a large business is an issue. Added to this is the fact that security is dynamic—knowledge and software that currently seems adequate soon become obsolete.

Indian large businesses have been focusing on deploying basic standalone security solutions. As businesses progress towards deploying firewalls, VPNs and IDS, managed security services will offer the twin benefits of convenience and cost-effectiveness.

Desktops for productivity

In the past year, lmost all of the manufacturing/engineering outfits are using desktop PCs (98 percent) to access business information. Even notebook PCs shows significantly high penetration reflecting 94 percent of 36 manufacturing respondents are using it. A small percentage of them however are using thin-clients to access data. The growth of desktop and notebook will continue as two third of the manufacturing surveyed by IMRB are planning to invest in these product categories next year.

Explains Murthy, “Desktops PCs are one of the top three technologies and are critical from two aspects. It is the cheapest mechanism for entering data into SAP systems. In our business wherein all the information (data) related with operations, transactions, bill of materials, inventory, distribution and dispatch are directly fed into the SAP ERP system. Additionally we also use office productivity tool such as e-mail, PowerPoint, Word and Excel significantly in our business. We cannot run do any business transaction without desktop PCs. It can be best referred to as a productivity tool for any business.” Similarly notebook PCs can be referred as a mobile productivity tool. Most top executives in the company including sales and marketing are using notebooks for business development. Notebooks carry information pertaining to business productivity, production, sales and marketing strategies and proposal and key customer databases. This information is required to expedite business related decisions.

Rajda says, “We have standardised all our desktop purchases, we buy Dell systems (PCs) globally. In addition to data entry into SAP ERP systems we also use e-mail, PowerPoint, Excel and Word for office communications, creating proposals, reports and database. Notebooks add to productivity for mobile workers. It’s a must have productivity tool in today’s context.”

Krishna Bhatt, manager-IT, Kudermukh Iron Ore Company Ltd adds, “We have 150 desktops mostly Pentium 4s that are used for data-entry. All our payroll, inventory, maintenances data are entered using desktop PCs and hence it is strategic in nature. Notebook PCs are used for making sales presentations, demos and to capture production details.”

Nagendra says, “As an engineering/manufacturing company we use a lot of CAD/CAM/CAE tools to design CNC machines. All the creativity and engineering designs happens using desktop PCs. Each design has many part numbers which are entered into the BOM (bill of materials) so that purchase orders can be raised to manufacturing CNC machines. All these happen because of desktop PCs. Similarly the use of notebook PCs is also strategic. Our entire mobile and sales workforce carries notebook PCs for sales, marketing, production status and delivery status. Additionally our service engineers use notebook PCs to change certain configurations of the CNC machines.”

Purushothaman adds “We are using around a 1,000 desktop from vendors such as IBM, HP, and HCL Infinity across our business operations for data entry and office productivity. Notebooks are being used for the mobile workforce that travels a lot. They are required to access mail to take business decision and carry lots of sales related data that comes through SMSs from the central mail server. It helps is creating sales and marketing strategies.”

Lastly governance, risk and compliances will continue to drive the investments be it in ERP, security or desktops.