The Ties That Bind

Enterprise resource planning unites all of a company's major business practices--from order processing to production--within a single family of software modules. It's not just for large manufacturers anymore

At 9 o'clock on a Friday morning in April 1997, a Big Three automaker phoned Jim Bianco with a crisis. A wire-forming machine at the company was on the fritz, setting up a parts shortage in the spring-making section. The carmaker was looking at a production delay that would have disastrous consequences on its manufacturing operations. Could Bianco's $11-million Iowa Spring Manufacturing Inc. make the springs?

In little more than an hour, Bianco had the answer. Iowa Spring would rejigger its schedule, bring in an extra crew, and work through the weekend to deliver 15,000 springs to the carmaker on Monday morning. "By Friday afternoon we'd received a faxed business order. An hour later the raw materials showed up. We were in production that same afternoon," says Bianco, president and founder of the company, which is located in Adel, near Des Moines. "We couldn't have done that without our computer system."

The system he's referring to is Time Critical Manufacturing, from Effective Management Systems. It's one of a large group of tools that at the moment is making the loudest buzz in manufacturing: programs that are designed for enterprise resource planning, or ERP.

ERP has already made news for the pains and gains it has brought many of the world's largest companies. Now it's available to small manufacturers as well, as suppliers of big ERP systems simplify their packages and lower their prices, and small vendors expand their products to fit the definition of ERP.

Essentially, ERP works like grease for information, easing the exchange of data among corporate divisions by uniting all major business practices within a single family of software modules. The modules typically run on client/server networks: collections of PCs (clients) wired into networks that connect the PCs both to one another and to the more powerful server computers that feed them data. Initially, each module works separately, performing specific data-processing functions.

For example, a labor module may run the company's payroll, an engineering module may index product drawings and designs, and an accounts-receivable module may kick out invoices. But ultimately, through built-in links, the modules work together, quickly disseminating vital information like delivery dates, inventory needs, and machine status among divisions that previously labored in lonely isolation.

ERP offers strong support for many of the latest make-or-break manufacturing practices, including just-in-time delivery of products to customers and requisition of inventory from suppliers, observes Jim Shepherd, vice-president of research for AMR Research of Boston. ERP also often incorporates support for electronic commerce and electronic data interchange (EDI).

Of course, stand-alone software packages perform many of the functions ERP does, but even when hooked into a network they usually can't share information unless it's translated into a common format. Since that may require complex programming, information gets printed out instead and reentered by every division that needs it--a time-consuming practice fraught with errors.

ERP modules, by contrast, all speak the same data language and can automatically exchange information. Thus, ERP creates a companywide management system in which everyone from the chief executive down to a machine operator can get business-critical information instantly. That speeds work flow by eliminating the mess of paper orders, reports, instructions, and explanations that can bob like flotsam around a business.

ERP is becoming available to small manufacturing and distribution companies from two directions, which can make the selection of a package rather daunting. (See "Does Size Really Matter?" below.) From above, big software houses such as SAP, Baan, Oracle, and PeopleSoft are peddling slimmed-down versions of their software that run on Microsoft Windows NT, which is more accessible than Unix to many small manufacturers. The hardware to run such systems also costs less than the big Unix boxes, and it's easier to maintain. "Now the hardware barrier is pretty low," says Shepherd. "And in most cases, for the software you're basically paying by the user. So it's quite easy to start small."

In addition, the major ERP vendors are now selling through third-party software distributors, or value-added resellers (VARs). That helps lower prices and also turns delivery over to people who customarily understand the unique needs of small companies. Perhaps most crucial, slimmed-down ERP doesn't require the kind of gut-wrenching installation process that larger systems do--like the two-year $100-million ordeal of Owens-Corning, which the Wall Street Journal called "the corporate equivalent of a root canal."

At the other end of the spectrum, small software vendors are selling comprehensive suites that, they claim, provide as much integration as the big ERP systems. Their products are created specifically for small producers and distributors, so they omit frequently unneeded capabilities like working in multiple languages, handling foreign currencies, and coping with numerous product divisions.

Together, those two approaches have produced a whole new class of small-company ERP that is easier and faster to install, runs on less costly, more familiar hardware, and sells as modules that can be mixed and matched or phased in to ease budget strain. Growing companies are taking advantage of those systems for a host of reasons: to improve quality control, to meet customers' rush requests, and to deliver customized products on mass-production time schedules, to name a few. Here are three companies that have built their business strategies around the software's promises.

Fast, flexible data communication à la ERP turned out to be a winning way for Kaye Instruments, a $17-million company in Bedford, Mass., to stroke its customers. By its own reckoning, Kaye dominates the market for high-precision thermal-measuring equipment used in making drugs. But to get there, it had to back out of unprofitable markets and target pharmaceutical and biotechnology companies almost exclusively.