Integrated Information System Can Boost Profits
- Published: February 01, 2000, By Ted McDermott
In today's competitive business environment, leading manufacturers in the converting industry are beginning to discover how enterprise business applications linking production planning, manufacturing, financial, and customer service functions can deliver dramatic improvements in cycle times, resource utilization, profit margins, and customer satisfaction.
In a large number of converting companies, one of the main reasons for low profit margins and less-than-expected return on assets is the lack of real-time information flow from the shop floor side of the business to the financial side. In price-driven, tight-margin industries, the keys to competitiveness are good production planning, cost control, and service, i.e., getting the right products to the right customers at the right time.
The way to achieve these objectives is to integrate reliable manufacturing data with business, customer service, and order fulfillment information. Implementing an enterprise resource planning (ERP) solution can help to provide the data required to turn around situations of inefficient resource utilization and production planning to improve profitability, increase customer satisfaction, and add real value to the bottom line.
Challenges of a Complex Industry
One of the reasons why information technology (IT) on an enterprise-wide scale has not caught on to any great degree among converters is the complex nature of this business.
A jumbo reel of paper with a certain set of attributes may be subjected to as many as ten different processes to convert the paper for customer needs-processes that render the final attributes of the end products extremely diverse. The more converting steps involved in manufacturing your products, the more the attributes multiply, making manual tracking and control virtually impossible. Yet, delivering the attributes promised is key to customer retention, and holding the line on costs and waste is the key to profitability. This is the unique challenge-and opportunity-for converters.
Once you have analyzed your business and truly understand where your specific costs and challenges lie, you will be ready to manage and leverage information across the supply chain for higher profit margins and better return on capital. In the process, you also will gain an increased ability to respond to changing marketplace needs.
How IT Can Help
Many manufacturers in the converting industry miss opportunities for growth because they lack some important elements:
- reliable real-time information about production processes as they relate to business performance and customer order fulfillment;
- full integration of manufacturing production, business, and customer service processes such as materials procurement, order entry and release, planning and scheduling, and overall financials;
- automated software tools with which a company can optimize resource utilization, forecasting, planning, and performance monitoring.
Over the years, discrete manufacturers in many industries have progressed from segmented solutions (e.g., inventory control, order entry systems) to integrated solutions. In the process they have cut costs and added value through reduced material and finished goods inventories and work-in-process (WIP); increased capacity; and more efficient resource utilization. Manufacturers in the converting industry can gain similarly from enterprise resource planning--and many industry leaders are doing just that.
The problem is, when it comes to information technology, companies in the midmarket are more likely to implement application-specific solutions-accounting, procurement, inventory management, distribution-in a piecemeal fashion, often in response to an urgent problem. They wind up with a hodgepodge of disparate systems, none of which can link up with the others to share information for users to access. So when a need arises to access data spanning both sales and financials, e.g., they have a real struggle. As for getting a global view of all processes in their supply chain, it's virtually impossible. This is the strength that is offered by an integrated solution.
Sourcing an ERP Solution
Once a converter is ready to implement an ERP solution, the key question is which one to choose. For mid-sized companies, the best approach is a reliable technology platform and flexible software solution that is scalable and configurable to the business without the need for costly modifications or customization, which can limit future upgrades or result in long implementation time. For mid-tier enterprises, a standard ERP solution-preferably one that incorporates industry-specific business models and functionality-is the safest and most economical approach.
When looking for an ERP solution, consider the following:
- Key is the ability to support manufacturing/converting operations across the entire supply chain, from suppliers, through production, to distributors and customers. Industry-specific functionality, when combined with traditional core business elements and a proven, structured implementation methodology, can ensure a timely, cost-effective solution that pays for itself quickly.
- Also important is the capacity to handle customer order, manufacturing process, and product complexity. Many ERP solutions designed for discrete manufacturers focus on unit or SKU-based transactions. Converters must be able to handle multiple products, grades and attributes, as well as the diversity of machines and downstream processes.
- The system should offer full integration of production planning and manufacturing flow with customer orders, inventory management, transportation, financial settlements, and business accounting functions to maximize the return on this "soft technology" investment.
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When selecting an implementation partner, try to find one whose business model and customer service philosophy closely match your own.
Adding Value at Every Turn
In terms of deliverables, what can converters expect to gain from an industry-specific ERP solution? The overriding benefit is easy-to-access, real-time information flow integrating manufacturing and planning data into costing, customer ordering, material/ procurement, and business processes. Integration typically results in:
- Optimization of production planning and process steps to improve efficiencies;
- More efficient distribution/tracking of orders;
- Improved order fulfillment and delivery rates for higher customer satisfaction;
- More accurate forecasting to facilitate better short- and long-term planning;
- Attribute-based order management for improved production and order flows;
- Higher quality information on business performance for better strategic decision-making.
While the investment in an ERP system can be a sizable capital expense, it represents a sound investment in your company's future. Well-implemented, such a solution will add significant lasting value.
Bong Ljungdahl AB
Established in 1997 as a result of a merger of Bong and Ljungdahl--each market leaders in its own geographic market--Bong Ljungdahl AB specializes in producing custom-designed envelopes, padded shipping envelopes, and ring binders. The company provides envelope solutions for direct mail campaigns. Bong Ljungdahl's goal is to be one of Europe's leading envelope manufacturers, and the company already has a strong base throughout Sweden, Norway, Denmark, Poland, and Belgium.
One of the business drivers of the Bong Ljungdahl merger was high conversion costs in envelope manufacturing. The market for custom-designed envelopes is growing. A total of 100 billion envelopes were sold in Europe in 1997, and this figure is expected to increase by 5 billion this year. With sales of approximately $140 million (US) (1,100 million SEK) in 1997, Bong Ljungdahl today ranks fifth or sixth among top envelope suppliers in Europe and plans to acquire other companies.
When Bong Ljungdahl was formed, it soon became apparent that the new company needed an enterprise management system that could be used at its new locations throughout Europe. The company selected Movex Paper from Intentia International
Per Fransson, Bong Ljungdahl corporate VP, recalls, "Our plan was to achieve a certain amount of growth by acquiring other companies. We were looking for an enterprise management system that would make it easier to run our company--at all locations throughout Europe. So we needed a system that we could install at any newly acquired company."
Rolf Torstensson, financial director of Bong Ljungdahl Norway, adds, "Bong Ljungdahl had several good reasons to choose Movex. We needed a new system before the year 2000, and we were interested in economies of scale. We wanted a system we could use at all our locations, one that would support our expansion plan by being capable of working with a number of different languages."
Torstensson also cites as an advantage the fact that Movex Paper was created specifically to meet the needs of the paper industry.
Since the IBM AS/400 already was established at Bong Ljungdahl, one of the chief selection criteria was a system that would work well in this environment.
Bong Ljungdahl currently runs three shifts/day in addition to a round-the-clock order system and production schedule. Torstensson notes, "We need a platform that delivers reliable service 24 hours a day, 7 days a week. As far as we're concerned, Movex Paper and the AS/400 go hand in hand."
Spreading the Advantages Around
Installation of Movex Paper began in the fall of 1997 and will continue until implementation is complete at each of the company's locations. Commenting on results, Fransson says, "With Movex across the enterprise, we will be able to analyze information such as contribution margin or production data from any angle. This will enable us to develop a system for management reporting that will provide an overview of any aspect of our company's activities-at any time. Movex Paper has given us the tools to create outstanding improvements."
"One of the advantages of Movex Paper is that it allows a salesperson extraordinary freedom," Torstensson says. "From a customer site, a salesperson can configure a product to the customer's requirements without having to contact the production department, or arrange a delivery date without speaking to the central office. This allows us to realize substantial savings in inventory and personnel."
Torstensson adds that Movex's features include company-wide item numbers to provide an overview of stock status, which will enable all of Bong Ljungdahl's manufacturing plants to work closely and efficiently with one another.
One final key factor in Bong Ljungdahl's choice of Movex was Intentia's Devex plan for software upgrades. Fransson explains, "With Devex, we get new versions of Movex software without having to make adjustments ourselves. None of the other enterprise management systems we looked at offered that benefit."
Looking to a future of expansion through acquisition and organic growth, Bong Ljungdahl reports that it now maintains the lowest costs in the industry. And, with an effective enterprise management tool, the company has the ability to analyze where in the company profits are generated and where they are not-and determine what should be done about it.
