Automated Business Processes - The Good, Bad And The Ugly

Oct. 9, 2006
Plants are connecting business applications to the shop floor, but not without some turf battles.
The plant control system knows more about inventory consumption than any other enterprise intelligence system. After all, it’s the plant that consumes the inventory. At Eastman Chemical Co., in Kingsport, Tenn., business managers are turning to the plant control system to get consumption data on inventory supplies. “We’re using business performance applications to control inventory,” says Scott Dietrich, systems associate at Eastman Chemical. “We’re putting information out that shows whether the inventory level is good, bad or in the ditch.”By dipping into the control system historian, Eastman is able to see inventory consumption in real time. “We have an application where we visualize inventory over time and see usage patterns,” says Mike Paulonis, manager of manufacturing and quality information solutions at Eastman. “We also get the resupply patterns to determine if we have dead stock or inventory levels we never dig into.”While Eastman uses its enterprise resource planning (ERP) system from global software supplier SAP AG to manage much of the inventory information, procurement personnel can work with data they get directly from the plant. “We get real-time information from the plant historian on inventory requirements and connect that directly to our inventory database,” says Paulonis. “This lets us reduce inventory. It also allows sales and production to get on the same page on inventory levels for about a dozen different products.”Before setting up the automated system, Eastman managers would collect the data on Excel spread sheets manually. “We used human data integrators,” Paulonis notes. “Using the automated system allowed us to reduce our raw materials spend, which has had a big impact.”Manufacturers are beginning to connect down to the shop floor to automate their business processes. The reasons are varied. Some manufacturers, like Eastman, want to improve inventory control, while others—such as those in the pharmaceutical industry—are prompted to grab plant track-and-trace data to comply with government regulations. The job of connecting plant data to the business groups is not a merry journey. It’s fraught with information technology (IT) department turf battles and high costs due to multiple ERP instances.Plants are automating their business processes for a wide range of reasons, from inventory control and manufacturing costs analysis to product configuration and track-and-trace for regulatory compliance.Gaining plant cost efficiencies has also become a big reason to grab data from the control system and analyze it. Not all plants are appropriate to manufacture all products. Matching costs with actual production data from the plant can help managers determine where a particular product should be manufactured. “The business people need to know the cost structure and blend that with logistics costs in order to determine what plant they should use and when they can promise finished goods to their customers,” says Colin Masson, senior analyst at Boston analyst firm AMR Research Inc. “You’re taking a huge risk if you don’t have visibility into that.”Why automate?The data from the plant also helps managers shift from making delivery promises based on completed inventory to making accurate promises based on what is expected to happen. “It’s about being able to promise based on a real-time view of inventory and manufacturing rather than promising on finished product,” says Masson. “That means you need to understand the capability of each of the manufacturing sites.” Masson notes you can only get a true understanding of the plant’s capability if you’re receiving an automated connection to manufacturing data.Another reason companies are dipping into the plant data is for regulatory compliance. This is particularly important in industries such as pharmaceuticals and food. “In life sciences, there are regulatory requirements that need more than a manual process,” says Greg Millinger, workflow product manger at GE Fanuc Automation, in Charlottesville, Va. “People are starting to look for automated ways to get the data so it doesn’t cost an arm and a leg. They also want to capture mistakes in the process and eliminate them.” Automated processes have proven to eliminate a major portion of the mistakes that plague manual data collection.Manufacturers are also looking for ways to offer customers wider choices in product details, and automated processes allow manufacturers to get closer to mass customization. “Even something such as an iPod with different colors can be configured through an automated process,” says AMR’s Masson. “The majority of the cost to fulfill customer expectations comes from understanding the material costs, the manufacturing costs, inventory status and order status. All that information needs to go to the business folks.”Who has ownership?Just because there are good reasons to automate business processes, doesn’t mean it’s an easy task. For one, companies have to decide where the shop-floor data goes—to the ERP system or to the product lifecycle management (PLM) system. The other question that comes up is who’s in charge of creating and managing the business process. Should the plant floor’s control automation team own the business process, or should it belong to the enterprise IT team?Some argue that the natural place for the business process to reside is in the PLM system, since the PLM was designed to handle product data. “We have a number of customers who are driving the data from the manufacturing execution system (MES) system back to the PLM system,” says Al Hufstetler, vice president of the Tecnomatix division of UGS Corp., in Plano, Texas. “The truth is, the PLM system is designed to manage the product, while the ERP is designed to handle the financial management of the enterprise.”Yet, some ERP companies have been working to extend their reach down to the plant floor, which could make the ERP system the logical home for automated business processes. “We have done some complimentary things to interface into MES systems,” says Doug Souza, vice president of processing manufacturing and configurator development at Oracle Corp., in Redwood Shores, Calif. “Our customers have been saying ‘You have a lot of data items such as planning and equipment data, but we don’t use your software because we don’t have you down on the plant floor.’ So now we’re extending further down to the plant floor.”As for the question of who should develop the automated business processes—the control team or the enterprise IT group—the IT group has tended to win the battle lately. The IT group has been winning because it controls the governance over the company’s data systems. “Over the last 18 months, it’s shifting to corporate IT,” says Andy De, senior director of solutions management for SAP’s manufacturing solutions, in Waldorf, Germany. “Those on the plant level don’t have the governance required to manage automated business processes.”Some companies solve the automation turf battles by creating a blended team. “Control system or IT? We’re seeing more and more cross-functional teams formed where you have control system engineering types working with IT,” says GE Fanuc’s Millinger.What about costs?One of the reasons companies have been slow to adopt automated business processes is the sheer cost of implementing them. Even if there are obvious benefits to be gained when manual, paper-bound
exercises become automated, the transition to automated processes can be painful and expensive. Part of the sometimes prohibitive cost is due to the ERP mess that enterprises have inadvertently created over the past 10 to 15 years. With continuing mergers and acquisitions, many manufacturers now have dozens of ERP instances running through the enterprise. The integration challenges of running plant data into the intrepid ERP environment are nightmarish.
Recent research shows that few plants have fully integrated business processes into their plant data across multiple plants. Integration difficulties are a major part of the problem. “The reason automated business processes have not been widely adopted is because it is very uneconomical to do it,” says Russ Fadel, vice president of manufacturing at SAP. “There are probably two, three or four ERP systems in each plant, and each system has to have a unique integration.”There are numerous reasons to connect the plant to the business operation, but the job is difficult and expensive. While those expenses might be covered by the efficiencies that come with greater visibility, these projects are also slowed by turf battles and stymied by the difficulty of integrating plant data into multiple ERP instances.        

Automated business process turns excess inventory into cash

You have to use your imagination to determine what constitutes business process automation. While most plants are using these applications to manage inventory, comply with government regulations or manage production, some companies have taken these tools a step further into asset management. At SanDisk Corp. in Milpitas, Calif., company managers have engaged FreeFlow Ltd., of San Jose, Calif., to take excess inventory and sell it through online auctions.

Before SanDisk automated this business process, excess inventory was viewed as a burden that needed to be dumped quickly. The return on sloughing it off was minimal, but it least it was gone and out of the way. As is common in the flash drive business, SanDisk introduces new products—and retires old products—every couple of months. In the past, SanDisk simply found a broker to take the excess, and the pricing of the old product was not set competitively. “It was an on-off revenue stream of just a couple hundred thousand per year,” says Bill Paganini, senior director of supply chain at SanDisk.

In an effort to improve the return on old inventory, the supply chain team at SanDisk engaged FreeFlow to create an online auction site, The site encouraged bidding on the excess inventory. “When we started using the auction, it improved our bottom line on the excess by three or four times,” says Paganini. “It became a steady revenue stream of $2 million to $3 million per year, which made our president happy.”

By automating the business process of unloading inventory and putting it into a bidding environment, FreeFlow helped SanDisk turn excess inventory disposal from a chore into a profit center. “Many companies look at liquidation as a crisis,” says Alan Scroope, chief executive officer and founder of FreeFlow. “It’s usually a manual process that  is sixth or seventh on the list or priorities for the inventory guys.” FreeFlow automated the process to make it simple for SanDisk. “We can take a client and build them an internal platform that allows them to share excess inventory information with demand centers,” says Scroope. FreeFlow also provided that demand center in the form of an audience of hungry brokers. “We have 3,500 liquidators on board.”