LEVERAGING ERP TO DRIVE OPERATING PERFORMANCE FOR METALS PRODUCERS AND SERVICE CENTERS

Transcription

1 WHITEPAPER LEVERAGING ERP TO DRIVE OPERATING PERFORMANCE FOR METALS PRODUCERS AND SERVICE CENTERS By Peter Weymouth, Product Manager, Aptean

2 WHITEPAPER METALS INDUSTRY: LEVERAGING ERP TO DRIVE OPERATING PERFORMANCE 2 EXECUTIVE SUMMARY The metals industry is a cyclical business that rides the ebb-and-flow of raw material pricing and mounting pressure from global competition. The homegrown legacy systems currently in place can t keep pace with the changing market dynamics. But as metals producers turn to ERP vendors for help, there are industry-specific best practices to take into account. So as not to be ruled by software, the enterprise solution must adhere to the unique qualities of the industry from order fulfillment to material tracking on the shop floor with level II integration to quality management through load planning and shipping. Only then will a metals producer have a chance at driving down operational costs in order to increase profitability.

3 WHITEPAPER METALS INDUSTRY: LEVERAGING ERP TO DRIVE OPERATING PERFORMANCE 3 It takes strength, resilience, and persistence to be a player in the metals market these days. A brutal economic climate coupled with overcapacity and price fluctuations is driving consolidation, as companies look to enhance shareholder value and compete on a global stage. At a glance: Last year, Nucor paid $605 million for steel foundation distributor Skyline Steel. In February 2013, Reliance Steel & Aluminum Co. agreed to acquire Metals USA Holdings Corp., in a $766 million deal that would add 47 U.S. distribution centers for Reliance in the U.S., and strengthen its overall position in the broader metal services industry. And, in August, China s antitrust authorities gave the green light to a joint venture between Norsk-Hydro ASA and Orkla ASA, parent company of Sapa Group, creating the world s largest aluminum extrusion company. By combining forces, these companies have more ability to negotiate with customers and establish a worldwide footprint. Nevertheless, there are other uncontrollable forces at work that make it difficult for metal makers to get the margins they need to be profitable. The steel market, for example, suffers from excess capacity, according to an Ernst & Young study 1 that estimates excess steelmaking capacity worldwide at 479 million tons. This number which is greater than a year ago, is due to growth in steelmaking plants within developing nations. But the industry as a whole faces sluggish global demand, the study says. This supply and demand imbalance will continue to be the most significant issue in this sector, as will the ongoing volatility in raw material costs. Price increases in raw material, like iron ore, raise steel prices and impact margins from products to services. To address these cost challenges, metals companies are diversifying product families to play into new customer application areas. They are also exploring untapped markets and adopting technology and best practices that will increase production while lowering operational costs. Most importantly, having agility within the business structure and throughout the supply chain is paramount to surviving market volatility. Of course, every industry has its economic ups and downs, but the pressures of the metal industry flow upstream to directly impact their customers ranging from automotive and aerospace manufacturers to construction companies. With little control over external circumstances, steel mill producers and service centers are seeking alternate and accurate ways to manage, monitor, and execute their business. Ripping a page from their customers enterprise playbook, metals producers have bought or built accounting packages and inventory tracking applications, only to quickly realize that what works for their customers, does not work for them. Having agility within the business structure and throughout the supply chain is paramount to surviving market volatility. THE METALS MONEY PIT Metals producers are not manufacturers in the traditional sense. They don t put things together; rather, they transform material from one form to another. It is an all-in-one continuous process that doesn t mirror what is happening at the automotive factory, for example. But when it was time to get their enterprise in order, metals producers turned to the same enterprise resource planning (ERP) suites that other manufacturers use. These systems, however, are not built with functionality that supports the unique needs of the metals industry. So that off-the-shelf package is modified into a customized solution that requires a lot of IT support. For those companies that took the homegrown approach and built their own accounting and inventory tracking system, that too, requires a team of programmers to design, build and maintain the system, which ultimately turns a metals producer into a software developer. 1 Global Steel 2013: a new world, a new strategy, Ernst & Young.

4 WHITEPAPER METALS INDUSTRY: LEVERAGING ERP TO DRIVE OPERATING PERFORMANCE 4 Either way customized commercial programs or homegrown systems metals producers are having to reach deep into the corporate coffers to get functional software solutions tailored to their business requirements. Many thought they were investing in technology that would provide visibility into processes, analyze trends, and drive down costs to increase overall profits. And, while they were indeed building business value, the customized approach creates an ERP money pit. The primary pitfalls of a highly customized or homegrown system are its inefficiency, the labor outlay associated with system maintenance, and the lack of visibility into business and production processes and associated costs. Bottom line, homegrown systems have too much overhead associated with them, and unfortunately, it s a prevalent problem throughout the metals industry. For example: Ulbrich Stainless Steels & Specialty Metals, Inc., is a specialty metals processor with ten major facilities worldwide designed to serve the needs of suppliers in the automotive, aerospace, nuclear, solar energy, and medical equipment industries, among many others. The company produces a wide range of sophisticated and highly- reliable products made from stainless steel, nickel alloy, titanium, titanium alloy, cobalt alloys and other materials. Like other metals producers, Ulbrich s operations are complex, its customers are demanding, and its business has to adapt to constant change. But, through multiple acquisitions over the years, the company collected an array of monolithic legacy systems some of which originated in the 1970 s on which it ran it business. As the organization grew through acquisition, so did its business and customer requirements. Things that sound simple, like the request from one customer to enter orders with three decimal place pounds instead of a whole pound, could take three employees six months to program on the mainframe system Ulbrich had in place. What the company needed was a flexible system that could integrate across the company s worldwide facilities to enable control of customer orders, production processes and materials. It also needed to become the knowledge management system for intellectual property that was stored in the heads of a few key people in the organization. Ulbrich came up with a long list of specific capabilities it needed an ERP system to deliver, including having the ability to manage its mills where raw materials are processed, and the company s service centers where changes to the length and width of materials are done. These are challenging tasks designed for metallurgists who understand individual customer requirements and how changing the thickness of a material can impart different physical characteristics, including tensile, yield, elongation and hardness. Most ERP systems don t support such functionality. Ulbrich needed to be able to identify inventory in terms of attributes and characteristics, not just part numbers. Without that capability they would have needed more than one billion part numbers to describe their full range of item characteristics. In fact, Ulbrich looked at 27 systems from various providers before settling on the Axis ERP system from Aptean. The reason for the decision was plain and simple: Axis has built-in functionality that deals specifically with the various chemical and physical properties of the metal production process. The Axis system also enforces business and process rules to reduce manual calculations and provide data consistency, which, in turn, increase worker productivity. And, the system supports complex production processes that span multiple facilities for the making of a single product, providing the centralized control over customer orders, production processes and materials that Ulbrich needed. According to Ulbrich officials, We needed a system that could change as quickly as our business needs change and also be scalable enough to support facilities with as little as 20 employees or as many as 200. Since deploying Axis ERP, Ulbrich has seen agility, in the form of faster response to customer demands, improved materials management and operations planning, and the ability to strategically manage the organization s institutional knowledge.

5 WHITEPAPER METALS INDUSTRY: LEVERAGING ERP TO DRIVE OPERATING PERFORMANCE 5 Software should help not hinder a company s ability to react to changing business needs. Given the raw material price fluctuations that drive market dynamics, it is critical that an ERP system for the metals industry adapt to industry oscillations; To that end, the Integrated Accounts Receivable (A/R) and Accounts Payable (A/P) capability within Axis supports complete order-to-payment business processes, including automatic 3-way invoice matching, commodity pricing and actual costing based on the invoice that reduces the manual effort required to identify errors and respond to changing external factors. These capabilities are designed into the Axis ERP system, which was built from the ground-up by metallurgists experts who built it to be 80% plug-and-play for metal applications out-of-the-box. Functions like heat tracking which would require customizing a general ERP package to the tune of hundreds of thousands of dollars is in the DNA of the Axis product. Metals producers are faced with so many challenges, and when they turn to technology for help, they certainly don t want a software system to hold back their business. CUT THE COST BEST PRACTICES When it comes time to choose an ERP vendor there is a handful of key functions that need to be part of the software suite: Material variability; inventory tracking; integrated quality; and process variability. Material variability: Because all material has the chemical and physical properties of the heat or lot from which it is made, and also has additional mechanical and dimensional properties coming from how it is processed, it cannot be fully identified by just a part number or material code. A traditional ERP system will require the user to define a part number for every single thing made, but in the metals business that is impossible. Furthermore, the attributes required to identify materials vary for different types of items, for instance, the characteristics of a coil include grade, gauge, and width vs. OD, wall and length for a tube. The actual characteristics must be known for each item through all levels of production from heat to finished product in order to account for material variability as the product transforms. Inventory tracking: An ERP system designed specifically for metals should also be able to trace anything right back to who supplied the original metal and the chemical composition of the material; as well as what products are still in inventory that were produced from it and which customers received these products. Why the need to know so much? Well, if there is a failure in a car s drive shaft, the automobile owner, the dealership, the government and the manufacturer want to know who is responsible. Having the ability to track inventory by tags, heats, lots, and multiple units of measure through the supply chain is an invaluable ability that will pinpoint a problem, as well as avoid the expense of a manual audit or even a lawsuit. Integrated quality: Material must be tested at various stages throughout the production process. Correctly identifying quality control metrics and including certified test results are often required for process control and process improvement. For example, every heat or lot of a given metallurgical grade is different. Quality tracking from heat to heat with full genealogy is a required function; furthermore the ERP system needs to be able to translate the data into a business solution that is what saves time and ultimately money. Process variability: Metal production happens in multiple ways, meaning the process may be altered to produce a desired product based on the material that is applied. Alternate starting sizes can be used with additional operations, and certain properties can be adjusted by applying more process steps such as heat treatment or annealing. In addition, material can be reapplied to other orders; still, the chain of property contribution must be maintained to provide product quality certification and conformance to specifications.

6 WHITEPAPER METALS INDUSTRY: LEVERAGING ERP TO DRIVE OPERATING PERFORMANCE 6 These are all complicated issues that a metals producers needs to consider when choosing an ERP software provider. Other key capabilities needed out-of-the-box include: Pricing rules based on order attributes and the flexibility to adjust to the cyclical nature of the metals business. Plant floor scheduling based on sequencing production by the attributes of the material being produced (grade, width, shape, thickness), the attributes of the material it is being produced from (starting thickness vs. ending thickness), the process type such as Rolling which dictates sequencing by descending width to eliminate roll marks or a combination of all three. Ultimately, the schedule also needs to take into consideration the order due date to insure on-time delivery. And shipping and receiving logistics that consider material size and weight, freight costs, and carrier scheduling. While a best-in-class ERP for the metals industry appears to be so unique that it stands on its own the reality is that it also needs to integrate seamlessly with other enterprise and plant floor systems in the network. That means the system should be developed on top of a scalable architecture that supports existing network and operating system environments. Lastly, and perhaps most importantly, figure out if you bond with the people at the ERP vendor. That may sound silly, and even hard to do, but that was at the top of the list for Stripco, LLC, a producer and service provider of production-ready steel coils and strips... BECAUSE IT S BUSINESS, AND IT S PERSONAL When Eric Hiler, President and part owner of Stripco, put out an RFP to ERP vendors, he ignored any program that couldn t handle basic material handling functions including, costing, production scheduling, tracking, and steel quality and certification. These things were non-negotiable, Hiler said, because they represent the moving parts of the company which ultimately impact the organization s economic performance. The objective of an ERP system is to provide good information to the people who make decisions, at the time they are making the decisions, Hiler said, noting that to only have material cost tracking is extremely limiting. Unfortunately, he wasn t finding the right combination of capabilities on his quest for an ERP partner. He turned most of the popular ERP packages away because they required bolt-on functionality. But what was even more frustrating for Hiler, he said, was the salesperson s inability to understand the metals industry. Hiler thought perhaps there just wasn t an industry-specific solution out there, and therefore began the journey of switching legacy green screen IBM terminals to a modern ERP system with the help of a mainstream ERP provider. Soon thereafter, he stumbled upon Aptean s Axis ERP system. When we brought the Axis team in they knew what our processes were, Hiler said. They spoke the language. And, as the technology deployment got underway, the Axis consultants became collaborative partners, advocating for Stripco when there were functions of the software that required revisions, and executing updates quickly. Hiler notes there were customizations that occurred, but it was changing words on a screen, vs. designing a new program to accommodate their business processes. From a functional fit, Axis was 90% ready for his business right from the start, said Hiler, which, together with the team of industry experts, made the ERP roll out easy. The Axis software implementation began in July 2005 and went live in January Getting it done in less than six months had a lot to do with the partnership cultivated between Stripco executives and the Axis team. If anything doesn t work things can go sideways quickly, so the relationship between the consultant and our company was critical, Hiler said.

7 WHITEPAPER METALS INDUSTRY: LEVERAGING ERP TO DRIVE OPERATING PERFORMANCE 7 To that end, migrating a legacy system to ERP is not easy, period. So having the right people involved who know how to test every condition associated with materials and cost is essential. There also needs to be analysis of performance through the process, from work order to invoice to sales, so that there are continuous improvement practices in place. I ve been involved with the development of the Axis cost tracking system through all aspects of production, finance, inventory and work-in-process, Hiler said. They probably view me as a thorn in the side because I keep pushing them to [deliver features] that meet my expectations. But the bottom line is, through the hard work of the Axis team and its partnership with customers like Stripco, the entire metals industry benefits. The biggest benefit for Stripco-- which used to have three fulltime programmers, one LAN administrator, and a company vice president overseeing the homegrown system is that the ERP is now 100% outsourced. Aptean manages all of the Axis ERP software and support and another third party vendor takes care of the operating system. We were becoming a software company, not a steel company, which was fundamentally wrong. Not anymore, he said. We basically eliminated the IT department with this change. Now we have one IT person in-house. Right now, Axis is an on-premise software suite, but Hiler is looking forward to the day when all of his ERP moves to the cloud. Many ERP vendors, including Aptean, provide a version of the software that can be hosted in the cloud, including managed services. But the true Software-as-a-Service (SaaS) model, that is a pay-as-you-go subscription-based service, requires a bit more effort, say industry observers. There are technology roadmaps in place for many ERP providers to create end-to-end solutions in the cloud that encompass ERP, CRM, and business intelligence, making applications accessible and easy to use Aptean is one of those vendors. Another technology trend that is important to Axis users today especially those who are seeking information directly from the plant floor is the ability to access ERP information on the mobile devices they use on a daily basis. Perhaps that doesn t mean downloading an Axis iphone app, but the company is working on enhancing its product suite with targeted mobile applications that work with the ERP while allowing end users to perform valueadded tasks in the field on the devices they use on a daily basis. We were becoming a software company, not a steel company, which was fundamentally wrong. Eric Hiler President and part owner, Stripco KEY TAKEAWAY Whether sitting at a desktop or walking the plant floor with a tablet, the reason that a metals producer needs an ERP product developed specifically for its niche is because it is guaranteed to provide the right information to the right person at the right time. A metals-specific ERP suite delivers: Faster implementation Less customization Improved visibility into operations Proper material and price tracking Accurate on-time shipments Informed decision-making Lower total cost of ownership An increase in ROI and profitability

8 WHITEPAPER METALS INDUSTRY: LEVERAGING ERP TO DRIVE OPERATING PERFORMANCE 8 Ulbrich and Stripco can now respond quickly to customer inquiries on order status and gain insight into real-time information on quality, production, shipping and billing. They are also able to measure their business accurately and respond quickly and appropriately to challenges and opportunities. In an industry where materials is such a large part of the cost of goods, allocating overhead accurately across orders helps the companies to identify where profits can be made, as well as steps that can be taken to avoid losing money. Axis ERP has become a strategic tool for the metals industry and a way to gain a competitive advantage. Hiler sums it up this way: We have better data and we are a lot smarter. ABOUT THE AUTHOR Peter Weymouth, Product Manager, Aptean With over 25 years of professional experience, Peter has an extensive background in managing, building, and implementing industrial enterprise software solutions. He works directly with metals producers and Aptean customers to understand their needs and develop a clear vision to deliver solutions that fit their unique requirements. Peter first joined Axis as a Senior Developer in 2004, and soon transitioned to Product Manager. In this Role he is responsible for product direction and strategy for Aptean s Axis ERP product line. ABOUT AXIS ERP Axis ERP from Aptean has the specialized functionality that metals and wire and cable companies need to address the business challenges they face every day. Built by industry experts and continually updated based on the input of some of the world s largest metals, wire and cable manufacturers our customers, Axis delivers innovative, yet practical, solutions to your strategic operational challenges and real return on investment. To learn more about Axis ERP, visit /axis. More than 9,000 customers around the world rely on us to give them a competitive edge. By providing innovative, industry-driven enterprise application software, Aptean helps businesses to satisfy their customers, operate most efficiently, and stay at the forefront of their industry. For more information, visit: Copyright Aptean All rights reserved.