ERP in Complex Manufacturing

March 2011 Kevin Prouty ~ Underwritten, in Part, by ~

Page 2 Executive Summary Complex manufacturers face both similar and at the same time different challenges compared to other manufacturers. Complex manufacturers must contend with a highly engineered environment that requires significantly more collaboration internally and with customers. Aberdeen's research conducted among 127 complex manufacturing companies revealed that Best-in-Class complex manufacturers drive more ERP usage and push IT and business leaders to operate in a collaborative and cooperative environment. The result is a highly flexible and optimized operation that continuously improves and prepares for growth. Research Benchmark Aberdeen s Research Benchmarks provide an in-depth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations Best-in-Class Performance Aberdeen used the following four key performance criteria to distinguish Best-in-Class companies: 22% decrease in inventory levels 97% inventory accuracy 96% internal schedule compliance 97% on-time shipments Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics: Best-in-Class complex manufacturers use 15% more ERP functionality than all others The Best-in-Class are 1.5-times more likely to have IT measured on operational continuous improvement as part of ERP The Best-in-Class are three-times as likely as all others to measure the success of ERP through quantifiable business metrics Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must: Push IT and business leaders to share risk and reward of ERP implementations and operations Drive ERP usage to as many users as possible to extend the benefits of ERP capabilities Improve remote and / or mobile access to ERP data This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc.

Page 3 Table of Contents Executive Summary...2 Best-in-Class Performance...2 Competitive Maturity Assessment...2 Required Actions...2 Chapter One: Benchmarking the Best-in-Class...4 Business Context...4 The Maturity Class Framework...5 The Best-in-Class PACE Model...6 Best-in-Class Strategies...7 Chapter Two: Benchmarking Requirements for Success...10 Competitive Assessment...11 Capabilities and Enablers...12 Chapter Three: Required Actions...19 Laggard Steps to Success...19 Industry Average Steps to Success...20 Best-in-Class Steps to Success...20 Appendix A: Research Methodology...22 Appendix B: Related Aberdeen Research...24 Featured Underwriters...25 Figures Figure 1: Top Business Drivers for Complex Manufacturing...4 Figure 2: Top Business Drivers Over Three Years...5 Figure 3: Top ERP Strategies for Complex Manufacturing...7 Figure 4: Top Challenges Related to Project Management...8 Figure 5: Process Capabilities...13 Figure 6: Organizational Capabilities...15 Figure 7: Real-time Visibility from Quote to Cash...15 Figure 8: Tools Used for Project Management...17 Figure 9: Process Automation for Project Management...18 Tables Table 1: Top Performers Earn Best-in-Class Status...6 Table 2: The Best-in-Class PACE Framework...6 Table 3: The Competitive Framework...11 Table 4: ERP Usage in Complex Manufacturing...16 Table 5: Measured Benefits...17 Table 6: The PACE Framework Key...23 Table 7: The Competitive Framework Key...23 Table 8: The Relationship Between PACE and the Competitive Framework...23

Page 4 Chapter One: Benchmarking the Best-in-Class Business Context An improving economy, and the view that growth is returning is fueling a shift in business drivers in complex manufacturing. Complex manufacturing includes Aerospace and Defense (A&D), Industrial Equipment Manufacturers (IEM), capital equipment manufacturers, and some telecommunications equipment producers. These types of companies have several common traits: High amount of engineering cost and effort in design and installation Low volume and high complexity of product Companies are consumed by change management Highly iterative and collaborative customer engagement model Aberdeen's December 2008 ERP in Complex Manufacturing: Improving Collaboration and Visibility report showed that the cost far outweighed other business drivers in influencing Enterprise Resource Planning (ERP) decisions. This trend has continued over the last three years. As Figure 1 shows, even though cost was still the number one driver in 2010, managing growth and a focus on customer management show that complex manufacturers see 2011 as a time to take advantage of the growth of their customers. Figure 1: Top Business Drivers for Complex Manufacturing Must reduce costs We need to be easier to do business with (improve overall customer experience) Need to manage growth expectations Must improve customer response time Interoperability issues across multiple operating locations Pressure to innovate to deliver more value 17% 23% 19% 17% 29% 30% 33% 29% 33% 27% 42% 46% All Complex Manufacturers All Manufacturers 0% 10% 20% 30% 40% 50% Percentage of Respondents Fast Facts Best-in-Class ERP implementations in complex manufacturing slash 100% more costs (than all other companies): 120% more inventory cost reductions 80% more manufacturing operational cost reductions 150% more administrative cost reductions At the same time, they produce 100% better schedule improvements with over 170% improvement in time to decision "The company needed to keep control of scale and keep control of their business. This was not possible with simply spreadsheets They needed automated tools for cleansing data and keeping the business moving It became clear that the right ERP solution would be important to enable the business to meet its goals and grow. ~ David Ginsberg, Vice President of Supply Chain Management, Sonic Manufacturing While compared to all other types of manufacturing, complex manufacturers have a little more focus on customer engagement. The

Page 5 iterative nature of highly engineered products and more project-based manufacturing entails significant focus on communicating with the customer throughout design, production, and installation. But, in the end, cost still rules the day as the number one business driver and balancing cost while preparing for customer growth is a challenge complex manufacturer's face more in 2011 than in 2008 and 2009. Looking at it from an historical perspective, Figure 2 compares the responses regarding the top two business drivers from 2008 to 2010. Note that cost consistently remains the primary driver. But also note the significant shift in customer experience downward in 2009; 2010 is no where near 2008 in terms of focus on customer experience, but its heading back in that direction after a hiatus in 2009. Figure 2: Top Business Drivers Over Three Years Must reduce costs 45% 45% 42% Need to be easier to do business with (improve overall customer experience) * 36% 27% 32% Must improve customer response time 27% 24% 36% 2010 Need to manage growth expectations Interoperability issues across multiple manufacturing locations 28% 28% 31% 19% 24% 22% 2009 2008 0% 10% 20% 30% 40% 50% Percentage of Respondents The shift to a more growth-oriented strategy is forcing complex manufacturing companies to shift strategic actions and rethink their infrastructure needs. This report analyzes survey responses from 127 complex manufacturers from Aberdeen Group's fifth annual survey. The Maturity Class Framework Aberdeen used five key performance criteria to distinguish the Best-in-Class from Industry Average and Laggard ERP implementations (Table 1). These Key Performance Indicators (KPIs) were chosen not only because every manufacturer should be measuring them, but also because a well executed ERP implementation can have a very significant impact on these metrics. Significantly, the divergence in operating results from different levels of maturity of an ERP implementation can be seen.

Page 6 Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Best-in-Class: Top 20% of aggregate performance scorers Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers Mean Class Performance 22% reduction in inventory levels 97% inventory accuracy 3.6 days to close a month 96% manufacturing schedule compliance 97% complete and on-time shipments 10% reduction in inventory levels 94% inventory accuracy 5.0 days to close a month 85% manufacturing schedule compliance 91% complete and on-time shipments 0% reduction in inventory levels 87% inventory accuracy 7.3 days to close a month 70% manufacturing schedule compliance 81% complete and on-time shipments Our new ERP system allowed us to reduce stock outs and admin costs while improving inventory accuracy and on time shipments. ~ IT Director, small telecomm maker, southeast US The Best-in-Class PACE Model To achieve these types of benefits from an ERP solution, a combination of strategic actions, organizational, knowledge and performance management capabilities, and enabling technologies are required. These can be summarized as shown in Table 2. Table 2: The Best-in-Class PACE Framework Pressures Actions Capabilities Enablers Must reduce costs Standardize and streamline business processes Provide visibility to business processes across functions and departments Standardized enterprise-wide procedures for order management, procurement, cash collection and financial reconciliation Real time visibility into status of all projects and processes from quote to cash ERP implementation has the continued commitment and attention of senior management throughout selection, implementation and beyond Time to Value was / is measured for initial implementation From summary data, decision-makers can drill down to transactions that form the fiscal and operational audit trail Integrated ERP modules: General Ledger, Accounts Payable, Accounts Receivable, Fixed Asset Management, MRP, Shop Floor Control, Purchasing, Inventory Control, After Market Service, ECM, CRP, DRP, MPS, Forecasting / Demand Planning, Human Resources, Order Management, Project Management, EAM, Supplier collaboration / scheduling, Sales and marketing, product configurator, Payroll Business Intelligence platform and tools Workflow automation / Business Process Management Event Management (Triggers & Alerts) Management, BI and others

Page 7 Best-in-Class Strategies We typically see only slight shifts year-over-year in the strategic actions that companies take to leverage ERP towards their business goals. But we do see some fairly significant divergence between Best-in-Class companies and all other complex manufacturers in how they view ERP and its role in their strategies. Figure 3: Top ERP Strategies for Complex Manufacturing Streamline and accelerate processes to improve efficiency and productivity Standardize business processes Provide visibility to business processes across functions and departments Optimize the use of current capacity Integrate disparate enterprise applications 80% 71% 64% 58% 36% 46% 36% 41% 24% Best-in-Class 15% All Others 0% 20% 40% 60% 80% 100% Percentage of Respondents, n = 127 [Our ERP implementation] has provided us with the ability to accurately schedule material requirements as well as accurately plan for capacity requirements. ~ Managing Director, Industrial Equipment Manufacturer Figure 3 shows that the top action among respondents is still streamlining and continuous improvement for all maturity classes. Interestingly, we see a significant gap between Best-in-Class and all others in their focus on anything related to business processes, including standardizing business processes. The other key area where Best-in-Class companies focus is consolidating and integrating disparate systems. Almost twice as many Best-in-Class companies as other complex manufacturers look at ERP to address reducing the number of separate systems they have. Areas where other complex manufacturers focus ERP efforts over Best-in- Class companies are around visibility into processes and optimizing current capacity. Best-in-Class companies, as we will see when we look at capabilities, have already provided significant visibility into key business processes. Other complex companies are still moving forward with visibility as a key initiative, while Best-in-Class companies have already significant inroads there. Also, as to using existing capacity, Best-in-Class companies are already aligning themselves for growth by using the cash reserves they have and the credit they have available. So these companies focus ERP on growing and planning for growth. Other complex companies are still recovering and focusing ERP on planning with what capacity they already have available. We now have timely views of customer and product profitability based on accurate data. ~ Executive VP, Industrial Equipment Manufacturer Complex manufacturers are not called complex just because they produce complex products. They also have very complex operations when compared to other manufacturers. They are multimode in their operations and this

Page 8 can cause significant issues when selecting and implementing an ERP system. They typically have a significant component of project-based manufacturing and either need to select an ERP system that supports that type of manufacturing, customize an ERP system, or support the project-based processes through manual operations. Visibility in processes and standardization of processes is critical to efficient operations. Aberdeen Insights Project Management Complex manufacturers are unique from other types of manufacturers in that they typically use multiple modes of manufacturing, like project-based, make-to-stock, assemble-to-order, etc. But a key mode of manufacturing that is usually the dominant mode is project-based manufacturing, also called engineer-to-order. Aberdeen's recent report, Executing the Project Plan: When Projects Are Your Business, December, 2010, highlighted some key information about how manufacturers view project management. Figure 4 shows the top challenges manufacturers have in managing projects. Figure 4: Top Challenges Related to Project Management Current standards or best practices not enforced enterprise wide Project plans and resource scheduling are not aligned Implementing effective change management procedures 3.6 3.6 3.6 Inefficient and / or manual project management processes 3.5 No real-time visibility into project costs and budgets 3.4 3.2 3.4 3.6 3.8 Rating in Importance 1 to 5 with 1 being least and 5 being most Source: Aberdeen Group, December 2010 continued

Page 9 Aberdeen Insights Project Management While many of the same terms come up in project management discussions as in ERP discussions, note the challenges around change management. Change management is a key area where project management and ERP overlap. It is an area of significant interest amongst ERP vendors and we are seeing more ERP vendors support project-based manufacturing, and specifically, change management processes related to projects. You can see that several of the tools are inherent to most ERP systems. But typically those tools are not pre-built or configured to handle the needs of project-based manufacturers. You can also see that complex manufactures have a greater demand for those tools. In the next chapter, we will see what the top performers are doing to achieve these gains.

Page 10 Chapter Two: Benchmarking Requirements for Success While the selection and implementation of an ERP system is a life changing experience for those involved in any company, for a complex manufacturer it can set the foundation for growth and continuous improvement. Aberdeen s research shows that Best-in-Class companies typically see almost 20% reduction in operational and administrative costs after ERP start up. Case Study Sonic Manufacturing Founded in 1996, Sonic Manufacturing is a turnkey contract partner that builds products for other businesses that do not have the necessary manufacturing resources. This includes automotive, aerospace and defense, computing, green technology, industrial security, medical equipment, biotech, and networking and wireless. With numerous active clients and over 200 employees, the company has quickly grown over the past 15 years. David Ginsberg, Vice President of Supply Chain Management, has been with the company throughout this period of growth. About one year after the business was founded, the company realized that there were some things that needed to be done if it ever planned on being anything more than a small shop. First was selecting an ERP to implement. Ginsberg said, To manage materials like we do, you need proper processes. The company needed to keep control of scale and keep control of their business. This was not possible with spreadsheets. They needed fast access to accurate data. They needed automated tools for cleansing data and keeping the business moving. It was important for the company to be able to keep track of a large amount of materials that may be moving quickly through the business. He said, Every part has a source of supply, buyer, planner, purchase cost, and lead time attached to it. This becomes very difficult to keep track of without an advanced solution. Communication between team members was key. It became clear that the right ERP solution would be important to enable the business to meet its goals and grow. Sonic Manufacturing was looking for a few things when it chose its ERP solution. These included a low price point, quick implementation, and ease of use with easy access to data including integration to third-party software and services. They wanted to make sure that the solution was fully featured without sacrificing anything else. They needed custom reports that could be delivered within minutes. Once they selected and implemented the solution, the benefits were clear. continued Fast Facts Best-in-Class complex manufacturers average 29% higher ERP usage in their company than Laggard companies Best-in-Class complex manufacturers are 32% more likely to have standardized cash management process than Laggards The Best-in-Class are eighttimes more likely than Laggard companies to have quantifiable metrics for their ERP implementation

Page 11 Case Study Sonic Manufacturing Ginsberg states that the benefits Sonic Manufacturing gained from its ERP implementation are phenomenal. Inventory accuracy is now in the 98% range. The company is now able to bring 1.5 to 2 million parts through its manufacturing line per week with a staff of 10 in procurement and planning. This has allowed them to keep over 40 accounts happy. People can now look at their work and tell if they are doing it right or wrong, which cuts out waste. The ERP solution answers questions quicker, gives us embedded queries, exports, and custom reporting in minutes, said Ginsberg. Each part is now easy to track with all the necessary information attached to it. According to Ginsberg, The whole thing comes together to help us gel as a business. With these types of organizational, process, and visibility improvements, Sonic Manufacturing serves its customers better, runs more smoothly, and has grown as a business. Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed complex manufacturing companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (demonstrated ability to standardize processes and ERP implementation); (2) organization (executive commitment and assigned ownership of ERP implementation); (3) knowledge management (providing visibility in order to drive decision-making); (4) technology (effective use of modules of and extensions to ERP); and (5) performance management (the ability of the organization to measure its results to improve its business). These characteristics (identified in Table 3) serve as a guideline for best practices, and correlate directly with Best-in- Class performance across the key metrics. Table 3: The Competitive Framework Process Best-in-Class Average Laggards Standardized enterprise-wide procedures for procurement, cash collection, and financial reconciliation 96% 79% 64% Standardized procedures for order management and delivery across similar businesses within the enterprise 77% 71% 49% Standardized enterprise-wide procedures for production planning and execution across similar businesses 69% 52% 34%

Page 12 Organization Knowledge Technology Performance Best-in-Class Average Laggards Line of business ultimately owns the success of the ERP implementation 77% 68% 35% Cross-functional continuous improvement teams are responsible for improving operational performance 77% 50% 43% Manufacturing operations are integrated and coordinated with customer service, logistics, and delivery organization 72% 52% 46% From summary data, decision-makers can drill down to transactions that form the fiscal and operational audit trail 73% 57% 30% Real time visibility into status of all processes from quote to cash 50% 39% 22% ERP Usage: Average of 12 Average of 11.6 Average of 11.2 modules modules modules implemented 1 implemented 1 implemented 1 81% of 75% of 70% of functionality functionality functionality available available available deployed deployed deployed 42% weighted 36% weighted 30% weighted average of ERP average of ERP average of ERP usage 2 usage 2 usage 2 Quantifiable business benefits resulting from overall implementation of ERP are measured 62% 35% 8% Time to Value was / is measured for initial implementation 46% 25% 14% 1. The number of modules is based on a set of 24 generic modules (see sidebar) 2. Calculated as: average number of modules / 24 X percent of functionality used Capabilities and Enablers Based on the findings of the Competitive Framework and interviews with end users, Aberdeen s analysis demonstrates that very significant benefits can be gained from an integrated ERP solution, including: Quantifiable cost savings and schedule improvements Streamlining and automation of manual processes Modules Included in ERP Usage: General Ledger Accounts Payable Accounts Receivable Fixed Asset Management Material Requirement Planning (MRP) Capacity Requirements Planning (CRP) Distribution Requirements Planning (DRP) Master Production Schedule (MPS) Forecasting / Demand Planning Human Capital Management Order Management Project Management Shop Floor Control Purchasing Inventory Control After Market Service Engineering Change Management Enterprise Asset Management Supplier Collaboration / Scheduling Event Management Workflow Technologies Sales and Marketing Product Configurator Payroll

Page 13 Visibility to data and also to business process status, from quote to cash to service Consolidation and compliance with fiscal reporting requirements Better control over inventory and manufacturing schedules Improved customer service and response times Alignment of IT and business leaders on implementation and continuous improvement related to ERP Process Standardized business processes are the cornerstone for Best-in-Class performance. Having one set of standard processes makes it much easier to move continuous improvements throughout the organization. It also allows faster analysis of process changes and their impact on overall corporate performance. Figure 5: Process Capabilities Percentage of Respondents, n=127 100% 90% 80% 70% 60% 50% 40% 30% 20% Best-in-Class Complex Industry Average Laggard 96% 79% 64% Standardized enterprisewide procedures for procurement, cash collection, and financial reconciliation 77% 71% 49% Standardized procedures for order management and delivery / fulfillment across similar businesses within the enterprise 69% 52% 34% Standardized enterprisewide procedures for production planning and execution across similar businesses within the enterprise In Table 3 and Figure 5 above, Aberdeen compares the standardization of three different groups of processes across the competitive framework: those that are purely back-office processes, those that are more customerfacing (in terms of delivery) and those procedures that relate directly to manufacturing or production. If you remember the key strategic actions in Figure 3 above, you'll note that streamlining and standardizing business processes were a significant focus for all complex manufacturers, but especially for Best-in-Class companies. Now looking at Figure 5, we can see the details of that focus. Best-in-Class companies already have a significant number of standardized processes, especially in the back office and cash management processes. These cash management processes are usually the first process many companies "ERP was just an IT project until I was told I would be responsible for its measured success. Then it became the most important tool I had to run the plant. ~ Plant Manager, Fortune 1000 Materials Company

Page 14 standardize because they relate directly to overall company performance and reporting. You will also note that customer management and production planning process are heavily standardized in Best-in-Class companies, but to a lesser extent than the cash management processes. That is because as companies get larger and more distributed, different locations, product lines, and production methods necessarily have to accommodate more diverse operating environments. Organization Organizational capabilities are often overlooked in ERP implementations, but it's these capabilities that allow Best-in-Class companies to manage and leverage ERP to its fullest. As you can see in Figure 6, a stark contrast is shown where business leaders are held accountable for the success of the ERP implementation. Best-in-Class companies are over twice as likely to make line of business leaders accountable for the ERP implementation's success. This leads very quickly to ERP implementations being viewed as just another IT project by the business managers. One of the quickest hits for Laggard companies to improve the chances of a successful ERP implementation is to make the measured results of the ERP implementation a high priority goal of all business leaders. The second key capability in Figure 6 is around cross function collaboration and coordination. Once again, Best-in-Class companies are heavily committed to having both IT and business involved in the selection and implementation of the ERP system. Having knowledgeable business people heavily involved in the selection process tend to lead to selecting an ERP system that is more functionally fit for purpose. It also leads to a lot less finger pointing and a more cooperative implementation environment. The other cross-functional capability is continuous improvement. Seventyseven percent (77%) of Best-in-Class companies measure IT on the operational impact of the ERP implementation, versus only 43% of Laggard companies. Many times, continuous improvement is left to the operational side of the business with IT playing a supporting role. But when it comes to ERP and its impact on operations, it is very important that IT be involved and be measured on ERP's impact on operational performance. "We measure the success of our ERP implementation by the amount of time we spend creating each component of our business: quote, order, job, PO, invoice. We also consider the ease of tracking jobs, accounting information, inventory control, and purchased components. The final factor is time spent maintaining, training, and procedural-izing the system and the personnel required to use the system. ~ CEO, Small Tooling and Machinery for the Packaging Industry

Page 15 Figure 6: Organizational Capabilities Percentage of Respondents, n=127 100% 90% 80% 70% 60% 50% 40% 30% 20% 81% Best-in-Class Complex Industry Average Laggard 82% 59% Cross functional teams of IT and line of business individuals involved in both the selection and implementation of ERP 77% 77% 50% 43% Cross-functional continuous improvement teams are responsible for improving operational performance 68% 35% Line of business ultimately owns the success of the implementation n = 127 Knowledge Management One area where the Best-in-Class outpaces all other complex manufacturers is in visibility into key processes. An example is the quote to cash process. This area in particular for complex manufacturers is slightly unique to this industry. Quote to cash in complex manufacturing entails the traditional cash management processes, but also includes a heavy dose of project cost and cash management. Project cash management includes project budget tracking and earned value tracking. It also must handle field service and implementation management. As Figure 7 shows, Best-in-Class companies are 59% more likely than all others to allow drill down capabilities and 56% more likely to implement real-time visibility into all stages of the quote to cash process. Figure 7: Real-time Visibility from Quote to Cash Percentage of Respondents n=127 75% 50% 25% 0% 73% 46% Best-in-Class From summary data, decision-makers can drill down to transactions that form the fiscal and operational audit trail All Others 50% 32% Real time visibility into status of all processes from quote to cash

Page 16 Technology Since 2006, Aberdeen's preferred method of measuring ERP usage has been based on the number of modules implemented in combination with the percentage of functionality available (from those modules) that is actually used. It is interesting to compare complex manufacturing and all other manufacturing. Table 4 shows that complex manufacturers overall use more total ERP modules on average and have just under 10% average ERP usage. Best-in-Class companies go even further with 42% ERP usage against on 37% for all other complex companies. Table 4: ERP Usage in Complex Manufacturing Best-in-Class Complex All Complex All Manufacturing 12 modules implemented 11.6 modules implemented 11.3 modules implemented 81% of functionality available deployed 76% of functionality available deployed 74% of functionality available deployed 42% weighted average of ERP usage 37% weighted average of ERP usage 33% weighted average of ERP usage 1. The number of modules is based on a set of 24 generic modules (see previous sidebar) 2. Calculated as: average number of modules / 24 X percent of functionality used Aberdeen is careful to distinguish between a module of ERP and an extension. All the modules of ERP use a single data base model. Integration is built in and there is little or no redundancy of data elements, except where there is a specific need. A module is built with the same development tools on the same architecture as core ERP. While a module can be implemented incrementally, its release cycle is in lock step with the remainder of the core ERP modules. Complex manufacturers, on average, use more modules and have higher usage rates of ERP than other types of manufacturers. This is easily explained by looking back again at the complexity of these manufacturers environment. Multi-mode means they have to use ERP functions that cover all aspects of manufacturing, from planning and inventory to project-based functions. Other ERP modules and functions that are only used sporadically in most manufacturing companies become mandatory in a complex manufacturer. A good example of this is an aftermarket service module. Quite a few manufacturers will never implement a service module if they are only making components supplied to another company. But a company producing and servicing a large and complex piece of equipment in the field will almost always implement and use the service module. Measuring the Effect of ERP It is important to note that the benefits of ERP, implemented and measured properly, are real and tangible. Table 5 highlights some of the KPIs that companies use to measure their overall performance and the impact of their ERP implementation. "With an ERP system, our business processes are now streamlined, we maintain accurate inventory, we have valid projections, engineering jobs are configured at quote level, and all users are pleased with daily processes and reports." ~ Leonard Hartka, Director, Sun Automation

Page 17 Table 5: Measured Benefits Definition of Maturity Class Best-in-Class companies come out ahead of all others in every measurable category. Critical KPIs like operating costs show a 20% improvement in Best-in-Class companies while Laggard companies actually show a slight increase in operational costs. On the other hand, administrative costs showed an 18% improvement in Best-in-Class companies and 8% improvement in Laggard companies. While Best-in-Class ERP implementations have a pronounced and positive effect on a company's bottom line, even Laggard implementations show some positive improvement in certain categories. Percentage of Respondents Best-in-Class: Top 20% of aggregate performance scorers Industry Average: Middle 50% of aggregate performance scorers Laggard: Bottom 30% of aggregate performance scorers Aberdeen Insights Technology Because most complex manufacturing companies have a heavy focus on project-based manufacturing, project management tools play an important role in operating and measuring these companies. Figure 8: Tools Used for Project Management 80% 60% 40% 20% 0% 65% 61% 55% Mean Class Performance for Complex 20% reduction in operating cost 18% reduction in administrative cost 22% reduction in inventory cost 24% improvement in complete and on time shipment 20% improvement in manufacturing schedule compliance 13% reduction in operating cost 10% reduction in administrative cost 10% reduction in inventory cost 15% improvement in complete and on time shipment 11% improvement in manufacturing schedule compliance -.0.4% reduction in operating cost 8% reduction in administrative cost 0% reduction in inventory cost 7% improvement in complete and on time shipment 7% improvement in manufacturing schedule compliance 68% 51% 47% All Complex 35% 28% 49% 44% Project Document Collaboration Workflow Change Templates Management tools automation Management tools continued

Page 18 Aberdeen Insights Technology Figure 8 shows what project management tools are important to complex manufacturers compared to other manufacturing companies. As can be seen, and as could be expected, complex manufacturers are much more concerned about the tools needed to manage projects. Almost two-thirds indicate they use both document management and project templates. But around half of the complex companies rely on both collaboration tools and some form of change management tool. Many ERP systems have had project management functions, but they tended to be somewhat light and very transaction-oriented. They typically don't have templates, detailed resource tracking, or earned value management. More ERP vendors are now providing more robust project management tools, but ERP systems still live somewhat in the transaction world. Figure 9: Process Automation for Project Management Percentage of Respondents 50% 40% 30% 20% 10% 0% 30% 30% 31% 25% 22% 22% Project Scheduling Best-in-Class Resource / Workforce scheduling All Others Project Costing 42% 28% Project Management and Reporting 40% 37% Time Tracking against projects 44% 32% Expense tracking against projects How many of these processes are automated is also a consideration. Figure 9 shows that complex manufacturers have significantly higher levels of automation than the rest of manufacturing. Process automation is what ERP was built for and should always be considered by projectbased manufacturing companies.

Page 19 Chapter Three: Required Actions While complex manufacturers operate in an environment of multiple manufacturing modes, they have the same goals as all other manufacturing companies; growing revenue while reducing costs. As with other manufacturing companies, ERP plays a critical role in providing a foundation for growth and disciplined consistency in business processes. Whether a complex manufacturing company is trying to move the performance of its ERP implementation from Laggard to Industry Average, or Industry Average to Best-in-Class, the following actions will help spur the necessary performance improvements. Many of the following actions have been consistently appearing in Aberdeen research over the last five years. But that does not make them any less critical to complex manufacturers that are continuously improving their businesses and continue to look for innovative ways to operate. Laggard Steps to Success Make line of business own the implementation. ERP implementations in Laggard complex manufacturing companies tend to drive ERP into the business with a lack of collaboration with the business leaders of the company. Only 59% of Laggard companies have collaborative teams of IT and business involved in ERP selection and implementations. Only 35% of Laggard companies put ownership of the implementation on the business leaders compared to over 80% in both categories for Best-in-Class companies. Measure, measure again, and then keep measuring. Through both the survey data and case studies, Aberdeen continues to hear and see that ERP implementations struggle as much because of the implementation methodologies as steering the ship blind. Only 8% of Laggard companies effectively measure the progress and results in a quantifiable manner. This leads to false expectations, skeptical users, and looking at the wrong results. In fact, with only 11% of Laggard companies actually measuring ROI on ERP implementations, ERP is being set up to not meet expectations. Standardize on standardization. One of the key strategic actions that all complex manufacturers are focused on is the streamlining of business processes. This is tied in directly with standardizing business processes. Less that 50% of Laggard companies have standard order fulfillment processes and only a third of them have standardized production planning processes. This makes it very difficult to propagate continuous improvement results across the company. It also makes it hard to coordinate multiple locations and operations in supply chain and procurement operations. Fast Facts Best-in-Class complex manufacturers use 15% more ERP functionality than all others The Best-in-Class are 1.5- times more likely to have IT measured on operational continuous improvement as part of ERP The Best-in-Class are threetimes as likely as all others measure the success of ERP through quantifiable business metrics

Page 20 Industry Average Steps to Success Measure just like everyone else. That next step to success for companies that have average ERP implementations is to keep measuring. For example; while almost all average complex manufactures felt they had achieved operational cost benefits, only 25% of Industry Average companies were able to quantify it. Compare this to almost two-thirds of Best-in-Class complex manufacturers being able to actually measure the impact of ERP on operational costs. This theme is repeated through out comparison of measureable ERP impact. To take that next step to improve the ERP implementation, Industry Average companies must do a better job at measuring and quantifying their ERP impact. IT must be part of the ongoing solution. When looking at organizational capabilities, Industry Average complex manufacturers are not that far behind Best-in-Class companies in getting business leadership involved in and committed to the success of ERP. But the opposite is not true. Only about 50% of Industry Average companies have IT committed to operational improvements related to ERP. This tends to make IT view ERP as an IT project. To become Best-in-Class, Industry Average companies must align the ultimate objects of IT in the ERP implementation to operational improvement. Continue to broaden and deepen ERP usage. While better than average manufacturing companies, Industry Average complex manufacturers must get more out of their ERP system. With the defined improvements and improved operational performance that Industry Average complex companies see with ERP, it only makes sense to get as much out of the system as possible. Best-in-Class companies have 42% weighted ERP usage compared to 37% usage for Industry Average complex companies. That means that all the benefits that have been documented in Table 4 are not reaching everyone they should. "The entire company relies on the data in the system and could not survive without it. We meet most of the benchmark standards for running a system such as full top-to-bottom integration, better than 98% inventory accuracy, and same-day shipment for build to stock product." ~ Steve Crow, Senior VP, Life Tech Best-in-Class Steps to Success Get more people using it. Even though the Best-in-Class have significantly more usage of ERP than any other class, it is still only at 42% weighted average and using only 81% of available functions. With the incredible improvements that Best-in-Class companies have seen form their ERP implementations, it is imperative that they continue driving ERP throughout their operations. Not doing it is leaving continuous improvement on the table. Visibility from anywhere. Best-in-Class companies are slightly better at providing access to ERP and overall visibility into specific processes. But they are actually no better than any other class in using the internet and mobility for ERP. This limits user access to timely information, slows decision-making, and inhibits continuous

Page 21 improvement. Best-in-Class companies can drive more ERP usage and increase access to critical information by pushing out newer access technologies to its users. Aberdeen Insights Summary ERP has become and will continue to be the foundation for growth and continuous improvement for all manufacturing companies. Complex companies need ERP for both its ability to lay the ground work for consistent business processes, as well as its ability to provide a window into the product, operations, performance, and projects. Best-in-Class complex manufacturers drive continuous improvement and performance by taking advantage of ERP's collaborative and disciplined framework.

Page 22 Appendix A: Research Methodology Between May 2010 and January 2011, Aberdeen examined the use, the experiences, and the intentions of more than 127 complex manufacturers using ERP. Aberdeen supplemented this online survey effort with interviews with select survey respondents, gathering additional information on ERP strategies, experiences, and results. Responding enterprises included the following: Job title: The research sample included respondents with the following job titles: C-Level (20%); EVP / SVP / VP (15%); Director (15%); Manager (29%); and staff and other (21%). Department / function: The research sample included respondents from the following departments or functions: corporate management (17%); finance / administration (7%); IT (34%); operations (19%); logistics / supply chain (10%); and other (13%). Geography: The majority of respondents (86%) were from North America. Remaining respondents were from South America (1%); the Asia-Pacific region (2%); and Europe, the Middle-East, and Africa (11%). Company size: Nine percent (9%) of respondents were from large enterprises (annual revenues above US $1 billion); 39% were from midsize enterprises (annual revenues between $50 million and $1 billion); and 52% of respondents were from small businesses (annual revenues of $50 million or less). Headcount: Eighteen percent (18%) of respondents were from large enterprises (headcount greater than 1,000 employees); 53% were from midsize enterprises (headcount between 100 and 999 employees); and 29% of respondents were from small businesses (headcount between 1 and 99 employees). Study Focus Responding executives completed an online survey that included questions designed to determine the following: The degree to which ERP is deployed, and the financial implications of the technology The structure and effectiveness of existing ERP implementations Current and planned use of ERP to aid operational and promotional activities The benefits, if any, that have been derived from ERP initiatives The study aimed to identify emerging best practices for ERP usage in complex manufacturing, and to provide a framework by which readers could assess their own management capabilities.

Page 23 Table 6: The PACE Framework Key Overview Aberdeen applies a methodology to benchmark research that evaluates the business pressures, actions, capabilities, and enablers (PACE) that indicate corporate behavior in specific business processes. These terms are defined as follows: Pressures external forces that impact an organization s market position, competitiveness, or business operations (e.g., economic, political and regulatory, technology, changing customer preferences, competitive) Actions the strategic approaches that an organization takes in response to industry pressures (e.g., align the corporate business model to leverage industry opportunities, such as product / service strategy, target markets, financial strategy, go-to-market, and sales strategy) Capabilities the business process competencies required to execute corporate strategy (e.g., skilled people, brand, market positioning, viable products / services, ecosystem partners, financing) Enablers the key functionality of technology solutions required to support the organization s enabling business practices (e.g., development platform, applications, network connectivity, user interface, training and support, partner interfaces, data cleansing, and management) Table 7: The Competitive Framework Key Overview The Aberdeen Competitive Framework defines enterprises as falling into one of the following three levels of practices and performance: Best-in-Class (20%) Practices that are the best currently being employed and are significantly superior to the Industry Average, and result in the top industry performance. Industry Average (50%) Practices that represent the average or norm, and result in average industry performance. Laggards (30%) Practices that are significantly behind the average of the industry, and result in below average performance. In the following categories: Process What is the scope of process standardization? What is the efficiency and effectiveness of this process? Organization How is your company currently organized to manage and optimize this particular process? Knowledge What visibility do you have into key data and intelligence required to manage this process? Technology What level of automation have you used to support this process? How is this automation integrated and aligned? Performance What do you measure? How frequently? What s your actual performance? Table 8: The Relationship Between PACE and the Competitive Framework PACE and the Competitive Framework How They Interact Aberdeen research indicates that companies that identify the most influential pressures and take the most transformational and effective actions are most likely to achieve superior performance. The level of competitive performance that a company achieves is strongly determined by the PACE choices that they make and how well they execute those decisions.

Page 24 Appendix B: Related Aberdeen Research Related Aberdeen research that forms a companion or reference to this report includes: ERP in Manufacturing 2010: Measuring Business Benefit and Time to Value; June 2010 Executing the Project Plan: When Projects Are Your Business; December 2010 SaaS ERP: Trends and Observations; December 2009 Beyond the Total Cost of ERP Ownership, June 2009 Enterprise Solution Strategies: The Value of an Integrated Suite; September 2009 ERP in the MidMarket 2009: Managing the Complexities of a Distributed Environment; August 2009 Measuring the ROI of ERP in SMB: Keeping ERP Projects Alive When You Need Them the Most; March 2009 Enterprise Applications: The Cost of Keeping Current Or Not; January 2009 ERP in Complex Manufacturing: Improving Collaboration and Visibility; December 2008 ERP in SME: Fueling Growth and Profits; August 2010 Information on these and any other Aberdeen publications can be found at www.aberdeen.com. Author: Kevin Prouty, Research Director, Enterprise Applications, (kevin.prouty@aberdeen.com) For more than two decades, Aberdeen's research has been helping corporations worldwide become Best-in-Class. Having benchmarked the performance of more than 644,000 companies, Aberdeen is uniquely positioned to provide organizations with the facts that matter the facts that enable companies to get ahead and drive results. That's why our research is relied on by more than 2.5 million readers in over 40 countries, 90% of the Fortune 1,000, and 93% of the Technology 500. As a Harte-Hanks Company, Aberdeen s research provides insight and analysis to the Harte-Hanks community of local, regional, national and international marketing executives. Combined, we help our customers leverage the power of insight to deliver innovative multichannel marketing programs that drive business-changing results. For additional information, visit Aberdeen http://www.aberdeen.com or call (617) 854-5200, or to learn more about Harte-Hanks, call (800) 456-9748 or go to http://www.harte-hanks.com. This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. (2011a)

Page 25 Featured Underwriters This research report was made possible, in part, with the financial support of our underwriters. These individuals and organizations share Aberdeen s vision of bringing fact based research to corporations worldwide at little or no cost. Underwriters have no editorial or research rights, and the facts and analysis of this report remain an exclusive production and product of Aberdeen Group. Solution providers recognized as underwriters were solicited after the fact and had no substantive influence on the direction of this report. Their sponsorship has made it possible for Aberdeen Group to make these findings available to readers at no charge. Infor provides more than 70,000 customers a better, more collaborative relationship with their business software provider. Infor software is simple to buy, easy to deploy and convenient to manage. It is software created for evolution, not revolution. There is a better way, to find it visit www.infor.com. For additional information on Infor: 13560 Morris Road Suite 4100 Alpharetta, GA 30004 Toll Free: 866.244.5479 Telephone: 678.319.8000 Fax: 678.319.8682 www.infor.com sales@infor.com

Page 26 Plex Systems, Inc., is the developer of Plex Online, a software as a service (SaaS) solution for manufacturers. Plex Online includes over 350 functional modules to manage operations from the shop floor to the top floor, including manufacturing execution system (MES) modules such as quality management and machine integration, enterprise resource planning (ERP) modules such as accounting and finance, customer relationship management (CRM) modules such as order entry and tracking, and supply chain management (SCM) modules such as supplier quality and traceability. For additional information on Plex Systems: 1731 Harmon Road Auburn Hills, MI 48326 Telephone: 888.454.7539 International: 248.391.8001 Europe: +49.89.416160901 www.plex.com info@plex.com