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What is ERP?

ERP or Enterprise Resource Planning is IT software that integrates business activities across an enterprisefrom product planning, parts purchasing, inventory control, and product distribution, to order tracking. ERP may also include application modules for the finance, accounting and human resources aspects of a business. SAP and Oracle are the two ERP leading vendors. From a business perspective, ERP today has expanded from simply coordinating manufacturing processes to being the integrator of enterprise-wide backend processes. ERP has also evolved technologically from a monolithic legacy implementation into flexible, tiered, client-server architecture.

ERP Project Risks


In the late 1990s many ERP projects started, but more than a few failed. While ERP projects remain challenging even today, most can now be successful because the best practices have been identified and ERP professionals are more knowledgeable and more experienced with making the projects successful.

ERP Business Benefits


ERP is an enabler of business benefits, and should not be viewed as a standalone initiative with the requirement to pay back its implementation cost. The most immediate ERP benefits include (1) Improved visibility of procurement spend and savings from improved sourcing policies, (2) Decrease of work-in progress and days-of-sale-outstanding, (3) Improved productivity through better sales order handling, better procurement operations and more efficient planning. However, the most important business benefits will often be delivered after the ERP backbone is established, by other initiatives that use the ERP backbone: Integrated supply chain: from network planning through scheduling and Manufacturing Execution Systems (MES) Easier integration of business processes with business partners Shared services and outsourcing of support functions

Increased information transparency to enable better decisions Agility in acquisitions and carve-outs or divestments Increased regulatory compliance Robust and future-proofed backbone systems

There are cost savings on the IT side, often around 10-15%, especially when different ERP implementations are being harmonized. These IT savings include: Reduced ERP implementation costs due to a common template Reduced application maintenance costs Lower integration cost due to standard interfaces Lower infrastructure costs With an awareness of the best practices and a good understanding of ERP project complexities, the risks in an ERP implementation are usually outweighed by the benefits. The ERP discussion on investment return is one of mindset more than one of standalone business cases.

Six ERP Design Challenges for Steel Companies


A steel company presents six industry-specific design challenges for implementing ERP, as described below. A successful ERP project will start by analyzing these challenges in detail across all of the companys integrated processes. This analysis will result in the basic decisions that will be the foundation of the ERP project.

Challenge 1: More than one planning strategy


Steelmakers often use a combination of production planning strategies. Typically the flat or strip products are make-to-order, whereas the long products are make to- stock. Depending on the existence of a decouple point, finish-to-order could be a relevant planning strategy as well. Such a combination of planning strategies affects the design of most ERP processes, including supply chain processes as well as the financial/cost control processes. Cost control in make-to-stock tends to go for standard price approaches, but in a make-to-order environment costing happens on an individual order cost collection and forecast basis. ERP systems today can handle this kind of complexity.

Challenge 2: Complex product variations


A steel product is made up of a large number of characteristics, making the product difficult to configure when entering it in the ERP system. Configuration in the make-to-order entries is typically done while

entering the order, whereas for the make-to-stock entries, configuration is done in the product definition, that is, on the material master. This burdens the early discussions during the design phase of an ERP implementation. Fundamental decisions need to be made very early in the project about how many (finished product) materials should be defined: one extreme is to define by material group which needs to be configured completely in the order, or the other end of the spectrum is to define all possible/feasible characteristic combinations which can possibly explode into an extremely large number of finished product definitions. A steel product tend to explode towards the end of production processing; in other words, the bill of material stands on its head or is v-shaped, as shown in Figure 1. This means that the later in the process you define a product, the higher the number of products to be defined becomes. ERP solutions today can readily handle the complexities this of the V-shaped bill of material. They allow characteristics based product configuration with automatic deduction of characteristics, characteristic value inheritance from sales order header to item level, entry of multiple order units such as pieces, tons, dimensions, and so on. Characteristics then drive production, shipping and purchasing processes across the supply chain

Challenge 3: Flexible planning


Planning for steelmaking often needs to happen on short notice, with unstable production processes and unplanned outputs. This requires continuous re-assignment of products to processes and orders dependent on the Characteristics described above. ERP systems today allow re-assigning flexibly to handle these situations.

Challenge 4: Specific Customer Service Requirements


To cope with high-demanding customer segments such as automotive and construction, tight integration with business partners on forecasts, electronic customer orders (EDI, internet etc.) are typically needed. ERP systems today support electronic integration with partners.

Challenge 5: Complex production scheduling combining both continuous and batch production
Figure 2 below illustrates the flow in a typical steel mill. While the blast furnace and converter work in batches, the caster works continuously and the finishing lines work in batches again.

The batches need to be selected based on characteristics during production, preparation and shipment planning. This means that the planning process needs to be able to derive batches with characteristics inheritance and history tracing. Finally, the scheduling part of the planning system needs to be able to work with multiple and dynamic bottlenecks that is, bottlenecks which can change based on incidents such as production problems in certain process steps. ERP systems today can handle all of these situations.

Challenge 6: Detailed margin analysis


In todays steel industry when prices are high and capacity short, margin analysis becomes the essential method to tell what money is being made on which customer/product segments. On top of segment analysis, it is also essential to differentiate between strategic materials (cokes and ore, Ni and Cr for stainless) and the other cost elements that may be easier to control. ERP systems provide the tools to support these decisions. The ERP system will also need to work closely with the companys Business Information Systems (BIS) to optimize the business benefits. Working together, the ERP and BIS systems can, for example, improve inventory allocation to late orders.

Integrated IT Model for Steel


An integrated IT model as in Figure 3 is important because it lets you see the systems involved in planning and production. A typical flow would be: The Supply Chain Management (SCM) application provides the rough-cut planning in Demand Planning. The result is planning blocks of similar products which are then handed over to production planning. When orders are being entered, availability checks assign the order to a block (unless inventory already exists that meets the order) and feeds back a promise date (at the end of the block to allow for the flexibility of possibly moving to an earlier date). The mill optimizer then typically would re-shuffle orders in between the blocks, and feed results back into the SCM application in order to optimize the load balancing. Right before production starts, planned orders from the SCM application are converted into production orders and, via the ERP system, are transferred into the MES layer. It is at that time when quantities are being translated into pieces (slabs, coils etc.). Detailed scheduling then takes place, sequencing and combining pieces from various orders throughout the mill into lots for optimization.

Production completion then posts an updated status of the orders into the ERP system, including stock receipts of finished products, and so forth.

Figure 3 is also important because it lets you identify gaps among a companys different IT systems. A typical gap occurs between the ERP and MES (process control and machine control) systems, where the system is actually combination of custom-built applications and manual spreadsheets. Bridging this gap properly is essential forrealizing the business benefits of the IT investments. If the applications in Figure 3 are to provide true value, they need to be robust, integrated and cost efficient. A recent IBM survey indicates that steel clients process control and MES systems are custom-built applications 66% of the time, and that these custom-built applications usually differ from mill to mill. Clearly, this risks creating sub-optimal processes and leaves the company open to all the problems of maintaining custom-built, legacy applications.

Implementation Approaches for ERP

The key element for ERP success is to know how to implement an ERP project. Past experiences recommends best practices such as: Rapid/realistic project timelines due to external pressures (acquisition synergies, legal reorganization) Command-and-control approaches from a central project management office A global business process owner who has the authority and credibility to approve process designs and business model/ organization changes

However, theres much more to it than these few general principles. Implementing ERP is complex and takes a team of knowledgeable and experienced ERP professionals to successfully implement an ERP project.

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