W&WP June 2003

Does Your Information Flow?

Is getting the right data from sales to shipping a pain?

By Scott Bury

The flow of information is as crucial to fulfilling a customer's order as is the movement of parts and stock.

Consider what happens when an order arrives for cabinets and the customer is requesting a two-week turnaround. This isn't really unreasonable, as it doesn't take two weeks to put together some cabinets and ship them out.

But before lumber can move into the shop, before a screw can turn or a saw start, information has to move first. The sales rep has to fill out an order form and calculate a price. Then, the estimator has to review the order and make certain the rep didn't quote too low a price. The production manager then has to read the order to determine what work has to be done and figure out when it can fit into the production schedule.

The production manager checks the inventory. Is the product in stock, or the materials and parts needed to make it? Out of stock? Then fill out a purchase order and send it to the purchasing department, which begins a similar cycle at the supplier.

When the parts come in, schedule production time. Key people on vacation? Lots of big orders going through the shop? It may be time to schedule overtime or hire casual labor. Get out the files and start calling to see who's available.

Wait: machines are coming up for scheduled maintenance before you'll be able to get this order in. Another delay.

Just as the order for the cabinets enters the production shop, the manager gets a phone call: the supplier can't deliver on time. The order is delayed again.

Finally, all the parts come in and the shop is ready. The cabinets are made and finished according to the order form. They're crated and loaded onto the truck. The shipper fills out a bill of lading and a waybill and the truck departs.

Several days later, it turns out the shipper transcribed the wrong address from the invoice onto the waybill. The company now has to pay triple (to the wrong address, return, and again to the right address) for shipping a product to a customer who's already upset by all the delays.

While one order will probably never encounter this many problems, this example illustrates many of the information bottlenecks that can occur in a manufacturing plant. Computerization doesn't necessarily solve the problems either, because an inventory system doesn't necessarily "talk" to the sales system, which doesn't necessarily talk to the accounting and billing system, either.

"Most companies start using 'home-grown' computer systems and software for things like accounting and inventory control, but as they grow they realize that the different parts of the system are disjointed," says Seuhyounng Pak, head of public relations and marketing at Friedman Corp. "There are lots of break points in the flow of data between departments. As companies grows larger and more complex, they eventually start to feel the pain."

Controlling Mission-Critical Information

What manufacturers need is an information system that presents the data for planning and to make effective decisions. Salespeople, production managers, buyers, shippers, maintenance managers, accounting - everyone involved in the transactions that enable a business to do business, need to see the sales, orders and actions that will affect them - and they need to see them in real time.

The computer system that does all this is called ERP, for Enterprise Resource Planning. This kind of system requires a network of linked computers to coordinate information from orders, costs, quotes, inventory, purchasing, production, shipping, accounting, billing, human resources and just about every other part of the "enterprise."

"When you're competing in a global market, you want to base your daily decisions on good information," says Alain Dubois, vice president of Scoopsoft. "If you spend too much time looking for and finding information, you don't have enough time to analyze that information and make good decisions."

The information that Dubois refers to is the critical business information that forms the basis of sound decisions, i.e.: actual costs of materials and inputs, labor, time to manufacture items, real inventory levels, what's coming in, what's going out, what's in progress, what's waiting for parts, what's in inventory, and what's in inventory that's already been promised or sold.

A well-functioning ERP system presents all this information, accurately and in real time, to everyone who needs it. For example, if you have lumber in Poughkeepsie, the manager of the plant in Elora can see it and request it be sent; if a rep places an order that uses the whole stock of cherry that's in inventory, the purchasing department is notified immediately.

What is ERP?

ERP software is arranged into modules for accounting, sales, inventory, shipping, payroll, production and maintenance. It centralizes all data into one main repository and sets rules that determine who has access to what information. For example, sales people can open up orders and view inventory but don't have access to personnel records. They may be able to view orders in progress, but they can't initiate purchase orders. Buyers can view orders and inventory but can't open new sales.

Centralizing the information means that everyone has an accurate, up-to-the-minute view of sales, inventory and production. "The accuracy is much greater, because there's no need to transfer data or to recopy information from one form to another," says Paul de Blois, group controller at Kruger Forest and Wood Products Division in Montreal, QUE, which uses the ScoopSoft ERP system.

The business functions are also more efficient. "Once an order is entered into the system, an acknowledgement goes back to the customer and the order comes to production automatically," says Bob Kerr, director of information systems for Norcraft Companies, a Minnesota-based cabinet company. Since installing Friedman's Frontier ERP system, Norcraft has taken two days out of its production cycle, from order entry to shipping, Kerr says. "There's not much delay anymore between order entry and production."

Because ERP systems centralize information, everyone sees the same data - so there are no transcription errors. The shipper fills out the waybill by selecting "Print" from a waybill menu on a computer screen, and the address comes from the same data as the invoice and the original order.

ERP also allows managers to see exactly what's happening, when it's happening G�ô "real time." That means that an ERP system can notify buyers and managers when a one-time big order arrives that will deplete inventory of essential parts or resources.

Implemented properly, ERP can also save money by reducing inventory, reducing errors and speeding production turnaround. By presenting essential information about inventory in a timely way, it allows companies to avoid machine downtime. Sales reps and managers - even customers - can also view the status of their orders on line.

Cost of Controlling Data

That's the good news about ERP. The bad news is that it's expensive.

ERP systems run on specialized, high-end business computers like IBM's AS/400 system, or on extensive networks of workstations linked to powerful file servers. For a large manufacturer with several plants, the cost for an ERP system from JD Edwards, SAP, Oracle or Baan can be multiples of $100,000, plus training and migration of the data from the old system onto the new. According to an article in CIO magazine, a study by the Meta Group found that the total cost of ownership of an ERP system, calculated over the first two years after installation, ranges from $400,000 to $300 million. On the other hand, the median annual savings from the new ERP system was $1.6 million.

"Our target market is companies with annual sales of $20 million and up," says Scoopsoft's Dubois. The cost for installing the software and training staff in using it, he estimates, starts at around $150,000 and can go as high as $2 million.

Is ERP Right for You?

ERP systems are also used in smaller companies, too. After the biggest suppliers is a myriad of smaller, specialized software developers, as well as hundreds of system integrators and consultants who install such software and set it up for clients. It's a matter of determining how much your company is spending on excess inventory, machine downtime, errors and lack of information.

Once you've determined whether ERP makes sense, there is one more hurdle: finding the right solution. Few systems are suited to the wood manufacturing industries.

"ERP is a contraction with the wood processing industries," says Michael Grohs, CEO of North American operations for MBI Software Inc. "ERP itself came out of the financial services industries, and then was applied to manufacturing of metal products, consumer and industrial products and machinery - not to wood."

The business of manufacturing products from wood has some requirements that you don't find in other industries. Most woodworking companies, whether cabinetry, furniture, millwork, or windows and doors, are "make to order" firms. This means they sell everything that they make.

"It's very customer-driven," says Pak of Friedman Corp. "There's lots of variety and lots of configuration of products for each order."

Furthermore, a single wood product brings together several different components: lumber, hardware, tracking and more. The computer system also has to be able to deal with a large number of products, sizes, parts, options, species, finishes, etc.

The building products industry/distributors of lumber and other wood products, is different from most other businesses, too.

"It's a hybrid push-and-pull kind of business," says Dubois. "It's push in the sense that the raw material, the logs, is not predictable. Even 2x4 lumber for remanufacturing is not predictable. You take what you can get out of it. At the same time, it's a 'pull' industry in that you sell everything that you make and you don't have a lot of unsold inventory. This hybrid business is difficult for a generic ERP system to handle."

"Most users of the major ERP systems are large manufacturers," adds MBI's Grohs. "You don't see many wood processing companies in the Fortune 500."

And for both kinds of wood businesses, there's the question of units of measure. Few industries must deal with the profusion of units found in the wood business: board-feet, linear feet, inches, metric and imperial area measures.

"Lumber companies deal in both exact and nominal units of measure, and they buy raw materials in one set of units and sell in another," says Dubois. "There are units of measure that are not necessarily real in a physical sense. There is fall-off, wastage, kerf and many other realities of making products out of wood that standard 'business' software has trouble handling."

Grohs adds that wood processors have a much wider range of both raw materials and products than do manufacturers in other industries. "Can you imagine calling an automotive dealer and saying, 'I have a parking lot that's so big and I want to fill it with Ford Explorers. They all have to be the same color, but one has to be lower than the others, and one needs a cut-out in it to accommodate the entrance to the parking lot, and so on.' They'd just laugh at you. Yet, a kitchen cabinet manufacturer must deal with that kind of requirement all the time."

Sources for Systems

Listed below are some of the ERP developers that address the realities of the woodworking industry. For more information, contact the company directly.

Scoopsoft is targeted at lumber and wood product manufacturers above $20 million in sales. Scoopsoft users can be found primarily in Canada, but the company has recently begun aggressively pursuing U.S. business. (800) 923-1953, www.scoopsoft.com

MBI Software developed the MBI Factory Network specifically for the wood processing and secondary woodworking industry. MBI's product streamlines order entry and includes a CAD system. (905) 319-1475, www.mbisoftware.biz.

Friedman Corp. offers the Frontier ERP system for manufacturers of doors, windows, cabinets and related products. The product is used throughout the United States as well as in Canada, Europe and Australia. (847) 948-7180, www.friedmancorp.com

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