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Evaluating manufacturing software in small firms: strategic considerations.

Evaluating Manufacturing Software In Small Firms: Strategic Considerations

Using high technology -- the most advanced methods and processes of doing things -- in manufacturing has attracted the interest of both small and large companies. Often employed as a strategic means of impressing workers and customers, the latest technology has become more of a reigning fashion than an effective manufacturing technique.

This fashion has made many companies pay great prices in an attempt to look technologically sophisticated. The adverse effects of the "hi-tech" look on large and medium firms are not as severe as they are on some small firms for a number of reasons, which will be discussed later. Some small organizations have been sold on the concepts and potential benefits of just-in-time (JIT), material requirements planning (MRP), computer-aided manufacturing (CAM), flexible manufacturing systems (FMS), continuous flow manufacturing (CFM), computer-integrated manufacturing (CIM), robotics, computer-aided design (CAD) and group technology (GT). Companies are so greatly moved by the potential wonders that manufacturing information technology can perform that they hardly consider some strategic issues before committing to the technology, such as: are these new processes needed or are they suitable for small manufacturers?

Many small companies are typically characterized by defined and fairly rigid procedures. The workers have many years of experience in the manufacturing processes and sometimes have personal, non-business relationships with the management. Their products are mostly customized or low volume products that may not be effectively adaptable to automated procedures without considerable redesigning and reorganization.

Some small companies operate in a very cultured and a reserved environment where everyone knows each other. Due to several constraints, small firms are not usually eager to, nor do they have to undertake the significant changes in the production process that are needed for effective automation. Attempts to automate traditional and manual procedures have been proven to be ineffective both in cost and other dimensions. Even if the necessary process and structural adjustments are made, results are not guaranteed because of other unique aspects of small organizations.

Common pitfalls

The most common temptation and practice is for small companies to acquire and poorly interface new processes with old manufacturing settings. This action can be described as a "band-aid" treatment and is capable of working against the goals of the firm. If the sole aim of investing in information technology is to look state-of-the-art, there is no problem with "band-aid" approaches.

But if efficiency, competitive edge, cost savings and productivity are the goals of investing in manufacturing information systems, most managers in small companies will agree that not all advanced technologies are good for their businesses. In fact, some of the modern technologies hurt some small firms both economically and socially. For instance, having a $50,000 robot perform the welding task that was formerly done by one or two workers does not make economic sense when one considers the maintenance and other hidden costs of the machine. Having a state-of-the-art MRP system in place does not necessarily guarantee results if the company's manufacturing environment does not meet the requirements of MRP systems.

As would be expected, companies, especially small ones, are reluctant to openly discuss information system failures. Reports are found only for positive experiences because no company enjoys airing its problems in public. The truth is that many companies have had some unpleasant experiences with their use of manufacturing information systems. Some of the frailties common with manufacturing software are as follows:

* Over 30 percent downtime is typical of CAD. CAD is said

to have adverse effects on the user's creativity. Less

experienced users typically underutilize CAD and also


* GT typically reduces plant flexibility, increases

maintenance requirements and causes interference within cells

among individual production equipment pieces.

* Robotics applications have a good payoff in a multi-shift

firm and where production volume is very large. The

quality of robotics products is sometimes less than


* FMS has 65 percent utilization for a two-shift operation.

It is not effective for high-volume production.

* CIM effectiveness or benefits are hard to determine. Most

of the estimated benefits reported are biased. The most

typical measures are quality improvement and inventory

savings, which are not expressed in cash terms.

* MRP performance is challenged by smaller and simpler

software commonly available today. It is less suitable in

a low-volume production situation. It typically tends to

produce less accurate outputs under highly volatile


This is not to suggest that these processes have no benefits. Their benefits are reported commonly in the literature. However, they also have weaknesses. R.E.D. Woolsey, a manufacturing consultant, gives seven ways to ensure problems with MRP:

1. Accept the vendor's system as is.

2. Constantly change your requirements while reprogramming the vendor's system to fit yours.

3. Only involve the highest level of management in defining the hands-on side of the system.

4. Don't tie the vendor to any type of performance contract, as it is "unprofessional."

5. Don't bother to check out any glowing reports of customer satisfaction mentioned by the vendor.

6. Don't clean up your bills of materials; you know they are right.

7. Don't use the system in parallel; just shut down the manual system and turn on the MRP.

In evaluating software, the first criterion to look for should be its ability to enhance the long-term strategic goals of the firm. A clear definition of strategic issues at both the system development and application levels is a mandate for a wise selection of a new system or process. It is a mistake to acquire a new process or system merely because of its impressive potential, without reviewing and matching it with the business' strategic goals. Comparing the features of new software packages to the long-term company goals will not only save costs but will also alleviate the resistance and conflict that are common to new systems.

Strategic manufacturing analysis

Defining manufacturing strategy is another important issue in selecting new manufacturing processes or systems. A well-defined manufacturing strategic analysis can help the company understand details about its operations and the requirements for the supporting software. It is possible to update or simplify manufacturing processes by reducing the steps of operation or number of parts going into a final product. But that decision has to be made independently by the company and should not be initiated by software vendors.

For example, a desirable feature in any potential software should be its ability to support as many of the manufacturing operations as possible with as much independence from other software as possible. The fewer the number of applications software packages in an environment, the simpler and the more uniform the operations. The integration of several software packages is not desirable.

There are some circumstances, however, where a multi-package software portfolio is necessary. For example, firms with EDI links to customers and suppliers may require communications software in addition to manufacturing software. It is not a wise decision to acquire a cutting-edge robot to perform a painting task while cutting, packing and loading are being performed manually. Equally, it is not a wise investment option to have a glorious MRP system handle materials only, since the firm's manufacturing strategy does not favor automatic production scheduling.

Another strategic issue to be considered when selecting manufacturing software is whether the firm is ready and willing to implement the reorganization and redesign often required by high technology. Many a firm becomes involved in JIT or CIM without first considering the structural and procedural adjustments and their ripple effects. One of the most cited reasons for the failures of CIM and MRP is the lack of awareness and proper preparation on the part of the firm for the changes required for successful implementation of these manufacturing information systems. The questions to ask before committing to any manufacturing software should be: What are the required changes? Is the company economically and psychologically prepared for the changes? Given the general business situation, is this an appropriate time to embark on such changes?

In effect, no organization should go for advanced technology unless it is ready to go all the way. Knowing whether a company is ready comes from systematically analyzing its past, present and future economic and social conditions, including external forces. As stated earlier, it could be more harmful to interface a new technology with an old manufacturing setting, which is the mistake of many small companies, than leaving things alone. By the way, small company managers do not call it a mistake; they call it "experience." This experience could be avoided if the company will first analyze the change requirements before investing in any software.

Social implications of new technology are the most ignored aspect in evaluating manufacturing software. It is often said that workers are the most valuable asset of the firm. The effects of the software on the workers is of critical importance to its success. Any software is effective to the extent that the workers are able and willing to use it. If the workers have negative perceptions about the system or think it is a threat to their job security, such a system is likely to fail. Low worker morale has been reported as an effect that causes a decline in the productivity of many new systems. The skill and education requirements of any potential software should be compared with the skills and educational level of a company's workforce. The ability of a workforce to learn or be trained should be an important variable in the equation. Most manufacturing information systems are user-oriented, which makes it less efficient to rely upon a few MIS professionals to run them while the rest of the workforce stands and watches.

Manufacturing software should be selected to match the existing hardware and not the reverse. The compatibility of the software to the firm's hardware should not be taken for granted. If additional hardware is needed before the software becomes operational, the cost should be considered as part of the price for acquiring the software. By the same token, the ability of the new software to interface with the existing databases and other software is an important variable to be considered. Software that is easily interfaced with existing software and databases will cost less in terms of time and money to install and to be operational.

Flexibility is another desirable feature of a software situation in a small manufacturing environment. Software should have the ability to expand or contract as the company expands or contracts. It makes no economic sense to acquire a system much larger than the present size of the operation with the wishful thinking that the company will expand to suit it. No doubt the company may expand, but in the meantime, you are unncessarily paying for and maintaining a system that may never be needed. Flexible software enables the company to gradually expand or contract as its business allows without carrying excessive and unnecessary costs.

The numerous potential intangible benefits of manufacturing information systems notwithstanding, what really counts for the manufacturing companies is the tangible benefits of cost savings or productivity boost. A systematic cost/benefit analysis has to be performed not only for the total benefit but for the marginal benefits. In effect, the question to be addressed should be how much more would be gained in cost savings or productivity above and beyond what is realizable within the present systems. The marginal gains should then be compared with the total cost of the new system which includes:

* cost of the new system,

* training time for the employees,

* time and cost of getting rid of the

old system,

* ongoing cost of supporting the new


* cost of entering existing data into

the system,

* additional software required by the

new system, and

* user frustration and the subsequent

decline in production. If a company systematically conducts the real cost/marginal benefit analysis, some of the unwise investments in manufacturing information systems would be avoided. Benefits of information systems might be quite less than actual benefits if marginal gain analysis is properly done.

Cautionary hints

Small manufacturing companies considering investing in manufacturing information technologies should take note of the following hints.

Not every state-of-the-art manufacturing software is good for your specific business. Some technologies may even produce opposite effects due to the unique characteristics of your business. What works for others may not automatically work in your business. And of course, your business is more dynamic and complex than the vendors' nice-looking demos.

Some manufacturing information systems pay off faster in a multi-shift operation and where the cost of labor is escalating. A single-shift or a low-volume company may not easily break even. Cost justification, and not sentiment, should be the determining factor for the decision to invest in information technology.

Quality and competitive edge can still be achieved with traditional methods or low technology depending on the soundness of your manufacturing process design. Your present manufacturing process can be redesigned and reorganized for more efficient production without the use of advanced technology It is a matter of reviewing your process and determining better ways of doing business in your particular case. Costs could be saved through careful and thoughtful re-engineering and labor resource management. You have to explore these options first before deciding to invest in state-of-the-art manufacturing information systems.

Humans have been proved to be more flexible and more teachable than any artificial intelligence technology. You should depend on your workforce and not on technology for total quality improvement. Robots and other machines are still poorer at performing the tasks that require vision, voice recognition, touch, taste and smell. Your specific business might best be suited for human labor or manual procedures.

If you are convinced of your need for manufacturing software -- go for it! Be willing to make all the necessary changes without stopping half way. Be willing to redesign the process and the product and to fashion the workforce to meet the requirements. Partial changes will not only stop you from reaping the benefits but can also tear your organization apart. Automating a manual process has often been cited as a major reason for the failure of most manufacturing information systems.

Does this sound like anti-technology is being advocated? It should not. Some small companies can greatly benefit from modern technology applications because of the companies' nature and operating conditions. But certainly, not every small operation can benefit from all technologies. Then the burden is yours to determine if your small company has the characteristics that will benefit from a given manufacturing information system. Do not be sold on every impressive new software or system on the market; do your strategic and tactical analyses and then decide whether you need a given software package or not.

Finally, be careful not be swept away by "hi tech" fashion. Do not be the first to try a "great" manufacturing software package just introduced; and, do not be the last to do away with the old, not-so-efficient system. In making software or system selection decisions, be guided by real needs and not by sentiment. As the old saying goes, "to be a successful builder, you have to first consider what the house will cost you." A systematic analysis of your business strategies, manufacturing strategies, software requirements and attributes, workforce abilities and characteristics, and cost/marginal benefits will help you make a wise selection without tears.

Further reading

Ashton, J.E. 1989. "Time to Reform Job Shop Manufacturing." Harvard Business Review. Krupp, J.A.G. 1991. "Strategic Issues in Software Evaluation for Manufacturing Firms." Production and Inventory Management Journal, Vol. 32, No. 1. McGregor, D. 1960. "The Human Side of Enterprise." McGraw-Hill, New York. Sower, V.E. and Foster, P.R. "Implementing and Evaluating Advanced Technologies: A Case Study." Production and Inventory Management Journal, Vol. 31, No. 4. Wilson, G.T. 1991. "Industrial Robotics for Small Firms." Production and Inventory Management Journal, Vol. 32, No. 1. Woolsey, R.E.D. 1991. "Seven Ways to Go Down with MRP." APICS-The Preformance Advantage, Vol. 1, No. 2.

Godwin John Udo, Ph.D., is assistant professor of decision sciences, College of Business Administration, Tennessee Technological University, Cookeville, Tenn. He holds a Ph.D. in industrial management from Clemson University and an MSEE in electrical engineering from the University of Missouri.
COPYRIGHT 1991 Institute of Industrial Engineers, Inc. (IIE)
No portion of this article can be reproduced without the express written permission from the copyright holder.
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Author:Udo, Godwin J.
Publication:Industrial Management
Date:Sep 1, 1991
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