Information technology provides business and customer value; IT has become a pervasive part of the business landscape, but how well are paper companies, converters, and their customers using this powerful tool?

Information technology (IT) has become a pervasive element of the business landscape within all levels of manufacturing companies. The focus for most companies has shifted to automating information flow with external trading partners and gaining supply chain efficiencies. With this trend, do customers and other external parties have a sufficient bridge to ensure that the initiatives underway are appropriate and designed to provide business benefits for all? Are business and manufacturing IT systems sufficiently robust to provide meaningful data for sharing with external partners or to provide the necessary decision support?

A challenge to IT leaders is the delivery and support of solutions to improve business performance from the plant level through the enterprise level to the external supply chain. To understand the value and impact of IT investments, an understanding about how they fit into the business fabric of a company is necessary. This article will present viewpoints of personnel at key operations, business executives from manufactures, converters and their customers. It will show how different levels of IT fit within a company, which IT efforts have hit the mark, what caused challenged projects, and what is needed to support future growth.

SIMPLE CONCEPTS, COMPLEX SOLUTIONS

The fundamental premise behind obtaining value from IT investments sounds simple. Develop business and operating strategies and best practices. Select the appropriate technology to enable those strategies or practices. However, selecting the appropriate technology is challenging and can resemble the assembly of a jigsaw puzzle whose pieces have no smooth sides and often change shape. Similar to business itself, IT solution value increases dramatically as elements become tightly integrated. Not having smooth edges is therefore a desirable feature. Evolution of technology can drive the changing of shape, but more typically it results from a change in business, customer, or market requirements. Complexities within the business of a company are the drivers needed for more complex IT solutions to automate or enable these practices.

Executives must understand the business value of these technologies to lead companies through these times of limited capital, soft markets, and industry consolidation. Knowing where to start and how these systems fit together to achieve strategic business objectives are the critical factors in achieving value from IT investments.

DIFFERENT LEVELS OF IT

As new technology alternatives become available, leaders in the operations, business, and IT arenas wrestle with many old questions:

1. Is this investment necessary to improve business performance?

2. How does this new technology fit in with what exists now?

3. What is the business case that justifies this investment?

The answers to these questions vary depending on what level of the organization is using the IT solution. AMR Research, an IT analyst firm in Boston, Massachusetts, USA, has defined the zones of IT solutions aligned with business and manufacturing processes in Fig. 1. Zone 1 comprises the process control systems (PCS), zone 2 is the manufacturing execution system (MES) level, and zone 3 is the enterprise resources planning (ERP) and supply chain management (SCM) level. Zone 4 is my addition to AMR's three zones. It represents external connectivity and the numerous electronic business solutions available.

[FIGURE 1 OMITTED]

The AMR solution diagram is complex with a series of overlapping solutions within overlapping zones. The solution map for every company will have a different combination of ovals. For distribution or service-oriented companies, the lower zones are nonexistent. The complexity of a business and the need for companies to fill IT solution voids to meet strategic business goals drive the number of solution ovals.

Business case development for zones 1 and 2 is straightforward because these zones directly affect production or customer ovals.

This makes justification calculation of payback or return on investment (ROI) easier. Zones 3 and 4 often require more strategic metrics for justification of value. Areas of cost savings such as inventory reduction, transaction cost reduction, and many others require examination as hard dollar impacts for these zones. Zone 3 and 4 technologies are often justified by enabling new business strategies, improved customer service, migration from older legacy applications, or a shift to greater collaboration with suppliers and customers. The business case receives drive from strategy, opportunity, or deficiency to meet critical market or customer needs.

Determining the future growth of a company, deciding with commitment, and implementing quickly are critical. Equally critical is performing the appropriate organizational change management. Many good technology projects have failed or underachieved because the people using the technology lacked ownership or understanding.

OVERVIEW OF INTERVIEWS

Interviews of manufacturing executives and some key customers provided a business and operations perspective on IT investments. This manufacturer and customer group examined the information management priorities of the trading partners and determined the IT infrastructure readiness of each side for electronic or Internet-based collaborative commerce.

The participants were directors, vice presidents, and senior vice presidents within their respective organizations. Following are the general questions asked:

1. How has technology changed the business in recent years?

2. What technology projects have gone well, and what were the benefits?

3. What projects could have gone better, and what would you do differently?

4. How are technology projects prioritized, and how are the IT investments justified?

5. How could the technology organization better serve the business needs?

6. What plant level, enterprise, supply chain, or electronic business projects will have the greatest long-term impact?

TECHNOLOGY IMPACT

Participants made similar comments. "Technology is making things happen faster." "Information moves around quickly to allow better business decisions." "IT infrastructure changes such as wide area networks and standardized systems have made life easier and have connected the corporate staff to all divisions."

Enterprise level integration of fragmented systems was a key area of technology impact. This is not surprising considering the ERP investment made by many companies in recent years. Enterprise integration for some companies consisted of standardizing with their custom developed or legacy business.

Some participants did not standardize on a given application, but had several varieties of ERP systems running in different divisions. One strategy was to keep existing systems within divisions and over time centralize key functions of procurement, logistics, financial matters, and customer service onto a common corporate system.

Sector leading manufacturers and their customers also pointed to external connectivity or supply chain integration efforts that have dramatically impacted business methods. Many such companies noted successes at the plant floor level by having improved customer service levels and productivity. These sector leaders--based on market position and the perspective of financial industry analysts--also had a more progressive adoption of IT solutions within all levels of the organization. A common theme for these progressive companies was a strongly stated strategy to leverage IT investments to improve the business. These progressive companies had similar comments: "We use technology as a component of our value proposition to satisfy customers better." "IT systems have become ingrained into the process so it is now a 'lights on' type of thing--people would not think to avoid them."

SUCCESSFUL PROJECTS AND BENEFITS

Most participants had an extensive list of projects or initiatives currently underway that will help their organization at all levels. There were many success stories from more progressive IT users.

All participants had realized some significant benefits. A few success stories and benefits achieved included:

1. Supply chain planning tools implemented for demand aggregation and production planning reduced stock inventory in the supply chain from six weeks to less than four weeks.

2. Warehouse management systems reduced inventories more than 30%.

3. Forecasting and order management system implementation resulted in more orders processed, with fewer errors, and eliminated excessive maintenance costs on multiple legacy systems.

4. Creation of an enterprise portal represents a commitment to customers and has allowed for customer self-service of ordering and order status.

5. ERP implementation of financials, procurement, and order entry eliminated multiple outdated legacy systems. The project started on time and below budget. The organizational change management up front was critical to this success.

6. Implementation of common MES systems for production tracking across all plants eliminated multiple high maintenance systems, reduced mislabeling, and provided real time information for quality decision support.

7. A corporate electronic procurement system enhanced supplier communications and reduced transaction costs by 6% to 8%.

8. Implementation of an application service provider (ASP) electronic procurement and supplier connectivity site with a common MES production and inventory tracking throughout the corporation reduced inventory on hand by 8%, reduced waste by 4%, and created a soft benefit of common performance metrics for suppliers.

9. MES planning, production, and inventory tracking standardized across the corporation reduced the time for bringing products from concept to customer by 25%.

10. Creation of a consignment inventory and an enterprise wide data warehouse sped invoice cycle more than 10%, provided central data repository for customer quality and logistics information, and improved management decision making capabilities.

LESSONS LEARNED

Many manufacturers have pursued IT projects with some trepidation considering the past horror stories of project overruns, nonperformance, etc. Discussions with executives recounted some similar stories, but none were recent.

Several stated that top-down, big-bang IT initiatives tried previously resulted in failure. As one would expect, business and operations buy in at the onset was the prime factor in the success of any IT project.

Obtaining the technology rapidly was equally critical. Many participants said a dedicated effort for tracking technology options is needed to ensure technology identification quickly to meet a strategic business or operational need.

One participant mentioned that a project took so long that technology had "leap frogged" before the system went live. The company abandoned the system. Underestimation of the organizational change management was another common lesson learned among participants.

Effective management of external resources for IT projects was also a requirement for success. Some proactive adopters have instituted IT and business unit managers, created a project management office (PMO), or both to oversee all IT projects underway.

IT, business unit managers, and PMOs ensure continuity of requirements updating the timely resolution of issues. Individuals leading these efforts must have in-depth business and technology knowledge.

PROJECT PRIORITIZATION AND JUSTIFICATION

Business case creation is the key methodology used to prioritize and justify IT investments. Hard dollar ROI is a primary factor, but soft benefits and strategic business benefits are also part of IT decisions. The more proactive adopters of IT in the manufacturer and customer groups valued the business strategy impact more than ROI. Some quotes from participants capture their views:

"Prioritization of IT projects considers value to the customer."

"Cannot do ERP or cross enterprise IT investments using ROI. This requires a strategic viewpoint about how to leverage IT."

"Planned obsolescence of existing systems and having a strategic IT plan using the knowledge of technology options available will help ensure technology projects can meet future business and customer needs."

SERVING BUSINESS BETTER

Universally, participants identified two areas where IT organizations have improved but could still do better in assisting business and operations efforts:

1. The technology group must have people with business knowledge who can answer why a given technology is important to the success of the business.

2. Better communication and training with user-friendly materials are necessary to explain how the systems impact business.

The previously mentioned need for improved technology tracking and a need for formal strategic sourcing in selecting and managing outside IT resources were some specific opportunities mentioned. In general, IT organizations have become more responsive to their business. The following quotes illustrate room for improvement still exists:

1. "As a business, we mandate a 24-hour response on customer service. IT folks need to start measuring their response in hours instead of days."

2. "IT people must communicate so business people can understand rather than have blank stares on their faces."

3. "Customer service should be available within hours and not days. Legacy system support causes this to happen."

FUTURE TECHNOLOGY IMPACTS

All manufacturers and customers see greater collaboration and automated information sharing as the future state of IT. The building of trust between trading partners and safeguards for securing trading partner-specific data will limit this move to collaborative commerce. SCM, customer relationship management (CRM), and wireless technologies are near-term items that will help companies move toward collaborative commerce.

Another important area is increased integration of IT systems for all levels of an organization. This will ensure that the best information is available for sharing with external partners and for improving decision support.

One quote sums up the responses, "We need to think ahead on deploying technology ... and take a holistic view of integration internally and externally beyond our four walls to the entire supply chain."

ALL LEVEL INTEGRATION

Executives in manufacturing and customer groups have begun the process of integrating information within all levels of their companies. Both groups stated a desire to move toward collaborative commerce, but one executive noted, "Companies must be sufficiently comfortable to pioneer and change their internal culture first." Much written material exists on building trust and security of information as the key barrier for manufacturers moving toward collaborative commerce.

Compelling business drivers or crises are necessary to create radical change in the way companies cooperate. High technology manufacturing has led the way in adopting collaborative commerce due to the high unit costs of products and complex global supply chains. Manufacturers in other sectors need to take similar business-driver-based leaps to becoming pioneers in pursuing supply chain integration before a crisis forces the issue. S!

IN THIS ARTICLE, YOU WILL LEARN:

* How different levels of IT fit within a company, which IT efforts have hit the mark, and what has caused "challenged projects."

* How an interview group of manufacturers and customers ranked different IT priorities.

* Why manufactures and customers see greater collaboration and automated information sharing as the future state of IT.

ADDITIONAL RESOURCES

* "Getting value from IT investments," Ted McDermott, Solutions!, April 2002, p. 40.

* TAPPI Spring Technical Conference and Exhibit, May 5-11, 2003, Sheraton Chicago Hotel and Towers. Includes Process Control Conference. For more information, go to www.tappi.org

* PIMA 35th Annual PIMA Information Technology International Conference, April 27-30, 2003, Fairmont Hotel, Vancouver, British Columbia, Canada. For more information, go to www.pimaweb.org.

About the author: Ted McDermott is a member of the TAPPI Editorial Board and the PIMA Information Technology Specialist Group. He is an e-business/technology analyst and consultant based in Palatine, Illinois, USA. He can be reached at [phone], or by email at [e-mail].