Implementing ERP: The Time is Now

Implementing an Enterprise Resource Planning (ERP) system is intimidating for any company, but particularly for mid-market companies. Senior management often wonder if they have the organizational wherewithal to manage and benefit from such a complex tool.

Small to mid-size businesses (SMBs) in the aerospace and defense (A&D) industry also have to question if an ERP application can keep up with their changing business requirements. Rapid growth may unexpectedly push the limits of their supporting infrastructure. New processes may be required to qualify for opportunities with new customers, new programs, or new markets. Regulatory requirements may be imposed as SMBs reach certain thresholds, so a company choosing a rigid, inflexible IT platform could find their ERP package quickly turning into an anchor, preventing forward progress.

The good news is that in the last few years, integrated business systems like ERP applications have become more flexible, affordable, and easier to operate. Implementation cost and timelines have decreased, and some systems specifically accommodate the continual changes faced by the A&D industry.

I know first-hand what it takes to successfully implement ERP in our industry after managing the selection and implementation of IFS Applications at Ensign-Bickford Aerospace & Defense Company. Today, I am using what we learned at Ensign-Bickford to help other A&D companies. Implementing an ERP package is a significant undertaking, but real advantage can be gained if a company embraces the full capability of their chosen application. With the speed of ERP adoption in A&D, it may become imperative for small businesses to adopt integrated business system technology to remain competitive and continue to grow.

Lower Financial and Organizational Cost

Senior managers often recognize the inefficiencies of their manual or decentralized front and back office processes, but have been reluctant to implement an integrated software system to streamline these processes because of the cost, demand on the IT infrastructure, and possible disruption to the organization.

The evolution of Service-Oriented Architecture (SOA) in software design by forward thinking ERP suppliers addresses these concerns. This more modular design means ERP implementation strategy can address a business' needs in priority order, directing effort and capital towards the most imminent customer or market demands.

Enterprise applications that have evolved along the modular SOA path let a company implement a more modest footprint of a solution, addressing pressing needs first and delivering fast return on an IT investment. Other business processes can be automated later, according to priorities and projected benefits.

Monolithic enterprise applications, on the other hand, require companies to purchase and implement the full package of functionality, and simply "turn off " unused features, adding licensing, testing, implementation and maintenance for unused "shelfware." Because an SOA based system like IFS Applications consists of hundreds of components that can operate independently to allow for incremental implementation, these excess costs are eliminated.

ERP administration requirements have also been streamlined. At Ensign Bickford, we considerably over-estimated the amount of work and cost required to operate the Oracle database and IFS Applications. In the end, our Oracle database administrator managed the application and the database, and still had time for non-ERP related tasks. SMBs can also outsource database and application administration by including it in an ongoing maintenance agreement with an ERP vendor or third party. Providers experienced with your combination of database and application can deliver even more real cost savings.

Growth Requires Flexibility

The same software architecture that lets you roll out your ERP in phases can better adapt to changes affecting your business. Growing SMBs in the A&D sector may suddenly face new regulations and business requirements by simply passing a regulatory threshold or gate when they win a new program, or enter a new market.

Consider a company that starts out by providing "build-to-print" products to OEM's under competitively awarded fixed price contracts. This company would be required to add a number of new industry standard A&D business processes to qualify for work outside their initial business model. Re-determinable cost contracts like cost-plus or time-and materials, often used in research and development work, would require an accounting system compliant with government imposed cost accounting standards. Engineered-to-order work would require an industry compliant configuration control capability. Expanding internationally may require a Department of State compliant export control program.

In a number of cases, the business practices required of A&D manufacturers are driven by the markets they are pursuing. Aircraft and Space business, for instance, demand traceability requirements on products and materials through the manufacturing process.

Following the processes required for A&D work is not a competitive differentiator, it is the minimum required to qualify. SMBs have to compete with incumbents with established and well-tuned processes, so they need to quickly meet the industry standard processes to expand into new markets. ERP systems give an SMB a structured and cost-effective way to install new processes quickly. Some of these standard processes, when done well, may help differentiate an SMB from their competition indirectly. For example, a well organized project accounting process may allow a company to more efficiently manage their business, resulting in better technical, schedule, and cost performance.

Smart Ways to Reduce Cost

Front and back office expenses are typically a significant cost to A&D businesses. Overheads can exceed 300% of manufacturing cost, providing significant opportunities to reduce overall cost and lead times. If an SMB is not carrying this level of overhead today, it is likely they will as they grow. Intelligent use of ERP can help identify and eliminate nonvalue added cost and lean out their organizations. Contribution to the bottom line is the type of cost saving that should drive the industry towards modern enterprise applications. But there are also smart ways to reduce the cost of operating the application itself.

Today, we are in a buyer's market, and customers can negotiate a discount with virtually any software vendor. Vendors are offering innovative packages with prices and functionality to fit the needs of our industry.

Exercise caution, however. Some large software companies are growing through the acquisition of smaller ERP products and providers so they can collect the maintenance revenue and establish an incumbency with customers.

Many of these products will likely be phased out, and companies on those platforms will face yet another implementation project. Some large vendors may offer deep discounts on these legacy products, expanding the user base only to later urge these customers over to other product lines.

So during a selection process, ask vendors how and when new functionality will be added to a product, particularly if discounts seem overly aggressive. Verify their response by looking at their track record with the product line and as a company.

An under-appreciated resource that help SMBs reduce total cost and get more value out of a modern ERP package is the peer user group, particularly if it includes other A&D companies. The quality of the organized user group was one factor we took into consideration when selecting an ERP vendor for Ensign-Bickford. In the final analysis, IFS's InFocuS group provided a more capable pool of experience and expertise to draw on.

Anytime you can look to software user group members for advice, you save money otherwise spent on consultants or working through the issue yourself. You also enjoy learning from your fellow professionals. Since the trend towards 21st Century ERP is just hitting the A&D space now, the number of peers to draw from will only increase in the years ahead.