Integrated ERP Software Equals Immediate Cost Efficiencies
A newly integrated enterprise resource planning (ERP) implementation reduces leadtimes by allowing electronic requisitions, project scheduling, financial system integration and automated reporting.
Top-tier defense suppliers in the U.S. are watching the news closely, because world events are impacting the prognoses of their businesses. The internal operations of these manufacturers are ongoing process improvements, a component of the ISO 9001 requirement.
The Thales Group International (Carquefou, France)-a global electronics company serving aerospace, defense and information technology (IT) markets worldwide-owns the majority of African Defense Systems (ADS), joined by the Black Empowerment shareholders in South Africa. According to Theo Voyatzoglou, president of Fort Lauderdale-based Cubicorp (Fort Lauderdale, FL)-a defense, automotive and optical manufacturing company-"American defense suppliers are evaluating the same issues and circumstances and may find valuable lessons from the ADS experience."
ADS manufactures a wide variety of products from wide-area surveillance to surface-based air defense and combat management systems, including combat suite and mine hunting. ADS runs numerous internal projects; most are customized to a unique manufacturing standard (thus engineered-to-order, [ETO]); the result is that the company manages an extended supply chain.
Voyatzoglou notes, "The monthly transaction statistics of ADS are remarkably similar to most U.S. Tier 1 and Tier 2 defense suppliers." With an average of only eighty-six sales orders per month, sixty-seven shipments and fifty invoices, the customized nature of the industry is revealed. Conversely, monthly purchase orders and creditor invoices fall shy of eight hundred each.
The Thales Group acquisition of the firm in March, 1998, caused a careful examination of all systems and internal processes at ADS. The systems applications used at that time were Excel and Accpac. Nothing was in place to control for purchasing, production planning and scheduling, stock control, project management, engineering control or asset management. Although ISO 9001 certified, there was an obvious disintegration of the system when the company was acquired. Just a few months after the entry of the new management team, a request for purchase (RFP) was issued, and by 2000, a comprehensive new internal technology system (especially integrated ERP software) had been selected and implemented.
Charles Strachan, a senior executive with ADS, detailed some of the efficiencies that were achieved as a direct result of the new system implementation:
- Efficiency of the supply chain management process
- Efficiency of the procurement process
- Accuracy of stock
- Efficiency of stock control
- Efficiency of product planning process
- Cost and expense control
- Information extraction and reporting
- Reduction in time required to close financial month end
- Efficiency of expense control and management
- Integration with other applications
- Control over payments to creditors
- Efficiency of debtors control
- Data accuracy
- Efficiency of company budgeting
ADS employs almost four hundred people-the majority are computer scientists, professional engineers and technicians. More than 250 of these employees are using the new system as part of their quality management system. This technology has allowed ADS to offer more effective turnkey solutions to customers, running the full product development cycle from concept phase through to final production and support.
Even training services have been enhanced in the form of improved product logistic support, ranging from high-quality equipment handbooks to training courses and test equipment.
According to Voyatzoglou, "Most U.S. defense manufacturing, like ADS, is a unique combination of both repetitive and nonrepetitive manufacturing." Most ERP systems are classified either as repetitive or ETO, and few systems address the defense industry's need to manufacture customized equipment as well as standard products-from control panels to strategic defense equipment.
Factors to be considered by U.S. Tier 1 and Tier 2 suppliers in evaluating the efficacy of the current internal systems should include:
- What is broken or not working to maximum capacity in the current system?
- What are the features and functionality that a new ERP system may bring to achieving maximum efficiency?
- What is the cost justification and ROI prognosis with a new ERP system implementation?
- What cost savings and efficiencies are most likely to be achieved?
- What is the ability to manage costs and view project-based manufacturing?
- What is the capacity of a new system to expand and meet the ongoing needs of the organization?
Generic enterprise software vendors who claim they adapted their software for the aerospace and defense sector have fallen short of meeting these critical demands and unique requirements. The full range of contract and project functionality is essential for aerospace and defense manufacturers to successfully administer and complete a contract, including project management, project labor and material costing. The ETO environment requires multiple levels to allow for a very detailed structure depending on customer practices and needs.
From drill-down capabilities to project tracking, costing and reporting, defense and aerospace manufacturers have a greater challenge in evaluating the cost and time benefits of new system implementation. Project and contract invoicing that includes milestone billing, progress billing, advanced payment and comprehensive cost of sales analysis are not answered by many of the ERP ETO vendors aggressively marketing to this segment. Aerospace and defense manufacturers have wrestled with these issues for years; yet, in the current geopolitical climate, there is more attention on how these companies are answering issues of productivity and cost-efficiency. The ADS model serves as an example of quantitative and qualitative examination within the aerospace and defense sector.
