Clarifying the Blind Spots of Idle Material Management to Eliminate the Cause of Low Profit Margins of the Manufacturing Industry Single Dimension Solution Cannot Deal with Idle Materials in a Timely Manner

DigiTimes/Enterprise IT, Reporter MING, Yunqing, Reporting from Taipei 2006/03/24

Having too much goods in stock is a big mistake for manufacturers facing the impact of decreasing profit margins. Especially when it consists of idle material that is difficult to digest, increasing the pressure on the enterprise! This is a loss that is difficult accept!

At this time, the primary challenge faced by a CIO in a manufacturing industry is to devise a method of solve the problems related to idle material. Especially when the IT department has already deployed Advanced Planning Systems (APS) and ERP systems, which may have generated many reports regarding idle material and has conducted many Business Intelligence (BI) analyses, but still cannot reduce the high levels of idle material. When this happens, the CIO needs to quickly gain an insight on the blind spot to prevent the situation from becoming worse.

Enterprise management are even more confused, at why even with ERP and APS systems deployed, with many related reports generated and all of the needed BI analyses have been conducted, but still the raising level of idle material continues to increase? As well, why isn't the responsibility related to idle material clarified?

According to the businesses, the reasons causing idle materials are very complex, and does not all result from the cancellation or modification of orders as most people may expect. It could result from cancellation of forecasted orders (FCST), engineering change request (ECR) / engineering change notices (ECN), preprocessing, and … etc. If any aspect of the process is not handled properly, it could result in the idle material. But some enterprises only try to deal with the situation through the use of reporting systems and business intelligence tools. But the figures displayed by these tools only show the results and not the process. So users can know from these figures that idle material exist, but cannot understand what are causing the increase in idle material. Viewing this historic information to find the source of the sickness that is causing the increase in idle material is like drivers that only look at the rear mirror when driving, which is very dangerous.

For the problem with idle material, ERP providers believe that this is a restriction due to traditional ERP architectures. If in a enterprise group, there are separate ERP systems at headquarters, another one at the Suzhou factory, and other one a the Shenzhen factory, business executives naturally cannot manage the whole operation, keep track of the work orders at each subsidiary or factory, and detailed inventory information, thus cannot conduct multiple location production and marketing coordination, centralized purchasing, or coordinated manufacturing synergies. As time goes on, it is no wonder that the level of idle material is high.

At this time, many ERP venders provide core architectures based on system grouping, focusing on a platform based operation management system concept to assist users in managing work orders at multiple production locations and inventory information. Other venders provide a centralized Hub or Portal based solution and use APS to make the adjustments to production planning after an order is changed, also has the effect of lowering levels of idle material.

But Business Process Management (BPM) solutions providers believe that ERP, APS, and BI or even order management, FCST, ECR/ECN, End of Production (EOP) systems are all single location solutions that focus on the processing and computation. Even if features of each system are strengthened, if it is not supported by automated processes that can implement and execute the company's standard operating procedures (SOP), then it would still be difficult to resolve the idle material problem. For example, when there is a change in demand, not only the sales department need to make a decision on canceling the production of related products, the production department and purchasing personnel need to be notified immediately, to respectively stop production and cancel orders for unnecessary material. The whole process is connected and if any of the connections loosen or is delayed, then accumulation of idle material would be very likely.

Therefore, a well-rounded solution to control idle material urgently needs to manage any process involved in the change of demand. By utilizing automated process routing features to start inter-department and inter-system cooperative synergies to require every affected department to appropriately execute procedures to respond to the change within a short amount of time to reduce any possible factors that may result in idle material.

Mobilizing All Enterprise Personnel to Can Resolve the Idle Material Problem

Most of the commonly used methods by enterprises to manage idle material are usually based on a single dimension, letting various professional systems (such as ERP, SCM) or each department to solve the problem. Also with the high ratio of tasks being processed by humans, even with a better SOP, problems can result from ineffective communication between systems or mistakes resulting from human error that would production activities that should have been stopped to continue producing, and purchases that should have been cancelled still being purchased. This result in significant amount of loses for the enterprise. For this very reason, if process management can be utilized, it can result in automatic processing of information that can cause idle material result responses and coordination effects, resulting in the mobilization of all employees to resolve the idle material problems.

Shih-Chen Hwang, general manager of AboveE, indicated that when discussing management of idle material, it is a topic that most department managers are reluctant to discuss. This is because the factors causing this are very complex. So if enterprises over rely on human processes to manage idle material, then it is very natural for sales, research & development, and production management personnel to be arguing with one another, with unclear responsibilities. So a solution that deals with the source of the problem is through process management mechanisms that include all the factors that can result in idle material. At the same time, expand its horizontal connection benefits, mobilizing all company employees, so that every person is at the right place at the right time.

Shih-Chen Hwang believes that when discussing how the idle material problems can be resolved, actually, BPM is not a core factor, but rather it is because the potential factors are too complex and may even be different among various enterprises, so the key is actually diagnosing the problem. Therefore, even when manufacturers realize that process management is a solution to resolve the idle material problem, aside from deploying a BPM product, it still needs to have the ability to diagnose its problems. Information services that are familiar with the manufacturing industry vertical domain and professional consultants are assistances that can be utilized.

Other venders believe that the process of maintaining idle material involves many small links. Although there are many processes that are in need of management, the key is actually with the linkage of various systems, including the ERP system, and the degree of information gathering completeness. So the key point is “Domain plus ERP Integration”. Its effect is more like using one system. So BRM is only a plus in managing the process, but it is not absolutely required.

What cannot be denied is the difficulty in solving the idle material problem. It is difficult because there are too many halting points that need to be configured. Aside from the related decision makers having to propose an EOP in a timely manner, further tracking if its progress is needed. The purchasing department would need to cancel purchase orders at the first possible instant. While the production department would need to substitute the extra material into other production lines. The finance department would need to gather all related information to quickly calculate the expected losses.

Since this involves too many halting points, if it is processed by humans, then each department may end up in a confused state where each does not know when and what needs to be done. So it seems like only BPM can mobilize everyone to collectively resolve the problem.

EAI Application Integration Abilities is Key to Effectively Managing Idle Material.

Since the management of idle materials touches on many aspects, and are connected closely to the contingency decisions, so the pressure of time is very large. As well, it would rely on many information sources. So if users need to enter the needs one by one each time into the database, it would waste time and effort. There may also be thousands or tens of thousands of requirements that are simultaneously entered. This would drag system performance to a halt. Thus, to increase the effectiveness of controlling idle material, EAI integration ability of application systems, are skills that need to be mastered by MIS departments.

For example, orders from customers often need to maintain consistency with Forecasted Orders (FCST), or otherwise, could easily result in redundant material preparation, resulting in idle materials. But the customer order and FCST are actually separated on different systems and are maintained by different professional teams, If a customer suddenly cancels an order, the enterprise not only has to stop production, but would also need to cancel the corresponding FCST entry. The longer the delay between actions, the larger amount of idle materials may be created. For businesses that utilize EAI and BPM technologies, the above steps are updated automatically, and there is no need to worry about problems resulting from human error or issues with coordinated operations.

Under these circumstances, when customers are presented with idle material management solutions, it not only has to evaluate its process management abilities, but also its integration methodology, whether it only passes information to the ERP and then would require manual entry? Or does it support automatic communication between different systems. Because different levels of integration would result in differences in the effectiveness of idle material management.