Manufacturing Executive

Strange Bedfellows: Arnold and Infosys

By David R. Brousell | Published: October 19, 2009

What do California Governor Arnold Schwarzenegger and Indian outsourcing giant Infosys Technologies’ chief executive S. Gopalakrishnan have in common?

At first blush, the answer would seem to be, “nothing.” As a 7-time world bodybuilding champion, action movie star, and now chief executive of the most populous state in the U.S., Arnold is one of the world’s most recognizable celebrities, famous for big muscles, big ticket sales, and big political positions.

On the other hand, if you passed Gopalakrishnan, known as Kris, in the street, in an airport, or even sat next to him at an adjacent table in a restaurant, it is highly unlikely you would know that this short, ordinary-looking man runs a $4 billion company with more than 105,000 employees worldwide.

But as became clear last week at OpenWorld, Oracle’s huge annual user conference held in San Francisco, the two men do share something important: a belief that the road to the future is paved with advanced technology.

In a speech on Wednesday at OpenWorld, Schwarzenegger talked about how technology was a key factor in advancing his careers in both bodybuilding and the movies. When he came to the U.S. in the 1960s, he said, the bodybuilding equipment he found here was far more advanced than what he had been using in his native Austria. And when he went into acting, digital technology enabled much of the success of his Terminator movies.

Schwarzenegger went on to detail the myriad innovations coming from California-based companies — he couldn’t resist, of course, plugging two obvious native sons, Oracle and Sun (Oracle is in the process of acquiring Sun) — that will help drive California into the future.

Gopalakrishnan, in a speech entitled, “Seven Game-Changing Trends,” told OpenWorld attendees that IT-led innovation is the path to a brighter future. He said that such trends as architecting adaptive organizations, sustainability, pervasive computing, shifting from value chains to value webs, and creating smarter organizations through collaborative learning are all reshaping our world.

He urged his listeners to create what he called “single digital nervous systems” in their companies and organizations in order to progress. “IT-led innovation will deliver the next generation of growth, profitability, and asset utilization,” he said.

Two very different men from two different worlds with a common vision of the future. Makes you feel pretty good, doesn’t it? Maybe we might just get there.

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Refilling the Talent Pool

By Jeff Moad | Published: October 14, 2009

Recently, while putting together an article summarizing 2009 supply chain management trends, I had more than one well-known SCM consultant tell me with some alarm that they’d been involved in recent projects — some involving large manufacturers — that were being run by managers with very little supply chain experience.

“Some of these people are needing to relearn things many of us learned years ago,” one consultant told me.

The concern is that recession-inspired layoffs, combined with baby boomer retirements, have significantly eroded the supply chain management talent bench strength at many manufacturing companies.

We hear and read a lot these days about how the recession is over, and manufacturers are reemphasizing growth. The recession of 2008/2009, economic pundits assure us, is turning out to be a V-shaped event characterized by a steep decline followed by an equally steep recovery. For evidence they point to the surging stock markets and economic indices such as the ISM Manufacturing Index, which has been above the magic 50-point level for the past two months. And home prices in some areas are back on the rise.

These are surely hopeful signs. Still, U.S. manufacturers continue to shed jobs — an estimated 63,000 in August — and unemployment overall continues to increase. Clearly, many CEOs are not feeling certain enough about the recovery to begin hiring again.

This reluctance to hire even in the face of positive economic trends raises an interesting question: At what point does the loss of people with rich experience — in supply chain management, for example — begin to undermine the ability of manufacturers to take advantage of new growth opportunities?

You can make a pretty strong argument, I think, that now is precisely the time that manufacturers need all the SCM expertise they can get their hands on. With markets in developing countries recovering faster than those elsewhere, manufacturers must quickly improve their ability to understand and respond to global demand while reducing supply chain risk. I fear, however, that having drained their SCM talent pools, many manufacturers will waste precious time repeating the mistakes of the past.

Ironically, just as many manufacturers are apparently trying to make do with the SCM B-Team, a rich reservoir of supply chain talent waits to be tapped. Recently, the International Supply Chain Education Alliance announced it would make available to unemployed SCM experts a certification training course for a discounted rate of $50. Some 250 unemployed supply chain professionals took advantage of the offer, intent on beefing up their résumés and skills.

Manufacturers needing to rebuild depleted SCM teams should check out such highly experienced supply chain professionals.

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Risky Business

By Stephanie Neil | Published: October 9, 2009

It’s been a year of belt tightening. Plant closings, layoffs, spending freezes, and reorganizations — all tactical levers for keeping costs down in order to survive a stubborn recession. But these short-term strategies are ways to keep companies afloat, and they are not necessarily sustainable given new pressures in the form of inflation, green agendas, and more and more regulations.

Suddenly, manufacturers are feeling a greater need to gain control across, and outside of, the organization. In other words, they need new ways to manage risk.

I’ve heard the term ‘risk management’ popping into more and more conversations lately. But what does it really mean? Loosely defined, it’s a balance between risk and related opportunities, but it spans many facets of the organization, from corporate reputation to operations to partnerships, and it includes financial reporting, regulatory compliance, quality control, production, new initiatives like green, and market dynamics. So the words “risk management” really mean something different to each industry, and to each company.

Manufacturers, however, need to take a good look at the banking and financial industry, which, following a bout of bad loans and bad decisions, has put greater emphasis on the role of the chief risk officer (CRO). This individual is responsible for policing possible problems. And, typically, he or she heads a risk department that keeps tabs on activities throughout the company, because risk management is a cross-functional effort.

The creation of a ‘risk department’ may seem a bit over-the-top for most manufacturers, but given the global landscape, the product quality problems that can pop up (from peanut butter to toys), and a growing dependence upon partners — a potential weak link in the supply chain — manufacturers can’t afford not to establish an office of risk management that not only tracks risks through the use of technology, but also enforces company-wide best practices and policies.

Manufacturers can’t wait until a crisis hits. And leaving it risk management to each department manager will result in a mix of technologies from a variety of vendors claiming they can remove risk. A hodge-podge of new technologies implemented to address one function, be it contract management or quality assurance, may only exacerbate the problem. There needs to be a cohesive, standards-based approach to this business problem.

It’s time for a unified, top-down approach to risk management. It’s time to appoint a CRO. Do you agree?

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“Off-the-Shelf” Software and Other Fairy Tales

By Chris Chiappinelli | Published: September 25, 2009

A couple of developments in the news this week serve as a powerful reminder that there is no such thing as off-the-shelf commercial software. Rather, there is big business in providing services to tailor software to specific business models, the nuanced processes of certain industries, and the unique partner interactions of various business operations.

Dell, best known for its computers and servers, announced on Monday that it would plunk down $3.9 billion to buy Perot Systems. Perot spends a good portion of its time customizing applications from software vendors to fit the idiosyncrasies of clients’ businesses. In the manufacturing sector, for instance, the company offers SAP applications tailored to specific vertical industries.

A year before Dell made its defining move into the services business with the Perot acquisition, competitor HP spent $13.9 billion to buy EDS, a prominent application specialist and systems integrator with a thriving trade in customized SAP applications, as well as enterprise applications from other vendors. This week, HP crowned its integration of EDS by sticking a new name tag on its services business: HP Enterprise Services. “EDS” may be a relic, but the revenue produced by helping companies turn off-the-shelf software into on-the-job software remains big business.

(While the two examples above call out SAP, the challenge extends to nearly all enterprise software providers.)

The business of maintenance has also been under the microscope in recent days, with rumors flying that Siemens will drop a maintenance contract for its enterprise software. Companies opting for on-premise software often face hefty maintenance costs (on-demand purveyors wrap their maintenance costs into subscription fees) to continue receiving functional enhancements and major upgrades to the software. There’s no denying that such upgrades can bring business benefits, but moving to the next significant release of an enterprise offering is in itself no off-the-shelf job. Many companies must enlist pricey service providers just to reach that next level.

The advent of software-as-a-service resurrects the possibility of an off-the-shelf world. In a true multi-tenant model (with Salesforce.com the de facto poster child), all customers dial in via Web connections to the same instance of the software. That saves the vendor money because it develops just one software package and can host it on one system, instead of across many individualized instances within a data center.

With some limitations, then, a company can use the software off the shelf without too much fuss.

Nirvana? Only if you don’t need your IT to deliver competitive differentiation. With true multi-tenant software-as-a-service, we fall into the black hole that Nick Carr predicted more than half a decade ago — that IT won’t matter, at least not in separating one company from another.

And that brings us to the question: Which does your business prefer? True off-the-shelf software that conveys no advantage and doesn’t break the budget or a system highly calibrated to meet your business needs and delivered at a high cost?

Or have you found a middle ground?

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Will Siemens Dump SAP Maintenance?

By David R. Brousell | Published: September 21, 2009

Unconfirmed reports that Siemens may have cancelled or may be in the process of cancelling its software maintenance contract with SAP have been circulating over the past couple of weeks in the press and in blogs.

A report in the German publication Wirtschaftswoche early this month reportedly said that Siemens has been considering third-party software maintenance alternatives from such companies as Rimini Street and IBM.  On September 12, on his blog, A Software Insider’s Point of View, analyst Ray Wang referenced the German magazine story.

Five days later, in a San Francisco date-lined story, MarketWatch, quoting “media sources,” reported that Siemens had submitted a maintenance termination notice to SAP. The same story quoted JMP Securities analyst Patrick Walravens as saying, “Siemens … may in fact have sent a termination notice for its maintenance agreements.” Also on September 17, InformationWeek weighed in, noting that on June 8 Siemens rejected an SAP human capital management application in favor of a software-as-a-service product from SuccessFactors for a 420,000-seat license. InformationWeek speculated that this rejection, plus the software maintenance development, may show that SAP’s business model isn’t keeping pace with the changing needs of such large corporate customers as Siemens and possibly others.

Meanwhile, neither SAP nor Siemens have confirmed or denied the maintenance cancellation reports.

AMR Research analyst Bruce Richardson, quoted in the MarketWatch story, said that Siemens has 400 SAP systems. He and colleague Jim Shepherd, who posted a response to Ray Wang’s blog, said they are skeptical about the software maintenance reports and even went so far as to say that the reports may suggest a negotiation is underway between Siemens and SAP.

So what to make out of all these so-called “reports”? Is this a case of where there is smoke, there is fire? Or could it be that Siemens simply wants to consider maintenance options and is opening the process, with SAP still a possible winner?

But if the reports turn out to be true or even partly true, this could be a big deal for two reasons. One is that Siemens is not only a well-known, worldwide brand name, but also a big user of SAP applications. Other large organizations might take notice of the speculative reports and get ideas of their own.

The second is what such a cancellation might say, broadly speaking, about pent-up frustration over software maintenance fees attached to traditional on-premise applications used by corporations and other organizations. Keep in mind, too, that frustration over these costs isn’t limited to SAP’s customer base. A report in this week’s issue of BusinessWeek, for example, noted that some Oracle customers are angry about maintenance fees and software audits that result in large bills. Oracle declined to comment on the article, the magazine said.

SAP, though, may well have opened up a Pandora’s box in July of 2008 — when the recession was already starting to dampen business activity — when it announced it was raising fees to 22% of license prices, from 17%. The announced increase didn’t go down well with customers and SAP was forced to backpedal earlier this year and delay the increase for three years. In addition, it agreed to work with the SAP User Group Executive Network, a federation of 12 SAP user groups, to benchmark the enterprise support program. MA has covered this ongoing story from day one.

Meanwhile, SAP’s own efforts to bring a SaaS-based product to market, most notably with its Business ByDesign mid-market software, introduced two years ago this month, are proceeding slowly.

The underlying question, with the Siemens story as sort of a lightning rod, is whether there is a fundamental shift underway in expectations about the value of IT systems such as SAP’s and Oracle’s, their total cost of ownership, and what new delivery models such as SaaS can provide.

I suspect there is. Are the big players like SAP and Oracle really nimble enough to get in front of this changing landscape?

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Finally Fusion

By Jeff Moad | Published: September 11, 2009

In the Bay Area, where I live, we’re used to major projects that seem to take forever to get finished. The high-profile retrofit of the Bay Bridge’s eastern span, for example, has been underway in some fashion since shortly after the last big quake here in 1989, and it’s still clogging up traffic.

In some ways, Oracle’s Fusion Applications initiative fits on a list of long-delayed projects. Oracle announced the project in 2005 and initially promised a rollout by the end of 2008. The good news is that the delays in Redwood Shores, CA-based Oracle’s Fusion Applications haven’t made getting around the Bay Area any harder, nor have they really had much impact on current Oracle customers thanks to the company’s Applications Unlimited promise to continue to extend and support existing application products.

Now, sources tell me, Oracle is finally about to reveal more details on Fusion Apps. At next month’s Oracle Open World (another source of local traffic snarls, by the way) the company is expected to provide some splashy Fusion Apps demos and detail its rollout plans.

Perhaps the most interesting development, according to sources who asked not to be identified, is that in addition to the option of deploying the entire Fusion suite, customers will be able to implement individual Fusion Apps modules on top of existing Oracle applications such as E-Business Suite and JD Edwards. To do so, customers would need to utilize Oracle’s Application Integration Architecture tools.

Interestingly, this strategy seems to be similar to Infor’s extend-and-evolve approach, under which it is developing new process-oriented modules that can be appended to existing Infor apps using the company’s Open SOA architecture.

This incremental deployment approach is a fit for these uncertain economic times when many customers are reluctant to spend on big bang enterprise application projects, preferring to invest in smaller projects that target specific pain points.

Fusion Apps customers also will have the option of on-premise or on-demand implementation, my sources say. This sets up a potential face-off next year between Fusion Apps and SAP’s Business ByDesign, which is expected to get a broader relaunch in 2010.

Despite all the Open World attention that is expected to be trained on Fusion Apps, the product won’t become generally available until sometime next year. That’s probably not surprising considering that Oracle’s Fusion Apps strategy was first announced in 2005, and the original target delivery date was the end of 2008.

Still, it’s good to see Oracle giving the enterprise applications market a much-needed push forward, even if it is later than expected.

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September 11, Years Later

By Chris Chiappinelli | Published: September 11, 2009

(An earlier version of this entry first appeared in September 2007.)

I headed downtown recently to attend an industry event held on the 51st and 52nd floors of 7 World Trade Center in lower Manhattan. The first building to rise in the wake of September 11, it overlooks the empty bowl where the Twin Towers stood.

I worked a brief stint at a bookstore in the World Trade Center complex a few years before that ugly day in 2001. On my way to the event last week I retraced the steps I used to take. Beyond the subway gates I turned into the corridor that once opened on an underground mall, five stories below the surface. But when I turned the corner last week, I could see the sky.

Someone had twisted the truth of my memories.

At street level, the environs of the World Trade Center site hummed and whirred and bustled. Steel clashed with concrete. Tourists and mourners crowded the sidewalks, vendors hawked hot dogs. Commerce and commiseration mingled in the afternoon shadows.

Cranes taller than buildings swung their booms through the hallowed air above the pit. Backhoes extended and contracted their arms, rebuilding.

Whether the assault comes from terrorists, a flagging economy, or a manufacturing sector under siege, it is important to remember that the reaction is more enduring than its cause.

7 World Trade Center glimmered like Caribbean waters in the August sun, a product of our resolve. New York and New Jersey subway trains shook the ground underfoot. Delivery trucks, construction equipment, and bright young workers milled in the streets.

I saw a simple truth in the scene that day: America will never sit still. No people will for long. We can be stunned, even transfixed by our pain, but we will return to our pace, manufacturing and innovating and striving.

Always striving.

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GE Fanuc: Breaking Up Is Hard to Do

By Stephanie Neil | Published: September 8, 2009

Two years shy of their silver anniversary, GE and Fanuc are calling it quits.

I must admit, I was surprised by the news at first. It was one of those long-term relationships that I admired from afar. Like an old married couple, the two companies worked hand-in-hand nurturing their family of products, and displayed mutual affection and respect for one another. If only every relationship could be like that (sigh).

Now it’s over. Splitsville. Just like that, with no warning! All my friends agree that they seemed so happy together, the perfect couple. What went wrong?

Well, like most marriages that end in divorce, money was an issue. The tough economy is taking a toll on all of the automation vendors, forcing them to scrutinize spending initiatives.

In GE Fanuc’s case, sharing the funds was starting to cause a little conflict, it seems. Just read between the lines of the press release announcing the dissolution of the joint venture: “This agreement would allow each company to refocus its investments to grow its existing businesses and pursue its respective core industry expertise.”

In other words, “what’s mine is yours” just wasn’t working anymore.

Then there’s the issue of the kids; um, I mean, the products they were rearing together. The duo originally came together to cooperate on the growth and technical development of the PLC and CNC. Well, these technologies are now all grown up and don’t require much supervision for development’s sake.

Meanwhile, GE has been flirting with much younger and sexier technologies, including operations management and enterprise manufacturing intelligence. It’s true. It’s splashed all over the tabloids!

So I shouldn’t be surprised by the news that GE and Fanuc are no more. A break-up was inevitable. They just grew apart. They don’t have much in common anymore. They need to explore new opportunities and meet new partners…But they’ll remain friends ;-) .

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SAP Dogged by Court Costs

By Chris Chiappinelli | Published: September 2, 2009

I’d imagine if you were a fly on the wall in SAP’s corporate offices in Walldorf, Germany, these days, you might hear some grumbling about the amount of time and money the company spends in court defending its business practices and technology.

Just last week, a jury awarded Versata Software, Inc. more than $138 million, ruling that SAP’s CRM and ERP applications illegally appropriated technology Versata held under patent. SAP says it will appeal the decision.

Last year, the enterprise software leader settled a patent infringement suit brought by supply chain software specialist i2 to the tune of $83 million. (i2 has since filed a patent infringement lawsuit against Oracle Corp. that remains to be resolved.)

(As an aside, these two cases raise basic questions about today’s software development processes, and why internal checks and balances haven’t indemnified SAP against litigation.)

Regardless, the company can’t be happy with its frequent sit-downs with corporate counsel, patent-related or otherwise. In 2007, Oracle sued SAP over its now-defunct TomorrowNow unit, which supplied third-party maintenance services to Oracle customers. Oracle claims those services were enabled by fraudulent business practices, and the case now wends its way through a procedural sparring match toward a 2010 jury trial.

And in the spring of 2008, Waste Management sued SAP for $100 million, alleging that SAP’s enterprise software failed to deliver the functionality promised under the companies’ license deal. That battle continues, and the meter is running: SAP said in April that the cost of fighting the litigation has already run into the millions.

Granted, any large, publicly traded corporation wears a litigation bull’s-eye that grows proportionately with its influence in the marketplace. As it looks to close out yet another big acquisition, for instance, Oracle faces a number of lawsuits aimed at its target, Sun Microsystems, alleging that Sun neglected its fiduciary duty to shareholders when it agreed to the Oracle takeover.

But SAP seems to have more on its plate than most, and Walldorf likely wishes its lawyers could take a vacation.

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Pulling the Plug on High Energy Costs

By Jeff Moad | Published: August 21, 2009

Remember when it was possible to negotiate long-term contracts with utilities, ensuring some level of energy cost predictability? For most manufacturers, those days are long gone. Not only have energy costs fluctuated wildly in recent years, but utilities have switched to variable pricing schemes, adjusting energy costs up and down — in a matter of days or hours — depending on demand and supply.

This, of course, creates a new set of constraints for manufacturers to manage. As energy costs have risen dramatically, they have become a major factor in determining plant profitability, right up there with yield and feed-stock cost in the case of process manufacturers.

The problem is, without adequate real-time information on utilization and pricing, manufacturers haven’t been able to manage those variable and growing energy costs by, for example, rescheduling production runs when prices spike. For the most part, manufacturers have been stuck with trying to manage energy costs after the fact — or relocating production to geographies with lower energy costs.

But now it looks like some of the major vendors of plant automation systems have plans to attack this problem. I spoke recently to officials at Invensys and Rockwell Automation, and both companies have remarkably similar visions on how manufacturers can cope with rising and variable energy costs. Both want to work with utilities to devise a standard format for communicating real-time energy price information. That information could then be combined with production scheduling and energy consumption information from the plant floor, giving manufacturers a way to manage variable energy costs in real time. Think of it as energy arbitrage for manufacturers.

Unfortunately, this vision is not close to becoming a reality. Many manufacturers still don’t have complete real-time energy consumption information because they haven’t completely instrumented or upgraded all of the production equipment on their plant floors. And most utilities aren’t able or willing to provide real-time pricing information. That should change once they’ve rolled out Smart Grid technologies, but that probably won’t happen for several years.

Still, the idea of real-time energy management makes a lot of sense. Manufacturers should push their automation vendors and energy suppliers to work together to make it a reality.

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