MES & ERP: Two Paths to Operations Management

Maybe it’s time for a name change. Call it demand-driven manufacturing. Or call it supply chain agility. Or, if you prefer, continue to call it by the name that might make a chief executive yawn: manufacturing execution systems.

Whatever you call it, a wave of MES acquisitions and partnerships by automation and ERP vendors has propelled MES software from what was an idiosyncratic, custom-built factory tool into a broad, out-of-the box analytical executive decision maker capable of instantly changing plant activity in reaction to shifting demand. For several years, automation vendors such as Rockwell Automation, Siemens, Invensys, and GE Fanuc have fed that trend by buying MES and business intelligence companies, and integrating shop floor information into ERP systems. ERP vendors, on the other hand, have pursued a strategy of partnering with MES companies. But that changed in July when ERP market leader SAP acquired MES specialist Visiprise.

That acquisition sharpened market battle lines that have been developing for several years over which group of technology suppliers will capture what has become known as the manufacturing operations management (MOM) arena. From a technology point of view, MOM is the territory between the shop floor and enterprise application systems, such as ERP. That is where crucial decisions will be made on what approach will be taken to automate critical manufacturing data, such as inventory, scheduling, quality management, and regulatory compliance.

Automation companies define the approach based on their control systems heritage, while application vendors, such as SAP, emphasize a top-down approach in which the financial system executes the commands. The inherent problem is that, when it comes to integration, ERP systems are transactional, whereas plant floor control systems operate in real time. This is where the battle begins to intensify, and it is one reason that SAP acquired Lighthammer, which has technology that can extract manufacturing data and apply analysis in real time, as well as Visiprise, to fill its MES gap.

Now, however, the battle is brewing over metrics, business models, and, most important, semantics. To enable plant floor systems and enterprise systems to communicate, these systems must speak the same language, measure things the same way, and support the same business process management model.

Organizations such as MESA, a group of vendors and manufacturers supporting and using MES, are working to define these areas. SAP and most of the major automation vendors participate as board members and working group leaders. But, victory in the MOM battle could come down to which camp or vendor wields the most weight in the debate that will determine how these systems integrate.

The hope for the manufacturers on the board, including Boeing, Chevron, and Sara Lee, is that the models that emerge will be standards-based and not vendor-specific. These companies are trying to influence the outcome so that MOM is not a product that has to be deployed and integrated, but rather a set of best practices and processes that will allow a mix of best-of-breed applications and technology.

Perhaps the decision that manufacturing executives face as to which philosophy to embrace will be influenced by which side can best articulate the potential to shake MES free from its shop floor roots and establish its true enterprise value. If MES is finally going to embed itself in the consciousness of manufacturing CEOs, a new vocabulary may be in order.

“[A manufacturing executive] doesn’t really care about features or functions of MES, or even that it’s called MES,” says Claus Abildgren, MES marketing program manager for Wonderware, a unit of Invensys. “He cares about reducing the costs of products sold, about reducing energy consumption, about increasing order fulfillment rates, and more accurate allocation of overhead costs.”

Jan Snoeij, principal consultant with consultancy Logica in Arnhem, Holland, agrees. “We definitely don’t want to go in and start talking about MES as a manufacturing execution system. They want to know that they can be in control of their own process, so we need to describe MES to them in terms of their agility, their efficiency, their effectiveness, their ability to proactively come up with initiatives in the supply chain.”

Such language challenges explain why automation vendor GE Fanuc has a big focus on what its vice president of software, Erik Udstuen, has rebranded as “the ‘E’ in MES, meaning enterprise.” Udstuen says that a portion of MES’ value comes from tying one enterprise’s MES information to another’s through EDI connections, often operating outside of ERP. And independent of ERP, MES can intelligently shift the order of production if a manufacturer ties its MES into its supplier’s MES and sends alerts about disruptions to a production line or changes in an order schedule.

What these industry participants say differs little from what MES advocates have been saying for years: that a finely linked ERP and MES system, or simply an enterprise-wide MES system, can help a company’s shop floor respond immediately to new orders, to a sudden change in product plans, to a shortage of raw materials, and to rapidly shifting demand.

But the problem is that progress has been slow. According to AMR Research, overall market penetration of MES systems sits at a staggeringly low 15% to 25%, varying across industries. That untapped potential represents a market opportunity of $12 billion, AMR says. In the long run, manufacturing executives might go for such outlays to help them realize what AMR’s Oxford, England-based research director Nigel Montgomery points out would be the ultimate capability of MES: to tie changing demand straight into the shop floor.

In what Montgomery says would mark a “demand-driven” state of ERP-MES harmony, a clothing maker churning out green t-shirts for Prague can adjust instantly when demand suddenly shifts to blue, as word filters through an ERP system and then to the plant floor. Likewise, a camera company that starts losing sales because customers suddenly demand more megapixels could, in theory, receive the customer demand trends in real time and promptly retool or increase production at a plant that’s already geared up. About 70% of companies surveyed by AMR take three weeks or longer to respond to changes in demand. Well-integrated ERP and MES systems could slash that time.

Of course, that sort of immediate response scenario remains a long way off for many manufacturers, and would work best if the clothing and camera companies’ suppliers had well-synchronized ERP and MES systems that let them start churning out, say, more blue dye.

ERP Loyalty

One of the main forces of resistance: Executives believe ERP does it all. “Some manufacturers have invested hundreds of millions of euros in ERP systems,” says Marc Leroux, marketing manager for collaborative production management at Swiss automation giant and MES vendor ABB. “People that have implemented an ERP system believe they have already accomplished the integration. The reality is that they ran out of money or the complexity was overwhelming, and the ERP implementation stopped at manufacturing.”

To help convince manufacturers that MES could improve ERP’s effectiveness, Leroux notes that integration of the two has to improve from merely providing an interface, to supporting rich integration. “With an interface, you have to worry about keeping the two in sync,” he says. “If you change one, you have to change the other, and then you start wondering which is the right one.”

It is just this sort of rich integration that is driving many MES companies and ERP vendors to work together. It is what motivated ERP giant SAP to acquire Visiprise in July. Although SAP was already reselling and integrating Visiprise MES software, the acquisition increases SAP’s ability to integrate because it puts the company in control of the Visiprise roadmap, says Vivek Bapat, SAP’s vice president of solutions marketing for manufacturing, supply chain, and PLM.

“We wanted to integrate much deeper,” Bapat says. “I think you can do that much better through acquisition because we’re able to converge roadmaps more clearly.”

In fact, SAP’s acquisition more than three years ago of Lighthammer and its MII suite (manufacturing integration and intelligence) marked a big step in SAP’s MES integration plans. The tools help break down what Bapat calls “manufacturing execution silos” in which various MES systems exist independently of one another and of the enterprise.

Another reason that SAP went for Visiprise, Bapat says, is that “we were able to get quality people who have been doing this for a couple of decades.”

Even with tools, products, roadmaps, and people, integration requires hard work. As SAP’s ERP archrival Oracle is quick to point out, there’s no guarantee that SAP’s Visiprise acquisition will sprinkle integration fairy dust across the executive suite and factory floor.

“They’re struggling through how to get that integrated,” says Jon Chorley, vice president of product strategy supply chain management at Oracle, a company that does not miss chances to swipe at SAP. “Their integration approach is a toolkit, and, don’t forget, Visiprise grew out of acquisitions, too, so SAP has an integration challenge not only between SAP and Visiprise, but they have to rationalize internally the assets with Visiprise.”

Oracle itself has worked toward integrating MES and other manufacturing software into its own enterprise software. Oracle credits the evolution of the ISA-95 standard for helping to implement commonalities across MES and ERP to smooth their integration.

Thus far, Oracle has developed its products internally while working with independent MES vendors such as North Carolina-based high-tech industry specialist Camstar. In April, for instance, Oracle introduced the Manufacturing Operations Center, a set of products intended to integrate shop floor and enterprise systems, as well as provide interpretive intelligence. The offering includes a dashboard that displays key performance indicators to help executives spot plant performance trends and needs, and make decisions accordingly.

Some industry experts believe that the emergence of analytics marks the next important step for MES-to-ERP functionality. It has driven several acquisitions in recent years of analytics firms by MES and automation companies. These include Rockwell’s acquisition of Propack and Datasweep; GE Fanuc’s pickup of Mountain Systems; Invensys’ purchase of Cimnet; and Siemens’ acquisition of UGS, among others.

Julie Fraser, principal industry analyst at Cambridge, England-based research firm Cambashi, expects more such acquisitions and singles out GE Fanuc as one likely buyer. GE’s Udstuen declined to comment.

GE is clearly intent, though, on linking the factory floor to the enterprise through MES software supported by analytics, backing up its rebranding of MES as an enterprise system. In June, the company added the Real Time Information Portal 3.0 Manufacturing Intelligence Application to its Proficy stable of MES products, which delivers insight into plant floor happenings while providing analytics and trends meant to support executive decision making.

What about ERP companies acquiring MES vendors? Will SAP’s Visiprise acquisition trigger similar moves by ERP vendors? “Absolutely,” Fraser says. “SAP is the market leader. When SAP goes off and buys something, when you’re Oracle, Infor, Epicor, IFS, if you don’t have one, you’re under a lot of pressure. We expect all other ERP vendors to start figuring out who they’re going to buy.”

Partnership Strategies

If Oracle is planning such a move, Chorley is not letting on, but he’s not ruling it out either. “Oracle’s position on this is to always look to improve ourselves. Sometimes that’s organic; sometimes it’s acquisitions,” he says, noting that Oracle’s approach is to partner with MES vendors such as Camstar.

Thomas Parbst, the Copenhagen-based worldwide industry marketing manager for Microsoft Business Solutions, says Microsoft does not plan to acquire an MES company, but it is seeking to work with MES companies. It’s what Parbst calls “part of the story of supply chain management” because “it helps a manufacturer to plan resources, to plan capacity” (see Roadtrip ).

Would SAP make another acquisition to follow its Visiprise purchase? “We will always be looking to complement our existing products and solutions,” Bapat says. “Certainly nothing’s off the table.” SAP continues to work with specialist MES companies such as Werum in the pharmaceutical industry and Performix in process industries. 

SAP’s Visiprise buyout could also encourage venture capitalists that back MES companies to shop properties interested in exit opportunities. Venture-funded MES vendors “are all going to be potential acquisition targets now,” Cambashi’s Fraser says. A sellout might also give global reach to a small MES company.

“In five years’ time, there will be three main vendors,” predicts Luca Benporath, director of the global manufacturing market for Franco-Dutch consultant and integrator Atos Origin.

Along the way, they’ll have to start talking increasingly to executives in the C-suite. “They want to know about increasing fulfillment rates and more accurate allocation of overhead costs,” Wonderware’s Abildgren says.

Note to MES industry trying to crack enterprise sales: Keep up the integration and analytics efforts. You’re doing an admirable job of walking the walk. Now it’s time to talk the talk.

Additional reporting by Stephanie Neil, senior editor at ME’s sister publication, Managing Automation.