How Well Does ERP Facilitate Project Based Business Models?

November 2012

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Background

In September 2012, a study was conducted among manufacturing executives and professionals of middle market to large manufacturers to better understand how well current enterprise resource planning (ERP) options meet the needs of companies in project-driven industries including:• Engineer to order manufacturing.• Aerospace and defense manufacturing.• Engineering, procurement and construction

contracting.• Asset-intensive business like batch process

manufacturing.

This study was conducted by IFS

North America and Mint Jutras, an independent research-based consulting firm

that specializes in analyzing the

business impact of enterprise applications.

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Methodology

• A survey was sent to subscribers to a specialized industrial publication.

• Sample size: 200.• Respondents were screened for

involvement in enterprise software decisions and for company size of greater than $100 million in annual revenue.

This study was conducted by IFS

North America and Mint Jutras, an independent research-based consulting firm

that specializes in analyzing the

business impact of enterprise applications.

4

Methodology• Frequencies on the data were run to reflect

the differing technological approaches taken by some specific types of companies, including:– Companies engaged in engineer to order

manufacturing.– Companies delivering projects as an

engineering, procurement, and construction contractor.

– Those involved in batch process, which would cause them to be involved heavily in enterprise asset management of process manufacturing plants and equipment.

This study was conducted by IFS

North America and Mint Jutras, an independent research-based consulting firm

that specializes in analyzing the

business impact of enterprise applications.

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Major Areas Explored– Which project elements can be

controlled in real-time in a combined ERP and Project Management software environment.

– What level of integration exists?

– How well applications currently satisfy needs.

Applications such as: Enterprise Resource

Planning (ERP) Project and portfolio

Mgt (PPM) Customer Relationship

Mgt (CRM) Enterprise Asset

Management (EAM) Computerized Maint.

Mgt System (CMMS) Supply Chain Mgt (SCM)

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Key Findings– Most manufacturers must deal with managing a variety

of styles of manufacture including multiple flavors of “to order.”• Engineer to order• Configure to order• Make to order

– While projects are a necessity for 85% of respondents, 39% have no integration between their project management systems and enterprise system of record.

– The ability to control processes in real-time correlates directly with better integration.

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Company Size (Annual Revenue)

$2.5 Billion or more; 29%

$1B - $2.49B; 12%

$500M - $999.9M; 13%

$250M - $499.9M; 20%

$150M - $249.9M; 10%

$100M - $149.9M; 16%

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Manufacturing Styles

Engineer Procure Construct

Design Fabricate Install

Continuous Process

Configure to Order

Custom Manufacturing

Engineer to Order

Batch Process

Make to Stock

Make to Order

0% 10% 20% 30% 40% 50% 60% 70%

12%

15%

27%

31%

32%

36%

36%

48%

66%

Respondents were allowed to select all that apply. On average each respondent selected 3.26 different styles, adding to the complexity of the environments.

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Why is This Interesting?• Although projects are an integral part of the environment for 85%

of respondents, 39% had no integration between their project management and their enterprise system of record, which is typically an ERP solution.

• Whether an enterprise handles projects through a fully integrated suite or an accounting, order administration and manufacturing system of record, that system needs to integrate with project management functionality in a meaningful way.

• The ability to control processes in real time correlates with better integration, with the ideal being an ERP solution that is set up to be for project-oriented companies.

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Length of Projects

We don’t use projects

Less than 1 month

1 to 6 months 6 to 12 months

Multi-year projects

0%

10%

20%

30%

40%

26%

12%

31%

19%

12%

5%

12%

37% 38%

7%

13% 13%

23%

30%

20%

Engineer to Order Batch Process Engineer Procure Construct

The longer the duration of the project, presumably the more complex. How are these

ETO managing the order without projects?

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Months-Long Projects Require Project Management Software

• Another measure of complexity is the length of projects. The longer the duration of the project, the more complex.

• In some cases, projects are fairly well contained at less than a month long. But the largest percentage of engineer to order environment respondents are involved in projects of between one and six months.

• Batch process manufacturers are likely handling projects that are refits or design of a batch process or process equipment.

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Enterprise Applications in Place

Other

Field Service Mgt (FSM)

Project Portfolio Mgt (PPM)

Human Capital Mgt (HCM)

Enterprise Asset Mgt (EAM)

Customer Relationship Mgt (CRM)

Product Data Mgt (PDM)

Computerized Maint Mgt (CMMS)

Manufac. Execution Sys. (MES)

Supply Chain Mgt (SCM)

Enterprise Resource Plan. (ERP)

0% 25% 50% 75%

7%12%

15%19%

23%26%27%29%29%

40%71%

All Respondents

On average companies have a total of 3.24 different enterprise application products implemented.

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What Level of Integration?Between Project Management & Enterprise System of

Record

None Selective in-tegration

Financial in-tegration

Full integra-tion

Embedded as a native part

of ERP

0%

10%

20%

30%

40% 39%

30%

13% 14%

4%

All Respondents

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Most Common Solutions Used to Manage Projects

1. Microsoft Project (71%)2. Microsoft Excel (48%)3. A module of an ERP solution (20%)4. IBM (10%)5. Primavera (8%)6. No others named were used by more than 4%

Many projects are still managed using desktop applications. Use of enterprise-

level apps is quite fragmented.

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Avoiding Fragmented Data• Many respondents are still using desktop applications to manage projects.

This can fragment data by pulling it out of shared enterprise environment.• Microsoft Project is prevalent. There is an enterprise level version, but the

vast majority of Microsoft Project use is in a desktop configuration.• Microsoft Excel, the universal spreadsheet management tool, is also

heavily used. The key to using Excel without creating silos or islands of data is to integrate it with your enterprise applications so you can share the enterprise data through Excel while it still in fact resides in ERP. Once an Excel spreadsheet exists wholly outside of the enterprise software environment, managers are at risk of making decision based on bad data, or your enterprise application may cease to be the true system of record.

• One in five reported using a module of their ERP solution.

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Which of the Following Project Elements Can You Control in Real-Time

in Your ERP/Project Management Integration?

Risk Management

Cash

Machinery Resources

Human Resources

Materials

Cost

Time/Schedules

0% 20% 40% 60% 80%

34%

34%

39%

40%

52%

76%

78%

All Re-spondents

Schedules & Costs are controlled fairly well – these are the primary objectives. But other elements lack.

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Which of the Following Project Elements Can You Control in Real-

Time in Your ERP/Project Management Integration?

Yet with full integration, the level of control typically doubles.

Risk Management

Cash

Machinery Resources

Human Resources

Materials

Time/Schedules

Cost

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

28%

25%

33%

31%

48%

74%

70%

49%

56%

56%

63%

63%

88%

90%

Full or em-bedded

Partial integra-tion

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Controlled in Real-time?

Engineering Procurement Construction respondents have best control but use different 7.6 applications.

ETO uses 3.8 and Batch Process uses 4.6.

Human Resources

Risk Management

Machinery Resources

Cash

Time/Schedules

Manufacturing Materials

Cost

0% 20% 40% 60% 80% 100%

67%

57%

52%

57%

81%

52%

76%

44%

29%

38%

25%

92%

48%

75%

23%

27%

36%

41%

55%

59%

82%

Engineer to Order

Batch Process

Engineer Procure Construct

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The Risk Management Gap• Risk management may be intuitively associated with assuring on time

and under budget project performance, but also has implications for the environment, safety risks & hazardous material risks & contractual commitments. – These more challenging areas of risk, which extend beyond the

budget and timeline, become harder to manage than more concrete factors like cash, machines and materials.

– While 78% of respondents can control schedules in real time and 76% can control costs, a much smaller percentage can manage risk in real time. However, respondents reporting full integration or embedded project control within their ERP system, the ability to control the cost and schedules goes from the high seventies to 90% and 88%.

– The ability to manage the materials, the human resources, machinery, cash and risk also increases from the 30% range to about 50% with increased integration.

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Integration Fosters Better Control

None Selective in-tegration

Financial in-tegration

Full integration Embedded as a native part of

ERP

0%

10%

20%

30%

40%

50% 45%38%

2%

10%5%

33% 31%24%

12%

0%

30%

20%

10%

30%

10%

Engineer to Order Batch Process Engineer Procure Construct

Engineer Procure Construct also has better integration, so not surprising they have better control

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Varying Levels of Integration• It is amazing that a sizable minority that an engineer to order,

engineering, procurement or construction or even batch process oriented company reports no integration between their system of record and project management.

• They may be discounting the need for that level of integration or could fear the cost and/or the limited returns that come from point-to-point integrations between disparate products

• The data shows us that many elements of project management are underserved by existing ERP offerings.

• Overall, the ability of enterprise software to facilitate a spectrum of important business processes increases with greater project integration, with the use of Project ERP being a gold standard.

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Project Integration Facilitates Business Processes

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About IFS

IFS is a public company (OMX STO: IFS) founded in 1983 that develops, supplies, and implements IFS Applications™, a component-based extended ERP suite built on SOA technology.

IFS focuses on agile businesses where any of four core processes are strategic: Service & asset management, manufacturing, supply chain and projects.

The company has 2,000 customers and is present in more than 50 countries with 2,8 00 employees in total.

Contact Information:Charles Rathmann, Analyst

IFS North America262.317.7419

chuck.rathmann@ifsworld.com