Build a Competitive Edge for Manufacturing Plant - Merit Solutions

Microsoft Dynamics™ AX

Build a Competitive Edge for Manufacturing Plant Operations White Paper Date: June 2006 www.microsoft.com/dynamics/ax

MANUFACTURING

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BUILD A COMPETITIVE EDGE FOR MANUFACTURING PLANT OPERATIONS

Table of Contents Introduction................................................................................................... 3

Manufacturing Trends and Key Challenges............................................... 3 Key challenge: price pressure ......................................................................................................................................................3 Key challenge: agility ......................................................................................................................................................................4 Key challenge: insight.....................................................................................................................................................................4 Key challenge: perceived difficulties of change ...................................................................................................................5

Turning Challenges into Opportunities: How Technology Can Help ..... 5 Increase insight and efficiency by integrating people, information, and processes ..............................................5 Empower flexibility ..........................................................................................................................................................................6 Expand business intelligence.......................................................................................................................................................6 Provide a low total cost of ownership......................................................................................................................................6

Microsoft Dynamics AX—Solutions for Manufacturing Operations ...... 7 Gain real-time plant floor visibility............................................................................................................................................8 Optimize product design, engineering, and production planning...............................................................................9 Fuel greater efficiency from the shop floor to the top floor...........................................................................................9 Empower people with a solution that works like you do .............................................................................................. 11 Achieve a fast return on investment (ROI) .......................................................................................................................... 11 Solution map of plant operations capabilities ................................................................................................................... 12

Technology Overview................................................................................. 13

Conclusion ................................................................................................... 14

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Introduction Manufacturing organizations bear the brunt of global competition. Whether your plant operations consist primarily of discrete, repetitive, build-to-order, continuous process, or mixed-mode models, competitive pressures and increasing customer demands are driving most manufacturers to produce goods ever faster, at lower cost, and in compliance with more exacting quality, regulatory, and market requirements. As both cycle times and margins shrink, profitability can be achieved only by:

• Reducing costs and lead times through strategies such as outsourced manufacturing, lean or demand-driven manufacturing initiatives, postponement, and shared services.

• Meeting customer demands for shorter lead times, greater traceability, custom configuration or packaging, and compliance initiatives such as radio frequency identification (RFID).

• Bringing new products to market faster. • Offering advanced services such as vendor-managed inventory (VMI), returns management, or

warranty and repair services. This white paper outlines ways that technology can help manufacturers meet these challenges, increase operational efficiency, and step ahead of competitors with more proactive planning, greater shared visibility, and more agile and more profitable responses to change. This white paper will also address specific ways that Microsoft Dynamics™ AX can help your manufacturing operations compete, grow, and succeed.

Manufacturing Trends and Key Challenges A variety of trends currently influence the market environments facing most manufacturers and the managers of plant operations today:

• Global business, including more cost-efficient competitors. • Increasing customer demands and expectations. • An accelerating race to introduce new products and technologies. • Outsourced manufacturing. • Increasing regulatory, industry, and customer-compliance requirements.

These trends, alone and in combination, create significant challenges to profitability.

Key challenge: price pressure Low-wage competitors in developing countries have radically altered traditional manufacturer and customer relationships. Meanwhile, technology is eroding traditional geographic constraints, so for many buyers, price becomes everything. Pricing pressures have driven many manufacturers to reduce inventories, automate more processes, and outsource design and/or manufacturing. These strategies and standardization — the implementation of common and shared business processes and systems—are effective approaches to controlling both costs and quality, but they bring their own coordination challenges. In this buyer’s market, expectations for quality, customization, and delivery speed have never been higher, and most companies or supply networks cannot compete on the basis of price alone. To remain profitable, manufacturers must effectively demonstrate their overall value to customers with service and support such

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as one-stop shopping, value-added service operations, end-to-end materials tracking, compliance documentation, and customer self-service. Such market differentiators can help ensure long-term success even in a price-pressure environment, but only if they are managed profitably.

Key challenge: agility In this competitive business climate, the pace of innovation and change becomes increasingly important. Even the leanest manufacturers need to continually adapt both products and processes to:

• Reduce waste, improve cycle times, and enhance quality. • Take advantage of new technologies. • Meet customer demands for tailored products and services. • Juggle an increasingly complex product line with products and packaging modified for the diverse

cultures, consumers, languages, and expectations of global markets. To keep pace, manufacturers must respond with more nimble design and engineering, faster quotations and new product launches, greater flexibility in handling order changes, and faster replication of best processes. Knowledge must be easily accessible to sales and plant floor employees as well as the managers of outsourced manufacturing or assembly operations. In the event of an unscheduled production delay, for instance, representatives in materials management, logistics, and order management need to be alerted with access to real-time visibility into the causes of the delay and its ramifications. Effective coordination takes on paramount importance. Yet quick responses and effective decisions can be stymied by inadequate information flow between self-contained departments, plants in a division, or outsourced manufacturing operations.

Key challenge: insight Accurate information and the ability to respond with fast, informed decisions are key requisites for agile, low-cost manufacturing. Unfortunately, many manufacturers continue to operate with aging and unconnected information systems. Growth through acquisition, plus the valid need for custom manufacturing processes, often results in an inability to gather and roll up data from diverse manufacturing execution and control systems. Consequently, many manufacturing organizations struggle with insight issues such as:

• Critical machine, performance, tracking, and status information trapped in silos. • Limited visibility of manufacturing data in the context of overall enterprise processes and

information. • Manual forms and unstructured data not readily integrated or understood in relation to other data

and systems. • Labor-intensive and untimely report generation.

The resulting lack of visibility of key data can greatly hinder an organization’s ability to implement common and shared business processes, practice lean manufacturing, or even understand machine center or process profitability. That’s why many companies are recognizing the need to move to a common and shared manufacturing solution architecture that enables implementation of shared best practices while addressing the needs of local language, regulatory compliance, and integration requirements of each operating unit or location.

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Key challenge: perceived difficulties of change Decision-makers often dread the risks and costs associated with a change in manufacturing information systems. Old, unsupported hardware and software are expensive to maintain, and systems designed 10 or 20 years ago can rarely serve today’s real-time data exchange requirements. But a modern, integrated software solution that can be implemented quickly, customized as needed, and used easily by employees can provide a return on investment in just months. When choosing and implementing a manufacturing solution, decision-makers face two fundamental challenges. The first is selecting a technology platform that is cost-effective, flexible, and powerful. Most executives view the differences in basic platform functionality as fairly minimal and recognize that functionality changes over time regardless. Therefore, the decision-making focuses more on the second challenge—choosing cost-effective manufacturing enterprise resource planning (ERP) software that:

• Enables flexible business processes that can be adapted over time to evolving circumstances. • Provides real-time visibility across all business processes, including interfaces with corporate,

customer, and supply partner systems. • Permits multinational manufacturing companies to deploy centrally and execute locally, thereby

taking advantage of shared processes and best practices across the value chain. • Supports advanced manufacturing strategies that help meet the challenges of global business and

provide an edge over competitors.

Turning Challenges into Opportunities: How Technology Can Help Strategies typically employed by manufacturers to address today’s challenges include:

• Demand-driven manufacturing tactics such as electronic kanban inventory replenishment. • Lean manufacturing techniques such as automation and cycle time reduction. • Implementation of common and shared business processes, systems, technologies, and business

management solutions. • Increased outsourcing and postponement of manufacturing and assembly. • Efficiency efforts such as centralized purchasing and shared services.

The successful implementation of such strategies can be greatly facilitated by an integrated manufacturing solution that increases operational insight, provides tools for adapting to change, and fosters the business intelligence for confident decisions.

Increase insight and efficiency by integrating people, information, and processes When companies integrate data to make a single version of the truth visible across the organization, they can deploy an appropriate manufacturing solution in either a centralized or decentralized implementation to:

• Support the business across manufacturing, back office, and managerial processes. • Provide an integration platform for manufacturing execution and control systems. • Deliver accurate information to people who need it for proactive decisions and actions. • Facilitate the standardization of data and the optimization of processes and value. • Help reduce cycle times and costs through the elimination of errors, redundant or manual tasks,

and data delays. • Link to existing corporate ERP systems to better understand overall performance and plan

continuous improvement.

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Manufacturing companies often have two core systems, with little dialog between them. An effective integration platform and the right data-exchange solutions can bring them together and vastly expand enterprise insight.

Empower flexibility Access to real-time data across the organization means greater opportunity to optimize process and material flows with the most effective responses to moment-by-moment changes in orders, supply status, equipment utilization, and product design.

Expand business intelligence With accurate, integrated data, business managers can more easily measure and analyze performance, run “what-if” scenarios and simulations, and better predict potential problems. When circumstances change, the right business management solution can provide fast access to the historical and plan data needed to assess the right course.

Provide a low total cost of ownership An integrated, effective solution can very quickly deliver a return on investment, reducing IT costs from a total cost of ownership (TCO) perspective and capitalizing on existing productivity tools and IT investments. The right manufacturing solution can also:

• Create a homogeneous platform compatible with existing databases and standard integration and development tools.

• Be easy for employees to learn and use, minimizing training while quickly maximizing productivity. • Permit incremental deployment for a faster return on investment.

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• Support shared services and processes across multiple locations, whether deployed centrally or in decentralized scenarios.

• Scale and adapt as the company’s needs grow for a cost-effective solution over the long term.

Microsoft Dynamics AX—Solutions for Manufacturing Operations Microsoft Dynamics AX offers multinational companies a manufacturing management solution and an integration platform that gathers and integrates real-time operational information so business managers can more easily access and analyze critical data, respond to changes, and make decisions with confidence. Whether deployed centrally or in a decentralized system with interfaces to one or more corporate ERP systems, this technology solution can empower you to meet the challenges of today’s global markets by reducing costs, enhancing operational flexibility, and connecting the plant floor to the back office in productive new ways. Most organizations already make use of Microsoft technology such as Microsoft® SQL Server™, Microsoft Windows Server™, Microsoft BizTalk® Server, and the Microsoft Office system. Implementing Microsoft Dynamics AX for plant operations takes advantage of those existing investments while increasing overall visibility so that managers can see exactly what is happening on the plant floor; understand how it relates to supply, order, and financial information both locally and across the enterprise; and use that integrated knowledge to reduce costs, react effectively to changes, and delight customers.

With a homogeneous technology platform and the data integration that can follow, manufacturers can seize the power to execute a variety of proven strategies for meeting the challenges of global business today.

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You probably already know what a Microsoft solution can do for the efficiency of people in your office and sales teams. Microsoft Office Excel®, Microsoft Office Outlook®, and Microsoft Dynamics CRM continue to revolutionize the way people use data and work together. Microsoft Dynamics AX can bring equivalent power to your manufacturing operations by helping you to:

• Capture data from manufacturing execution and control systems for real-time plant floor visibility. • Optimize product design, engineering, and production planning. • Fuel greater efficiency from the shop floor to the top floor. • Collaborate more easily with key supply chain partners. • Empower your people with a solution that works like and with familiar Microsoft software. • Achieve a fast return on investment.

Gain real-time plant floor visibility When you can integrate customer and order information with real-time scheduling, machine capacities, replenishment timing, and up-to-date operational status, you can:

• Maximize workflow and achieve more rapid changeovers. • Pinpoint production status and track goods from product design through work in process to

completion and logistics. • Create dynamic production and delivery schedules that can help you to respond more quickly to

changing circumstances without missing deliveries or idling equipment. • Provide customers with more accurate information with both available-to-promise (ATP) and

capacity-to-promise (CTP) capabilities and real-time insight into order or delivery status. • Develop the discrete logic, batch control, and continuous process loops required to control the

facility while easily sharing appropriate information with the manufacturing execution systems that dictate production.

• Automate replenishment based on actual materials use, throughput speed, and pending production orders.

As Dr. W. Edward Deming, a renowned expert in manufacturing systems management has noted, “You cannot improve what you cannot see.” With Microsoft Dynamics AX, you can:

• Create key performance indicators (KPIs) and scoreboards to better manage productivity, support lean manufacturing, and empower continuous improvement.

• Check capacity loadings, process control metrics, machine and labor time, and production costs to make sure your manufacturing operations are as efficient as possible.

• Go beyond day-to-day monitoring to view patterns and locate bottlenecks or possible profit-eroding inefficiencies.

• Give people easy access to data they need, thanks to integration with common desktop applications such as Microsoft Office system programs and tools that make it easy to analyze and share information.

Microsoft Dynamics AX can interface tightly with common manufacturing execution systems (MES) from a variety of suppliers using standards from industry groups such as OPC Foundation; Instrumentation, Systems, and Automation Society (ISA-SP 88 and ISA-95); Open Applications Group (OAGIS standard); and others. That way, critical manufacturing data can be freed from closed systems and manual spreadsheets and documents, taking time and cost out of reporting tasks. In addition, greater visibility of your manufacturing data can enable you to better take advantage of the powerful project management tools integrated into your company’s back office systems. The result is more useful data that you can more

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quickly manipulate, analyze, and make available to the people who need it for more accurate planning and better decisions.

Optimize product design, engineering, and production planning Tightly manage existing products and their many configurations, and freely share the information required to quickly and accurately develop new products. Microsoft Dynamics AX can empower you to create flexible product models, recipes, and bills of materials (BOMs) according to your needs, including supply variables and customization options. Tools such as integrated, multilevel, and quantity-driven BOMs, variable routing, and accurate BOM costing help you to boost the speed and profitability of your production and materials flow. With the robust functionality and toolset of Microsoft Dynamics AX, you can also:

• Configure products to match the individual requirements of a customer, distribution channel, or market.

• Use the drag-and-drop functionality of Product Builder for Microsoft Dynamics AX to conveniently create orders for custom products and help ensure that customization remains profitable.

• Integrate information from across your company and supply chain to help optimize scheduling and production planning, eliminate waste, and manage excess capacity.

• Gain the flexibility of both finite and infinite capacity and materials planning, with rough-cut capacity planning as well as daily and long-term job scheduling.

• View production schedules in Gantt charts for insight at a glance and the ability to make last-minute changes by using simple drag-and-drop functionality.

• Manage mixed-mode manufacturing with integrated production and materials resource planning.

• Coordinate replenishment across machines or plant systems and with other plants within the organization to minimize inventory and purchasing costs and speed order fulfillment.

• Implement lean manufacturing to satisfy customers more profitably and build a competitive advantage.

Easy-to-use supply and demand planning tools, along with subcontractor work management functionality, can help you optimize machinery, people, and resources. For example, finite materials and capacity scheduling can be performed at the same time so that available capacity, inventory levels, and purchase lead times are taken into consideration in production planning. The result is more reliable planning of purchase, production, and transfer orders, which optimizes your production flow and helps ensure on-time delivery to customers.

Fuel greater efficiency from the shop floor to the top floor The end-to-end integration of Microsoft Dynamics AX means the right information can be available to the right people at the right time, with less data reentry and fewer manual procedures.

• Real-time, consolidated views of customer account and historical information, product data, and production or delivery status can help your sales and service teams step up their responsiveness to customers and deliver faster, more accurate quotes, pricing, and order status reports.

• Detailed inventory and replenishment information based on actual production and materials use data can help you reduce inventories, optimize purchasing processes, and gain leverage with suppliers.

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• Automated alerts can help ensure prompt actions and keep processes on track when conditions change, while automatic posting of materials consumption, work in process, and finished production costs directly to the general ledger means less time spent on routine financial tasks.

• Comprehensive traceability and audit control can help you document components or ingredients and more easily manage source material tracking and chain-of-control compliance.

• Remote access to company data and processes, either directly or through the Web, boosts the productivity of field employees.

Reduce time to delivery and increase customer satisfaction by automating procedures and improving connections between all company departments, from sales and customer service through production and delivery to accounting—the entire “order to cash” process. Manage multisite businesses efficiently with immediate connectivity across locations by using one business application and a single business object data model. You can, for example, create and update sales and purchase orders across your locations in real time. Minimize stockholding costs by making stock-on-hand inquiries in all subsidiaries and sourcing raw materials across locations. Support for multiple companies, locations, languages, currencies, and tax and legal requirements for more than 30 countries is built in. Employees, customers, and suppliers can work in their own languages and currencies, while smooth conversion and reporting functions help ensure full insight and visibility at the highest levels of the organization.

Eliminating barriers between manufacturing data and systems and extending integrated information to supply chain partners creates opportunities to streamline processes, speed cycle times, and perform data-based continuous improvement.

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Empower people with a solution that works like you do Microsoft Dynamics AX resembles and operates like your familiar Microsoft Office system software, including Outlook. That means you can save time and money on training and your people can get working more effectively after a shorter learning curve. They can extract manufacturing information or status and see into control systems for ad hoc reports by using familiar desktop tools such as Microsoft Office Word, Excel, Microsoft Office Project, Microsoft Office Visio®, and Microsoft Office PowerPoint®. When your business software is familiar and easy to use, your employees are free to add value to their work, respond to changes, and focus on customer satisfaction. Close integration with powerful Microsoft technologies such as Microsoft SQL Server, Microsoft BizTalk® Server, and Microsoft Internet Information Services 6.0 maximizes your IT investments. In addition, the Microsoft .NET foundation and Web Services technology of Microsoft Dynamics AX help it fit smoothly into your other business systems, including those at corporate, divisional, and subsidiary levels. You can implement Microsoft Dynamics AX using either a centralized or decentralized model while meeting aggressive plant system upgrade and rollout targets. Unlike some business management solutions that force you to use specialized toolsets, Microsoft Dynamics AX uses a wide variety of industry-standard integration protocols to help you connect and get critical business information where it’s needed, fast.

Achieve a fast return on investment (ROI) Experience shows that Microsoft Dynamics AX solutions provide higher ROI than other well-known competitors. Look forward to quick payback, too. An independent study1 in 2004 found that 75 percent of participating Microsoft Dynamics AX (formerly known as Microsoft Business Solutions–Axapta®) customers achieved a positive ROI within an average of only 23 months. The remainder had used the solution for less than two years and expected to achieve a payback within a few more months. More than half of respondents reduced staffing costs as a direct result of their deployments, while 44 percent reduced IT costs in moving from their previous systems. The returns cited in the study ranged from more inventory turns and improved delivery times to productivity gains and changes in working capital. In addition, Microsoft customers who use an optional Microsoft Dynamics AX Rapid Configuration Tool have reduced the cost of implementation by as much as 25 percent, significantly speeding ROI. This fast ROI contributes to a low total cost of ownership. So does the fact that so many manufacturers already have a Microsoft platform in their plants. Your business can take advantage of existing IT investments to create a more homogeneous platform for the future by extending Microsoft solutions into your manufacturing operations with Microsoft Dynamics AX.

1 Nucleus Research, Inc. The Real ROI from Axapta. Research Note E116, October 2004.

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Solution map of plant operations capabilities The following diagram shows the specific capabilities of Microsoft Dynamics AX as they relate to manufacturing plant operations and core functionality.

In addition to providing an integrated platform for tailored manufacturing execution and control applications, the solution’s core functionality includes:

• Analytics tools, including a business analysis component for standard reporting and a financial management component for accounting and financial reporting.

• Distribution and supply chain management tools, including logistics, trade, and warehouse management components.

• Sales and marketing tools, including components for quotations and bids, order entry, marketing campaign automation and analysis, sales management, sales force automation, telemarketing, and even online customer satisfaction surveys.

• Human resources management tools, including components to support business process management, employee recruiting and management, balanced scorecard evaluations, and employee performance management.

• Collaborative workspace tools and an application integration framework (AIF) that, in conjunction with Microsoft BizTalk Server, Microsoft SharePoint Portal Server, and Web Services components, support partner, customer, and employee access to transaction information.

• Tools to support design, customization, testing, and debugging of the Microsoft Dynamics AX environment to support a specific business need.

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Technology Overview Based on a three-tier, object-oriented architecture, Microsoft Dynamics AX capitalizes on a Microsoft technology stack already well established and proven in ERP systems, customer relationship management (CRM), supply chain management, general collaboration environments, and plant floor automation and visibility applications. The solution is .NET compatible and can be configured or extended by using either X++® or .NET code and the Microsoft Visual Studio® .NET integrated development environment. Modify the solution for your unique business and future growth by using the same integrated set of powerful customization tools your company may already use to develop Microsoft Windows client–based functionality. Changes appear within the system immediately with no downtime for employees or interruption to business processes. The solution’s layered architecture permits you to customize one layer without affecting functionality on others. Microsoft Dynamics AX takes full advantage of XML standards to share data with Web Services. This means you can expose key business data to external applications and enable Web Services to invoke processes and respond to object-level calls for information such as order status or inventory availability. With the defined input parameters characteristic of Web Services, information may be retrieved natively via .NET code within an ASP.NET Web Service. Built-in Web applications enable you to readily extend your business processes and critical information to partners and employees through the Internet. When the solution is combined with Microsoft BizTalk Server, your enterprise can also exchange documents directly with any company or trading partner, whatever system it uses.

Microsoft Dynamics AX provides a manufacturing management solution and an integration platform for linking to enterprise systems, trade partners, and the Internet.

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Conclusion Manufacturers have historically embraced shop floor improvements as a way of increasing efficiency, satisfying customers, and maintaining profitability. Improvement in plant operations and manufacturing processes in the form of Six Sigma, lean, and demand-driven initiatives are high on the list of strategies implemented by multinational companies today to meet the challenges of global business and a radically altered market environment. Although these strategies often focus on execution activities within specific plants or operating units, to implement and optimize them, companies must achieve greater integration not only in manufacturing activities but throughout the enterprise and entire value chain. An integrated information platform is the prerequisite of operational transparency, business intelligence, shared processes, and supply chain collaboration. Microsoft technologies, products, and services provide unequaled collaborative capabilities with enhanced security, integration, and business management tools. Using partner solutions built on these technologies, manufacturers can access real-time operational information by using familiar desktop tools to enable fast, proactive decisions. Using real-time information, plant managers can manage key performance indicators, implement lean manufacturing practices, trace components and products, understand the impact of decisions throughout the supply chain, and provide trading partners with visibility into needed data. The results can be faster decisions, reduced costs, greater customer satisfaction, and improved operational efficiency. To find out more about Microsoft Dynamics AX and how it can help you increase the competitive edge of your plant operations, visit www.microsoft.com/dynamics/ax.

The information contained in this document represents the current view of Microsoft Corporation on the issues discussed as of the date of publication. Because Microsoft must respond to changing market conditions, this document should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information presented after the date of publication. This White Paper is for informational purposes only. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, AS TO THE INFORMATION IN THIS DOCUMENT. Complying with all applicable copyright laws is the responsibility of the user. Without limiting the rights under copyright, no part of this document may be reproduced, stored in or introduced into a retrieval system, or transmitted in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise), or for any purpose, without the express written permission of Microsoft Corporation. Microsoft may have patents, patent applications, trademarks, copyrights, or other intellectual property rights covering subject matter in this document. Except as expressly provided in any written license agreement from Microsoft, the furnishing of this document does not give you any license to these patents, trademarks, copyrights, or other intellectual property. © 2006 Microsoft Corporation. All rights reserved. Microsoft, Axapta, BizTalk, Excel, Microsoft Dynamics, the Microsoft Dynamics logo, Outlook, PowerPoint, SharePoint, Visio, Visual Studio, Windows, Windows Server, and X++ are registered trademarks or trademarks of Microsoft Corporation or Microsoft Development Center Copenhagen ApS in the United States and/or other countries. Microsoft Development Center Copenhagen ApS is a wholly owned subsidiary of Microsoft Corporation. The names of actual companies and products mentioned herein may be the trademarks of their respective owners.

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