Ask a Fortune 500 manufacturer about the twin trends of globalization and outsourcing, and you're likely to hear a story ripped from the front page of the business section: the shift of manufacturing operations and jobs to overseas markets, the new efficiencies and lower costs that these very large manufacturers can command, and the ripple effect these issues have on the local and national economy.
But ask a mid-market manufacturer about globalization and outsourcing, and you're likely to hear the same story from a vastly different perspective. For manufacturers like Elliott Company, globalization and outsourcing have been a wake-up call for using IT to improve competitiveness and buck the front-page trends that have meant doom for so many other mid-market companies. "If you look at what has happened in our market, the large companies have purchased the smaller companies and consolidated them into very large global conglomerates," says Rick Wiegand, vice president and executive operating officer of Elliott Company, a mid-sized, global manufacturer of compressors and steam turbines for the energy industry, based in Jeannette, PA. "It means you're competing with people with a lot more leverage."
The leverage that top tier manufacturers have has deeply threatened mid-market manufacturers in the U.S. and other traditional manufacturing centers. The disappearance of almost three million manufacturing jobs since 2001 has been blamed in large part on outsourcing, and over half of the manufacturing executives surveyed by Deloitte Research last year said they had already outsourced some of their production to China, Mexico, and other low-cost manufacturing regions.
The Supply Chain Cost Squeeze: How Manufacturers Are Reacting to Globalization and Outsourcing Pressures
Faced with those grim facts, Elliott realized it needed some leverage of its own, and that meant finding new efficiencies and new ways in which it can improve operations, meet customer demand, and otherwise offset the economies of scale that its larger competitors were reaping from globalization and outsourcing. The company chose to start at the beginning: its IT environment. And that meant shifting IT operations from a morass of antiquated and disparate applications to a single instance of Oracle's e-Business Suite Special Edition.
The single e-Business Suite instance -- which is currently being rolled out Elliott's corporate headquarters in Pennsylvania -- will bring together information that had been locked away in different operational silos and consolidate it into a single system. Elliott then plans to implement at other global sites, including operations in Europe and Japan, using the same e-Business Suite instance. While this will provide significant efficiencies from an IT management perspective, the real goal is operational efficiency and competitive advantage in a global market: "The only reason to do this is to access the global synergies that come with a single instance," Wiegand explains. "It's hard to leverage joint capacity, knowledge, financial systems, and other information without a single instance."
At the core of the new Oracle system is consolidated information about operations, customers, products, and services that can be used by Elliott and its partners.
"We lost business due to a lack of information" under the previous system, Wiegand said. "It was impacting our financial success."
The single Oracle instance will form the basis for key changes in the core business processes that IT supports. Cost management is already benefiting from the new system, (
See previous newsletter), as is customer relationship management (CRM). Other key areas like product lifecycle management (PLM) will also change dramatically under Elliott's new Oracle based system.
The Oracle CRM module will be the first to be brought on-line globally across all of Elliott's operations, Wiegand reports. "We wanted sales and marketing to know what everyone else was doing," says Wiegand. "When our Japanese and European counterparts see a customer, I can see the data too. When I'm talking to someone in one of our client's organizations I know what has happened around the globe. Every one of us is looking at the same customer data."
Elliott will use a similar consolidated global view for its service data, and be able to track the service requirements of its customers across multiple borders and time zones as well. This allows Elliott to not only synchronize its internal operations better, but it helps the company deal with its far-reaching customers' operations as well. "Not only do we compete against very large companies, we also sell to the largest oil companies in the world," say Wiegand. "And we need to have contact with them at all levels and all over the world as well."
The process changes in its PLM functionality will enable Elliott to exchange technical data with its customers and suppliers, a key requirement for this engineer to order manufacturer of compressors and steam turbines for the energy industry. Suppliers will also be able to use Oracle's iProcurement and other web-based tools to link up with Elliott, synchronize project schedules, and otherwise take part in a highly automated and efficient supply chain.
The sum of the changes enabled by Elliott's Oracle system allow it to compete head-to-head with the globalized, outsourced world of its much larger competitors. Its single Oracle instance also supports a lean manufacturing operation, one of the key ways in which Elliott is able to compete against its much larger competitors.
In effect, Elliott is using Oracle technology to replicate the advantages that large OEMs employ --an outsourced, contract manufacturing supply chain -- by running a lean manufacturing operation, according to Karl B. Manrodt, the co-director of the Southern Center for Logistics and Intermodal Transportation at Georgia Southern University in Statesboro, GA.
While lean can add a level of complexity to the outsourced supply chain, it can also be an essential element in supply chain success. "For the contract manufacturer, their cost structure would be too high if they didn't do lean," Manrodt says. And for the OEM it helps "maintain a healthy relationship with the contracting plant," Manrodt adds. Elliott's own lean operation replicates these advantages, allowing the company to maintain its competitiveness and succeed despite the economies of scale of its larger competitors.
Elliott may be able compete directly against its competitors and their outsourced operations, but, like the competition, Elliott still has to function in a highly global environment. This means that lean operations have similar constraints in terms of managing demand signals and judging how long it takes for supplies and finished goods to move through the supply chain, Manrodt adds. "You still need some buffer, so the question is what is the best way to hold inventory," Manrodt says. "The time factor limits just how lean you can actually be."
Managing that time factor is one of the main reasons Elliott is deploying Oracle, Wiegand says. "We needed Oracle to allow us to reduce or remove the waste that we would otherwise not necessarily see through normal day-to-day operations," says Wiegand. "The data wouldn't have been available to us in an efficient way without the Oracle system."
Wiegand is conscious that further efficiencies will eventually be necessary in order to maintain Elliott's competitive profile. "It's a new system that we know relatively little about today," says Wiegand. "It was a case of walking before you run. But we're a manufacturer, not an IT company, and we will continue to evaluate its efficient use as we move forward. This includes IT outsourcing opportunities."
Outsourced IT is definitely an option for further efficiency, says Manrodt, and one that can improve lean operations, provided the manufacturer is still able to exercise sufficient control over the supply chain to maintain a lean manufacturing option. Oracle's extensive experience as one of the leading IT outsourcers allows it to ensure that IT outsourcing, lean manufacturing, and global competitiveness are all possible in the Oracle environment, adds Randall Villeneuve, vice president of industrial manufacturing at Oracle. "It's a good way to further reduce complexity," Villeneuve says. "Outsourcing means you can have a lean IT department too."
In the end, Oracle's impact on Elliott has allowed the company to not only stay alive but thrive in the face of the twin threats of globalization and outsourcing. Better customer service, better supplier management, a lean manufacturing operation, tighter financial cost management -- all have been possible through the implementation of Oracle e-Business Suite Special Edition and the improved business processes that come with it.
These shifts have allowed Elliott to think global and act global, despite being significantly smaller than its competitors and customers. "We've always had a good reputation in our core markets," says Wiegand. "But to stay competitive, we had to get MRP, finance, marketing, and sales all talking to each other." A single instance of Oracle e-Business Suite Special Edition will make it all possible.