It wasn't so many years ago that manufacturing executives came to the conclusion that it no longer made sense for different divisions and plants to select, configure, deploy, and run their own enterprise resource planning systems. In an attempt to drive consistent finance, planning, and other processes across the enterprise, manufacturers began to standardize on a single ERP platform. Today's ERP leaders — specifically SAP and Oracle Corp. — proved the most adept at encouraging and cashing in on that consolidation trend.
Today, that scenario is being repeated on the plant floor. Intent on improving plant efficiency by spreading consistent, lean processes across their manufacturing environments, many manufacturing executives have begun to move toward standard manufacturing software systems that can be deployed consistently across the enterprise and integrated with enterprise systems and data.
This, experts say, has unleashed some long-pent up spending on manufacturing execution systems (MESs) as well as enterprise manufacturing intelligence (EMI) software. According to a recent AMR Research survey, companies said their spending on manufacturing operations systems in 2007 will capture a portion of their software budget second only to ERP. Between 2006 and 2007, spending on manufacturing software is expected to grow faster than any other category, including ERP, CRM, performance management, and supply chain management, according to the AMR poll.
"As they've leaned out their supply chains, manufacturers now are focusing on reducing manufacturing constraints," says Alison Smith, senior research analyst at AMR. "They're investing in systems that can tell them what they can make, where they can make it, and what it's going to cost."
Not surprisingly, this increase in manufacturing software spending has attracted the attention of the same big software players that rode the wave of ERP consolidation so successfully just a few years ago. Like gunfighters staking out a new town, Oracle and SAP have squared off to see which company can establish itself at the center of the trend toward standard, integrated manufacturing execution and intelligence applications. The archrivals are investing major financial resources to develop, acquire, and partner for the manufacturing expertise and software they will need to walk away the winner. But the two are taking dramatically different approaches to the market, with Oracle attempting to build substantial MES capabilities directly into its enterprise applications, and SAP preferring to align with partners for much of the manufacturing execution and intelligence functionality it needs.
"SAP and Oracle are far more focused on the manufacturing operations space than they have ever been before," says Carter Johnson, senior vice president for corporate development at MES vendor Visiprise Inc. "But the two companies are coming at the market much, much differently."
In some ways, the real question is not whether SAP or Oracle will prevail, but whether any provider of general, packaged applications, such as ERP, can successfully meet the needs of manufacturing operations software users. That's because software that runs plants is different from typical back-office ERP applications in a couple of important respects.
First, ERP systems focus mainly on automating processes and functions — such as finance, procurement, and supply chain — that are relatively consistent across different organizations. However, MES systems — which direct, track, and monitor materials and orders as they move through production — automate plant processes that are often specific to a given manufacturing vertical or even a given company. So, experts say, it will be a challenge for the likes of SAP and Oracle to understand, for example, the component serialization and traceability requirements that aerospace manufacturers face, much less produce software that can efficiently automate their processes.
"You have to know how to build airplanes to create software that can help you build airplanes," says Visiprise's Johnson.
Second, while ERP systems tend to manage and report transactions in time frames required by financial managers — days, weeks, and months — manufacturing systems must track and control events in real time. Failing to do so can result in not only inefficient plant operations and financial losses, but also unsafe plants and human casualties.
"While [ERP vendors] are investing in new capabilities through acquisition and significant new development, they have yet to prove that they can apply the principles of enterprise software to the much higher-fidelity and mission-critical real-time world," wrote AMR Research Director Colin Masson in a recent report.
But that's just what both SAP and Oracle are attempting to do.
All Together Now
SAP's focus on manufacturing operations processes received a jump-start two years ago when it acquired Lighthammer Software Development Corp., then a 60-person vendor of manufacturing intelligence and integration software. Lighthammer, which has since been redubbed xMII, is the fulcrum of SAP's manufacturing strategy, which calls for SAP to fill the role of technology platform provider while partnering and integrating with MES and other ISVs that provide software and expertise that support specific vertical industry manufacturing requirements.
"Do we think we can provide all the solution needs of all of our customers across all industries? No," says Sudipta Bhattacharya, SAP's senior vice president for supply chain, product lifecycle management, and manufacturing applications. "The reality is that the shop floor is one of the most dynamic environments that exists, and every customer, every region, will have different needs. We don't want to have to go after every small niche that exists."
Instead, SAP's strategy is to use xMII as the real-time integration hub for linking MES and other manufacturing-centric third-party applications into the company's applications ecosystem. xMII, essentially, is middleware that includes a series of prebuilt connectors — many based on standards such as S95 and OPC — that let SAP integrate its ERP applications with MESs, plant automation systems, computer maintenance and management systems (CMMSs), as well as programmable logic controllers (PLCs) and distributed control systems. On top of that, xMII can perform the complex data transformations needed to support the integration of ERP and plant floor systems, synchronous messaging capability, and tools that can be used to compile and visualize real-time manufacturing intelligence using data pulled from various sources.
SAP's roadmap calls for a tighter merging of xMII into the company's NetWeaver architecture, where it will share technologies such as SAP's portal and user-interface tools. In the short term, however, SAP is positioning xMII as the integration platform that third-party software providers can use to link existing manufacturing applications into the SAP ERP world, or around which they can build new, composite applications. Through xMII, SAP already has defined and exposed scores of manufacturing-related services that partners can use to integrate their applications with SAP applications.
Manufacturing software heavyweight Invensys plc, for example, recently introduced a pair of composite applications that use xMII to straddle the plant floor and the back office. Real-Time Finance combines financial data from ERP with production information to give managers a minute-by-minute view of plant floor financial performance. And Real-Time Production Execution lets managers monitor and evaluate production runs.
"The Invensys deal is a model we will follow," says Bhattacharya. "It is an example of how we are taking an automation vendor that is very strong in the HMI [human-machine interface] space and marrying their capabilities with ours." SAP expects to roll out at least six more similar composite applications with other partners within the next year, Bhattacharya says.
Meanwhile, some of SAP's more progressive manufacturing customers are using xMII to link legacy plant floor systems to ERP, and, in some cases, to replace MES software altogether. Whirlpool Corp., for example, began using the Lighthammer tools in 2003 — prior to SAP's acquisition — mainly to create a consistent way for managers and operators to visualize plant floor data generated by a variety of homegrown and packaged MES applications.
As Whirlpool has become more comfortable and adept at using the xMII tools, however, it has continued to expand their role, says Jim Shimp, the company's vice president for global application development. Whirlpool now uses xMII to integrate data from a wide variety of plant processes and systems into its SAP ERP systems. And it has even started replacing some MES functionality with xMII. Some of Whirlpool's plants in Latin America, for example, use xMII to link directly to information, generated by PLC systems, about levels of liquid materials stored in tanks. When tank levels dip below a certain point, xMII generates a transaction in SAP that leads to the release of new materials for replenishment.
Whirlpool has implemented several such processes using xMII in its 40 plants around the world, says Shimp. That has led him to conclude: "We could use xMII to replace most, if not all, of the MES functionality now in use in our plants."
The second major pillar of SAP's manufacturing strategy is a beefed-up partnering program. While SAP has, for a couple of years, been pushing partnerships, such as one dubbed "Powered by NetWeaver," to persuade ISVs to take advantage of SAP's integration middleware, in recent months the company has kicked its partnering efforts up a notch, developing much tighter relationships with a handful of manufacturing software leaders.
SAP has been sharing information with these invitation-only endorsed business partners about which manufacturing spaces it will directly address with products and where partners can participate without direct competition from SAP. SAP also shares revenues and marketing with these partners. MES vendor Visiprise has been named an endorsed business partner. Others working toward that status include Apriso Corp., GE Fanuc Automation, Invensys' Wonderware unit, and Pavilion Technologies Inc.
"SAP has changed dramatically in terms of responsiveness to partners," says Tim Sowell, vice president for product strategy at Wonderware. "They work with us to develop solution maps for specific industries, and they define white spaces where they do not plan to go."
SAP, for example, told Wonderware that it plans to participate directly in plant-level logistics, integration, and intelligence, but it won't get directly involved in the MES space or plant-level performance monitoring. "For that, they will look to partners like us," Sowell says.
In isolated instances, SAP has made acquisitions to fill manufacturing niches that it wants to serve directly. In December 2006, for example, SAP acquired Factory Logic, a maker of real-time plant scheduling and supply synchronization applications. The Factory Logic applications — since rebranded xLPO — let the company directly address its many ERP customers that are attempting to perfect lean processes at the plant level, says Vivek Bapat, SAP's director of solutions marketing.
"We have a lot of customers already using kanban in connection with ERP to drive manufacturing improvements," Bapat says. "xLPO supports those customers using SAP ERP and provides a factory-level lean implementation that can be scaled while still maintaining ERP as the backbone."
Although some of SAP's new manufacturing ISV partners acknowledge the risks inherent in becoming too reliant on a large vendor that could suddenly become a formidable competitor, MES partners and analysts, for the most part, give high marks to SAP's partner-centric manufacturing strategy.
"They've decided to act as the aggregator and not to play directly at the plant operations level, and that makes a lot of sense," says Bob Parker, vice president of research at Manufacturing Insights, an IDC-owned research firm. "They're acknowledging that, at its heart, their [ERP] system is based on double-entry bookkeeping, not on a manufacturing-centric model. To tie into what's going on at the plant level, they need partners."
'One-Stop Shop' Strategy
Oracle, on the other hand, is taking a very different approach to the plant floor. Unlike SAP, which is partnering for most manufacturing operations functionality, Oracle is quietly building substantial MES capability directly into its E-Business Suite flagship ERP product. Oracle's belief, says Manish Modi, vice president of manufacturing and product lifecycle management (PLM) development, is that increasing numbers of manufacturers — particularly midsize companies and companies that have outsourced all or part of their production — don't need hard-core MES functionality that integrates directly with automation equipment. For them, Modi says, basic manufacturing operations functionality, such as inventory tracking, track-and-trace, production scheduling, operator work instructions, exception reporting, and shop floor transaction reporting, will be adequate, particularly if it's tightly integrated with ERP and business intelligence systems.
When it comes to manufacturing execution functionality, "we want to be a one-stop shop," Modi says.
Oracle took a big step toward that goal recently with its E-Business Suite 12 launch. The release included MES workstations for manufacturing operators and for supervisors. The operator workstation displays configurable dispatch lists, work content, and work instructions. The workstation also supports shop floor transaction reporting, including lot and serial data collection and exception reporting.
The supervisor workstation, meanwhile, includes a dashboard for viewing and drilling into exception reports and reports on possible capacity and resource shortages, as well as the ability to reorder dispatch lists on the fly. Oracle also added tighter integration between EBS 12 and the Oracle Business Intelligence tools it acquired from Siebel Systems.
In EBS 12, Oracle also added MES functionality required by specific manufacturing verticals. For regulated discrete manufacturers, for example, Oracle added support for serial- and lot-number-controlled manufacturing and advanced scheduling. And for process manufacturers, the company added a new dispensing system and electronic master batch record management capabilities, as well as support for electronic signatures, required under regulations such as the U.S. Food and Drug Administration's 21 CFR Part 11.
The newest MES capabilities in EBS 12 are built on top of substantial manufacturing functionality already present in the Oracle applications. Originally underpinned by applications acquired from Datalogix Corp., the E-Business Suite includes a data model that is more manufacturing-centric than SAP's ERP suite, analysts say. As a result, the Oracle Manufacturing configuration of EBS has long supported MES-quality inventory, production, quality, and cost management, as well as scheduling, AMR's Smith says.
And Oracle has even begun a modest push into plant-level data collection. The Sensor Edge Server, part of the company's Fusion Middleware stack, features services-based connectivity and data transformation features that let it collect data from many types of devices, including those that operate on the shop floor, and feed that data into the EBS' MES modules. So far, says Amlan Debnath, vice president for server technologies, Oracle has focused the Sensor Edge Server mainly on collecting real-time data generated by RFID readers and asset management systems. Oracle plans, however, to use the technology to tap directly into data generated by shop floor systems, such as PLCs.
"Traditionally, PLC data has been concentrated into MES systems, but we see a trend away from that," Debnath says. "It doesn't make sense to move it first through an MES system if you want it to be immediately available to the business."
Many of Oracle's manufacturing customers agree with that assessment. Hologic Inc., a maker of medical imaging and other diagnostic equipment, for example, has elected to dispense with a separate MES system and instead rely on the Oracle Manufacturing version of EBS for discrete manufacturing processes, such as work-in-progress (WIP) management, job creation and routing, quality tracking, and procure-to-pay. The company, which mainly does final assembly on boards and other equipment purchased from suppliers, plans to upgrade to the EBS 12 for its advanced scheduling and enhanced quality management features, says Dave Rudzinsky, vice president of IT and CIO at Hologic.
"We don't see much additional benefit from adding a separate MES system," Rudzinsky says. "We've talked about it, but we wouldn't get that much more than we already have, and, with Oracle, it's all integrated in a single global instance of the software."
While Oracle intends to continue adding industry-specific MES capabilities to EBS, the company isn't going it completely alone in the manufacturing space. Oracle is prepared to — and has — partnered with a handful of MES software providers to fulfill the industry-specific requirements of certain manufacturing customers not supported directly in EBS, Modi says. To meet the MES needs of some high-tech manufacturers, for example, Oracle has partnered with Triniti Corp., a small vendor of production modeling and WIP management applications. Oracle also has partnered on specific customer engagements with MES vendors Kepware Technologies Inc., Manufacturing Data Systems Inc., and Pavilion, officials say.
Oracle, however, has created neither the number nor the depth of MES partnerships that SAP has, experts say. Nor has Oracle built into its products as much support as SAP has for standards like S95, which MES partners could use to integrate with Oracle, experts say. But Oracle officials say they see little, if any, customer demand for S95.
"Oracle's partnerships tend to be very unstructured," AMR's Smith says. "As an ISV, you can use their interfaces to integrate, but Oracle doesn't have different levels of certification or revenue-sharing partnerships the way SAP does. Many people want strategic partnerships, but Oracle tends to deal with everybody the same."
One of the reasons for Oracle's approach may be cultural, Smith says. "There's only so much a company can be good at, and Oracle's not that good at partnering," she adds.
Another explanation for the lack of a focus on strategic partnerships with MES vendors is that Oracle simply wants to leverage what it sees as its built-in advantage: stronger manufacturing support in its EBS data model. Doug Souza, Oracle's vice president of development for process manufacturing, says SAP has partnered more aggressively with MES providers in order to match Oracle's manufacturing functionality. "If you don't have data model support for things like operating instructions, electronic records, and batch processing, your only option is to work with third parties," he says.
Oracle's determination to build MES functionality into its ERP applications is consistent with what the company's CEO, Larry Ellison, describes as its "surround" strategy. That strategy calls for Oracle to sell its applications, such as EBS and JD Edwards, at the division or plant level, even into manufacturers that run SAP at their headquarters.
That's what's happening at the Metal Buildings division of Butler Manufacturing Co. Although Butler's parent company, BlueScope Steel Ltd., runs SAP, most of Butler's divisions, including the 3,000-employee Metal Buildings unit, use Oracle EBS to control manufacturing, in addition to back-office operations. The Metal Buildings unit uses Oracle's flow manufacturing and, increasingly, its discrete manufacturing capabilities to manage the flow of jobs and materials through production. Oracle Manufacturing replaced a homegrown MES system in 2003. Since then, Butler has built its own workflows using Oracle Forms to handle its unique production schedule change processes, says Gary Snodgrass, manufacturing information systems manager at Butler.
Both Approaches Can Work
Which philosophy makes the most sense for manufacturers — Oracle's one-stop-shop approach or SAP's preference for integrating its ERP systems with MES and other plant floor systems through partnerships?
The answer, not surprisingly, depends on your operation's size and business model, experts say. Many manufacturers with relatively simple, make-to-order, assembly-driven manufacturing processes and little plant floor automation can probably get by with Oracle's approach of integrating relatively horizontal shop floor capabilities directly into its applications, says AMR's Smith.
However, organizations with more plant-level automation that are supporting more complex processes and already have an MES deployed may be better off gravitating toward the SAP ecosystem where SAP's MES partners are more likely to support deep, industry-specific requirements, Smith says.
"Oracle's approach will probably end up appealing more to smaller enterprises and divisions, while SAP's will appeal to larger, more complex manufacturers," Smith says.