Magazine Article | March 1, 2002


Source: Field Technologies Magazine

That the manufacturing industry is highly competitive is hardly big news. The real story, however, is that the Internet allows you to go head-to-head with the larger players in your industry.

Integrated Solutions, March 2002

As a small or midsized company, you have undoubtedly butted heads with the bigger players in your industry. As a manufacturer, it might have come in a bidding war over the production and delivery of a part for a customer. Or, your integration company might have pitched your middleware product against that of a much larger software developer. In either case - or many other scenarios - you probably repeated the same mantra used by almost all companies of your size: "Our smaller size is an asset. We are more nimble, and we can accommodate customer needs much better than the larger guys you are considering." This credo can be effective, and, in fact, can be true in many cases.

However, what if you're a manufacturer of engine component parts, and your competition comes not from the larger players in your industry but from companies similar in size? And, these companies are operating in regions of the world where labor is cheaper. The smaller-is-better pitch is now a moot point. It's going to come down to quality and price - ideally, you'd like to have both criteria in your favor.

This is the battle that German-based MWH (Markisches Werk GmbH) faces every day as it tries to maintain and expand its customer base that requires the manufacturer's line of combustion engine component parts. From its headquarters in Halver, Germany, the company manufactures more than 1,000 component parts for heavy transportation applications such as shipping and railways. With more than 150 years of manufacturing history to its credit, the company is known for high-quality components. But, being based in Germany, the company also has to pay its workforce more than its competition that is based in other parts of the world. (According to the World Bank Group, for instance, gross national income per capita for 2000 was $25,000 in Germany, $2,010 in Central Asia, and $5,080 in Mexico.)

"We're confident in saying that our products are of a better quality than our competitors'. But, some of those products are considered commodities. When you're talking about commodity products, then price is going to be a big factor. Obviously, payroll affects that price," explains Ed Urquhart, president of MWNA (Markisches Werk North America), the North American headquarters of MWH. "That's why we have to use technology in every part of our business to minimize overhead and maximize the value we bring to customers."

That use of technology has allowed the company to open 15 service and support locations around the world in addition to MWNA, which is based in Northboro, MA. It allows MWNA to operate with a minimal staff and still service such large customers as GETS (GE Transportation Systems) and Caterpillar. It allows MWH and its global offices to operate in a near paperless environment. And, it is almost entirely based on the power of the Internet and processes that best harness that power. "The Internet makes this entire operation possible. It would be hard to imagine our business without it," adds Urquhart.

One Location, One Browser, $2 Million In Sales Per Employee
For the sake of example, it's convenient to focus on MWNA and its processes to best see how MWH leverages the Internet. The North American sales and marketing center has seen its sales per employee rise to over $2 million since opening in 1995. Still, the IT requirements at the Northboro, MA, office necessitates just one person, office manager Tom Norris.

Norris, who has been in the distribution industry long enough to remember when fax machines were revolutionary, uses a browser interface to maintain constant contact with MWH headquarters in Halver. From that interface, Norris has access to MWH's enterprise information management system. This system, Plato, was developed by Promatis (San Ramon, CA) and runs on the Oracle Internet Platform. For its part, Promatis developed this Web-based application for MWH to handle all of the traditional functions served by an ERP (enterprise resource planning) solution (e.g. forecasting, planning, manufacturing, general ledger).

Since its implementation in Halver in 1995, MWH has extended the Promatis application to its international offices. "I do forecasting and planning and track orders and inventory from our office. It's all automated through the Promatis system," comments Norris. "Since our launch in 1995, we have doubled our sales volume with no increase in staff."

Customers, Suppliers Realize Online Efficiencies
Using the Internet as a lifeline between corporate headquarters and MWNA allows the branch office to operate with minimal resources and still have instant access to vital data. But, the biggest benefits come when MWH's customers also treat the Internet as a lifeline between themselves and the manufacturer. This use of the Internet between manufacturer and customer has allowed MWNA to create a paperless supply chain, cutting costs, eliminating errors, and speeding payments. This symbiotic relationship exists between MWNA and GETS.

MWNA does a 12-month projection for each of the component parts based on planning information that is supplied by GETS. As each month passes, the projections are firmed up. At six months out, GETS sends out an order to its suppliers using EDI (electronic data interchange). For companies like MWNA who do not want to incur the costs of EDI technology, GETS' EDI software automatically transforms the EDI data to a fax format. As the order information appears at MWNA, it is immediately entered into the Promatis system and a manufacturing schedule is determined for the Halver facility. "We require a three-month production cycle and shipping it back to the states is another month. The six-month production schedule gives us a little flexibility. But, we are currently working to reduce that time down to four and a half months. Once we do that, our inventory levels will be very minimal," adds Norris.

For the present time, the component parts are housed at third-party warehouses located close to MWNA customer sites. When GETS needs a quantity of component parts from MWNA, a request is issued using EDI. MWNA receives this information and automatically generates a packing list in the form of a PDF, which is e-mailed to the third-party warehouse. The warehouse, using bar code labeling software mandated by GETS, fills the order from its inventory supply, affixes a bar code label and the packing list it received from MWNA, and delivers the parts in the same day to GETS. "GETS scans the bar code as it receives the order from our third-party warehouses. That bar code taps into a GETS database that identifies the part and the negotiated price for it," explains Norris. "That automatically triggers a liability, and a GETS invoice process begins."

By logging onto GETS supplier Web site, Norris can confirm the transaction. "If I check the site on a Tuesday, for instance, it will show the order as having been received. By Wednesday, the site will show the order as an accounts payable. From there, the payment is generated and the transaction is complete," adds Norris.

Internet Levels Playing Field
At the heart of MWH and its branch offices is the Web-based Promatis system. As MWNA, for example, completes transactions with customers, the system in Halver is updated automatically. The planning and distribution might be handled locally, but all of the data is funneled back to corporate headquarters where the company's Oracle database is constantly updated.

"We have a lot of value adds that we bring to the table when we meet with any customer. We have our history and current customer base. We have engineering skills that other companies can't match," says Urquhart. "But when it comes to commodity-type products, we have to rely on technology to keep costs down and keep our prices in line with our competition."

That vision of technology is also shared by MWNA's customers, which makes the gears of the supply machine mesh even tighter. Urquhart can recall dropping a third-party warehouse when it refused to invest in a browser to receive e-mail. But, even those with no vision of the future of business are coming around to MWNA's thinking; the warehouse subsequently got online and is now an MWNA partner. That's a good sign for small and midsized companies. Being nimble isn't your only advantage over the larger players in your market. Leveraging the Internet allows you to be nimble and still wield the technological power of your larger competitors.