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Legacy network: ERP and service centers

Keywords: Tags  service centers, enterprise resource planning, ERP, Invera, Enmark Systems, Aptean, Bayern Software, PS Data Services Greg Bayer

The phrase “different horses for different courses” could apply just as well to the software used by service centers and distributors as it does to the racetrack. The newest systemsÑone of which is scheduled to be released at the end of AugustÑare based on Microsoft Corp.’s Windows or Apple Inc.’s iOS operating systems and have optimization functions that enable them to support the growing trend of service centers moving into finishing and light manufacturing.

In contrast, distributors on the cutting edge are eager to incorporate the latest integrated supply chain management systems using mobile devices in the field and in the yard. Still, legacy installations are hardly going away. Even systems based on older operating technology have proven durable, partly because many small operators have yet to adopt any but the most basic inventory control or human resources systems.

Part of the challenge is the lack of part numbers. Most commercial systems, from limited inventory control programs to wide-ranging enterprise resource planning (ERP) packages, are based on part numbers because the vast majority of the world’s distribution is done that way. But steel and other metals are bought, delivered and used based on their characteristics; part numbers often are irrelevant.

Those kinds of idiosyncrasies make the market for service center software somewhat discrete from the global ERP majors. But for a smaller arena, it is hotly contested. The key players are either privately held or are divisions of larger companies that do not disclose details, so hard data such as revenue and market share are elusive. The largest companies include Ann Arbor, Mich.-based Enmark Systems Inc. and Montreal-based Invera Inc. SmallerÑbut feistyÑcompetitors include Atlanta-based Aptean, Carmel, Ind.-based Bayern Software and Middletown, Ohio-based PS Data Services Inc.

Bayern plans to release a completely new version of its legacy system by the end of August. The new offering, Capstone, is not just compatible with Windows and iOS, but also incorporates some of the top optimization engines. “Our legacy systems handled all shapes and all materials,” said Bayern cofounder and president Greg Bayer. “They are platform independent, working on Linux or Windows, but were character-based. They worked for the user interfaces for most customers. Capstone works with Windows or Apple, and we have incorporated the top optimization enginesÑProNest from Hypertherm (Inc.), SigmaNest from SigmaTek (Systems LLC) and FastCam (Inc.).”

There are 45 companies in the Capstone early adopter program. Most are legacy customers, but some are new, including a titanium fabricator making parts for the space program, which could not use the legacy system.

Founded in 1986, Bayern’s only business is integrated ERP systems for metals distribution and light manufacturing. “When the economy went south in 2008-09, more than a few of our customers’ customers went out of business,” Bayer said. “Many small fabrication shops disappeared, so the service centers started doing cutting, simple bending, drilling holes, coil processing.” It was a revelation. “They discovered that it was so much easier to make money that way vs. just slinging metal. About 15 to 20 percent of our customers have purchased new machines in the past year or two to do things that they never did before. One client told me that he is doing less and less distribution and expects that he may be exclusively a fabricator in another few years.”

Bayer calls it a structural change in the industry. “There is no going back. Only 10 of my 250 customers are pure distributors anymore. That is why light manufacturing software is now a permanent part of service center software. Looking ahead, everyone wants to push day-to-day real-time operations to the shop floor using mobile devices or kiosks. Three-quarters of our customers are now asking for that,” he said.

What they are not asking for is off-the-shelf applications.

“The heart of the system is unique to service center inventory control,” said Peter Doucet, vice president of consulting at Houston-based Invera Corp. “Service center inventory does not use part numbers. They typically don’t have universal product codes or stock keeping units. Rather, they refer to inventory by natural attributesÑthickness or content or shape. The industry very much has a native nomenclature. Generic ERP systems are great for other industries based on part numbers. For metals distribution they have to have an overlay of some kind on top of the part-number-based system to make it work.” He said that Invera’s Stratix software is the only major commercial system based on attributes rather than part numbers.

Invera, in business since 1980, is focused on medium to large distributors. It has clients in 17 countries, most of whom have between 40 and 50 individual users but some have 500 to 1,000. Of current users, about half opt for on-site installation and half work from a cloud base, said Ray Vasson, vice president of sales. “That 50-50 is overall. Of recent users, most are opting for the cloud. It is becoming very popular.”

Doucet agreed that the trend among service centers to expand into finishing and light processing benefits the more-sophisticated systems. “In flat-rolled processing, for example, they are very production oriented. There are special features in our system to accommodate slitting, cutting to length, blanking and so forth for each distinct type of material.” Vasson said that other systems have to do that off line, “so it is not integrated.”

But there is more to the light processing trend than just reconfiguring the inventory module, Doucet said. “If a service center is doing some light manufacture under a tolling agreement, who owns the scrap? It should not be any different than any other manufacturing, but in the distribution world it adds a whole suite of new issuesÑinventory, supply chain, accounting.”

“Weaning the industry from DOS or Unix systems, character-based ones with the blue or green screen, to modern operating systems has been a Herculean task,” said Joe Fellwock, account manager at Enmark Systems. “But service centers’ wish list today is not just value-added services that they perform; it is also more control from the ERPÑmore details, more metrics on their operations.” That extends to high-level operations such as full job cost analysis, which incorporates not just supply chain and operations but personnel and accounting. “All of customers want that along with inventory and process control, and they want it at their desk or on a mobile device,” he said.

Enmark was founded in 1983 with a Unix-based system but started fresh in 2000 with Windows. Today, Enmark has 320 customers with a total of about 3,500 users. “It is a full ERP system from order through shipping, with purchasing and physical receiving data entry at point of entry,” said John Bilek, president. “Sales, quote-to-order, are handled through the shop.” The portal used is Online Metals, which is owned by Southfield, Mich.-based ThyssenKrupp Materials NA Inc.

“Some distributors still choose paper,” Bilek said. “We bang our heads against low levels of adoption. We fight idiosyncrasies within organizations all the time. Everyone wants to combine precise control and efficiency.”

The shock to the system that many distributors got to drive them to reconsider their legacy systems was the recent recession. “Service centers were looking for new sources of revenue and moved into light manufacturing, but in four or five years they won’t be doing it any more,” Bilek said. “That shift was all built around shrinking margins, and when the profitability returns to their core business they will shift back.”

Which is not to say that ERP systems for service centers will not need to continue to support manufacturing. “We have a large new customer out west who is going live in the next few months and who definitively needs that capability,” Fellwock said. “Manufacturing is a very important area for our customers, and we are reallocating our efforts to support that. We are supplying and resupplying customers with code that let’s them do what they need to do.”

Another trend that could stand to be reinterpreted is the consolidation of the distributor sector, Bilek said. “That trend has been going on for how many years? By now there should be about three companies left. Clearly there are more than that. There will always be start-ups, there will always be new entries.”

New or established, Fellwock said the challenges to adoption are seldom different. “Reluctance is hardly ever about money. It is about time and disruption. It has been proven that with phased implementation, including data conversion and multiple check points, it can be done with minimal disruption. It will never be easy, but it is definitely worth it.”

Extending the concept of inventory control through characterization rather than part number, Aptean’s vertically integrated system, called Axis, links to mills. “We can track material by heat,” said Peter Weymouth, product manager for Axis. “That is an important quality control. Traceability back to individual heat is a variable not known in other industries. Standard commercial ERP systems don’t have capabilities like that. We have had to build this from the ground up.”

Aptean’s customer base across several industries ranges from local yards to the largest corporations. The emphasis for service center ERP is not so much financial control, because that is often a component of a customer’s back-office system; rather, Weymouth said he sees distribution ERP extending into customer-resource, supply chain management and electronic commerce. “We are trying to tie the shop floor to factory management and order execution,” he said. “That coordinates with all the other trends: consolidation, moving upstream or down. All of that is open if you have all the components integrated.”

Legacy systems often stand in the way of that integration, but Weymouth suggests that it does not always take a seismic event like the recent recession to change people’s assumptions. “We get a few customers for whom our system is their first, but typically we are replacing an older ERP system, usually a homegrown one. That worked okay, but it depended on the tribal knowledge of the people who built it, and that knowledge is going away. When some companies make the change, they do it as a big bang. Others do it in phases.”

Another prod is that other segments of the industry are slowly starting to adopt similar systems. “In general metals tend to lag; they are late adopters of new technology,” Weymouth said. “But lately there is a lot more interest at every level of the industry.” One of the benefits of late adoption is jumping over early stages to the latest ones. “One big area is the cloud, especially for managed services. People really want to offload those things and focus on their business.”

Weymouth also is adamant that mobile and cloud technology is not about company executives checking the latest sales numbers as they wait for a delayed flight. “It is about personnel in the field checking on order status or doing quality control from a customer’s site,” he said.

One of the more recent entries is PS Data Services, which debuted its flagship Steel Distribution Software in 1995 and now has more than 100 customers. It is a subspecialty within the sector, focusing on flat-rolled steel distribution. The company makes upgrades annually and updates every month or two. “Many others are getting into Windows,” said Ben Vaughn, account manager for sales and business development. “We were Windows from the start. No blue or green screens. We are ready for electronic data interface (EDI) straight out of the box.”

Flexibility is the main quality sought in ERP, project manager Krishnan Padmanabhan said. “No two mills or service centers are the same, so customization is our niche.” That and ease of use, he adds. “Office tools have to be drag and drop. Anything touch-free is good. People don’t want to re-enter data.”

In linking systems Vaughn noted that comprehensive ERP allows not just EDI but also facilitates international standards compliance, such as ISO series certification. “That is becoming very important in international trade,” he said.

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