Cummins Power Generation syncs global production with integrated ERP.
by David Baum, November 2011
Industrial manufacturers face immense challenges staying ahead in today’s fluid, interconnected markets. They must operate with the minimum amount of inventory and working capital, reducing raw materials and work in process through more-effective operational policies. On the front end, they must simplify interactions with customers; improve forecasting; automate order taking, pricing, and configuration exercises; and streamline supply chain processes.
Those are the ground rules, the minimum requirements for survival in a globalized business environment. To truly lead and sustain profitability, integrated manufacturers must master something much more elusive: they must be able to respond to unique customer demands. In addition to producing standard products as rapidly and efficiently as possible, they must selectively build products based on the configurations and timetables customers demand.
Leaders at Cummins Power Generation (CPG) are mastering these challenges with the help of Oracle E-Business Suite Release 12. With the first phase of a global e-business initiative completed, IT leaders at the U.S.-based company have helped reduce costs and achieve quantifiable efficiency improvements in planning, procurement, manufacturing, and inventory processes. Warehouse managers benefit from much quicker receive-to-stock cycle time—a process that used to take as long as 24 hours and can now be accomplished in just four.
“Our power generation business depends on a very complicated supply chain network,” explains Bruce Carver, vice president of Cummins Business Services and CIO of Cummins Inc. “Oracle E-Business Suite makes the connections from one system to the next and automates the flow of information throughout each stage of a multifaceted process: through the supply chain cycle, into the manufacturing cycle, and then into the shipping cycle. In most cases, we build products that are custom-configured to specific requirements.”
Wrestling with Integration
CPG, a subsidiary of Cummins Inc., is an industry leader in introducing advanced low-emissions power generation solutions around the world. With more than 80 years of experience, the company has a global distributor network that delivers innovative, reliable, and cost-effective solutions for any power need—commercial, industrial, recreational, emergency, and residential. Products include temporary or permanent preintegrated power systems, combining generator sets and power control and transfer technologies. Services range from system design, project management, financing, and operation and maintenance contracts to development of turnkey power plants.
During the 1990s, Cummins Inc. acquired a number of companies to form the power generation unit. According to Tony Satterthwaite, president of CPG, initially they kept the acquired companies autonomous. “We did not do integration purposefully because we had had a bad experience in the 1980s,” he admits. “So in the ’90s, when we started acquiring different companies to form the power generation unit, we ran them in siloes. This led to a great deal of variety in how we accept orders, manufacture products, and ship finished goods.”
As time went on and Cummins Inc. management worked hard to make the company #1 and #2 in all of its major markets, relying on these diverse underlying processes became an impediment. “The diversity started to impact how we present ourselves to the customer,” Satterthwaite continues. For example, distributors had to know exactly where each product was made at each Cummins facility around the world and then order them specifically.
Cummins senior management knew they could do better. Sponsored by Satterthwaite, they began discussing a multifaceted business-transformation initiative that would consolidate local manufacturing systems by implementing a single global enterprise resource planning (ERP) instance. They wanted to create standardized business processes and formulate a global, demand-driven supply chain. They especially wanted to make it easier for distributors to price, order, and obtain custom-configured products, with the corollary effects of improving supplier collaboration and creating more-efficient shop floor and warehouse management processes.
The team named the new business transformation initiative Frontier, as an acknowledgement of the significance and impact it would have on the business. They didn’t just want to rechart the same old territory. They wanted to expand the horizon of what was possible.
For example, one of the fundamental tenets of Frontier was to provide a seamless mechanism for customers to configure and place orders, coupled with a set of operations that ensures Cummins can build and deliver high-quality products with a high level of consistency among its product lines and markets.
“Design anywhere, make anywhere, sell anywhere—that was the premise,” recalls Madhavi Isanaka, executive director of IT for CPG. “We also wanted consistent business processes from end to end: design, produce, forecast, plan, schedule, invoice, ship, service, and report.”
The implementation team broke down the ambitious Frontier program into three key elements. Two of these, demand layer and product lifecycle management, would focus on internal processes, practices, and systems. The third element, sales order layer and reporting, would represent a new set of self-service business processes to empower customers to configure, price, and order any CPG product.
“The Frontier program is built around a set of applications, assembled using mostly Oracle products, that automate everything from accepting orders to configuring, building, and tracking products, all the way through the shipping process,” Carver explains. “Oracle provides a seamless flow of information and functionality internally and externally—from a customer standpoint and an end-user standpoint. It automates each step of accepting, managing, and delivering customer orders.
“Oracle provided the best overall value, and we continue to like the clarity of the Oracle roadmap,” adds Carver. “More recently, Oracle’s bundling of software and hardware, through the acquisition of Sun, has become very compelling. From a dollar standpoint, a functional standpoint, and a business intelligence standpoint, the Oracle solution made sense for us.”
Cummins selected Infosys, an Oracle Diamond Partner, to help analyze, design, and implement the Oracle hardware and software environment, based on Infosys’ experience implementing complex planning solutions in the manufacturing industry. Infosys is a global consulting and information technology services company with more than a decade of experience with Oracle ERP products. Infosys and Oracle share a research lab where the two companies co-create solutions for clients.
Infosys consultants supplied implementation processes, tools, templates, and best practices to streamline the project. The heart of the implementation involved Oracle order management solutions and Oracle value chain planning and configuration management applications. Cummins also implemented Oracle iStore and Oracle Configurator to provide a flexible interface for placing orders and configuring products. Together these modules enable guided selling, pricing schemes for sales promotions, visibility into the configured product, and an efficient order-processing system.
The team also deployed Oracle Advanced Supply Chain Planning, Oracle Global Order Promising, and Oracle Warehouse Management modules. The goal for this part of the project was to create an integrated planning system with improved processes for procurement, manufacturing, inventory management, and warehouse management.
Isanaka describes the four “planks” of Cummins’ global ERP foundation: “The first plank makes it easier for customers to do business with us, using Oracle iStore, Oracle Configurator, and Oracle Advanced Pricing modules. The second plank gives us global visibility into demand, so we can build capacity and be ready for orders. The third plank helps us run our operations at maximum productivity, and the fourth plank establishes our decision-making criteria using Oracle Business Intelligence.”
CPG is now reaping the benefits of having global, standardized business processes that seamlessly integrate many of its order-taking, planning, manufacturing, and warehouse operations, setting an example for other business units. Oracle E-Business Suite 12 offers a consistent front end to participating companies in the Cummins distributor network.
“Oracle allows us to optimize the inputs for all of our suppliers, regardless of whether it’s a component or an individual part or a finished good,” explains Carver. “The Release 12 environment is very cohesive in moving from one subprocess to the next. It helps us map out the requirements necessary to fulfill custom orders and get them through the supply chain quickly.”
For example, when a customer comes to Cummins with a specific power generation need, Oracle Configurator supplies a self-service portal to obtain their requirements and map them to specific products and services. Which specific products do they want to order? What are the custom requirements and options? What are the systems that these products will interface with? Are there any regional or industry-specific requirements? As customers configure these products, they can consider a multitude of options and choices—view previous configurations, consult an advanced pricing module, and see the impact of adding or removing various options.
In conjunction with Oracle Configurator, Oracle iStore presents pricing information and enables customers to monitor the status of their orders throughout the sales, production, and delivery cycles. Previously the various processes in Cummins’ order-to-ship cycle were not nearly as well synchronized. “It was a much more manual process,” says Carver. “There were four to eight manual inputs at each stage, with many bits of information manually entered from a paper order. Now, once something’s in the system, you never enter that data again. It flows to the next step in the process. It’s almost paperless because the data is always there.”
Of course, automating each step in the front-end order-taking cycle is just part of the ERP equation. “Before we actually start taking in orders, we have to be ready on the manufacturing side,” explains Isanaka. “So we do demand planning and forecasting using Oracle’s Demantra products, in conjunction with Oracle Advanced Supply Chain Planning and Oracle Global Order Promising. Oracle Warehouse Management synchronizes production activities at the plant level.” Other modules in the Oracle ERP solution produce bills of material; manage inventory; and automate purchasing, shipment, and invoicing.
Having integrated business links is particularly useful when Cummins introduces a design change partway through the manufacturing cycle. Carver says it’s much easier to accommodate these changes at nearly any point before finished goods are produced. Oracle Configurator captures all of the attributes up front, so even unique configurations can be produced quickly and efficiently.
According to Carver, a single production line could produce 10 different configurations in the course of one business day. It’s like a standard product because all the attributes for the customization go right down the line. “It doesn’t matter what the attribute is because it’s tracked, and the people on the assembly line know exactly which parts and components to add, including subassemblies from Cummins’ suppliers that have been packaged further up the chain,” he says. “The Oracle system sends demand notices to the appropriate suppliers, and once the part or the subassembly is done, it goes right back into our value chain, and it gets grouped with all the other component parts that comprise the end solution. Whether it’s a raw good or a stock item or something that we’ve outsourced to one of our suppliers, we manage it through our integrated supply chain,” Carver adds.
Carver is also bullish about the evolving potential of CPG’s business intelligence (BI) initiatives. “Business intelligence allows us to maximize our touchpoints to our key customers,” he explains. “Being able to examine trends in demand and capacity across multiple businesses has really been a big advantage for us. We can make decisions more quickly, which has helped our margins and permitted a more efficient utilization of our resources. We’re still in the process of spreading BI throughout the business, but already the capabilities that we’ve realized from the Oracle business intelligence solutions have helped us tremendously.”
“For the first time, executives can see global sales and global margin, seamlessly, from our Oracle Business Intelligence applications,” adds Isanaka. “They have reliable insight into the fulfillment, management, and supply chain metrics. This has allowed us to eliminate discrepancies in sales reporting and improve our forward-looking margins.”
The final piece of the BI implementation, which isn’t yet implemented, involves doing long-range forecasting and capital planning with Oracle’s Demantra Real-Time Sales and Operations Planning and then using Oracle Hyperion Planning to turn these production forecasts into financial forecasts.
Getting It Done
With hybrid teams coordinating the development effort between the U.K., U.S., and India, Infosys completed the first phase of the implementations—per plan and within budget. According to Rajeev Ranjan, an Infosys vice president who heads up the Oracle Manufacturing Practice, the team began with Cummins’ largest plant in Fridley, Minnesota. “We designed each part of the implementation once, and we are now in the process of rolling them out globally,” he notes. So far, the team has deployed the ordering layer to 40 percent of CPG global locations, the demand-forecasting layer to 100 percent of global locations, and the manufacturing layer to 80 percent of global locations. “All the data is in there, and about half of the CPG products can be ordered through the system,” he adds.
The developers used Java, JavaServer Pages, PL/SQL, and Oracle Application Framework to complete the project. Infosys followed a Cummins-specific IT project management methodology, combined with accelerators and templates from the Infosys InTrak methodology.
Isanaka says they chose the Sun Solaris platform—now Oracle Solaris—to ensure reliability for this complex set of business processes. “We worked with Oracle and Sun to architect the infrastructure for this single global instance of the Oracle ERP software,” she says. “We valued the reliable, stable, solid partnership between Oracle and Sun, which has enabled us to realize our vision.”
Today the Oracle system automatically determines which plant can fill an order most quickly and economically, balancing the load among dozens of manufacturing facilities. It also streamlines the integration of subcomponents and parts from a variety of suppliers into one application. “Global order-to-promise has gone from several weeks to a couple of days, and we are working on 24 hours,” says Isanaka.
Cummins has also reduced outbound order travel time, resulting in an annual cost savings of approximately US$500,000. Meanwhile, more-accurate routing of parts and components and reduction in queue time allows Cummins management to optimize the company’s working capital, saving approximately US$2 million per year. Management has reduced the work-in-process inventory level by 1.5 days. Scheduling orders centrally using standard processes has increased productivity by 50 percent and improved on-time delivery by 15 percent, resulting in increased customer satisfaction.
Carver says that having a more flexible model for scheduling and planning has resulted in better capacity utilization and resource management—not to mention more-consistent terminology across regions, plants, and types of products, which makes it easier for distributors to place accurate orders. He is especially proud of the metrics that indicate improved customer responsiveness, such as an improvement in response time for up-to-date catalogs of 50 percent.
“That’s really a game changer from our perspective, especially when you consider that the majority of our business involves custom orders, he says. “In the manufacturing world, those are statistics to be envied. The Frontier program is a transformative piece of our power generation business. It has helped us to grow the business and made us much more profitable.”