ERP Software’s Flipside: Helping Users Downsize

Most service centers have invested in new computer hardware and software to help their companies grow. Today, those same systems are proving invaluable as companies are forced to get smaller.

By Tim Triplett, Editor-in-Chief

Service centers are reporting anywhere from 20 to 60 percent declines in sales, say software executives, who admit that times are challenging for them as well. But, they add, more progressive metals distributors are taking advantage of the lull in activity to fine-tune their business systems so they can take full advantage of the rebound that will eventually come.

Verticent Offers Bailout of Its Own

Verticent, the Tampa, Fla., provider of service center software, is offering a $1 million economic bailout package to qualifying companies who invest in technology from Verticent.

Recognizing that the service center sector has been hit hard by the economic downturn, Verticent is launching a grass roots service center bailout campaign, similar to the U.S. government making funds available through various government stimulus programs.

“I am very excited about this program, and I challenge competitors to join in and develop their own stimulus plans to help the industry. We’ve experienced a tremendous amount of growth at Verticent, and we feel it’s our responsibility to give back and help the metal service center community,” says Alan Goniwich, president of Verticent.

Verticent believes many service centers have neglected their technology infrastructures for years. They have not invested in modernizing business software, servers, local and wide area networks, firewalls, PCs or websites. There are many good reasons to upgrade technology during a weak economy, says Goniwich. “When times are tough, companies have a tendency to be conservative in their planning. But this recession will hit bottom, and the progressive company will be prepared for the upswing.”

Not simply discounts or favorable credit terms, Verticent will give cash to deserving companies, Goniwich says. The only requirement is that they be existing or new users of Verticent software. “If there are companies that want to invest in our solution, but need help in other aspects of their business, we are willing to give them grants,” he says.

To apply for funds, service center executives should log onto and fill out the bailout form. It asks for some basic business information, such as the number of locations and employees, and a basic description of the applicant’s existing computer system. It also gives the company a chance to comment on any particular economic difficulties it may be facing, such as natural disasters, as well as its community involvement and what it has done to assist its employees during this economic crisis.
Service centers normally invest in information technology when the market is good, but pull back when the market is weak, observes John Bilek, president of Enmark Systems Inc., Ann Arbor, Mich., which markets the Eniteo system. “We should be selling systems in an up, down or sideways market because we create efficiencies and reduce costs at any time. The truth is, when the economy goes down, many service centers stop buying.”

“It runs the gamut from companies doing nothing to others that are taking the initiative to implement in the downturn, which is the opportunistic way to do it,” says Ron Greco, director of sales for AXIS Computer Systems Inc., Marlborough, Mass., which sells AXIOM software.

“You can’t afford to do an implementation of software when you are real busy, but now that key people have some available time, this is when you should prepare for the upswing,” says Alan Goniwich, president of Verticent, Tampa, Fla. “We’re seeing some new energy from customers who are proceeding with implementations.”

The latest generation of enterprise resource planning software is just as valuable in helping service centers shrink their costs during recessionary times as it is in helping companies grow their business during boom times, say software executives. Three main areas where software is helping service centers economize: manpower, inventory control and accounts receivable.

Most software providers hesitate to trade on the concept, but the main driver behind automation is to reduce headcount. Computer systems help service centers sell and process more orders with less manpower. Software providers say they prefer to think of it in terms of expanding the user’s workforce, along with the company’s overall business.

“From a manpower standpoint, we don’t sell on reducing headcount, but obviously you can get more throughput with an ERP system,” Greco says. “In some instances companies find they can increase processing on the shop floor without adding headcount in the back office.”

“People are looking to cut back in terms of staffing, but obviously they don’t want to cut customer service. They are looking to automate certain processes so they can eliminate one or two people while not affecting the workflow,” says George Walton, president of 4GL Solutions, Markham, Ont., which sells the Steel Manager system. Business conditions are just as challenging in Canada as they are in the United States, he adds.

To cite one example of the labor savings offered by today’s systems, Brian David, director of sales at Compusource Corp., La Palma, Calif., points to their e-commerce functionality. Technology like Compusource’s Metal Center Management System allows service center customers to enter their own orders online, reducing the labor involved with order-entry.

Another common feature of various software products is automated invoicing via e-mail or fax. “We have customers who do 100 or 200 invoices a day, and they have gone to their customers and asked if they will accept an invoice by e-mail. That gets their billing out immediately and it saves on forms and postage, which can be 75 cents per invoice. Also, you don’t need a bunch of people printing invoices and stuffing envelopes,” David says.

Use of bar-coding technology on the shop floor with the latest wireless handheld scanners continues to simplify the picking and shipping of orders, while updating inventory data in real time and eliminating the errors common with conventional paper workflow, vendors say.

Software features that help service center operators monitor labor costs and profitability are particularly valued today, says Tim Holman, director of marketing at Bayern Software Inc. in Phoenix, Ariz., which offers the STEEL PLUS system. On the shop floor, that may involve the use of bar codes to scan the beginning and end of each job on the line to keep better track of the time workers spend on processing.

Another example of profitability-related functionality is Bayern’s commission tracking program. More service centers are striving to increase sales by implementing commission structures as an incentive for both inside and outside salespeople to drum up more business. Incentives can be calculated based on revenues, profits, sales to a particular customer or other variables. Commission modules can help management make sure they do not overpay salespeople, relative to the profitability of each customer, Holman says.

Each customer’s payment history is an important variable monitored by the system, as well, he adds. “You don’t want to pay your salesperson a commission until you have been paid by the customer. There is a great chance in this day and age that the customer may never pay.”

Most inventory management systems use past history as the basis for buying decisions. Past sales offer little predictability for future demand given current market conditions, however.

“What was going on nine to 12 months ago is a lot different than what was going on two to four months ago,” says David at Compusource. “With our usage and reorder reporting, you can give more weight to what has happened recently.”

Inventory planning systems based on historical sales data are not as effective, given the current downturn, agrees Peter Doucet, vice president of consulting at Invera, Newtown Square, Pa., which issues a new release of its STRATIX program every year.

With STRATIX, companies can apply a forecasting factor to groups of products, which makes it easier to adjust purchasing levels. Reorder points can be based on a dynamic factor, such as four weeks of inventory, rather than a specific figure, such as 10,000 pounds, which may be way too high based on current volumes. “The system can tell you in a better way when and how much you should buy,” Doucet says.

Many service centers bought inventory last year when sales were strong and prices were high. Since then prices have declined by half, sales have slowed to a similar degree, and many find themselves with high-priced material on their books. As they work off their inventories, sometimes selling at a loss, ERP software can help companies write down that investment.

Bayern, among other business systems, helps service centers set prices by tracking inventory costs in three ways: the average cost of all material on hand, the last cost paid for a purchase order, or replacement cost. “We’ve long told our customers not to use average cost as the baseline when setting prices, use replacement cost,” Holman explains. “You have to manage it and keep your finger on the pulse of the market. But that way if the market turns very quickly, you can just as quickly adjust your replacement costs and lower your prices in real time without affecting your margins. Your salespeople are quoting current prices immediately, and being more competitive in the marketplace.”

One feature built into Bayern’s STEEL PLUS is a credit check facility that works in the background as a salesperson is talking with a customer, Holman says. The program checks to see if the customer is on credit hold, has exceeded its credit limit or has outstanding payments past due. If there is a problem, the salesperson can see it and address it while the customer is still on the phone.

Monitoring accounts receivable is critically important today as more and more customers have difficulty paying their bills, and service centers must safeguard their cash flow.

Most software programs help managers track the average days it takes customers to pay each invoice. The data can be misleading, however, Holman notes. Some customers, especially in a down market, will pay the small invoices on time but let the big ones drag on. Their average time to pay may look good, even though their average dollars outstanding is large. “We track average days to pay in terms of per dollar owed, not per invoice,” says Holman.

To help speed up collections, Bayern’s software can automatically e-mail or fax invoices. “You can get the invoices into their hands much more quickly. Instead of two days for them to get that invoice, they get it in a matter of hours,” he adds.

Another trend in business systems software is automated backup services. Bayern has just released a service that automatically backs up a company’s data each night by transmitting it over the Internet to multiple secure locations. “Backing up your data is absolutely critical. Historical data is the lifeblood of these companies,” Holman says.

Invera is among a small number of software providers now offering an “on-demand” hosting option in which customers use the software over the Internet. Rather than purchasing the software, they pay a monthly fee based on the number of users. Such a system offers a number of advantages, Doucet explains: Service centers are always using the latest version of the program; as they grow, the system grows with them; they dramatically reduce their need for computer support personnel; and their data is automatically backed up in a safe and secure way. “It allows service centers to manage their business and not worry so much about the technology,” Doucet adds.

Service centers rarely take full advantage of their ERP systems, says Bilek at Enmark. Many companies use as little as 40 percent of a system’s capabilities. Enmark offers webinars and videos to help companies train employees and keep their competence at a high level.

Likewise, Bayern is focusing on education and training to encourage customers to better utilize the features of the software they already have. “Some of our customers have laid off staff, so they have less people to do the work. They need to be more efficient and get the most they can from the technology,” Holman says. Bayern is hosting free online webinars on such subjects as credit and collections, and how to better control accounts receivable.

Invera is also increasing the training tools it makes available to customer personnel, such as specific videos on inventory control of coils or beams, and others on processes such as sawing or plate burning, Doucet says.

Following are software vendors’ recent product developments:

n 4GL Solutions has developed a program to interface its Steel Manager ERP system with a Kasto automated storage and retrieval system. 4GL has also enhanced its system’s bar-coding functionality.
n Bayern has upgraded modules in STEEL PLUS for document imaging, faxing, e-mailing, bar-coding, labor tracking and job costing.
n AXIS will soon release its AXIOM version 5.3.2, which includes enhancements for costing, inventory visibility and blanket purchase orders for multi-branch operations, replacement cost tracking, improved logistics based on mill lead times and streamlined order entry.
n Some new features of Invera’s just-released STRATIX version 8.0 include: enhanced capacity planning and scheduling; integration with third-party programs, such as software for plate nesting; and a program that calculates the precise dimensions to cut a piece of plate to be roll-formed into a cylinder, among other improvements.
n Verticent’s latest release includes new features that help service centers handle any shape or size of metal product; multiplant MRP capabilities to manage inventories across multiple locations; optimizing inventories to use remnants first and minimize scrap; and radio-frequency data collection using wireless bar-code scanners.
n Enmark’s Eniteo ERP system incorporates the latest Microsoft technology to help service centers reduce cost and increase sales.

While service center consolidation is continuing, albeit at a much slower pace due to the poor economy, Bilek is optimistic about the future. He expects to see many small startups emerge as entrepreneurial salespeople who may have been laid off open their own shops—new customers for software suppliers.

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Friday, March 23, 2018