NetSuite Manufacturing: Right Direction, Long Road Ahead

As one of the first cloud ERP providers, NetSuite is looking to grow its customer base across multiple industries and up-market to larger customers. Those efforts include NetSuite’s renewed focus on the manufacturing sector, as unveiled at NetSuite’s annual user conference, which I attended this week.

Bottom Line: NetSuite is making the right decision and good progress to build out manufacturing functionality as part of its core system, but there is still much work to be done to achieve functional parity with other cloud and on-premises solutions in the marketplace. Nevertheless, the rapid development capabilities of NetSuite's platform offer hope that it will get there quickly.

From Partner Solutions to a Core Offering

Until recently, NetSuite’s approach to serving manufacturers was to provide what it called “light manufacturing,” coupled with customer-specific customizations, supplemented by partner solutions such as Rootstock when heavier manufacturing functionality was required. But this approach could only take NetSuite only so far.

• Support for manufacturers is essential in light of NetSuite’s product strategy. As explained by Zach Nelson in a small group briefing, the customer order is central entity in NetSuite, and NetSuite wants to “own” anything that is input into, or output from, the customer order. In the manufacturing sector, this would include production work orders. It makes no sense, therefore, for NetSuite to hand off these business processes to partners.
• At the same time, the manufacturing sector represents a large potential market for NetSuite. There are more manufacturing companies—especially small manufacturers—in the US than in any other sector. Inadequately serving such a large potential market made no sense as NetSuite looked to accelerate its growth.
• However, some basic features for manufacturers have been missing. For example, standard costing were not addressed in the core product, and few prospects would be willing to customize their implementations for such a fundamental need.

As a result of this realization, NetSuite in 2011 began work in earnest to build out its manufacturing functionality. In a briefing during NetSuite's conference I met the key players hired for this mission. They include:

• Roman Bukary, Head of Manufacturing and Distribution Industries. Roman previously worked for SAP, Baan, and other software companies. Earlier in his career, he was a manufacturing engineer.
• Ranga Bodla, Director, Industry Marketing. Ranga held product management positions at SAP and Pilot Software.
• Thad Johnson, Sr. Product Manager for Wholesale Distribution and Manufacturing Verticals. Earlier in his career, Thad was a product manager at QAD and also held several materials management positions in industry.
• Frank Vettese, Practice Manager. Frank has manufacturing software experience with IFS and Effective Management Systems.
• Gavin Davidson, Vertical Market Expert, Manufacturing. Gavin’s experience includes implementation work with manufacturing systems from Baan, Epicor, Microsoft Dynamics, and Visual.

I’m pointing out the experience of these individuals to show that NetSuite’s push into manufacturing is more than a marketing campaign. It has put together a serious team of individuals to lead the product development effort for this vertical.

An Expanding Footprint

In terms of manufacturing methods, NetSuite is primarily targeting discrete manufacturers although it intends to provide some support for process manufacturing down the road. An ideal prospect would be a discrete manufacturer that does a mix of in-house and contract production.

Let’s take a look at some of the manufacturing functionality that NetSuite has recently added or will be adding. From these few points we can get a sense for where NetSuite is in its current and near-term ability to better support manufacturing customers.

• Standard costing. As mentioned above, the lack of this capability in the past was a showstopper for many manufacturing prospects. But NetSuite reports that it added this capability in 2011, along with standard cost rollups.
• Bills of material. NetSuite has had BOM capabilities for some time, and it will soon support revision levels on BOMs along with effectivity dates. Users can also set a default scrap percentage on BOM components. Support for alternate BOMs is not in the roadmap.
• Routings. NetSuite added production routings to the standard system in 2011. These, of course, are used to create production work orders. Alternate routings will not be provided. .
• Cycle counting. Standard NetSuite code will now support cycle counting of inventory by ABC code.
• Material Requirements Planning (MRP). NetSuite now does a BOM explosion, but it does not generate reschedule messages for purchase orders or production work orders. Neither does it support all types of lot-sizing methods.
• Unit of measure conversions for purchasing, receiving, and inventory management have been part of the standard system for some time.
• Multi-facility planning. It appears that NetSuite will allow customers to maintain separate material plans for multiple facilities while still providing a global view of inventory. If so, this would go beyond what is typically offered in most Tier III on-premises manufacturing systems.
• Labor reporting. The team demonstrated a basic clock-in, clock out process using a tablet computer that can be used to report production completions and labor from the shop floor. This capability is currently in proof-of-concept.
• Capacity Planning will be supported, based on the NetSuite’s “demand plan,” but it does not appear that it will highlight capacity constraints as it will not track available work center capacity.
• Inventory Allocations and Available-to-Promise (ATP). This basic capability—to allocate available inventory and scheduled receipts against customer orders, and to provide visibility into projected inventory availability—is also scheduled as part of standard NetSuite functionality. (Kudos to NetSuite CTO Evan Goldberg for providing a layman’s explanation of ATP during his keynote.)
• Lot and serial number traceability. The team claims capabilities in tracing lot numbers and serial numbers from receipt through production into finished goods. I did not have a chance to verify this functionality, but if present, it would be of interest for a number of manufacturing sub-sectors such as high tech electronics and medical devices.

I believe that NetSuite means business in pursuing the manufacturing sector. However, as can be seen, many of these capabilities (e.g. routings, cycle counting, labor reporting) are very basic manufacturing requirements, things that have been present in systems such as ManMan, AMAPS, BPCS, and others back into the 1980s. Furthermore, some of the planned capabilities will lack key things that a manufacturing prospect would expect. For example, the team characterized NetSuite’s material planning system as a “lean manufacturing system,” which to me is a polite way of saying, “minimal.”

Contrast this with NetSuite’s current capabilities and roadmap for eCommerce (SuiteCommerce) or support for back-office processes of software vendors, which go far beyond what most other ERP providers offer.

Now, it may be that the major opportunities for NetSuite will not be in the hard-core job shops or industrial manufacturing companies. Inasmuch as many manufacturing companies in the United States and elsewhere in the world are outsourcing much of their heavy production processes, it might be that the feature set in NetSuite’s roadmap will be enough to satisfy the majority of its target manufacturing market.

The Time and Place for Customization

One thing that I do not think will satisfy such prospects, however, is the use of customization to fill basic functionality gaps. NetSuite promotes its ability to augment its standard processing with customer-developed or partner-developed customizations, without modifying standard NetSuite code. During his keynote, Evan Goldberg gave an impressive demonstration of the latest version of NetSuite’s development platform, SuiteCloud. I continue to be impressed with the ease-of-use that providers such as NetSuite and Salesforce.com are delivering with their Platform-as-a-Service offerings.

However, the ability to customize and extend the solution should not be taken as an excuse for not offering expected features/functions in the standard product. When prospects need full-blown work center capacity planning, for example, the last thing they want to hear is, “Oh, we can use SuiteCloud to build whatever you need.” For customer-unique requirements, SuiteCloud is a powerful attraction. For what should be standard functionality, no.

Rapid Progress Possible

I’m encouraged by NetSuite’s renewed interest in serving the needs of the manufacturing sector. However the feature set currently in the roadmap does not go as far as I would like to see in building comprehensive functionality for manufacturers. Nevertheless, I believe NetSuite will see success with its product strategy for two reasons. First, as mentioned earlier, it may be that a comprehensive footprint is really not needed to serve the majority of prospects. Second, NetSuite’s cloud platform—like other PaaS systems—offers a rapid development environment. NetSuite will certainly make more rapid progress in filling out its feature set than it would if it were a traditional on-premises vendor.

Compared to the services industries, the number of cloud ERP providers for manufacturers has been limited. But with NetSuite’s renewed focus, the list is now getting a little longer.

Disclosure: NetSuite paid for my travel expenses for its user conference in San Francisco

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