Medtech Company Sees Clearly
Laser manufacturer gains real time information with Expandable
Laser Diagnostic Technologies uses PC-based enterprise resource planning (ERP) software to get up-to-the-minute reports on financial and production status, critical information as the company moves into full-scale production. Previously, manual methods and stand-alone programs were used to order material, manage inventory, schedule production, and so on. These processes were not integrated with financial applications so it was difficult to evaluate overall performance. Since switching to Expandable II, an integrated ERP system from Expandable Software, Santa Clara, California, purchase orders are generated automatically from sales orders. The software tracks outsourced components from the time they are received until they leave the company as finished products. And since manufacturing information is accessible by the financial applications, management can immediately see how the business is doing. "The system makes it easy for anybody to see what material is available, what we have built, what we have shipped, and the bottom line," says Marc Zemlick, CPIM, Manager, Inventory Control / MMIS.
Laser Diagnostic Technologies, Inc. (LDT), San Diego, California, grew from technology introduced in 1986 by Heidelberg Instruments GmbH-the first topographic laser scanning system for eye examinations. While it was applauded in the scientific community, this device was not a commercial success due to its high price, large size, and complicated operation. When Heidelberg Instruments closed in 1990, three of the four scientists who worked for the company formed LDT with the goal of developing less expensive, smaller, and easier-to-use laser scanning ophthalmoscopes. The principals achieved their goal with the TopSS® Topographic Scanning System and the NFA Nerve Fiber Analyzer. Several years later, the company introduced the next generation of the Nerve Fiber Analyzer, the GDx® Nerve Fiber Analyzer. GDx® is the first and only objective and accurate instrument for glaucoma detection. GDx® technology offers early diagnosis by evaluating changes to the retinal nerve fiber layer. These changes may be present up to six years before other diagnostic methods can detect them.
Managing Manufacturing Operations
LDT has its own facility where it assembles the Nerve Fiber Analyzer's. The units consist primarily of outsourced parts and subassemblies including machined components, electronic components, printed circuit board assemblies, lenses, and motors. In the early years of the company, production volume was low. "We were making only one product - our original system - and we built, at most, 20 units per month," says Zemlick. "We could get away with just pulling parts off the shelf and putting them together."
In those days, inventory was tracked by a spreadsheet. "Each time a system was built, an accounting person would take the bill of materials and subtract each component from the perpetual inventory," Zemlick explains. "At the end of the quarter she would try to reconcile the inventory as recorded on the spreadsheet with the actual physical inventory in the building. It was frustrating and often incorrect." The finished goods inventory was managed on a different spreadsheet. A DOS program was used to create bills of materials, item masters, and purchase orders. This program was difficult to use and workarounds were needed to make it meet LDT's needs. For example, the program did not permit the creation of a bill of materials under a purchased item. When an outside supplier produced an assembly consisting of multiple components, LDT personnel were forced to create an additional, pseudo bill of materials that treated the assembly as a "make" item. That was the only way to call out the individual components. Because this program was so inflexible and difficult to use, people found easier ways to perform some of the functions it could theoretically handle. Materials management was a good example. Even though the software had materials management capability, the process was done manually. "The production area developed a two-bin system that let them see when they were down to just one month's worth of parts," Zemlick adds. "That was easier than using the software." Production scheduling was also handled manually.
These programs and manual methods didn't talk to each other, nor was their information integrated with the company's financial applications. This led to a lot of redundant data entry and confusion when the different sources of information didn't agree. Also, it didn't permit a real-time look at how the business was doing because several weeks or more could elapse before data from one program was re-entered into another.
This arrangement worked well enough until the company introduced the newer generation GDx Access. This portable version of the system was a big success and the company needed to ramp up operations to meet the demand. One of the first decisions management made was to purchase a single ERP program that linked MRP (Material Requirements Planning) with the financial applications rather than continue with their existing stand-alone systems. "An ERP system would let us see at a glance 'This is what we have received to date, so this is what we have to pay for,' and 'this is what we have shipped to date so this is what we have to invoice.' It would get us away from the confusion and disconnect of the previous stand-alone methods," says Zemlick.
The company evaluated a number of ERP systems, ruling out high-end enterprise systems such as SAP R/3 and Oracle because of their high cost and the lengthy implementation cycles. "I'd been through an Oracle implementation at another company and it was very difficult," Zemlick says. "Expandable was perfect for LDT's needs because it was relatively inexpensive and could be implemented quickly, yet it provided all of the basic capabilities of the high-end systems." The other key benefit of Expandable, according to Zemlick, was that unlike the previous manufacturing system, Expandable was easy to use. "We wanted more than a handful of people to be able to use the ERP system, and Expandable seemed easy enough for everyone to understand," Zemlick adds.
The implementation of Expandable took place in three phases. The first phase involved replacing the old DOS program that handled bills of material, item masters, and purchase orders with the Expandable counterparts. This took only a few days. "After a brief training session to acclimate people to the new software, we imported the existing vendor list, bills of materials, and item masters from the old program into the Expandable database," says Zemlick. "The next day we were using Expandable. It was that easy, nothing at all like the Oracle implementation I'd been through." As soon as this materials management portion of the new system was installed, it was evident that Expandable was more flexible than the old program. "Expandable gives you many ways to define bills of materials, so we don't have to deal with the workarounds we used in the past," Zemlick says. "We can create a Bill of Materials for any part, a buy part or a make part, and put a structure underneath it."
In the second phase, the company implemented the software's job scheduling capability. Because this module is integrated with the modules implemented in the first phase, the creation of a work order automatically explodes a bill of materials and creates a kit list of all the components that go into that product. A kit shortage report shows the quantities of parts not in stock and the system subtracts the in-stock items from inventory. The information goes back to the system's Purchasing module to generate purchase requirements for the needed items. This module draws information from the vendor master list in the Expandable database to automate the creation of purchase orders.
The software also provides the ability to backflush the inventory, which has been very helpful in keeping the inventory accurate. Backflushing is done at the end of the production process, automatically decrementing the individual components' on hand balance and increasing the on hand of the finished goods unit. "When we started doing this, our inventory levels really started to come under control," Zemlick says.
The second phase of the implementation also brought Expandable's sales order management capabilities on line. Now when an order is received, it is entered into the Sales Order module by an order entry clerk. This module generates a pick ticket that is given to the production manager. Instead of manually comparing the items needed to process that order against an inventory list, he simply runs a "component availability report" that shows which parts are already in-house and which need to be ordered. The ERP system compares the bill of materials for that job against the inventory and prints out a list of the items not in stock.
In the third phase of the implementation, the company installed the Expandable financial applications: accounts payable, accounts receivable, and general ledger. Having these applications linked to the manufacturing database has eliminated the time that was formerly spent transferring information from one system to another. It has also improved the accuracy of the information since there are no longer multiple databases with conflicting information. More importantly, since there is no delay while data from one system is reentered into another, management has an up-to-the-minute view of financial and production status. This is very important now that the company is growing quickly. "The data we have now lets us monitor our efficiency, which is relatively new for us," says Zemlick. "We have a better idea of our resource requirements including how many people we need to hire." Overall, Zemlick believes the ERP system is "a tremendous asset" to Laser Diagnostic Technologies.
For more information contact Expandable Software, Inc., 900 Lafayette St., Suite 400, Santa Clara, CA 95050. Phone: 408-261-7880. Fax: 408-247-2160. Web: www.expandable.com. Email: firstname.lastname@example.org.