Maximizing ERP Deployment Pays Off

After Considering Tier-One ERP, Photon Dynamics Saves Millions by Staying with Tier-Two System

Photon Dynamics, a manufacturer of test, repair and inspection equipment for flat panel display manufacturing, has experienced tremendous growth over the past decade. This rapid growth made it difficult to keep track of orders, materials, and finished goods moving through its manufacturing process. Some within Photon Dynamics pointed toward their information control systems and suggested abandoning its mid-tier enterprise resource planning (ERP) system in favor of a Tier-one system.

To justify the costs and other expenses of such a change, the company decided to first make sure that the system was, in fact, the problem. So the company hired a consulting firm to study its operational requirements and the capabilities of its existing ERP system against the costs and benefits of installing a Tier-one system. The study concluded that by merely better utilizing its existing ERP system the company not only could meet its operational requirements into the foreseeable future, but would also be able to avoid the millions of dollars of direct and indirect costs that a Tier-one ERP system implementation would require. Photon Dynamics took this advice, and there is now a consensus within the company that its current system, Expandable from Expandable Software, Inc., meets all of its needs.

Rapid growth in flat panel displays

The flat panel display industry’s migration toward large-area “mother glass” for economical, high-volume production of larger display panels is driving the need to maximize manufacturing yields. Because of the high cost of materials used in the manufacture of liquid crystal displays (LCDs), defective LCDs can drive up both panel and end product costs. Reliable, repeatable methods of analyzing production-line data and repairing process-related defects are therefore essential to enabling the production of larger, higher-quality LCDs at affordable price points.

So it should come as no surprise that Photon Dynamics, which addresses the burgeoning LCD market with the industry's widest portfolio of integrated yield-management solutions, has experienced such rapid growth. Revenues have grown from $30 million in 1998 to $125 million in 2005. This rapid growth has presented major challenges for the company. “When I joined the company we were in a growth spurt that saw us shipping more than twice as many units as the same quarter in the previous year for five quarters in a row,” said Lee Penning, VP and Chief Information Officer for Photon Dynamics.

“This rapid growth created a great deal of strain,” Penning said. “Many aspects of our manufacturing information systems were managed on paper or on spreadsheets. At a lower volume these were not too difficult to handle manually but as we got bigger things began falling through the cracks. Our part numbering structure was not being adhered to so it became very difficult to find components in the system. Engineering change orders were taking far too long to implement.”

Move to Tier-One ERP?

“Some people in the company suggested that it was time to move to a Tier- one ERP system such as Oracle or SAP,” Penning continued. “I worked with Oracle in my previous job and know that it is a very powerful system, but I also know the cost and disruption to a company’s business involved with implementing such a system. At my previous company it cost $6 million to implement Oracle the first time. We also did two full upgrades at a cost of $500,000 and $175,000 in the four years following implementation. Another consideration is that the annual maintenance cost for Oracle at my old company was five times what we are spending on Expandable.”

“These costs, however, are considerably lower than the hidden costs of implementing the system,” Penning added. “In my experience it takes six to eight months to become productive on a new ERP system and then another six to eight months to become an expert user. During this period, efficiency suffers, orders are mishandled, waste occurs. For example, customers may become frustrated because they didn’t receive their order because someone forgot to fill in a check box.”

Penning decided that before he put the company through this kind of pain he would determine the causes of the company’s growing pains. “Tier-two software is often brought into smaller companies by finance,” Penning said. Then almost as if by osmosis it spreads to other areas of the company such as manufacturing, purchasing, sales, etc. The weakness of this approach is that there is no end-to-end vision of how it will be used and users frequently approach it on a piecemeal basis by adopting the capabilities where they have immediate needs and ignoring the others. I suspected that our problems might lay not so much with the software as with the way we were using it. I decided the best approach to settle the question was to bring in an objective outsider to have a look.”

Consultants study the issue

Photon Dynamics hired a consulting firm to look at the company’s current and future information systems requirements and match them up against the capabilities of its current and alternative Tier-one and Tier-two ERP systems. The consultants were also charged to look at Product Lifecycle Management (PLM) and Customer Relationship Management (CRM), two closely related areas where Photon Dynamics was using stand-alone systems. The consultants interviewed more than 50 people, both at Photon Dynamics and their suppliers, to get their input on what was happening and evaluate what needed to be done to correct the problems. “The most important comment that came out of the gap analysis was that our business processes were not well defined and needed to be more structured,” Penning said.

Essentially the consultants found that the growing pains experienced by Photon Dynamics were due to the fact that the Expandable ERP system had been only partially implemented in some areas of the company. The consultants recommended that the company utilize the software to perform many operations which had up to that point been done manually. For example, the study pointed out that Expandable could handle the complete purchasing process, including generating purchase orders, receiving shipments, accepting invoices, and tying the purchase order, shipment and invoice together. They stated that by fully implementing the Expandable purchasing capabilities, Photon Dynamics would be able to handle the company’s needs into the foreseeable future.

The study also concluded that engineering change orders were taking much too long. To correct this problem it recommended switching to a different PLM system and also recommended implementing the forecasting module of their CRM system.

Handling multiple manufacturing sites

At the time of the study, Photon Dynamics was planning to set up another manufacturing site in Korea. It needed to do materials planning separately and summarize the information from both locations in reports. The consultants found that this could be done easily in Expandable with a custom report. The one limitation of the system was that the Asian operation would have to use English screens, but this was not considered to be a major issue, especially when the cost of upgrading to a Tier-one system that provided screens in Asian characters was considered.

The report noted that the company would have no difficulty in meeting the requirements of the Sarbanes Oxley Act (SOX) and other regulations with the Expandable ERP system. Expandable’s source code cannot be modified by users, which eliminates the need for a considerable amount of the controls required with other systems.

Photon Dynamics has already re-visited the implementation to ensure that all areas of the company are taking full advantage of Expandable’s capabilities. The company has implemented the majority of the consultants’ recommendations and achieved the desired results. Nearly all of the company’s businesses processes now take place within Expandable and the bottlenecks that were seen in the past have disappeared.

Two additional key steps were the implementation of the Expandable Configurator module, which makes it possible for everyone in the company to rely upon the ERP system to determine exactly what is required to customize each individual product, and the implementation of a new PLM system from Agile Software Corp. These additions have helped to streamline the engineering change order approval process. Since Expandable provides an interface to the Agile PLM software system, the approved ECOs and other information flows automatically from Agile into the Expandable ERP system.

Automating the purchase order process

Photon Dynamics is beginning to automate their purchase order process by implementing blanket purchase orders. “We will negotiate long-term contracts and service level agreements with our 150 largest vendors,” Penning said. “Then we will run our forecast in SalesLogix CRM, move it into Expandable through an interface, explode the forecast with Expandable’s MRP system, and Expandable will calculate what items from blanket orders need to be released to meet demand. Our purchasing staff will simply need to review these proposed releases and then allow them to be issued. This is another Expandable capability that we have not been taking advantage of up until now. It will substantially reduce the time required to perform the purchasing function.”

“Depending on our company’s growth in the future, there’s a good chance that we will need to implement a Tier-one ERP system at some point,” Penning concluded. “But it makes no sense to take such a costly and disruptive step until we are sure it is absolutely necessary. The consultants’ study stated that Expandable should meet all of our needs for at least the next three to five years and now that we more fully utilize its capabilities it’s clear that the consultants were right. In the mean time, we have avoided an enormous expense and disruption to our business.”