SOA in Manufacturing: Web Services and Quote-to-Order Strategy

Introduction

Global manufacturers are often caught in a dilemma: on one hand they must pursue a continual low-price strategy to attain profitability, yet on the other they are called upon to increase their agility to respond quickly and accurately to increasingly unique customer requests. The need to maintain profitability while remaining agile enough in production processes to meet unique customer requirements forces many manufacturers into a paradox of how to align their Information Technology (IT) initiatives and programs to support both objectives. Manufacturers are resolving this dilemma through the use of SOA architectures and strategies, relying on Business Process Execution Language (BPEL), Web Services, XML and its many variants, Business Process Management, and Workflow Management (W3C XML Working Group, 2004). Manufacturers are synchronizing these many components into strategies that pervade every aspect of their operations, hence the need for a robust and scalable Service-Oriented Architecture (SOA) (Fu, Xiang, Bultan, Tevfik, and Su, Jianwen, 2004). Jutras (2006) states that SOA process redefinition in manufacturing is less about cost reduction and more about business process re-engineering (BPR) to re-align IT systems to support key objectives by making processes more efficient. This paper evaluates SOA in manufacturing and concentrates on the streamlining of customer-facing processes.

The role of IT departments has become increasingly strategic from the standpoint of redefining business processes that give companies a competitive advantage in the execution of their strategies and initiatives. Far from being the mere custodians of a company's information systems, the role of the IT department today is that of strategy enabler and supporter. As a result, IT is in the midst of a transition from being simply a collection of cost centers to a hub of business centers.

The intent of this paper is to show how Service-Oriented Architectures (SOA) are redefining how IT drives business process change throughout manufacturing companies. SOA is by definition inclusive of Web Services, Business Process Management (BPM) modeling languages including BPEL, and support for Event Driven Architectures (EDA) that provide constraint- and event-based logic. This logic makes it possible to complete automated process and scenario responses within an SOA architecture, according to Masson, Smith, and Gaughan (2006).

The use of SOA architectures has become more commonplace as manufacturers have had to contend with continual price erosion in their core markets while customers increasingly ask for tailored and configured-to-order products specific to their own needs. The quote-to-order process is the predominant one that manufacturers specifically focus on to attain both cost efficiencies and product customization globally. This specific process area is the focus of the SOA discussions in this paper, with both theoretical research and practical examples underscoring how SOA's most significant contributions to streamlining this process are making the Return on Investment (ROI) in SOA technologies measurable and significant, according to Study in Contrasts (2006). SOA delivers competitive advantages by synchronizing supply chains, manufacturing systems, fulfillment, pricing, and services to align manufacturers' processes with the demands of their customers.

SOA in Manufacturing: Theoretical Review

SOA frameworks that are succeeding in manufacturing today rely on the integration of Web Services, BPEL-based programming and development languages, and the development of Web Services for specific processes within the manufacturer. Integrating all of these components together is XML, which acts as the integration technology across SOA frameworks (Usdin, 2006). More precisely, XML and its many commands and sub-languages form the foundation for how Web Services communicate and execute commands across applications and systems (Vasudevan, 2001). XML forms the messaging and communications platform, while Web Services are the actual shared applications. XML further makes data integration possible in Web Services, enriching applications by making data available from many different types of systems, as shown by research completed by Barry & Associates (2005).

XML has formed the basis of Web Services and, according to the latest standard definitions from W3C, is the "backplane" of the Web Services architecture itself, according to Walsh (1998). There are additional standards including SOAP — a standard on which Microsoft has built much of its .NET architecture — and WSDL (Barry & Associates, 2005). Compared to these two standards, however, XML is more closely aligned with the communications needs of users who want to share data and applications pervasively through networks and over the Internet. XML is the basis of the growth of Web Services in many organizations today.

XML's role in the growth of shared, hosted, and Software-as-a-Service applications continues to be demonstrated with every new application launched in these areas (Walsh, 1998). The growth of XML is also attributable to its flexibility in providing a backbone for Web Services, specifically due to XLinks and XPointers' adaptability in connecting with and using content, commands, and data from other XML-based documents. The future of XML lies in the further development of this standard as the basis of object-oriented programming and the integration with more complex data sets — including databases, ERP, CRM, supply chain, and analytics data — and ultimately the development of entire SOA architectures and platforms (Vasudevan, 2001).

Current Practices: SOA in Manufacturing

Historically, manufacturers have been conservative with regard to spending on IT in general and on process redefinition specifically. Globalization, increasing cost pressures, and the need to increase the speed at which new products are introduced are all factors changing this conservative mindset, pushing manufacturers to adopt newer technologies more readily than they had in the past. The role of SOA frameworks in manufacturing is to increase the accuracy, efficiency, integration, and synchronization of processes company-wide, resulting in greater market performance. As a result of these macroeconomic factors, manufacturing spending has been predominantly focused on the efficiencies of manufacturing processes, leaving customer-facing processes to sales and marketing (SOA Success, 2005). To understand how manufacturing companies are adopting SOA, it is instructive to examine the results that SAP AG is achieving globally with its NetWeaver platform.

The following key results of SOA adoption into manufacturing companies worldwide are exemplified by the SAP NetWeaver early adopters (LWC Research, 2005). In assessing the adoption of SOA platforms by manufacturing companies — using SAP's NetWeaver as a barometer of early adopter success — the emerging role of SOA as a point of key differentiation, over and above being merely a strategy for ERP systems consolidation, is beginning to emerge. SOA forms the foundation of Web Services and Event Driven Architectures (EDAs) throughout the manufacturing companies that have already passed through experimentation with Web Services as part of their SOA architectural plans and moved directly to piloting Web Services for mission-critical tasks such as order capture, order management, return material authorization, special pricing request management, and quote-to-order process workflows. This view is substantiated by much of the research completed in this area, including Jackson (2006).

Of these, the Web Services that are most effectively revolutionizing manufacturing today involve the streamlining of the quote-to-order process. This is the process by which manufacturers work with both their direct and indirect channels to have each respective sales force create accurate quotes for customized products. Both business-to-business (B2B) and business-to-consumer (B2C) companies rely on quote-to-order strategies in conjunction with product configurators to accurately quote the pricing and availability of complex products.

Figure 1 (Manual Quote-to-Order Process Workflow, based on analysis and sources from AMR Research, 2003; LWC Research, 2005) quantifies performance over more than 20 days and shows the highly manual series of steps required by most manufacturers to complete this process. Using an SOA framework that includes BPEL-based applications capable of creating streamlined workflows, a significant cost and time savings can be achieved. Figure 2 (Quote-to-Order Process Workflow with an SOA framework, based on analysis and sources from AMR Research, 2003; LWC Research, 2005; Siemens NEMA Quote-to-Cash Process) graphically illustrates the areas of improvement made possible when an SOA framework is applied to this specific manufacturing process.

Conclusion

Manufacturers are embracing SOA architectures and strategies to revolutionize and make more efficient the most complex processes in fulfilling customer requirements. Globalization, increasing pressure on pricing, and the need to increase the speed of new product introductions are all macroeconomic factors forcing manufacturers to embrace SOA frameworks to unify, synchronize, and ultimately strengthen their ability to attract, sell, serve, and retain customers. From the research completed for this paper, a significant finding emerges: the majority of manufacturers are moving to SOA frameworks to streamline their customer-facing processes first. The quote-to-order process has been critically analyzed in this paper to illustrate the quantifiable gains manufacturers are making in one of their most complex customer-facing processes. From this analysis, another key finding emerged — that the greater the complexity of customer-facing processes, the greater the need for process and system integration, and consequently the higher the Return on Investment (ROI).

From this research it was also ascertained that the majority of manufacturing companies — nearly all of which already possess a highly metric-driven culture — are measuring the performance gains at the process level when an SOA framework is introduced to support sell-side processes. A key conclusion is that the evolving trend within manufacturers of measuring the impact of their SOA strategies has produced an increasing focus on the Key Performance Indicators (KPIs) that signal financial performance increases as a result of greater collaboration and integration internally. Specifically, the role of Days Sales Outstanding (DSO) as a measure of customer satisfaction resulting from tighter SOA integration is critical, as are many measures specific to the quote-to-order processes that manufacturers are targeting with EDA and Web Service components of their SOA architectures and strategies.

Table 3 (Summary Table of SOA Performance by Manufacturing Vertical) illustrates order time reduction, DSO reduction, quote creation time savings expressed as a percentage of the entire quoting process, reduction in incorrect orders as a percentage of all orders, and the percentage increase in cross-sell and up-sell strategies using quotes as the foundation of the selling strategy. The verticals represented include elevators, high-tech peripherals, components, PCs and servers, automotive manufacturing, industrial distributors (channel assembly), furniture, and network and LAN equipment manufacturers. Sources include LWC Research's study on the Quote-to-Order Process and the Siemens NEMA Quote-to-Cash Process.

In addition to the empirical evidence collected from secondary research illustrating SOA frameworks' performance over time, this study illustrates how pervasive the use of BPEL-based applications is becoming in re-aligning critical, revenue-generating processes throughout manufacturing companies. The emergence of XML as the integration standard between BPEL-based applications, Web Services, analytics applications, and business strategies is clearly illustrated throughout the examples shown in this paper. Underscoring the convergence of business process re-engineering, Web Services, XML, and analytics applications used to measure performance is the redefinition of the role of the Chief Information Officer (CIO) as well. While the scope of this paper has been specifically on the adoption of SOA frameworks in manufacturing, the research also surfaced a trend of CIOs becoming more responsible for process redefinition rather than simply maintaining IT assets. The need for greater research into the transforming role of the CIO as business process owner and enabler of strategic change through the use of SOA frameworks is an area of future research critically needed.

From the research completed, the adoption of SOA frameworks is re-aligning customer-facing processes and forcing more manufacturers to re-evaluate the role of strategic information technology management in their organizations.

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