One of the most critical steps for a startup company is its transition from the research and development (R&D) phase to the commercial production phase. During that period, there are a number of changes and new processes to implement, from manufacturing and supply chain to finance and revenue tracking. How a young company manages the transition often dictates whether it will thrive or flounder going forward.
For startup light-emitting diode (LED) lighting manufacturer Soraa, one of the issues during its transition from a research firm to a production manufacturer in 2012 was the need for a more robust IT platform. Eran Ziv, current Head of Supply Chain and former Vice President of Finance at Soraa, says the volume and breadth of data that had to be tracked was relatively low during the company’s three-year R&D phase. The company didn’t yet have many purchase orders, invoices, or production details to track. There weren’t a lot of customers or inventory to manage, and suppliers were limited to those providing materials for prototypes. As a result, the company’s IT requirements were limited and a solution-as-a-service-based (SaaS-based) ERP system and a collection of other functional systems served its purposes well.
But when Soraa was preparing to transition to its production manufacturing phase, company executives knew its supply chain and financial models would become significantly more complicated with increased data volumes and much higher process visibility requirements. It was evident a new ERP system would be needed to provide the backbone for the company’s launch and anticipated growth period.
Despite the fact that Soraa is a startup company, its supply chain is fairly complicated. To begin with, it designs and manufactures a complex product — LED lamps for industrial applications that use a proprietary method for creating the gallium nitride crystals in the product. The company wanted to use the same product lifecycle management (PLM) system to keep its proprietary diode manufacturing processes secure and manage its bills of material and manufacturing changes during production. That PLM system would have to interface with whichever ERP system the company chose.
Soraa is a fully integrated company, from a raw material all the way to a lamp. Once the diode manufacturing is complete, the lamps usually go to contract manufacturers for some value-add via a consigned inventory model for use within other products. In the consigned inventory model, the inventory is owned by the customer (Soraa), but stored at the contract manufacturer’s location until used and invoiced. An electronic data interchange (EDI) transaction triggers the invoicing process, so inventory and sales levels are always changing and need to be constantly monitored.
“Our inventory model is complicated and we need visibility into many steps, from receiving raw materials to consigning inventory at our partners, all the way to tracking finished goods sold,” says Ziv. “We need the ability to track the flow and cost of that inventory closely at every step.”
In addition to a PLM system and EDI interfaces with contract manufacturers, Soraa uses various other point solutions across its IT landscape. For customer relationship management (CRM), Soraa uses a cloud-based system. For its production operations, the company uses a manufacturing execution system (MES) solution and a homegrown production system. In total, Soraa would need its new ERP system to interface with seven other systems of various sizes and complexities, so integration capability was one of the top priorities in evaluating new ERP platforms.
Matching Business Need with Technology
When Soraa went out to the market in search of a scalable ERP system that could support its unique business requirements and fit a startup’s budget, its priorities were that the solution would:
Have predefined best practices
Be robust yet scalable
Interface easily with various systems
Create data integrity and one source of the truth
Include inventory and manufacturing functionality
Be as industry-specific as possible
“We wanted to adopt a tier-one ERP system because we needed inventory, cost, and production models that could be audited, and we needed a system that could scale with our anticipated growth,” Ziv says. “We also wanted a quick and cost-effective implementation, not a long drawn-out project.”
With all requirements in place, the list of available options narrowed fairly quickly. Soraa decided to implement SAP Business All-in-One for High Tech running on the SAP Sybase Adaptive Server Enterprise (SAP Sybase ASE) database. From a functionality perspective, SAP Business All-in-One caters to small and midmarket companies, providing the scalability Soraa was after. According to Ziv, the best practices that SAP brings to the table were one of the primary selling points. When transitioning from an R&D stage to a full production stage, the company understood the benefits of the best practices baked into a mature yet targeted system like SAP Business All-in-One for High Tech.
To expedite the implementation, the company opted for minimal customization, relying instead on the best-practice configurations in the system. Soraa was up and running with five modules in SAP Business All-in-One and seven interfaces with more than 30 transactions in only 16 weeks, going live on December 1, 2012.
Ziv says the company’s decision to use SAP Sybase ASE as its database made sense for two reasons. First, its legacy system was SaaS-based, so Soraa had no strong ties to a database during its R&D phase. Second, since it selected SAP as its new ERP provider, using the preferred SAP Sybase ASE database would streamline the implementation.
“Since we have the benefit of being a startup with no real infrastructure in place, we liked the idea that SAP Business All-in-One on SAP Sybase ASE was all one package from one provider,” he says. “This project would have been more complicated if we were already running on another database, but since we really weren’t, the decision was pretty clear cut.”
Since its go-live, Soraa has been realizing the benefits of a more robust and integrated ERP system. One of the most immediate benefits of the new system was the more visible and auditable processes it supports. The new ERP system not only provided structure around some of the startup’s processes, but also made them much more repeatable and easily scalable.
“As an R&D company using our previous IT environment, our employees had their own shortcuts to perform daily tasks and kept a lot of important data locally in different spreadsheets,” says Ziv. “Now, our processes are clear and well documented in the new system, which greatly improves visibility. As a production company, that’s what we needed — a fully documented cycle of purchasing, manufacturing, inventory, and sales.”
“Now, our processes are clear and well documented in the new system, which greatly improves visibility. As a production company, that’s what we needed — a fully documented cycle of purchasing, manufacturing, inventory, and sales.”
— Eran Ziv, Head of Supply Chain and former Vice President of Finance, Soraa
And the various systems that interface with the SAP system have brought the company much closer to the one version of the truth it seeks without burdening its business users. For example, the company’s salespeople still use the same CRM system to manage customer information — but that data is all brought into the SAP system through an interface and is accessible by the wider organization. This data centralization has set the stage for more advanced enterprise reporting.
Despite the success Soraa has achieved since its go-live, the company is already evaluating further enhancements to its ERP environment. With a centralized data model in place as the company’s orders and production volumes increase during its transition to a production manufacturer, Soraa is looking to bolster its reporting capabilities.
“We run material requirements planning for about 200 SKUs today, and within a few months, we expect that number to jump to 500, which will increase our data volumes and reporting requirements,” says Ziv. “Currently, if we want to prepare reports, we have to export them from the SAP system to Microsoft Excel spreadsheets — so we are evaluating ways to streamline that.”
The company is also thinking ahead and evaluating the latest technology — in this case, SAP HANA — to ensure its reporting is fast and based on the most up-to-date data available. “We are still a startup company at heart, so we are willing to take risks in moving to new technology if it means gaining some business benefits,” Ziv says.