Achieving Digital Shipyard Success – ERP Holds the Key

Source: IFS

Published Nov 10, 2019 6:09 PM by Kenny Ingram

The emergence of the digital shipyard is an exciting prospect for major shipyards. By connecting workers, docks, tools and supply chains, the digital shipyard offers improved information sharing and substantial efficiencies over traditional shipbuilding environments. 

To ensure the viability of the product lifecycle management (PLM) solution in use, meet the unique requirements of the shipbuilding industry, and to manage every stage of a customer project to achieve profitability, the supporting enterprise resource planning (ERP) software must go beyond traditional ERP and PLM software. Kenny Ingram, Global Industry Director of Engineering, Construction, and Infrastructure at IFS, identifies the key areas that must be supported for digital shipyard success:

Proper PLM when building a huge vessel requires a unified approach to data across an operation, which means the system of record—ERP software—is the primary vehicle for PLM thinking. Best-of-Breed PLM software generally prioritizes computer-aided design (CAD) and 3D modeling, but product lifecycles go much further. PLM must be able to extend through manufacturing, fabrication, procurement, commissioning, overhaul, refit, maintenance, repair, and decommissioning. 

The digital shipyard needs a complete project and asset-centric ERP system that can support this broad vision and contain the master records for all data. This data can then be used to drive materials and component procurement, fabrication, employee hiring and the equipment rental required to complete a project. The data must then be available if a shipyard also extends maintenance repair and overhaul (MRO) services to its customers.

First – it starts with early stage data

In order to drive digital benefits across a shipbuilding operation, shipbuilders need more than PLM software. They must have a single software application that encompasses the key phases where they deliver value to their customers. This is challenging because of the project-centric nature of shipbuilding and some of the unique steps in the value chain including design and procurement.

ERP must start to address this process well before design commences, because deciding to pursue a contract, estimating and bidding are all complex, time-consuming and mission critical tasks. All information added to an enterprise application during these steps should flow into subsequent project phases to avoid duplicate work or poor communication as the process is handed back and forth between users of separate systems like CRM, PLM and manufacturing.

This early stage data must flow into the sales contract. The sales contract represents the starting point for the project and contains user requirements and subsequent steps to conform to, including specifications or functional mandates for the vessel and earned value management or progress-based billing. Enterprise software must encompass these steps or shipbuilders will be at a disadvantage from the start.
Next – instant communication of design changes is a necessity

Engineering and design of the vessel must be informed by these initial steps as a shipbuilder pursues and then secures a contract. Starting with the design process, contract management functionality in ERP is crucial because it ensures the delivery of agreed requirements. Because design is still somewhat of an iterative process, this means that any changes to the design must be communicated from the design tool through to other parties immediately. 

From the initial design stages, procurement may already be working on long lead time items that must be fabricated or engineered to order. As the design changes, specifications for these items may change, and procurement professionals will need to immediately revise active orders with suppliers and subcontractors. Without the tools for real-time communication of changes, these long lead time items may push the project schedule out in violation of contractual requirements. At the very least, out of pocket expenses will increase due to rework and rush fees.

After that – answer key financial & operational questions

Each shipbuilding project has two sides—financial management and operational work/management. Shipbuilding ERP must encompass both a cost breakdown structure and a work breakdown structure. The cost breakdown structure allows project costs and revenues to be broken down into a hierarchy where budgets or monthly forecasts can be managed at any level of the structure. In addition, project financial control needs to manage cash, contract/variation management, project accounting, risk and opportunity, and progress or milestone-based billing. The work breakdown structure is operational—it encompasses what is done at what point to ensure work is proceeding according to contractual requirements. 

Most shipbuilders today make heavy of use of Excel as they do not have a project centric ERP solution. This lack of integration hinders their journey towards digital shipyard status because there is no way to reconcile the work breakdown structure and the cost breakdown structure. Key questions like what project steps have been completed, how those steps correspond to project milestones and payment events and, ultimately, whether a project is on track to make or lose money cannot be reliably answered without fully integrated, project-driven shipbuilding ERP.

Finally – address projects across the enterprise

Shipbuilding ERP must bring together the operational and financial sides of the project to help shipbuilders track estimate to complete (ETC) by hours, which provides a forecasted number of hours and dollars to complete the project. The ERP should also help with estimate at completion (EAC) by hours which provides a forecast cost of the project at completion.

To deliver visibility into ETC and EAC, however, ERP must encompass the contract itself, project management and different cost drivers. These cost drivers include materials procurement, equipment rental and chargeable use of internal equipment, subcontractors and employee hours consumed against the project.

In order to meet the contractual obligations and satisfy the customer reliably, the different logistical elements that underpin successful project delivery must also be covered by ERP. Shipbuilders need strong inventory functionality to ensure that stockouts do not push milestones past timelines, which impacts revenue and the customer experience. 

Equipment availability and readiness is also critical to a shipbuilder’s ability to deliver. ERP must address maintenance and reliability of owned equipment such as gantry cranes, robotic and manual welders and even the dry docks themselves. Many shipyards are running equipment that on paper has exceeded its useful life, so embedded enterprise asset management (EAM) and maintenance capabilities are crucial.

The market is changing and so should shipbuilders

Shipbuilders can see the benefits, but in order to adapt to change they need ERP systems that will help them. These changes may center around the technology they use on a project, but more and more it is the technology embedded in the projects they complete for customers that is evolving faster.

Vessels are becoming more complex and are likely to include IoT elements designed to drive condition-based, preventive and predictive maintenance. This means a shipbuilder will be required to consider how to use data from sensors as part of an asset lifecycle service program. Over the lifecycle of the vessel, data from IoT and changes made to specifications during maintenance and refits should be added to a digital twin of the asset, so the owner has full information that helps them get the most out of their investment.

Industry vendors such as Rolls-Royce, General Electric and Honeywell—and customers like the U.S. Navy—are also working towards a goal of autonomous surface ships, which are expected to become viable by 2028. IBM claims a smart port, fitted with cloud and IoT capabilities, will be ready to host autonomous ships by 2025. 

Don’t forget – adapt to new technology & rise to greater competition

Shipbuilders will need to deal with increased competition. Vessels such as bulk carriers are built increasingly in Southeast Asia. Middle Eastern countries are producing tanker ships as they seek to pull more of the capital projects associated with petroleum back within their borders. 

But product categories such as cruise liners are seeing a lot of activity. It is these vessels, which require extensive consumer insight, innovation and new amenities, where higher-wage countries including Italy, Germany, Norway and the U.S. may see the most opportunity. 

ERP software should enable shipbuilders to confidently manage increasingly complex customer projects, meet customer requirements for billing and project control, and meet the demands that come with advancing technology and economic trends. The right shipbuilding ERP will help shipbuilders identify the best revenue opportunities, make go or no-go decisions about pursuing projects and compete depending on innovation and quality, rather than price.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.