ERP For Manufacturing
World-class manufacturers invest in people and equipment to produce their products at the lowest reasonable cost, delivering to the customers when they need the product, and maintaining the highest quality level possible. This formula yields the highest potential profitability.
The ability to understand costs and most efficiently track all business information is done in ERP systems. Using ERP for manufacturing allows companies operating at ‘word-class’ levels to have a system that tracks all demand for a product, coordinates procurement, tracks materials and other critical assets, schedules production, expeditiously ships products while interfacing outside shipping resources, and tracks all financial aspects of the organization.
Manufacturing companies have many unique requirements that can be industry or compliance-specific, and supporting multiple systems to meet these challenges is usually too costly and logistically challenging to maintain. Tracking lots of raw materials, serial numbers, multi-level bills of material, scheduling variable resources with attributes and capabilities, and fully understanding costs of incoming materials (landed cost), as well as internal costs of labor, materials, and overhead, is critical to success in today’s business environment.
When Should You Consider Using an ERP For Manufacturing
Startup companies using multiple systems (stand-alone accounting, spreadsheets, other disparate systems) get to the point that the extra cost and frustration of reconciling are too much to handle. In addition, companies become complex to the point that managers can’t understand the business unless they have all of the information in one place.
In addition, companies that adopted the current ‘best technology’ many years ago will find today’s ERP systems to be full-featured and provide a significant return on investment.
When determining if you require an ERP system for manufacturing; ask yourself the following questions::
- Do you know your profitability by product and product line?
- Do you know your profitability by customer, region, or other categories important to your business?
- Are you able to deliver products on time, with regularity, and without significant human intervention?
- Is your business able to be run independently of critical staff who are the only ones who ‘know’ the business?
Whether you are a business that has found itself unable to answer these questions positively, or you are preparing for growth and/or sale of the company, an ERP system may be your most strategic acquisition.
For instance, companies may be in the market for a new machining center, which could be $1 million or more. They might need this new machine because they have lots of orders, and their lead times are slipping. While this might make sense, here are some questions you should consider:
- What is the efficiency of all of the other machining centers? Can you increase their efficiency and avoid the expense of buying another machine?
- If you eliminate the customers or products that aren’t profitable, would you have enough capacity to produce only profitable parts, therefore avoiding the extra expense and increasing your bottom line?
If you can’t answer these questions, then an ERP system might be necessary.
ERP Implementation in The Manufacturing Industry
Let’s assume you’ve asked the questions above and decided to move ahead with an ERP system. As stated above, the most critical aspect of ERP implementation in the manufacturing industry is the team doing the work. This means both on your end and from the ERP implementer. Both organizations need to staff this project with people who will be compatible and have all of the areas of expertise necessary. These teams need to ‘see the big picture’ and be able to dive into the details.
Here’s a brief overview of a typical implementation process for a small to medium-sized company:
Your consulting firm will assign a team to this project, and you will be asked to set up an internal team of ‘subject matter experts for each part of your business. As the two implementation teams get to know each other, the education process begins. You are learning how the software works, and the implementor is learning your business as well as identifying the critical requirements. This ‘discovery’ allows the two groups to arrive at a consensus on the project’s scope – what’s ‘in’ and what’s going to be done in phase 2 or beyond. This is a critical part of the process because without a defined scope, a project becomes complicated to manage, and the goals of the project become moving targets.
At EpiCenter, we write a detailed document that identifies the current state and explains how the future state will work. We call this a ‘Strategic Process Review’ documenting our implementation scope.
After the scope is defined, the organization should identify sample transactions representing the vast majority of their needs. This ‘test set’ of transactions becomes very important as the system is set up with test data, and transactions are attempted.
Data from legacy systems can be automatically transferred into the new system to speed up the process in many cases. This information must be ‘sifted’ to verify that it’s accurate, and additional information may be needed to bring over everything that is needed fully. A straightforward example is customer information. Are there multiple lines for addresses? Can you transfer over all the contacts to the customer with their email addresses and cell phone numbers? Do you know which customers are current versus those who are no longer with you? The adage of “garbage in, garbage out” is just as relevant today as it has been forever.
After data is in place and your configuration of the new system is in place, it’s vital that you test, test, test. Usually, a ‘conference room pilot’ or two will be critical to flush out any issues. Using a test database, you start with beginning balances in your general ledger. Staff proceeds to make transactions, modeling all of the everyday activities of the business. Orders are taken, bills of materials are set up, purchase orders are generated, receipts are done, production happens, jobs are scheduled and shipped, invoices are sent, and bills are paid. Ultimately the period is ‘closed,’, and the organization knows if they made or lost money. This is all done in simulation, and gaps are identified. In some cases, it takes several of these simulations done over some time to flush out whether a system is ready fully.
Then, user acceptance testing is done using actual end-users of the system. This is another opportunity to determine what’s ‘really happening’ and whether the new system can handle it. The actual users complete transactions in a test environment until they are comfortable.
The big event comes when you’re ready to go live. Usually, we plan this over a weekend, and your team will take their last physical inventory ever because ERP systems typically run with ‘perpetual inventory’ and cycle counting, which keeps the inventory accurate. In the ‘olden days,’ systems were run in parallel for 2-3 months, but our testing process makes this obsolete. The final transactions are taken from the legacy system(s) and placed into the new system as beginning balances. All parts of the application start at the same time after the weekend inventory is updated. Our team will come onsite with you, and if there are multiple sites, we’ll have staff at each location. Go lives with EpiCenter are typically very smooth processes – because we ensure that everyone has completed their planning and training.
The last step is the first month-end close, and our consultants will work with your staff to complete all of the tasks. Month-end close should occur within a few days of the end of the month.
After this, we will meet with you to review the implementation and identify phase 2 projects that you might have deferred from the implementation and want to revisit.
EpiCenter’s decisive strength is in implementations. Even though it can be stressful at times, it’s an excellent process, and your team will ‘own’ their work at the end, so they can work independently and enjoy the benefits of a fully integrated ERP system.
When Should You Consider Using an ERP For Manufacturing
If your company requires a manufacturing ERP system, we represent Epicor ERP/Kinetic, which we believe is the best ERP for manufacturing. It has a very clean, easy-to-use interface, and ‘under the hood’ is the current best available technology for reporting, interfaces, and extending the product wherever you need to go. Our implementation teams are fantastic, and we can supply rave reviews. We’ve never been unsuccessful in an implementation. That is a remarkable statement to make!
Please contact us to discuss your business, and we can let you know if there’s a good fit for you with Epicor. If there is, we’d love to earn your business!
written by Jeffrey W. Glaze, President