Does your manufacturing business need an ERP?
5/23/2022
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Does your manufacturing business need an ERP?

If your company manufactures or distributes physical products and doesn't have an ERP (Enterprise Resource Planning) system, you might be asking whether it's time to invest in one. It's typical for startups to employ do-it-all accounting software and spreadsheets to keep track of payroll, inventory, sales, costs, and other processes. However, as the company grows, these applications become time-consuming, risky, and far from streamlining critical decisions. So, when should you invest in an ERP? Here's a checklist to help you evaluate the potential benefits and risks of adopting a suitable ERP.

Old school approach to digital work

Spreadsheets are excellent for tracking, tallying, and automating data input. Templates may be used to calculate expenses, manage stocks, maintain client information for marketing purposes, and more. You could be a master of formulas, pivot tables, connected items, and macros. However, despite how useful these spreadsheets or access databases are, they will always fall short when you have only one or two people proficiently making changes to them.

The business owner is either updating these systems, or there is one key individual in the company who understands how to make changes. If a key person leaves or the owner spends too much time working on the sheets rather than running the company, the operation might stagger. There are sometimes unanticipated consequences to seemingly minor adjustments. Because your Excel or Access "expert" does not have an IT department to troubleshoot problems, fixing things might take a long time or be impossible. The position may be occupied by someone inexperienced in a specific business area (for example, accounting) and with little experience in making the best judgments.

ERP to rescue

When you utilize an ERP system, you get the benefits of experts already familiar with it. Financial, operational, quality, and production specialists who helped to create the original design of the ERP can train your staff on how to use it.

You must fill in the same information everywhere. Duplicate data entry not only consumes company time but also encourages error. Even small mistakes might have catastrophic results when you don't know what number to use. It can take hours to figure out what percent of your quotations convert to sales, which orders are the most profitable, how much scrap pieces cost, or why your profits have decreased for the previous six months when you have miscellaneous files. When your databases track quality, sales, and inventory as separate files, reports that are "normal" for ERP systems must be custom-built.

You want to know which markets and product lines are the most profitable. You need a more accurate look at profitability as your manufacturing operation expands. To view this detailed data to find answers to questions such as "how much did I think this project would cost compared to how much it really cost?" you'll need an ERP system. Job expenses are typically measured in terms of labor (how many hours at what cost?), materials (raw materials), and outside processes (work is done by someone else). You'll also need to assess which product lines and clients are the most profitable on a broader scale. Unless you track and tabulate expenses by job, you can't be confident that the high-level product line reports are correct.

Documenting the process

Customers want high-quality items at reasonable fees and delivered on time. To improve overall efficiency, you need to lower your cost of quality, boost spending, and reduce lead times. To assist producers in meeting these three aims, the International Organization for Standardization (ISO) offers a widely recognized Quality Management Systems (QMS) standard that may be used globally. Also, if you sell to other ISO-certified manufacturers, they will require your goods to be certified. Even if an ERP isn’t required for an ISO certification, having one is a good idea because it provides the infrastructure and data management needed for these QMS processes. The ISO standards are all about documenting your manufacturing processes. The documentation process without an ERP system might be time-consuming and tedious. It's ideal to avoid repeating this challenging document procedure twice. Put your ERP implementation ahead of the ISO certification.

Standardization

Everyone must use the same system for their job functions and pass data down the process as more individuals are involved. The typical "Quote to Cash" procedure appears like this: Quote > Sales Order > Work Order/Job/Bill of Materials > Purchase Orders for raw materials > Inventory Receipt > Labor Collection & Other Costs Collection Against Jobs > Finished Goods Inventory with Costs > Shipping > Invoicing.

An ERP system guarantees that all relevant customer information supplied at the time of quotation is carried through to invoicing. Those saw the sales order's specifications in production. The goods are sent to the correct shipping address, according to the customer's instructions on the Sales Order. Without an ERP, you'll need the same documents (Sales Orders, Purchase Orders, Packing Slips, Invoices, etc.), but they're more prone to mistakes and take longer to enter due to their independent nature.

In conclusion, when your current business procedures take too much time to complete, rely on one or two people instead of a distributed staff, don't give the information you require, and don't support your growth plans, you know you need an ERP system. Begin your ERP search now and see how an ERP solution may help you take your manufacturing business to the next level.