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ROI with ERP

ROI with ERP

This is a common question that arises with many Small Medium Businesses. How do you know what the ROI will be? Are the ROI calculators provided by some ERP vendors accurate? Small manufacturers processes vary from business to business depending on the type of manufacturing being performed. So a generic calculator will not capture the uniqueness of your business or processes. In a large manufacturer such as an automobile manufacturer (like GM) it is more appropriate. Larger business have the resources to allocate to determine ROI, there are thousands people who interact with the ERP system. In a smaller business it could be 100 or fewer people interacting. The smaller business's are focused on a small manufacturing sector, it could be supplying tooling or supplying parts to the bigger automotive manufacturer. Most small business do not have the resources to perform detailed ROI calculations. If you are new to ERP systems, to calculate the ROI will be very different from a business that has an established ERP systems. Here are some functions that will be of benefit to your business by introducing an ERP system: Reduced level of inventory through improved planning, purchasing and control. Improved production efficiency which minimizes shortages and interruptions. Reduced materials cost through improved procurement and payment protocols. Reduced labor cost through better allocation of staff and reduced overtime. Increased sales revenue, driven by better managed customer relationships. Reduced regulatory compliance costs. Provide business wide reports, job costing, WIP to name a few. These functions automate many of the manual processes which reside in the business. Many small manufacturing business do not perform an ROI as they don’t know where to begin. Lets look at purchasing as an example. If items are being purchase for production tooling and it takes several months to build the tool, it doesn’t make sense to purchase all the material at the start of the project. It is better to purchase material as required, such that spending is regulated and inventory is kept to a minimum. This process can be done manually or it can be automated by an ERP system. If several large complex tool builds are going on at the same time it will take a lot more resources to perform this task manually than automating it in an ERP System. It is possible to calculate the ROI but it will take some effort and the person performing that calculation needs to be familiar with the manual purchasing process to determine how much effort it will take. The ERP vendor will be able to demonstrate the automated method and the time savings could be calculated. This would be a time-consuming exercise and will vary by the type of manufacturing performed. It is possible that by the end of the exercise it will be determined than 1 person can perform the purchasing using an ERP system and 2 people are required to perform the task manually. This would be a savings of resources which can directly relate to money saved and be applied to an ROI by implementing an ERP system. This could be done for each business function to show savings. This exercise will take several weeks to perform, hence the reason many small businesses don’t invest in the effort. A detailed demonstration will show them the time savings. For a small business it is very important to have all the key people involved in the ERP purchasing process as they will be able to see the benefits. A good practice is to state why you want an ERP system. What is the business problem you are trying to solve. Then by implementing an ERP system you are solving a business problem or limitation. Thus improving the overall functionality of the business. It is easier to show ROI in this case. Perhaps looking at it from a different perspective, every month you delay putting in or evaluating an ERP system is leaving real money on the table. Without a system to automate business process, automate report generation, drive revenue, and reduce operating cost, is wasteful. Personally I could not imagine not having an ERP system to manage business operations. Dave Collings Founder at Do IT Lean www.doitlean.ca

ERP Vendors and fixed pricing

All ERP systems are not created equally and neither are manufacturers. Some ERP vendors claim to include all costs up front to implement the ERP system into the manufacturers business as a fixed price model without knowing the specifics. Many do this in order to close the deal, make the sale. From my experience I have learned that Manufacturers are all different. Different people, different machines, different processes and different parts manufactured etc. Manufacturers need to be aware that most of the work and benefit is in the work and effort integrating the ERP system, defining processes and standards. Creating specific user guides and documenting processes is an added benefit coming from ERP implementations. Make sure to allow for ERP tuning in the original
ERP

ERP considerations

quote so you don’t get surprised when the ERP vendor says the request made is out of scope and a change request is required to make an amendment at additional cost to the original agreement.   Here is an example, a company designing and making blow molding tooling for plastic heating ducts for the automotive industry and producing parts vs a company designing and making tooling for electrical connectors, typical progressive stamping dies. Take note that the blow mold tooling is much smaller and more simple and the electrical connector stamping tooling manufacturing is more complex. Both require the ability to purchase standard components for tooling. However the design, processes to build and make parts is vastly different between the two. The electrical stamping tooling will have more complex processes, something we call outside services for example where parts need to leave the building for coatings or heat treating. There will also be a lot more pieces to purchase and manufacture for the stamping tooling. How can an ERP vendor offer a fixed price for implementing a manufacturers ERP system. The work involved to implement a system for a blow molding company is vastly different from a stamping company. The knowledge to properly implement an ERP system resides within the skilled people in your organization and a skilled engineer from the ERP vendor. The time and effort to go through a detailed process analysis within a complex tooling manufacturer compared to a simple tooling vender differ vastly. During the implementation the processes within the organization will have to be altered to work within the ERP system. An ERP project leader will be appointed from within the manufacturer to co-ordinate efforts with the ERP Vendor. The ERP Vendor will deploy an Engineer to work onsite at your location. The ERP Vendor will educate your team on how the system works and provide recommendations on best practices once the Engineer understands your process. This goes above and beyond training. It could take several weeks to months for this process to happen. There is no magic silver bullet, what makes one manufacturer better than another is the time and effort put into making process better and more efficient, implementing systems better to produce the desired result. A manufacturer will get out of a system what they put into it. If not enough time is put into to take full advantage of the ERP system, why are you doing it? The purpose is to improve the efficiency of the business. Do it right and plan for it. A 5 or 6 day course will show each user how to enter data into specific fields, what the fields mean and how to make a purchased item as opposed to a non purchased item. How to use the AR/AP module, the Purchasing module, the receiving module etc. What it will not get into is your business rules and standards. For example say it is important to generate a sales order within your organization that aligns with the Purchase Order received from the customer. These will be specific line items that can be invoiced against. This is a task you will most likely want to be able to do from within the ERP system. Depending on the complexity of your business this could take several days alone to iron out. Depending on the type and complexity of your business will decide how much time is required to properly implement an ERP system. ERP systems have a lot of free form text fields, how a company decides to use these varies depending on the type of Business. For example it may be desirable to create a standard name for each type of item created. Some items can be used again and again on several BOM’s. Socket head cap screws are common purchased items that fall into this category. Some in various sizes and lengths. Create standard descriptive names. I used a very simple example here, this can be extended to parts that are manufactured or subcontracted. The employees within your company have the answers to these questions. I have been involved in ERP implementations in the past from the side of the manufacturer and I can tell you if there is a fixed cost for implementing a system then there must be a catch. A good thorough implementation in a large complex organization will easily take 1 year or longer. A more simple smaller business, yes, can be done for less. Implementing an ERP system for a software VAR selling Cisco for example, is something completely different than a custom build Manufacturer. So if the ERP vendor is trying to push a generic ERP system your way, be sure it is right for your type of business. Another good option is to talk to other Manufacturers using the ERP system you are about to buy. How does it work for them? Another factor to consider is “go live” day. This is the day the system is turned on and is used to flow through each step of the business process. On “go live” day the vendor should have someone onsite for the entire week. Especially if it is a large complex tooling manufacturer. Each person throughout the process will need some time to ensure data is entered correctly and appears on the appropriate downstream users screen. For example, Engineers enter Items that are for product structures, someone these items get purchased, others get manufactured. The Purchaser needs to be able to clearly understand what is being purchase, Production control needs to understand what is being manufactured and assembled. Schedules and routings are made by production, items are routed to work centers for manufacturing. Hours on work enters are collected for costing. Material purchased needs to be received and placed into inventory. Accounting need to receive invoices. The people within your organization need to be walked through the process such that there is no impact to the operation of the business. Be prepared and understand your business and what it really takes to implement an ERP system. The knowledge exists within the business to do it right, plan for it, what problems is the ERP system going to fix? Scheduling? Job Costing? Business continuity? Author: Dave Collings, May 12 2016 Follow this link for more details Do IT Lean

Are You Stuck With Your Current ERP Software Vendor?

Changing ERP Vendor

Are you stuck in the mud with your ERP?

Do you have constant headaches from the lack of communication between departments?  Are you experiencing stomach pains from constantly having to customize your current solution?  How about light-headedness from running around trying to figure out where bottlenecks are?  If so, then you might be in need of a new ERP remedy. Our favorite line is “once our issues become major, then we will look into new solutions”.  Waiting can be, and usually is, more costly than completely moving to a new system.   Maybe you haven’t even considered looking into a new ERP system because it’s too much work, costs less to stick with what you have, and the fear that the implementation would be too disruptive to your business.  These are just a few of the misguided reasons we have heard over our 30+ year tenure.  Some of the issues may, in fact, be justified, but if you take a good, hard, and honest look, you just might end up saving a heck of a lot of time, money and frustration in the long run. Time: No ERP change is done “overnight” and if anyone tells you they are playing on your fear of business disruption.  Working with the right ERP vendor you can have a good, solid implementation in around 90 days and, as long as you are committed to this process, it should not and will not shut your business down. Cost: At First glance, a change over might seem like an insurmountable task, financially.  Re-investing in a new ERP solution might see too daunting for your budget.  In this case, I highly recommend thinking for the long-term.  Cost may be a factor for you, but the benefits of switching to a system that provides improved efficiencies will be well worth it in the end.  Imagine reducing production costs, increasing throughput and meeting on-time deliveries that your current system has been unable to provide. However you look at the possibility of change, you need to weigh in multiple factors and think long-term, rather than in the now, because, if you wait too long some of the issues could become so big that it could even go as far as collapsing your business.  So, again, ask yourself are you really stuck with your current ERP vendor, or does it just seem that way?
Posted by Jason Rourke, Marketing Manager, ProfitKey International