Tag Archives: ERP implementation

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

ERP Management Implementation Tips Every Manufacturer Should Know (Part 5 of 5)

You’re almost there!  You’ve run the gauntlet of researching various ERP vendors, carefully selected your implementation team and personnel (part 1), conducted a workflow review (part 2) of your current system, while planning for the new system (part 3), and transferred all of your key data to populate the new and improved system (part 4).  The ERP vendor has left your facility and you now bear a heavy responsibility to ensure this implementation continues to be a success for your manufacturing company.  Fear not, if you are working with a trusted vendor, they will never truly leave your side.  Here are some key tips to remember post-implementation. Continue reading

ERP Management Implementation Tips Every Manufacturer Should Know (Part 4 of 5)

When we started our blog series on ‘ERP Management Implementation Tips Every Manufacturer Should Know’, we originally had four installations in mind.  Nearing the end of the series, we realized we didn’t want to leave you hanging post-implementation and make sure we had covered enough for you to be comfortable even after the conclusion of this blog series, just as you should feel in post-implementation.

ERP Management Implementation Should Not Be Like Ripping Our Your Hair

Preparing Your Data Should Not Be Like Ripping Out Your Own Hair

Thus far, we have covered your implementation team (part 1), a complete workflow review (part 2), and installation and training (part 3).  This fourth installment will take a deep look into your current database and what to expect to prepare to ensure your data has legs and can be effective right out of the gate. Continue reading

To SaaS or Not to Saas. Not to SaaS, For Now

Cloud ERP

Think Before You Leap Into The Cloud

Industry Week recently published an article by Pete Zeppell, VP of Zilliant, ‘To Saas or Not to SaaS’ . The article spoke about the top five key reasons why people should make the shift to a SaaS, or cloud, model for their business performance software.  While I don’t believe the article was intended to address all manufacturing verticals, it did take a general approach where people in small to mid-sized manufacturing companies could get the wrong impression.  The purpose of this blog article is not to discredit Mr. Zeppell’s, but rather to address those philosophies as if they were speaking about ERP (enterprise resource planning) software directly.  Continue reading

ERP Management Implementation Tips Every Manufacturer Should Know (Part 3 of 4)

ERP Implementation TrainingIn the first segment of our ‘Your ERP Implementation’ series, we discussed initial steps, procedures, and introduced a philosophy for a core implementation team.  In the second, we examined the crucial aspect of a work-flow review, which then lead into installation and training.  In this new segment, we will take our newly found knowledge to refine a honed implementation plan, based on specific structures, needs, and requirements, to ensure best results throughout the ERP project. Continue reading

ERP Software Helps Electronic Contract Manufacturer Find Sales Growth

Proxy Manufacturing, Inc., originally founded as SDF Electronics, an Electronic Contract Manufacturer servicing a vast array of markets and assemblies from military, medical, automotive, RF, commercial, flexible circuits and fully integrated services, recently increased their sales by over 30% by utilizing ProfitKey International’s Rapid Response Manufacturing (RRM) enterprise resource planning (ERP) solution. Continue reading

The Manufacturing ERP Search: The Daunting Task of the Short List

Phew!  You’ve worked yourself like crazy in order to come up with 5-10 ERP companies that might be able to suit your shop floor’s wants, needs, and pains.  Let’s assume you compiled this list from numerous sources: RFI’s, word of mouth, historical research, specific industry reporting, analyst evaluations, community/peer driven sites, etc. etc. You’re still sitting with a pencil in your ear and about 5 strong portfolios in front of you that all look the same from an eagle eye view.  Now comes the toughest part; you ask yourself, which one of these will take me to the promise land and not turn into a pumpkin by the end of the day.  Continue reading

ERP Management Implementation Tips Every Manufacturer Should Know (Part 2 of 4)

ERP Implementation TipsIn the first installment of ERP Management Implementation Tips Every Manufacturer Should Know, we spoke in detail about the importance of having a tight implementation group and personnel within that group. We will now take a hard look at what limited work flow is and, more importantly, how it can help with your particular agenda. Continue reading

How A Manufacturing Management Reboot Helped the Boston Bruins Succeed and How It Can Do the Same for You

In my 27 year tenure as a Boston Bruins fan, I never had the opportunity to witness a championship season until thirty four days ago.   With the mass media the team garnered in the several weeks surrounding the playoff run, radio stations, bystanders, bar patrons, etc. talked about the integral pieces that went into making this team so special.  Many will say the real change started back in 2005-2006, when they had a full enterprise system reboot.  In manufacturing, we see these leaps occur when a company decides to enter into a new planning structure, or ERP (enterprise resource planning) software. Continue reading