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What is a manufacturing ERP?

ERP is an acronym that stands for enterprise resource planning. A manufacturing ERP is a business management software that integrates your core business processes.

Think of all of the processes that are essential to running a manufacturing organization:  development, manufacturing processes, operations, supply chain, quality control, financials, reporting, human resources and sales. An ERP system integrates all of these functions into one system, through a shared database, so that every business unit has the same real-time information. This results in improved visibility, greater efficiency, less manual errors, easier reporting and an overall competitive advantage for your organization.

Starting your ERP project

Successful ERP initiatives start with the right foundation. An evaluation and decision-making structure that recognizes that ERP selection is actually three decisions blended into one:

  • A technical decision, based mostly on what happens at the end-user level, as well as with the IT team. Includes issues like “platform” and “integration” and “customization."
  • An operational decision, based on what the company does to fulfill customer orders. The ERP system must adapt easily to the customer/product/service mix, and do it without extensive or expensive modifications
  • A business decision, based on the anticipated return on investment (ROI). ERP system functionality, pricing, and vendor support capabilities vary widely, and overor under-buying, or choosing the wrong implementation partner, can reduce ROI and consume resources otherwise available to expand the enterprise.

Rule #1: Don't automate a train wreck

One of the most important rules of any software implementation project is to automate the right processes and practices.

Selecting and implementing an ERP system is the perfect opportunity to get the basic steps right, then turbocharge results with automation. If the steps aren’t the right ones, however, you can go nowhere even faster. Allow the time – and allocate the resources – to audit your current processes and at least identify where better ways need to be implemented (along with the software).

Get started right:

  • Create a wish list of processes that need to be revised or replaced inside your organization.
  • Invite everyone - especially the people who will not be part of your ERP implementation team - to contribute to the wish list.
  • Sort and prioritize the list so you tackle the most important fixes first.
  • Draft new processes (even if you won't implement until the ERP system is in place) and walk through them to ensure they work. These will become part of the workflow coding that goes into your ERP system.

Rule #2: Recognize that knowledge is power

If you don’t know ERP, hire someone who does to help define the need and pick the best solution - there are many selection consultants out there with a lot of experience.

For the uninitiated, the varied (and often conflicting) solutions from ERP vendors can be overwhelming. It’s important to be able to sort not only substance from hype, but to know which ERP capabilities are really important for your organization and which could be expensive versions of 'bells & whistles.' The right consultant can not only help you define your needs effectively, but also identify what you don’t need and thus prevent costly over-buying.

Get started right:

  • Poll your company staff for hidden expertise and experience in ERP implementation…chances are good that someone has been through an implementation project before.
  • Check your industry network for a consultant that knows both ERP and your unique needs.
  • Go to LinkedIn and check for a group that shares your manufacturing or ERP interests.

Rule #3: Give your ERP decision the resources it needs to succeed

Everyone has something else important to do…especially if you are a smaller manufacturer. 

You simply can’t afford to take staff and assign them full-time to figuring out an ERP solution, like the big companies. But doing the opposite – devoting too few resources to the project – is just a different version of the same mistake. You’ll be best served by keeping a steady and strong pace. Otherwise, you are pushing the opportunity for more business and higher profits further into the future. Put another way, here’s the conversation the CEO needs to have with the ERP planning team:

Team: “If we do this, we can add $5,000 a week to our bottom line. But we may want to do additional research before we decide.”
CEO: “How long do you want?”
Team: “Three weeks should be plenty.”
CEO: “Is three weeks worth $15,000? Because that’s how much we lose by waiting to decide.”

Get started right:

  • Clearly define what the team is to do, and in particular how they will know when they’re done.
  • Scope the project to involve no more than 2 hours a day (average) for a period of time not to exceed 60 days (30 days, if you don’t have to re-design your current processes).
  • Establish a clear process and timetable for deciding once your team brings you a recommendation. That will add meaning to any deadlines they have.

Rule #4: Pick the right team for the job

Hint: it’s not your core management team, at least not the whole team.

In particular, select the right leader, someone that has the power (and experience) to make decisions, someone with an open mind to view all perspectives and not eliminate new and innovative approaches, someone who can effectively manage both processes and people that are not directly under their supervision, and someone who has the ear (and respect) of top management (if they are not already part of top management).

Have a 'big tent' approach to team selection: find people from a wide range of levels and functions within the company. Include a representative from every unit that will be directly or indirectly impacted by the ERP system; for example, shipping as well as production, purchasing as well as engineering, sales as well as finance. And perhaps most importantly, include end users – those people who will frequently interact with the system. They can often provide a more practical perspective than any other member of the team.

If your team does not have ERP experience, recruit someone who does. An independent consultant can help the team define needs and match them to vendors’ solutions. Moreover, experienced consultants know the “inside” info: which vendors tend to overpromise and under-deliver, what extra is really worth paying

Get started right:

  • Rather than a fixed budget, give the team a broad benchmark for the project: “the ERP system must have an ROI of under X months (or years).”
  • Don’t make this a 'stealth' project…let everyone know what’s going on. You may get some surprising volunteers.
  • Welcome differences of opinion; you will end up with a better system.
  • Set an aggressive schedule that still allows debate.

Rule #5: Walk the thin line between tomorrow and yesterday

"Tomorrow" being the exciting promises of next-generation ERP systems and "yesterday" being legacy systems with little ability to adapt and scale.

On one hand, newer systems incorporate innovative technologies and processes that have amazing possibilities, especially the cloud-based systems. But some companies are just not ready for the cloud, and other may not need so many features right out of the box.

On the other hand, older legacy and custom systems may handcuff your flexibility and be costly to maintain. Adding new capabilities to older systems can sometimes be just as costly as starting over.

Your best bet: a flexible modular system (either on-premise, cloud-based or hybrid) that has proven reliability in the core ERP capabilities, but is designed to seamlessly and inexpensively add new modules and features.

Get started right:

  • Keep vendor names out of early discussions... The team's earliest efforts need to be focused on problems and solutions.
  • Assign a team member to find, evaluate and distribute white papers, case studies, technical articles and similar information.
  • Separate ERP capabilities into three catagories: 1) must haves; 2) beneficial, but not essential; and 3) fancy, but not particularly useful for us.

Rule #6: Don't try to take all subjectivity out of the purchase

Try not to ignore critical values such as vendor fit, trust and support. 

Many companies have a closed door, locked-down purchasing process where the goal is to make a "mathematically justified" decision- typically based on price. But such efforts tend to ignore critical values – like vendor fit, trust and support - that can make or break the project. Moreover, a lock-down process can eliminate the possibility that an inspired vendor could uncover issues you may not have thought about, and offer an innovative and valuable approach or solution.

You want a vendor you can trust and who will support their product and your company. A purchasing process that focuses only on objective criteria, such as price, works well for copy paper but is likely to deliver a less-than-best ERP solution and vendor- which is why it's important to also look at things subjectively.

  • Pay attention to subjective criteria beyond your ERP hardware/software budget. For example:
    • Vendor/reseller fit with your company's size/industry/location, etc.
    • Your trust and confidence in the vendor/reseller.
    • Vendor/reseller consulting team expertise and experience.
    • Level of support your company will need for success.
    • Active software user communities and conferences.
  • Instead of negotiating on price alone, negotiate on net value. A vendor may recommend additional modules or an implementation process that raises your total ERP package cost, but could shrink your ROI by months. This results in much higher value.

Rule #7: Communicate, communicate, communicate.

Whether your organization is large or small, you must keep everyone in the loop.

When major manufacturers go through a process like this they have a slice of the project dedicated to “journey management.” That’s a fancy way of saying “we’ve got to keep everyone in the loop,” and it is just as important in smaller companies.

Communication helps everyone understand what’s happening and when, keeps the process on track, and generates the buy-in necessary to make the ultimate implementation successful. Don't forget about those who aren't directly involved in the evaluation and decision-making process in the loop, too. 

Be sure to recognize that employees will be concerned about “how this is going to affect my job.” And remember, effective communication requires a listening component: to collect and assess feedback, and – if necessary – make mid-course corrections to the project. Effective journey management starts before the team is selected and lasts until after the system is up and running.

Get started right:

  • Consider using a "traffic light" system for communicating status:
    • Green for on-time activities
    • Yellow for those that are behind, but can catch up.
    • Red for tasks that are so far behind that they will eventually push back the entire timetable.
  • Err on the side of too much communication. Change - especially change of this scale - can be intimidating and the absence of information tends to feed rumors down the grapevine.
  • Tell the bad news too. Your employees likely know what's happening, so editing the company line can cost management their hard-won credibility.

More often than not, companies of any size adopt a “fire, ready, aim” approach to ERP solutions by specifying the vendor first, then hoping that everything will balance out in the end. While it’s good for the chosen vendor, it may not be for the manufacturer. And the loss of marketplace momentum that results from misdirected, stop-and-start implementations can be staggering over the long term.

Your best chance to avoid that is to use the time between deciding to get an ERP system and deciding on an ERP system to your own advantage by defining your project process and readying your company for change.

Download an offline copy of this ERP selection guide