Many businesses make a fundamental mistake when buying an ERP system, says Darren Toy, business solutions manager for ECi Software Solutions' M1 ERP system for manufacturing businesses. This, he adds, is especially true when it's a business's very first ERP system, or the business is finally moving away from a legacy system that has been in place a long time.
The mistake in question? Focusing too much on what the system does today rather than on what it might be required to do tomorrow, or next year.
"An awful lot of pain would be saved if companies simply asked: 'How easy is it to make changes to the business processes and business rules that are built into the system?'", he observes. "Time and again, we come across potential customers telling us that their business is evolving, their competitors are evolving, their products are evolving and yet these potential customers can't adapt their ERP systems to suit."
That said, he continues, for smaller manufacturing businesses with £5-50 million sales revenues, making the move from an elderly legacy system, or moving from a combination of stand alone systems such as a Microsoft Access database and basic accounting package, the oversight is understandable.
"Even a relatively unsophisticated ERP system will seem like a major step forward because of the linkages it contains," he points out. "The problem with stand alone systems is that the links are either grossly inadequate, or simply don't exist, so when you make a decision within the accounting system to put a customer on hold for credit control reasons, there's nothing to stop the manufacturing software from proceeding to manufacture the order anyway."
Likewise, he adds, the lack of links between stand alone systems can mean that businesses can have a very poor understanding of their actual product costs because information from quality and traceability systems isn't captured by the production database and accounting software.
"So the result is that the actual cost of an order is seen as being very largely the planned cost of the order, with the variances that are contributed by quality and conformance issues being ignored," he points out. "The difference might only be a few per cent, but that can knock quite a hole in the profit margin."
So, for smaller manufacturers tempted to stay with stand alone packages and outdated legacy systems, Toy has a simple and uncompromising message: don't.
"In today's business world, manufacturers pretty much have to have an ERP system if they want to prosper and grow," he points out. "ERP provides a framework for the business, imposes disciplines and procedures, and makes sure that the order-to-cash process takes place in a logical, consistent, and co-ordinated manner."
Avoid the costly behemoths
That said, warns Toy, urging manufacturers to see the wisdom in moving to an ERP system isn't the same as urging them to move to any ERP system. Far from it, he insists, for a surprising number of the systems on offer from the ERP industry's major providers can turn out to be costly behemoths, totally unsuited to the needs of real-world smaller manufacturing businesses.
"Quite apart from their cost, manufacturers with £5-50 million businesses simply don't need the massive amount of overhead that these systems impose," he argues. "Worse, the actual level of capability can be surprisingly low: quite often, these are very, very generic ERP solutions, with relatively little real-world manufacturing functionality."
Moreover, he adds, most manufacturing businesses will want to ask some searching questions about the actual hard cash benefits that a move to an ERP system will provide.
"Yes, an ERP system will provide the sort of end-to-end business framework that can't be obtained from stand alone systems," he argues. "But, with the money that they are thinking of investing in an ERP system, most manufacturers could make some fairly substantial capital expenditure purchases from which they would undoubtedly see hard cash benefits in the form of products being manufactured and sold. Our view is that an ERP system has to pass the same test."
Accordingly, Toy recommends taking a cold, hard look at how exactly a proposed ERP system intends to deliver such benefits.
"Is it going to help to automate administrative processes? Will it help to develop an information flow and work flow with clear lines of responsibility and accountability? Will it provide clear visibility into events and issues, prompting users to take action?" he asks. "These are the sort of benefits that businesses need to be looking for."
Be clear, too, he advises, on the less tangible benefits to come from a proposed ERP system in the shape of things that won't happen because the system removes ambiguity by sharing information across more people, enabling them to take action more quickly.
At which point, continues Toy, it's time to address the question of flexibility: how easy is it to change the way that an ERP system works, as a business's markets, customers, products and technologies evolve?
But how best to assess the answers that come back? It's all too easy, he points out, for ERP system vendors to offer bland assurances that later turn out to have been wide of the mark. In which case, he points out, it may be useful to contrast vendors' responses to ECi's own approach to ERP system flexibility.
"First, we have a software architecture that makes it very easy to add tables and fields to the database, along with the associated software code and business rules," he explains. "What does that mean in practice? It means that it's a very straightforward matter to capture extra data and fields that were never part of the original system specification, and then automatically link those extra data and fields to customers, orders, and work centres. Just last week, we had a customer use this to start to capture the credit ratings that it was receiving from credit reference agencies."
"And second, all this flexibility is designed to be directly exploited by our customers: we train them to do it, and we provide the tools and training so as to be able to adapt the database and business rules themselves, without recourse to us at ECi."
The result? A manufacturing business that isn't locked into the past, but which is free to adapt as it needs to, he enthuses.
"Your business doesn't stand still, frozen in time, and neither should your ERP system," he sums up.
