The manufacturing world is changing. New business paradigms, such as servitisation, beckon. New production technologies – think additive manufacturing, for instance – are re-writing the rules of the game. And new developments in IT, such as Big Data, the Internet of Things, and mobile computing, are constantly developing the art of the possible.
But against this background of unremitting change, many manufacturers continue to rely on outdated ERP systems, or indeed, no ERP system at all.
So says Peter Mroch, business development manager for ECi Software Solutions’ M1 ERP system for manufacturing businesses. Routinely, for example, ECi comes across manufacturers running their businesses with a combination of a basic accounting package and a collection of spreadsheets.
“We’re told: ‘That’s how things were done 10 years ago, when the business was founded’,” he explains. “But now, 10 years on, the realisation has dawned that what seemed simple and straightforward back then has now become a complex and error-prone tangle of separate systems that actually constrains the business.”
“And even a relatively unsophisticated ERP system will then seem like a major step forward, because of the linkages it contains,” he points out. “The problem with standalone systems is that the links are either grossly inadequate, or simply don’t exist so that 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.”
Similarly, he adds, the lack of links between standalone 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 percent, but that can knock quite a hole in the profit margin.”
But equally, adds Mroch, he and colleagues also come across manufacturing businesses still running those relatively unsophisticated ERP systems, long after they should have migrated to something more modern. Some, indeed, are so old as to be ‘green screen’ systems, running under Unix or MS-DOS, the precursor to Microsoft Windows.
While certainly a step up from accounting systems and spreadsheets, these unsophisticated ERP systems also serve as constraints, he insists, locking the businesses running them into a view of manufacturing and manufacturing technology that often goes back 10 years, 15 years, or even longer.
Again, says Mroch, it’s not difficult to see the drawbacks of continuing to rely on such old systems. Maintenance and support, for instance. Even if the original vendor still exists – and many don’t – maintenance and support, if available at all, will be expensive. A currently-valid upgrade path? Don’t even ask.
But these pale into relative insignificance compared to the larger, business-related drawbacks imposed by such systems. A lack of support for modern supply chain and procurement processes, for instance: web portals, XML data interchange, access to Cloud-based procurement platforms, and so on. A lack of integration, too, with specialist third-party cloud-based ‘line of business’ solutions. And limitations as to how modern computing and communications platforms can be embraced—mobile computing, most obviously, but also such basic building blocks as barcode-based data entry.
Moreover, insists Mroch, such limitations have a very real cost, and one that at first isn’t obvious.
“Fairly clearly, paying people to perform data entry on job tickets makes it easy to see the ROI of barcoding,” he points out. “But it’s trickier to estimate the costs – even though they’re very real – of being stuck with outdated procurement and supply processes.
Typically, the business will be re-ordering too infrequently, and in larger quantities than it needs to, because doing so simplifies things from a manufacturing systems point of view. Yet the result is to carry unnecessary inventory, absorbing working capital, hindering cash flow, and incurring potential obsolescence.”
That said, he adds, manufacturers moving to an ERP system for the first time, or upgrading from an obsolete legacy ERP system to a modern ‘full function’ system, are subject to a perverse irony.
“These are the very businesses that can benefit from a modern ERP system most. Yet, because of their unfamiliarity with ERP and their lack of experience working with it, they’re also the businesses most likely to make a mistake when investing in an ERP system.”
Typically, for instance, manufacturers who are new to the notion of ERP tend to focus excessively on their present requirements, and attach little weight to future requirements that might emerge. While understandable – no one wants to pay for features they’re not using – a failure to future-proof can eventually turn out to be both costly and painful, observes Mroch.
“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 points out. “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 or evolve their ERP systems to suit.”
And ECi Software Solutions’ own M1 ERP system for manufacturing businesses sets a benchmark in this respect, he adds.
“The software architecture makes it very easy to add tables and fields to the database, along with the associated software code and business rules, so it’s very straightforward to capture extra data and fields that were never part of the original system specification, and then automatically link this extra data and additional fields to customers, orders, and work centres,” he explains.
Moreover, he stresses, this isn’t heart transplant territory. The capability in question is designed to be directly exploited by ECi’s customers, who are provided with tools and training so as to be able to adapt the database and business rules themselves, without recourse to ECi.
Another potential pitfall, he adds, is failing to exploit an ERP system to the full, leaving potential savings and benefits on the table. Again, with ECi’s M1 system being especially designed around the needs of engineer-to-order, configure-to-order, and mix-mode manufacturers, there’s plenty of highly applicable functionality to exploit.
“With the money that they invest in an ERP system, most manufacturers could make some fairly substantial capital expenditure purchases from which they would then undoubtedly expect to see hard cash benefits,” he argues.
“And our view is that an ERP system has to pass the same test. Is it going to help to automate administrative processes? Will it help to develop information and work flow with clear lines of responsibility and accountability? Will it provide clear visibility into events and issues, prompting users to take action? If there aren’t clear answers in the affirmative, then businesses simply aren’t being aggressive enough.”
