5 Core Reasons Why Manufacturing Companies Implement ERP
Bottom Line: Manufacturers are motivated to implement ERP systems to gain greater visibility and control across shop floors to control costs and improve productivity.
Unexpected expenses and unforeseen costs impact manufacturers the most when there’s no warning they’re coming. When separate systems run accounting and finance while the shop floor uses spreadsheets, information disconnects often happen, creating expensive manufacturing mistakes.
Information and knowledge gaps grow the faster a manufacturer grows and the broader their product line becomes. Running different systems for accounting & finance and another for manufacturing leaves manufacturers flying blind with no idea how their decisions on the shop floor impact their finances.
What’s Driving Manufacturers To Implement ERP
Closing accounting, finance, and manufacturing data gaps by standardizing on a unified, integrated system is what motivates many manufacturers to implement ERP. Their goal is to understand better the costs of production, work order yields, and inventory availability based on real-time production and process performance data.
When data gaps exist between the front office and the plant floor it is nearly impossible to know the accurate financial value of inventories, how much daily production schedules need to be changed, or if it makes financial sense to hire more workers or invest in new technologies.
The five core reasons why manufacturers implement ERP include the following:
- Data gaps between separate accounting & finance and manufacturing systems create costing, quoting, and reporting errors. The most common reason manufacturers implement ERP is to close the widening data gaps between accounting & finance and manufacturing. It’s common for fast-growing manufacturers to outstrip QuickBooks’ capacity, as one of the leading plastics extrusion manufacturers in the western U.S. recently told DELMIAWorks. The company’s CPA accountancy advisory firm advised them to move from QuickBooks immediately or risk seeing the entire system crash, which would leave the company unable to sell to existing customers or produce the financial reports essential to operating their business. The plastics manufacturer also says it was getting more challenging to create quotes, upsell and cross-sell customers, and offer promotions because QuickBooks and stand-alone systems were too slow.
- Increased regulatory and customer compliance requirements for lot tracking and quality control. Manufacturers competing in regulated industries are seeing regulatory, customer, and audit requirements increase. For example, the FDA’s 21 CFR Part 11 requires a complete version history of every quality document in a manufacturing system. In addition, the FDA asks all manufacturers covered under Part II to provide secure, computer-generated, time-stamped audit trails to independently record the date and time of operator entries and actions that create, modify, or delete electronic records.In addition, it’s common for defense contractors globally to ask for audit data from the production runs of the products they’re purchasing. Durable goods manufacturers whose appliances heavily depend on plastic quality ask the same. These factors, taken together, are why manufacturers implement ERP systems to streamline compliance, reporting, and audit workflows.
- High maintenance costs on customized systems. What seemed like a good idea at the time turned into the highest maintenance IT project the company has ever seen. Many IT Directors describe how high maintenance on their customized system has become. It’s common to find customized systems written in programming languages with few software engineers left to support them. Customized systems in manufacturing were developed before efficient means of integrating systems existed. Even getting them to talk to other systems will cost tens of thousands of dollars in custom programming. Removing and replacing these systems with more modern ones is another reason manufacturers implement ERP today.
- Existing system lacks the functionality to support modern manufacturing. Legacy systems often fail to capture the manufacturing information required by present-day manufacturing practices. Over time, the scope of relevant data a system generates from manufacturing processes diminishes or degrades. Manufacturing techniques and workflows progress faster than the older system is capable of processing. For example, a plastics manufacturer had workers manually perform cycle counts and calculate scrap rates. Manual counts are known for producing errors. Worse, the existing manufacturing system was not designed to support real-time production and process monitoring. Manufacturers choose to implement ERP systems to gain the real-time production and process visibility they need to operate today successfully.
- Legacy systems provider has dropped support for your software. The manufacturing systems landscape is littered with applications abandoned by their developers because it costs more to keep the code current than customers were paying on maintenance. Software developers dropped support to save those costs and invest in the next generation. That urgent factor drives manufacturers to implement ERP systems.
Conclusion
Knowing the cost of production, identifying the most economical use of inventory, determining the true cost of production, and using real-time production and process monitoring to identify cost variances –are all possible when accounting, finance, and manufacturing systems are all part of an integrated core ERP system. Having all functions of a manufacturing company on an integrated ERP and MES system that shares the same database with accounting, finance, CRM, supply chain management (SCM), Warehouse Management, and Inventory control closes the gaps that drain margin, valuable time, and risk losing customers. Manufacturers implement ERP to achieve the visibility and control they need to compete and win new business while excelling at fulfilling orders with high-quality products.
