Do you run a manufacturing company, with plans to expand operations? You are no doubt aware of how demanding the market is nowadays, particularly when your company is growing more rapidly than forecasted. In such situations, when it feels like your business’s potential is slipping away from you, it is essential to bring on solutions to streamline your operations and ensure a better flow throughout all of your business process steps.
A technology asset such as an ERP system is often an excellent solution, as it enables manufacturing companies to interconnect all the activities related to their operational processes.
What is an ERP system?
An ERP (Enterprise Resource Planning) system streamlines a company’s operational processes by centralizing and redistributing the data involved in the company’s various departments. More concretely, this management software is designed to integrate different functionalities by complementary modules, such as:
- Managing the resources necessary for production;
- Managing production itself;
- Managing sales;
- Managing inventory;
- Managing suppliers;
- Managing and producing reports.
What are the benefits to integrating an ERP system?
For all types and sizes of manufacturing companies, an ERP system presents several advantages, providing an overall picture of your manufacturing process in real time, from service proposal to product delivery. Here are some advantages worth noting:
Better inventory management
Take, for instance, a custom door and window manufacturer that doesn’t use an ERP system. The delivery timeline is relatively tight. Unfortunately, two days before scheduled delivery, production on the customer’s order is halted because the operations manager realizes that he doesn’t have enough aluminum to complete the order. Since the manually entered information was off, he now has to delay delivery of these products.
Optimize cashflow management
Cashflow management is one of the primary concerns of a knowledgeable manager. Incoming and outgoing funds related to bank reconciliations, wages, supplier payments and accounts receivable quickly impact your liquidity, and make it more complicated to get reliable and up-to-date information about cashflow.
An ERP system with a built-in cashflow management module helps ensure that you are seeing reliable and accurate information. Designed to automate all of a company’s financial transactions, an ERP system provides a better overview of all financial related elements of a company.
Centralize your operations
An ERP system keeps all of a company’s operational data in one place, which allows you to access the information in real time. Generally speaking, this tool provides an overview of all of the steps involved in the production process. Several departments can benefit from this real-time data, including:
- The sales department can more easily plan production schedules, and therefore provide customers with more accurate delivery dates;
- The director of production can better plan the team’s schedule based on recorded orders and labour needs;
- Buyers can see real-time orders logged in the system, and plan their orders of primary materials and optimize their purchase price.
What are the drawbacks to integrating an ERP system?
In any situation, there are both positives and negatives, and ERP system integration is no exception. You should be aware of the drawbacks and risks that a company takes on when integrating an ERP system.
Licensing fees are just some of the costs associated with the use of an ERP system. When allocating a budget for an ERP system, it is important to recognize that within the total cost, you need to plan a significant additional budget to cover the following variable costs:
- Improvement of IT infrastructure to support ERP system integration;
- Set-up costs;
- System training and testing costs;
- Maintenance costs;
- Costs associated with slowed activities during ERP system integration;
- Change management costs;
- The cost of additional modules to cover specific operational elements of the company.
Since an ERP system can provide many additional functionalities, it can become as complex as it is functional, and difficult to use. It is not uncommon to for companies to end up with ERP systems that are too complicated for their needs, which cuts into their return on investment.
Choosing the right ERP system: A carefully weighed risk
For the last several years, ERP systems have become increasingly appealing to companies. Of course, this demand has led to an increase in the number of ERP systems available. For a company looking to find the right ERP system to meet their needs, the wide array of products in the technology industry makes their analysis and selection process all the more complicated. Keeping in mind that this type of investment can run up to between 6 and 7 figures, there is added pressure to find an ERP that will be successful and profitable.
And yet, the manager responsible for acquiring the ERP system must know about all about the characteristics of the ERP systems they are analyzing. And because the systems are, unfortunately, difficult to compare, the selection process is rather challenging.
- Total cost of acquisition and implementation;
- Supplier contract clauses;
- Software update procedures;
- Variety and type of supported platforms;
- Ease of installation;
- Ease of use.
Custom software: An interesting alternative
Did you know that custom software can often meet the same needs as an ERP system?
This alternative stands apart from an ERP system for these reasons:
- Generally less expensive than an ERP system;
- Customizable and scalable, depending on the company’s needs and rate of growth;
- Provides a competitive advantage;
- Allows you to pay only for the functionality you absolutely need, rather than complex, unnecessary modules.
Finally, we should note that when a company sees potential in a solution to streamline its operational processes, the company must be fully aware of its needs. Unfortunately, due to a lack of time and/or understanding of the field, those responsible for acquiring and implementing ERP systems often realize too late that their selected tool falls short, and only somewhat meets the initial expectations. Before making this big decision, we highly recommend that you consider custom software in your analysis and comparisons.