How an ERP System Drives Costs Out of Your Job Shop
Oct 07, 2016
By: Mark Stevens
If you want to make your job shop more efficient, your existing tools – a compilation of Excel spreadsheets, for example – might do the trick, if you can spend enough time accessing your data and if you have the ability to integrate and make sense of it all. But if you also want to grow profitably and reduce your operating costs, then you need to be more effective; you need to do the right things for your business, not just do what you’re doing faster. And you need a more powerful management solution: a cloud-based enterprise resource planning (ERP) system.
The kind of power we’re talking about has been demonstrated in the results of a number of manufacturers using a cloud-based ERP system. Those results were based on the improvements made to a number of manufacturers’ most critical key performance indicators (KPIs), in a research study by SL Associates.
The study looked at the KPIs that manufacturers reported were most critical to their businesses; those include:
- Sales by customer
- Profitability by job
- Profitability by customer
- Estimate to actual profitability
- Labor utilization
- Equipment utilization
- Inventory on hand
- Lead time
- Unit production cost
- Efficiency by work center
- Utilization by work center
- OEE (overall equipment effectiveness)
Wipfli’s own experience with the ERP solution NetSuite (as part of Wipfli’s Complete Solution for job shops) confirms the type and scale of improvements manufacturers can see when they move from an older system to one that offers valuable visibility into an organization. Below are some of the areas within your job shop you could expect improvements:
How much time do you spend on reporting? Most job shops have a small finance team (often it’s the owner himself or herself) and monthly financial reporting can take several days to complete. With a cloud-based ERP system, the time decreases significantly; in the SL Associates report, manufacturers reported time and resources decreased 70 percent and 90 percent respectively.
How easy is it for you to get, and make sense of, your data? If you or your finance person spend multiple hours pulling and compiling data in order to compile reports to help you understand the state of your business, you could probably reduce that amount of time significantly. ERP systems make it simple to customize and create reports, and with a cloud-based system you’ve got that data at your fingertips, anytime, anywhere, so employees can act quickly on the information they get.
How’s your cash flow? Every business must accurately forecast and plan its cash flow. Making the entire process work smoothly – from quote to approved order, order fulfillment, invoicing and payment – is difficult and includes a number of potential hurdles all along the way. With an ERP system in place, this process is integrated and largely automated, helping eliminate bottlenecks and errors. You’ll see a quicker process overall, from sales quote to order, order to fulfillment, and fulfillment to payment.
The need to staff up as you grow is far less likely when you use a cloud-based ERP system. Because this solution automates so much of the accounts receivable (AR) and accounts payable (AP) processes, job shop growth doesn’t necessarily require more people. In fact, one NetSuite user grew 40 percent since implementing NetSuite yet required no more finance staff to accommodate for that growth. More broadly, NetSuite has helped this company grow without major staffing increases.
Visibility and Performance
Can you see into every corner of your operation? Do you know, for example, how much carrying obsolete inventory costs you? This is one metric manufacturers in the study reported decreased 60-80 percent. With an ERP system these and other metrics are easily visible and we know that “what gets tracked gets improved.”
Other metrics you can monitor and take steps to improve are production efficiency (expect improvements of 50-80 percent), payroll processing costs (you could see them reduced by 50-75 percent) and operational equivalency quotient. Because you can easily create the reports that are most important to you, you have the ability to see and improve problem areas, and see things “coming down the pike” and avoid potential problems, too.
Sales and Marketing
Both your Sales and Marketing teams will benefit from a cloud-based ERP system, too. With an ERP system in place you have the data you need to assess your close ratio. Detailed quote history will indicate why more quotes don’t result in work – whether it’s related to price, the product or the customers’ needs. Knowing where you’re losing opportunities will tell you where you need to improve, and how.
How much time and effort do you (or your IT person) spend troubleshooting your system? How much did your current server cost…and how much will a new one cost when it fails? There’s absolutely no cost associated with hardware when you choose a cloud-based ERP system – it’s managed by the vendor, in the cloud, yet accessible 24/7/365 by you and your team. This is also important when you consider that when a system is the responsibility of the vendor to maintain a system, there’s far less chance of your data being wiped out due to an event like a major storm.
Job shops today are focused on staying competitive in the marketplace, and to do that they know they must deliver value to their customers, identify and take advantage of new revenue streams, and continually improve processes, products and profitability. Using a cloud-based ERP system like NetSuite and the expertise of Wipfli’s manufacturing team, that is all possible. We’d be happy to walk you through a demo of all the ways we can help you achieve the growth you need. Why not reach out today?