How Manufacturers Can Get the Most Out of an ERP System
Feb 12, 2019
By: Mark Stevens
Some studies estimate that more than three-quarters of all U.S. manufacturers are in the process of implementing or upgrading some sort of enterprise resource planning (ERP) system, but not all succeed in leveraging its full capabilities or realize the full range of possible benefits.
Organizations know they need to embrace technology to improve customer experiences, manage growth and reduce costs — the three most important business drivers — but with myriad options and each technology provider claiming they have the best solution, it’s difficult for companies to know which way to turn.
Let’s explore five key performance indicators that manufacturers have demonstrated are measures of success so that you can determine if you’re getting the most out of your ERP technology and if you need to upgrade to a more robust solution.
1. Inventory-Level Reductions
Too much inventory ties up valuable capital; too little inventory risks shipping delays, lost productivity and dissatisfied customers. The best performers using ERP can significantly improve inventory levels.
With the right ERP system in place, inventory levels are captured in real time and can alert appropriate team members to replenish materials to meet customer demand. This means only the appropriate amount of inventory is kept on hand, optimizing just-in-time production. Additionally, inventory becomes more organized, and the pulling of orders becomes more streamlined because every item is traceable at any given moment as they’re being shelved, pulled, sent through production, packaged and shipped.
2. Inventory Accuracy
In an age of automation, it’s surprising how many organizations still manage inventory manually, which is time-consuming and usually woefully inaccurate and out of date. Poorly managed inventory levels inevitably result in cost overruns and inefficiencies among departments. Having an accurate count of useable materials, however, requires more than a physical count and must also take availability into consideration. For example, a product may be listed as “on hand,” but if its expiration date has passed or if it’s been updated with a new ECO, it’s technically no longer available or usable. Without insights into these types of factors, multiple ripple effects could occur, delaying production and delivery.
Properly leveraging an ERP system allows manufacturers to forecast inventory needs and track granular traits of materials. If an item is approaching its expected shelf life or obsolescence, the ERP can alert management to use up the inventory or run promotions to minimize scrap and replenish stock. ERP data and analytics allow for seamless, automatic and accurate inventory controls.
3. Manufacturing Schedule Compliance
Efficient production and capacity planning is a key to profitability. Lean manufacturing initiatives have helped, but many organizations still struggle to reign in labor costs. Part of the difficulty in determining accurate scheduling results from the influence of unknown factors that can derail the best-laid plans. When a machine goes down, an operator calls in sick or excess overtime is required, it can result in lost time and money.
ERP technology helps scheduling supervisors and management see the big picture and analyze key data to drive production planning and scheduling. When scheduling decisions are aligned with every phase of production because of transparency and collaboration across all departments (e.g., inventory, sales, supply chain, production, etc.), scheduling compliance improves with each project and iteration.
4. On Time and Complete Shipments
On-time delivery requires accuracy and efficiency from the moment the order is received and in every touchpoint up until delivery (e.g., inventory, routing, production, packaging, shipping, etc.). To improve accuracy and timeliness in each of these areas, orders need automated integration.
ERPs provide very detailed visibility into your supply chain, capacity, inventory, billing and every other aspect of business to help you improve lead times. Knowing precisely where your lead time contributors are, rather than relying on best guesses or isolated data points, provides insights into where potential roadblocks may occur and how to mitigate risks. Ensuring accurate lead times — and even reducing them — is a main driver of customer satisfaction and retention and can give your organization a major competitive advantage.
5. Days to Close Each Month
Clearly, the production floor is ripe with possibilities for improving efficiencies using an ERP, but let’s not forget about accounting practices. A company’s current financial health can only be fully known when its financial statements reflect performance accurately and in a timely manner. The best-performing manufacturers closed each month in only 3.3 days, twice as fast as bottom performers, which closed in seven days.
Often, the close process can take longer for those without the right tools because of the demands and impact of increasing regulations and compliance requirements. For organizations with multiple systems and data sets, or legacy systems that don’t integrate with newer technology, accounting staff often end up manually running reports and calculations using multiple spreadsheets, resulting in delays and errors. With an ERP, you can run real-time reports automatically at the click of a button based on set criteria to create an efficient close process. You can then use the extra time savings to analyze metrics to inform decisions and implement strategic initiatives based on the data.
Addressing ERP Implementation Failure Rates
So why are some companies considered ERP top performers while others have lackluster results? We need to address the elephant in the room: the fact that approximately 75% of ERP implementations fail. What sets the other 25% apart?
As with any technology adoption, there’s more to implementation than simply plugging it in and expecting it to do its thing. Manufacturers that leverage ERP technology to its fullest and achieve the greatest results don’t just invest in the best software, they also take measure to ensure they partner with the right provider to guide them and establish a strategic process that’s customized to address their specific challenges.
If you’d like to get a head start on maximizing your ERP capabilities, talk with a professional who specializes in optimizing manufacturing outcomes. Reach out to Wipfli today for a complimentary consultation.