| Summer 2008 |
Manufacturing/Distribution Advisor
|
 |
Is Your Company Ready for ERP?
Virtually every large corporation now uses an enterprise resource planning (ERP) application, and in over three decades of experience the software has clearly demonstrated its value.
For most of that time, though, ERP’s high initial cost deterred smaller companies from adopting it. But now that’s changing. In the last several years, millions of small businesses have implemented various ERP systems.
Fortune 500 companies devoted several years and millions of dollars to ERP implementations and the legions of IT consultants they required. But ERP costs have dropped dramatically — 40 percent overall in the last five years alone — and today some versions, though not cheap, are well within reach of small companies.
The ERP Value Proposition
ERP applications deliver benefits in two main areas: integration and information.
By putting its financial, sales, inventory and operational functions on the same platform, a company can more easily link these processes. Real automation becomes possible, as actions in one area automatically trigger actions elsewhere. Materials movement — the use of a side panel in an assembly, for example — generates inventory adjustments, ledger postings, changes to purchasing schedules, and even the movement of a side panel in a far-off warehouse.
Some ERP systems have expanded these linkages to include human resources, marketing, supply-chain, product life-cycles and other business functions.
Perhaps more important, by putting these processes onto one common platform, an ERP system furnishes decision makers with real-time visibility into the business. The old frustration of conflicting information from separate systems in accounting, sales and operations is replaced by company-wide facts and figures.
As a result, companies can analyze more effectively, forecast more accurately and make the right decisions faster.
More Vendors and More Options
|
Turning Data into Information, Insight and Profit
A successful ERP implementation reaches into every corner of a company. Among its most important benefits are improvements in these areas:
Financial integration — Executives trying to understand their company’s performance are often stymied by conflicting information generated by separate computer systems in accounting, purchasing, sales and other departments. When every unit is running on the same system, those conflicts are resolved before they reach the top floor.
Sales and order tracking — ERP systems put orders on the same transparent platform — from sale to shipping dock to invoice to payment. This makes it much easier to track orders and link inventory, manufacturing and shipping at different locations.
Manufacturing processes — An ERP system links materials management and production schedules directly to orders, inventory levels and supply chains. It can also help companies standardize processes across multiple locations for greater productivity.
Inventory reduction — By automatically linking the shop floor to sales and the warehouse, with real-time visibility throughout, ERP smooths the manufacturing flow and allows companies to reduce both work-in-progress and finished-product
inventories.
|
Two factors have combined to drive the spread of ERP in small and mid-size businesses.
On one hand, many companies are running on software infrastructures that were installed, or last enhanced, around the Y2K crisis, and these need upgrading. Meanwhile, ERP vendors have vigorously developed products geared to smaller companies, where they see their main growth coming in the next period.
While companies can buy generic ERP applications and customize them to fit, more vendors are offering industry-specific applications, including systems geared to manufacturing or distribution companies. Meanwhile big players like SAP, Microsoft and Oracle have also tailored their products to smaller companies, resulting in quicker implementation times and return on investment.
Hosted ERP applications provide another option. NetSuite and SAP’s Business ByDesign run on the vendor’s hardware, accessible via the Internet, and carry pre-set hosting fees.
First Steps in Implementing ERP
While ERP systems have been simplified, they are still relatively complex. And like any complex IT project, they require careful planning. Too many companies rush headlong into an implementation without devoting the necessary time and resources to creating a plan.
First, review your business. As many young consumers have learned, new computers don’t make up for chaotic recordkeeping. The same is true in business, where it’s all too easy to transfer chaos into an ERP application. Before implementation, a company should review its business processes, identify needed changes and put those changes in place.
The opening stages of an implementation should include:
- Preliminary development of functional and technical requirements for the software. What processes must a new ERP system support? What existing software must it communicate with?
- First-cut assessments of available systems based on advertised features. Most small businesses have standard needs but may require some customization. Look closely at interfaces and ease-of-use.
- Detailed assessments of A-list products. When you’ve identified likely candidates, take some long test drives. Involve vendors, IT brains and employees who’ll actually use the product. And get complete, accurate quotes.
- Choice of an implementation partner. For every ERP system there are many implementation consultants who know more than you ever will. Use them, after looking closely at their track records and checking their references.
- Change management. Few people take naturally to change, and ERP means change. Develop communications and training plans to help employees adapt.
ERP consultants and advisers can help in these preliminary stages. These are not implementation partners, but rather technology-neutral advisers who help assess needs and available solutions without selling those solutions themselves.
Manufacturing / Distribution Advisor is produced quarterly by Bober, Markey, Fedorovich & Company’s Manufacturing / Distribution Services Team. If you would like additional information about the services that we provide to manufacturers and wholesale distributors, please call or email our team leaders James E. Merklin, CPA, CFE, M.Acc. or Cindy S. Johnson, CPA, CIT at (330) 762-9785 or
jimm@bobermarkey.com or
cindyj@bobermarkey.com.
|
