There are many critical facets of manufacturing operations, such as demand planning, manufacturing orders (production orders, work orders, work tickets, etc.) and work in process (WIP). Production planning and shop floor control are required. Managing your supply chain and optimizing inventory is also critical. A well-planned ERP system integrates all those critical facets of a manufacturer’s operations.
Which ERP system you select will depend on how you need to track the combination of materials, labor, tools and machines that transform raw materials into components or finished goods.
At a minimum, every manufacturing ERP system should offer the following modules or add-ons — so you can avoid the common pitfalls and challenges of not having the right solution in place.
Forecasting
Some ERP systems come with a demand forecasting module while others have powerful third-party add-ons. If no tool is prewritten, you can connect to the source data and create your own customer demand reporting based on your top 10 customers, customer groups, product lines, etc. A custom historical monthly side-by-side report can be developed to point out seasonal demand.
Materials Requirements Planning (MRP)
Manufacturers must maintain sufficient amounts of materials. The MRP module looks at open sales orders and sales projections, inventory stock levels, open purchase orders and open work orders. Item lead times, product build times, and supply and demand are all combined to suggest purchase orders to generate.
An MRP module can help you eliminate purchasing and scheduling problems. Is the completion of a work order being held up due to parts missing? How much time did it add to your production cycle? How much did this delay cost you?
Ask if you can modify the ERP system’s canned MRP reports. Ask the ERP vendor if the software uses proprietary code and temporary database tables for MRP calculations. Many manufacturers want to change the sort order on the canned MRP report and assume it’s a simple task. Sometimes embedded proprietary code does not allow a canned report to be easily changed due to the use of temporary worktables to perform MRP calculations.
Purchase Order Processing
It is critical that you manage the ordering of items and services from vendors. Your purchase order date, individual item’s vendor lead time and expected delivery date of each purchase order line impacts planning. Remember that other modules rely on this information to be accurate.
Do you require the purchase order lines to be associated with specific sales orders or work orders? When evaluating a new ERP system, ask how easily you can update items’ costs for your supplier part numbers.
Do you need to track purchase order revisions? Consider this — you have transmitted an approved purchase order to your supplier, and now you need to cancel or change a part of your order (purchase order change order, or “POCO”). If you are using an EDI system, can you do this?
Requisition management, receiving and matching invoices should all be standard functionality of your purchase order processing module. The ability to email POs should also be standard.
Bill of Materials (BOM)
A BOM is a list that includes quantities of raw materials, sub-assemblies/components, parts, etc. As you consider what you need from a BOM module, ask yourself:
- Do you require both engineering and manufacturing bill of materials?
- Do you require phantom bills of materials for sub-assemblies that are not kept in stock?
- How many levels do you require on your indented BOM?
- How many revisions would you need to track?
BOMs are hierarchical with the top level being the final product or sub-assembly. Some BOM modules have a simple assemble function included. A basic BOM assembly works for companies with a very simple and short assembly and production process. Manufacturers with a simple assemble process typically do not need visibility into work centers. WIP is not tracked for material, labor or machine time. You are recording your finished good production after the fact.
Manufacturing Orders
A bill of materials can be used to release raw inventory and sub-components to a manufacturing order. The manufacturing order module should be the cornerstone for assemble or engineer-to-order processing. It tracks WIP information and records the production of finished goods.
Consider how things should flow — you enter, edit and route work orders to build stock. You develop schedules and track costs associated with the manufacturing process. You know your sub-components’ expected release date. The manufacturing order/work order lets you know what stock has been issued and released to manufacturing, and how many assemblies have been completed and recorded as finished items.
Your work order system needs to handle different product lines’ change of flow, work center steps and times. When evaluating ERP systems and their manufacturing order modules, it is important to know if you can control whether manufacturing orders will automatically be generated from sales orders.
Knowing your costs is critical for estimating. Standard labor costs and manufacturing overhead can be assigned rather than capturing actual costs. Sometimes you do not have the automation in place to capture actual time and it’s unreasonable to spend the time to enter it manually. In those cases, you simply want to use a standard labor cost.
Knowing actual costs for raw materials is easier. Sub-components typically include standard costs. Standard costs are compared to actual costs. The variances are a valuable management tool.
Some manufacturers wonder whether their new ERP system will calculate standard costs. When you start with a new ERP system, it does not have the historical transactions to allow calculation of standard costs. If you want to use standard costs in inventory, BOM and work orders, you will need to provide standard costs during system setup. If you don’t know your current standard costs, there are consultants who can analyze your historical data and calculate your standard costs.
Inventory
Your inventory may be in your warehouses, vendors’ warehouses, or a 3PL’s (third-party logistics provider) warehouse. You must know when your inventory is committed to a sales order or to a work order. The inventory item record should allow you to enter the safety stock level required. The item’s vendor records should allow you to enter lead times.
Warehouse Management System
A warehouse management system (WMS) is the backbone of day-to-day warehouse operations. Some WMS programs are stand-alone applications, while some are part of an ERP system.
A WMS helps manufacturers centralize warehouse tasks such as tracking stock locations and inventory levels. A manufacturing company’s management team can use a WMS to efficiently control the movement of materials within a warehouse.
Shipping System
Typically, you will need to purchase a third-party shipping system and integrate it to work seamlessly with your WMS and sales order processing. Consider whether you have international requirements, and whether you combine sales orders and consolidate shipments. List all your carriers.
Electronic Data Interchange (EDI)
Do you need to electronically exchange data with vendors, customers and third-party logistics (3PLs)? EDI replaces manual documents such as sales invoices, bills of lading and advance shipping notifications.
There are many third-party EDI vendors available in the manufacturing and distribution channels. Some of your trading partners might already have templates developed by EDI vendors. Focus on your functionality requirements and which EDI vendors already work with your trading partners.
Sales Order Processing
Creating and managing sales orders is a requirement for any manufacturer.
Your users need access to inventory and production information, including the ability to view manufacturing orders, promised delivery dates and prior sales history. Your ERP system should have available-to-promise and capable-to-promise functionality that analyzes open orders and inventory to build work orders.
As you consider your sales order processing needs, outline very clearly:
- Pricing and discount rules — do you have customer-specific pricing and discounts based on thresholds?
- Do you need to integrate/import your sales orders via EDI, from your website or any other operational system?
- Do you require credit card processing?
- Do you require warranty tracking?
- Analytic sales tools to identify inventory movement and profitability by customer, product line, product and salesperson should be built in.
- Commission plans vary between organizations and typically require custom report development and/or third-party add-on.
Multicurrency
Even if you have no current multicurrency requirements, multicurrency functionality should be native to your ERP system, not an add-on solution.
Customization Tools and Developers
The complexity of an ERP system can be reduced with proper customizations. It’s expected that you will configure and customize your ERP’s usability.
If you purchase an ERP system that has a broad pool of developers to support it, it will likely be easy to find a developer to customize your system. If that developer leaves, it should be fairly easy to find a new developer to step in.
The biggest potential pitfall in customizing your system is not writing the proper specification for the customization. Make sure your developer documents all changes to your ERP system.
Custom Report Writer
If one thing is for certain, you will need custom report writer tools for your ERP system.
Make sure the backend of the ERP system is not proprietary. Ask if the backend is a unified data platform. As you select and implement a new ERP system, make sure you understand the data structure and discuss in advance the reports and dashboards you need.
Need Help?
Our team has a deep bench of consultants with experience and expertise in both the manufacturing industry and ERP software. If you’d like to learn what system would be a good fit for your business, contact us online or give us a call at 410.685.5512.
