ERP System Selection for Manufacturers
By Eric W. Jonassen, President, OLAV & Co., Inc.
A properly selected, configured, and implemented Enterprise Resource Planning (ERP) system can become the "central nervous system" for your business to achieve its lean manufacturing, recruitment, and productivity goals.
The right ERP system can help:
- Reduce waste;
- Minimize inventory;
- Optimize warehouse and transportation costs; and
- Reduce unproductive time.
The best approach to ERP implementation employs a three-step process, two of which are discussed in this article (Phase 3 implementation is addressed in Part 2 of this two-part series):
Phase 1 – Preparation: Assemble the right team of C-Suite and business process personnel and outside expertise to define the business case and prioritize your business requirements, including comparing current KPI performance with projected performance with a new ERP system; and
Phase 2 – Vendor Selection: Prepare a shortlist of ERP vendors offering modules geared to your discrete or process manufacturing needs. While there are hundreds of ERP systems, only a handful are capable of handling the intensive data requirements of process manufacturers.
Compare your functional KPI requirements with vendor module functionalities to develop an even shorter list for soliciting RFI responses and more detailed RFP proposals. Include implementation consultants in the selection process to consider hardware requirements, minimize customizations, and modify expectations if necessary.
Limit customizations to those needed to meet KPI targets and other "must have" business priorities - especially those unique to your business - rather than a more extensive "wish list" of non-essential features. Consider whether starting with a complete system or one or two functional modules is a better approach for your business.
A poorly planned, staffed and implemented selection process can torpedo your ability to realize a system's potential benefits. That's because there are over 250 systems to choose from and an array of decisions to be made - like whether to choose a cloud-based, on-premises or hybrid system and their staffing implications - and integration challenges with legacy systems remaining after implementation.
Virtually all contemporary systems claim to have the core functionalities of operations support, finance, HR/HCM (Human Capital Management) and CRM (Customer Relationship Management). But few offer the seamless integration claimed in their marketing materials.
Most small and midsize manufacturers are better served with a Tier 2 system, some of which have more advanced manufacturing functionality than Tier 1 vendors.
A robust ERP system can also help you gain greater control of your recruitment challenges in several ways:
- Increased productivity and efficiency of existing workforce reduces need for new hires;
- Improved flow and access to information improves engagement and job satisfaction for improved employee retention; and
- Greater knowledge retention to preserve expertise at risk of being lost as the industry loses an estimated 40% of its workforce to retirement over the next decade.
To capture these benefits, however, it's essential to do more than delegate the process to IT personnel. Equal or greater attention needs to be paid to non-technical matters like enlisting the right project team and carefully prioritizing your business process requirements, as these are generally more critical to a successful selection process.