The 10 key criteria successful manufacturing companies apply when buying or replacing an IT Manufacturing System: A Brief Guide to Software Selection
This article is for anyone considering the purchase of an ERP/MRP system in manufacturing, whatever the size of your organisation. As gathered from our experience in ERP implementation, it presents a short guide to the top ten considerations used by successful manufacturers when buying or replacing an IT system for manufacturing. This article is intended to share our knowledge of what we see as key factors to take into account prior to selection.
The value or return on investment of integrated manufacturing and finance systems to manufacturers is well documented but principally includes both ‘quantitative’ and ‘qualitative’ benefits. These can be used to build the business case required to justify the expenditure on ERP. They include:
• Superior Efficiency: Increased annual stock turnover due to the ability to rotate stock more efficiently throughout the year, as excess stock situations are avoided and material purchasing is strictly tied into production schedules.
• Reduction in Annual Stockholding Of Between 10 – 15%: By tying stock requirements into demand (in the form of sales orders and production schedules) streamlined MRP Planning can reduce the average value of stock held by between 10-15% in the first year of implementation.
• Improved Liquidity: Significantly improved cash flow positions, through a) Purchase Invoice Matching functionality that allows only those supplier invoices to be paid that can be traced to original purchase orders and material receipts and b) the ability to start invoice collection immediately upon sales order dispatch.
• Reduction in Manufacturing Costs: Direct and Indirect Labour Costs decline as staff become productive, spending less time spent waiting for overdue raw material shipments to arrive; some staff can be retrained or reassigned to more productive roles; production bottlenecks can be avoided by viewing potential conflicts ahead of time ensuring no delay in customer order shipments.
• Improved Productivity: A single central repository of information for order processing from start to finish eliminates duplication of data.
• Real Time Reporting: Unlimited custom reporting potential using your own data exists, meaning users spends less time having to go searching for information.
With the general pickup in IT spending continuing into 2015, manufacturers considering an ERP system now should consider these very real and significant benefits that accrue.
A recent positive impact in running an ERP has been the ability to allow Irish manufacturers counteract the threat of low cost manufacturing centres coming from Asia. By providing new and innovative ways of interacting with customers via Customer Relationship Management (CRM) software and techniques, ERP and CRM together can allow firms to differentiate themselves along customer service factors and help offset the impact of firms in low cost manufacturing centres relying heavily on price.
MRP II / ERP systems now scale to the smallest companies driving competitiveness, and bottom line growth. This article discusses then how to choose a product and vendor that will suit you.
10. Clearly Define The Business Requirement.
The first step in the selection of an ERP Systems is for the management and staff of a company to take the time to agree the objectives of the new system. For instance “Do Goods Received update stock lists? Do people even log Goods Received so that accounts can settle with supplier seamlessly?” When your requirements are clear then decide those that are “Vital” or “Nice to have”. Defining everything as essential will limit your choice and drive up the end price exponentially. This will also give you a false impression of a systems suitability. If a system has all the bells and whistles that’s, great but will you ever be in a position to use them. Don’t overcomplicate your system just because you can.
One well established firm recommends that you don’t specify any changes to your new system for the first year of use following the “GO LIVE” date, forcing users to get used to the new system. After that the specified changes list can reduce by 85%.
Knowing your requirements in advance of speaking with vendors is going to make the choice a great deal easier. The vendor will therefore concentrate on the solution as opposed to teasing the information out of you.
9. Choose A Solution Appropriate In Size To Your Organisation and your Manufacturing Process.
It may be stating the obvious but it is paramount to choose a solution that is right size technology for your organisation - as opposed to one which has been unnecessarily scaled down or ‘hammered’ to fit. Choosing the right fit will result in less cost over the project’s lifetime. Some inscrutable vendors have been known to give the software away at cost, only to make up for it by charging a small fortune in service days!
8. Value The Investment Over 3 -5 Years For A True Total Cost of Ownership
Do you want to be locked into a system two years from now with no way of making even the slightest change unless you pay for expensive custom work every time from the authors? Probably not! Ask your vendor how easy is it to make changes to the system once it’s installed. Some products allow the customers to make changes to the system without recourse to the authors for expensive custom development work. Others do not. This can have a considerable impact on total cost of ownership (TCO).
Always ask for an indication upfront of year 2 and beyond maintenance charges on both software and hardware for a true comparison of vendors. (See also point 4 about whether the software will work if you are not on annual maintenance). Identify how maintenance charges are calculated. This will allow you to accurately forecast running costs in the future more accurately.
Find out too if it can connect easily with existing legacy systems or even just your existing MS Excel or Autocad/Solid Works. The ability to connect and transfer data to or from an unrelated system. Eg. Temp monitoring system for fridges.
7. Find Out What Is The Likely Upgrade Path For Software.
This is one area often overlooked in the selection process. In choosing a solution today, will you be liable for upgrading to a newer version two years from now? In addition, you may find that any existing versions of any third party products required to run with the ERP application may also need upgrading, entailing additional expense here too. What are the software developer’s plans for this current version? Is the software written in a commercially available development language which is still being enhanced and supported by the supplier? This can greatly increase the cost of maintenance to a system if there aren’t many experienced individuals around to carry out the work in a few years. Don’t buy a system that will be a dinosaur in a few years time.
6. Invest in a Dedicated Server(s) to Run the ERP Application
Hardware prices have continued to slide, making the case for a dedicated ERP server considerably more attractive. It has been our experience that companies looking to save a few euro by not investing in adequate IT hardware end up paying more in poor system performance, compatibility problems between ERP and other applications, and general system crashes. ERP can be a considerable hog on server resources to the extent than other office applications can suffer considerably – so invest in a dedicated server! Take the opportunity to upgrade network components if required. A fast server with a slow network connection is a waste of money.
5. Arrange a site visit to an existing customer of the vendor(s).
One of the surest ways of cutting through all the ‘vendor rhetoric’ is to arrange a site visit
to an existing customer and talk to existing users. They are in best position to tell you how it has gone. Look for a clearly defined payback and benefits accrued from running the system. Do they match what the vendor claims? Go prepared with a list of items you want to see and a list of questions you need answered. This is your chance to see the system in action, make sure you see the areas of the system relevant to your company. If possible agree an agenda in advance.
4. Will The Software Work If I Am Not On Maintenance?
Maintenance agreements function somewhat like an insurance contract between vendor and customer, providing access to seasoned product technical experts on issues that the customer’s own staff may not be able to resolve once implementation is complete. Some ERP vendors may tie the ongoing usage of their software in with the issue of whether or not you hold a current software maintenance agreement. In other words it may not be yours to actually own, and if you are not on maintenance the software may refuse to function. Other ERP solutions are sold in perpetuity – i.e. their continued operation is not tied in to whether or not you are currently on maintenance.
In addition, try to find out about the proximity of local technical support staff. Does the vendor have a fully staffed local presence or is it merely just an administrative office? What happens if you require technical support on site at short notice?
3. Database – Proprietary or Standard?
ERP applications that require proprietary databases to run can prove expensive to maintain and lead to difficulty retaining the knowledge base in house to support them. Most IT staff will want to keep their skills profile current, and introducing proprietary non standard databases may encounter resistance that would otherwise act as a hindrance to a successful implementation.
2. Client Server or Web – which should I choose?
A big shift is occurring in the industry, as more ERP solutions are becoming web enabled. In the long term this has the potential to be even more significant than the emergence of NT Server Software over a decade ago. The benefits of deploying a web enabled ERP system lie in the twin areas of cost and time – time in respect of deployment times, from start to ‘Go-Live’ date, can be up to 15% faster as measured in service days, compared to traditional client server technologies; and cost in that web applications allow functional changes to be made much more easily, resulting in less time and less expense overall.
Web applications also offer the long term benefit of technological independence – i.e. they are as confined to, or restricted to work with a limited set of preferred technologies - as would be the case with client server technologies. A technology independent solution therefore can easily be ‘future proofed’ over time. Manufacturers on these systems have more freedom to choose an optimal software & hardware configuration to run ERP, but keep in mind that the system itself may operate best under a particular flavour or type of technology too. Web based systems have the added advantage of substantially lower maintenance for your IT personnel. No complicated software needs to be installed on the users PC. They simply connect through their internet browser. This can also allow your IT dept to get extra life form PC’s as the system requirements will be less.
1. Allow Enough Time For Implementation and Training
A crucial area this one. Whichever ERP tool you choose, you will need the assistance of an experienced ERP implementer. Search for one with a good track record here. Don’t be fooled into believing you can save a few euros by reducing the number of training days. Why have an expensive investment go to waste if you’re not willing to devote time & effort in getting your people trained up? Granted you can spread this phase of the implementation out over several weeks or months depending on complexity, but if you’re really serious you’ll want to budget for this appropriately.
It’s much more effective towards the successful adoption of any new technology that key system users are involved from early on in the project. Try to avoid leaving the implementation in the hands of a concentrated few until the very end – just 4 weeks before go-live! During the implementation, regular review meeting should be held to inform key personnel of progress and prevent the implementation turning into a last minute effort to get everyone on board.
This article then has presented some of the key considerations that successful manufacturers adopt when evaluating IT manufacturing systems. We believe that they will prove useful in their application during the selection process. Following these guidelines will result in a more ‘enlightened’ buying decision so that the final selection of a product can take place in confidence.