Whether they're outgrowing QuickBooks or striving to reach their first billion in annual sales, small- and medium-sized (SMB) manufacturers have sharply different ERP platform needs than those of large manufacturers.
Typically, SMB manufacturers don't need someone to tell them when their spreadsheets and underpowered accounting systems aren't cutting it anymore. Confusing data about inventory values, the inability to accurately calculate gross margins on a daily basis and other critical breakdowns make the problems obvious, according to manufacturing executives, systems integrators and consultants.
But that doesn't mean growing SMBs aren't treading carefully before making the leap to an ERP platform, these industry experts added. Executives grapple with how to choose the right option and avoid replicating horror stories of long implementations that drain ROI.
Experts said the antidote comes from clearly understanding the business requirements and goals for justifying a modernization project.
A slow move to ERP
Chintan Sutaria learned these lessons in the ERP trenches. He's now the principal at the business and technology consulting firm VisionPDM, but earlier this decade he was in charge of business development at Precision Technology Inc. (PTI), then a family-owned electronics contract manufacturer with 140 employees. QuickBooks had been working as the company's core accounting application until growth tripled revenues over a three-year period. PTI could no longer reconcile inventory values between QuickBooks and an inventory-control module in ManEx, the only component in the SMB-oriented ERP platform PTI had been using. "The two systems were on completely different pages about the actual value of our inventory," Sutaria said.
To fix the mismatch, someone would have had to manually enter and regularly update more than 20,000 part numbers in the accounting program. Until a more practical solution arrived, PTI couldn't calculate gross margins each day. "We knew we were making money because at the end of the year we had more than we had at the start of the year, but couldn't tell which jobs were the most profitable," Sutaria said.
PTI executives expanded the number of ManEx modules they were using to cover finance, accounting and inventory management. By mid-2013, Sutaria could compile detailed reports based on accurate inventory and accounting data that showed running summaries of gross margins and supported him when he negotiated volume discounts with materials suppliers. "By end of 2013, we were seeing that margins had gone up significantly compared to the previous three years," he said.
SMB growing pains not unique
PTI's growing pains aren't unique, said Mark Rhyman, co-CEO at the systems integrator Big Bang ERP. "As they grow, companies see an increased need to collaborate internally, which is why it's important to have a single, unified system to tie everything together," he explained. "This can give upper management dashboards to quickly show which areas are working well or doing badly so they can take appropriate action."
But making the leap to an ERP platform can be daunting, with the specter of long implementation cycles still ranking as a top concern, he said. Vendors of cloud-based solutions often tout three- to nine-month deployments by eliminating the time needed to procure and configure on-premises hardware, he added.
The fear of a long, drawn-out ERP implementation is weighing on Ryan Hulland, director of business development at Netfloor USA, a manufacturer and distributor of specialized raised flooring for data centers, law-enforcement command centers, hospitals and other high-tech facilities. "One horror story I heard from a close friend, who is also in manufacturing, is that his company took their facility down for a full week to finally implement a new ERP system," Hulland said. "The worst part is that they have been working to implement this new ERP for three years. With that potential nightmare looming over us, we are a bit averse to making such a drastic change."
One answer: a combination of programs
He's heard that cloud solutions can speed rollouts, but remains skeptical. "I'm used to buying out equipment and applications," he said.
For now, the company is using a combination of programs, including Excel spreadsheets and a custom, SQL-based database for pricing and inventory management, to support a 24-person manufacturing and sales operations, plus two contract manufacturers and a network of distributors and sales reps throughout the U.S., Canada and Mexico.
"We spend so much time trying to manage the systems, we're getting away from our core competency," Hulland said. For alternatives, he's considering enterprise-class ERP suites from vendors like SAP and Oracle, as well as SMB-oriented software from Sage. Also on the table is moving to the SalesForce platform and plugging in an ERP application from an authorized third-party vendor.
"We want a solution that has all the features a large enterprise may want, but we want to pick and choose what we use and not pay for an enterprise solution," he said. "Ideally, we'd like to get this done this year, but I don't know if that's going to happen."
Choose system that will grow with you
To help them choose the right ERP option, SMB decision makers should consider how well software candidates address the special requirements of manufacturers, such as tracking complex inventories and shop-floor schedules, Rhyman said. The tools should also be able to evolve with the company.
"Choose a system that lets you add new modules over time," he said. "That will enable it to grow along with your company."
Choosing cloud-based ERP
For ERP success, focus on change management
What is SAP Business One?