This ERP for the SMB series is now combined in the FULL REPORT.
In Part One we talked about how growing businesses eventually decide they need an ERP. In this article we will continue with this theme and delve into how ERP designs are differentiated according to the complexity of the business processes they support.
We look at the complexity of a business across their 3Pe’s™—Policy, Process, Performance (metrics) and Enablers (technology). We use the term enablers because, today, firms can utilize third party services or cloud platforms to access technologies. Complexity in this case is a managed service provided by a third party. It can still be quite complex, although the complexity is outsourced.
As more policies or rules are attached to a process, software becomes more important in creating a successful transaction. Today, in fact, the plethora of compliance requirements thrust upon the enterprise—whether from trading partners, industries, or governments—is quite burdensome. The software should assure that your transaction and activities are in compliance.
Performance methods (assuring that manufacturing equipment is producing the exact measure, temperature, or time to ‘bake of product’); pricing; and financial management (whether the investment decision will meet your ROI goals) all should be automatic guides, embedded and enabled by the software.
All this can get very complex!
So let’s look at a few of the business processes and dissect some aspects of complexity.
Manufacturing is still one of the most challenging operations to run. Its complexity can range from snapping plastic components together, to making toys, to building a Boeing Dreamliner.
The range of product complexity and manufacturing methods is extreme. At one end of the spectrum (see Figure 1) the whole process can be outsourced, leaving all the manufacturing execution work to others. As we move up in complexity to repetitive manufacturing (items such as pens or cigarettes), once the manufacturing is set up, the same process is done over and over again. Of course each activity has nuances, but the underlying software required to operate this can be quite ‘light.’ Often there is no tracking or data collection of any kind during the process. Inventory in—finished goods out.
As we move into multi-stage products, whether discrete, process, or mixed mode, the manufacturing systems begin to add complexity. Deep bills of materials, recipes, and control points at each stage in the manufacturing process are needed in the software. Changes in ingredients; machine settings; personal skills required to operate certain machines or access materials such as controlled substances or hazardous materials; and routing products from stage to stage all need to be managed and included in the management system.
Layered on top of this is the planning: What is the actual product demand? What are the buffers for inventory and additional surge capacity in terms of people and equipment? And then we layer on the performance, financial decisions, and integration with the manufacturing process: What are the financial goals in terms of volumes, costs, profits and other performance targets that we expect from this process?
You see the point. Obviously, the software for these extremes would be quite different, depending on the circumstances.
Industry View of Complexity
Continuing with manufacturing, let’s look at some industry views and the challenges.
Today, with so much outsourcing, businesses are often isolated from the complexity of the manufacturing process. But even in such circumstances, the complexity of the product and its supply chain is still a front and center concern. Figure 2 shows some of the major ERPs for the SMB and their industry positioning.1
Let’s look at a few industry requirements:
Aerospace and Defense—Each aircraft or ship is a custom-built product. Each has a unique and very complex bill of materials, and each needs lifetime tracking of all the parts that went into the final product. With aircraft this is the law, so record keeping must be linked to the parts catalogue, procurement, and manufacturing systems. Based on the design standard, each aircraft has its own design and project plan. Testing, quality, and certification are also essential.
Industrial and Construction—Design specifications, project planning and management, and labor costing and management are part of each project. They all need to roll out into a cost-accounting and billing system that assures that each customer’s project is on-time, on-budget, invoiced correctly, etc. Often in large construction projects, logistics management systems unique to the construction industry are part of the application package.
Automotive—Here, Build-to-Order is a major consideration. Though manufacturers do produce big lots of standard models, many customers are looking for customization. Integrating from dealers’ ordering systems through to final delivery is a wonderful thing (when done well).
Pharmaceuticals—Compliance, Compliance, Compliance! Besides the complexities of manufacturing and cold chain controls, this is a highly regulated industry. FDA and global trade requirements dominate. Many of the systems used in this industry are domain-leading categories such as laboratory systems or cold chain logistics systems. Maintenance and cleaning of equipment and facilities, as well as special labor-management modules, access control, etc., are all part of the manufacturing environment.
Food and Beverage—similar to Pharmaceuticals, but with critical recipe management added. Recipes can change from day to day. And with food traceability compliance requirements, even small changes to a batch of cookies need to be recorded and managed for quality, and in case of recall.
Now contrast these industries with a light assembly facility, say, a toy assembly business. Making dolls is no child’s play, but it is not as heavily regulated as the above mentioned industries, and, therefore, may not require the same type of ERP system. Inventory management is still important here. You need all the correct parts, so that the right and left arms and legs and proper clothes are ready for assembly. Bins of parts are released from the stock room to the bench or floor where the items are assembled.
Most environments like this will have an MRP system and keep track of order volumes, daily production numbers, and inventory. Often there are kanban bin systems. In China, at a contract manufacturer, this may be done on paper or spread sheets until the final cartons are loaded, counted, bar-coded and shipped. Often these firms also need Vendor Managed Inventory (VMI) to support their customer demand.
Figure 2: Industry ERP Providers’ Industry Focus
One consideration, which requires a moment of honesty for organizations when selecting software, is whether they will ever use some of the higher order software in their own environments. There are many examples of companies that put together large-requirement wish lists, but fail to implement all the modules. Frequently, if these modules are important to the business, companies buy best-of-breed or use snippets of the solution. Buyer excitement can lead to ‘more is better,’ but it can add cost and complexity and bring a project in late, later and latest! Post-implementation users grumble about data entry without a payback. “Why do we have those fields if we don’t use them in managing the business?” is often high on end-users’ dissatisfaction list.
In general, you will grow into using the more advanced, complex capability, so make sure that your implementation is not an all or nothing deal. Initially, if you only need a function or two within the module, make sure you can implement that portion2 without having to take on a large scale implementation. Many cloud-based ERPs are taking this road, not only by module, but by function, minimizing the user activities required to ‘go live.’
In Part Three, we will explore other areas of complexity in the enterprise and how they might impact your ERP decision. And we’ll reveal more about some great ERPs for the SMB!