Q&A: What Manufacturers Should Know Before Choosing an ERP

Choosing a new enterprise resource planning (ERP) system can be a major undertaking for a manufacturer. Because an ERP can touch accounting, inventory, production, scheduling, purchasing, reporting, and more, it can be tempting to start by researching software platforms and scheduling vendor demonstrations.

But manufacturers can make the selection process more productive by first defining what they need the system to accomplish.

To discuss what manufacturers should consider before talking with ERP vendors, we spoke with Kelly Blau, CPA, Principal at SVA Certified Public Accountants. Kelly works with manufacturing and other businesses on financial reporting, internal controls, accounting procedures, and related financial needs.

FAQs About Choosing an ERP for Manufacturing

Where should manufacturers start when considering a new ERP?

Start by identifying why you need a new system by looking at the business problems driving the project. It’s important to do this before creating a list of software features.

• Are employees entering the same information into multiple systems?
• Is inventory data unreliable?
• Maybe production scheduling is becoming difficult, or reporting depends heavily on spreadsheets, or management can't easily determine profitability by product, customer, or job.

There may also be a technology reason for making a change, such as an existing ERP that is difficult to support or can no longer keep up with company growth.

Defining those problems gives the ERP project a clearer purpose and keeps the selection process focused on business outcomes.

RELATED CONTENT: EGUIDE

THE FINANCIAL REPORTING MANUAL: A HOW-TO GUIDE FOR SMALL TO MEDIUM-SIZED BUSINESSES

OPEN IN NEW WINDOW

Why should manufacturers document their processes before evaluating software?

You need to understand how work currently moves through the organization before deciding how technology should support it. That may mean mapping processes such as quote-to-order, procure-to-pay, production planning, inventory management, job costing, and financial reporting.

The goal isn't necessarily to recreate every current process in a new system. Some workflows may exist because of limitations in the current ERP. A new implementation can be an opportunity to simplify those processes.

How should companies prioritize their ERP requirements?

Once you've identified your needs, separate them based on how much they matter to the business. Some capabilities will be nonnegotiable, like production planning, inventory control, job costing, financial reporting, or lot and serial tracking.

Other features, such as advanced dashboards, mobile warehouse tools, or automated workflows, may provide value without being deal-breakers.

Prioritizing requirements before demonstrations can help prevent an impressive secondary feature from distracting the team from whether the system can handle the processes the business relies on every day.

What manufacturing-specific capabilities should be considered?

Manufacturing requirements can vary considerably from those of other businesses, so companies should identify the functionality that matches their operating model.

Depending on the organization, that could include:

• Bills of materials
• Material requirements planning
• Production scheduling and capacity planning
• Shop floor control and work orders
• Job and product costing
• Lot and serial tracking
• Quality management and traceability
• Warehouse and multi-location inventory management

A discrete manufacturer may have different needs than a process, engineer-to-order, or make-to-stock manufacturer. The focus should be on whether the ERP supports how your company actually operates.

RELATED CONTENT: BIZ TIP

HOW MANUFACTURERS CAN USE EXISTING DATA TO BUILD PRODUCTION EFFICIENCY KPIS

OPEN IN NEW WINDOW

What should manufacturers consider about integration, reporting, and data?

An ERP usually doesn't operate by itself. Manufacturers may already use separate systems for CRM, payroll, shipping, EDI, engineering, warehouse management, ecommerce, or business intelligence.

Before selecting a system, decide which applications should remain and integrate with the ERP, which could be replaced, and which may no longer be needed. Those decisions can affect project scope, cost, and complexity.

Reporting should also be part of the discussion. Ask what questions management has difficulty answering today. For example:

• Which products and customers generate the strongest margins?
• What is our actual production cost?
• Where are bottlenecks occurring?
• How quickly is inventory turning?
• How profitable are individual jobs?

Those questions can help define the reporting, analytics, and data capabilities the new ERP should provide.

Why should a manufacturer involve its CPA before choosing an ERP?

Your CPA sees the financial results of many of the processes the ERP will eventually support.

They can provide perspective on financial reporting, cost accounting, inventory valuation, job costing, revenue recognition, internal controls, tax reporting, and the financial close.

Manufacturers can also ask where their CPA sees weaknesses or inefficiencies in the current accounting environment, what information is difficult to produce, and which manual processes may create reporting concerns.

Your CPA doesn't need to select the ERP for you, but their perspective can help keep financial and accounting considerations part of the conversation from the beginning.

Who should be involved in ERP selection?

ERP selection shouldn't belong to only one department. Because the system can affect much of the organization, the selection team may include representatives from finance, operations, production, purchasing, inventory, sales, IT, and executive leadership.

Employees who use current systems every day can also provide helpful insight. They may be aware of recurring workarounds or bottlenecks that leadership doesn't regularly encounter.

It also helps to have an internal project owner who can coordinate departments, address competing priorities, and keep the process moving.

How should manufacturers think about cost and future growth?

Look beyond the software subscription or license price. The total investment may also include implementation, data migration, integration, customization, training, process redesign, internal employee time, ongoing support, and future upgrades.

Manufacturers should also consider what the business may look like over the next three to five years. Growth, acquisitions, new locations, new product lines, ecommerce expansion, or a more complex supply chain may all change what the company needs from its ERP.

The goal is to choose a system that can support reasonable changes in the business without being quickly outgrown.

What should manufacturers have ready before meeting with ERP vendors?

Bring the discovery work together in a written requirements document.

It may include business objectives, current pain points, manufacturing capabilities, financial and reporting needs, integrations, data requirements, priorities, expected growth, budget parameters, and implementation expectations.

Then use those requirements to guide vendor demonstrations.

Rather than relying on a vendor's standard presentation, ask each vendor to demonstrate the same business scenarios. For example, you might ask them to show how a customer order moves through production planning, scheduling, inventory, shipping, invoicing, and financial reporting.

Manufacturers should also evaluate the implementation partner, including its manufacturing experience, project approach, data migration capabilities, training, and ongoing support.