It adds up quickly. An idle factory is probably your most expensive possession. Change the currency to daughter’s weddings.
How many daughter’s weddings equal the cost of an idle factory day? Alice can tell you.
Alice had everything she needed to ship products and make money. Well, almost everything.
She didn’t have shipping labels. Alice had orders, final product, people running the factory, printers to print the shipping labels, and almost everything she needed. Almost everything …
Alice didn’t have shipping label paper for the printer. This happened because she was missing something else.
Alice didn’t have an ERP system that automatically ordered shipping label paper with appropriate lead times when stock ran low. How many daughter’s weddings do you think that cost her?
It didn’t have to be this way
An Enterprise Resource Planning system (ERP) would have prevented that shut-down. ERPs track the details and keep your factory running.
It’s like a bad dream where you scream, but nobody can hear you. This was Alice’s sweat and blood. Mega-corporations can survive these events. But we know it’s life and death when we see a small-to-mid-sized business facing a shuttered factory. Fortunately, this wasn’t the end for Alice.
The cost and opportunity of owning a factory
Yes, owning a factory comes at a high cost, but it also brings opportunity. It becomes clear when you segment businesses based on cost model.
- Low fixed cost – high variable costs: This model works well for low volume. You lower your risk by keeping your fixed costs low. But your upside opportunity is limited because of your high variable costs.
- High fixed cost – low variable costs: If you own a factory, this is your model. You lose money quickly at low volume but make money quickly at high volume.
You can see how this works in the following graph. Do you see why we like the currency of “daughter’s weddings?”
A shuttered factory can be like buying several daughter’s weddings in a single day. So, how did this impact Alice?
Alice didn’t let this happen twice. We were able to deploy an ERP system and keep her from having a repeat. Yes, ERPs can be expensive, but the cost of not having printer paper for shipping labels was higher. Alice’s met her goals with her new ERP system. But Ray had different goals.
Ray was building a business around LED lights. His goal was to scale the business to a point where he could sell and move on to the next thing. But Ray couldn’t scale.
Ray’s business started doubling every 18 months. He was ecstatic – it was finally paying off. But …
In the back of his mind, he knew something was wrong. Then it happened …
The factory screeched to a halt.
Ray’s ERP couldn’t scale to keep all the plates spinning. It crashed, broke, and left Ray shattered.
Businesses are unique and so are their needs. We were able to find the right ERP system for Ray. A couple of years later he sold the business. The last we heard from Ray, he was vacationing in Italy.
You may have your reasons for not deploying an ERP – or deploying the wrong ERP. Either way, it should be a system that helps you achieve your goals.
What is an ERP system?
Any successful business requires the coordination of multiple factors (i.e. accounting, inventory control, customer service, quality control, shipping/receiving). ERP stands for Enterprise Resource Planning.
The purpose of any ERP platform is to integrate a business’s various functions into one system. You can calculate your inventory needs, your production capacity, profit per unit, etc. Ideally, anything in your business that tracks or requires information can be managed by an ERP program.
How does it work?
ERP programs streamline processes down to one shared database, helping businesses synchronize reporting and automate core business functions. It also helps compile data from multiple sources into useful reports that you can use to track important business metrics.
How is life better after deploying an ERP?
By tracking every aspect of your business, predictive reporting and analysis can be applied to give you intelligence to make better decisions for the business. What to produce more of, charge more for, when to order more inventory, etc. Processes are standardized and become more consistent, and business owners can make decisions based off hard numbers, not just assumptions.
Who Needs an ERP system?
ERP can be used in any industry, but it is mainly used in manufacturing, project management, and accounting businesses. It is also particularly helpful for healthcare, hospitality, nonprofit, and construction companies.
More importantly, ERP is for companies with the following traits:
- Manufacturing single end-products with many parts.
- Manufacturing multiple end-products.
- Manufacturing a single end-product with multiple stages of manufacturing.
- Coordinating efforts between multiple locations.
- An industry requiring financial or regulatory standards that could benefit from multiple checks and balances.
Signs that Your Business May Need an ERP Upgrade
- Your business needs more options than the current software can provide. Examples include inventory tracking, shop floor activities, and customer service options.
- Information is being lost or miscommunicated between multiple software types, multiple processes. (Ex. Does the accounting staff use one software program for accounts receivable, while sales uses another program to process orders, and the warehouse uses still another program for shipping/receiving? Important info like tracking numbers and payment methods can be lost through multiple transfers of information.)
- Frequent software outages cost you time and productivity.
- You plan to expand to a second location and need a way to link the two locations.
- You don’t have easy access to information about your business. (Ex. Reports on your average sales margin, orders per day, sales to date, etc.)
- Accounting is time-consuming and difficult. (Ex. Spend hours reconciling paper invoices, sales receipts, spreadsheets, etc. across multiple departments.)
- Sales and customer experience are suffering. (Ex. Running out of popular items due to lack of inventory control, processing or accounting errors, access to tracking info.)
How Do I Know Which ERP Product is Right for Me?
Business Needs - Different ERPs will have different strengths and weaknesses. If your business has a wide variety of inventory, you want something with a strong inventory module. If the business needs the power to push orders through from sales quickly (or due to volume), make sure that there is either a good CRM & sales module, or that it integrates tightly with your platform of choice (dynamics, salesforce, etc.)
Product Integration (Out of the Box or Custom) – Some ERP products come ready to integrate with other programs as is, or “out of the box” (most commonly Power BI or QuickBooks). Others can be configured to integrate with other systems, but it must be done custom by an IT provider. Your integration costs can quickly exceed the difference in price between platforms. So, you should look at the total cost in your decision process.
Servers (Onsite or Cloud) – Traditional ERP modules require multiple servers to function. This increases your hardware costs. Cloud based services create virtual servers, meaning little to no upfront hardware costs. Cloud servers are also more scalable. This means they can be scaled up and down to meet demand, so you pay for extra storage only when you need it. Licensing costs are also cheaper. Onsite servers can be $1,000 - $5,000 per user or seat. Cloud licenses usually cost between $90-$500 per user or seat. (Note: Factors like strict security requirements and slow internet connectivity can have a huge impact on performance for cloud-based ERP programs.)
Implementation Costs – Most ERPs have implementation costs. Some are direct costs from the ERP vendor. Some are consulting costs to transition your systems. Understand all start-up costs when selecting your system.
Ease of Use, Training – It’s common to see ease of use decrease as functionality and configurability increase. You should consider the easiest ERP that meets your current and forecasted needs.
Total Cost of Ownership – The total cost of everything listed above, weighed against the increased productivity and streamlined processes.
Comparison of ERPs for small-to-mid-sized manufacturers
Obviously, there are many ERP solutions. We focus on the ones that meet the needs of small-to-mid-sized manufacturers. The following table compares the ERPs that meet the needs of most businesses.
|Cetec ERP||Microsoft Dynamics 365||Fish Bowl||Infor CloudSuite Industrial (Syteline)||Plex||NetSuite|
|Price Range||$40/user/mo.||$210/user/mo.||$4,395||$25K-500K||(% of your revenue)||$10K-$100K|
|Pricing Includes ALL Modules?||Yes||No||No||No||No||No|
|FEATURES||Web-native Cloud Platform?||Yes||Yes||No||No (Citrix connector doesn't make you cloud)||Yes||Yes|
|Designed For Manufacturing?||Yes||No||No||Yes||Yes||No|
|100% Material Traceability||Yes||No||No||No||No||No|
|Production Scheduling Built in?||Yes||No||No||Yes||Yes||No|
|Quality Control Built in?||Yes||No||No||(extra cost)||(extra cost)||No|
|Integrated Document Management: Document Control / Document Revision Control?||Yes||No||No||No||Yes||No|
|Mobile Warehouse / Barcoding||Yes||No||No||No||Yes||No|
|Material Resource Planning & Material Allocation?||Yes||No||No||Yes||No||No|
|Customer/Vendor Portal||Yes||No||No||No||No||Customer Only|
|Shipping Integrations (FedEx/UPS)||Yes||Yes||Yes||Yes||Yes||Yes|
|HR Functionality / Payroll||No||Yes||No||No||Yes||Yes|
|API to HR / Payroll||Yes||No||Yes||No||No||Yes|
|Support Included||Yes||Yes (Next-day response)||No||No||Yes||Yes|
|Always Current Software||Yes||No||No||No||Yes||Yes|
|On Premises Hosting Option||Yes||Yes||Yes||Yes||Yes||Yes|
|Server OS||Compatible w/all Operating Systems||Mac OS, Windows, Compatible w/all Operating Systems||Mac OS, Linux, Windows||Windows||Compatible w/all Operating Systems||Mac OS, Windows, Unix, Novell Netware|
Yes, that’s a lot to take in. You can understand why manufacturers like Alice and Ray weren’t anxious to dive into these waters. But idled factories cost them dearly.
Set a simple goal for yourself. Take this information and pick the best 2 ERPs that you think will meet your needs. That’s a huge step forward.
“A good plan, violently executed now, is better than a perfect plan next week.” – General George S. Patton
Patton was no politician. But he knew how to get things done. Once you’ve selected 2 ERPs that meet your needs, your next step is to down-select to one.
Set things in motion and you’ll be surprised how quickly things get resolved. You probably want to work with someone that’s deployed a few ERPs. They will help you avoid some of the standard “gotchas” that plague these types of projects.
Or you can wait like Alice and Ray for your factory to crash to a halt. You’ll have plenty of focus at that point. Either way, pick the path that works for you.