How to pick the right ERP—and what happens when a manufacturer chooses wrong

Enterprise Resource Planning, or ERP as it is commonly called, is the life blood of manufacturers everywhere. The use of a well-suited ERP product provides significant advantages to the manufacturer in many areas of the business. Similarly, a poorly chosen ERP system will accelerate bad decisions. The question is, how to tell the difference, before you buy.

First, let’s be basic. What is an ERP? It functions for manufacturers to track where all raw materials are coming from and connects various corporate computer systems such as accounting, sales, human resources, materials tracking and customer service into one system.

What are the infrastructure considerations?

Manufacturers may want to consider these points before purchasing an ERP product.

Why are you considering a new ERP system? There are three fundamental drivers to change for most companies:

The current system and or platform has become unstable, fragile or is no longer supported.
The data in the current system is noisy (polluted). Business decisions are not data-driven because the data needed is not collected or available via the system.
There is a cultural shift in the workforce. The team is increasingly comfortable with technology and their skill level is noticeably higher. Note that Gen Z grew up never using a phone with a rotary dial or a TV with rabbit ears. They expect more from technology and it is wise to embrace these skills and new creativity.

Where does the implementation support come from? These are the people who will make a difference to your project’s success:

Best-case scenario is they are employees of the software company and some of them worked in a manufacturing company.
Does your implementation team thoroughly understand your core business?
Does your implementation team share your vision of the “future state” of the business and processes post implementation?
Second best is that the implementation company works exclusively with the software company you are discussing. Make certain they have seasoned manufacturing people on board. People that have worked in a manufacturing company.
What platform does the software reside on? Is it available on the cloud? Does that fit in with your corporate infrastructure plan?

Understand the system wide backup and accessibility options

Who owns the data? Often the fine print states that the data belongs to the software company and not the customer.

Who owns the IP (intellectual property) for modifications? This should always be the software developer regardless of who writes the code. This is especially important to make certain the code is supported (and hosted) by the ERP software company.

What percentage of the software companies’ revenue is re-invested in research and development of new features, upgrades, hardware compatibility, and new products for ERP? A low reinvestment plan may be an indication the software company is for sale, or the product is at the end of life.

What is the software maintenance charge as a percentage of software license fees? Higher maintenance charges may indicate a lack of stability, coding, or hardware compatibility issues. It is reasonable for there to be a “premium” for technical support which guarantees a specific level of response.

Insist the software and all new hardware supports Internet of Things, or IoT, and Industry 4.0.

Make sure the hardware (computers, printers, label makers, bar-code readers, sensors, etc.) are a separate decision independent of the software. Avoid getting locked into a specific hardware supplier.

Third-party integration (payroll systems, bar-code scanners and printers, etc.) should be handled exclusively by the ERP software provider for ongoing support and to assure an upgrade path.

Points to ponder: The often overlooked questions

When selecting an ERP product, it may be wise to consider these factors:

Validate the ERP Pre-Sale and Implementation teams thoroughly understand your business.
Are there any companies in the same industry as yours using this product? If not, why not.
Does the software author invest time teaching the customer base how to use the product more effectively? These sessions indicate that the software developer is committed to the product long term. They are working to help manufacturers increase the value they receive from the existing investment while demonstrating continued value add for the investment.
Are there regular conferences (at least annually) offered by the software supplier? Are customers welcome to visit the software development headquarters? Is the software developer engaged with the manufacturers?
Does the system specifically support the auditing and reporting requirements for your business. Certifications like Food Safe, ISO, AS9100, Lean, etc. If it does, where is it in the implementation plan. Integration of some basic reports and key indicators will save thousands every year in internal and external compliance audits. If the certifications important to your business are not reflected, ask why not. Bear in mind, when ERP software providers say something is “on the horizon” or “in R&D” that means no and maybe never.
What about SPC and APQP. If these are important to your business, does the ERP System support these requirements? Is the data accessible?

About specialized government documentation: Many defense contractors have specific project cost accounting requirements. If you are a DoD contractor, does the ERP software support the specific contractual reporting requirements you are required to provide. Has the system been audited by the federal government (DCMA) for accounting and GAAP compliance? If it is not, is the required data collected and accessible?

Speak to the senior manufacturing implementation people. Make certain they have real hands-on manufacturing experience, and that the implementation leader has a thorough understanding of your business on a detailed level. Query them about their experience and the challenges they faced, much like a job interview. Software implementation is different from installation.

Successful ERP implementation is as important as software selection. If the implementation team cannot clearly discuss your manufacturing business with experience, choose another partner. Your business depends heavily on the implementation team’s ability to adapt their software to your needs. There is too much at stake for the manufacturer to train new implementation team members at the customer’s expense. Ask for and require manufacturing and software experts. For example:

Implementation people who do not know and understand the difference between manufacturing restraints, constraints, and critical ratios, do not understand production planning and scheduling algorithms.
If your implementation partner cannot explain the difference and calculations between EOQ and Time Periods of Supply, how can they help you determine the best reorder policies to use?

This is the first part of a three-part series from a veteran of ERP implementation, Carl Livesay, on the dos and don’ts of implementing new ERP systems. Part 2 also is live on Smart Industry and look for Part 3 soon.