How The Small Get Mighty


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How The Small Get Mighty

  1. 1. IQMS Executive White Paper How The Small Get Mighty ERP is essential but not just any ERP will do 1.866.FOR.ERP2 Twitter: IQMSERP
  2. 2. Small to mid-size manufacturers (SMMs) are a driving force in the world economy. In the U.S. alone SMMs employ more than half of all workers, generate two-thirds of all new private-sector jobs, and produce more than half of the country’s total economic output. SMMs have proven to be inventive, adaptable and receptive to customers’ needs. However, despite the ingenuity and determination many SMMs display, today’s demand-driven, global economy is challenging them to operate with the same, if not more agility than their much larger counterparts. Rapidly changing technology, ever shifting customer demands, low-cost competition abroad and rising energy costs squeeze SMMs more than larger firms. SMMs must operate with fewer resources, and because SMMs are increasingly acting as suppliers to larger original equipment manufacturers, the pressure to reduce costs and streamline operations falls squarely on them. Demand-driven manufacturing demands control and flexibility, a combination that can only be achieved when shop-floor transparency operates efficiently and in tandem with the whole enterprise. To stay competitive, manufacturers must deliver quality to their customers, at the right price, on time and with extraordinary customer service, whether the customer is in town or across the ocean. Large-scale manufacturers know this and have integrated plant management software and Enterprise Resource Planning (ERP) technology to gain a competitive edge. Now more than ever, SMMs need to do the same. Yet even as ERP is becoming a necessity for SMMs, not just any ERP system will do. The market is flush with ERP vendors, from best-of-breed niche players to well-established giants and newly hatched software-as-a-service (SaaS) providers, all offering a variety of systems and services, some of which are geared toward manufacturing and others that simply catch manufacturing in a general net. In fact, most ERP vendors have set their sights on SMMs as a key growth sector, and as a result have begun to market ERP solutions packaged purposely for SMMs. Still, with fewer resources to risk, SMMs are more compelled than larger firms to make a right choice in ERP, right from the start. With a comprehensive ERP system in place, SMMs can simplify and speed up production; operate profitably with less oversight; control costs; reduce inventory; shorten lead times; assimilate customer, White Paper - How The Small Get Mighty 2
  3. 3. supplier and internal communication; and gain strategic insight through access to financial and performance data. The list goes on to support one fact—ERP makes SMMs mighty. But what type of ERP system is best suited to the needs of SMMs? Best Choice ERP: What Do Small to Mid-Sized Manufacturers Really Need? In a recent study, the Aberdeen Group found that companies that automate and streamline workflows across multiple sites, including suppliers, partners and manufacturing sites, produced 66% greater improvement in reducing total time to delivery and achieved a more than 10% gain in global market share. Dynamic supply chains such as this are rarely achieved using, as many SMMs do, disparate spread-sheet based applications and single-point production management systems that do not share critical business data. By its very nature, ERP is supposed to ease complexity and provide timely access to business information for better collaboration up and down the supply chain. Best-choice ERP for SMMs expands this concept to embrace the unique and varied requirements of industry-specific manufacturers. While finding the best fit in ERP is an individual process for every business, several key factors make some ERP choices better for SMMs. These include: manufacturing and industry-specific capabilities; true shop-floor integration; cost-efficient comprehensive functionality that scales to support growth and evolves as technology evolves; a centralized database that makes real-time information accessible to everyone who needs it; and a single- source vendor that delivers a long-term competitive advantage with measurable results. Designed for Manufacturing Best-choice ERP for SMMs does not redefine how things are done in a manufacturing environment; rather it consolidates and automates established processes across the enterprise so that valuable labor resources can be redirected toward company growth. Manufacturers face distinct challenges. ERP systems that are designed specifically for manufacturing – including repetitive, process and discrete – are more in tune to those challenges, and are more readily customized and implemented than systems that require patches or add-ons to become manufacturing ready. As one automotive manufacturer puts it, “ERP built for manufacturing lets us manage a high level of product and service complexities, and manage it well.” White Paper - How The Small Get Mighty 3
  4. 4. As indicated by the quality manager at one ISO 9001:2000 certified manufacturing company: “The single most important benefit our ERP system provides is traceability. The adaptability of our system allows for customized programs and reports to accurately support corrective actions, deviations, return material authorizations and serialized lot number tracking, making the system essential to our capturing and providing accurate data for ISO audits.” True Shop-Floor Integration The real value of any manufacturing operation comes from the shop floor. Best-choice ERP for SMMs seamlessly connects the shop floor to the enterprise, allowing a manufacturer to see, analyze and control its hub of operations in real time for the best competitive advantage. No matter how lean the production process, if the resulting data cannot be seen and acted upon in real time, or worse must be manually fed back into the ERP system, all savings are lost. In fact, according to Forrester Research, shop-floor visibility is imperative when it comes to managing such supply chain issues as outsourcing, customization and shorter product life cycles. On-machine monitoring that feeds real-time information such as shop productivity, machine utilization, scrap and downtime into the ERP system, and alerts personnel in advance of problems gives SMMs the advantage of total visibility and control. It also enables SMMs to make corrections before their cost structure is jeopardized. Other functionality such as embedded preventative maintenance and incorporated quality controls are critical to realizing cost savings and efficient operations in a manufacturing environment. For example, one mid-sized manufacturer operating a comprehensive ERP system with shop-floor integration gained more than 20 percent press time through preventative maintenance, and reduced repair time and month-end close time by 75 percent respectively. Another manufacturing company using the same system more than doubled the complexity of its operations and grew its business more than 60 percent without adding additional labor support. Cost-Efficient, Comprehensive, Extendable The Aberdeen Group maintains that SMMs want less complexity in an ERP system, but still need the same basic functionality as larger companies. That’s no surprise given SMMs need to run White Paper - How The Small Get Mighty 4
  5. 5. lean, if not leaner than bigger manufacturers. To create a more agile manufacturing business, SMMs need deep functionality and broad interoperability within their ERP system. Best-choice ERP for SMMs delivers this in a cost-efficient package that offers the ability to start small but scale up, without the need for third party add-ons. For example, features such as automated EDI may not be needed when the system is initially purchased. However, a fuller range of functionality should be readily available and fully compatible within the system so that subsequent expansion remains cost efficient. Getting ERP right the first time means getting ERP that lasts a long time. Not only is best-choice ERP for SMMs extendable as a company grows, but it also evolves as technology evolves to provide continuous strategic advantage, again without the need for third party software or custom recoding. With less money to invest, SMMs need an ERP system that, as one small manufacturer describes, will be a “mainstay in day-to-day operations well into the future.” Centralized, Real-Time Data Access Up and Down the Supply Chain Even the most accurate and timely data is worthless if its power remains untapped, and that’s exactly what happens when multiple, separate data points are used to collect and maintain critical business data. Multiple points of data entry waste time and money, both in day-to-day operations and in any attempt to build a system interface. Best-choice ERP for SMMs folds the entire supply chain into a central database that draws in information and disseminates it in real-time to those who need it most, whether they’re an executive in the boardroom, a machinist on the shop floor, a supplier scheduling a shipment or customer wanting to confirm a delivery. Forrester Research predicted in 2003 that within ten years “static supply chains will be replaced by adaptive networks” that have the flexibility to handle real-time variation in supply, operation and demand. Best-choice ERP for SMMs already offers this level of flexibility, providing functionality such as visual monitoring and instantaneous two-way communication along the supply chain as events occur. The power of centralized, accessible real-time data transcends the barriers many SMMs have grown accustomed to facing. As one manufacturer states: “With the same reliable data White Paper - How The Small Get Mighty 5
  6. 6. accessible to everyone in the company, the management team and individual employees are equally empowered to push for higher quality standards.” This same company states that the benefits of having real-time data visibility and control ripples outward to suppliers and customers alike: “Now we forecast raw material needs precisely. This has helped us build better supplier relationships and secure better pricing, so we are able to carry those savings on to our customers.” Single-Source for Long-Term Competitive Advantage SMMs constantly face a range of operational and managerial challenges; ERP shouldn’t be one of them. The National Institute of Standards and Technology (NIST) recently noted that irregularities in manufacturing software and incompatibilities among software applications are a chief cause of delays and higher costs in the manufacturing industry. Best-choice ERP for SMMs comes from a single-source vendor that delivers a total system—including sales and distribution, accounting, quality management, production monitoring and reporting, and inventory control—all designed to work in unison and deliver results without the complication of third-party software. Single-source solutions can also provide as much as a 70 percent reduction in training and implementation costs over those that are typically incurred during multiple-source ERP installations. Best-of-breed niche vendors deliver only a piece of the puzzle, while the larger ERP vendors repeatedly acquire best-of-breed point solutions to extend or upgrade their dated software offerings. Service-oriented architecture (SOA) is increasingly being touted as a means to quell the complexities inherent in the best-of-breed systems that are cobbled together using third-party software. But any multiple-source system will require more time and money to implement, update and maintain than an ERP system written, developed and supported expressly by one vendor. Another option that some SMMs may consider for its low initial investment is hosted software as a service (SaaS). However, this option often lacks flexibility and the customization that SMMs need to compete successfully in a demand-driven manufacturing environment. Only a single- source vendor can deliver a comprehensive, manufacturing-driven set of ERP functionality that is guaranteed compatible and cost efficient. White Paper - How The Small Get Mighty 6
  7. 7. Because single-source ERP makes the most sense for manufacturing companies that need deep functionality at a reasonable cost, it’s the best-choice for a small to mid-sized manufactur- ing environment. But cost and functionality are not the only factors driving long-term competitive advantage. To ensure success, SMMs should look for ERP vendors willing build a long-term re- lationship. A best-choice ERP vendor is committed to its customers’ business success, not just through implementation but for the long haul, offering continuous improvement through support services, training programs and user conferences, as well as low or no-cost technology up- grades. Conclusion What an ERP system does for large manufacturing enterprises it should also do for SMMs. That is support growth by providing flexibility and control to meet evolving demands and secure a competitive edge in the global marketplace. While most large manufacturers are already leverag- ing ERP systems to gain a competitive advantage, many SMMs still rely on spread-sheet based systems. As manufacturing technologies continue to advance, and offshore manufacturing prac- tices become more sophisticated, SMMs that have not tapped ERP’s potential may be caught at a disadvantage. Fortunately, many ERP vendors are now packaging systems to meet the specific needs of SMMs. The best of these solutions for SMMs are those built upon single-source technology that delivers both ample manufacturing-focused functionality for current needs and the ability to cost- effectively scale for growth. As many SMMs are realizing, ERP is essential. Although not just any ERP system will do, with the right ERP system in place, SMMs can get mighty and thrive in the face of bigger competition. Trademark and Copyright Acknowledgement Copyright © IQMS 2007. IQMS is a registered trademark of IQMS. All other trademarks acknowledged. White Paper - How The Small Get Mighty 7