ERP for Small Manufacturers: Preserving Strategic Advantage

One of the biggest risks a small manufacturer needs to mitigate when planning an ERP implementation is preserving strategic advantage. The reason this is such a risk is that many ERP systems you evaluate may not – in fact probably will not – be strongest in the area where you have strategic advantage. If you do not understand, articulate, and insist on preserving your strategic advantage, an ERP vendor will likely attempt – with good intentions – to get you to change your business behavior to conform with the way their ERP system operates.

Let’s discuss strategic advantage briefly. Your strategy is the way you plan to win in the market. If it is your intent to grow, then your strategic advantage should remain an advantage whether you are twice the size you are today, or ten times the size you are today. For instance, if your strategic advantage is the ability to produce engineered parts at half of the tolerances standard in the rest of the industry, then that would be an advantage no matter what size your company. On the other hand, if your strategic advantage is that you are a small manufacturer, or that you have a large amount of excess capacity, then your strategic advantage can only be maintained by remaining small, or investing in additional idle capacity as you grow. So it is important when planning your ERP implementation to both (a) know what your strategic advantage is and (b) know that it is sustainable as you grow.

Improving Strategic Advantage

With that knowledge, you must find the ERP features that best facilitate – or even better, enhance - those strategic advantages. If your strategic advantage is that you are able buy raw materials of better quality and lower cost than everyone else, then the first thing you want to ask about is an ERP’s purchasing functionality. If your strategic advantage is the ability to ship product on the same day that you take an order, then your planning and ERP distribution system needs to be world class.

The reason ERP vendors tend to feel that their solution is right for you – regardless of your strategic advantage – is that they encounter so few small manufacturers who have a deep understanding of how they make money. This problem is compounded when people from the business insist on the wrong thing being the thing that makes money. For instance, it is common for a sales or marketing professional to tell an ERP vendor that they make money because they are always the lowest price vendor. However, as a strategy, this is somewhere between dangerous and incomplete; to be the lowest price vendor, and make money, you must also be a low cost vendor. In the first interpretation you need a robust pricing and order entry functionality, and in the second, you need robust manufacturing variance and product cost controls. In reality, you likely need a strong mixture of both.

Strategic advantage should be preserved when implementing ERP.