Small Manufacturers – Do You Really Need ERP?

If you are a small manufacturing business doing a few hundred thousand dollars of revenue each month, the idea of needing an integrated enterprise computer system might seem pretty far down the list of things you should worry about. The irony is that manufacturers that go through a painful and costly transition to an ERP system often do so because they didn’t spend much time thinking about their business processes when they were small.

Ignore for the moment the question of whether or not your business processes support your business growth aspirations, and just think about today’s operations. There are two separate questions you should ask in evaluating your current need for ERP software: (1) should I automate my business processes? (2) Would my automation tasks be more efficient if they were integrated?

The answer to the first question is to examine the number of people needed for activities that do not directly add value to the manufactured product. People who operate production machinery, assemble parts, and package finished product, all increase the value of the finished product. People who are taking orders, planning production, and doing the accounting do not add additional value to the product. If the cost of people in the latter group is growing as a percentage of revenue, then you should consider automation.

Who is Using Data?

If the tasks that you think about automating share a large amount of common data, then integration – ERP – may be in order. Consider the data on your sales order. Assume it is the customer name and address, the material and quantity ordered, the price, and the due date. Planning needs to know the material, quantity and due date, shipping needs to know the address, material, and quantity, accounts receivable needs to know the customer name, material, quantity and price, and so on. If everybody is using the same basic data over and over, you may benefit from integration. Do not immediately assume that ERP is a bigger solution than you need. If you have a small manufacturing enterprise, then it just means that your enterprise planning system needs to be small.

If neither of the above two questions helps clarify your situation, then follow the paperwork trail. The “paperwork trail” means from order entry to invoicing, how many different documents (paper or electronic) must be created, distributed, and or filed, in order to execute and bill a sales order. If your six hundred thousand dollars of revenue comes from producing fifteen thousand parts per week of one material for one customer at ten dollars per part, then your paperwork trail is not extensive. If you are processing fifteen thousand orders per week for multiple materials, multiple customers, at ten dollars per order, then your paperwork trail is massive. The first example would not benefit from an ERP system; the second might.

Many manufacturers are so enthused about manufacturing that they ignore thinking about business processes. A little bit of thought can pay a huge dividend.