Written by
Michael Connors

What do erp systems do to save manufacturers money?

Genius ERP: ready out-of-the-box for custom manufacturing.

You hire, buy equipment and expand operations with one single goal in mind: generating a return. You also chose to implement an ERP system with the same end result: to increase profits. However, instead of expanding your operations to achieve growth, an ERP can help you cut costs and do more with your shop’s current set-up.

In a nutshell, ERPs save manufacturers money. But in what ways exactly? Here are five common places savings can be found:

Inventory costs

Inventory carrying costs are a major pain point for many manufacturers, causing you to have a lot of capital tied up in inventory, instead of being available to help fund and grow your operations in other ways. The solution: get as lean on inventory as possible for your type of manufacturing. By trimming down, companies free up capital and reduce the likelihood of parts and components getting damaged while sitting around your shop, or seeing certain pieces go obsolete or unused on shelves.

An ERP software can accurately forecast inventory requirements, and modern custom manufacturing-specific ERPs can determine what's needed as early as the estimation phase. With real-time insight for WIP and upcoming projects, inventory purchasing can more easily transition from over-purchasing, to purchasing according to the specific lead- and delivery- times of the materials you need, with the option to batch these purchases.

Another benefit is the ability to accurately report on wastage and returns, as well as providing a reliable valuation of the stock position at any given time. Knowing real-time stock levels makes it easier to replenish inventory as an ERP can either automatically reorder materials for you, or send your purchasing manager a timely reminder letting her know that items need to be repurchased. Without an ERP telling you that it’s time to replenish inventory,  you can face enormous shipping costs to expedite freight when they are desperately in need of stock.

Operational costs

There are many ways that ERPs save money for manufacturers on operational costs. For one, because ERPs are comprehensive systems, they eliminate the need for separate software in each department. This saves money in terms of data re-entry (which can be costly), error reduction and the recurring costs of licenses, updates and training on software.

Another example of where ERPs generate savings is in the engineering or design phases of a project. Considering the labor cost of qualified workers needed to execute these essential steps in engineer-to-order environments, any measure to keep these personnel on high-level tasks (like actual design) translates into substantial savings. For example, Genius ERP has functions like CAD2BOM, which handles the data entry in BOM creation. Up to 20 percent of the total engineering time in your shop is taken up by transferring BOMs out of your CAD system, so having these two systems fully integrated will save you a lot of time and money.

Furthermore, with all data in one place, there is greater fluidity in production and response to client demands. These minutes add up to hours, which add up to days and weeks at the end of the year. For instance, just being able to give a customer the information they need on an order immediately instead of having to say ‘let me get back to you’ and then inquiring on things with another manager in another department save time and money at each turn.

Real-time data

It’s not just about what you know, but when you know it. Having real-time data means being able to shift course midstream to avoid what would otherwise be costly errors in production. Instead of dealing with mistakes after they have been made, mistakes can be dealt with pre-emptively by using the real-time data that an ERP provides. Furthermore, project tracking systematically helps to define the costs of each step of production, and helps manufacturers optimize operations and address underperformance.

And the other benefit of real-time data is a reduction in slowdowns during the routing and execution of projects. A lot of time is lost in back-and-forth conversations and information sharing during production, when instead an ERP solution can act as a live dashboard that anyone on the shop-floor can consult.

Tax-friendly functionalities

An ERP solution helps with life’s second-most widely pronounced inevitability: taxes. If your shop does business across multiple states, provinces or countries the tax and compliance implications for your business can be staggering. With financial information consolidated into one central place, ERP systems actively track every dollar your company spends and earns. These records are not only available, but also easily accessible any time into the future, making keeping up with your tax obligations easier.

By simplifying this type of expense and income tracking, manufacturers will more easily avoid costly accounting errors. Some ERPs even have integrations with tax compliance software systems that can help you automate complicated taxation and compliance processes. Stay tuned for more information on Genius ERPs new integration with Avalara — making complicated taxation issues simple.

Manufacturing IQ

Your best employees know manufacturing like a science, but it is hard to find talent that’s able to replace them. With the skilled labor shortage in the manufacturing industry only expected to grow over the next decade, an ERP can both hold institutional knowledge that would otherwise walk out the door when your senior workers start to retire, as well as reduce the level of skill and specialization new staffers need. An ERP system lowers the level of specialization required to execute on complicated manufacturing jobs, and helps to share the knowledge and expertise needed to move production across the entire shop. Over the long run, this can save companies quite a bit on hiring costs while ensuring that even the newest of workers can meaningfully contribute to project execution.

And not only do ERPs save you money, they help you make more money as well!

The above points show how ERP systems save you money. The other side of an ERP software is how it will help you to generate more money over time. With the right system in place, you can more easily define the practical steps you need to take for growth. You'll have the right foundation for scaling your business in place with an ERP system—letting your business take-off and your profits soar.

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