Expecting great results from ERP?

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

There are two big assumptions every manufacturer should avoid when looking at ERPs. Getting them out of the way is the first step in heading towards something that starts to look like the right solution.

 

ASSUMPTION ONE: The ERP system was built specifically for your “mode of operations.”

(This is a very important assumption not to make, since ROI is time dependent, and converting a screwdriver into a hammer may delay results…)

What does “mode of operations” mean?

a. Engineering to Order

This means too many things to mean anything at all. On one end, EtO could be custom projects (project manufacturing). On the other end it could mean a standard product line with customized elements. It can be used as a generic term for what is assemble-to-order, manufacture-to-order, or configure-to-order, and this in different plant modes, such as, A-Plant, V-Plant, I-Plant, etc...

b. Make to Order

This could mean assemble-to-order, manufacture-to-order, or configure-to-order. Once again, these modes could be done with a variety of shop floor setups.

c. Make to Stock

This could mean min/max based, demand driven production, but then stock level behaviour (warehouse management) will trigger assemble-to-order, manufacture-to-order, or configure-to-order production.

 

In short, categorizing your manufacturing into one single term and hoping that it will be “close enough” to guide ERP selection can be a problematic approach. If you’re relying on this type of categorization to inform what type of ERP system you need, you may end up with a hammer to fasten screws.

If you bought the wrong tool to accomplish the right goal, with enough persistence, the only difference in reaching it is the amount of time it will take.

 

ASSUMPTION TWO: You clearly understand what the new ERP will help you accomplish.

Spending every day with manufacturers, I often hear things like: “This is going to make us more efficient!” and then I always wonder what is meant by this.

Unfortunately, the speed at which you can handle one aspect of production does not guarantee, in any way, or even proportion, the overall lead time to be reduced equally.

“There is nothing quite so useless, as doing with great efficiency, something that should not be done at all.” – Dr. Drucker, author of The Effective Manager

The above quote unravels a great truth: it’s better to be inefficiently effective than it is to be efficiently ineffective.

When it comes to ERP, the end goal (effectiveness) must be at the core of every decision taken. Don’t be wowed by individual “features” or worse, promises, of greater efficiency unless they add up to something simple and effective.

And the end goal never changes for any business: sales must increase (much) faster than costs (which historically have always gone up.)

I’m fairly young, but have noticed in my lifetime that costs going down has not been a reliable trend, at least not without guaranteeing that consumer dispensable cash goes down with it equally. Maybe there are a few exceptions, such as the housing crash of 2008.

With all this in mind, and the two big assumptions set aside, we can get closer to the solution.

 

 “In order to increase sales faster than costs (aka effectiveness), we will have to ____________.”

The completion of this statement for most manufacturers, is surprisingly not efficiency, but effectiveness! (Reduce lead times.)

But there is still a pitfall here that a lot of companies unconsciously fall into: They will opt to cut costs (especially short term costs, which, by the way, always go up long term) to bring them in line with sales. The fallout can be highly problematic, and severely surprising, due to the following fact:

In both non-profit and for-profit companies, most costs are related to only 2 (critical) things:

1. Employees

To cut costs here, you’d need to let go of staff and/or pay them less, which would reduce your (protective) capacity and their loyalty at the same time. This is counterproductive since in an environment for growth, you need both (protective) capacity AND your employees’ loyalty.

2. Suppliers

If you reduce costs by paying vendors (suppliers) less, you become their “lowest priority,” which means sales go down, since lead-times increase (in any given amount of time less products will be shipped and invoiced).

 

These assumptions combined, could trigger the following message:

Attn: Management and All Valued Team Members

Due to today’s competitive international landscape, we have decided to reduce our engineering and manufacturing lead-times by 30% during the next 6-9 months, without compromising quality and at 95%+ reliability of the initial promised date to our customers.

To accomplish this, we’ve found a technology partner, which will provide us with the ERP system and expertise to help accomplish this formidable task.

Please remember that our goal is not to implement an ERP. Our goal is to reduce total lead-time by 30% at 95%+ reliability, without compromising quality.

If you think you can accomplish your part in this without the help of an ERP, then please inform us so we can instruct the ERP implementation team to focus on other areas that are blocking us from reaching this goal.

The ERP implementation team has been told there is only one mandate to follow: they are instructed to support you in the reduction of lead times by 30%, without compromising quality, at 95%+ reliability of the initial promised date to our customers.”

 

 All you can really “hope” for is that your competitor does not read this memo first! 😊

 

Peter Mol

Peter has extensive experience working with mid- and c-level management teams, helping them to increase their throughput and level of performance. He has consulted with plants in a variety of manufacturing industries, including automotive, fabrication, food, plastics, stamping, aluminum and steel.

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