Fast ERP ROI For Manufacturers And Distributors
Posted Friday, January 13, 2012 by Peter Kelly
I recently read an article from Search Manufacturing ERP on how manufacturers can get quick ROI in today’s market. I’ve worked with quite a few manufacturing companies in my day. Although ERP, in general, is not a fast ROI project, I believe there are certainly some things that a manufacturer can do to get Quick ROI.
First of all, the manufacturing paradigm in North America has changed. With a few exceptions, Manufacturers are no longer doing heavy manufacturing. Most of the manufacturing work is now done with subcontract vendors in China, SE Asia etc. So the manufacturing challenge is less about managing the shop floor but more about managing the supply chain and optimizing inventory either in the warehouse, with the vendor, on the water. This is, in fact, really important because the new paradigm means that lead times have shifted and become longer with a 60- 90 day lead time to get product being not uncommon. That
requires better forecasting, demand planning, purchase planning and better tracking of critical inventory items.
Not surprisingly, manufacturers have not yet made that paradigm shift completely. When I do a site visit at a manufacturing company I find the focus still very much on production planning and shop floor control even though now the manufacturer is just doing warehousing and light manufacturing at best. There is very little focus on the planning, forecasting, warehouse management and supply chain management aspects which burden the cost significantly. As an example of a cost burden, I surveyed a manufacturer that builds heavy engineering products often finding themselves with gating parts – i.e. parts that are not available and hold up the completion of the item. The net effect was about 6 weeks added to the production cycle.
The reality for manufacturers is that the management now has to be on the supply chain and inventory optimization and not just production planning and shop floor control. So how can you do this? Microsoft Dynamics GP has the ability to automatically spit out planned purchase orders by looking at a variety of things. For a human being, to take into account all of these parameters and provide a planned purchase forecast manually is just impossible – even if you just have under 200 Finished good SKUs. You need a fairly sophisticated automated process to do this right. And why shouldn’t you – you will cut labor costs, you will reduce your inventory stocks outs as well as lower your cost of carrying inventory. And you should leverage the ERP to do that.
How do you do a forecast? For that you can use a demand forecasting system if you have a complex web of customers with changing patterns or you can get quite basic and track it in excel as a starting point and improve from there on. Dynamics ERP provides you the ability to load forecasts by customers, customer group or at a total level.
MRP Consulting is available, at ZERO cost to you, for a 1-day onsite visit in which we will map out your current processes and measure them again your current systems. Sometimes a “tune-up” is all that is needed to keep your business running as it should. We can all agree that having the right software will not only improve internal processes and productivity, but will also improve customer relationships.
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