How Manufacturers Can Enhance Their ERP Systems to Boost Operations

Do you want to use your organization’s version of lean manufacturing and/or continuous improvement approach to be more efficient, productive, and customer-focused? If so, your organization should conduct an annual ERP system review.

Your organization grows and changes, software vendors add new functionality to the ERP software, and external changes impact your business and manufacturing processes. ERP systems and their implementation are large investments in time, resources, and costs. Many organizations do not go back and reevaluate the decisions made and processes and workflows developed post implementation.

In reviewing your ERP manufacturing-related functionality, suggested focus areas include:

Is your inventory accounting, desired processing, and physical flow matching?

Often a first in, first out (FIFO) approach is chosen for processing and inventory valuation, but the actual physical execution may end up with a last in, first out (LIFO) flow due to training and physical constraints leading to waste and inaccurate information. For example, a fruit distribution and juice processor reviewing their standard costing variances found out-of-date products in the warehouse not consumed in FIFO order. The financial impact was more than $1 million in lost sales and inventory write-off.

If you’re using multiple or third-party logistic warehouses, are your transfer count errors, or lost material, or products being handled correctly?

For example, a small manufacturer of retail products was accumulating significant inventory write-offs adversely impacting profitability. Upon investigation, inventory variances from warehouse transfers between third-party logistics providers due to inaccurate transfer counts for shipping and receiving accounted for the losses. In addition, supporting documentation and loss claims were not filed as provided in their contracts. New procedures and filed claims eliminated $1.5 million in losses.

Has your ERP software vendor added new features you want to take advantage of?

For example, NetSuite added the ability to operate without work orders. For manufacturers operating without work orders, the assembly build transaction can be completed directly against the planning work bench menu, allowing you to consume components and create the finished product while streamlining the overall process.

Can you implement outsourced production steps in your manufacturing process and track status, costs, and location?

For example, sending assemblies out for powder coating or painting. A manufacturer was able to account for the cost and track assemblies sent to a power coating provider without additional manual procedures and paperwork. In addition, by incorporating the outsourced inventory into the production flow, they both increased production capacity and storage using better outsourced production information.

Are your inventory levels accurate and excess inventory is not held?

For example, a material supplier was able to reduce inventory levels while maintaining service levels to generate additional available cash to contribute to debt reduction.

Have you moved to a pull production model (customer demand) and are you capturing the required information?

For example, a small manufacturer moving to pull production was able to delay warehouse expansion and use the planned expenditure on CNC equipment upgrades and purchases.

Does your purchasing information effectively support economic order quantities, adequate lead times, higher discounts, and reduced logistic costs?

For example, a manufacturer was able to reduce its purchasing team from five to two employees and combine the remaining two positions with production scheduling.

Other questions to consider include:

• Does your ERP system capture sufficient information to identify waste or inefficiencies in your manufacturing process steps to help reduce costs and improve quality?
• Are you fully using the planning and forecasting functions available in your ERP system?
• Are new employees adequately trained in your ERP system and processes?

An annual evaluation of your ERP system supports your organization’s overall efforts in the areas of: •

• Reduced waste
• Enhanced productivity
• Financial upside
• Improved customer service
• Increased employee involvement and satisfaction
• Quality improvements
• Resource efficiency
• Improved lead times
• Improved inventory management

How CLA can help

These suggestions are a subset of possible opportunities for improvement based on client experiences. It can help your organization boost the return on your ERP investment. As with any continuous improvement initiatives, you should evaluate and work through improvement opportunities over time based on your organization’s priorities and constraints.

CLA can provide an assessment of your ERP system effectiveness through a structured review. We can also help with change management in making the system, procedural, and functional flow changes in areas identified for improvement.