Opinion: Benefits of ERP for manufacturers and distributors
There are several challenges that are keeping manufacturers and distributors awake at night. The most dangerous of these is the uncontrollable forces driving fundamental changes in the industry and include the global pandemic, international trade wars, the rise of globalisation, changing regulations and emerging technologies, to name but a few.
While the industry figures out how to navigate these external shifts, there is still the need to resolve a few fundamental internal pain points that have been around for the last decade. The most critical of these being that many businesses are still reliant on manual or paper-based systems and on top of that, management systems are ageing and disparate.
Understanding the objectives of your ERP implementation
To address these challenges, IDC predicts that global spending on digital transformation technologies and services is forecast to grow 10.4% to $1.3 trillion in the next year. While the stats show an increased uptake in technologies such as Enterprise Resource Planning (ERP), for many businesses, there has been a hesitation around the adoption of ERP.
Concerns centre around costs and time considerations, while many still believe their legacy systems are doing enough to keep the lights on. ERP implementations are also a complex task for most businesses. According to a report by Technology Evaluation Centres, “Buying and implementing an ERP system is one of the most complex projects a business will take on, no matter the size of the company. In fact, nearly 50% of ERP implementations fail the first time around.”
While those figures are distressingly high, the key to a successful ERP implementation is to understand the key objectives of your ERP implementation, and how the ERP solution will address the pain points in your organisation, and how it will improve your customers’ experience. The organisation needs to be crystal clear on the expected outcome and why.
To realise those objectives, it is vital to understand what ERP is, what it is not, and its key benefits.
What is ERP?
In summary, ERP systems standardise, automate and integrate the core business processes. The standardisation of business processes allows the organisation to consistently do things the same way and easily understand if a problem occurs. The automation of business processes reduces human effort and consequently error, while improving operational efficiency and productivity. By integrating disparate business processes, ERP simplifies data and information transfer across the organisation, ensuring coherent information in all systems while also avoiding duplication of effort. Disparate systems encourage discontinuity between processes and result in people working at cross purposes in different parts of the organisation. Simply put, the ERP becomes the heart of a business.
ERP offers a single source of truth
As a single source of truth for companies, ERP allows businesses to operate with real-time data. Leadership can therefore take decisions consensually as they share the same data and insights. The business can also automate tasks, while eliminating the tracking of operations via spreadsheets, which in turn can drastically reduce manual errors, duplication of work and free up employees’ time so that they can focus on more important tasks.
The ERP platform also is able to connect to Internet of Things (IoT) devices to collect live data to assist in closely monitoring critical processes and quality. Having a shared the single source of information ultimately provides the business with a complete and detailed view of their sales forecasts, incoming raw materials to meet those forecasts, manufacturing operations and progress of orders through the factory, distribution of orders to customers, cash position and account status for suppliers and customers. In other words, all the key information required to make the business a success
ERP allows for comprehensive compliance and traceability
Globally, manufacturers and distributors need to comply with several regulations to ensure a safe working environment, product traceability and adherence to regulatory reporting. The ERP system can produce the reports that are required to comply with the regulated reporting.
From defence contracting through to food and beverage production, granular traceability of product details such as supplier and material sources, material changes and customer deliveries of specific batches, as well as the ability to audit all material transactions are expected. The requirements to successfully track and sort all this data will require the cross-organisation data collection of an ERP system.
From a traceability perspective, a product recall system allows manufacturers to perform a full product recall quickly and efficiently by having instant access to all the critical information needed to track a suspect product, throughout the value chain. It supplies the necessary information to identify, isolate and action the activities that need to occur within the predetermined recall time limit.
ERP offers accurate forecasts
With businesses increasingly shifting routes to market to remain competitive, having accurate and real-time visibility into inventory levels are vital to improve profitability as well as manage cashflow. The ERP system supports this and allows businesses to analyse forecasted demand, accurately predict production targets and meet demand levels. A strong point of any ERP is that it helps manufacturers and distributors by automating the processes of balancing material supply, and product and service demand. This allows them to optimise the ordering processes, take advantage of economic order quantities, batching and economies of scale.
By getting all these fundamental elements in place right at the start of the journey, a business can reap the benefits of an ERP and achieve the desired ROI for the investment.