All ERPs are not manufacturing ERPs

Sept. 22, 2014 – All ERP solutions are not created equal. In fact, an ERP solution is not necessarily a manufacturing ERP solution. ERP customers need to understand what they don’t know about an ERP suite is extremely important.

Let’s consider a company that makes clothing apparel. The company takes raw material and turns it into a finished product in a 100,000-square-foot manufacturing facility. It’s a complex process that requires systems that fully comprehend and manage the complexity.

What that company needs to understand is that an ERP solution for a manufacturer is a very different product than the ERP being sold by many software vendors. In recent years, many companies selling a financial-centric package with a few added embellishments like purchase orders and inventory have assumed the mantle of ERP. However, ERP goes much deeper than that for a manufacturing company.

The concept of ERP has its original roots in manufacturing. When ERP was described in 1990, it was depicted as the logical extension of MRP to MRPII to ERP. MRP dated back to the mainframes in the mid 1960s and was first implemented at Black and Decker. Its primary mission was to provide assistance in scheduling all the materials, components and assemblies that were required to fulfill a production schedule. At the core was software to maintain the BOM (Bill of Materials) for each of the products produced by the manufacturer.

MRPII was then portrayed in the early 1980s by Oliver Wight and extended MRP to include the management of human resources and production resources for the manufacturing facility. This let MRPII calculate the product cost by creating a costed bill of material. Financial functionality had been added to the basic MRP manufacturing model.  

Going into the 1990s, there were still silos of systems and data within the enterprise, all running on unique IT architecture. Getting engineering, finance and manufacturing in sync was a challenge. ERP described transforming MRP systems by moving the systems to a common standard enterprise platform by embracing technologies like Unix, Relational DB technology, 4GL languages and TCP/IP Ethernet networking. It stressed an enterprise-wide data model. At the core of MRP, MRPII and, now, ERP systems was an industrial strength model of the manufacturing process.

Recent confusion
Many of the software vendors who recently added the ERP tagline to their product fail to recognize the complex relationships between all the resources required to manufacture a product. Manufacturing companies can use a variety of production strategies to build their products. They may use engineer to build, build to stock, configure to build or build to order. Oftentimes, manufacturing companies will use a hybrid of these strategies.  

Manufacturers may choose to cost their product using standard, average or FIFO manufacturing costing. Daily operations require the management of work orders, engineering change orders, purchase orders, project control, requisitions, inventory location changes, receiving and shipping transactions. These are not just documents to be captured. They are the elements that manage the flow of the production process and become key data for tracking and managing costs. Many manufacturers are faced with regulations that mandate that their final shipped product or components of their product be managed by serial or lot control. This data must be accurately recorded and maintained for the life of the product.

All ERP implementations require some degree of customization. As a customer, you should prefer customizations that look more like tweaking than wholesale functional code development. A quick test for determining if the vendor is selling ERP for manufacturing or simple ERP is to validate that the core product can properly manage the various techniques and complexities mentioned above.

What have we learned?
Let’s recap.

For the ERP vendors: Know what you don’t know. If few employees in your company have actually worked in manufacturing and the application was not developed based on the manufacturing model, be cautious – very cautious – on what you promise the customer your product can do.

For the manufacturer: Define your requirements prior to talking with the vendors. Describe your process in clear, generic terms. It doesn’t need to be fancy. It just needs to be truly descriptive of production requirements.

Each company and industry has its own language. It’s a good idea to create a glossary that translates your phrases and acronyms into easily understood terms for the ERP vendors. If a vendor’s proposal includes a large charge for the customization of code, you should closely examine if that is to create basic manufacturing functionality missing from the product. If so, you may want to continue your search and evaluation of ERP vendors.

T. Lee Wylie is a former CIO of Gartner and the creator of the ERP concept. He has 35 years of leadership experience in manufacturing and IT. He serves as chairman of the ERP Executive Council for Rootstock Software. He welcomes your comments at lee@tlwylie.com.