What is the definition of ERP in today’s world?
June 6, 2016 by Pat Garrehy Rootstock Software
Jun. 6, 2016 – It is expected by software analysts that the global SaaS-based enterprise resource planning (ERP) software market has grown at a compound annual growth rate (CAGR) of better than 14 per cent in the last four years. Small and medium sized enterprises (SMEs) have been increasingly adopting Cloud-based ERP, a key factor being the reduction of their total cost of ownership due to a low initial investment and faster deployment. Cloud-based ERP software helps SMEs manage their business operations in an affordable pay-per-use model without having to invest in traditional on-premise software.
Why now? Ten years ago, times were very good to manufacturers when it came to the variety of ERP solutions open to them. For years, on-premise ERP has provided the functionality manufacturers have required to support their business processes. Many manufacturers are using ERP systems that are 10, 20 and, in a few cases, 30 years old.
Much has changed, however, in the last 10 years and these very ERP systems which worked so well in the past are creating problems in the present. Manufacturers are finding that their markets have changed, caused by both business and consumer-altered demands. Today, the business must adapt to a significantly changed business environment than that which they served a decade ago.
Not only have they had to adapt to a global environment but collaboration through the supply chain, performed with a variety of mobile devices, is now the norm. While they limped along with their legacy ERP software through the global business changes, they are now choking because their legacy on-premise solutions have not been – and cannot be – changed to meet this rapidly changing social and collaborative environment.
What does “ERP” mean?
First, there was MRP, followed by MRP II and, then, CIM. Ultimately, as director of CIM at Gartner Group in 1990, Lee Wylie created the concept of ERP to describe the evolution of MRP into next generation business systems. ERP software was intended to become a larger whole that reflected the evolution of application integration beyond manufacturing. However, it didn’t stay that way.
Today, not all ERP systems are developed from a manufacturing core, especially those residing in the Cloud. Some vendors begin with accounting software while others started their development in maintenance or human resources. The problem for the manufacturer is that many imply that they will work in manufacturing or any other sector. They won’t.
In the rush to get to the Cloud, these manufacturing-light ERPs are either severely limited in functionality or they are only replications of a predecessor legacy ERP package supporting one business type. They do not acknowledge that manufacturers of today require a greater variety of manufacturing methods and services, including distribution, to be supported. Also, for those that offer the ‘hosted’ model, they will rapidly be perceived by a now more informed buyer as Cloud mutants who have learned the collaboration required amongst a variety of Cloud software packages just can’t be achieved in their private ‘hosted’ Cloud.
For example, take a company that produces RFID readers. In its manufacturing process, it orders printed circuit boards from one vendor, LEDs from another vendor and plastic housing or steel housing from yet another vendor(s), among other parts. The various RFID readers – some potted; some not, different colours, various read ranges – are then boxed, the boxes put into skids with shipping instructions applied and sent to the customer. This process is classic discrete manufacturing.
However, this company doesn’t make long range read solutions because that’s an entirely different technology and the numbers don’t result in a profit by setting up manufacturing for these units. Yet, the company needs such units to fill out its line so prospects can buy all ID readers from one manufacturer, no matter the read range. So, the company buys them from an OEM manufacturer who puts its label on it in a box with its logo and information on it. Like the units it does manufacture, the company puts the boxes into skids and applies shipping label instructions. This is classic distribution.
Having both modes is standard in a great plurality — even majority — of manufacturing firms.
In the manufacturing Cloud ERP
To be useful, a manufacturing Cloud ERP needs to go beyond the ability to just be used by a general discrete manufacturer. That still classifies the ERP as manufacturing-light. First of all, a manufacturing Cloud ERP needs to be able to handle specific industries within the classification of discrete manufacturing.
For example, a Cloud ERP for aerospace and defence needs to enable the engineering, sales, operations, procurement, materials, planning and production departments to efficiently manage all aspects of the supply chain. Salesforce chatter feeds and the “on event” generation of emails must provide the needed automatic communication amongst the various departments and customers and suppliers. The concept of Community should provide “state-of-the-art” collaboration amongst customers and suppliers within a plant’s supply chain.
High tech and electronics companies need engineering change control capabilities that enable easier integration with industry standard PLM systems. Collaboration is key, and ERP and product lifecycle management (PLM) systems that both operate on the Cloud will be more apt to keep that collaboration effective and modern. Both ERP and PLM require collaboration by the supplier. Making it easier for the supplier to function within the Cloud — even if it is different clouds — will streamline that communication.
And, so it goes for industrial equipment and machinery manufacturers, job shops and machine shops, engineer-to-order, project manufacturer companies and their need for Cloud MRP and Cloud production scheduling.
In addition, many manufacturers also need a distribution Cloud ERP
Sometimes, the need for an ERP to handle the distribution portion of the business is minor; sometimes, acute. Aerospace and defence companies don’t typically make the special tools sent out to maintenance hangars and surely not their logo-printed shirts, hats, jackets and other promotional materials as well as models and miniatures of their products. We just covered how an electronics company merges distribution into its mix. Similarly, other types of manufacturing classifications follow suit.
So, what’s needed? Similar to that needed by a wholesale distributor, the distribution Cloud ERP must efficiently manage all aspects of the supply chain from first customer contact through final shipping and returns. Fully integrated with the salesforce CRM solution, the Cloud ERP provides a comprehensive set of capabilities that include purchasing, warehousing, sales, shipping and customer service. Inventory should be identifiable by location ID, location number and, optionally, by lot and serial number.
Would all manufacturers need all of these distribution attributes? Absolutely not. However, many of them need some of these attributes but differing ones from firm to firm. Instead of having to customize, distribution Cloud ERP modules should be available to work in conjunction with the manufacturing Cloud ERP.
Comprehensive manufacturing Cloud ERP is available for all manufacturers
Today, many manufacturers have a need to manage multiple methods of manufacturing. These are the manufacturers now moving to the Cloud because they have been living with constraints within their on-premise ERP system for years, but now, they can migrate to a manufacturing Cloud ERP system that is functionally robust enough to qualify in their mind for replacing that out-dated, inflexible ERP. They can obtain a manufacturing/distribution Cloud ERP that provides the integrity, robust performance and flexibilities that are needed in today’s global economy.
Pat Garrehy is the founder, president, and CEO for Rootstock Software and has an extensive background as a software architect and engineer. With over 30 years of management, sales and technical experience, Garrehy brings a unique blend of analytical focus and business savvy to the table.