What Is an ERP System in Manufacturing?

The Enterprise Resource Planning system, or ERP for short, is a valuable asset for any organization, especially in manufacturing. With its ability to bring clarity, transparency, and automation to workflows, it brings many tangible benefits and helps companies cut down costs while increasing productivity. 

Below, we answer the “what is ERP in manufacturing” question and discuss the ways this solution transforms manufacturing businesses despite their size and complexity.

What Is an ERP System in Manufacturing?

What is ERP in manufacturing?

First, let’s define the ERP in general. The Enterprise Resource Planning system is a centralized platform that includes a variety of operations related to resource planning and management. It is a specialized business software with several modules, where each module is assigned to a specific task (i.e., finance management or human resources). 

Now, what is an ERP system in manufacturing? The concept remains the same, but functionality differs. Manufacturing ERPs cover all needs of a manufacturing organization and are designed specifically for this purpose. For example, ERP manufacturing software may have such features as production planning and management or procurement management – all this in addition to the modules present in generic ERP systems.

Manufacturing ERPs vs generic ERPs

To better understand the manufacturing ERP meaning and how exactly it differs from a generic one, let’s take a brief look at the table below:

Manufacturing ERPGeneric ERP
PurposeTo meet specific business needs of manufacturing organizationsTo augment business processes of an organization via automation and centralization
CustomizationLimited and costlyPossible but also costly
CostHighMedium
FunctionalityFunctionality of a generic ERP + specific features related to the manufacturing industryRich, covers various aspects of business operations, including sales, marketing, HRM
ImplementationRequires assistance from a software vendorCan be handled by the in-house team

Key characteristics of a manufacturing ERP

We’ve mentioned that ERP for manufacturing industry has a different set of features than a generic one – however, both types of systems share a set of the same characteristics that are important to mention:

  • Centralized information: ERPs serve as a single repository for the data and collect it from all the departments, making the data accessible and visible.
  • Interconnection: the data and processes within your organization are processed by the ERP system, thus connecting all departments and immediately reflecting any change in the whole system.
  • Automation: ERP automates a bunch of mundane tasks that require too much time and/or resources, thus speeding up the production and optimizing the processes.
  • Real-time data collection: ERPs collect the data in real time and immediately reflect it, thus allowing manufacturers to quickly react to changes and make better decisions.

The benefits of ERP for manufacturing

There are several big challenges that manufacturing organizations face on a daily basis: complexity of supply chains, lack of transparency, production bottlenecks, and many others. Here is how manufacturing ERP resolves them:

Effective supply chain management

With ERP systems for manufacturing in place, all supply chain processes, starting from procurement, are streamlined, automated, and optimized. Since ERP provides a transparent overview of all operations and allows handling multiple processes from a single place, it becomes much easier for manufacturers to plan, control, and manage the production process, delivery, and distribution. And with real-time data collection and analysis, decision-making becomes more accurate and effective.

Optimization of the production process

Production bottlenecks are a common case in manufacturing, and specialized ERPs aim to resolve this issue. With such features as task scheduling and production planning, an ERP system for manufacturing industry greatly aids in optimizing the production process, preventing potential issues, and maximizing the output. Also, don’t forget that the complexity of modern manufacturing processes requires a powerful and advanced tech solution instead of outdated tools.

Better quality control

Quality control is crucial, but can be quite complex, especially for those businesses that work in multiple geographical regions. An effective ERP solution helps businesses establish uniform quality control procedures and automate checks and audits to ensure consistency and high quality in every location.

Increased transparency

Due to the complexity of modern manufacturing processes and the operation of companies in multiple countries, it becomes increasingly difficult to maintain a holistic and transparent view over all the processes. With ERP though, manufacturers can greatly increase the transparency and clarity of their operations since all processes and all the data are reflected in a single system. 

Regulatory compliance

There is a great variety of rules and regulations for a manufacturing business to follow and sometimes, it can be hard to keep the track of them and of occurring updates. A manufacturing ERP system normally offers a plethora of tools for monitoring and managing compliance with needed regulations and helps identify areas for improvement.

Main modules of a manufacturing ERP system

Now let’s talk about the main components or modules of a specialized manufacturing ERP solution. These modules cover the core departments of a manufacturing organization and handle all related processes.

Supply chain management

Supply chain management involves numerous processes and this complexity can be difficult to manage. Hence, one of the ERP modules is supply chain management, aimed at optimizing the operations and adding transparency to them. Some of the benefits of using an ERP system to handle your supply chain involve:

  • Alignment of processes with business goals
  • Better management and allocation of resources and finances
  • Increased operational efficiency due to optimization of logistics
  • Improved workforce management
  • Improved supplier relationship management
  • Forecasting of demand and supply

This module is highly important as it allows managing both your suppliers and internal operations and makes all processes highly visible and accessible.

Financial management

Incorrect allocation of resources, improper organization of workflows and other factors can potentially lead to massive financial losses. Hence, the financial management module of an ERP helps companies manage their finances more accurately and efficiently.

By being able to immediately access information about spendings and accurately track them, organizations can better allocate their budget by applying resources precisely to where they are needed. In this way, a lot of unnecessary spendings is cut off and budget planning becomes data-based.

Inventory management

Another module of a manufacturing ERP is inventory management. The biggest issues related to the inventory are usually overstock and stockout as well as mundane and complex manual processes (like item tracking). ERP helps manufacturers automate replenishment and goods tracking and allows forecasting the demand and planning the production correspondingly.

Human resource management

HRM is an integral part of any organization, and manufacturing is no exception. As for the manufacturing ERP, this module helps with such tasks as:

  • Payroll management
  • Management of vacations, sick leaves, etc.
  • Tracking of employees’ certificates, training programs, etc.
  • Recruitment process
  • Monitoring of an employee’s life cycle
  • Attendance management

As you can see, ERP helps HR managers instantly access information about any employee, automates payroll calculations, and notifies about any important events, like the need for a certification.

Data analytics & reporting

Data is the cornerstone of all business decisions and processes within an organization, so naturally, manufacturing ERP systems provide a specialized module for data processing. This module is responsible for analyzing and visualizing the collected data (including the real-time information) and using it to create forecasts, propose business strategies, and point at areas that require attention. Also, with the help of this module, employees can easily generate and customize needed reports and share them across the departments.

Customer relationship management

One more important module to mention is CRM aka customer relationship management. It helps manufacturers keep track of their clients and their needs, contact the clients via a preferred method of communication, and automate such processes as notifications and reminders. As well, an HRM module stores all client-related information, which is highly convenient when you want to customize an offer or see purchase history.

Main challenges of implementing manufacturing ERP

While an ERP system is a great solution that adds efficiency and automation, you can’t just implement it out of the blue. There are certain challenges and limitations that organizations need to consider in advance in order to effectively introduce ERP into their processes.

High costs

One of the biggest limitations of ERP implementation is a relatively high cost. We’ve mentioned earlier that ERP helps cut down costs and that’s true – but for that to happen, you need to wait a bit and let the processes rearrange and transform. But the cost of buying and customizing an ERP solution can be quite high, and not all companies are ready for that. Also, don’t forget about such costs as employee training or consulting. 

On the brighter note – before committing to ERP, you can always calculate potential ROI and check whether the implementation of the system is actually worth it. 

Lack of resources

Another important issue is lack of needed resources. It might include infrastructure, personnel, hardware, etc. To know precisely what kind of resources you’ll need for successful ERP implementation, you need to conduct an audit of your assets. This will help you prepare a checklist of things “to do” before beginning the implementation process.

Integrations

In order for an ERP solution to deliver all expected benefits and to work as a single data repository, it should work in conjunction with other systems. Hence, you need to ensure a smooth and secure integration of ERP with your existing solutions. Your core area of focus will be data integrity during the data transfer, so you might want to consult third-party vendors on how to do it the best way.

Employee training

An ERP system is a complex solution so naturally, its users should know all it features and the most effective ways of working with it. Thus, you will have to provide sufficient employee training, so all users of the system operate it in the intended and secure manner.

Security

Speaking of security, it is a highly important issue that calls for establishment of in-house security practices and protocols. The addition of ERP to your digital environment results in additional areas of potential cyberattacks and increases the possibility of a threat. Thus, you have to ensure that your organization supports security best practices and that ERP implementation aligns with them.

Selecting the right ERP solution: tips and best practices

There is a great variety of available ERP solutions for manufacturing out there, so selecting the most suitable one can be quite challenging. Below, we list several tips and recommendations that might help you make a decision and augment your business with a powerful ERP system.

Clearly outline your requirements and objectives

Though most manufacturing ERP systems share the same set of features, they still differ in their purpose and value. Thus, to find a solution that will 100% fit your business needs, you first have to define these needs and list how exactly ERP will benefit your business. It is also important to outline KPIs for future monitoring so you understand whether ERP performs as expected or whether anything needs to be optimized.

Conduct a vendor research

For effective ERP implementation, you’ll need assistance from a reliable vendor and for that, you will first have to conduct research. You’d want to look at the vendor’s portfolio and experience, reviews and testimonials from past clients, and the overall area of operation. The more experienced a vendor is in manufacturing, the better they understand the specific requirements of the industry. In this way, you will receive a solution that will address your existing needs and will help you close all technical gaps.

Prepare for ERP implementation

As discussed above, the implementation of an ERP solution requires thorough audit of your available assets and estimation of whether your organization is ready for it in terms of finances and resources. Some of the questions that you might ask at this stage are:

  • Is the selected ERP scalable enough and will my business be able to scale correspondingly?
  • How exactly will I integrate the ERP solution with my existing system?
  • Is the data collection and storage process secure? Do I need to switch the database?
  • Do I have all needed hardware and software?

These are just a few examples of things to think about when planning ERP implementation. We recommend consulting your vendor to discuss the process step by step and define areas for optimization.

Estimate the total cost of ownership (TCO)

The total cost of ownership means the price of a purchased asset + extra associated expenses (like employee training). The TCO should be evaluated in advance so you can plan your budget and KPIs correspondingly.

Examples of expenses involved in ERP implementation are:

  •  Software licensing
  • Infrastructure setup and configuration
  • Consulting services
  • Employee training
  • Data migration
  • Support and maintenance

For a more detailed breakdown of costs, please contact your vendor. 

Conduct regular reviews of the system

After the ERP solution is implemented, it doesn’t mean the work stops here. You will have to regularly conduct audits and checks to ensure that all security measures are in place, that the processes are configured correctly, and that the data remains integral. Also, in the future you might want to add or remove certain features and that’s also part of the support and maintenance process.

Summing up

A specialized manufacturing ERP system is a highly valuable solution for any manufacturing business. As the world drives towards digitization, industries rapidly adopt advanced technologies. Considering the complexity and scale of the manufacturing industry, companies within this domain should also start reconsidering their legacy processes and tapping into a near-endless world of possibilities that high-tech solutions offer. Which, after answering the “what is ERP in manufacturing” question, should be a bit easier now.

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