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Four Mistakes Manufacturers Make When Choosing an ERP System

Four Mistakes Manufacturers Make When Choosing an ERP System

Manufacturing & Distribution

The right accounting and financial management software system can breathe magic into an organization's efficiency and processes.

We implement new accounting and financial management systems, also known as ERP systems, for manufacturers and other types of businesses all the time. Here are four common missteps we often see, and tips for avoiding them.

1. The Wrong Project Team Is Selecting the ERP System

The most common mistake organizations make in their ERP system selection is not having the right team in place to evaluate, make decisions, set realistic expectations, and achieve milestones during the implementation process.

You must manage the human side of the ERP (enterprise resource planning) implementation – a huge undertaking. Employees must step up and take ownership of the implementation. You must hold accountable everyone involved in the process. If objectives are not met, your cost is sunk and ROI shot.

Your project team should include an active company owner or primary decision maker, a key employee or employees from each department, and qualified outside consultants. Do not solely rely on the ERP vendor (also known as the software partner or software reseller). Your internal project team is ultimately the key to your success.

Also, document all ERP system procedures. When you have to train new employees, you’ll be glad you have this documentation. Having all employees follow the same procedures will help ensure that your ERP system does not degrade in value over time.

2. You Have No Financial Plan In Place

Another common mistake is when a manufacturer doesn’t create a formal, realistic financial plan. Your budget ought to determine which ERP systems your team evaluates in depth.

If you don’t want to share your budget with software partners, then immediately ask them for the full suggested list price broken down by module. You need to know what you can spend and how you will recover the outlay. Assess how much you can save over time with better production planning, shop floor control, better supply chain management and inventory optimization. Review different financing options.

The vendor will give you a proposal that details the total cost of their recommended ERP software, training and implementation. You will also be presented with the annual software maintenance and ongoing support costs. However – and it’s a big however – the ERP vendor can’t guarantee what effort your team will put forth to maximize the benefits of your new ERP system.

One critical warning: be sure to look beyond price when selecting an ERP system.

It is difficult if not impossible for your software partner to provide total cost of ownership (TCO) and return on investment (ROI) for your ERP system. YOUR TEAM controls the change in your operating costs and the benefits your business will realize. 

3. Assumptions Are Made Along the Way

Some manufacturers end up purchasing the wrong ERP system. Not every manufacturing ERP system works the same, and therefore one size does not fit all.

The worst thing you can do is make assumptions as you search for a new ERP system.

Consider these assumptions.

  • If you recently started working at a different manufacturing company, you certainly bring along past manufacturing experience. If you’re on your new company’s ERP system project team, don’t assume that the system you used at your old company is the right fit for the new company. Sure, it’s familiar to you, but it’s all you know.

    Apply what you know about manufacturing processes and be open to new information. Challenge yourself to find a better system. More than once I’ve seen a new key employee or management team assume their prior ERP system and methods were best. They sell the idea to their project team. Unfortunately in these cases, I have watched the existing system get eliminated, and a new ERP system – which does not quite fit the company’s needs – get implemented.

  • Assumptions are often made when communicating with software vendors. For whatever reason, maybe you held back information from the software vendor. Or, you simply did not know what to ask. In these cases, the software vendor does not have all the information they need to make the right recommendation for your manufacturing company. Perhaps you assumed with all of a software package’s great functionality, it will all work. I caution you to be very thorough and confirm what you think should be the “givens” of the ERP system you’re considering.

  • Even when many hours have been invested in examining several manufacturing ERP systems, businesses sometimes go with the wrong software. Why? You mix up the systems you evaluated. Often hearing about and seeing a lot of flexible and scalable functionality, it becomes difficult to keep track of the features and benefits of each system. Your team loved what various vendors presented and failed to keep a precise scorecard of facts. Assumptions came into play. When trying to make a final decision for which ERP system your company will purchase, you hear a project team member say, “I think that feature was in this system and not the other one we reviewed.” Or, “I’m pretty sure it was the second system that we looked at that offers built-in multi-bin inventory tracking.”

I have been brought in after the fact to help make the best of a bad purchase. We can often offer custom “bandaid solutions” that meet your needs. But it’s a shame that those band aid solutions that you have to pay extra money for were in fact native to another system you evaluated.

4. You Attempt to Do Too Much at Once

If you want to implement your first true manufacturing ERP system, you can use a phased approach since you are already using a basic accounting system and tracking operations manually.

Do not try and implement all modules at once. Setup all base accounting modules first and then put into operation the manufacturing-specific modules.

Unfortunately, you cannot use a phased approach if you are moving off an old unsupported system that had all of its manufacturing features operational. This will be a huge undertaking because you won’t have the freedom of phasing in operations. Even though daunting, challenge your current processes and incorporate enhancements for the final go-live. You can phase in integrations to your CRM system or other systems outside of the primary ERP system. 

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Published on November 04, 2013