ERP software (Enterprise resource planning) is designed to streamline workflows, improve communication between departments, and help you make better decisions based on real-time data.
Today, in the manufacturing industry, managing production data is essential for success. Fortunately, there are now many software solutions that can help businesses gain control over their operations.
These solutions can help manage and organize production data effectively.
An ERP system can help improve efficiency and quality control while also reducing costs. It does this by automating key processes and supplying a central repository for production data.
Investing in an ERP system is a smart decision for any business looking to improve their bottom line. The benefits are numerous, and they range from increased regulatory compliance all the way down to better cost tracking!
If you're a manufacturing business owner who is looking for a new ERP software solution, you may be wondering which ERP software is the right choice for you.
In this blog post, we'll cover some common questions about what an ERP system can do for your business. We'll also provide tips on choosing the right ERP system for you.
Read on to learn more!
If you enjoy this article and would like to talk to Sabre Limited’s president Rob Jolliffe to chat about these concepts, you can book a one-on-one 30-minute call with him at https://calendly.com/robert-jolliffe
History of ERP Software
As the computer age came about in the 1960s, people began to explore how they could use software for business applications.
There were two types of software products developed for businesses in those days. Scheduling software packages like Material Requirements Planning (MRP) was one. The other was accounting software.
Another example of a scheduling type is software used for airline scheduling. That was an early type of software developed to manage computerized airline reservation systems.
Software allowed airlines to connect with their customers and maximize revenue by managing and selling their seat inventory more effectively. Also, ERP software helped airlines to keep track of their schedules, fares, and flight information.
Black and Decker Demonstrates the Power of MRP
MRP is a type of software manufacturing businesses can use to schedule their work. MRP stands for materials requirements planning. This type of software helps people figure out how much material they need to make or buy in order to satisfy their customer orders.
You could think of MRP as your inventory control and scheduling software. One company that was an early adopter of MRP and helped make it famous (causing other companies to try to adopt it) was Black and Decker.
Black and Decker was very successful in putting the software in to help improve their delivery performance, reduce their inventory, and produce more parts, more materials and more products on time for customers than anybody else in the market.
The Rise of MRP II
People realized in the 1980s that there was a lot of wasted time and effort when they had two separate pieces of software for accounting and MRP system. You had to enter the same information into both systems separately.
In your accounting software you are putting in your customer information and creating invoices and putting in your vendor information and creating vendor invoices. Then, in your MRP software you are putting in customer information and entering their orders, which become invoices, and putting in vendor information and entering purchase orders, which become vendor invoices.
Eventually people started combining the two into one software package. That is what we now refer to as ERP. People kept trying to come up with different names for this new combined software package. They called it MRP II at first, but eventually settled on Enterprise Resource Planning because it took all the software that was being used in business at the time and merged it into one product for the enterprise.
The Three Market Tiers of ERP
Enterprise Resource Planning and the ERP software market is segmented by the complexity and size of the businesses that buy it. Prices run the gamut from tens of millions of dollars to buy and implement, to software that might only cost you $100 a month for a subscription.
The three segments are the top tier or the top-market, the mid-market, and the bottom-market.
The top-market is mostly controlled by SAP and Oracle, although there are a few other players. At the lower end of the top-market tier, you will also find Microsoft ERP software, Dynamics 365 Finance and Operations and IFS. There are a few other products in that market, but SAP and Oracle are the dominant players.
The mid-market is occupied a larger number of players. Currently, however, there are few who are active in the cloud. The mid-market is generally considered to be businesses that bring in more than $5 million but less than a $1 billion in sales per year. Once you pass the $1 billion plus per year mark you have moved into the top-market.
The bottom-market ERP software products are typically just very advanced accounting software, and don't have nearly the sophistication of the mid-market. Bottom-market ERP software products are reserved for quite small businesses. Typically, that's Sage and QuickBooks Enterprise and products like Xero.
Note: There are products that add modules to QuickBooks and Sage to turn them into “ERP systems,” but they are not actual ERP systems. Those are MRP systems. Often, they refer themselves as MRP. Be warned, however, adding modules to QuickBooks or Sage will not turn them into ERP systems and you won’t gain the efficiencies of a real ERP system, especially if you're a manufacturing business.
Defining Contemporary ERP Software
In the 2020s, a typical ERP system is going to be composed of many modules and features that are connected to one database.
That's typically the definition of an ERP system. Possibly there are two databases with the same vendor, and they integrate the two of them together, combining functionality.
ERP has all the functionality a business needs: customer relationship management (CRM), financials, MRP and inventory management, accounting, human resources, training, payroll, and vacation tracking. You might also get field service. Having trucks go out to customer locations, providing warranty services or plumbing or air conditioning repair.
An enterprise resource planning system is just going to mix all of those together. One database that is going to be connected so that you don't have to duplicate any information.
ERP systems get more complex as you move up the pyramid. Those at the very bottom (and we use the term ERP a little generously here) have basic inventory management, basic human resources, and pretty good accounting.
At the bottom of the pyramid is where the accounting is the best part of the software because that's the common thing that all businesses need. They might have some basic forms of inventory control and scheduling, but no human resources.
ERP systems in the mid-market have many of the features you would be looking for, but not all of them. You would rarely find an ERP system in the mid-market with every feature the top-market has.
The top-market, including Microsoft Dynamics, SAP and Oracle, has almost every feature that you could possibly imagine in an ERP system integrated into one database.
Competitive Advantages of ERP: Inventory Control
It's very important to understand that if your manufacturing company is making $5 million or more in revenue each year, not having an ERP software system is a serious competitive disadvantage.
That is because in manufacturing when a company has revenue of $5 million per year or more, inventory control and production planning become very complex. A company starts to use spreadsheets to keep on top of things. Once you run into that your efficiencies begin to drop dramatically. Compared to your competitors who have an ERP system you're going to be at a big disadvantage.
Manufacturing Holds Sway in Mid-Sized ERP Market
One trend that Sabre Limited has noted is that the bottom of the mid-market tier tends to be heavily focused on manufacturing. There's a lot of mid-market manufacturing enterprise resource planning systems.
It’s important to choose an ERP solution that's either cloud based or is actively moving to the cloud. Any ERP system today that isn't moving aggressively to the cloud is a lot like a 1980s ERP system running in a green text app. These types of old 1980s apps are to Windows as Windows is now to the cloud in the 2020s.
The cloud is bringing extra capabilities and functionality to ERP systems including complex supply chain management applications like being able to have employees use their mobile phone to take pictures of damaged incoming materials when they're received at the shop floor and report that to purchasing. Purchasing can ask for credit from the delivery vendor, the shipper, or the vendor that shipped it to the company.
This kind of technology is not in the Windows-based apps. The Windows-based companies, they need to work hard to give that kind of capability, whereas cloud-based apps come very easily. You'll find much more of that modern capability in a cloud-based app.
Conclusion: Microsoft ERP Software
ERP system is short for Enterprise Resource Planning. It is software that combines basics inventory management and planning, including often manufacturing, planning and scheduling and accounting into one common software that uses one database.
There are three tiers of enterprise resource planning software. The mid-tier is the one that Sabre Limited is most familiar with and it's by far the largest tier for ERP systems in manufacturing. We are particularly familiar with Dynamics 365 Business Central. The higher you go up the mid-market tier, the more capable the software becomes. It is not a low-end accounting software package like QuickBooks with a third-party add-on of MRP module.
That's not an ERP system. Be very cautious with those kinds of set-ups. Also, avoid any enterprise resource planning software or ERP platform that isn't actively progressing to the cloud. That ERP system is not investing in its future. The cloud is where the future is today for business intelligence.
Sabre Limited is a partner with Microsoft ERP software, which can be integrated with office 365.
We can help you through your ERP implementation. If you need help with a Dynamics 365 Manufacturing systems choice Inventory Management in Dynamics 365 Business Central or any other questions, give us a call at: (519) 585-7524 x.45 or contact our team, we're excited to talk with you soon!