An SMB's Guide to Buying Manufacturing ERP Software

Small and midsize manufacturers can boost their profitability and productivity by investing in an enterprise resource planning (ERP) solution designed to meet their organization's business needs.

But before they sign the purchase order manufacturers should communicate with all those departments that will use the software suite — from accounting to shipping, from the warehouse to the front office — to determine which of today's sophisticated ERP solutions will best-suit their individual, and growing, requirements. This initial needs-determination pays dividends by greatly reducing the probability.

Small businesses and their midsize counterparts have a number of top-notch options from vendors such as Epicor, Infor, SYSPRO, Made2Manage, Intuitive, Macola, Microsoft and IQMS. Since an ERP solution touches most aspects of a business, investigating these options in order to find the best match is a sound investment of a small or medium-size manufacturer's time.

Benefits of ERP
Although an ERP investment is a time- and dollar-consuming process, the rewards can be great, experts agree. Since only about half of smaller manufacturers use an ERP solution, adoption will deliver a competitive edge. However, many said they were only "somewhat satisfied" or "not satisfied at all," according to study sponsored by Epicor.

"The primary benefits that manufacturers can expect to see derive primarily from automating what are now manual and error-prone processes, and by connecting distributed individuals and departments to enable greater real-time visibility and collaboration," said Kyle Pickus, marketing programs specialist at Irvine, Calif.-based Epicor. "[Benefits include a] reduction in the cost of operations and waste, better management of customer communications and relationships, clearer visibility into financial and operational processes to improve planning and decision-making."

AcroTech Plastics Group, for one, saw significant results from its adoption of IQMS' Enterprise IQ ERP solution, especially from its Real-Time, Time and Attendance, EDI, Online Scheduling and customer relationship module (CRM) modules, said Bob Bester, director of IT. "We're finding increased efficiencies all the time. Since our orders are more accurate, we've used the end as a starting point to streamline the entire production process even more," he said. "We've saved a lot of money and time with increased accuracy in our inventory management, in terms of actual vs. virtual."

Manufacturers with revenue of less than $50 million have an average of 38 ERP users, according to a study by Aberdeen Research. On average, the software costs $138,806, the August 2006 report found; services cost $98,635. As a result, the total overall cost per user was $7,853, according to the study, which can be found on vendor Infor's site. Those manufacturers that generate revenue of between $50 million and $100 million spent an average of $8,827 per user, based on an average software cost of $363,425 and an average service cost of $339,321, the Boston-based research firm determined.

Pay-back can be relatively fast. All small-company respondents reported that they completed their implementation within two years, and 86 percent within one year, according to Aberdeen Research's "Benchmarking ERP in SMBs" study, released earlier this year and available on Made2Manage Systems' Website. Only 47 percent of manufacturers with more than $1 billion in revenue achieved a system go-live within the first year, the report indicated.

ERP Basics
ERP solutions consist of multiple modules, integrated to improve productivity and accuracy, and reduce overhead. In the past, many SMBs shied away from ERP solutions, purchasing separate packages for departments such as human resources, accounting and inventory control. The cost of ERP solutions was prohibitive in the past, keeping ERP out of SMBs' reach.

However, many software developers now offer enterprise capabilities at a much lower price point, making ERP a viable and attractive option for smaller manufacturers. In addition to lowering the entry price for the software itself today's ERP solutions are easier to integrate and maintain – essential for SMBs' IT departments. And so, in addition to testing out a program's features, manufacturers should consider their ongoing support requirements, upgrade paths and expandability during the decision-making process.

Surge-protector manufacturer Circa Enterprises, for example, began licensing SYSPRO's basic suite of ERP modules in 1996. As the company grew, both organically and through acquisition, it expanded its use of SYSPRO's solution, and now has 20 users on SYSPRO 6.0 SQL, according to the Costa Mesa, Calif.-based ERP software vendor.

Acquiring an ERP solution is more cost-effective than buying programs separately. Programs also work together without requiring extra programming or add-on products, and generally have a similar look-and-feel, no matter which area of a manufacturer they were developed to address, further simplifying training and support.

And because ERP solutions are modules-based, organizations need buy only the capabilities they need. This a la carte pricing keeps initial costs and training overhead down, but allows manufacturers to grow their solutions as needed. On average, the smallest manufacturers – those with revenue of up to $50 million – use 9.79 modules, according to Aberdeen Research. Midsize manufacturers, with revenue up to $100 million, use an average of 10.31 modules, the report found.

Key Considerations
Facing such a major decision, manufacturers should keep some considerations in mind – especially as SMBs typically spend years developing their operations around their ERP systems, said Pickus. Because of this, it is crucial that manufacturers purchase an open, easily expandable ERP solution, one that will be easy to grow with the company and adapt to the manufacturer's changing requirements and IT infrastructure. SMBs also should consider acquiring a service-oriented architecture (SOA), since these are open and flexible enough to integrate well with legacy systems, said Pickus.

Whether it is Web-based or not, a manufacturer should invest in a solution that works with its legacy programs. "We wanted to find an ERP system that could work with our SQL Server, Microsoft programs and legacy systems already in place," said Doug Martin, president of Coretech Holdings, a St. Louis, Mo.-based manufacturer of specialized instrumentation products, which bought the Macola ERP manufacturing solution by Exact Software, Andover, Mass.

SOA uses standard Web languages and protocols that are free-standing and self-describing modular codes that do not require any knowledge of programming languages, can easily communicate with other services and can be arranged into comprehensive software applications, according to Made2Manage Systems, Indianapolis.

No matter what size the business is – be it a global enterprise or a mom-and-pop shop – cost is always a consideration. But SMB manufacturers should look beyond the initial outlay, and determine the ongoing costs involved, such as support, customization and training. While the cheapest ticket price may be attractive, this suite may ultimately not be the most cost-effective for a particular organization.

Since smaller companies typically have over-worked IT departments able to handle day-to-day operations but without the bandwidth to tackle additional responsibilities, an SMB would be savvy to consider selecting software vendor that has professional services and integration offerings. Alternately – especially if the SMB manufacturer already has a relationship with a third-party solution provider or integrator that has ERP expertise – businesses should look into hiring an external IT company to recommend, implement and support its ERP solution. If applicable, an SMB manufacturer may wish to determine whether this partner can write custom applications to meet certain specific needs, such as integrating the ERP solution with an existing vertical-market or highly specialized program already in use.

Irregardless of vertical market or horizontal business need, organizations always need to factor in a partner's financial viability and ongoing support of its solution. No matter how terrific a vendor's solution may be today, since software is a living, breathing entity, a vendor must continue to invest in its ongoing development. In March Microsoft, for example, announced its investment in five vertical markets, including manufacturing, through its Microsoft Dynamics Industry Solutions program.

"We continue to deliver software that is industry-relevant," said Tami Reller, corporate vice president, Business Solutions Marketing Group at Microsoft, during the vendor's annual conference for Dynamics customers. "With deep investments in five targeted industries combined with an extremely broad ecosystem of more than 3,000 ISV solutions, customers can get industry solutions that support their business vision, and partners get a richer platform on which to build."

Made to Order
Now that they have access to affordable ERP solutions that offer then enterprise-level performance, small and midsize manufacturers now have the ability to vie with their larger competitors. By taking the time to ensure they find the best ERP match for their current and future needs, SMBs can quickly improve efficiency, productivity and customer satisfaction, while simultaneously reducing costs and errors.

All in all, ERP translates into a smart way for smaller manufacturers to construct a path to future growth and current profitability.