Why ERP is Essential for Small Manufacturing Shops

Are you wondering if ERP systems are right for your small shop? In this post, we'll tackle how ERP can transform your manufacturing business by addressing inefficiencies, improving inventory management, and scaling your operations. Read on.

Investing in capital equipment without advancing the scope of information management creates new risks for job shops. Balanced investments avoid workflow bottlenecks, inefficient job costing, poor material and resource planning, and inability to scale.

If you are the owner or manager of a job shop, it can be easy to focus improvement efforts on capital equipment – CNC machines, robots, and cutting tools – the front-end processes that get the job done. But what about the back-end processes? It may seem like the safer option to continue improvement efforts using pen-and-paper approaches that have sufficed for now. Many smaller shops feel that an upfront investment in technology isn’t worth the expense, especially with the potential for a steep learning curve regarding implementation. Ultimately, job shops may be asking, if it’s not broken, why fix it?

The truth is that continually improving front-end machinery without investing in back-end technology – such as an enterprise resource planning (ERP) solution – will create inefficiency and risk for job shops. Ongoing supply-chain disruption, materials shortages, and inflation make disparate systems or pen-and-paper approaches a costly liability. Outdated approaches to information management that do not form a connected system with a single source of truth can create workflow bottlenecks, result in inefficient job costing, poor material and resource planning, and down the line, a lack of ability to scale.

For manufacturers who are looking to drive growth, balanced investment, and the leveraging of cloud technology is an essential step towards ensuring a sustainable future.

Why use an ERP?

Recent market turbulence, including labor shortages and supply-chain disruptions, have made the lives of manufacturers more difficult, especially when it comes to scheduling and managing inventory. These are perfect examples of areas where ERP can make a difference for your shop.

Cloud-based ERP systems provide true visibility into inventory management – but what does that look like? It means real-time tracking of material levels, reorder points, and supplier information. Beyond that, ERP systems can provide insights into material consumption patterns, demand forecasting, and lead times, which aids procurement planning amidst unforeseen shortages.

For job shops, this clarity ensures that job shops have adequate materials on-hand to fulfill orders without overstocking, helps maintain optimal inventory levels and reduces carrying costs. Whereas disparate systems or outdated processes fall short in providing visibility, an ERP provides insights that reduce the risk of production delays due to material shortages.

The lack of available workers has continued to plague the manufacturing industry as a whole. So much so, that according to a recent report, 82% of manufacturing companies are experiencing a labor shortage. Fortunately for those leveraging an ERP, cloud technologies can help with job scheduling and maximizing resources.

To directly mitigate labor shortage pain points, machine-monitoring systems connect and analyze shop floor and ERP data in real-time, which maximizes the productivity of existing labor. Rather than manually calculating inputs such as machine availability, skill requirements, and delivery deadlines to determine scheduling, an ERP can automate this process and ensure efficient allocation of resources and timely completion of jobs. Leveraging an ERP means that job shops are getting the most out of the labor and machinery resources already available to them.

Beyond such direct benefits to some of manufacturing’s toughest tests, ERP solutions help scale with connectedness that increases efficiencies across key departments, including sales, accounts payable, e-commerce, customer service, pricing, rebate management, and others. As job shops look to accelerate their growth, ERP is a cost-effective solution, as it eliminates the need for on-premises hardware, software maintenance, and IT staff.

How to choose an ERP

ERP solutions are not one-size-fits-all, and knowing your business will determine the specificities that you should look for in an ERP. That said, there are a few general guidelines to follow in evaluating what solution will help you scale for future success.

Specific business needs: You can’t buy the right software if you don’t know what your shop needs. Some shops may like the accounting program they’re already using and want to prioritize an ERP system that integrates with it. Others may want to start with inventory tracking. Knowing job shop needs will demonstrate what features you want your ERP system to have.

Most ERP solutions are modular, with a cloud-based infrastructure and subscription model. This grants the ability to customize the modules you purchase to match the functions and departments of your shop, and to offer the features and benefits you need most. This structure allows you to minimize upfront investments and to adapt your ERP solution to your business as it evolves, with increasing functionality.

User-friendliness: User-friendliness directly impacts an ERP’s adoption, usage, and overall success within your job shop. Ideally, an ERP system should be intuitive and easy to use, reducing the learning curve for employees. This will ensure a smoother and quicker adoption process, minimizing disruptions in daily operations during the transition to the new system. Having support from your ERP provider can be a true difference maker for onboarding, maintenance, and improved employee satisfaction.

The benefits of a unified and informed team help significantly with scaling and making the most of your ERP solution.

Budget and projected ROI: Job shops should project the resulting financial benefits that a business will be expected to generate and accrue over time with each candidate ERP solution in place. In terms of return-on-investment, assign cash flow and cost savings values over time. Here, it’s important to consider labor-cost reductions, improved cash-to-order cycles, and any other new efficiencies provided. Contrasting financial risks with the potential rewards will provide a full understanding of the financial implications of your ERP decision.

Growing with your ERP

Investing in back-end technology prepares your job shop to scale with security. Adoption is not reserved for large manufacturers, as visibility can help shops at each stage of their journey. Being on the cutting edge of customer attraction and retention creates a competitive differentiation that also prepares your shop to weather the storm of inevitable market disruption.

As job shops look to build for the future, keeping these guiding elements in mind will steer towards an ERP solution with your business growth at the heart of the solution.

Originally posted by American Machinist

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