How to identify the best Manufacturing ERP Software.

How to identify the best Manufacturing ERP Software.

In the advent of the robotics and artificial intelligence manufacturing firms have to employ efficient systems to ensure that they maintain their competitive advantage. The need of an ERP system therefore cannot be overemphasized.  Manufacturing ERP systems in collaboration with the individual embedded systems on machines are designed to automate manufacturing operations on the production floor such as production capacity planning, production tracking and scheduling as well as product lifecycle management.

Manufacturing software can be categorized into two broad categories namely

1. Legacy manufacturing software that is primarily local based or hosted locally either in the machine, for embedded systems, local computer systems and backed up on a local server located on the business premises.
2. Cloud based systems where the main logic resides on a cloud server with the ability to be accessed remotely.

Cloud based manufacturing systems are more attractive as they provide manufacturers with complete real time visibility of the manufacturing process while also allowing for integration with other business software such e-commerce and financial reporting software.

Before sourcing for a manufacturing software, extensive research needs to be carried out in order to compare your options and determine the software that is best suited to serve the needs of your business.

The most important manufacturing software requirements include:

1. Supply Chain Management

A good manufacturing software should have the supply chain management module that allows the user to manage suppliers. This functionality allows user to create new suppliers, add supplier information such as address and contacts and add product prices by supplier.

Additionally, a good manufacturing software should allow for purchase orders processing from the point a material requisition is issued, reviewed and approved. You should be able to automatically populate the supplier information in the Purchase Order. Such automation helps the user save time and reduce possibility of errors. Once the purchase order is raised, the users tasked with review and approval should receive a notification that a purchase order is in the queue for review and approval.

Another very important feature should be the ability to compute landed costs. This is especially important for businesses that import/export goods. Landed costs are incurred when shipping goods from the seller to the customer premises. The software should be able to distribute the landed cost and automatically account for the same in the cost of goods.

Once the reorder level is reached, the software should notify the user to allow for stock replenishment therefore avoiding production interruption and lost sales opportunities.

2. Production and Batch Management

Under this functionality, a user should be able to access features such as:

A good manufacturing software should have BOM (Bill of Materials) functionality to allow the manufacturer put up a list of ingredients/raw materials/component parts used in the production of a final product. Basically, a BOM describes the material resources required in production.

Auto – Assembly is the process by which a product is automatically assembled once a sales order is raised. Choosing a manufacturing software with the auto assembly functionality will help your business improve productivity and efficiency. Auto – Disassembly is a feature that allows for inventory items to be broken down into their component products. A good example is when you purchase a product in a pack but you want to stock it in pieces. This feature also helps users convert item units from one form to another, eg from Kilograms to Pounds.

Lot Recalling and traceability should be an important consideration when sourcing a manufacturing system. This is because product recalling is a delicate process and if carried out carelessly, your business reputation could be ruined. Lot recalling is done when products have defects. The unique lot number should be used to track down items produced in a particular lot. A software with the lot/product recall functionality is good as it enables fast lot tracing therefore avoiding unnecessary recall costs and speeding up the recall process.

Batch Tracking is a system that allows you to set together and observe stock that share similar properties. A batch is a group of items produced during the same period and that used the same raw materials, hence with a similar expiration date. Batch management ties the inventory items to a unique number for tracking purposes. It allows for product history and location tracing when necessary. Batch tracking will enable you track the expiration of items, trace defective items and closely monitor batches with high return rates.

A good manufacturing software should guide you on the various Inventory Costing Methods available and their application. The most commonly adopted Costing Methods include:

FIFO (First In First Out) – Requires that goods that came in first should be sold first,

LIFO (Last In First Out) – Requires that goods that came in last should go out first,

FEFO (First Expired First Out) – Requires that products expiring soon should go out first,

WAC (Weighted Average Costing) – This method involves averaging the total costs and distributing to the unit items.

Special Identification – This method uses serial numbers to differentiate products and their specific inventory costs.

Capacity Scheduling – Capacity planning and scheduling is the process of determining the ability of a business to carry out a sequence of production operations in a given time period and with certain resources. This functionality allows a user to plan available resources and ensure plant and machinery is in a condition to handle the task to completion.

A good manufacturing system should have Stock transfer (Locations) functionality which allows for easy stock transfer from one location to the other. A good example is when stock is to be transferred from the factory to the warehouse.

3. Sales Management

A good manufacturing software should have a strong sales management system to help streamline sales operations and ensure customer satisfactions. Some of the most important features in the sales management module include:

Advanced sales – A sale can be made either as a simple/standard sale or an advanced sale. An advanced sale allows for a sales order to be delivered in multiple fulfillments and also a user can raise multiple credit notes for the same sales order. A manufacturing software with the advanced sales feature is more admirable than one which has only simple sales option.

With the growth in online shopping, it is advisable to choose a software that supports Drop Shipping activities. Drop shipping is a method of order fulfillment that does not require the seller to have any items in stock. Instead of having physical stock, the seller forwards sales orders to a 3^rd party (supplier or wholesaler) who then delivers the items ordered to the customer. For products that the business does not stock, the drop ship option should be enabled.

Transport, Shipping and Delivery – Shipping is a term used to refer to when an order is dispatched from the supplier’s warehouse/premises while delivery is a term used to refer to when the order is dropped at the customers premises. A good manufacturing software should show you which orders are being shipped, which ones have been successfully delivered and which ones are pending shipping and delivery. Also, when planning logistics and transportation, a business should be aware of landing costs. These are the costs incurred when transporting goods from the seller to the customer premises. Being well informed about landing costs will help you make informed decisions on the pricing of the products. Such costs are like freight charges, customs & duties, insurance, export licenses & permit fees, handling cost, currency conversion among others depending on the region of trade. Charge the landing costs to the customer.

The right software should have a Pick and Pack functionality. Once a customer places an order, the software should generate a packing slip. A packer is provided with the packing slip to pick order items from the warehouse and then take them to the packing station. Picking involves going round in the warehouse picking items in the order while packing is placing the items into a proper box along with the suitable packing materials and documentation before the package is labelled and shipped to the end customer.

A manufacturing business will require to give discounts to customers as it deems right. It is therefore important for manufacturers to choose a software that will enable them add discounts at either product level or customer level. The software should contain a feature that allows a user to add a customer discount percentage which applies to all products purchased by that particular customer or a discount per a sales order line which only applies to some products in a sales order. Also, the ability to set special product deals like ‘buy 2 get 1 free’ and free shipping should the order meet the requirements, should be considered.

In manufacturing, a product can have various prices and different customers can also have different product prices. This will require a manufacturing software that can enable a user to set Custom prices for products either product wise or as per customer. Setting these prices manually can be tedious and time consuming especially if your business has so many customers. The most effective way is to use a software that allows you to import custom prices for all customers and products at once (eg using CSV files) and thus saving time for the most essential business operations.

4. Fixed Assets management

A fixed asset is a physical long-term tool that a company owns and uses in its income generating operations. Fixed Assets Management is the process by which assets are tracked in their various life cycle stages. Manufacturing businesses do have assets that require tracking and management. This is a crucial practice for all businesses with assets and it is advisable to choose a software that enables you to track all your assets. Most tracked assets include but not limited to:

• Plant, property and equipment
• Buildings
• Fixtures and fittings
• Machinery
• Office equipment
• Computer equipment
• Vehicles and heavy equipment.

The most common method of asset tracking is use of serially numbered asset tags. Each asset is labeled using a unique code thus making it easy for the user to record and report.

A good software will contain the asset management module to help the owner identify assets, track assets the business owns, schedule for service and maintenance, know where each asset is located and the user responsible, account for depreciation and valuations. The software should send notifications for when inspection/maintenance is scheduled, when insurance is due, when an asset checks out or in the premises and whoever is responsible.

Fixed asset management helps prevent lost revenue and time because with knowledge on the asset condition, you can be able to fully optimize the assets performance, prolong their productive lifespan and set aside non-functioning assets.

In as much as the software will be helpful in tracking the assets, periodic physical asset verification should be done to verify the existence of the assets. This will help identify ghost assets or assets recorded as functioning but are no longer functioning.

5. Integrations

An integration is a process by which business processes are automatically connected. A good example is when sales operations are synched with a financial reporting system. A good manufacturing software should integrate with other business operation applications such as:

POS (Point of Sale) – By integrating your manufacturing software with a POS software, all your sales and order data will be automatically linked and this will save you time.

Ecommerce – Choose a software that supports ecommerce and that allows synchronization and seamless movement of data between your software and the ecommerce platform. Examples of most common ecommerce platforms include Amazon, eBay and Shopify.

Financial reporting software – For easier financial reporting, integrate your software with a financial reporting software. This will manage all your financial and accounting operations as well as reducing the need to input data manually. Xero and QuickBooks are good examples of accounting software that you can integrate with.

API (Application Programming Interface) – API is a software intermediary that allows exchange between two applications/software. An API allows you to build a connection with other applications that your software doesn’t integrate with. Since not all systems integrate with every software, picking a software that has API will be helpful for your business.

Payment platforms – Integrate your software with a payment platform to simplify payment processing. An integration with a payment platform allows for payment information to flow seamlessly to your software, with minimal chance for error, once a transaction is made.

CRM (Customer Relationship Management) – Integrating your software with a CRM system will help centralize your accounts and contacts, minimize chances for data replication, ensure an organized quoting and ordering procedure, gain more repeat sales and convert leads into customers and sales opportunities.

6. Reporting

Reports are a crucial part of any business operation. It is through reporting that we tell whether the business is performing well or badly. It is therefore regarded as a factor to consider in choosing a software. For a manufacturer, before purchasing a software, the ability to generate the following reports should be assessed:

1. Purchase Reports – These reports allow a user to view purchase order status, compare purchase orders and invoices, view, print and send customer statements and view custom prices set as per supplier.

1. Sale Reports – Among the reports to generate in this module include; pending sales order summary, sales orders report, sales invoices and credit notes report, profit summary by product or sales representative report, customer payment details report, sales backordered summary

1. Inventory Reports – In this module, you can access the following reports; product availability, stock movement report, product price list, product stock level, lot recall, lot expiry, out of stock summary, job costing materials among others.
2. Financial Reports – A user should be able to generate the following reports from this module; trial balance, income statement, balance sheet, expense claim report, general ledger, financial transaction reports, reconciliation report and tax summary report.
3. Activity Reports – These are reports that show actions performed in the system and by which user. Through an activity report, you can tell who made a certain change in the system and who authorized what.
4. Production Reports – These reports show production orders that are due, production cost analysis, production cost breakdown by materials, overheads and resource costs, possible production shortage and production components (BOM)

Charity Wanjiru

Designate Partner and Head of Advisory Services