When manufacturers are looking at evaluating their in progress ERP systems by the attitude in mind credible options for replacement, they first need to look at what layer of functionality they may need to hold up their current and future operations. The following describes three layers of functionality that can help a firm decide what type of system they may need, based on the types of transactions and operations they run. Each Stage adds more functionality and complexity for decision making in a more incorporated environment. This important decision alone can also save your firm thousands of dollars in achievement, implementation, and on-going protection costs.
ERP systems can normally be characterized as having 3 layers that are (can be) used by small businesses. For our purposes, I’m assuming small manufacturers.
Stage 1 (base foundation) would be the business dispensation layer. This layer used to be referred to as “Accounting Software” although that term is passe. It includes support for:
The Procure-to-Pay Cycle – all software support for manufacturers to acquire and receive supplies, move them to account, perhaps scrutinize or test them, receive and record the supplier’s invoice, and procedure payment to that supplier.
The Quote/Order-to-Cash Cycle – all software support for manufacturers to create and deliver a quote to a customer, to accept a acquire Order from a customer, to record that order (“Order Entry”) and acknowledge receipt of that order, then pick, pack, and ship the order to the customer, invoice the customer, and receive payment from the purchaser for the goods delivered.
Production Cycle – Schedule production, issue/put away materials, apply labor and factory overhead through production, and receive finished production so it’s available for the Quote/Order-to-Cash Cycle.
Inventory Management – maintain a continuous account for all raw equipment, semi-finished, and finished goods
Reverse Logistics Cycle – all software support for recording customer’s request to return goods, dispensation of return, and crediting customer’s account
Reverse Procurement Cycle – all software support for recording return of goods to a supplier and debiting supplier’s account
Payroll Processing – all software support to report hours worked by employees and process payment to them
Financial Reporting Cycle – Generate journal entries and post them to the General Ledger for all transactions described above.
Stage 1 in my decision is mandatory for most/all manufacturing entities. This can be done in systems as small and inexpensive as QuickBooks or as large as SAP.
Stage 2 is the conclusion Support layer. This is where Accounting Software becomes ERP software.
Cost Estimating – Software assists users in identifying (estimating) costs of products to ensure quoting process (defined above) is profitable
What and When to Buy – Software advises users what to buy based on various algorithms and when to request delivery
What and When to Make – Software advises users what to make based on a variety of algorithms and when to schedule for completion
Production Scheduling – Software assists users in scheduling production in a very granular/detailed way to help optimize use of factory resources
Preventative/Predictive Maintenance – Software assists users in scheduling maintenance activities before breakdowns occur
Stage 3 is the Advanced Transaction layer – beyond basic “accounting transactions”, additional transactions are now processed and shared among companies' employees providing added visibility
Engineering Changes – processing transactions to maintain proper design and revision control
Quality Assurance/Control transactions – recording of testing and examination results for analysis, trending, etc.
Maintenance transactions – recording of routine and urgent situation maintenance transactions performed on company assets, usually production equipment
Marketing transactions – dispensation of marketing campaigns
Sales transactions – recording of interactions with customers by company sales personnel
Hire-to-Release Cycle – managing information about employees from an initial orientation, through training and development, through reviews and appraisals, to retirement/departure/dismissal.
We hope this gives you a quick guide to help you to focus in on the applications that are truly designed to support your particular manufacturing and business model. In the end, it will make it a much easier transition to adapt to your new ERP system.