The process of manufacturing is of fundamental importance to any enterprise specialising in the production of durable goods. Any bottlenecks during the manufacturing process can adversely affect the subsequent operations and end up harming the enterprise in more ways than one. Furthermore, being a back-end operation, it becomes increasingly difficult to observe any potential inefficiencies in the process.
The question remains, how do we eradicate these inefficiencies and obstacles during manufacturing? The answer lies in installing an Enterprise Resource Planning (ERP) system. Briefly, an ERP system stores and manages all of the data in a common database with access to the database given to all departments. Before diving deeper into ERP systems, let’s understand the sub-divisions involved in manufacturing and similar back-end operations.
Back-end Operations
Back-end operations form the base of any organisation’s revenue-generating activity. They refer to those processes that take place behind the scenes and support customer-facing operations. As a company grows in size and departments, various functions must be organised and delegated to different teams for the smooth and efficient running of the company.
Some of these operations include:
IT and Development: Developers are tasked with building the code to create working hardware or software like a company website. Additionally, they are also responsible for managing databases and troubleshooting applications.
Sales: Although sales are a predominantly front-end operation, they have a back-end element as well. Whereas front-end sales are concerned with selling the final product to new customers, back-end sales sell to existing patrons. Back-end sales prove to be a significant part of a company’s activities as optimising these sales can lead to higher customer retention and an increase in profit by at least 25%.
Business Operations: These functions do not have a direct interaction with customers but are crucial for keeping the business organised. They are involved in connecting the primary operations to save time and increase efficiency. Examples of roles include accounting, human resources, and administration.
Various Departments involved in Manufacturing
Engineering Research and Development (ER&D): They monitor current trends in the industry and understand product features. ER&D play a pivotal role in keeping the industry competitive by developing new products and enhancing the existing ones.
Manufacturing Systems Engineering (MSE): They are primarily responsible for designing the manufacturing process and tailoring it to specific products. MSE decides on key elements such as the equipment used, and the method practised.
Manufacturing Department: They perform the main manufacturing function by converting raw materials into finished products. The department is also involved in subsequent sub-functions such as assembly, inspection, and packaging.
Quality Department: The quality department must ensure that the quality of the products manufactured is up to the necessary standards. They are responsible for quality planning, assurance, control, and improvements.
Maintenance Department: The maintenance department carries out various tasks such as preventive maintenance, breakdown maintenance, and time-based maintenance. They must double-check the good working conditions of machinery and equipment.
Human Resources Development (HRD): HRD oversees the quantity and quality of human resources employed in the organisation. They must recruit the best talent, train existing personnel, and motivate employees to improve performance.
Finance Department: The finance department manages revenue sources and spending. They re-distribute funds based on the budget planned for the financial year and further monitor the spending of each department to keep it in check.
Now that we have gained a thorough understanding of the general process of manufacturing, we can inspect different stages and explore common problems that can occur and how ERP implementation can possibly solve these problems.
Supply Chain Disruptions
As discussed, several obstacles can arise at different stages of a manufacturing process. To start with, delays in the supply chain due to vendor strikes can halt production for an indefinite time. Supply-side delays also lead to wastage of resources as labour and capital go unutilized for that period.
For managing a procurement and supply chain, installing an ERP system will prove to be extremely helpful. The system monitors the flow of goods during the entire production cycle of a product. The firm will be informed of any delays in supply in advance, leaving it with adequate time to either revise its production schedule or switch to a new supplier.
Inventory Management
Secondly, inefficient inventory management can raise material costs through overstocking or delay production through understocking.
In addition to the previous point, ERP systems can help maintain inventory at the optimal level according to the requirements set and specified by the production planning team. These ERP systems have reduced inventory levels for 38% of businesses.
Production Planning
Similarly, inefficient planning of resource requirements can disrupt production targets. This can lead to excess waste of resources or inability to meet specific financial targets due to underproduction and lower resulting revenue.
ERP systems displaying manufacturing and production information help prevent this problem. A centralised database with information about inventory and human resources will enable the production planning team to accurately estimate the resources required for a given level of production. Moreover, 60% of organisations reported that their ERP systems improved their decision-making process.
Labour Management
Fourthly, an unexpected shortage of labour will increase labour costs as the firm will be required to hire temporary workers at higher than usual prices with a low bargaining power.
The greatest benefit of ERP systems is the increase in efficiency. They streamline all activities relating to human resources by managing detailed employee information and related policies under one database. If the firm requires additional labour at any given point in time, the process of recruitment and onboarding can be started early by the department to prevent additional hiring costs. Due to ERP implementation, 62% of organisations experienced cost reductions.
Cash Flow Management
Lastly, insufficient cash flow from sales due to debtors can lead to the firm defaulting on its payment to vendors. This can cause a loss of reputation and possible legal action for the company.
Using a Customer Relationship Management system (CRM) will help manage a company’s interactions with its customers and leads. Sales can be efficiently processed and tracked, after which the system of the Finance department will be automatically updated. This allows the Finance department to keep track of its cash flows and trade payables.
Compliance with Regulations
Any industry involving manufacturing operations is bound to be extremely competitive due to the production of close substitutes and the existence of few dominant firms. As a result of fierce competition, keeping up with the fast-moving industry regulations and standards can be challenging.
In order to not fall back too far, firms should implement compliance management systems. The software streamlines compliance processes, allowing managers to focus on other important tasks. Additionally, the risk of non-compliance is reduced, and the latest regulations are always followed.
Data Management and Integration
As seen previously, there are various departments involved during the entire manufacturing process that perform a multitude of functions. Consequently, managing the data generated from various sources can be overwhelming and can slow down operations as well.
This brings us to the primary function of an ERP system. At the core of it, ERP systems store and manage all of the data in a centralised location. This leads to seamless data flow across departments and ensures maximum efficiency.
Impact of ERP Systems
We have discussed how ERP systems can solve multiple problems during a manufacturing process. Their main impact is leveraged through efficient communication and data exchange across all departments.
Data Management: ERP systems simplify data storage and processing. In their absence, coordinating and managing data across multiple departments would be time-consuming.
Cost Reduction: ERP systems reduce material costs and staffing requirements through better resource management, leading to higher profit margins. If the organisation were to maintain multiple systems, it would be incurring higher infrastructure costs.
Data Integration: Firms using ERP systems do not need to worry about consistency and discrepancies in data between departments. In fact, streamlined data integration with other systems enables simpler data analysis for the enterprise.
Scalability and Flexibility: As the business grows, the amount of data generated and the need for data management expands. The absence of an established ERP system can lead to slower decision-making due to delayed communication across departments.
Challenges and Considerations
It is evident that ERP systems come with numerous advantages. Apart from solving common manufacturing problems, they benefit the enterprise in the long run through a multitude of facets. However, implementing these systems is not as straightforward as one would think. ERP implementation comes with its own set of challenges and careful considerations by the firm.
Business Requirements: Before starting the implementation process, it is essential to understand the specific needs of the enterprise. This refers to identifying the primary reason behind implementing ERP. Likewise, organisations must choose an ERP vendor that aligns with these requirements.
Customization: After the purpose and the reasoning is defined, the system should ideally be tailored to best fit the organisation’s processes. It is important to strike a balance between customization and risks related to over-customization.
Complexity: The implementation process requires careful planning and execution at every stage. Furthermore, the firm must ensure maintenance and updates whenever necessary.
Change Management: Employees often resist new technology and changes in the organisation. This can be improved upon by explaining the need for the change and providing adequate training to employees.
Investing for the long run
This article discussed and explored the common pain points visible along a manufacturing process. These include supply chain disruptions, inventory management problems, inefficient production planning, labour shortages, and cash flow issues to name a few. Whilst there are also other obstacles in a manufacturing cycle such as machinery breakdowns and quality control issues, these are usually qualitative in nature or are external to a firm. Hence, these problems cannot be solved or avoided through ERP implementation.
However, ERP systems do solve issues that arise in a firm’s internal processes. Since ERP systems manage a centralised database, departments get automatically updated about any activity that affects their operations. It also provides an organised approach to manufacturing with raw materials and finished goods being efficiently tracked. But what about the high investment and maintenance costs? The benefits associated with ERP implementation outweigh these barriers in the long-run. Firms plan for the future with greater accuracy and become proactive. They implement data-driven strategies which help to save on several costs and generate a greater net profit. It is a clear indicator of long-run efficiency and a safe recommendation for companies to invest in it.
Aarav Kulshreshtha
Sales and Marketing
Raznameh Group