THE COMPLETE

GUIDE TO ERP

Everything a Manufacturing
Professional Needs to Know About
Enterprise Resource Planning

www.max4erp.com
INTRODUCTION
The topic of ERP can sometimes seem
complicated and overwhelming, but
the ERP experts at MAX are here to
help. This eBook covers all the bases,
helping manufacturing professionals
understand the ins-and-outs of ERP
and how they apply to your business.
Read on to learn the basics of ERP,
what type of companies benefit
most and how, the fundamentals of
implementation, how to select the
right software, and more.
 LOREM IPSUM DOLOR SIT AMER 3

TABLE OF CONTENTS
ESSENTIAL ERP BACKGROUND KNOWLEDGE 5
What is ERP? 6
Brief History of ERP 7
ERP Definitons 8

UNDERSTANDING THE BENEFITS OF ERP 9

Top 11 Benefits Of Using ERP 10

WHO SHOULD USE ERP? 13

What size company benefits the most from ERP? 14
Which Industries And Manufacturing Models
Benefit Most From ERP? 15

ACHIEVING SUCCESSFUL IMPLEMENTATION 17

Assembling Your Implementation Team 18
Developing A Written Implementation Plan 19
Training Your Team 20

SELECTING THE RIGHT ERP SOFTWARE 21

Clearly Defining Your Objectives 22
Support For Your Differentations In The Marketplace 23
Vendor Selection 24

BUILDING A BUISNESS CASE FOR ERP 25

Why It’s Important To Educate First 26
How To Develop A Definitive Set Of Case Justifications 27
How To Present Your Cost/ Benefit Analysis 28
ESSENTIAL ERP
BACKGROUND
KNOWLEDGE
An overview, brief history, and list of ERP
terms and definitions.

As one of the longest standing ERP vendors,

the fundamentals of ERP seem second nature
to us at MAX. It isn’t until we’re posed with
questions like, “what actually is ERP?” or,
“how do I know if my manufacturing company
would benefit from ERP?” that we’re reminded
of how complex (and even intimidating) the
topic of ERP can be. So we put together this
guide to take the mystery out of ERP.
6 THE COMPLETE GUIDE TO ERP

WHAT IS ERP?
ERP is an industry acronym for Enterprise Resource Most commercial ERP systems also offer synchronized
Planning, but even the full name doesn’t give a great reporting and automation tools. Instead of relying on
explanation of what ERP does. Broadly, ERP refers to separate databases and spreadsheets that employees
a system that automates and integrates a company’s need to consistently update, and then putting someone
core business elements to increase efficiency and in charge of manually merging them all to generate
simplify operations. It is a comprehensive system that reports, some ERP solutions give you the ability to pull
includes all the software pieces you might need to run reports from one central system. For example, with
your manufacturing operation. sales orders automatically flowing into the financial
system without the need for the additional step of
For a deeper understanding of what ERP does, it’s manually entering and sending new orders to the order
helpful to take a step back and think about all of the management department, the order management
processes that are essential to running a manufacturing department can process new orders more quickly and
business, including production planning, materials accurately, and the finance department can close the
management, financials, customer relationship books faster.
management (CRM), quality and compliance programs,
customer service, and beyond. The purpose of ERP Other common ERP features include a portal or
software is to have one complete system that supports dashboard to enable external stakeholders to securely
and integrates all of these functions, in order to access relevant information regarding the business’s
streamline processes and information across an entire performance on key metrics. Most ERP systems can be
organization. By creating a smooth flow of information deployed on-premises or in the cloud.
that is always in sync, employees across all divisions
(for example, accounting and sales) have access to the
same, consistent information.
 THE COMPLETE GUIDE TO ERP 7

BRIEF HISTORY OF ERP

While the term ERP was coined in 1990, its roots In the 1990’s, ERP Systems began to include operational
date back to the sixties, when a researcher at IBM processes, graphical user interfaces and back-office
published research on the concept he dubbed functions like human resources and accounting. ERP
material requirements planning, or “MRP.” His concept has continued to expand to encompass business
provided manufacturers with a method for planning intelligence and incorporate “front-office” functions.
the quantities of materials and components necessary Efficiency of all work centers is the main goal of ERP.
to complete a production plan and the timing needed
for phasing them so that the materials arrived very With these advancements, companies of varying
close to the time when they would be required to keep sizes and from a broad range of industries are now
production running. rapidly adopting ERP systems. This diversity can
also be attributed to new ways of minimizing IT and
During next decade, material requirements planning infrastructure cost such as the availability of private
morphed into manufacturing resource planning or cloud ERP solutions, which has made ERP more
“MRP II.” MRP II provided techniques for smoothing the affordable, easier to implement, and more widely
production plan by adding capacity planning, scheduling, available. Although ERP is now used across industries,
and forecasting to material requirements planning. the heart of ERP software for manufacturers is still MRP.
8 THE COMPLETE GUIDE TO ERP

ERP DEFINITONS
Definitions of Common Terms Related to ERP • WYSIWYG: Acronym for “What you see is what
you get;” Refers to a feature of a software tool that
• Enterprise Resource Planning (often called ERP, ERP allows you to edit or input information and see it
system, or ERP software): A system that automates exactly as the data will appear and be displayed
and integrates a company’s core business elements within the system, as compared to using codes or
to increase effectiveness and simplify operations. spreadsheet-style data entry that will be translated
It is a comprehensive system that includes all by the software and appear differently than it did
the software pieces you might need to run your during the data entry process.
manufacturing operation. • BPM: Business Process Management
• Lean Manufacturing: A systematic method for the • Cloud Deployment: A Private Cloud deployment
elimination of waste within a manufacturing system. lowers IT infrastructure overhead and ensures
Lean also takes into account waste created through your data is protected around-the-clock within
overburden and waste created through unevenness a managed data center. Private Cloud allows
in workloads. companies with remote sites to share the same
• Business Activity Monitoring (often called BAM): ERP installation and data, enabling multi-site ERP
A collection of tools that allow you to manage software access
aggregations, alerts, and profiles to monitor • On-Premise Deployment: A traditional ERP
relevant business metrics. deployment that means installing the system onto
• Materials Requirement Planning (often called servers in your facility. Companies that have an
MRP): System that is primarily material oriented. established IT infrastructure or are willing to invest
Many ERP systems have grown from an MRP in creating and maintaining their own servers
system. Finding an ERP system with strong MRP are usually interested in implementing ERP on-
functionality is essential for manufacturers. premises.
• Manufacturing Resource Planning (often • MCS: MCS stands for Manufacturing Control System.
called MRP): Acronym changed from Materials MCS is the generic model taught by APICS, the
Requirements Planning to Materials Resource Society for Operations Management, on which ERP
Planning during the decade of the seventies, is built on. It visually expresses the design of any
which was known as the era of MRP II, and added ERP system.
scheduling, capacity planning, and simulation
capabilities. In conclusion, ERP software helps to eliminate
• Front-Office: A front office application is any redundant processes and systems, dramatically
software that has a direct relation to customers. It lowering the cost of doing business overall. ERP
provides functionality and data necessary to take implementation is where planning and profitability
orders, configure complex products and provide intersect, allowing you to streamline your
effective service and support to customers. It manufacturing processes with software that helps you
includes customer relationship management (CRM), achieve a more controlled, paperless shop floor. With
customer support, service management, document ERP, you can rid yourself of duplicate data entries in
management, workflow process management, field disparate databases, unpredictable cost, quality and
service, etc. accuracy, and employee redtime, all of which cost
• BOM: A bill of materials or product structure you time and money, and hinder your manufacturing
(sometimes bill of material, BOM or associated company’s potential for growth.
list) is a list of the raw materials, sub-assemblies,
intermediate assemblies, sub-components, parts
and the quantities of each needed to manufacture
an end product. A BOM may be used for
communication between manufacturing partners,
or confined to a single manufacturing plant. A bill of
materials is often tied to a production order whose
issuance may generate reservations for components
in the bill of materials that are in stock and
requisitions for components that are not in stock.
UNDERSTANDING
THE BENEFITS
OF ERP
Why a Manufacturing Company
Should Implement ERP.

It’s getting tougher to stay

competitive in the manufacturing
industry. Companies are striving
to become more efficient, ensure
regulatory compliance, improve
customer service, and more
effectively utilize resources in order
to stay competitive. Luckily, there’s
a solution to help accomplish all of
these objectives.
10 THE COMPLETE GUIDE TO ERP

TOP 11 BENEFITS OF USING ERP

11 Reasons Why a Manufacturing Company Should Implement ERP

It’s getting tougher to stay competitive in the manufacturing storing important documents and spreadsheets on personal
industry. Companies are striving to become more efficient, computers, you can house all your important documentation
ensure regulatory compliance, improve customer service, in a centralized database that eliminates redundancies.
and more effectively utilize resources in order to stay Once a piece of information is entered in your ERP system,
competitive. Luckily, there’s a solution to help accomplish all it automatically flows to every area that may need or use
of these objectives. that piece of information. This increases data accuracy
because there is no need for duplicate entry of any piece of
You may have read about the ways in which ERP helps you information. When every employee can access the specific
achieve tighter shop floor control, or heard about the time information they need quickly, all from the same integrated
and material cost savings ERP brings— and you may be system, your entire business runs more smoothly and you
concerned that the stories sound too good to be true. You waste less time hunting down information and verifying its
wonder, can ERP really work for my business and deliver on all accuracy. With all this data at your fingertips you can analyze
that the vendors promise? The fact is, ERP can do all this and and adjust production issues as they arise, instead of waiting
more. We have seen it happen time after time, and witnessed weeks or months to react to issues and make modifications.
manufacturing companies reach their goals by implementing
an ERP solution firsthand. And if you’re thinking you can’t Manage compliance and regulatory requirements
afford an ERP system, that’s simply not the case. If you choose Do you operate in a regulated industry such as electronics,
the right vendor, ERP is affordable, even for a small business. medical device or food processing? If so, you know that failing
to meet quality and compliance standards can lead to large
Some of the main benefits of ERP software are: fines as well as unhappy customers. ERP helps you avoid such
situations because it helps you define processes to manage
ERP enables growth regulatory requirements and maintain compliance. An ERP
Many companies feel that they can make do using system also makes it easier for you to keep detailed records
spreadsheets or manual lists to manage their business, but of all activities for audits and other historical purposes,
this decision may make growth a slower and more painful without the fuss of manual tracking and processing. ERP can
process than it needs to be. By putting an ERP system in help ensure that your team adheres to proper procedures, so
place, your company will not only be able to better manage that you can rest easy.
your inventory and resources, but you’ll also have access
to more reliable information upon which to base important Conduct accurate material planning and control inventory
business decisions which will fuel growth. Perhaps you have trouble maintaining accurate inventory
counts and your physical counts seldom match your perpetual
ERP creates efficiencies inventory records. This wreaks havoc with your production
If you’re running things manually, you might find it hard efficiency, since parts are not available when you need them.
to enforce common processes across your organization. Now you’re dealing with delivery delays that upset your
Consistency is the key to efficiency in manufacturing, and customers who will eventually find a vendor that has a better
ERP creates the consistency needed to streamline your handle on their business. ERP helps you address all these
manufacturing processes and improve deliverability. ERP issues. With ERP in place, you can improve your on-hand
helps you automate tasks so you and your employees can inventory visibility, increase accuracy and reduce overhead.
shift focus to value-added activities and spend less time on As a result, in only a short period of time, you’ll start to see
administrative tasks. planning, scheduling and customer service improvements.

Consolidate disparate databases Accurately cost your product

If there is a lot of paper moving around your company, but An ERP solution will help you quantify the cost of labor, time,
very little real communication occurring, an ERP solution can and equipment, and know exactly how much material and
help. ERP provides a single source of truth and enables you labor every order, part and operation consumes. Use ERP
to improve communication between departments. Instead of to track cost variances for material costs, labor costs and
purchase costs. Your accountants and auditors will be able in turn retain a high level of customer satisfaction. The
to see a full range of reports and inquiries that will help them most efficient ERP software packages allow you to access
analyze cost performance and easily compare actual costs every detail about a client from one screen, including order
with planned costs. inquiries, billing information, invoices, and both past and
current orders. This keeps all members of a sales team
Deliver product on time informed, eliminating time needed to hunt down the right
Your customers expect to be given reliable shipment and person to answer a customer’s question.
delivery dates when they place an order. Most likely, they do
not want to wait for a call back, and they won’t accept bad Improve decision-making ability for management
dates for too long before they move on to another supplier. Without ERP, management has to either wait until the numbers
Well, ERP can help in this situation. ERP gives you available-to- come in at the end of the month or quarter to make decisions,
promise capabilities so your sales and customer support teams or make decisions based on data that is weeks or months
can better manage opportunities and provide accurate delivery old. Because ERP puts timely and accurate information at
information from the start. MRP and production scheduling management’s fingertips, numbers can be analyzed in real
capabilities provide the information your teams need to make time. This allows management to make present-day decisions
decisions on expediting, overtime and other factors. based on current data at any given time of the year, and also to
make better decisions for the long term.
Create meaningful reports with ease & efficiency
Manual systems are error prone. Without an ERP system in Level the technology playing field across all departments
place, you may find that your business information is not Rather than having different programs and technologies used
reliable. You (or others at your company) may also be relying in different departments, an ERP system puts everyone in the
too heavily on guesswork or “rules of thumb,” which can lead organization on a level playing field when it comes to data
to ineffective decision-making. An ERP system will help you and technology. This allows for increased visibility across
combat these challenges by collecting a robust amount of departments, a better understanding of how each facet of the
data that can be used to build meaningful reports. With those organization operates and ultimately enhanced teamwork.
reports, you can achieve the level of transparency you need Less frustration and improved collaboration can improve
in order to make sound business decisions. morale and strengthen company loyalty.

Improve customer service

Companies that treat customer service as a top priority
fortify the intimacy of their customer relationships and
WHO SHOULD
USE ERP?
Industries, manufacturing models, and
company sizes that benefit most from
using ERP Software.

ERP software will offer a high rate of return for

any company that implements it, regardless
of their manufacturing model or industry.
Have you noticed companies in your industry
that seem to have noticeably streamlined
processes, are able to get orders out faster,
consistently satisfy their customers, and
generally excel against the competition? Their
secret is likely their ERP implementation.

The right ERP software will scale to fit different

manufacturing models and different size
companies, enabling you to grow and succeed
as your needs change over time.
14 THE COMPLETE GUIDE TO ERP

WHAT SIZE COMPANY

BENEFITS MOST FROM ERP?

For those of you still thinking, “but my

manufacturing company is too small to use
ERP. We don’t need it yet...”

Larger, more complex operations certainly

have the most to gain from (and probably
can not function without) having an ERP
system in place. But it’s not just about the
size or complexity of your organization
right now, it’s where you want/expect
your organization to be in the future that
determines your need for ERP and the
benefits you stand to gain by implementing
ERP.

A lot of smaller manufacturing companies

don’t think ERP is a reasonable option
based on their size, but if your company
plans to grow, ERP is a necessity. Your
manufacturing company might be fine
without ERP now… but don’t expect to grow
without proactively adjusting your business
processes to scale. Companies that are
used to managing production and material
planning manually can’t realistically
expect to continue to operate that way
as they expand their product line or build
their customer base. Any manufacturing
company expecting demand to increase will
need to ramp up their processes for much
larger scale production, and thus serve to
benefit the most by being proactive and
implementing ERP before they are “hurting
for it.”
 THE COMPLETE GUIDE TO ERP 15

WHICH INDUSTRIES AND

MANUFACTURING MODELS
BENEFIT MOST FROM ERP?
The ability to customize the components of an ERP solution Specific examples of industries that stand to benefit
based on an organization’s specific needs is what enables largely by implementing ERP:
a wide range of industries and manufacturing models to
benefit from ERP. The more complex your operation, the Aerospace
more benefits you serve to gain through the implementation ERP software designed to facilitate government contract
of an ERP solution. But regardless of whether you operate in forms and reporting is making the aerospace industry more
a low volume/high complexity environment, or high volume/ efficient. Integration with CAD software and real-time
low complexity environment, the right ERP software will sharing of information from engineering with the shop
give you the visibility you need to create leaner operations, floor and cost accounting keeps projects moving forward
manage complex supply chains, and streamline your business according to schedule.
processes to get products to market faster.
ERP’s central data source integrates information from
In addition to the need for visibility, SCM and lean operations, every piece of the process to reduce administrative labor
many manufacturers across different industries must also costs, tighten inventory control and improve cost
maintain compliance. accounting accuracy.

For example, the medical device manufacturing industry, Electrical Device

electronics manufacturing industry, and food and beverage Flexibility and quality control are high on the top of priorities
manufacturing industries all face different issues when for electrical device manufacturers. The high-tech world of
it comes to compliance but all of these industries can electrical devices operates in a state of continual evolution
manage compliance with ERP. Regardless of whether your and change. There is no time for searching for information or
manufacturing company is trying to achieve ISO 9000 the latest schematic; it needs to be immediately available to
certification, FDA compliance or simply meet Current Good everyone connected with the project. ERP software fulfills the
Manufacturing Practices (CGMPs), or the depth and extent of needs of this fast-paced industry. All processes are trimmed
your product line is driving the need for better quality control lean, so that both production and administration can operate
and more efficient systems to track records on quality issues at maximum efficiency.
-- the need to remain compliant exists. Whether quality and
compliance management is required by your industry or General Manufacturing
is just a strategy implemented by your company to ensure Regardless of your place in the manufacturing industry,
customer satisfaction and continuous improvement, you need accurate capacity forecasting and tight controls from the
the right compliance management software to get the most shop floor to the front office are what make a manufacturer
out of your quality control program. ERP offers benefits to the profitable. ERP software provides all levels of management
full range of industries and manufacturing environments. with the tools they need to improve their piece of the
process. From sales representatives to the worker on the line,
everyone in the organization experiences the benefits of ERP
efficiency. It doesn’t just improve the bottom line; it improves
the whole work environment, providing a positive attitude
that expects and generates success.
Medical How do regulated industries benefit from ERP?
Certificate of compliance and “cradle to grave” tracking
of parts are just two of administrative complexities that Compliance with government regulations requires
are a part of manufacturing for the medical industry. specific and detailed reporting. ERP software reduces
Having these details automatically updated throughout the administrative aspect of government contracting.
your system with one entry is one of the benefits of No special spreadsheets for tracking and reporting
employing comprehensive ERP software in this industry. government required data. Superior ERP software
eliminates the need for redundant entries and outside
Medical manufacturers using ERP software demonstrate tracking and reporting for government jobs. ERP
their commitment to the high standard of control software makes it easier to:
expected in this tightly regulated industry.
• Meet DCAA compliance requirements for
Machine Building Aerospace, Department of Defense and other
Time can be wasted simply directing workers to their agencies
appropriate tasks in the machine building industry. • Manage all CSCSC categories for the organization
With the detailed scheduling system available through • Maintain multiple level budgets, original and current
comprehensive ERP software systems, everyone knows • Generate government required reports
where each project is on the schedule and where they
fit into the sequence. The automated time tracking Bottom line, any manufacturer that would like to
records labor hours for each individual and each part improve efficiency can benefit from ERP’s ability to
of the process they are involved in. ERP software is help streamline and manage processes. And if you’re
trimming labor hours and increasing profits for the thinking your company is too small to benefit from ERP
machine building industry. or you can’t afford an ERP system, that’s simply not the
case. If you choose the right vendor, ERP is an affordable
solution with a lot to offer, even for a small business.
ACHIEVING
SUCCESSFUL
IMPLEMENTATION
Preparing for the implementation
process and training your team.

Few projects have as much potential

for improving operations as
implementing a new ERP system.
Implementation requires change
and any change can be disruptive
and overwhelming if not managed
properly, so it’s important to make
sure that you don’t overlook the
topic of implementation during the
research phase of your ERP initiative.

The implementation phase is the

crucial transition period that takes
you from the initial purchase of your
ERP software to the point where you
fully incorporate it throughout all
departments and utilize it across your
organization.

To maximize benefits and minimize

disruption, your ERP implementation
needs to be thoroughly planned with
a great deal of care, and commitment
to the project needs to be consistent
across the entire organization.
18 THE COMPLETE GUIDE TO ERP

ASSEMBLING YOUR
IMPLEMENTATION TEAM
It’s tempting to assume that members of your The responsibilities of the ERP team are to:
organization can add implementation tasks on top of
their regular work, but that isn’t realistic in most cases. • Research available ERP software options
Select smart and experienced people from a variety • Agree on a list of features and functionality that
of departments to manage the implementation, whichever software you choose must have
and allow them enough time to devote to the • Set goals and objectives for the ERP initiative,
implementation project. It’s important not to delegate including specific standards to which processes are
the implementation tasks solely to the IT function expected to meet/improve, ROI expectations, etc.
within your organization. Many companies make this • These goals should be very specific and measurable.
mistake and forget that while ERP software is a new Ex: instead of “improve audit score,” set a goal of
piece of technology, and new technology is usually “improve the score of audit on [specific audit date]
managed by the IT department, this new ERP initiative by [X] points.”
will touch all aspects of your business and should • Develop a written implementation plan
be handled by members of management across all • Hold other ERP team members accountable to
appropriate departments. make sure deadlines are met and the project moves
forward at the expected pace
Who, specifically, should be a part of the team? • Relay exciting news to the organization to keep
everyone up to speed on the status of the ERP
Your team should be a group of leaders capable of initiative and highlight important milestones and
setting the right goals and implementing a significant progress
change across your organization. Your IT person will be • Gather feedback from employees across the
heavily involved in the process, and will be responsible organization to make sure everyone is receiving
for any technical, connectivity, or hardware-related proper training and is comfortable using the new
issues. The rest of the team should consist of members software
of management across departments representing • Analyze metrics to assess the success of the
accounting, scheduling, purchasing, operations, implementation and report on ROI (this is why it’s
training, and any other essential business processes important to set specific goals).
that will be impacted by ERP. In addition, it’s a good
idea to identify one specific person to be accountable By creating this ERP team, you’ll be able to treat your
for overall project management. company’s ERP implementation as you would any other
major development or customer project and make sure
everyone pulls their weight so that important deadlines
and milestones are met. Nothing ruins the enthusiasm
for a new system like continued delays in the go-live
date. Managing the project in a way that prevents
unpleasant surprises will pay off.
 THE COMPLETE GUIDE TO ERP 19

DEVELOPING A WRITTEN
IMPLEMENTATION PLAN
The ERP Team should develop a written implementation
plan. This should define objectives, establish important
milestones, set deadlines for each milestone and a firm
date for going live with the software, include specific
goals and metrics for measuring success, and serve
as a guide to keep everyone on track. It should also
include a list of all ERP team members and outline
specific responsibilities of each person and the
corresponding tasks.

The written implementation plan should also plan for

audits at specific points throughout the process. This
will serve as a way for the ERP team to assess the
progress and readjust any aspects of the plan going
forward to ensure success. Be prepared to adjust the
timeline to accommodate circumstances that may arise
during the process. Even if the project ends up getting a
bit off track, if you stick to the components of the plan
as much as possible, you’ll set your team up for success.
20 THE COMPLETE GUIDE TO ERP

TRAINING YOUR TEAM

If you’re going to spend the time and money to issues and delays due to a lack of understanding,
launch an ERP initiative, it’s important to make sure and will ensure your company gets the best possible
that your technology not only functions properly, return on investment.
but is well-understood by your employees so they
can focus more on improving high-value business You’re certainly aware by now that ERP software is
processes and procedures and less on executing a big investment, and some of the biggest reasons
daily tasks. Training all employees to prepare them ERP projects fail have to do with implementation, not
for the implementation of your organization’s new technology. By dedicating the right resources, sticking
ERP software is an excellent way to make sure all to a written implementation plan, and making sure your
departments are using the ERP system as intended. entire organization is on board and receiving the proper
Doing this well in advance of the go-live date and training, your success will start long before your software
then offering continued training will help prevent is out of the box.
SELECTING
THE RIGHT ERP
SOFTWARE
In this section you’ll find a
preview of our ERP Selection and
Implementation Toolkit.

You already know that manufacturers

can benefit significantly from using
ERP software. However, not all ERP
solutions were created equally and
an ERP solution that’s a perfect
match for one manufacturing
company may not be a good fit
for another. It is important to give
careful consideration to both the
selection of the software itself, and
to the vendor as well.

Implementing an ERP system is no

small matter, and it can be a dizzying
exercise. Figuring out the details of
what you need and what a vendor
can provide before implementation
will ensure that you get ERP right the
first time — or figure out where you
went wrong.
22 THE COMPLETE GUIDE TO ERP

CLEARLY DEFINING
YOUR OBJECTIVES

In general terms, most companies envision improved

performance and reduced costs. If you’re moving from a
spreadsheet environment, you probably want to reduce
redundant data entry and possibly reduce manpower.
If you already have a system, it may not scale to your
company’s growth. Or you may have focused solely on
inventory when it was implemented, whereas now you
need integration with engineering change orders (ECOs)
and/or customer relationship management (CRM) and
supply chain management (SCM). You may even need
more sophisticated functionality altogether. Whatever
your specific reasons, the basic expectation is that by
pulling all your business functions into one system, you’ll
achieve greater accuracy and streamlined process flows.
And with a single database to mine for all reports and
analyses, changes in processes, market information,
and so forth, your decision-making process will be
streamlined as well.

Differentiating process problems from

software problems

Knowing the difference between process and software

problems might seem simple, but consider the
following real-life examples:

Process Problem: A food manufacturer needed 500

lbs. of flour to make one of its products. The flour
came in 550-lb bags. When the workers had poured
500 lbs. of flour into the vat, they tossed the bag with
the remaining 50 lbs. off to the side, where it landed
in among the spices… a place no one ever thought to
look for it. This process problem, of course, resulted in
apparent shortages and cost overages that seemed to
stem from software problems.

Software Problem: This same company had all its

recipes programmed into Excel. Somehow or other, the
measurement for spices was changed from ounces to
grams. No need to describe the catastrophic results.

The moral of this story: Be sure you know what’s broken

before you try to fix it.
 THE COMPLETE GUIDE TO ERP 23

SUPPORT FOR YOUR

DIFFERENTATIONS IN
THE MARKETPLACE
This is incredibly important and often overlooked. Here
are a few examples of what to think about.

If you’re known for:

• Shipping faster than your competitors

• Low prices
• Responding effectively to customization or unique
systems
Then the ERP system you select should support:

• Short lead times

• Controlled lead times
• Configuring product lines

Losing your competitive edge shouldn’t be a trade-off.

Modularity, scalability and integration

Many systems offer hundreds, if not thousands, of

features… most of which you won’t need. This is
especially true if you’re embarking on your first ERP
implementation.

Don’t be dazzled. The key issues are whether a system:

• Does what you need it to do now, without your

having to implement any more than the necessary
functionality.
• Has the capability to grow and change as your needs
do. This should include APIs for writing integrations
for, say, a current or proposed CRM or SCM system.

With that in mind, there is a key factor not to be

overlooked: No system will be a perfect match for what
you’re looking for. For example, you may have found one
that does everything you need it to but doesn’t work
with your current financial package. Could you have it
customized? Of course. But the implementation would
be much more expensive and, down the road, you could
potentially run into problems with both support and
upgrades. So what makes more sense? Customizing or
simply migrating to a compatible financial package?
These are issues you have to weigh for yourself.
24 THE COMPLETE GUIDE TO ERP

VENDOR SELECTION
In the context of change management, at? Do they ask meaningful and relevant
it was mentioned that one of the biggest questions? Or do they sit in the conference
reasons ERP projects fail has to do with room with you, talking features and
people, not technology. This is especially benefits from a PowerPoint presentation
true when it comes to selecting a vendor. and filling in forms?

A little-known secret is that many Experience with Your Specific

companies that are desperate to replace Product(s) and Manufacturing Methods
ERP MADE EASY their current system are actually having
vendor, not software, problems. Perhaps
The fact that a vendor has been around
forever doesn’t mean they offer what you
with a few simple customizations or need or that they can intelligently partner
To help you select and implement upgrades—or even just training on features with you. What kind(s) of manufacturing
the right ERP system, we created they already paid for but have never used— do they specialize in? Who are their
an entire toolkit full of resources. their system may, in fact, be adequate to customers? Does the number or percentage
Download your free toolkit for meet their needs. But lacking continued of customers with products and methods
access to the Top Factors for guidance and support from the vendor, they similar to yours equate to “experience?”
Implementation Success, Vendor haven’t a clue. So what should you look for
Selection Tools and more! in a vendor? Support
The overriding question is: Will they be
Experience with Manufacturing there when you need them? Not just
First, does the vendor know manufacturing? during implementation, but afterward.
You might think, Well, of course they do. How accessible are they once the project
”Ain’t necessarily so,” as the song goes. is “finished?” And when is the project
How can this be? Over the past decade finished? When the software is installed?
or so, there’s been a tremendous push to When it goes live? When all your staff
integrate ERP with financial systems. At this is trained? When you know it’s working
point, most ERPs you’ll find out there have properly? In general, do they offer the
been developed by financial companies customer care you need and want?
with no real understanding of or experience
with manufacturing or production. The Besides asking the vendor specific
developers can build a system that runs questions about what their ongoing
properly but not necessarily do what’s responsibility is to you, ask to speak with
needed, since they can’t differentiate current customers whose business is
between what’s important and what’s not similar to yours. The vendor will, of course,
important in a manufacturing environment. give you only the names of those who are
Here are some ways to separate the satisfied, but canny questioning can reveal
manufacturing pros from the pretenders: a lot more than you may at first think. Even
Ask them if they’ve ever worked in asking the simple question, “Do you feel as
manufacturing (not just selling MRP or if they had (or have) your best interests at
ERP software) and for how long? Do they heart?” can be very telling. (Of course, if a
want to walk the grid with you? As you vendor won’t give you specific people to
move from area to area on the shop floor, call, just move on to the next name on your
do they understand what they’re looking list of partners.)
BUILDING
A BUISNESS
CASE FOR ERP
How to justify cost and demonstrate
the ROI of an ERP Initiative.

One of the most difficult (and most

important) steps involved in an
ERP initiative is building a business
case. It’s not easy to convince the
people with the authority to write
the checks that they should invest in
a new system, especially when this
often involves changes to business
processes that may have worked just
fine for many years without failure.

There are a few key steps that will

help you establish a convincing case
for investing in a new system and
put your company on the path to
realizing greater profits and a return
on investment (ROI) that is worth the
risk involved.
26 THE COMPLETE GUIDE TO ERP

WHY IT’S IMPORTANT TO

EDUCATE FIRST

One of most important ERP project critical success in their heads that ERP is just part of a computer system
factors is executive buy-in and support. Key people and that this is just a software project, which will result
need to learn about ERP before they can do a proper in misconstrued perception of the costs, benefits, and
job of evaluating costs, risks, and benefits. Otherwise, risks involved. On top of that, they’ll almost always
it’s like trying to build a house on top of sand. They underestimate the benefits. If they think ERP is a
need to learn five crucial elements: computer system, it then becomes very difficult to
establish ERP implementation as a high priority across
• What is ERP, Anyway? the company.
• Benefits of Using ERP Software
• Who Should Use ERP? Who needs this education? Any decision makers
• How is ERP Implemented? you’ll be presenting the business case to, including
• How to Select the Right ERP Software top management and operating management. Don’t
include more people than necessary, but make
Many companies make the mistake of presenting a sure that anyone who will be held accountable for
business case before they take the time to educate the costs, benefits, and overall success or failure of the
decision makers without realizing that they can’t justify ERP initiative is involved. It can be difficult to get
the cost of ERP if they don’t really understand what it’s participation across the board on this education
all about. Without the proper background knowledge, process, but it’s key to your success as an organization,
your job of presenting a convincing business case will so don’t hesitate to lead and present educational
be much more challenging. Decision makers will likely materials yourself and frame it as part of the business
underestimate importance of the initiative and have it case presentation.
 THE COMPLETE GUIDE TO ERP 27

HOW TO DEVELOP A
DEFINITIVE SET OF CASE
JUSTIFICATIONS
Once you’ve educated your decision makers, the next
step is to present your case. The easiest way to do this
is to put together some fact sheets to present on the
following:

• Alignment - Create a list of ways the ERP

solution you’re recommending aligns with your
organization’s goals, business process, and daily
operations and why they’re a good fit
• Benefits (both tangible and intangible) - a list
of benefits, what goals they align with, and how
success will be measured.
• Risks - Create a list of investment risk factors and
the corresponding concerns/implications

The next step is to present a cost/benefit analysis.

Instead of just throwing a massive price tag on your
ERP initiative, your decision makers will be much more
receptive if you present a carefully outlined list of the
anticipated costs (expenses) and benefits (income).
You should present each item in a way that tells your
project expenses as more of a complete story, leading
up to and preparing your decision makers for the final
price tag and anticipated ROI.
28 THE COMPLETE GUIDE TO ERP

HOW TO PRESENT YOUR COST/

BENEFIT ANALYSIS
Here’s an example that we found in an excerpt from ERP: Making It Happen: The Implementers’ Guide to Success with Enterprise
Resource Planning by Thomas F. Wallace and Michael H. Kremzar. To illustrate the process, they created a hypothetical company with
the following characteristics:

Annual sales: $500 million

Employees: 1000
Number of plants: 2
Distribution centers: 3
Manufacturing process: Fabrication and assembly
Product: A complex assembled make-to-order product, with many options
Pretax net profit: 10 percent of sales
Annual direct labor cost: $25 million
Annual purchase volume (production materials): $150 million
Annual cost of goods sold: $300 million
Current inventories: $50 million
 THE COMPLETE GUIDE TO ERP 29

Here’s how this hypothetical company would present their cost/benefit analysis:

COSTS
ITEM ONE TIME RECURRING COMMENTS

COMPUTER

Hardware $400,000 Costs primarily for workstations.

Software 500,000 $75,000 Can vary widely, based on package

Systems and Programming 2,500,000 200,000 Adapting the software to your company and training in its use. These
costs are pegged here at 5 times the software purchase cost.

DATA

Inventory record accuracy 700,000 100,000 Includes new equipment and added cycle counters.

Bill of material accuracy and 200,000 Bills will need to berestructured into the modular format. Experienced
structure engineers will be needed for this step.

Routing accuracy 100,000

Forecasting 200,000 100,000 Full time person for Sales forecasting. Needs to come on board early.

PEOPLE

Project Team 1,200,000 Six full-time equivalent people for two years.

Education 800,000 100,000 Includes costs for education time and teaching the new ES interactions
to the organization.

Professional guidance 400,000 50,000 4 days per month during installation.

SUB-TOTAL $7,000,000 $725,000

Contingency $8,050,000 $834,000

+15% 1,050,000 109,000 A conservative precaution against surprises.

TOTAL $9,100,000 $943,000

30 THE COMPLETE GUIDE TO ERP

BENEFITS
ITEM CURRENT % IMPROVEMENT ANNUAL BENEFITS COMMENTS

Sales $500,000,000 7% at 10% $3,500,000 Modest improvement due to improved product availability
at the profit margin of 10%

Direct Labor 25,000,000 10% 2,500,000 Reductions in idle time, overtime, layoffs, and other items
Productivity caused by lack of planning and information flow.

Purchase cost 150,000,000 5% 7,500,000 Better planning and information will reduce total purchase
costs.

INVENTORIES

Raw Material and 25,000,000 10% at 15% 380,000 2,500,000 One time cash flow.
WIP

Finished goods 25,000,000 30% at 15% 1,130,000 7,500,000 One time cash flow.

Obsolescence 500,000 30% 150,000 Conservative savings

Premium freight 1,000,000 50% 500,000 Produce and ship on time reduces emergencies

SUB-TOTAL 15,660,000 $10,000,000 One time cash flow.

Less costs for:

Contingency 15% -2,349,000 1,500,000

Recurring -720,000

NET ANNUAL BENEFITS $12,591,000 $8,500,000 One time cash flow.

Cost of a one month delay (Total/12) $1,049,250

Payback time (One Time Cost/monthly benefits) 7.7 months

Return on investment (Annual benefits/One Time Costs) 193%

Once benefits, costs and risk are quantified and analyzed, an ERP investment can then be appraised and (hopefully) approved.

By following the steps outlined above, you’ll be able to clearly and articulately build a business case for your ERP initiative and make sure
your audience is making an educated decision. Getting the executive support and buy-in for your ERP initiative will lead your organization
to success.
SEE MAX
IN ACTION
Visit us at max4erp.com/events to register for an
upcoming webinar so you can see for yourself why
so many manufacturers rely on MAX for ERP.

GET YOUR QUESTIONS ANSWERED BY

A MAX EXPERT
Choosing the right ERP solution doesn’t have to be a daunting task.
Get in touch with a MAX Expert by calling 1.855.392.2862 to schedule
an introductory consultation. You won’t believe how easy it can be to
use MAX to help you control your business.

If you have any questions about our products and services, please
contact us at 1.855.392.2862 or visit us online at www.max4erp.com.

“
Things were getting out of control
with divergent systems. We needed
a more integrated approach and we
found it with MAX.”
DCA MANUFACTURING
Carl Proescholdt, General Manager
MAX ERP software is an Exact product for manufacturers.
Exact builds business software for SMEs and their accountants.
Our innovative technology is aimed at specific business needs,
providing an overview of today and insights into the opportunities
of tomorrow. Exact inspires businesses to grow. Our 1,600
employees love, share and support our customers’ ambition. Like
them, we aim high. Like them, we aspire to lead the way. That’s
how we know it’s a bumpy road to success. And that’s why we build
software to help smooth it out, enabling our customers from all
over the world to grow.

MAX. ERP software for manufacturers.

www.max4erp.com

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Tel: 1.855.392.2862
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