What are ERP Systems?
Enterprise resource management (ERP) systems are software solutions meant to integrate critical business functions within one platform.
These tools are often considered the single source of truth for business information. As such, they help to eliminate data silos and disparate systems between critical business functions, such as:
- Production planning and scheduling
- Inventory management
- Supply chain management (SCM)
- Finance and accounting
- Quality control
- Customer relationship management (CRM)
What is ERP in manufacturing?
ERP solutions aren’t exclusively made to support manufacturing businesses.
However, most companies in this industry will rely on an ERP system to help manage the supply chain, finance operations, inventory management, production planning, and more.
Because of this, ERP systems for manufacturing may differ from general ERPs, focusing more on production operations, real-time inventory management, and advanced supply chain management tools.
Key functions in manufacturing ERPs
As mentioned above, manufacturing ERPs may feature unique features and tools to support their operations compared to more general solutions.
Here’s a closer look at the key features of a manufacturing ERP solution:
Production planning & scheduling
One of the main aspects of an ERP solution for manufacturing is production planning and scheduling.
This tool helps companies plan for future work orders, including the labor, materials, and logistics that will be necessary to complete the production run.
These solutions may include automated tools to streamline the fulfillment of work orders while considering total capacity.
Inventory & materials management
Beyond production planning, ERPs can also aid in inventory management.
From raw materials to works in progress and finished goods, ERPs help manufacturers get real-time visibility into inventory levels at each stage of production.
According to Forbes contributor Lora Cecere, “Inventory is the most significant source of waste and the most important buffer for the supply chain.”
Thus, ERPs help automate this process, making inventory tracking much more efficient and giving teams more resources to invest elsewhere, like research and development, purchasing new equipment, or pursuing other growth opportunities.
Supply chain management (SCM)
Supply chain management (SCM) is a core function of ERPs for manufacturing businesses.
This enables manufacturers to streamline end-to-end supply chain operations, including ordering raw materials, processing purchase orders, and overseeing logistics and deliveries to the customer.
Within the integrated ERP system, manufacturers can track labor, materials, and shipping costs for better visibility into profitability and additional metrics to ensure on-time deliveries.
Finance & accounting
Most ERP solutions feature finance and accounting tools, and manufacturing ERPs are no different.
This function helps manufacturers manage accounts payable and receivable, track production costs, and update the general ledger with transaction data from across the business.
Using their ERP, business leaders can get a real-time assessment of profitability and cash flow levels to support informed decision-making.
Quality control
Manufacturing ERPs may also feature quality control (QC) tools, helping businesses assess the quality of their manufactured products alongside other production management and supply chain solutions.
These tools can help manufacturers define quality and compliance standards, automate inspections, and trace production outputs to raw material inputs.
All in all, these tools make it easier for manufacturers to document QC activities and uncover sources of non-compliance to reduce future waste.
Customer relationship management (CRM)
Customer relationship management (CRM) features are common to most ERPs, including those for manufacturing.
This is where businesses can store historical customer data, including order history, quotes, invoices, past communications, payment details, and more.
These tools help support the customer relationship by making these key details easy to find, and may even support automated outreach to nurture existing customers and leads.
The ERP connects this customer data to production and planning, helping to forecast future demand.
How manufacturing ERPs work
As mentioned throughout, manufacturing ERPs work by integrating core business functions into one platform.
In this way, it works as a comprehensive business database with several key modules that can help automate typical workflows.
Here’s a quick look at how manufacturing ERPs work in practice, with data and workflows seamlessly integrated between key business functions:
- Centralized database: Each department stores critical manufacturing data and processes in one centralized system, breaking down data silos.
- Production planning and scheduling: Using customer orders and demand forecasts, the system helps the team understand what needs to be manufactured, when, and with what materials.
- Inventory tracking: Raw materials, works in progress, and finished goods are automatically tracked as they move through production.
- Shop floor quality control: Throughout production, the system evaluates goods for compliance and quality, tracks machine usage, and flags possible waste and inefficiencies.
- Financial reporting: Labor and manufacturing costs are automatically calculated at every stage of production, updating the general ledger and enabling real-time reporting of key performance indicators (KPIs).
Benefits of implementing ERP in manufacturing
There’s a reason manufacturing companies are among the leading users of ERP solutions.
Below, we’ll walk through some of the main advantages for companies that implement these systems.
Better visibility
One of the key benefits of using an ERP solution is that it provides real-time visibility into key business functions.
With all departments regularly using and updating the tool with daily activities, it stays up-to-date with the latest information, helping other stakeholders gauge production levels, available capacity, and costs in an instant.
Increased efficiency
With easy access to key operational data in one location, manufacturing ERPs help improve workplace efficiency.
Decision makers spend less time tracking down pertinent information or navigating disparate systems. Instead, relevant data is easy to access in one centralized location, leading to quicker, more informed decision-making.
Plus, these systems typically offer certain automated features, helping to eliminate manual processes and minimize human error.
Improved customer satisfaction
Manufacturing ERPs don’t just benefit internal teams; they can also improve the experience for customers, too.
With streamlined order processing, production planning, quality control, and logistics, orders can be fulfilled more quickly, with fewer errors, and with on-time delivery.
Reduced costs
Teams can also benefit from reduced costs when implementing an ERP system.
While there is some upfront investment required to purchase software licenses and implement the tool, there are plenty of long-term cost savings that can produce a positive ROI.
This comes from the lessened reliance on manual labor, more accurate production planning and forecasts, and better insights into spending patterns and inefficiencies.
Choosing the right ERP for your manufacturing business
Each company has unique processes and requirements when it comes to implementing a new software tool, especially one as comprehensive as an ERP solution.
Evaluating, testing, and implementing a new ERP takes careful consideration, collaboration with key stakeholders, and resources to set it up successfully.
The specific implementation process and timeline will vary between companies. However, these are some general considerations for manufacturing companies evaluating a new ERP:
- Make sure the tool supports manufacturing businesses
- Understand the tool’s scalability to support your business as it grows
- Review the modules it includes (e.g., production planning, finance, etc.)
- Calculate the total cost of ownership (e.g., licenses, implementation, etc.)
- Determine the expected return on investment (ROI)
- Estimate the implementation timeline
- Evaluate what resources will be needed to implement the tool
- Inquire about the available training and support resources the vendor offers
- Check to see if the tool integrates with your existing systems
- See what customization options the tool offers (and any added costs)
Customization vs. out-of-the-box solutions
When choosing an ERP, manufacturers should determine whether they’ll need a custom system or if the out-of-the-box solution will suit their needs.
A standard, out-of-the-box solution is a good choice for teams that:
- Want quick implementation
- Lower upfront costs
- Ongoing updates/improvements
- Have standard operations
However, some companies may have unique requirements that is better suited for a fully customized solution. This includes manufacturers that:
- Have complex or proprietary workflows
- Can invest heavily upfront to get the tool to their standards
- Can withstand a longer implementation period
Future trends in manufacturing ERP
Manufacturing ERPs aren’t necessarily new in the landscape of business software solutions.
However, there are plenty of ongoing trends and improvements to these tools that make them more agile and leverage the latest technology. This includes:
- The rise of cloud-based ERP solutions: Manufacturers that implemented on-premise solutions in previous decades may increasingly turn to cloud-based solutions. They are cheaper to implement and maintain, and receive automatic software updates from vendors.
- AI and machine learning in ERP systems: Both new and existing ERPs are leveraging cutting-edge technologies to enhance predictive analytics, forecasting, and automation.
- Sustainability in manufacturing: ERPs are becoming better equipped to help manufacturers track progress on green initiatives, like measuring the carbon footprint of certain production processes or identifying sources of waste.
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Frequently asked questions
What does ERP mean in manufacturing?
ERP in manufacturing stands for enterprise resource planning. These are software solutions meant to streamline business processes within one integrated tool, including:
- Production and planning
- Inventory management
- Supply chain management
- Finance and accounting
- Customer relationship management.
Manufacturing ERPs offer access to real-time information and seamless data sharing across the organization, helping to improve efficiency, empower decision-makers, and boost overall productivity.
What is the most common ERP system used in manufacturing?
Some of the most common ERPs for manufacturing businesses include:
- SAP S/4HANA
- Microsoft Dynamics 365
- Oracle NetSuite
- Epicor Kinetic
- Infor CloudSuite ERPs
