The role that ERP systems can take in helping IM&E

There’s no doubt that the COVID pandemic has led to major changes in the way companies work. It has also emphasized how fragile supply chains really are. Manufacturers have realized that while they may aim to be stable, what they really need is to be agile. How rapidly can you adapt if something changes quickly like it has done? How do you ensure delivery if once reliable supply chains break? The industrial equipment and machinery (IM&E) industry needs to start looking at solutions that will handle change in key elements of the supply chain, production operations, and shipment activities without being disrupted.

The new normal for manufacturers

The adoption of digital strategies is a major feature of new strategies that manufacturers are planning. IM&E companies need to start looking at digitizing operations. A recent report The Fictiv 2021 State of Manufacturing report has shown that many companies are in the process of becoming more digitally proficient and organized.

It may be difficult to decide how to spend a limited budget on new digital technology. The good news is that if you have a modern ERP system, the process of digitally transforming your business can be done as a step-by-step process, not a big bang.

How ERP can support the value chain

The impact of change due to the pandemic is going to be experienced in all areas of the value chain. As defined in Michael Porter’s book ‘Competitive Advantage’, the primary activities of the value chain are:

1. Inbound logistics – the processes related to receiving, storing, and distributing inputs internally;
2. Operations – the activities that transform inputs into outputs, ie, your manufacturing operations;
3. Outbound logistics – how your products are delivered to customers;
4. Marketing and sales – how you engage with prospects and clients;
5. Service – how the value of products is maintained once purchased through service to customers.

Inbound

The pandemic has caused a supply shock. The globalized supply chain won’t disappear but it will certainly change. Companies are looking to add new suppliers to their existing base, but the old ways of calling for new suppliers and validating their qualifications won’t suffice anymore. It can be done digitally with a supplier portal. This is an interactive web platform that enables online transactions and streamlines collaboration with suppliers for processes like requesting quotes and tracking the progress of supplier deliveries. It ties into the ERP system where quotes and purchase orders are managed

A major challenge for IM&E manufacturers is managing inventory. Running a warehouse as a silo, for example using a spreadsheet, will not help sales when a customer asks for a quote, or the shop floor if they need to know what materials are available for a production run. An ERP system with an inventory management system enables the real-time tracking and reporting of material or parts, and with serial and lot tracking the location and quantity of specific items can be tracked. Because inventory is integrated with other business functions, procurement knows what to order, production knows what material is available and where, salespeople know if items are available to quote or deliver, and finance can manage and report on inventory costs.

Operations

IM&E manufacturers deal with complex specifications, for new products, orders or for changes. So there needs to be a structured process, supported by an ERP system, to take specifications and integrate them with existing designs, production plans and inventory requirements. This information can also be shared with suppliers to help when making design decisions.

IM&E businesses need to have a flexible and agile planning and scheduling capability. This requires visibility into production to monitor labor and machine efficiency, identify capacity constraints and schedule jobs to maximize order fulfilment and resource utilization whilst maintaining profitability.

Keeping track of jobs and planning the production of orders is a challenge for shop floor managers. Visualization of the production process helps evaluate the actual progress of a job, giving an indication of where there could be potential delays.

An ERP system manages the complex interaction of planning, production scheduling and tracking, the Bill of Materials containing detailed specifications of everything needed to make up the final product, and the material requirements plan. Working together, these systems schedule purchase orders for items, taking into account production plans, shop floor capacity, and delivery schedules from different suppliers. With current disruptions of supply chains, the timing of purchase orders is critical to prevent stock-outs on required parts and raw materials.

The ability to trace materials and parts from their origin through manufacturing to final destination is also becoming a critical issue. Having an ERP system that tracks lots and serial numbers provides visibility through the supply, production and delivery chain, which allows you to trace the source of defects should they occur.

Some manufacturers are going further and exploring the Smart Manufacturing concept. This involves using real-time data and technology to get information about manufacturing processes when and where it is needed, in the form it is needed, to empower smart decisions about business operations.

Using intelligent sensors manufacturers can monitor the movements of items in each step of the production in real-time. Better control and transparency of manufacturing processes through the use of embedded intelligence also creates opportunities to improve productivity. For example, analyzing real-time production data to uncover hidden inefficiencies and implement changes faster. At the supply-chain level, smart manufacturing technologies can deliver critical information, such as forecasts and schedules to suppliers, while also monitoring delivery performances.

An ERP system has the capability to process the data produced from sensor devices on the factory floor and in products.

Outbound

For moving and distributing goods to customers, the pandemic has shown how important it is to have digital technologies to support planning, managing and executing distribution operations. Having modern solutions to manage inventory and provide full traceability allowed companies to protect the integrity of their supply chains.

The supply chain disruptions of the last year are forcing a review of order fulfillment – picking, packing and shipping orders to customers. To be more efficient, it requires an inventory management system that automates the process, enhances the workflows, and moves orders to the next step. This system also reduces the chances of human error and can reduce operational costs.

Sales

A substantial amount of time is spent calculating costs to offer accurate quotations. To provide better service to customers and quick turnaround times, the quotations system should provide an accurate view of costs for material, labour and production time to enable timeous quotes. To do this requires access to the right information.

Integrating quotations and sales with inventory and production functions will improve customer service. A salesperson can automatically replenish stock in the event of shortages by raising a purchase order for stock, or initiate a transfer from another warehouse, or create a job for items to be made.

Service

In addition to thinking about their physical products, manufacturers should consider what services those products may need over their lifetimes. This requires looking at the digital tools that will be required to support them.

With sensor technology, IM&E manufacturers can embed sensors into their products that send out alerts if a machine is exhibiting faulty behaviour. This is now a growing part of manufacturing called equipment-as-a-service (EaaS). Manufacturers can now differentiate themselves by the after-sales service they deliver as well as the machinery itself. EaaS needs an ERP system to manage service SLAs and inventories, monitor the supply chain for parts, and give customers a portal to order products and services.

The role of ERP for the manufacturer of the future

An ERP solution can integrate information from across the organization into a central system. Through this unification of information, the company can manage all the aspects of its value chain no matter what further shocks come along. In the new world of manufacturing, the ability to connect to digital services will become important. Companies will need software to connect to these services and consolidate the data from those services with information already in the business.

What everyone has learnt from the pandemic is that no one can predict the future. What you want to avoid is slipping back into the trap of relying on old models. But you can ask questions, exploit existing capabilities and explore new opportunities that digital technologies offer.