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What is Manufacturing ERP
25Jan

What is Manufacturing ERP?

What distinguishes Manufacturing ERP from other ERP systems?

We are all familiar with what ERP systems are: One software solution that brings all core business processes into one database and system, eliminating ‘silos of information’ and separate applications for various departments. They operate in real time, and have a consistent ‘look and feel’ across all applications.

ERP started in the manufacturing industry, but it headed off in new directions.

Many ERP vendors built their systems purely for finance and accounting, some for warehouse and supply chain management, many for governments and non-profits, to name just a few. Most ‘front-office’ functions, such as such as Customer Relationship Management (CRM), e-Commerce, Supply Chain Management (SCM), and Business Intelligence (BI) were added from 2000 onwards, as the internet allowed interconnectedness and access for employees, customers and vendors.

All organizations need the core modules: General Ledger, Accounts Payable, Accounts Receivable, and probably Payroll and Human Resources (HR).

Trading organizations, those that just buy and sell, need Sales Orders, Purchase Orders, Inventory, and Supply Chain Management.

Manufacturers need all these functions, but they also need so much more.

Manufacturing ERP is an industry-specific solution for manufacturers and distributors, whereas generic ERP only has common functionality that businesses across various industries need and use

Generic ERP vs Manufacturing ERP

Download 60-Second Comparison of Generic ERP and Manufacturing ERP Infographic

Defining Manufacturing ERP

So what is Manufacturing ERP today? What does it offer the modern manufacturer?

Manufacturers are different. They don’t construct buildings, they don’t run governments or NGOs, and they don’t buy and sell without adding value. Adding value is the difference. Manufacturers buy materials and turn them into something else.

Manufacturers may operate in one or more modes:

  • They may make products to orders received (make-to-order).
  • They make products in anticipation of orders yet to come (make-to-stock).
  • They may make standard products which are frequently customized to customer requirements or specifications.

Regardless of the mode, all manufacturers share a similar process that prompts 8 big questions that they need answers to, between the receiving of an order, and dispatching the goods to fulfil that order.

Once the Sales Orders start rolling in, a manufacturer has many questions which need to be asked and answered:

  • What do I need to make?
  • When do I need to make it?
  • How do I make it?
  • What do I need to purchase to make it?
  • What resources do I need to have available to make it?
  • How can I make it efficiently?
  • Can I manage the costs of making it to turn a profit?
  • How do I ensure that what I make is at the required quality?

What is needed, in a manufacturing ERP system, are the applications or modules to consistently answer those questions:

  • ERP Bill of Materials & Routing
  • Enhanced Inventory Management
  • Master Production Scheduling (MPS)
  • Material Requirements Planning (MRP)
  • Capacity Requirements Planning (CRP)
  • Advanced Planning & Scheduling (APS)
  • Production Management
  • Automated data collection
  • Integration with plant floor machinery
  • Total mobility of access to data
  • Quality Assurance / Quality Control

In addition, the development of the Bill of Materials may require integration with design applications such as CAD/CAM software. Manufacturers, particularly those making for the consumer goods market, will frequently adopt some form of Product Life-cycle Management.

Answering the questions with manufacturing-specific functionality

When customer sales orders are loaded into a manufacturing ERP system, they are aggregated by the Master Production Scheduling to answer the first question, what do we need to make? MPS can combine orders of the same product into single production orders.

As each sales order has a ‘request date’ on it, we also know initially when we have to make the products to meet the customer’s requested delivery date. This, of course, presumes we have unlimited capacity in our plant, and unlimited resources to make what is needed. That would be an extremely inefficient plant.

Because everything on those sales orders needs to be made, we need something to tell us how they are to be made. That something is the Bill of Materials (BOM), which is a lot more than just a list. In fact, the Bill of Materials drives almost everything from this point forward. At its most basic level, an indented BOM is a view of the product showing each sub-assembly and the parts required to make each of them, all rolling up to the final assembly – the saleable product.

Routing works together with the BOM. Routing tells us the order that sub-assemblies are made, what machines they can be made on, what skills are required to operate those machines, and much more.

A really important aspect of Routing is how long it takes to make parts or sub-assemblies on each machine or work-center. This is their capacity, i.e. throughput over time. Capacity Planning tells us the loading on each machine, and where bottle-necks occur. Alternate routings can be used to spread the load or reduce bottle-necks. Such bottle-necks may indicate that either additional plant must be acquired, or some tasks can be out-sourced to a different, contract, manufacturer. Out-sourcing is also tracked through a production order tied to purchasing.

You start to get an idea now that not all customer request dates can be met exactly. This is where Advanced Planning & Scheduling (APS) comes in. A highly visual planning dashboard in modern manufacturing ERP replaces the old white-board planning boards in the production management office. On this dashboard, the production manager sees every planned production order, with each top-assembly linked to the sub-assemblies below it so, if you move a top assembly, all the steps below it move in sync with it. This dashboard allows production management to perform ‘what-if’ scenarios to obtain the very best scheduling to meet customer request dates and make the most efficient use of machinery. Of course, a good APS module already does most of this for you, establishing the best routings and timings when the dashboard is first loaded.

Nothing can be made until you have the raw materials needed to make it. Material Requirements Planning (MRP) fulfils this function. MRP looks at the BOM and identifies all the materials required with their quantities. It will compare this ‘demand’ with the current ‘supply’, which is the sum of inventory on-hand, purchase orders already placed but not yet received, and any safety-stock level established to ensure the plant keeps operating when there are supply delays, quality-rejections, or urgent orders. MRP will consolidate orders for the same materials, and for the same vendor. It will manage lead-times which dictate when you need to place purchase orders for delivery at the right time, it will tell when to give the vendor a ‘hurry-up’ to expedite purchase order deliveries, and it enables ‘just-in-time’ inventory management.

Now we have our materials on-hand, and we have refined our schedule, the production orders are sent to Production Management. This is where raw materials are turned into finished goods, which means it involves lots of movement of inventory. In order to keep the factory floor operating efficiently, modern manufacturing ERP will have resource management, tooling and calibration management, and the ability to plan maintenance and downtime. Shop floor automated data collection serves a number of purposes:

  • Records the movement of inventory as it moves from one process to another.
  • Provides quality feedback to the system to manage complete, reworked and scrapped inventory to ensure the full order is made.
  • Gathers information about machines to assist with preventative maintenance and pre-empt breakdowns, and measure efficiency.

Direct communication from your ERP system exchanges information and manufacturing instructions with specific machines.
As processes complete, material usage should back-flush to immediately update inventory, and the next-stage inventory is also added.

If all the inventory management sounds like it could be a bit of a nightmare, it can be! Manufacturing ERP built for the 21st century has Enhanced Inventory Management to help. This includes advanced inventory management techniques such as: ABC Cycle-counting; perpetual inventory; staging of inventory ready for production so factory workers don’t waste time looking for it, including being able to return unused materials from production to the warehouse; mobile technologies to manage inventory at every step, including stock counting; the use of bar-coding on products and bins and ‘license plates’ on pallets.
Intelligent forecasting creates individual supply and demand plans for materials and finished goods to optimize inventory. This reduces the capital investment in inventory while ensuring there is always sufficient on-hand to meet your manufacturing requirements.

Quality management is missing from many ERP systems, even those designed for manufacturers. Quality Control (QC) provides capabilities to maintain quality in the process chain by inspecting and testing raw materials, in-process-materials and finished products. Quality Assurance (QA) provides a way of planning your work to ensure quality outcomes.

As more and more manufacturing moves to customization, a Product Configurator becomes a must. This lets you make changes easily to a standard product configuration, or bring together standard pieces to make a new or amended product.

Selecting the right manufacturing ERP solution

Every manufacturing enterprise is unique in some way. Different products made demand different process to arrive at the finished product. Even within seemingly identical industries, different selling models, business philosophies, and markets can make huge differences.

Make sure, when selecting a modern digital-ready manufacturing ERP, that:

  • The ERP solution is indeed a true manufacturing ERP.
  • It has all the functions needed for your unique business.
  • The vendor knows how to talk your language and help you get the most out of your ERP system.

That’s what we do at OptiProERP. We only do manufacturing, and we do it extremely well.

Contact us now to find out how we could work with you to put manufacturing ERP intelligence between the ears of your operation.