Can ERP Boost Your Business’s Competitive Edge?

Posted on 13 Oct 2010 by The Manufacturer

The right ERP system can make an enormous difference, reports Malcolm Wheatley.

In early 2007, Chesterfield-based Stainless Steel Fasteners Ltd—a subsidiary of engineering conglomerate IMI, and a world leader in the manufacture of high integrity special fastener products—recognised it had to replace its ageing ERP system. Lacking a Customer Relationship Management capability, and relying on spreadsheets for master scheduling, it was clear that the system was no longer fit for purpose.

But what to replace it with? The days are long gone when an ERP system, on its own, offered competitive advantage. For the typical manufacturer, having an ERP system is these days simply part of the price of doing business—rather like having a phone system, for instance.

But that doesn’t mean that the choice of an ERP system is an unimportant, low-key decision. Far from it. ERP systems are costly, complex to implement, and can hamper and hinder the business if not selected and implemented with care. In short, choosing an ERP system is very much a case ‘marry in haste, repent at leisure.’

“ERP systems need to be flexible enough to allow the business to maximise growth, and in the desired timeframe,” stresses John Hammann, industry principal for manufacturing at SAP UK. “They shouldn’t be an inhibitor, or a brake.”

And in truth, of course, many firms already know this. That’s why so much very evident care is taken over the process, and why attendance at events such as ERP Connect 2010 is so popular.

But there’s another, less well-understood reason for taking care over the choice of an ERP system—and it’s got nothing to do with cost, technology, size of vendor or any of the other common selection criteria.

And it’s this: competitive edge. Every manufacturing business, in short, has one or more competitive differentiators that allows them to stand out from the pack. But all too frequently these competitive differentiators fail to feature prominently enough in the selection process, being lost among lengthy checklists of looked-for features that are in fact far less important to the business.

The result? A system that holds the business back, damaging competitiveness, and running the risk of losing customers, margin and sales growth. Indeed, go back a few years, and with vendors desperate for a sale at any price, stories abounded of companies being pushed towards unsuitable systems.

Back in 2000, for instance, analyst firm META Group damningly concluded that the average ERP implementation took 23 months, cost $15 million, and rewarded the business with a negative net present value of $1.5 million. That’s right: a negative ROI.

No longer. Vendors, to their credit, have woken up to the problem, and are no longer so prone to over-promising and under-delivering. The result? Much greater clarity about a given system’s true strengths—enabling manufacturers to home in on what a prospective system can truly deliver in terms of enhancing their competitive edge, allowing them to firmly focus on leveraging it to the full.

“We encourage potential customers to go through a ‘discovery phase’: where is the business being hurt—and what do they want to do about that?,” says Steve Farr, product manager at Microsoft, whose AX and NAV-badged ERP systems have proved popular with mid-sized manufacturers. “These days, it’s very much the strategic business issues that drive the sale.”

Engineered-to-order manufacturers, for example, or distinctively project-based businesses, won’t derive much benefit from an ERP system that is largely aimed at repetitive consumer products manufacturing businesses.

In the latter, bills of material and routings are largely static, and competitive issues revolve around slick scheduling, pull-based replenishment, and the supply chain. In the former, it’s the ability to link costs and manpower to specific projects that matters, coupled to bills of material and routings that may well be project-specific one-offs.

“‘Fit’ is vital,” says Antony Bourne, global sales director at IFS. “We specialise in the engineering-to-order and contract manufacturing markets, with an ERP system finely-tuned to the needs of manufacturers in those markets.”

Infor, meanwhile, claims process industry expertise, through its System 21
Aurora ERP system—one of several such systems offered by the firm.

Back at Stainless Steel Fasteners, the eventual choice of ERP system came from the recognition that the business’s competitive edge lay in balancing complex product configurations—some twenty million variants are theoretically capable of being ordered—with superior inventory management and strong customer relationship management.

And as a result, EFACS E/8, from Exel Computer Systems, has enabled Stainless Steel Fasteners to drive down both inventory levels and purchase prices, notes managing director Stephen Wilkinson.

“Having access to historical information, at a customer, order and stock level, is important if we are to be able to make the best strategic and tactical decisions,” he says. “We deal with materials with varying degrees of availability and fluctuating prices—and by having a historical record of who tends to buy what, and when, we can time our buying to take advantage of particularly favourable conditions.”