Cut to size – ERP for SMEs

Posted on 6 Feb 2011 by The Manufacturer

Prior to a management buyout in 2009, Poole-based electronics manufacturer Hansatech had invested heavily in a large ERP system from a well-known ERP vendor.

But it was a system with which the business felt increasingly uncomfortable, explains Hansatech’s IT manager Steve Ching.

“The business was growing, and we were looking to recruit more employees, but we felt that our choice of system was impeding our progress, not enhancing it,” he notes.

And it wasn’t difficult to see why.

“As a business, we need to change how we do things extremely quickly, in order to both win new business, and keep existing customers happy,” Ching points out.

“And we don’t want to pay a software company to make those changes: we want to be able to do it in-house, as and when we need to do it. With our previous system, we were always talking to the software company about the specification of the changes that we needed — and by the time that they were complete, it was often too late.”

It’s a common complaint. Scratch a typical small-to-medium-sized manufacturing company, and you’ll often find dissatisfaction with the ERP system that the business is running.

The reasons, though, are many and varied — and sometime surprising. For although smaller businesses can in theory make just as good a use of ERP systems as can their larger brethren, in practice it’s not quite that easy.

Business processes aren’t as defined or formalised, for one thing. Smaller businesses, too, typically don’t want — or need — the breadth of functionality offered by a ‘full’ ERP system.

In both cases, manufacturers lumbered with such a system are liable to be complaining about ‘bloat’, unnecessary administrative burdens, and too much complexity — especially when it comes to training new employees in how to use the systems.

Workflow, too, can be a problem. With much flatter organisation structures, one person in a smaller company can sometimes be responsible for roles carried out by several people in a larger business – giving rise to complaints about employees needing to access multiple screens and modules in order to carry out seemingly simple tasks.

And finance is a factor, as well. To put it bluntly, ERP systems aren’t cheap, with the major vendors liable to charge an eye-watering several thousand pounds per user — or ‘seat’ — in the jargon.

Indeed, look closely at those companies cited by the software industry as leading the charge towards more flexibly-funded solutions such as cloud computing and Software as a Service, and you’ll often find that they are smaller manufacturers, cutting loose from what they complain of as the high costs of mainstream solutions.

Going for gold

So what does a good ERP system for a smaller business look like? What financing and deployment options are available? And which providers offer these systems?

The big picture isn’t difficult to discern.

“Large companies often have very fixed requirements,” notes Jonathan Orme, sales operations manager at Exel Computer Systems. “The requirements of small companies are much more fluid — so they need their systems to be able to change and adapt as they grow.”

And much more than is the case with larger companies, he believes, it’s important for smaller manufacturers to have ERP systems that they can configure and customise themselves.

Nor is it simply a question of simply a question of ‘tweaked’ data entry and reporting screens. The very nature of a smaller manufacturer’s business model can change quite radically over the likely lifetime of an ERP system — especially when, as now, the wider economy is under pressure.

“Whereas a manufacturer may have formerly received several large orders each month, they might now receive orders on a weekly basis, as customers order small quantities more frequently,” says Craig Such, head of the manufacturing division at ERP vendor Access Supply Chain. “And as well as order quantity, the order type may change dramatically, too, as companies diversify and offer bespoke products to meet customer demand.”

And smaller manufacturers also typically have much lower levels of IT resource — both in terms of IT skills and staff, as well as the financial resources to fund what might be a significant expenditure.

“The typical small manufacturer doesn’t have a big IT department, or a big IT budget,” stresses Matt Muldoon, vice-president for product marketing at Epicor. “They need ERP systems that are actually aimed at the mid-market, with bundled best practices that work out of the box, and which are flexible and configurable.”

Affordable solutions

After something of a slow start, software giants SAP and Microsoft have both made the running in providing those systems, with each of them offering not just one but three distinct offerings aimed at the smaller manufacturer.

Microsoft, for instance, bought specialist mid-market ERP company Great Plains Software in 2000, and followed up by acquiring Navision in 2002 — with Navision bringing with it the Navision ERP product as well as Axapta ERP, acquired in a merger with former rival Damgaard. Today, the three systems have been extensively developed and respectively renamed Microsoft Dynamics GP, NAV and AX.

SAP, too, has three offerings. SAP Business One is aimed at the very smallest companies — typically those with 10-50 employees. SAP Business ByDesign, in contrast, aims at meeting the needs of somewhat larger businesses, typically with 50-500 employees. Finally, SAP Business All-in-One aims to meet the needs of the very largest businesses: very much medium-sized, rather than small, and generally employing over 500 employees.

Nor have ERP vendors — big or small — been left on their own to make all the running. The first computer system that most small businesses start with is a basic accounting system, offering invoicing and accounting essentials. Not surprisingly, then, vendors of such systems have spotted the opportunity to tap into customers’ brand loyalty.

Swansea-based Gower Chemicals, for instance, has recently moved to accounting software vendor Pegasus Software’s Opera 3 ERP system, having previously relied on the same vendor for accounting and finance functionality.

“We’re getting accounting out of it — but also quick and efficient control of the business,” says finance director Ian Butcher. What’s more, he adds, its flexibility has helped the company to win new business, making it easier to offer bespoke mixtures of chemicals, together with their associated labelling.

The ability to output to Microsoft’s Excel spreadsheet, too, is popular with Pegasus customers. At Gower, for instance, different cost centre managers wanted subtly different versions of the same report. “A standard report wouldn’t do,” says finance director Butcher. “Pegasus made it easy.”

And by adding limited-but-adequate functionality to an accounting system, significant cost savings are possible, reckons Mark Ramsay, managing director of Infoplex, an independent developer of add-ons for TASBooks, a leading accounting package.

“Smaller businesses are more sensitive to software prices than larger companies,” he says. “For those sorts of businesses, spending £5,000 for a system instead of £30,000 represents a significant price difference. It might not deliver a fully-featured ERP system, but the savings are big enough to make it an attractive option nonetheless.”

And cost savings, of course, are also obtainable through alternative means of software deployment: cloud computing, Software as a Service, software rental and so on.

“It’s about giving people choice in terms of affordability — in other words rental and Software as a Service as well as traditional ‘on premise’ solutions,” says Stuart Anderson, Pegasus’ sales and marketing director. “The trend at the lower end of the market is definitely towards hosted software and a monthly subscription.”

And not just for cost reasons. “Often, the attraction is easier budgeting,” says Roland van Breukelen, SAP’s UK business development manager for Business ByDesign, itself an Internet-hosted on-demand cloud computing offering.

“What people want are predictable costs, so that they can forecast their outgoings as the business grows, without worrying about sever farms, backup centres and other costs. Offer them predictable costs, and it becomes attractive — because they can get the SAP brand, at an affordable cost.”

Quick results

So back at electronics manufacturer Hansatech, how did such requirements play out? In the end, reveals IT manager Steve Ching, it was the need for configuration flexibility that provided the impetus for the business to make the decision to abandon its existing ERP system and go in search of something more suited to its needs.

That said, he adds, the realisation quickly dawned that a suitable replacement would need to tick more than just one box. Flexibility, ease of use, the ability to support agile manufacturing processes, rapid implementation and a low cost of acquisition and ownership — these were all important objectives, he explains.

And the eventual choice of system — selected from a shortlist of four — was Epicor 9 from ERP vendor Epicor. And once selected, the new system was up and running in only four weeks — an exceptionally short timeframe, ensuring minimal disruption to manufacturing.

“We were really surprised at how well employees made the move,” he says. “Because Epicor’s user interface is very intuitive, we didn’t have to arrange for as much training as we thought. We knew what we wanted, we knew the costs of running an ERP system, and Epicor has proved to be a third of total cost of ownership as opposed to our previous system.”