ERP is one remedy to growing pains

Posted on 7 Mar 2011 by The Manufacturer

Post-recession manufacturing demands agile, responsive and highly efficient businesses. John Stephens discusses with Craig Such of Access the scenarios where ERP systems have pulled companies through the downturn, helping to fix some growth pains including varying order profiles and retaining full-time staff to help with IT system implementation.

The future for UK manufacturers is looking bright. Optimism reigns in all quarters, with official figures and closely-watched surveys endorsing the positive impression that economic rebalancing is now happening.

Bulging order books bring a new set of challenges to manufacturers; how to deliver this business without the luxury of pre-recession resources. For some, the recession asked for cost cutting by whatever means possible – for most manufacturers, this meant reducing headcount and every type of operational cost was studied under the financial microscope.

And those organisations that made cuts to survive this recession are bearing the wounds. The cuts they made are now causing a stranglehold on some businesses and making it challenging to grow with their reduced resource levels. This view is endorsed by Craig Such, head of the manufacturing division of consulting and software supplier, Access. “Manufacturers have not really had much choice, forced to make cuts, particularly on staffing levels, but now that business is picking up many businesses will find it hard to cope with demand.

Either they have to recruit more people, or they have to work smarter and more efficiently. More and more companies are realising technology can fill that gap.” Technology investments such as ERP systems, which can do much more than paper over the cracks, can provide a clear route through the inefficiencies to long term process and performance improvements.

But it is not only resource levels that are restricting manufacturers’ ability to bounce back.

Often, the profile of orders has changed significantly and this is making it even harder to manage an increase in demand.

“I spoke to a manufacturing company this week that was encountering just this type of scenario,” said Mr Such in December 2010. “They had made the necessary cutbacks and now business is returning, but it’s not necessarily the same make-up [of orders] it was before. They can see that if they don’t make changes, they will find it very tough to meet these demands.” The company is a £60m turnover business, part of a £220m group. This is fairly large SME, but this is a challenge facing manufacturers of all sizes and in all sectors. “Companies have run down their stock levels to create a leaner business.

But whereas a manufacturer may have received several large orders each month, for example, they may now receive many more orders on a weekly basis, as their own customers have realised it’s more efficient to push stockholding up the supply chain to their supplier,” Such says. As well as order quantity, order type may have changed markedly, too. It is normal for a company that used to sell standard product to have diversified and moved to more bespoke goods to meet customer demand.

All of which goes to explain why some manufacturers have decided that the time is right to invest in a new ERP system. While some may see it as a bold and often costly move, particularly given the fragile nature of the economic recovery, others take the view that this is precisely the right time to invest in new technology to ensure a firm foothold is established for the future.

Crucially, modern technology like this will enable manufacturers to bridge the gap between new business wins, changing order profiles and fewer resources.

An end to manual data re-input

Much remains to be done to improve efficiency levels within manufacturing, says Such. “It still amazes me, for example, how many companies have disjointed processes and disparate IT systems. Information is rekeyed manually, but these companies fail to see the waste inherent in this activity,” There is also the potential for error. “It doesn’t make sense. Companies want to be more efficient and want to reduce overheads, but they don’t see manual rekeying of data as a problem.” How do modern ERP systems drive better processes to help manufacturers? Order processing, for example, is much slicker. If manufacturers find that their customers place smaller orders more frequently, that demands better administration, otherwise the transactional cost per order for the supplier will rise. More orders equals more administration, which equals more cost. “If your customer has changed from one large monthly order to four smaller weekly orders, the processing and administration cost to you could double or even treble, so you need more efficient systems to cope with that,” agrees Such.

Recovery from recession in good shape is not only about winning new business. New orders are not the panacea that some may think if the organisation cannot cope effectively. In one situation that Such has seen recently, a manufacturer went into administration and a competitor stepped in to take over the contract.

But the acquiring company suffered the same fate as the previous incumbent because it did not have the necessary infrastructure, processes or, importantly, cash flow to enable it to adapt to the change.

There are some key issues that ERP systems can address for manufacturers in the recovery cycle. Firstly, stock availability. “The change in order profile or order numbers may mean that manufacturers struggle to maintain the right levels of particular materials,” says Such. “Any shortage will affect cost as well as customer service.” Planning is also an important area where ERP can help. Manufacturers may not have sufficient resources to plan production schedules manually and some ERP systems have integrated planning capability, enabling intelligent scheduling, or even integration to an advanced planning and scheduling system. Either way, there is a planning solution to meet diverse requirements.

Implementing a new ERP solution during a recession has proved to be a way in which businesses can in some cases retain skilled labour, avoiding flexible working hours, and employ it usefully on a project of this nature. These are companies that were already considering a new ERP solution, but when the downturn took hold, rather than deferring the project they decided to go ahead and use the opportunity to install the technology without any disruption to the business.

Such has experienced this kind of scenario: “One of our newer customers had considered moving staff to short-time working,” he says. “Instead, they decided to invest in a new ERP system, keep their staff working five days a week but use the fifth day to work on implementing the new system. They could see that when they came out the other side, they would still need a new system in place, so the recession afforded them the quiet time to put a new system in.”