ERP 101 -- The Instrument Panel and Navigation System For Your Business: New Technology Unites Business Management Functions
ERP 101: IT expert from AMS explains why ERP software may be what you need to take your company to the next level.
By Chad Hoffman
Date Posted: 7/1/2006
If you’re like most pallet companies that I have encountered, your business data is scattered throughout various software programs, spreadsheets, drawings, and hard copies on file in your office. Although time and experience have made all of these pieces necessary, you may be feeling that there is little to tie the information behind your business together. As the industry continues to change, many pallet manufacturers and recyclers are seeing the increasing importance of the role that information management will play in running a successful, growing business.
You may have the best equipment, staff, and location, but poor handling of business processes and information systems can cripple your potential for growth. If the business side of your company is running poorly, you could be losing money in places that you are not even aware a problem exists. A solution for such data disconnect is Enterprise Resource Planning (ERP) software.
For some of you, the information technology aspect of business is something you may prefer not to deal with because it can be a bit overwhelming to the novice. Others may be suffering from technology disenchantment caused by a solution that failed to meet your requirements or created too much overhead once it was implemented. Regardless if you are an avid innovator or someone who is a bit reluctant to embrace new technology, adapting to change is one of the inevitable parts of running a successful business.
My pastor’s wife once told me, “Change is good. Growing things change, and changing things grow.”
There is a lot of truth in that simple statement. Change is always an opportunity for growth. Some of the greatest changes in industry have been brought about by the rapid advancement of technology. Just 15 years ago, we were really pushing the envelope with the implementation of a fax machine and a desktop computer with a floppy drive. Now we are hard pressed to find a company that doesn’t depend daily on the use of their computer network, various software packages, PDAs, and cell phones to get business done. ERP is one such technology.
What Is ERP?
When we are talking about ERP (Enterprise Resource Planning), we should immediately think enterprise software.
• ERP is software that runs on your network and integrates every segment of your business (i.e. accounting, production, inventory, and logistics).
• ERP provides a common platform to enter, share, arrange, and process data company-wide.
• ERP provides and integrates tools with business intelligence that will help with: costing and quoting, production scheduling, inventory management, materials requirement planning (MRP), human resource management, and asset management.
ERP – The Instrument Panel and Navigation System For Your Business.
A good ERP system provides instant insight into the key metrics of your business. Much like the instrument panel in an airplane, a good ERP system will tell you in a glance:
How much fuel do I have? What are my current inventory levels? How far will my current resources take me? Will I be able to fill my current orders? What do I need to purchase? What do I need to cut?
What is our current heading? What orders are we building today? What are we cutting today? What are we shipping today? What did we cut, build, and ship yesterday? Can I take this last minute order that my customer is requesting?
What’s my altitude? Are my profit margins maintaining a safe level?
How fast am I traveling? Am I maintaining a level of productivity that will get me to my destination? Why didn’t I cut or nail as many board feet as I did last month?
What is my orientation? What customers am I most suited to serve profitably? Where am I positioned to gain larger market share? Am I best equipped to be a volume manufacturer or a specialty shop?
What Can ERP Do For A Pallet Manufacturer Or Recycler?
A good ERP system can tie the loose ends together. In most pallet companies, there is a mixture of solutions that has been implemented over time. Pallets are drawn and analyzed in PDS™. The pallet is then priced out in a customized Microsoft Excel™ spreadsheet and quoted from an accounting package.
In most pallet companies orders are entered or recorded in at least two different places (usually three or four). This includes the accounting package for invoicing, one or more spreadsheets for the production schedule (both nailers and saw lines), and the shipping schedule. A good ERP system can integrate these processes into a smooth flow from drawing to invoice and greatly reduce duplicate data entry and error resulting from last minute order changes, cancellations, or additions.
A good ERP system enables better data collection off of the plant floor. Many pallet manufacturers as well as recyclers have implemented various plant floor solutions such as:
• bar-coding or tagging to manage rough lumber inventory
• touch screen data collection on sort and repair lines
• industrial handheld computers to record production and inventory transactions
• electronic counters and measurement devices on a saw line
• data collection directly from the PLC of a nailer or sort line
ERP is a platform that can receive data from all these solutions and organize it in a timely and meaningful way that will provide the full return on investment for the time, money, and energy spent on data collection.
ERP technology helps establish best practices and business processes that are sustainable as a company grows. Regardless of changeover in management team or who might be on vacation, the establishment of best practices and business processes will insure that the company continues to run successfully. This allows the management team to build the business as well as building the pallets.
What Does An ERP System Cost?
The initiation of a good basic ERP system for a single location will start in the tens of thousands of dollars. Adding modules, locations, additional integration, and hardware can easily reach into the hundreds of thousands of dollars. Like all capital investments, it’s all about ROI (return on investment).
Most people that I talk to look for a 12-18 month ROI on equipment purchases. At that point, it becomes a “no brainer”. Technology is a bit different. With software we like to see our ROI in 9 months or less. It is also important to consider the internal cost of implementation of a new system. There are real costs associated with deployment and training on the new enterprise system.
The final pieces that need to be accounted for when projecting your ROI are maintenance and updates. The industry standard is 15-20% of the original purchase price annually for maintenance, updates, and service on enterprise software.
After all the homework is done the question remains, “Can you afford not to leverage technology to your advantage?” Do some more digging if you are not convinced of the benefits that ERP software provides. Consider completing the checklist accompanying this article. You may just discover how the benefits of ERP can turn even the most ardent skeptic into a believer.
Chad Hoffman is the software solutions manager for Automated Machine Systems (AMS). He has led the development and testing of the new Palmate™ ERP system over the last 18 months. With seven developers on staff, AMS has been supplying integrated software solutions to the pallet and lumber industry for the last five years. For more information, contact at firstname.lastname@example.org or call 877-AMS-8384 Ext. 106.
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