What Type of Manufacturing Mode Are You?
Process, Discrete, Job Shop, Make to Order, and more
This is an important question to answer since software developers for manufacturing ERP design their software based on the types of companies or industries that they want to support. Keep in mind that all software started somewhere (at some company) possibly a long time ago. Other software solutions were developed independently to serve an entire industry or industries. However, all software has a fundamental design approach for how it will support the manufacturing and business process of companies who choose to purchase that program.
The highest level of design difference addresses how a company produces their products for sale. Companies that take a number of small components and combine them into a larger item are know as discrete manufacturers. The majority of software is designed for discrete manufacturers. However, there are companies that effectively take big items and make them small. These manufacturers are known as process manufacturers.
A company that uses numerous components to make equipment is a discrete manufacturer. A company that converts tanks of chemicals to smaller containers is a process manufacturer even though that process manufacturer has a formula or recipe for the elements that go into producing the tank contents. In summary the main design difference is “many to one” for discrete manufacturing and “one to many” for process manufacturing.
For purposes of communicating with software companies a discrete manufacturer must further define themselves in the following categories:
Finally, many manufacturers distribute products made by other companies. This is not a mixed mode concept but rather a modification to the “regular” course of business where finished goods are bought and sold within the same environment as other products are produced. This is similar to distributing the products that a company makes on their own.
Software vendors have solutions that address one or more of these segments of the manufacturing marketplace. Some of the largest and most sophisticated offer solutions for both discrete and process industries but these software offerings do not target the small to medium sized manufacturing marketplace. All vendors will tell you where their products fit. Some will tell you that their products fit everything. Well structured demonstrations and reference checking will determine the validity of these statements.
It is important to understand how software solution providers are positioned in the ERP marketplace. While you and your team may not be ready to fully communicate your requirements to software vendors you should be aware of how these companies are focused and who they want as customers. Here are some of the general categories:
Job Shops, Repetitive Job Shops, and Small Make to Order Manufacturers
Software solutions for these categories of companies are designed to provide more basic capabilities. These companies offer solutions that are less robust and at a lower price point than other categories of solutions.
They may offer their own CRM solution that addresses only lead management and customer service. The CRM may or may not integrate MS Outlook e-mails. They may offer shop floor scheduling but primarily as infinite scheduling as their customers tend to manage capacity issues (overloaded or underutilized in work centers) rather than exact production schedules (when can this job be completed at a specific work center). Their capability to handle cycle counting includes the designation of whether an item is an A, B, or C count cycle without providing the software capability to actually determine how those designations are derived. Without citing further examples these solutions are complete offerings for their market that do not offer extensive capability. They are designed for users who want to manage at a higher level of business process and don’t want to utilize significant staff time to “feed the beast.”
Pricing for these solutions, for budgetary purposes, should be estimated at $2,500 per concurrent user. The accounting suite can be an additional $3,500 for fully integrated capability vs. $500 for a link to Quick Books or Peachtree for batch transfer of data to these solutions. Other capabilities not offered as standard sometimes includes shop floor data collection software for time and materials tracking, as well as quality modules beyond incoming, first, piece, and final inspection. Yearly maintenance cost is still in the 15% to 20% range, and daily on-site implementation costs are $1,000 to $1,200 per day plus out-of-pocket costs. All price estimates presented here are pre-negotiation values.
Note: A concurrent user or user “seat” is the number of users who can access the software at any one time. Named users are individual users identified by user login. A company with 15 named users may need only 10 concurrent user licenses or “seats” because not all users use the system frequently enough to incur the cost of providing them full time access.
Small to Medium Sized Engineer to Order, Make to Order, Configure to Order, and Make to Stock and Process Solutions
These solutions are the heart of the small to medium sized manufacturing marketplace focused on companies form $5 million to upwards of $50 million of sales. They feature a large combination of modules from which you can “pick and choose”. The breadth of their software is reasonably comprehensive and their capabilities flex well to the low and high end of this revenue range. They differ from the remainder of the mid-market in that these solutions function better in a single plant multi warehouse environment. They are not designed to truly support a multi plant platform where all operations in multiple locations are fully integrated (example: scheduling of one work order through work centers in three distinct plants all coordinated from one location).
Pricing for these solutions, for budgetary purposes, should be estimated at $5,000 per concurrent user. Additional modules for special functionality are priced in the $5,000 to $10,000 range sometimes based on the number of named users per special module who may or may not be concurrent users otherwise. Maintenance should be estimated at 20% of the final cost of all the software licenses. Daily implementation rates begin at $1,400 and go to $1,800 per day depending on the level of person involved in the implementation effort. Implementation cost for these solutions often ends up in a one to one ratio between cost of software and cost of implementation and training. All of these costs are subject to negotiations.
Advanced Mid-Market Software Solutions
There is a group of ERP software solutions that are for more sophisticated mid market companies with sales in the range of $50 million to $100 million. These solutions offer comprehensive multi-plant capability and a full range of capability that is almost as the level of a large system solution. Their capability should be considered by large organizations with an international presence only in major countries. In many cases they are differentiated from the top level systems in that they are more pre-configured and have implementation cost to software license costs that do not typically go beyond 1.5 to 1.0 for dollar cost (example is software that costs $300,000 should not go beyond $500,000 to implement).
Pricing for these solutions, for budgetary purposes, should be estimated at $8,000 per concurrent user, $15,000 to $30,000 for special modules depending on unique user counts, maintenance at 20% of final negotiated cost and implementation at a 1.5 to 1.0 ratio.
Tier One Solutions
These solutions offer full functionality and are sometimes sold on the premise that they will be almost totally configured to the needs of the customer. Because of this philosophy they really do not lack any functionality that is documentable. The have versions for discrete and process companies and have significant international presence on all continents. These solutions are typically considered by companies with hundreds if not thousands of users and have price points that frequently start at $1 million for software licenses and increase dramatically from there. For budgetary purposes maintenance is still around 20% of the software licenses and implementation costs are at least 2.0 to 1.0 against software license cost.
For comparisons of different manufacturing software products, download the free Manufacturing Software Selection Kit.
Manufacturing Software Selection Kit
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