Report from the Front – Observations from a Veteran Manufacturing ERP consultant

By Tom Garske and Sheldon Needle

Based on a conversation I recently had with a very experienced MRP consultant who works with a variety of manufacturers, here are some timely observations about the most common challenges faced by prospective buyers of ERP or MRP software.

Challenge #1: Getting realistic pricing information
Manufacturing software vendors don’t like to talk about price until late in the evaluation process. A frequent technique is to lowball the software price up front , so as to not scare off the prospect, on basic applications and then have price creep once you start adding applications. These additional applications could include life cycle tracking, bar coding, EDI, quality assurance and multiplant. Adding users that cause you to cross a threshold might also affect price.
It would not be unusual to start out with a price of say $25K and see it escalate to $60-75K by the time the written quote is presented.

Challenge #2: Industry FUD
When Manufacturing ERP vendors start slamming one other using the classic FUD (fear, uncertainty and doubt) approach they may bring up issues such as their competitor does not support the product, that the product is unstable or that that it will shortly be replaced by something new. But how do you separate fact from trash talk? The fact is that sometimes these accusations may contain elements of truth. But it’s difficult for the buying prospect to separate truth from fable.
User groups can be one source of useful information on a product.

Challenge #3: How do you determine cost savings and return on investment from a software purchase?
Everyone would like to justify their Manufacturing Software purchase with the ability to save staff time or headcount. But, frequently new software benefits are not about eliminating staff. Rather, much of cost savings with new MRP software has to do with improvement of procedures and providing more current and more detailed information for better control of the business. There is no easy way to calculate the dollar benefit. Savings are easier to justify when based on getting greater utilization from assets such as labor, greater inventory turnover, less downtime of shop equipment and labor, and having more real-time data on job status.

However, if company personnel are resistant to change and won’t follow “best practices” when the new software is installed, anticipated savings may not occur.

Challenge #4: GIGO, Garbage in Garbage out.
The first step in software success is cleaning up the cobwebs and chaos that currently exist in company records. A common myth among managers is that buying new manufacturing software will force the company to follow proper procedures and keep good records. However, without a good data infrastructure in place, the chaos will only continue with new software.
Does the company have any kind of manufacturing accounting system now? is there a rational product or job shop costing system in place, even if it is manual? Is general ledger reconciled to the subsidiary ledgers for accounts payable and accounts receivable? Does an accurate, costed bill of materials exist for standard products? Is work in process inventory accounted for on the balance sheet? Is there a coding system established for finished parts which is currently being used?

Does the company regularly reconcile physical inventory counts with their computer balance?
Without at least some of these basic controls and data infrastructure in place, it calls into question whether the company will get the value expected from a new software system.

Challenge #5: RFPs are still popular and probably unavoidable for larger companies
The information provided through RFPs is often suspect. Issues of interpretation and who is filling out the RFP and the vendor attitude about RFPs, can make RFP responses very helpful or very misleading. Some vendors won’t even fill them out because they are so problematic.

Challenge #6: Person, or persons, in charge of the selection project lack the necessary experience or time to do the job right
Some companies operate like inverted pyramids – there are more people at the top doing very little, concerned more about turf protection than actually getting anything done. The key challenge is getting to the CEO and making him/her understand the importance of delegating the evaluation process to a competent committee (or individual in a smaller company) which has the authority and accountability to perform the due diligence on software selection and make a good, well documented recommendation. Too often in small to mid-sized companies only one person, without the requisite experience, is assigned the responsibility for identifying and evaluating the job accounting vendors to consider.

Challenge #7: Good software but incompetent resellers
Software vendors who use VARs are often struggling to find qualified resellers for their MRP product. Buyers must understand that while the software may look great, the person who is selling it to them may not be capable of setting it up and training staff properly. This can happen when the reseller is new to their product or simply does not understand the profile of their company. For example it takes a lot more experience to configure the setup for a mixed-mode manufacturer than it does for a straight custom job shop or a repetitive to stock operation.
Users are advised to check out the reseller as much as the software.

Summary
Software selection is a process full of potholes as attested to by consultants who have done this over and over again.. Without extensive experience novice buyers can find themselves in an uncertain state at any stagr of software evaluation and selection. It’s best to know, through previous experience, about the potential pitfalls and account for them in advance.

Accounting Software | Construction Software | CRM Software| Medical Software | Manufacturing Software
Testimonials | FAQ | Tell A Friend | Industry News | Find a Consultant | Privacy Policy | Links | Site Map