Where to Start When Selecting an ERP System
Selecting an ERP system for your business can be daunting. When talking with lumber companies, I have heard the same concerns from many owners and CFOs…is it really worth updating? How good could the data really be? Is it too expensive?
When talking further though, most told me they knew updating was the right thing to do, but they were intimidated by the process of selecting the right ERP system for their company needs. It was just easier to not change anything. Does that sound like you?
ERP systems have become necessary to compete. With profit margins often under 10 percent, savings recovered through an efficient ERP system can become critical to your business success and, sometimes, even survival. A good ERP software solution helps manufacturers stay lean, agile and competitive.
When determining what ERP system is the best fit for your company, the first thing to do is to outline what options to consider…
OPTION ONE: A Non-ERP Software Solution
Using programs like Microsoft Excel & Quick Books to track operations and accounting information has been done in the lumber industry for a long time. I remember doing this at one of my previous jobs not all that many years ago.
PROS: Because of the low software investment, there is a low up front cost and it is relatively simple to use.
CONS: Customizing requires a great deal of manual labor. In addition, there is often a need for double and triple entry of data, which provides many opportunities for entry error and increases administrative time. There is also a lack of key reports outside of accounting available.
OPTION TWO: Large Mainstream ERP System
Popular ERP programs, such as SAP, Oracle and Infor, offer a Fortune500 accepted approach to ERP software. These companies certainly offer well-developed processes and deliverables, with many of positive attributes.
PROS: The base functionality is provided and then it is up to you to work with a consultant to customize. These programs offer a very well developed implementation process with many processes already firmly in place.
CONS: The very fact that customization to the lumber industry is needed is also a negative. Project management consultants tend to be generalists with little understanding of specific industry practices. Teaching your software provider the unique inventory and manufacturing practices for lumber can be a challenge.
OPTION THREE: Build a Company Specific ERP
Building your own custom ERP solution for your company may sound like an exciting option, allowing total customization to your business and endless possibilities. However, the huge time commitment and cost make it virtually impossible to consider for most
PROS: This option is custom and specific to your company, allowing for your company goals and most important business drivers to be used. It is a great way to create what works the best for your business process.
CONS: By designing the technical aspects of the software, start-up times are often much longer and are very cost prohibitive. Designing your own system requires employing at least one fulltime computer programmer. This programmer would have to continue to maintain the software with updates and adapt it to changing technology. The biggest downside, however, is the extensive time that set-up takes away from running your business.
OPTION FOUR: Industry Specific ERP System
Using an industry specific ERP solution for lumber provides you with specialized product functions that already account for the different nature of lumber. Be sure to look at the size of that user base when considering various lumber ERP software products. Since the software is only for our industry, the user base that is already there acts as a constant sounding board for updates and additional tools to be added.
PROS: The functionality is designed specifically for lumber and building products. Having software that already understands the different nature of everything from kiln drying to lumber remanufacturing has a distinct value. With an appropriate-sized user base, you can continue to benefit from this investment because updates will always affect you and the software will evolve as changes occur in the industry.
CONS: Some experts caution to look closely at industry ERP systems to ensure “there aren’t blinders on” with too narrow of a focus. Also, without a wide user base, industry specific software can become obsolete, so watch this closely.
What’s the Bottom Line? ERP software solutions should make your life easier and your operations run smoother. Before determining the best option for your company, take the time to identify the key factors that are important for your organization. These factors will help you select the best options to consider. Be sure to identify whether the software solution has any type of sliding scale structure for cost – will you pay the same whether you have 2 people or 200 using the software?
Bottom line is that for most lumber companies, the best solution is to find a vendor that is committed to Hardwood lumber and building materials.
Just like in manufacturing, finding your niche and fine-tuning that niche will make that vendor the best in the business. The same is true for software vendors. Find a vendor that can incorporate industry best practices into the software so it meets your business needs. This will reduce the time it takes to fully implement the ERP system, reducing implementation costs. An industry-focused vendor will provide relevant enhancements to the product over time, helping you to better manage your operations.
This article originally appeared in National Hardwood Magazine in January, 2015.