What Job Shops Need To Know About Cloud ERP Systems
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1 What Job Shops Need To Know About Cloud ERP Systems
2 What Job Shops Need To Know About Cloud ERP Systems Job shops are under huge pressure today, from aggressive competitors, a rapidly changing marketplace and demanding customers. At the same time, they re often less than fully equipped to manage their processes effectively. Most would gain enormous value from the insights an enterprise resource planning (ERP) system provides, but feel they can t afford one or are too small to take advantage of all its capabilities. Who s it for? Job shops that want to make their processes more efficient and effective, and take advantage of new opportunities to achieve scalable growth. Summary: The best way for a job shop to take advantage of new opportunities to grow its business is by replacing very basic and inefficient business operations software with a cloudbased enterprise resource planning (ERP) system. This tool captures a wide range of data and turns it into actionable insights that help job shops make the best decisions for their futures. A cloud-based ERP also helps streamline and optimize processes to save time and money throughout the organization. Author: Neither, though, is true. Not only are ERP systems affordable for small- and medium-sized job shops, but not having one in place can cost a lot more in terms of lost opportunities. And, because they re customizable, most ERP systems can be modified to suit the specific needs of any job shop. This ebook presents a solid case for implementing an ERP system within your job shop, with background on the value these solutions deliver and the costs associated with them. 1. Does Your Job Shop Need an ERP System? Do your current operations software solutions actively help you achieve your growth goals or do they simply take inputs and generate the outputs you ask them to? Does accounting use one system for payables and receivables, sales something else for customer orders, and warehouse employees yet another for shipping and receiving? Many job shops today use a mix of tools often outdated to manage their businesses, but newer software solutions integrate processes, provide insights and, with these insights improving outlooks and decision-making, actually help you grow into new markets with new products. If you re not using an ERP system, you re missing significant opportunities to build your business profitably. Dwight Cody Consulting Manager Wipfli Manufacturing Practice 2
3 Putting Meaning to Numbers: Insights Lead to Better Decisions An ERP system gives you integrated, end-to-end visibility of all facets of your business, from procurement through end-buyer processes and activity, allowing you to identify and act on areas within the organization that need improvement. There are dozens of other reasons to use an ERP system to track and manage your business. Here are just a few things an ERP system can do for you: Helps you ensure financial compliance and reduce the risks associated with non-compliance. Allows you to track all of your equipment to determine which is generating the most revenue and which isn t delivering ROI. Helps you determine the right inventory and pricing mix to satisfy your needs and your customers. Tracks inventory to help you avoid having too much (or too little) on hand Automatically triggers orders based on inventory. Allows you to create an online employee portal that s stocked with frequently requested documents and information, like training videos, forms, manuals and others, cutting cut down on training and HR time. Tracks outstanding invoices to make contact easier and more accurate. Allows for daily bank statement reconciliation. BUSINESS VISIBILITY The 360 visibility and actionable insights that result when you use a cloud ERP like NetSuite are increased by up to 90% SL Associates 2014 Survey 3
4 Another Benefit: Speed Today s ERP systems allow you to do things not possible with older systems. Older software isn t as fast, meaning there s significant lost opportunity involved with relying on an outdated system. How long are your order-to-cash, order-to-fulfillment and procure-to-pay processes? With an ERP system today you can automate these operations, with little or no involvement from customer service. This saves time and effort, and allows you to focus on customer service and payables. How many processes within your organization are redundant? With an ERP system you eliminate duplication and reduce costs associated with doubling up on data and analysis. Plus, you have one system used across all business units and all data is integrated, which saves time and significantly reduces the likelihood of errors. VISIBILITY & PERFORMANCE PAYROLL PROCESSING COSTS INVENTORY CARRYING COSTS STAFF UTILIZATION UP TO 25% IMPROVEMENT UP TO 75% REDUCTION PRODUCTION EFFICIENCY UP TO 80% IMPROVEMENT UP TO 5% REDUCTION A cloud-based ERP system like NetSuite provides actionable insights to help you win customers and move orders through your plant. With real-time access to metrics that matter, you re able to make better decisions, faster. SL Associates 2014 Survey 4
5 2. Cost How much does an ERP system cost? It s a question that requires a close look at a job shop s needs in order to answer. The cost of the software itself can be determined fairly easily, but it s the other things that go into an ERP investment that will determine your ultimate cost. Together with an experienced consultant who knows the software and the needs of your job shop, you can begin to determine the actual cost of an ERP system by looking at these and other variables: Business Size and Structure The price of most ERP systems is based on the number of users the people in your organization who will be using the system, and the level of access each of them needs. An ERP system may offer up to 45 different modules (each of which adds to the cost of the system), some of which are designed for large organizations with very sophisticated business models and others for smaller organizations with less complexity, so choosing those that align with your needs is important and will affect the cost of the system. Integrations with 3rd-party Software There are a number of vendors that provide specialized or custom software add-ins that allow you to do things like generate custom reports not available otherwise. The more unique your needs, the more add-ins you might require, and each adds to the total cost of the system. Implementation Plan Who will help you implement your ERP? Will you go it alone, work only with the ERP provider, or leverage the experience of a consultant? We know that the experience of a consultant is extremely important when implementing an ERP the value can t be underestimated. A consultant with experience in your industry knows your challenges and knows how to put together a system that s finely tuned to help solve them. A consultant can also work closely with the ERP provider to ensure the system has all the functionality and capabilities needed for your business. 5
6 Buy-in from Leadership Your best chance for success in implementing an ERP system is to have complete buy-in from the top. When leadership supports and champions the ERP project, others will embrace it, too, and the necessary resources will be allocated to it. When leadership doesn t embrace the ERP, the costs involved in training, software selection, testing really, every aspect of an implementation rise. While understanding all of the costs associated with an ERP system is important, it s even more important to understand the positive impact an ERP can have on your business. The right ERP system and the guidance of an expert in its uses and implementation can help you: Manage and integrate all your business processes, from marketing and sales to factory floor, shipping and financials. Focus on the customer by managing the huge variety of orders, and responding effectively to changes in those orders. Ensure profitable growth by analyzing costs and helping you price your products for profitability. Reach your strategic goals by tracking and measuring key performance indicators (KPIs) throughout all facets of the company. Achieve manufacturing excellence by helping you plan, manage and build jobs efficiently. With the right software for your business and the expertise and insights of the manufacturing ERP consultant, you can optimize every part of your business with an ERP system that aligns with your needs. Even more importantly, you can better take advantage of opportunities to grow your market share. 6
7 3. What s the Total Cost of Ownership (TCO) of an ERP System? One big piece of the total cost of an ERP system immediate and ongoing is related to where that system lives. One of the decisions you ll need to make about your system is whether it s going to be based on premise or in the cloud. These two options don t necessarily differ when it comes to the capabilities each offers, but there are several factors related to infrastructure and pricing that make cloud-based systems the better choice for most job shops. Cloud-based systems are hosted on the vendor s server, not yours, and are accessed through the Internet. Systems that live in the cloud are a lot like your cable service: you pay a monthly or annual subscription fee, with additional fees for support, training and updates. You can upgrade your system at any time, but, like your cable service, you ll pay more per month. On-premise systems live at your facility, on your computers and servers. They re usually priced under a one-time perpetual license fee, usually based on the number of users, with each seat costing around $4,500 per user. You ll also incur costs of around 17 percent per year for upgrades and ongoing maintenance. Infrastructure With an on-premise system, you are responsible for purchasing the infrastructure to run it servers, operating system software and databases and for the resources necessary to manage and maintain the system. This is usually an already-overburdened IT person or team. Many job shops have either very limited IT resources or, in some cases, no full-time staff to do what s required with this type of system. Combined, these infrastructure costs are the biggest single factor driving higher total cost of ownership (TCO) of an on-premise system compared to a cloud-based system. 7
8 Cloud-based systems require no investment in infrastructure; only a platform fee, a per-user fee and the cost of implementation. With a cloud-based system, the vendor is responsible for everything: servers, storage, operating system software, security, databases, business software, updates, migration, backups, power and cooling, data center space, and support services. IT MANAGEMENT With a solution that s in the cloud there are no costs associated with servers, and IT costs are far lower. IT SUPPORT COSTS DOWN up to 70% COST TO BUY/ MAINTAIN SERVERS DOWN 100% SL Associates 2014 Survey What About The Long-Term Costs? The cost difference between these two options is significant. A report by SMB Group, How TCO Benefits Make Cloud Computing a No-Brainer for Many SMBs and Mid-Market Enterprises, showed that the cost of onpremise solutions range from 51 percent (for a 50-user scenario) to 45 percent (for a 200-user scenario) of the total solution cost over four years. The overall TCO for NetSuite s ERP and CRM cloud solution is as much as 46 percent less over four years for a 100-user implementation than comparable onpremise mid-market ERP and CRM solutions. That s due primarily to the infrastructure and related management/maintenance costs of each. 8
9 Additional Benefits The costs associated with infrastructure are just one factor making cloudbased systems the better choice for job shops. Here are a few more: Faster deployment. With a cloud-based system, you re up and running faster than with an on-premise solution because that infrastructure has already been created by the vendor. You can also try before you buy and request a demo that will show how an ERP designed for job shops will help you grow. Greater productivity. The applications within a cloud-based ERP system are available anywhere, anytime, via a web browser, and anyone in the company to whom you give permission has access to information in real-time. Flexibility/scalability. You can expand or contract the services you pay for as your needs change. Improved reliability, performance and efficiency. The uptime of a cloud-based system is typically much higher than what an internal IT person can guarantee for on-premise systems, and the system provides automatic upgrades so you re never behind a version. Support. Cloud-based system pricing includes support, so you re never on your own when it comes to issues that might arise. A job shop has significant demands on its resources, and every investment should be one that adds value to its business. Once you determine an ERP will optimize your organization and help you make the decisions that allow for sustainable growth, it s time to evaluate your choice of on-premise or cloud-based systems. Clearly, its costs and other important benefits make cloud systems the right choice for job shops. 9
10 If you d like to learn more about what the right cloud-based ERP and a consultant that knows job shops can do for you, reach out for a no-obligation consultation with one of Wipfli s manufacturing experts. At Wipfli, We Know Manufacturing The manufacturing and distribution industry is Wipfli s largest and longeststanding practice area. We ve spent decades working in your industry, and many of our team members previously worked for manufacturers and distributors. They not only understand industry problems, they ve lived them. Today Wipfli helps over 2,500 manufacturers and distributors of all sizes and types by bringing sound solutions, proactive advice, and a partnership commitment to every engagement. 10
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