Automating Quote to Cash How ERP Helps Discrete Manufacturers Improve Responsiveness. An Epicor White Paper

Transcription

1 Automating Quote to Cash How ERP Helps Discrete Manufacturers Improve Responsiveness An Epicor White Paper

2 Executive Summary Discrete manufacturers face continual changes in customer demand, raw material prices, labor supply, regulations, and more. Yet their response to these challenges is hampered by siloed IT systems and inefficient manual processes. This white paper describes how enterprise resource planning (ERP) solutions automate and streamline the entire order-to-cash process so discrete manufacturers can respond more effectively to pressing concerns. By delivering visibility, collaboration, automated best practices, and business intelligence, ERP enables discrete manufacturers to save time, improve efficiency, and reduce labor, and materials costs.

3 Table of Contents Striving to Keep Pace with Constant Change...1 ERPs Help Surmount Obstacles...1 Eliminate silos of information for greater visibility and communication...1 Automated processes improve efficiency and accelerate operations...2 Easy access to data enables performance measurement and improved results...2 How ERP Streamlines the Quote-to-Cash Process...3 Quote (Estimate)...3 Order...4 Plan and schedule...4 Purchase...6 Collect Plant Data...6 Ship and Invoice...7 Review...8 Conclusion...8

4 Striving to Keep Pace with Constant Change Discrete manufacturers live in a world in flux. Customers demand innovative products at the speed of thought; often changing release schedules and products after they ve put in their order. Labor shortages loom as skilled baby boomers retire. Variations in worldwide supply and demand for raw materials and energy cause prices to rise and fall unpredictably. Changes in public policy impact business operations. At the same time, manufacturers need to hold down costs while maintaining high quality and on-time delivery to remain competitive. ERPs Help Surmount Obstacles Many manufacturers today are limited in their ability to address their changing environment due to inflexible business processes. They continue to use either manual systems or siloed applications, such as QuickBooks and spreadsheets, to manage their operations. Manual processes impede efficiency and increase costs. Siloed systems make it difficult for different departments to collaborate. Modern ERP solutions can help manufacturers become more agile and effective in meeting changing business requirements. These solutions improve collaboration, streamline and accelerate manufacturing operations, and allow manufacturers to measure performance to enable continuous improvement. Eliminate silos of information for greater visibility and communication At the heart of every integrated ERP solution lies a central knowledge repository. This repository gives everyone within the organization that interacts with products e.g., project managers, engineers, salespeople, customer service, buyers, finance and quality visibility and enables them to exchange data. Containing comprehensive data about product and process history for single level parts and multi-level assemblies, the repository stores: The Method of Manufacturer (MOM) which consists of the Bill of Materials (BOM) and the Bill of Operations (BOO). The BOM contains data about raw materials, components, and hardware. The BOO stores data about production setup time, labor and machine idle time, time required to manufacture the product, outsourcing or subcontracting lead times, and lead times for materials required for production Order data order number, order quantity, due date, quantity completed, and quantity scrapped In process production data production status, workers involved, completed processes, scrap quantities, and quality issues Purchasing data suppliers, products or services, and delivery information Resource information resources, capacity, and number of machine hours available per day Quality data inspection results and issue tracking with reason codes Shipping data delivery requirements, product, and quantity 1

5 According to the Aberdeen Group, best-in-class manufacturers in 2012 were 43% more likely than other manufacturers to have real-time visibility into the status of all processes from quote-to-cash and more than twice as likely to receive alerts so they can act immediately when certain conditions occur 1. As a result, best-in-class manufacturers can better mitigate adverse events or take advantage of opportunities. Automated processes improve efficiency and accelerate operations ERP solutions allow manufacturers to automate every operation within the quoteto-cash cycle. Manufacturers can standardize on best practices for production, planning, and execution to streamline and accelerate these operations, as well as deliver consistent quality. According to Aberdeen, 74% of best-in-class manufacturers are streamlining and accelerating processes to promote efficiency and productivity compared to 52% of others 2. Automated best-practice processes help manufacturers keep costs low and handle increasing orders with the same quality and response rate. Easy access to data enables performance measurement and improved results Business intelligence and reporting tools within the ERP solution provide access to data that allows manufacturers to analyze historical time, cost, labor, and quality data and compare it to estimates to enable continuous improvement. For example, best in class manufacturers are 78% more likely than all others to measure the accuracy of demand planning and forecasting 3. This allows them to see how successful past projections were and adjust their forecasts moving forward. The result can be greater accuracy and better investment. 1 ERP in Manufacturing 2012: The Evolving ERP Strategy, by Kevin Prouty, the Aberdeen Group, July 1, Ibid 3 Ibid 2

6 How ERP solution Streamlines the Quote-to-Cash Process Using an ERP solution, discrete manufacturers are able to improve communication, boost efficiency, and reduce costs throughout the quote-to-cash process. The following discussion describes how ERP solution streamlines and enhances each step of the way. Quote (Estimate) Manufacturers need to create estimates as quickly as possible to be responsive to customers. Studies have consistently shown that shops that turn around quotes in less than three days have significantly higher win rates than job shops whose turnaround time is greater than three days. Today, many manufacturers type up quotes and enter customer information from scratch, manually looking up necessary manufacturing, inventory, and pricing information. This makes the process laborious and time consuming. Quotes are often managed and tracked through s and faxes. Manual quote systems make it difficult to track customer requests, quote status, quote expiration dates and quotes to orders and increase the potential for incorrect billing. Analysis of wins and losses and strategic decisions on pricing become challenging because the information is difficult to locate. Using an ERP solution, sales reps or other order takers enter all the details into the estimate, such as what the customer wants, how many pieces, and the desired delivery date. A simple push of the button pulls in detailed information about the product and how to produce it from the BOM and the BOO. This information allows reps to see how costs roll up and to accurately determine what they should charge. Reps can also see if materials are available in inventory or whether they need to be ordered, which can impact pricing and delivery times. With instant access to all the necessary information, reps can create estimates in real time. Alternatively, reps can review data from previous jobs and automatically generate quotes based on that data. They simply pull a master MOM that contains all the details associated with manufacturing a product and use it as a template for similar products. They then make any operational or step changes to fine tune the quote. Reps save time because they don t need to build a MOM from scratch. An ERP solution can also make it easy to create estimates for complex multi-level assemblies. The solution may display a tree structure for a multi-level component within a single screen to ensure that no assembly is missing or no step has been omitted. This helps eliminate costly mistakes from the estimating process. Because the estimates are stored in the repository, they can also be easily accessed across the order-to-cash cycle to create accurate sales orders, production orders, and invoices. 3

7 Order Orders come from many places. They might start as an estimate. A customer might call on the phone. Or they might come in through EDI or a web store. Traditionally, manufacturers entered these sales orders into QuickBooks or another system manually. They would then create a job packet containing paper copies of all the information necessary to build the part. The job packet might include drawings of the part, quality inspection sheets, and purchase orders for necessary materials. When a change order came in, the production planner would the production manager or put a sticky note on their desk to inform the manager about the changes to the order. The sticky note would travel down the line to scheduling, purchasing, and production. Alternatively, the manufacturer would print job travelers to specify changes with multiple copies going out to different parts of the organization, creating lots of paper. When any order comes into an ERP solution, the ERP solution automatically creates a sales order and a production order with all of the information and drawings necessary to build the product. The sales order and production order are linked, giving manufacturers flexibility on the production floor. If the customer wants to ship a large order over a period of time, the ERP solution can create multiple production orders for multiple shipments linked to the original sales order. This allows manufacturers to do just-in-time shipments in a long running contract. When an order changes, the ERP solution flows the changes automatically to all other areas that are dependent on that order including scheduling, purchasing, and the production floor. The ERP solution also alerts these areas to the change to keep everyone up to speed instantly. Communicating revision changes ensures that the right product is built using the right method of manufacture eliminating scrapped parts. For example, a customer may request part of the order a week early. An ERP solution can easily manage this request by splitting the job. Production can then accurately schedule and cost for two shipments the new partial shipment and the final shipment. Plan and schedule To meet scheduled delivery dates, manufacturers must plan the flow of work through each resource. The production department must ensure that the required materials, tooling, personnel, and information are available to manufacture components when needed. And they need to schedule start and completion dates for each operation at each resource. Many manufacturers use whiteboards to schedule their shops. They have a magnet for each operation containing information such as job, operation, the time needed for that step and when it needs to take place. When a schedule changes, they manually adjust the schedule on the white board and communicate the change to the employee at the resource resulting in extra work and potential for error. Scheduling information is difficult to access in customer service. If a customer calls with a question, a customer service rep typically walks down to the production floor to get the answer. An ERP solution creates schedules for production automatically based on demand and orders. Using information from the MOM, the system calculates the individual operation load and how long each step will take and then lays it into the schedule. 4

8 If an order changes, the ERP solution automatically flows that change through the schedule and communicates schedule changes to the plant floor data collection system. Since new jobs keep coming in, the ERP solution also periodically optimizes the schedule for performance and throughput. ERP solution can create schedules that accommodate resources that use infinite or finite loading. Infinite loading assumes that resources on which operations are done have capacity available when required. It doesn t consider the existence of other shop orders competing for capacity at these resources. Finite loading assumes that a given resource has a defined limit to available capacity. If not enough capacity is available at a resource because of other shop orders, the order must be scheduled to a different time. Typical resources with which manufacturers use the finite load capability are bottleneck work centers or gateway work centers. Bottlenecks are work centers that can t process the load as quickly as other resources on the assembly line, causing work to back up. Gateway work centers are those that perform the first in a sequence of steps. The throughput of the manufacturing line is limited by bottlenecks and gateways. An ERP solution can improve throughput by communicating the amount of load the resource needs to meet the delivery schedule. If necessary, production can assign work to an alternate resource or to subcontractors. ERP solution provides the information that production needs to respond before customer delivery suffers. In addition, each operation may have more than one constraint, such as the equipment and the person running the equipment. ERP solution understands this and can schedule based on availability of multiple constraints. Schedules from forecasts and long running contracts Most discrete manufacturers schedule production based on demand. But some use forecasts to generate jobs and schedule those into the system. Material Requirements Planning (MRP) capabilities automate the job creation process to speed communication with production as well as notify buyers about what needs to be purchased. These capabilities are also useful in situations where a manufacturer has a long running contract for a large number of items to be shipped over a long period of time. Kanban Many manufacturers have components that they use for numerous products that must be on hand at all times. Whenever inventory of the component falls below a specified threshold, they make a predetermined amount more. Today, manufacturers track this inventory using whiteboards. ERP solutions may offer electronic Kanban dashboards that show them what parts need to be made and automatically directs production to replenish them. 5

9 Purchase Automating Quote to Cash-How ERP Helps Discrete Manufacturers Improve Responsiveness The schedule determines when production will need certain materials. Based on the schedule, many manufacturers employ manual processes for purchasing. They use spreadsheets and send slips of paper to the purchasing manager s desk with handwritten notes to direct timely purchases. If a purchasing manager misses a note which is easy to do the purchase isn t available when it s needed. Purchasing ends up using a costly overnight freight service that eats into margins or risks shipping late to the customer. In contrast, an ERP solution can automatically check on materials availability when an order is scheduled. If an item is needed, the system triggers purchases of necessary materials. If the schedule for a job changes or a supplier changes a shipping date for a material, the system will automatically change the schedule, which in turn alerts purchasing. The solution can also make it easy for buyers to look ahead to see what will need to be purchased in the future. This gives buyers the opportunity to bundle purchases to save money through volume discounts. Managing timing and delivery of subcontract service purchases is critical. For example, in some cases, one step in the production process is out of the manufacturer s expertise and needs to be outsourced. The manufacturer may need to send parts to the metal finisher for polishing. ERP solution makes it easy for purchasing to allocate budget. It will also track how much is being shipped to each supplier to avoid overloading that supplier and will count the number of pieces coming back to ensure the manufacturer receives what it ordered. Buyers can use the ERP solution to track how suppliers are performing in terms of quality and delivery. If a supplier delivers bad parts or raw materials the manufacturer can return them and measure supplier performance. If the purchase isn t received when expected, they can proactively follow up to keep the plant floor flowing smoothly. Collect Plant Data Manufacturers must control progress on work orders to meet delivery dates and optimize use of company resources. This means measuring performance and comparing it to what was planned. If what actually occurred varies significantly from plan, the plans have to change or corrective action must be taken to bring performance back to plan. Many manufacturers track key information manually if at all. They collect labor information using time cards. But they don t track how labor is tied to production in a more granular fashion. They take parts and move them to the next spot and ship when ready without having any visibility into the time it took to make them. Nor do they know how many products were scrapped until they re shipped out the door. As a result, managers have little visibility into when they re over or under or things take too long or they produce something using the wrong route. If customer service needs to check on status, they have to walk to the plant to find out this 6

10 information. When manufacturers need to serialize part numbers or put them into lots for traceability, they do so manually. ERP solutions can provide real-time status on time, labor, parts, and completed products. Manufacturers use data collection terminals to track time and labor. People on the shop floor log into a particular job number and can even specify an operation on the job, enabling the system to keep up with time per quantity completed. Because managers know exactly what employees are working on, they can hold employees more accountable. Employees can record any problems they encounter, which helps managers make improvements to increase employee and job efficiency. Inventory and parts are labeled with bar codes that can be tracked in real time using bar code readers or mobile devices. This offers complete control and visibility into raw materials and work in progress. Serialized part numbers or lot numbers can be added automatically. Customer service can access this information to see what s being worked on and where it is in the process so they can answer customer questions. During the production process, the solution may also store quality events (e.g. when something goes wrong and why). From that, manufacturers can queue inspections of the product and track the outcome of the inspection. If a problem occurs, a corrective action can be created that flows through to resolution and enables root cause analysis. Ship and Invoice After the order is completed, manufacturers often create shipping documents manually. Making sure the documents are correct and contain all the customer s special instructions requires digging up the estimate/work order in a tedious and error-prone manual process. The accounting department creates invoices either manually or through QuickBooks. An ERP solution flows all the necessary shipping information from the sales order to the shipping department, placing all the all the shipping details at their fingertips. Manufacturers who use ERP solution for discrete manufacturing also gain the flexibility to either ship from production or from inventory rather than forcing them to ship from inventory. Shipping from production enables manufacturers to ship more quickly because the product doesn t have to first go into inventory. They can also accurately measure actual costs for a particular production run rather than averaging the cost across all similar products in inventory. ERPs also speed and simplify invoicing. The accounts receivable application pulls in actual shipping data and accesses pricing information from the sales order to quickly generate an accurate invoice. Because these details are automated, the accounting department can send out the invoice faster and get paid faster. 7

11 Review Automating Quote to Cash-How ERP Helps Discrete Manufacturers Improve Responsiveness You can t manage what you can t measure. Since continuous improvement is so important in manufacturing, measuring performance of all aspects of the manufacturing process is essential to improving processes. Without an ERP solution, manufacturers would need to dig through paperwork and spreadsheets to manually gather the information necessary for reporting. An ERP solution can greatly facilitate a manufacturer s ability to measure the impact of its actions on the overall performance of the organization. Using information collected from the shop floor, a manufacturer can see how actual performance compares with estimates for the time and cost for each job. A job tracker and a production detail report allows manufacturers to see each operation, who worked on it, time card details, how long it took, how many pieces produced. The ERP solution will provide the cost breakdown of operation costs vs. burden costs, material costs, subcontracting costs. It can track run rates the amount of time per piece it took for the operation--scrap rates, quality issues, and whether operators identified any problems in the process. With this information, manufacturers can determine cost and profitability by customer or product group and continuously improve on a job-by-job basis. Conclusion By using an ERP solution to automate the quote-to-cash process, manufacturers can improve communication by eliminating silos, save time/improve efficiency by automating processes around best practices, and reduce labor and purchasing costs. As a result, discrete manufacturers are better able to keep pace with customer demands for innovation. Make the most of the labor they have. Gain visibility into materials and prices to ensure accurate costing. Respond quickly to changing public policy. Lower costs to remain competitive. And improve their competitive advantage. 8

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