Some Straight Talk about Manufacturing Software:

Common Sense Manufacturing for Small Business Some Straight Talk about Manufacturing Software: What the ERP Industry Will Never Tell You! Dear Small Businessman: I want to share some secrets with you about the manufacturing software industry that you ll never hear from the big ERP software companies. If you can spare 10 minutes, I ll make it worth your while, because I can save you time and money whether you buy our software or another product. So who am I and why should you listen to me? We ve been in your shoes My name is Mike Hart. I m the co-founder and president of DBA Software Inc. At DBA we ve specialized in software for small manufacturing companies since 1992. I m 53 years old and I ve participated in all the major transitions of the software industry from green screens to PC s, from minicomputers to networks, from DOS to Windows, and into the age of the Internet. My family owned and operated a small manufacturing business, Hart Manufacturing Co., Glendale, CA, for 60 years. I worked at the company part time through high school and college and full time into my mid-thirties. My father and business partner, Warren Hart, managed the company for 35 years. Where did I learn about manufacturing software? Hart Manufacturing was well ahead of its time with computerization. As early as the 1970 s we had a 20+ user manufacturing system that was a blend of packaged software and custom programming. After we sold the company, my father and I were resellers for five different software packages, including three ERP systems. Eventually, we were inspired to develop our own product for smaller companies and started DBA in 1992. In those early years, I was a field salesman and a consultant and sold over 125 systems in Southern California and helped many of those companies implement their software. I ve directed product development at DBA since its founding. 1

So much for the resume here s how I can help you Because I ve worked every end of the street when it comes to manufacturing software, I have a unique perspective that can be of help to you. Specifically, I can save you time and money by making you aware of the pitfalls to avoid when shopping for manufacturing software. Just what is a small business, anyway? Most articles you read in the business press define a small business as having fewer than 500 employees and 50 million in annual revenue. At DBA, we consider that to be a huge company. The majority of our customers have fewer than 100 employees and many of those have less than 50 employees. Most of our sites have from 5-25 users. So the companies we deal with are truly small businesses. So when an ERP software company claims that its product is suitable for small business, take it with a grain of salt. There s a night-and-day difference in the software requirements of a company with 300 employees versus those of a DBA-type company with 50 employees. We also appeal to larger companies looking for something different Not all our customers are small companies. Larger companies are discovering that our common sense design philosophy applies just as much to them as to the small company. There is nothing inherent in our database technology or design that physically limits DBA to small companies. Do you even need manufacturing software? When your company is ultra-small, you can operate just fine without manufacturing software. How? Because when you are small enough you can walk out into the shop and see everything that s going on. The number of quotes, orders, jobs, and PO s you deal with can easily be managed by one or two people. But you grow to a point where you and your employees simply can t keep track of things, no matter how hard you try and how many hours you work. This is a critical time in the evolution of any business, when your very success threatens the company s ability to survive. This is when you need manufacturing software. Let s get down to basics what do you really need? Look at any ERP system s website or product brochure and inevitably you are presented with a bewildering list of features. How can you compare one system with another? Where do you start? 2

My advice is -- forget all the bells and whistles. A great many of those features are for large enterprises and do nothing but make things more complicated for a small company. The Four Essential Capabilities A small company needs four essential capabilities in its software. 1. Product Costing 2. Material Planning 3. Job Tracking 4. WIP Accounting Here s a thumbnail for each of these: Essential #1 - You have to know your costs If your software can t break out your product costs into material, labor, services, and overhead, you are operating with a blindfold on. Essential #2 - You have to know what to make, buy, and stock Your software has to help you determine what and when to make and buy. You have to have material on hand when it s needed, but like Goldilocks, you don t want too much inventory or too little inventory just the right amount. Essential #3 - You have to know where your jobs stand You can t deliver on time or increase factory throughput unless your software offers you the ability to track the progress of your jobs. Essential #4 - You have to know if you re profitable If your software does not offer work in process accounting, there is no way to accurately know when you are making or losing money. Your manufacturing costs are really investments in inventory and should not get expensed until you actually sell what you make. Accounting packages don t cut it I ve spent many hours studying QuickBooks and Peachtree, which command the lion s share of the market for small business accounting software. My conclusion? I cannot see how these general accounting systems can possibly be used for manufacturing operations once you hit a certain size as a company. These products can give you a limited form of product costing at the bill of material level. They give you a semblance of material planning, but not much. Neither product gives you job tracking or WIP accounting. 3

The point is any package that is missing one or more of the four essential capabilities will never be suitable for a manufacturing company once it grows beyond the ultra-small category. So if you are running your business on a low-end accounting package such as QuickBooks or Peachtree, at some point in your growth you will have to graduate to a real manufacturing system. Beware of manufacturing editions Both QuickBooks and Peachtree offer so called manufacturing editions. I ve reviewed both of these products in depth. My conclusion? I can t conceive how these can possibly be portrayed as manufacturing systems. The costing is primitive, the material planning is extremely limited, and job tracking and WIP accounting simply don t exist. I feel sorry for any company that has wasted time and money on these products thinking they were getting a manufacturing system when they are nothing of the kind. What about spreadsheets? Spreadsheets are a blessing and a curse. They are a blessing in the sense that they give non-technical people a tool to organize and process information. But they are a curse because they get over-used for applications where they don t belong. When you try to use spreadsheets to compensate for core manufacturing features lacking in your accounting software, they run out of gas because they are not multi-user and don t have an integrated database. Spreadsheets are fine for supplemental functions, but when they are used for core applications such as jobs and MRP, they suffer from data entry errors and double entry. A spreadsheet can never be as good as a multi-user database application with built-in safeguards that protect your data. You can get away with spreadsheets and general accounting software to a point, but I ve never seen this combinations used successfully except in the case of ultra-small companies. The Classic Conflict: Accounting vs. Manufacturing When it comes time to select new software, there is often a conflict between what the accounting/office people want and what the manufacturing/operations people want. More often than not, the accounting people win, often to the detriment of the business. Accounting people, including your CPA, almost always favor one of the brand name accounting packages such as QuickBooks, Peachtree, MAS 90, Great Plains, and ACCPAC, even when the product is weak in manufacturing. Accounting people almost never favor a specialty product such as DBA, which they ve never heard of. To be blunt financial accounting is important, to be sure, but in a manufacturing company, you make your money out in the shop, not in the back office. 4

DBA is strong in manufacturing accounting, meaning the tracking of inventory and work in process and the accurate calculation of cost of goods sold. These are the numbers that make a real difference to your bottom line. If you face a schism between accounting and manufacturing in your company, be aware that you have the option of using the Manufacturing Ledger, which enables DBA to be used with an outside accounting system. The Manufacturing Ledger can be a temporary solution that enables the accounting department to continue using what the software they know and like. Over time, most accounting people gravitate towards a single integrated system and will ultimately convert to DBA s financials. Our advice is use DBA for manufacturing and let your accounting people make their own decision on financial software. Everyone wins especially the business. ERP for small business is an oxymoron Let s say you are with me so far and agree that general accounting software and spreadsheets fizzle out after you reach a certain size. What about ERP systems? Don t they offer the four essential capabilities and a whole lot more? Let s examine that notion. ERP stands for enterprise resource planning. The key word here is enterprise. In the software industry, whenever you hear the word enterprise, they are not talking about DBA type companies with 50 employees. They are talking about companies with hundreds of employees. When ERP software companies look for revenue growth, naturally they look downmarket at small businesses because there are so many of them. Here s the fundamental flaw in marketing ERP software to small companies -- the software that works fine for an enterprise is rarely suitable for the 50-employee type company. We learned the hard way about ERP In the software reseller phase of my career, we represented three different ERP systems and I was involved in implementing them in several 50-employee type companies. None of these installations were what I would call successful in the sense of truly helping the business in any meaningful way. And to my dismay, several of these companies pulled the plug on implementation after spending a lot of time and money. Maybe I was a poor consultant, but I don t think so. The software just didn t make sense in relation to the needs of a small company. Everything was overkill. The employees who actually had to use these systems absolutely hated the software. These sour experiences with ERP are what drove my father and me to start DBA Software. We felt there had to be a simpler solution for the small manufacturer. 5

What is ERP s track record with small business? There are no statistics that can answer this question because no one agrees on what a small business is and no one can define what ERP success is. In our opinion, ERP s track record with the typical DBA-type 50-employee company can be summed up on one word abysmal. What do we base this assessment on? Not just the bad experiences we had years ago as ERP resellers. It s based on the sheer number of companies who come to DBA after having been through failed ERP implementations. We hear the same stories over and over again about how complicated and difficult these systems are to install and use. What you need to know about ERP resellers and sales reps Many ERP systems are sold through resellers. We are former software resellers and we ve known quite a few over the years, so we know what the reality of reseller life is. Most resellers operate on the edge of survival. It s a tough game. The ERP sales cycle is long, sometimes a couple of years or more. It takes a lot of work to land a job, and the competition is brutal. You inevitably have to give away margin and other extras to get the sale. You can t make a living totally on the software margin alone, so you have to bundle in services and hardware. ERP sales reps are in the same boat. Selling ERP systems is a brutally tough game. With quotas to meet, some sales reps will say or do anything to get your business. So keep in mind that resellers and sales reps are under a lot of pressure to get your business and often do whatever it takes to get the sale. Because you only purchase a manufacturing software package once or twice in your career, you are at a complete disadvantage because the sales rep knows all the tricks and you don t. How useful are references? No ERP publisher will ever hand you its complete customer list. Instead, you will be given a cherry-picked list of reference customers that the software company knows will say the right things. After giving out references, the software company always asks the prospect how the reference phone call went. If any negative feedback is heard, subtle pressure is put on the reference customer to curb his comments the next time. Customers who don t comply get dropped from the reference list. So hearing a glowing review on the telephone might tell you what you want to hear, but is it an honest and truthful testimonial? Don t bet on it. If the reseller or sales rep takes you to a site visit, don t expect anything other than a carefully-managed presentation. Believe me, lots of pressure is put on the customer to say the right things. So are you really seeing a typical installation? Again, don t bet on it. 6

Is a needs analysis a good investment? If you want my opinion, I think it s a waste of money to hire a consultant to do a needs analysis and software search for you, when you can do the same on your own with just a little effort. Over the years we have dealt with many of these search consultants, who typically send out questionnaires that are a laundry list of must have features. The irony is that more than once I would look at a question on the form and recognize my own writing style. Obviously the consultant had lifted some of his questions directly from some of our brochures. The whole premise behind a software search is faulty, because it inevitably emphasizes features at the expense of fundamentals. But it is the fundamentals that matter most at the small company level, not an abundance of features. Features are ruining ERP systems ERP systems are in a catch-22 situation. Sales are driven by feature comparisons. So to survive, the ERP company has to keep piling on features. As the software acquires more features, it becomes harder and harder to use. Products such as MAS 90, Great Plains, and ACCPAC, which were relatively simple accounting systems in the early 1990 s, have morphed into big, complex, and costly ERP systems today. All ERP systems continue to get more and more complex, year after year, and acquire more and more functions, like a grapevine out of control. Have you ever heard of this type of software ever getting simpler? Here s the DBA bargain proposition: Here s the bargain we strike with our prospective customers. You do your own product homework and in exchange, we ll give you one heck of a good price. This is a win-win for both of us. In our case, we don t have to hire and manage technical salespeople, which enables us to dramatically lower the price of the product and focus our energies on product development and support. In your case, you get manufacturing software for a fraction of the price elsewhere and as you benefit from a more rewarding evaluation experience. So you are welcome to give us a call, but we won t be able to personally walk you through the product. Instead, we ll be happy to discuss our unique sales model and how it works. Here s what we mean by doing your own product homework: 7

DBA is a self-exploration product. That s why we provide our free evaluation system, features guide, and demo library. If you cannot find an answer among those self-help resources, you can submit a question to our Ask DBA e-mail service, which is handled by our support staff. Some people get irritated when told they have to do their own homework. But you know what? This sounds patronizing, but it s for your own good. Because you can learn far more by spending a little time with our resources than you ll ever learn from most sales reps. Not only does it save you money, our sales model is a superior way to evaluate software than the high touch ERP sales model where they work you over instead of leaving you free to come to your own conclusions. With ERP, the software is only half the cost There s an old adage about ERP that says for every dollar you spend on software, you ll spend an additional dollar on services. Is this true? You can count on it. Every ERP system that I know of bundles implementation services with the software, either provided directly by the software company or the reseller. Inevitably, the estimated hours always seem to escalate over the course of implementation and prove the adage to be true. The complexity of ERP scares people into believing that manufacturing software can only be implemented with costly outside help. DBA is designed for self-implementation The ERP industry has everyone so convinced that outside help is a requirement that many small businesses automatically assume it to be true. But DBA is not an ERP system. The focus of our software design and training and support program is on self-implementation. Any company willing to put in the time and effort can implement a DBA system on its own. How do I know this to be true? By the very fact that the majority of DBA systems are implemented by our customers without any outside help. If most companies can do it on their own, so can you. Prove to yourself that you can do it on your own I can tell you all day long that you can implement DBA on your own, but unless you can prove it to yourself, you ll remain rightly skeptical. Anyone can make claims, right? Spend half a day taking our Hands-On Training Course, which is a combination of online videos and live entries that take you through the entire system. At the end, you tell me if you think your company can implement DBA on its own. 8

Spending half a day taking a training course may sound like a lot of work, but it s actually a fast and thorough way to learn what the software will do for you. You ll make live entries to every major screen in the system and you ll watch videos that provide the context that make s your entries meaningful. I urge every person in your company who is involved with the software decision to also take our Hands-On Training Course. Doing so will remove the mystery and intimidation factor of manufacturing software and will give them the confidence needed for selfimplementation. Implementation is not nearly as difficult as you might think Taking the Hands-On Training Course is a good first step in removing fear of implementation because it shows you how that the software is not overly complicated. Your second step should be a review of our Manufacturing Startup and Accounting Startup user guides, which will outline for you exactly what steps are required to get the system up and running. Implementation is basically about following a to do checklist. Complete the steps in the suggested order and you can get the system up and running on your own. Put in sufficient time and effort and you will have success. If your company has successfully implemented an accounting system in the past, then you can implement DBA, because basically, it s just more accounting extended to the shop floor. Let s break it down into its component parts. If you understand what a bill of material is, you can set up your products. You have the option of using routings and work centers, but if these things don t mean anything to you, stay with a simple BOM and use component labor, which anyone can understand. With a little effort, anyone can learn to use our Make Jobs module. Issuing materials, tracking labor, and receiving finished items are cut-and-dried processes. Our planning system helps you generate jobs and PO s. It s by far the easiest planning system to use relative to ERP systems and uses basic reorder point logic that makes sense to most people. Finally, order entry and accounting would not be that much different than what you are using now. Your people simply have to put in the time to learn the new system, but it is well within their capability. So if you take all the mystery out of the process and break implementation down into its component parts, it s not nearly as difficult to implement as you might think. We give you 90-days to make a full assessment without any financial risk If you order a DBA system today, all your users can begin taking our Hands-On Training Course now. As a DBA customer, all your users will have access to our online support center and can view our training courses and submit support tickets. 9

Order DBA today and if for any reason you feel the system is not for you, return the software within 90-days and we ll give you a full refund of all monies paid. What can you lose? Ok, so you get all your money back. What about all the time and effort you put in? This is not a waste of time at all, because the education your employees receive is invaluable. Where else will you get the opportunity to work with manufacturing software -- essentially for free -- so that you can learn what works for you and what doesn t? Look, you may simply not care for our product. But after working with our system, when you look at your next system you will be an educated buyer who won t fall prey to all the deceptive practices that are rampant in the manufacturing software industry. Let s talk about training and support Let s set some realistic expectations about support and training. If you think that any software company is going to give you hours and hours of one-on-one support time without charging you for it, dream on. One-on-one time is going to cost plenty, usually $2-$3 per minute or more -- almost as much as your lawyer charges. And be suspicious of companies that charge less for one-on-one support. Any support department of any consequence has an overhead cost that must be covered somehow, either through support fees or incorporated into the product price. Ultra-cheap support is usually outsourced offshore and is marginal in quality. And do you really think you re going to get a manufacturing consultant on the other end? Good manufacturing consultants are out in the field, not behind a support desk. With all this in mind, we ve put together the most practical and effective support and training program possible within the context of what small companies can afford. Can you afford $49 - $83 per month? Our support and training is provided by a 6-month flat-fee subscription that equates to $49 - $83 per month, depending on your user count. So no DBA customer ever has to go it alone because of cost considerations. And believe it or not, these low-cost subscription fees cover the cost of operating our support department. How can we do it? By leveraging technology with online training and support tickets. 10

Online Training Remember when I said earlier that manufacturing consultants don t work on the support desk? So how do you get the consulting-level input that you need when putting in a manufacturing system? The only practical way to deliver affordable, consulting-level training to small companies is through a one-to-many format. Online videos are ideal for this, because the effort we put into making a good video course can then be viewed by hundreds of people. I personally produce the majority of our training videos. Yes, that voice you hear on our demos and other videos is me. I may not be the best narrator, or the most knowledgeable authority on manufacturing and accounting, and you may not like my style. But I think I can give you and your employees some insights, tips, and common sense advice that will make sitting through these presentations worth your while. Support Tickets One-on-one phone support cannot possibly be provided for $49 -$83 per month. Not by a long shot. Years ago when we charged from $2 - $3 a minute for phone support, some companies would run up support bills totaling thousands of dollars a year. Even worse, the high cost deterred many customers from getting any support at all. It was a bad system all the way around. A phone-based model therefore was not the best solution for our small-company customers. So we invested in a state-of-the-art online ticketing system that works very well and is superior to phone-based support in several respects. First of all, 90% of support questions have been asked before. To answer those types of questions, we provide standard answers in our knowledge base and training videos rather than provide customized responses to each question. If you can t find an answer on your own, submit a ticket and we ll tell you where to get the answer. You not only get help with your answer, the next time you have a similar question, you now know where to look for an answer on your own. All support tickets are archived and are available to you so that both of us have a complete audit trail of all your support history. With tickets we can review the quality of our responses and steadily improve upon them. I m proud of our support staff and their dedication to customer service. As a group they spend one to two hours each and every day reviewing tickets together in front of an overhead projector. They learn from each other and out of this process come many good suggestions for product improvement. The ticket queue is monitored closely throughout the day so that responses are as timely as possible. Where the phone comes in Even though a phone-based support model is not practical, this doesn t mean that phone has no role to play in our support program. 11

There are situations where problems can t be resolved by tickets. Sometimes we use remote access technology where we can dial into your computer to resolve problems. Sometimes we give you a call when we feel it is the best way to resolve a problem. Whenever possible, though, we resolve problems through tickets. It s the only practical way to deliver personalized support for $49 - $83 per month. Why not give our training & support a try? Become a DBA customer now and all your users can try our online training courses, get familiar with submitting tickets, and start using our knowledge base. There s an amazing amount of help available if you learn to take advantage of our support resources. Be aware that your 90-day return applies to all monies paid. So if you decide to return the system, we give you a full refund on the software and support. You literally have no financial risk! One final subject ongoing maintenance Did you know that new system sales account for only a relatively small percentage of ERP software company revenues? This is because the real money is made on recurring fees. We like recurring fees also and it is an important component to our revenue. But we differ from other companies as follows. First, we charge 15% per year, which is at the low end of the typical 15%-20% annual maintenance fee. But keep in mind that we are talking about 15% of a package price that is several times less to begin with. So there s no comparison when it comes to ongoing cost of ownership. More importantly, our ongoing maintenance fee is not pegged to the current package price. Instead, it is based on the price you actually paid. This means that we can never arbitrarily raise the maintenance price on you in the years to come. The maintenance fee is mandatory and covers all product updates. We typically distribute new updates every few months. The annual fee has many advantages to you and to us compared to the alternative of selling new versions every year like QuickBooks and Peachtree do. You are assured of cost certainty and a steady flow of product improvements and we benefit from steady revenue and an easier-to-support customer base that is always on the current version. The sad truth about the ERP industry Unfortunately, the ERP software industry is rife with deceptive practices, including false claims, hidden costs, phony references, false credentials, misrepresentations, unnecessary upgrades, and predatory pricing. Small companies are easy prey because they don t have the experience to know when they are being conned. 12

Is every player in the industry shady? Of course not. But the sad fact is that there s way too much of this stuff going on. Our Philosophy We believe in openly and fully disclosing our prices and ongoing support and maintenance costs. We avoid making grandiose claims in our marketing materials. We let you download and try our software. We give you a very generous return period that let s you change your mind if you don t like our software. With DBA, what you see is what you get! We haven t sold out Almost all the old private manufacturing software companies have sold out and been absorbed into bigger corporations. There are some advantages to that, I suppose, but I think you lose something too. The fact is, we enjoy operating our company and sincerely believe that we can be the best in the world at what we do. That may sound audacious, but the reason I believe it is achievable is because we relentlessly specialize in serving only one type of company small manufacturing businesses. We are not pushed by Wall Street to be all things to all people and we resist the impulse to branch out into areas that dilute our ability to manage the company effectively for the benefit of our customers. A highly specialized, tightly focused company can beat the big conglomerates. Maybe not in total revenue, but certainly in customer satisfaction. And with our low-cost sales model and low overhead structure, we can under-price the big boys and still do quite nicely. The reason we empathize with our customers so much is that we are a small business also and have many of the same issues and challenges. Have I convinced you? Ok, you ve gotten to the end. I hope after all these pages you have a pretty good feel for DBA and our philosophy of doing business. I hope I ve convinced you on these three points: 1. You need the four essential capabilities to grow. 2. Betting the farm on an ERP system is a risky solution. 3. Ordering DBA today is a safe and sensible next step because you have a 90-return option if the software doesn t meet your expectations. Why delay? Doing nothing is the same thing as making a decision. Until you make a first move of some kind, nothing is ever going to improve and you continue to pay the price of indecision month after month. 13

I don t know of any ERP system that will give you this type of hands-on opportunity and without any financial risk. Get your employees on board today! So why delay? There s no time like the present to get your employees involved with training and orientation. Why is employee involvement so important? Because your employees are the key to your success. Get them on board and you ve got a winning formula. Best of luck to you! Michael Hart President DBA Software, Inc. P.S. Don t let your out-of-pocket expense hold you back from acting now. With our optional 12-month payment plan, your first monthly payment gets you started and you still have 90-days to get a full refund if DBA is not for you. Down Payment (Software & Support) 3-User System = $229.67 5-User System = $318.52 10-User System = $513.98 15-User System = $691.68 20-User System = $887.14 25-User System = $1064.83 14