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Manufacturing (ERP) Software Buyer Guide


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General Overview of Manufacturing Software
         What is Manufacturing Software?
         Why invest in a manufacturing software system?
         How is manufacturing accounting software different from other general accounting software packages?
         What's the difference between low end systems and a manufacturing ERP system?

Related Business Types That Typically Use Manufacturing Software
Manufacturing Software Features and Modules
Additional Information and Purchasing Considerations
Links to Manufacturing Software Resources and Information


General Overview

What is Manufacturing Software?
Manufacturing software formerly referred to as Manufacturing Resource Planning (MRP) software is now more commonly referred to as Enterprise Resource Planning (ERP) software.  MRP evolved into ERP when "routings" became a major part of the software architecture and a company's capacity planning activity also became a part of the standard software activity.  ERP systems are cross-functional and enterprise-wide.  All functional departments that are involved in operations or production are integrated in one system.  ERP systems typically handle the manufacturing, logistics, distribution, inventory, shipping, invoicing, and accounting for a company. ERP software can aid in the control of many business activities, including sales, marketing, delivery, billing, production, inventory management, quality management, and human resource management.


Why invest in a manufacturing (ERP) software system?
While many small manufacturing companies may get by with just a simple off-the-shelf accounting system such as Quicken and Excel spreadsheets to manage production costs, this type of system can quickly become difficult and inefficient for a growing company with multiple employees and more complex manufacturing operations.  Buying a a manufacturing (ERP) accounting system can help streamline the tracking of costs into a single uniform environment whereby all costs, inventory, purchasing and manufacturing processes and  details can be easily accessed and reviewed from a common interface by many different people in an organization. Other benefits include:

* Eliminate the problem of synchronizing changes between multiple systems - consolidation of finance, marketing and sales, human resource, and manufacturing applications
* Permits control of business processes that cross functional boundaries
* Provides top-down view of the enterprise (no "islands of information"), real time information is available to management anywhere, anytime to make proper decisions.
* Reduces the risk of loss of sensitive data by consolidating multiple permissions and security models into a single structure.
* Shorten production leadtime and delivery time
* Facilitating business learning, empowering, and building common visions

Having the ability to see and manage all aspects of a businesses operations from within a single integrated system can help boost productivity, save time, money and ultimately help a company be more efficient and profitable. Here are some more common features of manufacturing (ERP) software...

It is also important to note that not all construction software systems have fully integrated accounting systems.  Some construction software handle only one or a few of the construction functions listed above. For instance, some systems just handle the Job Costing while others focus on just project management.  Some systems are purposely designed to integrate to other mainstream accounting systems as add-on modules to enhance the functionality of those products.  Thus, whether you purchase a fully integrated construction system or a stand alone system really depends on the individual needs and circumstances of each organization.


What's the difference between lower-end accounting systems and manufacturing (ERP) systems?
Manufacturing software can range in price from as low as $5,000 to well over $1,000,000.  The extreme low end of the scale is typically comprised of off-the-shelf solutions that are limited in functionality and usually require little installation help, training, or customization.  ERP Software is typically more complicated and handles many more functions.  ERP software typically requires assistance to implement, setup and train how to use.   Below we've outlined several 'not' so commonly known but important traits that differentiate lower-end generic accounting software from ERP software as follows:

Multi Company/Department Tracking: Typically manufacturing companies are broken up into multiple departments, regions and maybe even separate legal entities.  Likewise, the ability to separately report on each department and cost center and the ability to break financial statements up by department is important.  In lower end systems, each company generally has to be setup in a separate data folder and there are few options for segregating departments or cost centers.  In a typical ERP software all of the companies are able to be setup in a single database that share common vendor and customer information.  Having all of the information in a single database reduces data input and saves time from having to switch between multiple data folders to routinely access different company information. 

Account Structure: ERP systems generally provide the ability to setup more complex account structures while lower-end systems generally provide a very simple account structure.  Having the ability to setup a more complex account structure enables companies to more easily track information by cost centers.  For example, if a company has multiple divisions or departments and wanted to track the profitability of each division,  in an ERP system they should be able to easily accomplish this, while in a lower end system they may not be able to do this because the account structure may not provide enough flexibility to handle this type of tracking.

Complex example: Co - Proj - Area - Base.Suffix (xx-xxx-xx-xxx.xx)

Simple example: Base.Suffix (xxxx.xxx)

Multi-use: ERP systems generally allow unlimited simultaneous access to their system while lower end systems usually have a limit either artificial or physical that restricts the number of users that can access the system at one time.

Database: ERP systems generally are built around mainstream third party databases such as Microsoft SQL Server, Oracle, IMB DB2 while lower end systems are typically built around proprietary or non-standard databases.  Mainstream 3rd party database systems generally provide higher performance, greater reliability and ensure full access to your data.

Modularity: ERP systems are generally modular whereby functionality can be added/purchased as a company grows and their needs change, while lower end systems are usually all or nothing meaning you get all the functionality the software offers for a single price whether you'll use it or not.  Modular software is appealing to some companies because they don't have to pay for functionality that they don't need or want yet they have the option to purchase it later on if their needs change.

Data Access: ERP systems generally allow full access to their data either through custom tools or via an ODBC connection while lower end systems typically do not allow access to their data other than through the user interface they provide within their program.

Report Writing: ERP systems generally provide unlimited custom report writing capabilities while lower end systems generally have a series of precanned reports that allow limited customization.  With higher end systems companies can generally customize any of the precanned reports and can build an unlimited number of custom reports using 3rd party report writing software such as Crystal Reports, SQL Reporting Services or Microsoft Access.


Common Myth: it is generally believed that lower end systems are less expensive because they do not have the sophistication or the feature sets that higher end systems have.  In the early days of computing this was more or less true, however as computing power and development tools have evolved, the reality today is that many of the lower end systems actually provide equal and in some cases better functionality and more features than higher end systems.  A perfect example of this is the evolution of Quickbooks which continues to add more and more features to their product and which often times results in post implementation blues for companies who eventually upgrade to higher end accounting systems and realize that certain tasks that used to be a click away now take longer to accomplish. Basically, higher end systems typically have more depth and handle a broader spectrum of business functions (i.e. accounting, payroll, manufacturing, etc.) where the lower end systems usually are focused on a one or two core areas of competence (i.e. just "estimating"). 


Common Modules

General Accounting Modules:

  • General Ledger: the general ledger (GL) is the central point which accumulates the results of all other accounting operations and contains all the financial accounts and statements of a business. The general ledger accumulates dollar amounts as debits or credits and the balance of all the debits and credits in the general ledger should equal zero.  All other modules in an accounting system generally point to the General Ledger.

  • Accounts Payable: the accounts payable (AP) module is where invoices owed to other companies are entered and paid.  In a good construction accounting system this module is very important because it will burden the related job cost when an invoice is entered.  This module will also evaluate the amounts invoiced against signed contracts ensuring that you don't overpay on a contract. The AP module also handles common things in the construction industry such as automatic withholding of retention, insurance tracking and compliance, and the tracking and printing of lien releases.  The AP module posts to the general ledger and normally increases or decreases a combination of an expense, liability and/or a cash related account. 

  • Accounts Receivable: the accounts receivable (AR) module is where jobs are billed for work performed and where payments are applied as they are received.  Construction accounts receivable systems also generally provide a way to perform progress billings, account for retention being withheld by the customer and evaluate billings to contracted amounts.  Good construction systems will also provide various ways to generate billings such as generating a bill based on actual costs incurred plus a markup or based on a fixed amount.  The AR module posts to the general ledger and normally increases or decreases a combination of a revenue, receivable and/or a cash related account.

  • Cash Management: the cash management module's purpose is to track all of the cash coming in and out of the business.  This module is where bank accounts are setup.  Each bank account is then generally linked back to respective cash related modules such as Accounts Receivable, Payroll and Accounts Payable.  The Cash Management module is also where bank reconciliations, misc deposits and withdrawals, bank transfers and other types of cash transactions are entered and maintained. Sometimes systems will not have a separate cash management module but will include this functionality as part of either General Ledger, Accounts Payable or Accounts Receivable.

  • Human Resources: the human resource (HR) module generally handles all of the functions associated with hiring and managing existing employees.  Sometimes this module also includes payroll but in many systems the payroll function is separated into its own module which then leverages certain information included in the human resource module to generate the payroll.  One big aspect of the HR module is "benefits administration" which is the process of tracking employee participation in benefits programs ranging from healthcare provider, insurance policy, and pension plan to profit sharing or stock option plans. It is also important to note that because HR functionality is so specialized and constantly changing due to state and federal laws and regulations many mainstream accounting systems do not have their own built-in HR module and rely on third party HR products to augment their systems.  In fact, many popular HR systems are stand-alone and can function independently of any specific accounting system but often times have interfaces to certain accounting systems to increase their marketability and penetration in the marketplace.

  • Payroll: the payroll module automates the pay process by gathering data on employee time and attendance, calculating various deductions and taxes, and generating payroll checks and employee tax reports. Data is generally fed from the human resources and time keeping modules to calculate automatic deposit and manual check amounts.  In a construction system the payroll module is very important in burdening labor costs to specific jobs.  A good construction system will automatically apply calculated payroll costs to respective jobs based on timesheet data entered.  Also, more sophisticated construction systems will provide advanced features for producing a "Union" payroll which takes into account prevailing wages, trade codes and union codes.   The payroll module in a construction system sends accounting information to the general ledger and job cost modules.

  • Fixed Assets: the fixed asset module tracks company assets and equipment.  Fixed asset modules in an integrated accounting system will allow assets to be added during invoice entry or upon receipt of inventory in the warehouse.  Fixed Asset systems not only track physical assets but manage the depreciation and disposal of those assets for internal, GAAP reporting and tax reporting purposes.

Manufacturing Specific Modules:

  • Product Lifecycle Management (PLM):  Manages the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal. PLM integrates people, data, processes and business systems and provides a product information backbone for companies and their extended enterprise.
  • Customer Relationship Managment (CRM):  software used to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing, customer service, and technical support. The overall goals are to find, attract, and win new clients, nurture and retain those the company already has, entice former clients back into the fold, and reduce the costs of marketing and client service.   Once simply a label for a category of software tools, today, it generally denotes a company-wide business strategy embracing all client-facing departments and even beyond. When an implementation is effective, people, processes, and technology work in synergy to increase profitability, and reduce operational costs.
  • Supply Chain Management: a business term which refers to a range of software tools or modules used in executing supply chain transactions, managing supplier relationships and controlling associated business processes. While functionality in such systems can often be broad – it commonly includes:
    • Customer requirement processing
    • Purchase order processing
    • Sales order processing
    • Inventory management
    • Goods receipt and Warehouse management
    • Supplier Management/Sourcing

A requirement of many SCMS often includes forecasting. Such tools often attempt to balance the disparity between supply and demand by improving business processes and using algorithms and consumption analysis to better plan future needs. SCMS also often includes integration technology that allows organizations to trade electronically with supply chain partners.

  • Warehouse Management: The objective of a warehouse management system is to provide a set of computerized procedures to handle the receipt of stock and returns into a warehouse facility, model and manage the logical representation of the physical storage facilities (e.g. racking etc), manage the stock within the facility and enable a seamless link to order processing and logistics management in order to pick, pack and ship product out of the facility.  Warehouse management systems often utilize Auto ID Data Capture (AIDC) technology, such as barcode scanners, mobile computers, wireless LANs and potentially Radio-frequency identification (RFID) to efficiently monitor the flow of products. Once data has been collected, there is either a batch synchronization with, or a real-time wireless transmission to a central database. The database can then provide useful reports about the status of goods in the warehouse.
  • Business Intelligence: Business intelligence tools are a type of application software designed to report, analyze and present data. The tools generally read data that have been previously stored, often, though not necessarily, in a data warehouse or data mart.  Because ERP systems store so much data, the abililty to monitor, analyze and report on that data is an important feature of any ERP software system.




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