What is ERP (and Why it’s Profitable to Find Out)

 

By Alan Barr

There’s a lot of buzz these days on the subject of ERP (Enterprise Resource Planning) systems … but what are they, how do they apply to the custom stone industry, and how can you make sure that you end up with a system that works for you?

250 barrAlan BarrIndustrial engineering is the study of management science: the design of systems and workflows that minimize waste and maximize profits.  At its base, this is what an ERP system is designed to achieve.  

ERP software integrates sales, estimating, production, project management, shipping and finance into one system designed to reflect the specific way you do business.  By integrating all operations into one system, you eliminate the time wasted on double entry of data into multiple programs and computers.  

And by implementing your company workflow into the system, your business process becomes optimized, your employees more productive and happy, thus making it possible to grow and be more-profitable. The idea makes perfect sense.  

But there’s a unique circumstance in the architectural cut-to-size stone industry, because it’s a hybrid of two ERP worlds.  From one point of view, you’re a manufacturer because you produce a product.  But from another point of view you’re a service company, because you work on the basis of a contract.

Complicating matters further, often times when you accept a contract to produce a job, you don’t know exactly what you will be producing.  You’ve bid a job based on estimated quantities.  In order to fulfill the order you have to refine the estimate through your shop-drawing process into very specific pieces, configuration, sizes and quantities.  This generally takes a lot of communication with architects, engineers and your customer.  Only then are you at the point where your production process can begin.  

Luckily, there’s a lot to basic ERP functionality that makes sense in any manufacturing environment:

  • Customer and vendor information is available in a database for all users;
  • Documents and information are linked together…quotes (when specific piece information is known), production orders, shipments and invoices are all connected and tie into a central accounting system;
  • Keeping track of your inventory of raw materials;
  • Identifying capacities of your shop in terms of labor and machinery;
  • Schedule the production of jobs based on available shop capacity;
  • Generating purchase orders for raw materials based on approved orders;
  • Coordinating the production of your product based on availability of raw materials;
  • Making sure your raw material costs are charged against the job;
  • Capturing labor and material costs for each job; and
  • Creating financial reports based on accurate job specific revenue and cost data.

 

ERP systems are particularly useful in the cut-to-size stone business because of the complexity of the manufacturing process, and the need to be assured that information which is constantly being updated is kept organized, accurate and available in real time, such as:

  • Capturing mark numbers and stone dimensions on production orders, which can be imported and exported through the system to create reports within the ERP system or to Word or Excel documents;
  • Breaking jobs into multiple phases in order to meet specific customer schedules;
  • Being able to process the order financially as a contract and handle change orders easily;
  • Developing production bills of material for inserts, anchors or hardware to be provided by you;
  • Refining piece information in the system during development in the shop drawing process;
  • Production output tied to job costing;
  • Knowing exactly what the production status is of each piece for each job;
  • Reporting what stones are on what pallet and where the pallet is located;
  • Creating bills of lading that identify mark number, quantity, pallet number and date shipped; and
  • Flexibility to invoice for deposits, by percent completion or by shipment.