Why Manufacturing ERP Implementations Often Failed

Introduction

Why do manufacturing ERP projects often fail?  I started my ERP career as an Engineering graduate managing manufacturing operations when I implemented ERP for my manufacturing company. Eventually, I joined the ERP industry as a functional consultant and made progress in this challenging yet interesting ERP industry for the past 26 years.

One of the most challenging industries for ERP implementation is the manufacturing industry. Very often, in ERP projects that involved manufacturing, either the manufacturing module was only partially implemented or failed to implement. Some ERP vendors claimed that they had implemented successful ERP projects for manufacturing companies, without mentioning that some of these projects did not have a working manufacturing implementation.

Many years ago, I spoke to a Supply Chain director of a Fortune 500 company with global manufacturing operations. He shared with me that the company purchased a well-known ERP software and employed about 2000 consultants to implement the solution globally. The scope of the project initially included replacing their in-house manufacturing software. After years of implementation, they could not get their manufacturing module live. So, they changed the implementation to abandon the ERP manufacturing module and try to integrate their existing in-house manufacturing solution into the rest of the ERP modules.

As a Manufacturing Engineer who crossed over to ERP consulting, I probably have a deeper understanding of why implementing manufacturing modules is challenging for many ERP consultants.

Over the years, I begin to believe that implementing ERP is an art, not a science. And this is even more apparent in ERP implementation for the manufacturing industry.

Defining Successful Manufacturing ERP Implementation

We have to be realistic when we judge whether a manufacturing ERP project is successful. I use the following as my minimum expectation of a successful manufacturing ERP implementation:

1. It should enable accurate material planning (material and parts for the production output)
2. It should record accurately, the product costing of the finished products
3. It should enable production status updates and tracking

At the advanced level, a fully-implemented manufacturing ERP should include production scheduling and capacity planning. However, I do not recommend having this expectation for new implementations. To be able to use ERP for scheduling and capacity, users and consultants need to have a very strong concept and understand the limitation of using ERP for scheduling and capacity planning. As an adjunct lecturer who taught in Universities and Polytechnics about production planning and control with ERP concepts, I can appreciate how challenging it is to successfully implement manufacturing ERP with workable scheduling and capacity planning.

Reasons for Poor Manufacturing ERP Implementation

Besides selecting the wrong ERP that does not have the required functionalities to handle manufacturing requirements, the root cause for these poor manufacturing ERP implementations is often the poor understanding of manufacturing and ERP concepts. Some of the ERP consultants learn ERP manufacturing by studying the source codes of their ERP solutions. Often, these ERP consultants can best understand the “What” of the ERP manufacturing process but do not understand correctly the “Why”.

1. Mapping Manufacturing Processing

ERP consultants often “map” the existing business processes to their ERP process. So, when the end-users mention “projects”, consultants may think that they need to map to the project module of the ERP solution. However, the term project in the discrete manufacturing environment is often used synonymously with the production order, first article production, pilot run, and the production of prototypes.

Therefore, the common implementation process of mapping user requirements can only be done accurately with ERP consultants having strong manufacturing knowledge or experience.

Furthermore, different ERP Software uses different terms to represent discrete manufacturing production orders. Besides naming it as production orders, some ERPs call it “manufacturing orders (MO)” or even “jobs”. Yet in some ERPs, the term “jobs” is referring to “engineering projects”.

2. Engineering BOM is not ERP BOM

Often, users will ask the ERP consultants about the number of levels of BOM that the ERP software can support, and the consultants will answer something like “up to 999 levels” with all parties feeling happy that the ERP software can support their BOM requirement.

However, they don’t realize that the BOM that the production users have in mind is Engineering BOM which is different from the BOM setup in ERP. Engineering BOM not only captures the material and parts requirement of the product; but also the sequence of assemblies/sub-assemblies by graphically presenting them in levels and branches. ERP BOM does not capture the sequence of assemblies; these are captured in the “Routing” set up in ERP. If the consultant unnecessarily set up too many levels of BOM in the ERP, it will create multiple sub-production orders and create confusion and an unrealistic production schedule.

The optimization of BOM and Routing configuration in ERP is an art that cannot be done correctly without a strong understanding of manufacturing and ERP concepts. And it is key to successful manufacturing ERP implementation.

3. Weak Product Costing and Project Costing Knowledge

Many ERP consultants have weak product costing knowledge. Often, they assume that the ERP software will handle it correctly once they configure the solution. However, the ways that the ERP is configured will sometime affect how the cost and revenue are calculated, this is especially so in project costing and revenue recognition.

4. Customization Without Understanding the Consequences

When the ERP consultants are not knowledgeable about manufacturing operations, they tend to handle the user requirement through customizations, which is something that they are familiar with. This is especially so when they are not knowledgeable or experience enough to understand the negative consequences, convince the users, and offer alternate solutions.

So, it is common to find heavy customizations in manufacturing ERP implementation. Something, these customizations break the core ERP manufacturing codes and cost calculation functionalities. When this happened, it is very difficult to trace and debug. Hence leads to the failure of the ERP manufacturing implementation.

5. Rule-Based Rigid Accounting vs Chaotic Manufacturing

Unlike accounting, which is rule-based, and has a boundary for variation that is focused on control, most manufacturing operations require flexibility and creativity.  Software systems usually work well when the process is predictable and guided by rules, such as accounting requirements.  When come to manufacturing, especially make-to-order, design-to-order, and project-based manufacturing environments where changes are common scenarios, how flexible and creative the users and system in handling these changes will determine the effectiveness of the manufacturing ERP.

The planner may have used the best ERP scheduler and planning tools to plan the most optimized production schedule.  What if an urgent production order needs to be inserted?  What if to enable this insertion, some of the existing production orders need to be paused and removed from the work centers?  How do you account for the additional set-up costs of pausing and re-setup?  Should it be costed to the paused production order or the urgent order that caused the changes?  And if the planners want to assign those additional setup costs to the urgently inserted production order, how to do it in the system yet still represent a realistic schedule?  What if the raw material delivery is delayed? So, can you see how challenging it is to use a rigid system to manage dynamic processes in manufacturing environments that often works under the limitation of time?

Tips for Good Manufacturing ERP Implementation

Manufacturing ERP implementation is complex and not easy to cover in just one article. I will list some tips for users and consultants to think through. Hopefully, these tips act as a starting point for consultants and users to realize how much more they need to learn before they can deliver good manufacturing ERP projects.

1. Ask about the Turnaround Time and Purchase Lead Time

This is one important question that I learned through my career in ERP that nobody asks. Knowing the time from order to shipping of the product and how long it will take to purchase the materials and parts needed for the production order will have an impact on the available time that the users have to set up the production order, BOM, and Routing. This is especially important in a make-to-order manufacturing environment where nearly all Production orders need the creation of new BOM and Routing.

• The amount of time available to create production orders, BOM, and Routing will limit the completeness and complexity of the BOM and routing that the users can create. It also gives consultants a hint of how many control points for reporting and status updates. I had worked on a make-to-order manufacturing ERP project when they had only 1 day from receiving the order to shipping the product. So, strong knowledge is needed to determine the compromises, and creativity is needed to make the ERP implementation successful.
• Knowing the length of order delivery also impacts the cost and revenue recognition in accounting. If the duration spreads across multiple financial periods, then consultants need to understand from the accountant how the cost and revenue will be captured and recognized. This will have an impact on choosing between discrete manufacturing or the project manufacturing module.

2. Flatten the BOM, Combine the Operations

There were two pieces of advice that I received when I first joined the ERP industry more than 20 years ago:

• Minimize customization
• Flatten the BOM

Surprisingly, I seldom heard of these two pieces of advice for more than 10 years. Yet these two pieces of advice are especially critical in manufacturing ERP implementation.

• Manufacturing ERP implementation is complex, and it is easy to result in bugs if heavy customizations are done in the ERP implementation project.
• Flattening the BOM will reduce the complexity for the user. So, don’t create additional BOM levels unless you understand the objectives and trade-offs.

3. Learn through Work-around, not Customizations

If consultants want to learn about manufacturing ERP in-depth, they should spend more effort learning and testing out the standard functionalities of the ERP and try to utilize these standard functionalities for the implementation.

When standard functionalities do not meet the requirement, think of a workaround with the system. This will improve their creativity in solutioning. Share the challenges with other consultants and explore alternatives so that all will learn through this process.

If all fail, before you go into customization, ask the following questions:

• Can this requirement be handled outside the system?
• Is this a must-have or nice-to-have customization? What happens if such customization is not created?
• What are the risks and probability of bugs as a result of this customization?
• Can I delay the customization until the project is live and stabilized? Often, after using the ERP system over a period of time, users realized that such customizations are not necessary.

ERP vendor generates additional revenue through such additional customization, but the users have to ask the question: “What is your ROI from this customization?”

4. Think Big, Start Small, and Slowly Progress to the Perfect Solution

Keep the system simple when the project goes live:

• Combine Operations
• Minimize Control points in the routing
• Flatten the BOM when possible
• Group Machine Centres into larger Work Centres

Then over time through training and usage, when the users are more competent, more complex BOM and Routing settings can be explored.

Conclusion

In conclusion, the implementation of an ERP system in the manufacturing industry is complex and requires a deep understanding of manufacturing and ERP concepts. ERP implementation in the manufacturing industry can be considered successful if it allows for accurate material planning, and accurate product costing and enables production status updates and tracking. To achieve this, ERP consultants must possess a strong understanding of the manufacturing process, map user requirements accurately, have a deep understanding of BOM and routing configuration, possess strong product costing and project costing knowledge, and avoid customizations that may break the core ERP manufacturing codes and cost calculation functionalities. In essence, successful manufacturing ERP implementation is an art that requires both technical and functional expertise.

My advice to those who want to enhance their understanding of ERP implementation in the manufacturing industry is to consider enrolling in training programs. With the right training, you can acquire the knowledge and skills necessary to ensure the successful implementation of ERP solutions for manufacturing companies. These programs such as those provided by 1st ERP consulting can help you gain a deeper understanding of manufacturing and ERP concepts and teach you how to optimize BOM and routing configurations, as well as production scheduling and capacity planning. By investing in your education and professional development, you can position yourself as a valuable asset in the challenging yet rewarding field of ERP consulting. Remember, the key to success in this field is to continuously learn and adapt to new technologies and best practices.

Learn More about the author, Raymond Yap, and how we can help you.

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