Dead money tied up in resin inventory or languishing through accounts payable and receivable was not an option in 2008 and 2009 when, for some, every order meant the lights could stay on another day. Now at the first stages of a tenuous recovery, processors that survived the recent economic gauntlet know how important complete transparency into their operations is. Many of those companies are investing in, or more likely upgrading, the enterprise resource planning (ERP) software that guided them through the storm.
Growing its business from $3 million in sales and 20 employees at its founding in 1985 to $102 million in sales and roughly 1200 employees today, injection molding and moldmaking company Pioneer Plastics (Eagan, MN) has been a dedicated ERP user throughout, running more and more of its operations through the program. In 2008, wanting greater insight into real-time data, including work in progress (WIP), variance reports, and margin-analysis tools, Pioneer implemented a company-wide adoption of Epicor ERP software, including at Thermotech, a $65 million, 800-employee business it bought in 2007 that ran another program.
“By the summer of 2008 the dynamics of business started changing,” explains Matt Mahmood, Pioneer COO. “We really had to think about what it is we’re trying to do and how [our ERP program] would drive our growth and improvements.” In December 2008, the company reached an agreement with Epicor to upgrade from the Vista system it was using to Epicor’s Vantage 8.03, with a multisite, multiplant module.
Given the real-time access to its operations, Pioneer was able to react swiftly to the economic collapse of last year as it happened. “In 2009, when the market started going really crazy,” Mahmood says, “Epicor gave us a lot of visibility as to how we were planning our material purchases relative to the decreasing size of customer orders.”
As conditions worsened in March and April 2009, Pioneer had already cut inventory down from 21% to 12% and began to deplete safety stock. At the end of the year, and after 13 of its competitors filed for bankruptcy, Pioneer finished in the black with profitable operations. “We were planning and buying according to what we felt was appropriate for the market conditions,” Mahmood explains.
The software, and its proper implementation, has driven a 30%-40% improvement in efficiencies and cash flow at Pioneer, according to Mahmood, with some of that money reinvested into the company through the purchase of 25 injection molding machines in the year and a half since Epicor went live.
Plastics’ four key metrics
Mahmood, with a background in M&A and IT, joined Pioneer in 2000 after working for the company as a consultant. By his estimation, there are basically four key metrics in plastics processing: material cost, processing time, labor, and turnaround time, or the amount of time from when you receive materials and are invoiced until the time you are paid.
“These are key metrics that define the profitability of any manufacturer,” Mahmood says, “so when we set up these as core parameters to build our [ERP] platform around, we had to really take a step back.” Given the variety of ways these metrics could be interpreted, Pioneer fell back on one thing: data. “Having visibility into data from a system like Epicor allows you to forecast based on firm orders and historical information. You can go back to the basics and say, ‘If I buy material today, how long do I want it to sit on the shelf based on the lead times of the supplier side?’ Then, ‘How quickly can I make it into a finished product and ship it out?’”
Garbage in, garbage out
No matter how many bells and whistles an ERP system has, its most important module is you, the user. “There are a lot of potholes [with ERP implementation] but no pitfalls, per se,” Mahmood says. “Pitfalls are man made. Software is only as good as the data you put into it, and the pitfall there is usually human-error driven. If processors can understand those manufacturing fundamentals, then the ERP system can only enhance that by giving them clear, precise data that will drive a lot of their strategy to drive profitability.”
Top 10 tips for purchasing an ERP system
IQMS (Paso Robles, CA), which has been designing and developing ERP software systems for repetitive, process, and discrete manufacturing industries since 1989, lists these 10 points as the top things to look for when evaluating a new ERP system.
1. Platform. While platform (.NET, SQL, hosted, etc.) is important, an ERP system should not be selected (or eliminated) based on platform alone. Look for high-caliber functionality, and consider whether the functionality compensates for the platform difference.
2. Technology. As technology evolves, so too should a good ERP system. Check to see how an ERP vendor is keeping up with technology. If certain features are not in the package, but functionality specific to those features is offered, is the vendor willing to put it in writing?
3. How many vendors are included? It’s important to understand how many total vendors will contribute to an ERP package, as some are built on technology developed by and acquired from multiple sources, but sold together as a single system. Ideally, all software components are designed, developed, supplied, and supported by one vendor.
4. Product demonstration. Product demonstrations are often a good way to see an ERP solution first hand, and knowing what to look for during a demonstration provides the clearest picture. Things to watch for: who writes, develops, and supports each system component; are modules interoperable, easy-to-manage, and cost effective; what functionality is included; and how might the system best support specific objectives?
5. The always-useful buzzwords. With all the hype on service-oriented architecture (SOA), best of breed, lean manufacturing, and other catch phrases, ERP selection can seem overwhelming. Instead of focusing on the buzzwords, focus on who’s making the buzz. For example, is SOA really best or is it just a nice package that SOA vendors are using to sell how they do business today? Will the SOA buzz diminish when these vendors’ products change?
6. Implementation time. Time is money. When provided with an estimate for the number of days to complete an implementation, ask how the vendor arrived at the number. Ask a reference customer whether or not the vendor met his implementation schedule.
7. Customer referrals. While existing customer referrals are beneficial, remember several things: Customers are on the referral list for a reason; vendors don’t typically give out problem customers; and vendors will most likely provide only the number of references requested, so if two are requested, then two will be provided.
8. Customer retention. It is one thing to have a short list of current, happy customers, but it’s something else to maintain the customer relationship for years. Ask the ERP vendor what their customer retention rate is. No ERP vendor can claim 100% retention, but anything less than 80% should raise a flag. Selecting a new ERP system is a major undertaking that, done correctly, should last many years.
9. Objectively observe. Understand your true market and your position in that market. While it is always good to think where you want to be in five or more years, also think about where you are now. Buy a package that focuses on your current market position, but can carry you to your next goal and beyond. An ideal package is one that can be purchased today with only the needed components, but with the opportunity to expand with a business as it grows.
10. Consultant catch. The utilization of consultants in the ERP-selection process can be useful and informative; however, beware of consultants that have affiliations with a specific ERP system. A consultant should represent an unbiased opinion of which software truly is the best match.
What sets a great ERP system apart
• Single database system
• Scalable and modular
• Multiple sites/languages/
• Focus on automation of nonvalue-added activities
• Direct shop-floor-to-ERP design
• Industry-specific solutions
• Multiple manufacturing types can be outlined in five steps
Injection molder and moldmaker Pioneer Plastics uses Epicor’s Vantage 8.03 ERP software to track all of its inventory throughout seven facilities and 11 distribution hubs and warehouses.
Integrated to the tooling and machine level, Pioneer Plastics’ ERP system tracks the production of individual process techs, molds, and machines, making sure what it’s molding is keeping pace with what it quoted.