You know it’s time for an ERP fix when….

Many hold onto their ERP systems, if they have one, for many years, and miss out on some of the new developments that could make a good system work great. More simply they avoid investing in ERP, counting on a sharpened pencil and their experience to manage procurement, production and resource planning, and more.

In the following article, two ERP experts--David Dunn, leader of the chemical industry practices at SAP Americas, and Ken Nathan of MGL America’s Inc., which works with SAP on the EZPlastic ERP solution for the plastics industry, offer their experience on steps a processor should take when evaluating an ERP system.

Steps to evaluating plastics manufacturers’ ERP needs

Changing market conditions and demanding customer requirements force plastics companies to embrace dynamic and responsive business processes. Those processes and systems that served the purpose are not enough any more. Customers are not willing to give the lead-time that they gave before. For instance, the time consumed from design and engineering, through proof approval, through sample production, customer order approval and order delivery has shortened significantly. Large OEM customers are changing the way they do business with their plastics processing vendors. This huge challenge also presents a great opportunity - by shifting to a dynamic and customer-centric sales, production and delivery mechanism, plastics processors can optimize their customer response and service time to better differentiate from the competition. A plastics company needs an ERP system that can seamlessly integrate those key components within the supply chain and ensure better customer service.

Here some of the common ERP problems in the industry, and our suggestions for avoiding them:

1. Unsustainable Lean program: Lean initiatives are widely prevalent in many plastics companies, but there is an evident need for making serious progress. The organizational pressure to cut manufacturing cost and improve cycle time is ever so important, may it be injection molding, extrusion, thermoforming or blow molding. Many plastics processors have invested time and resources to implement a lean program, they have done all the initial hard work - processes are analyzed, gaps fixed, and any unnecessary steps eliminated to better streamline the process. The reality check is to accomplish the lean goal by putting plan to action first, and then ensure the business can handle a complex molding configuration or a new fabrication or blowmolding process. It is important that a processor transforms its Lean initiatives from theoretical mantra to practice. While organizational readiness and willingness is the key to fulfill Lean ambitions, it also needs an ERP system that is designed to support Lean automation.

2. Poor materials management: Materials management is a key issue in the plastics industry. There is ever-increasing pressure from OEM customers and even channel partners to get the price lower. Materials management plays a big role in determining the successful performance of the entire organization. A combination of inventory management techniques, such as safety stocks, reorder levels, ABC analysis and effective forecasting using historical data need to be used. The plastics industry also has the need for scrap management and effective regrind processing, which are valuable cost savings when virgin materials are not a primary requirement. The need for an ERP system that can seamlessly integrate Purchasing, Inventory, Production and Delivery is critical to keeping the material issues under control.

3. Limited real-time production visibility: Real-time production monitoring and control is another important issue facing plastics processors. An injection molding press may be producing defective parts due to inaccurate calibration of the mold, or an extrusion line may have a slight variance in the diameter of a product. Lack of real-time visibility may ruin an entire production run and force it to be scrapped before a shift supervisor has the chance to rectify the problem. It also means inefficient utilization of available production lines. It is important to have real-time data regarding operating efficiency and reject levels, and be able to accurately know the final output to make appropriate adjustments when needed and to ensure adherence to delivery schedules. Processors should ensure their ERP system can monitor “actual to planned” as it happens, and enable proactive shop floor management. Such an ERP system should have the ability to interact with machine monitoring systems if available, or provide tools that will enable synchronized communication between shop floor and business applications.

4. Lack of divisional financial reporting: Most of the homegrown accounting software and older generation ERPs do not provide the tools to track costs and profitability at divisional levels. It is also very difficult, and many times inaccurate, to isolate and monitor the performance based on various criteria - customers, products, material groups, sales & delivery channel, and so forth. Availability of tools to analyze and report such information goes a long way in uncovering hidden issues - which may present opportunities to cut costs/increase revenue. An ERP with sophisticated tools that can provide accurate financial reporting is key to management control and decision-making.

5. Poor partner and cross-function collaboration: In today’s ever-changing market conditions it is crucial for a processor to collaborate effectively with the various components in his supply-chain. External components such as customers, vendors, channel partners and consignment warehouses, and internal components (the various departments at a processor) need to collaborate for smooth information flow and to leverage the power of timely communication and information sharing. Plastics processors need an ERP system that can help them electronically collaborate with customers, vendors and partners, and be able to support technologies like EDI, which is becoming a necessity to stay competitive.

6. Inflexible systems: It is common to meet processors shopping for missing pieces in their existing software system. The same software that was just enough yesterday often is not enough today. Changing business rules and market conditions have resulted in exponential growth in information needs, and the need for it to be available in a timely fashion. Many companies start “patching the gaps” not addressed by their current system and in no time end up with a bunch of disparate and heavily customized systems to partly satisfy short term needs. Maintaining these information silos further adds to their woes and the quest for patches is never ending and expensive.

Our recommendation is that processors always work to select a single ERP system that can integrate and cater to all of their business functions while at the same time providing a solid platform to manage change and growth in future.—[email protected]