ERP for Manufacturing Industry

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According to CII (Confederation of Indian Industry), MSMEs contribute

  • Around 6.11% of the manufacturing GDP
  • 24.63% of the GDP from service activities
  • 33.4% of India's manufacturing output

They have been able to provide employment to around 120 million persons and contribute around 45% of the overall exports from India.

Despite major contributor to the economy and industrial output, MSME sector has its own challenges.

  • Increased global competition
  • Reducing margins
  • Expectation of improved quality
  • Pressure on the MSME to operate at scale

"Through Digitalization, SMEs can enhance efficiency, reduce cost of production, minimise manufacturing defects, and shorten production time. With this, they can not only meet international quality standards but also strengthen their position as competent suppliers for the global market. ”

- (Sunil Mathur is Managing Director and Chief Executive Officer, Siemens Ltd.)

This article will explore opportunities for digitization for the manufacturing sector.

Issues with Digital Silos

At present, most SMEs have digitized parts of their business process. Accounting was one of the first functions digitized, understandably since accounts or finance is the blood of any business. Most businesses use simple entry based accounting software like Tally.

Email is one of the other digital mediums which has eased the communication. Other common productivity tools like Spreadsheets (MS Excel) and word processing software (MS Word) are used for miscellaneous documentation and calculation tasks like creating Invoices, Contracts, Employee Offer Letter, etc. These softwares have enabled companies to move from Pen & Paper to digital medium.

Due to lack of integration, these are at best images of the Pen & Paper version. Problems inherent to this method are as follows

  1. Duplication of Work:
    Since there is no integration between these business functions, data is not connected and needs to be input separately in each software, thus reduced efficiency.
  2. Errors and Omission:
    Manual effort can lead to errors and omissions
  3. Lack of interoperability:
    Since all the data for different business functions is disconnected without any Integration or connectivity, there is a lack of interoperability.
    Production Engineer will not have an easy access to what orders the company has received, he will have to sift through Sales Orders manually or talk to Sales team in order to plan the production.
  4. Lack of Business Intelligence:
    It is difficult to derive actionable intelligence from the siloed data since the connection between the data points is not well established.

ERP to the Rescue

What is an ERP?

An ERP software is a single software built to manage all business functions on one platform. All the business functions are tied together by linking the relationship between different functions.

Fig.-1: flow of information through various business functions

As seen in the above figure, an ERP can manage businesses functions from Inquiry to Feedback. With the help of an ERP, information from one function to other flows seamlessly without any errors or omissions. It is now possible to make sense of data thanks to relationship between different entities is stored on the system.

Here are a few screenshots of an ERP system, showing how data is recorded and represented on the system.

How it works?

An ERP system streamlines the business process by defining a method to the madness.

  • Users enter data in a predetermined manner, the linkages between different entities is pre-built in the system.
  • Users often take advantage of this linkages and do not have to add data more than once for a given entity or data point.
  • Behind the scenes working of an ERP is best explained by the below diagram

What are the advantages?

  1. Streamlined Business Process:
    Most SMEs spend a lot of time in firefighting operational issues. Most of the issues can be solved by defining a Standard Operating Procedure and automating it.
    An ERP can help in streamlining the business process as the system brings discipline in the organisation by letting employees add data only in predefined forms and workflows. Hence reducing the scope for manipulation or short-cuts to make the job easier for one and difficult for others.
  2. Increased Efficiency of Work-force:
    Since there is only one software for everyone to work on, there is no duplication of work. This reduces duplication of work and errors & omissions due to separate softwares for every function.
  3. Meaningful Reporting:
    Since there is only one source of truth, reporting becomes easier and meaningful. You will no longer have to depend on your accounting team to pull up the Profit and Loss Statement or Item-wise Profitability Report.
  4. Data Intelligence:
    Since all the data is recorded on the system in real-time, notifications and redundancies can be set on events like Stock Reorder level beyond a certain threshold, Credit Limit of Customers,etc.

Why has the adoption not happened?

  1. Lack of awareness:
    Most SMEs think ERP is only for corporates. People are still not aware of reliable and open-source ERPs like ERPNext.
  2. Cost:
    Cost of well-known ERPs has always been prohibitive for SMEs. They have massive licensing fees and cost of customisation.
  3. Technical Requirements:
    Softwares used to require on-premise servers, LAN infrastructure and dedicated IT team for it to work. The scenario has changed with the advent of Cloud Computing where you can host your application in a matter of few minutes and on a Pay-as-you-go basis, as low as $20/month.
  4. Resistance to Change:
    Adoption of any new system or software is a choice that requires management sponsor and executives’ willingness to change for betterment.
  5. Implementation Challenges:
    Implementation is as important and critical as the ERP system you choose. It requires careful planning and diligent execution. If the implementation is not planned well or not executed well collaboratively by the Service Provider and the Organization, chances of failure are high.

How ERPNext can help?

ERPNext is an open source ERP built by a community of 250+ developers worldwide, used in 50+ countries and 3000+ organisation all over the world. It was built with the intent of helping SMEs organize their business by using a tool that is easy to use and implement. The collaborative power of worldwide community helps

  1. Keep the Cost low:
    The software is open-source, which means there are no licensing fees. The users pay only for Implementation Cost to their service provider and Annual Hosting & Support cost to ERPNext. Licensing fees for well known ERPs can go up to tens of thousands of dollars per year.
  2. Maintains the software:
    People who have either developed or used software, know that maintaining the software is sometimes more difficult than developing it, especially for a system like ERP that has a lot of dependencies which can be potential points of failure. ERPNext is maintained by worldwide community.
  3. Keep the software updated:
    It’s huge user and developer base helps keep the software up-to-date. Updates are free as well !

How can Fafadia Tech help?

Fafadia Tech is a Silver Partner with ERPNext. Fafadia Tech has implemented ERPNext in the Manufacturing, Trading and Education Domain. Our hands-on experience with ERPNext Implementation has helped us develop deep Functional as well as Technical expertise of ERNext.

Contact our ERPNext experts today for a Free One Hour consultation on How ERPNext can help your Business!