The manufacturing industry continues to grow at a rapid pace in response to increased demand. More and more companies are calling us asking ``How much should I budget for the software and implementation?” This takes some thought and a better understanding of the business and operational requirements along with the company size, growth plans, culture and yes, their budget. This is not an easy to address solution to a huge problem for the manufacturer and requires time spent with the company’s team leaders or steering committee to come up with the solution path and cost.
What is a Manufacturing ERP Solution?
Manufacturing ERP (enterprise resource planning) software includes systems and functions that manage a manufacturing facility's entire operational processes. (Think Sales Quote to Cash, Inventory Demand to AP.)
This type of software delivers enhanced coordination among department heads and employees, along with improved visibility into the workings of the plant. Today's manufacturing ERP solutions are highly configurable, providing better support for a variety of business processes.
Implementing a manufacturing ERP solution comes with many benefits. One of the key benefits is eliminating redundancy, which can waste a lot of time and overall costs. Improved efficiency is often one of the results of a successful implementation. Other benefits include improved service to clients, enhanced supply chain and inventory management, and access to real-time reporting.
Why Does Manufacturing ERP Cost More?
Manufacturers have complexities that other industries don’t have to deal with such as raw materials and component inventory, staffing to complete the work, machinery, repairs and maintenance on the plant equipment and distribution to name a few. Sometimes we come across a new CFO, CEO or CIO within a manufacturing company looking for a new ERP. If they previously worked at a distributor or services company they have a bit of sticker shock on the software pricing because manufacturers need more modules and functionality which costs far more than software for a distributor or other simpler industries.
Professionals that know how to best optimize manufacturing ERP systems for your business are also very highly specialized. You would not want to work with a software reseller or value added reseller (VAR) that has a primary focus on working in the education or healthcare industry to implement a manufacturing ERP. Choosing the right VAR or partner should be carefully considered in the entire evaluation process and cost. Just because a VAR charges a lower rate doesn’t mean that they will provide enough value to make up for that lower rate when compared to a VAR with a lot of experience in your industry charging a higher hourly rate.
Regardless, C-level teams know that utilizing a strong business software solution and operational fixes can make it easier to manage the needs of a business, especially for the manufacturer. Implementing software solutions that automate processes and reduce errors can improve productivity, quality, customer services, and increase profit margins.
What Does a Manufacturing ERP Solution Cost?
It's easy to see why manufacturing companies located across the globe are choosing to implement ERP software and maximize the available benefits. But one question that continues to come up is, how much does it cost? The answer depends on a few factors, including the type of manufacturing a business does: job shop, process, discrete, mixed-mode, continuous, the number of employees, locations, the desired functionality, and the countries in which the business operates.
A small business can expect to spend between $20,000 and $150,000 on a solution, while a mid-sized business might spend up to $500,000. Large enterprise-level companies should budget between $1 and $10 million to implement a system. These are very broad estimates and no project is the same. The breakdown of manufacturing ERP software costs might look something like this:
- 0%. Infrastructure costs are gone with software as a service solutions (SaaS). No SQL to manage or database licenses to pay and keep up with anymore!
- 5% Ongoing costs. Strong Internet is needed - the best you can get is always a good rule of thumb
- 1% Ongoing costs. Less expensive Internet backup should be in place as well in case the strong or main Internet connection is lost. It’s nice to have a backup even if it is slow! You can send office staff home to work to free up bandwidth for the plant floor.
- 40-60% of total cost: human resources
- 25-60% of total cost: software licensing. Great credit or financing can get this payment on a month to month basis too. Great for cash-flow.
Choosing a Software as a Service (SaaS) solution can reduce the overall cost since all that is really needed is a device with an Internet connection and a browser. Laptops, old PCs, tablets, smartphones can usually all be used with a SaaS system. Ask your software vendor to clarify what is needed to support the solution. If they say RDP, then run!
It's important to budget for future changes to your system since operations change, new training is needed from time to time, perhaps you may even add additional modules and functionality in the future. The implementation of the manufacturing ERP software is rarely a one-time cost for a business.
When to Consider Implementing an ERP Solution
Manufacturing ERP software is highly beneficial to operations and profitability in this fast-growing industry.
- If a business struggles with bottlenecks that impact efficiency or production, implementing an effective solution for your enterprise could make a significant difference.
- Everyone (or nearly everyone) keeps their own inventory spreadsheet because they do not trust the ‘system’ in place.
- You have no idea of profitability by customer and/or finished good.
- If your organization doesn't have proper security measures in place to mitigate risk and maintain compliance, a high-quality manufacturing ERP software may serve as a solution.
Share your thoughts and concerns with your ERP salesperson. It is important for them to know what you can spend so they can set your expectations on what you can get for your money. Ask them what you should be spending. Most salespeople are honest and want to do what is best for you, the customer. If you don’t think your salesperson is being honest, then ask for someone else to help you or go to another VAR.
Clients First Business Solutions offers three ERP software options and an experienced consulting team and can help the manufacturer streamline and modernize business operations. Explore our competitively priced solutions and services to determine the best fit for your company's needs.