Automate journal entries and produce real-time reports
Why small manufacturers need an integrated software
As standalone, these software can’t automate and integrate your business processes. These software need to be integrated so each team can get real-time data on whatever is happening on the other teams and so they get the right instructions on what to do as soon as possible.
In addition, reports on one team highly depends on reports on the other teams (eg. accounting), otherwise there will be much administrative work (reconciliations, manual adjustments, stocktake, etc.). When reports are inaccurate, you can’t analyze them. That’s why business owners often can’t see the big picture, end up too focused on operations, and don’t have the time to grow their businesses.
So what small manufacturing businesses need is a unified system that integrates all the software mentioned above – an ERP system built for manufacturers.
What is an ERP system
ERP system is an integrated software used by different teams to automate core business processes.
Automate journal entries and produce real-time reports
How ERP works
ERP works by automating the following core business processes:
Order to cash
Procure to pay
Order to cash
Order to cash refers to all the steps involved in processing customer orders from the moment a customer places the order to when the payment is received.
Sales order: When a customer makes and order, sales order and delivery order are created
Delivery order: Warehouse team gets notified of the delivery order and prepare goods
Order fulfillment: Warehouse team picks, do quality control, packs, and hand them over to the logistics team for shipment
Receipt: When a customer receives the order, the customer signs a receipt.
Invoicing: Accounting team gets notified of the receipt and sends an invoice.
Payment: When the customer makes payment, the accounting team records them
Procure to pay
Procure to pay refers to all the steps involved in procurement from the moment the procurement team places the order to when the bill is paid.
Purchase requisition: Sales or warehouse team makes a request for procurement team to purchase goods
Request for quotation: Procurement team contacts several suppliers and make requests for quotations
Purchase order: Suppliers send quotations, procurement team chooses the one with the most favorable terms, and sends purchase order to the supplier
Receiving order: When a purchase order is created, an inventory receiving order is created, and the warehouse team gets notified
Billing: The supplier sends goods, warehouse team verifies the goods with the receiving order, signs a receipt, and the supplier sends an bill
Payment: Accounting team receives the bill, verifies with the purchase order and the receipt, make payment, and make the accounting record
Production process refers to all the steps involved in the production process from demand forecasting to when production is completed. It often overlaps with inventory planning and procurement process.
MRP: Demand forecasting, setting production targets and schedules, calculate the required raw materials and labor
Inventory: Ensure the required raw materials are available in the right warehouse
Purchase: Ensure unavailable required raw materials have been ordered ahead of time
MES: The process of executing manufacturing orders according to bill of materials
Quality control: The inspection of produced goods to identify defects
Machinery maintenance: The process of keeping track of machinery performances, and ensuring regular service, repair, and replacement of worn parts
Inventory management refers to all the steps involved in inventory planning, inventory receipt, inventory transfer, and product delivery
Inventory planning: Inventory forecasting, inventory requirements calculations, identify insufficient inventory (compared with inventory on hand), inventory transfer (if other warehouse has enough), purchase order
If you experience the following, your manufacturing business might need an ERP system.
Sales team not performing: Not meeting enough potential customers, not converting them into actual sales, or customers are not recurring
Bad inventory and warehouse management: Inventory or raw material unavailability, high inventory write-offs (expired, broken, or fraud), slow order fulfillment, low quality raw materials from suppliers
Bad production planning and manufacturing order management: Slow production process, ineffective production staffs, high product returns, low production output, high scrap, high landed cost, bad machinery maintenance
Ineffective accounting team: Inaccurate reports, too busy with administrative tasks (reconciliations, data entry, invoicing, payments)
Our recommendations are based on the following criteria:
Features (each ERP has its own strengths and weaknesses)
Experience of Indonesian implementation team (implementation is the main reason why ERP fails to achieve its objective)
Value (price in comparison with features)
Ease of use (this is very important for your operational team to use the ERP system correctly)
For small Indonesian manufacturers, we recommend the following 4 manufacturing software:
SAP Business One
There are also great systems that we do not include in our recommendation although they are great software due to various reasons (mainly lack of implementation partners since we think getting an experienced Indonesian implementer is critical) which you may want to check out: Epicor, Acumatica, Infor, Katana, MRPEasy.
SAP Business One
Rp 200k/ user/month
Rp 170k/ user/month
Shop floor control
Contact us to get a more detailed version of the feature comparisons with 7 most popular ERP systems in Indonesia.
Impact is an ERP built specifically for small to medium-sized Indonesian manufacturers. It is available as cloud-based or on premise, and is ready-to-use yet customizable. Impact’s key features include:
Sales & marketing
Inventory & procurement
Automated PO for low stockWMSBarcode & RFIDStock takeTender management
In an effort to grow Indonesia’s economy, Impact has a 20% discount for small businesses. Visit them to learn more.
Pros & cons
Can be slow when generating reports
Flexible: cloud, on-premise, customizable
Limited implementation partners
Mobile app for business owners, warehouse team, sales team
2. Odoo Enterprise
Odoo Enterprise is great for small businesses trying to implement ERP for the first time since it is affordable. It has many modules all for one price.
Although it has the open source version (Odoo Community), we do not recommend it for small manufacturers since Odoo Community does not have Accounting module and limited manufacturing features (unless you don’t need accounting module or only needs basic manufacturing features like MES).
However, when choosing an Odoo implementer, make sure you choose an official partner who understands accounting, manufacturing best practices, and Odoo limitations.
We are an official Odoo partner. Click here to learn more about our services.
Starting price: Rp 170,000/user/month
Pros & Cons
Many modules all for one affordable price
Choosing a reliable partner can be tricky
Modular and customizable
Much customizations may be required for medium-sized manufacturers
Many implementation partners to choose from
3. SAP Business One
SAP Business One is SAP’s most popular ERP since it is SAP’s least expensive product. It is a reliable system rich in features, especially for mid-sized manufacturing companies. Although lacking in certain features (POS, HRIS), some implementation partners have built add-ons (at an additional price) to complete their systems.
Starting price: $108 per user per month (professional license)
Pros and cons
No POS, CRM, and HRIS
High learning curve
Cloud or on-premise available
4. Microsoft Dynamics 365
Microsoft Dynamics 365 Business Central is a reasonably-priced ERP system best for companies within the Microsoft ecosystem.
It has the option to link the system to Microsoft Office tools, such as Outlook and Excel, to improve experiences for customers and employees.
With 49 official partners in Indonesia, implementation costs are reasonable and getting customer support should not be an issue.
Starting price: $70 per user per month, 30 days free trial
Identify pain points. Speak with your teams and find out their difficulties in achieving their team goals. Come up with practical solutions, categorize them into either technology, data, process, or people.
Create impact-effort matrix. Identify solutions that bring the most impact with the least amount of effort. Remember that impact is calculated based on company goals, not based on team goals. Oftentimes, companies find out that they have been wasting time on activities that don’t align with company goals, and what they need is to cut down on those.
Quantify benefits. Identify inefficient processes that can be automated. Decide if automation through an ERP system is really necessary to optimize those processes.
Perform break-even analysis. Calculate financial benefits (additional revenue and cost savings) if those processes are optimized. If you don’t know the additional revenue that it will bring, just focus on the cost savings. The easiest way to do this is to estimate the monthly salary of the team multiplied by the percentage of efficiency the ERP system will bring.
Create system requirements.
Set a budget. Once you know how much your net profit will increase by implementing an ERP system, decide on a break even point. In how many months or years do you want your increase in net profit to fully recoup the cost of the ERP system. By multiplying the increase in net profit by the number of months, you get your budget.
Choosing an ERP system
You are buying a solution to your business pain points, not features. ERP is quite different from other business software because it’s the automation and integration that you are looking for. If you think team integration and process automation is not necessary for you, don’t get an ERP system. Just get accounting, crm, or hr software separately. They are much cheaper.
The quality of the ERP consultant is more important than the ERP system itself. The majority of ERP implementation failures are not due to the ERP system, but the lack of planning and top management involvement. Don’t choose an ERP system based on brand or hearsay. When you hear someone with bad experience badmouthing a certain ERP system, it is most probably because they choose the wrong implementer (most often with freelancers or IT consultants who don’t understand accounting and business processes).
Start with an affordable ERP system. Most often, the actual cost of implementing an ERP system ends up more than the initial assessment, so it’s better to start from ERP systems that cost half of your actual budget. Starting with Odoo vendors or a local ERP vendor is a good start. Go with the more expensive ERP software only when you know the affordable ones are not a good fit for you (only if you know you need certain features and the cost to customize those features are more than getting another more expensive ERP software.
Don’t customize too early. If you are getting an ERP system for the first time, we always recommend businesses to implement the system without any customization in advance. This is because during your implementation process, companies often realize they have to change their business processes. When this happens, oftentimes their earlier concerns are already solved so there is no need to customize, or they realize there are more important features to customize.
Choosing an ERP vendor
We’ve heard a lot of stories where companies try to cut costs by hiring internal software developers or freelancers because they think those are cheaper. Majority of them ended up in failures (freelancers disappear with bugs unfixed, internal software developers are unclear of what to build while companies blame them thinking it’s their jobs, etc.) and they ended up starting all over again with professional ERP implementers. It took them years longer and a lot of money going down the drain.
This is how we recommend you to filter your ERP vendors:
Contact 3-5 ERP vendors. Start with the most affordable ERP system like Odoo or Impact. Find out who they are (visit their websites) and contact them to learn more about their ERP software. They may already have the customizations you are looking for without you paying for it.
Assess their understanding. Assess if they understand your pain points and are able to convince you that they can solve your pain points. A good ERP implementer can tell you exactly how from the point of view of software, business process, and accounting. You should avoid those who tell you that their ERP can do whatever you need without explaining how. Most often, they themselves don’t really understand what you are talking about.
Ask them for similar past clients. Although this is not a bad way to do an initial assessment, it does not guarantee future success, either. Similar past clients can have different pain points, and you don’t really know if their implementation is a success or a failure. But there is no harm in asking.
Look at their employees on LinkedIn. Understanding how consulting companies hire their employees can oftentimes tell you about how much they value their customers’ success.
Trust your instincts. It is much better to choose the more expensive ERP vendor that is more likely to bring you ERP implementation success, than to choose the cheaper option but they end up in a mess and you end up paying 2-3 times the price.
Impact Insights Team is a group of professionals comprising individuals with expertise and experience in various aspects of business. Together, we are committed to providing in-depth insights and valuable understanding on a variety of business-related topics & industry trends to help companies achieve their goals.
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