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ERP Users Should Welcome Recession With a Smile
K R Natarajan
K R Natarajan
Director,Integreatz ERP India
K R Natarajan,a Metallurgist by qualification completed diploma in SQC&OR, Materials Manageme... more>>
Are you a Small & Medium Enterprise - worried about slow down? Have your customers reduced order quantities or asking for price reduction?
Just don’t tell that you are shocked. We all know that businesses go through up-turns and down turns.
If you are still worried, then you are not prepared.  With ERP usage and proper control of your business, you must have welcomed recession with a smile.  

We plan for additional resources; machines etc when we see increased demand. Similarly we need to get ready to face these recessions. The impact is severe when we are under prepared.  
Similar to our own health, SME should get the health check of their enterprise periodically – monthly, weekly or daily.

Health check is monitoring resources – their effective utilization.  Take corrective action online and not after you are sick. Controllable resources are your machines and materials which form major chunk of investment in any manufacturing enterprise.

Thanks to Japanese and western techniques, today we see lot of data and graphs welcoming us when we enter any progressive SME. With ISO certification considered as a basic qualification, enterprises are now shifted to OTD, OEE, OTO and all such reports. This is welcome change in attitude which has driven many SME companies globally competitive.

Many SME company owners are ignorant to know the difference between a software program and an ERP. Many still believe that ERP (enterprise resource planning) software is a software program to create documents like purchase order, goods receipt note , invoice etc. No one deploys it for the real meaning for which it is meant for.

ERP software should be a consultant to direct the company for improvement. In times of recession, its role is more vital as it will determine the sustenance of any enterprise.

Any ERP software should direct a company to:
a.    Effectively utilize machines.
b.    Spend optimum on raw materials
c.    Control rejections and rework
d.    Guide the enterprise to manufacture only profit making products.

When the software is not addressing the above, then it is not an ERP but only transaction processing software.
Since most SME companies do not have a product of their own, any improvement in productivity impacts their profitability.

Let us start with machine utilization.
Utilization of any machine should be captured at shift level when production is reported.
When multiple items are manufactured in the same machine within a shift, it is all the more complicated to collate data. When the utilized hours are less than available hours then the reason for under utilization should be captured. Analysis of loss hours over a period should help to take corrective action towards improving overall equipment efficiency of all machines.

Many companies enter productivity data again manually while quantities are captured in their Job card. ERP software can tell the manager about the machine utilization when production is reported. Duplicate work should be avoided.

In our experience, one of our client companies had a VTL machine showing 26 percent loss hours due to “no load” situation and the management went out scouting around for load for that machine and augmented their revenue.

SME can get prepared any day for recession when utilization reports are available on line. This is vital.

Planning is the backbone of success:
Another major lacuna what we see is the nature of importance given to planning – both material and production (MPC and PPC) by SME segments. They still try to manage manually and inventory management is always driven by ad hoc theories and management. Many don’t have trained materials managers and end up either in shortage or excess inventory.
Material planning is not linked to production planning and it is done based on each customer requirement. When the integration is missing, companies end with chaotic situation.

Any management pundit will vouch that items purchased should be driven by planning which has to be based on demand which in turn must be in line with business plan.
An ERP which is effectively utilized should drive material planning along with production planning. Investment on any additional inventory is a crime when the market is uncertain and a good software based MRP II ( Manufacturing Resource Planning) will directly reduce inventory close to 8 to 12 percent of your inventory consumption.

Complex theories exist for understanding the MRP dynamics and that is why companies tend to be scared of MRP. We are proud when smaller companies with no expertise use InteGREATZ ERP and run MRP II planning and just follow our materials management processes, they unknowingly follow world class business processes.  
Rejection hits your profit. When not controlled will sink your company:
Third major area which needs attention is loss due to rejections. Rejection reporting be it in house or sub-contract, should be done at rejection reason level for better understanding and control. This directly reduces wastage and improves profit.

The rejection cost per week and the contributor needs analysis. It can be a tool, an operator or material but when attended at short intervals will result in huge savings. With the reports generated by ERP, companies should react and correct. Manual creation of such reports is a huge wastage of manpower, which is most precious today.

Know your profit margin when you produce:
Product costing from estimation to production cost is an important feature of any ERP. It should be monitored on a day today basis with production data. With fluctuating material input costs, the production cost when compared with sales price will indicate marginal gain.

SME companies should resort to activity based costing which is a basic feature of any ERP. If it is not possible, overall costing should be done for every component manufactured. By proper evaluation, companies can concentrate on items which have maximum profit.
Every entrepreneur is aware of these tools and collecting data, collating them is a herculean task. For any decision or a corrective action, data needs to be captured.
Companies which have doubled or tripled their turnover with a short span always have embraced IT support. Effective use is a must.

Bigger corporate practice these on a day today basis, but this culture has not penetrated into SME segment. Need of the hour is to educate vibrant small companies who are growing towards medium and big to embrace proper ERP systems to cultivate such control mechanism for success. Larger corporate have cluster groups to improve performance supported by consultants and we in InteGREATZ support them with our ERP for collection and analysis of all data.

Small and medium companies are worried about the investment on a ERP software owing to its investment and time taken to implement. The design of InteGREATZ ERP  is ready made; making companies go-live within a week. We upgrade our software every month with inputs from each customer and distribute to all existing customers.  Productized ERP  is one of its kind in the world, as it has inputs from more than 1000 users.

ERP is not just a software; More than a decision support system: We want  SME to use them as a consultant which will direct them towards better performance and growth.
This requires a huge revolution in knowledge sharing and we are confident that recessionary trends will ignite smaller companies to understand the importance of usage of ERP solution. That’s why we say, when prepared, SME companies will welcome recession with a smile.
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