How an ERP can help cut manufacturing costs

According to Raw Material Study 2022 by INVERTO, 81% of manufacturers expect solid or moderate increases in raw material prices over the next 18 months. This, as well as rising energy prices, makes manufacturing costlier and less profitable.

Fortunately, digitalization can help manufacturing organizations mitigate these and other persistent challenges. In particular, by implementing manufacturing ERP software, organizations can optimize key administrative workflows and reduce overall business expenses.

This article explores in detail how ERP implementation can help manufacturers reduce costs and, as a result, become more profitable.

 

Decreasing operational expenses

An ERP works as a unified platform that integrates data from vital manufacturing processes such as inventory management, bill of materials (BOM) management, sourcing, and more. With proper functionality in place, ERP can help organizations automate and optimize the abovementioned tasks, completing them faster and more cost-effectively.

 

BOM management

Generating a bill of material is one of the critical manufacturing stages, and when organizations grow, this task becomes more complex. Often, employees have to not only create more and more BOMs but also manage their multiple versions simultaneously.

All this makes BOM management labor-intensive while increasing the risk of errors and data duplication. But with BOM management capabilities implemented in an ERP, the above may no longer be a problem.

For example, an ERP may provide templates for generating bills of material or features for uploading BOMs in the CSV format, helping employees create them much faster. Moreover, given that ERP unifies data across the organization, it provides employees from various departments easy access to new versions of specifications as soon as they are published.

 

Inventory management

Both insufficient and excessive inventory will lead to unnecessary expenses for manufacturers. By adopting an ERP empowered with inventory management functionality, organizations can solve this issue once and for all.

An ERP with inventory management capabilities can be used to monitor inventory levels effectively and accurately. For example, developers can equip the ERP system with features for classifying and searching items by their types, locations, costs, and serial numbers, making it easier to find the inventory data.

Alternatively, developers can implement the notifications feature in ERP to inform employees in advance when a particular item is running out. As a result, employees can timely replenish inventory levels and ensure an ongoing and cost-effective manufacturing process.

Also, if a manufacturer entrusts developers to implement innovative technologies like AI or IoT into their ERP, inventory management can become even more effective. For example, when an ERP is integrated with IoT sensors, the latter can send data on temperature, humidity, and other parameters in a warehouse, helping employees detect and prevent inventory damage.

In turn, AI can help a manufacturer tap into predictive analytics. With its help, an ERP can analyze historical inventory data, forecast future demand, and even deliver practical recommendations to workers. Drawing on this information, employees can better plan supply levels and prevent unnecessary spending and overstocking.

 

Sourcing and procurement

Among other things, ERP enables manufacturers to transform its entire sourcing and procurement cycle and make it more productive with a dedicated eSoursing module or an integration with the existing eSourcing solution.

Thus, if a particular product runs out, ERP can automatically generate an RFQ and send it to suppliers and, with proper functionality available, even conduct and manage an electronic auction. With such advanced automation, sourcing and procurement specialists can focus on more strategic tasks like improving partner and supplier relationships.

 

Improving workforce planning and management

According to Deloitte's 2022 manufacturing industry outlook, manufacturers may need more than 2.1 million qualified workers by 2030. Therefore, effective workforce planning is becoming more and more critical for the organization’s growth and cost-effectiveness.

As we have already mentioned, ERPs help automate critical administrative tasks in manufacturing, which benefits overall business performance. However, an ERP can offer several other ways for improving workforce management. 

If an ERP is equipped with HR management functionality, staff managers can utilize it to quickly gain a 360° picture of a manufacturer's workforce or identify potential skill shortages in specific business areas.

Based on this information, managers can create more effective training plans, thus helping an organization close skill gaps timely and reduce the risk of any disruptions in the production process. In addition, if an ERP is equipped with onboarding capabilities, it can help new employees to adopt faster at the new workplace and bring more value from the get-go.

 

Cutting IT costs

While developing and implementing ERP software is a very expensive effort that may cost hundreds and thousands of dollars, such initiatives will pay off many times due to the improvements they bring to a digital business ecosystem.

On the one hand, with a single centralized ERP system for manufacturing, organizations can reduce the number of software tools they use and, consequently, maintenance costs. Since employees of various departments can use ERP for their purposes, an organization no longer needs to maintain, upgrade, and support multiple manufacturing software solutions.

Moreover, an organization can use an ERP to quickly scale manufacturing with little additional spending. For example, if an ERP is hosted in the cloud, an organization can scale up its storage or functionality on demand without purchasing additional physical servers.

 

Final thoughts

Manufacturing is becoming more expensive each year, which makes it increasingly difficult for organizations to grow and meet their business goals. Fortunately, ERP adoption allows enterprises to reduce certain administrative and resource costs and improve their business performance.

In particular, a manufacturing ERP can provide features for automating and optimizing BOM and inventory management as well as sourcing and procurement tasks. In addition, ERP helps enhance workforce management and lower corporate IT expenses.

 

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