How to Evaluate ERPs — for Small Manufacturers
So much has changed since the advent of enterprise resource planning (ERP) systems in the 1980s. In the early days, manufacturers were one of the first to adopt software in the shop with the ERP. At that time, managing processing via paper was the only way anyone knew how. But a lot has changed since then.
While manufacturers have experienced colossal growth in machine technology, automation with robotics, and advanced materials, the options for ERP upgrades have been limited to old approaches to software.
What’s an ERP?
An ERP is a software system that lets users do a collection of functionalities (like quoting, job tracking, and BOM management). For larger enterprises, this may include everything from accounting to manufacturing and even customer service. For manufacturers, we like a slightly different definition: ERP systems provide a single source of truth for all manufacturing data, helping to improve accuracy, efficiency, and decision-making. There are several different types of ERPs:
Many well-known ERP systems were built in the 1980s. Since this predates the wide acceptance of the internet, these systems were designed to compute on local servers. We refer to these ERPs as “on-premise” software because they physically exist on the premises of companies using them. Today, these systems are often highly customized by Value Added Resellers (VARs) — consultants that add features to a base software and resell it to manufacturers. These systems are sold through a perpetual license, where the software cost is upfront. In addition, they often require support and maintenance that a user may pay to a VAR.
As the maintenance and liability of on-premise servers have heightened, many companies have looked to the advantages of the cloud to store their data. The cloud is not a literal cloud in the sky; the data is stored in remote servers operated by third-party cloud service providers. The data is accessible via the internet, allowing users to access, manage, and modify the data from any device with an internet connection. Many Legacy On-Premise systems have migrated to this data model to take advantage of these benefits of cloud computing and software delivery.
A modern Software-as-a-Service (SaaS) ERP, like Fulcrum, is built on the principles cloud servers have made possible: digital connectivity, automation, and communication. While solving the same problem as legacy systems, truly modern SaaS companies have built their ERP systems from the ground up — creating unique features and functionalities based on today’s definitions of form and function. In this user-friendly platform, users can drag-and-drop operations and materials to build an item’s unified BOM & Routing, utilize advanced planning and scheduling, and even message other team members to keep jobs running uninterrupted. Roggen F., VP of a 9 employee manufacturing company in Colorado, explains the importance of a modern system:
“The user interface was a crucial element for me, as my workforce is primarily welders, who have little computer experience in the workplace. I needed an easy-to-use, and easy-to-learn user interface that was going to help the process.”
While legacy tools can manage the data of a manufacturing shop, they have a smaller set of data, lacking a digital way to collect and share live data from the shop floor. Additionally, some programmer knowledge or third-party support is needed to build custom reports instead of in-app real time reporting.
When considering the options, you’ll have to decide which type of ERP is the best fit for your business, whether legacy on-premise/cloud or SaaS. Ultimately, it’s not the branch of the ERP that should be the determining factor, it’s the capabilities and growth opportunities presented that should drive your decision.
The most important considerations when choosing the right ERP for your company:
An ERP houses the most essential manufacturing process data, so it’s important to take the time and thoroughly consider the key characteristics of each ERP. Different ERPs have different terminology for functions, so it’s best to compare branches of functionality instead of just going down the ERP evaluation checklist. Here’s how to assess the critical branches for your company: data, performance, support, and cost.
Data — what information will you have access to?
Not all ERPs structure or collect data in the same way. Make sure the platform you choose both collects a large volume of data and structures it in a way that helps you make well-informed decisions.
Traditional legacy systems rely on analog tracking and manual input of data — your team writes numbers on paper, and someone enters them into the ERP. This wastes time, and entries can become riddled with duplicate data and human error. Finding a system that automates this data collection and entry process can massively increase the amount of quality data in the system and decrease the time it takes to enter the data. Modern systems have moved to a paperless manufacturing shop environment that relies on internet-connected devices on the shop floor to share job instructions and collect setup time, labor time, machine time, critical quality data, notes, and more.
To find how a system collects data, look out for terms like job traveler, shop traveler, job ticket, or time tracking. A job traveler typically refers to a piece of paper associated with a job that includes basic information and instructions about the job (like routing steps, estimated run times, and due dates). Some systems rely on both job travelers and a digital system to provide instructions and collect time-tracking data. However, the most modern systems conduct the entire process in a digital environment — giving instructions, communicating, and tracking. In Fulcrum, this digital environment is called the Job Tracker.
Once you’ve found a system that collects a large amount of data from the shop floor, consider how it’s used.
The best systems take the live data collected from internet-connected devices and reorganize it to provide actionable insights — progress updates, key performance indicators (KPIs), etc. In Fulcrum, users can see live labor, machine, and material costs and operation progress while work is in progress on the shop floor. This level of live data gives production managers and owners the insights to take action on jobs falling out of estimates and sales teams the ability to quickly respond to customers calling for updates — along with many other behind the scene benefits like automated purchasing recommendations based on consumed materials and demand and much more.
Data security & storage
If you work with the government or other classified industries, you may be required to have specific certifications and remain compliant with government-determined demands. Therefore, it’s essential to understand your current and future quality goals and ensure your ERP system can meet your needs. The questions you ask about data security and storage will depend on what requirements you want your manufacturing business to meet. Here are five data and security questions we often hear.
Performance — will the platform actually work?
The next, and perhaps most important, ERP criteria to evaluate is performance. There are several factors to consider.
Ease of Use
Companies like OpenAI and Apple thrive on giving users access to huge amounts of information through a simple action; for OpenAI, it’s a conversation, and for Apple, a tap on a screen. Finding a way to present complex data in a consumable form factor is difficult to get right — and most don’t. Legacy ERP systems are often so rigid and complicated that they take years to adopt, and even then, they’re underutilized simply because they’re so arduous to operate. Make sure to take the time to understand how your teams will use the system and look for software that you’d want to use. Many ERPs offer personalized demos or even self-guided tours — take advantage of them.
When communication breaks down, late orders happen, inaccurate inventory values abound, and quality metrics are lost. Many manufacturers count on in-person communication to keep the production floors moving, but this relies on a production manager or supervisor constantly walking around the shop floor; it’s slow and inconsistent.
Modern ERPs, like Fulcrum, incorporate ways to communicate with each other directly within the system. Sending messages or files digitally saves you the hassle of running around the shop floor whenever something changes.
Consider the other parts of your business. If your accounting team prefers QuickBooks Online for accounting or a CRM for your sales team, you’ll likely want to integrate those systems with your ERP. While you could choose an ERP system that includes capabilities like accounting or CRM within the platform, you may end up with a jack of all trades, master of none for an ERP.
Modern ERPs are built to focus on manufacturing specifically and then integrate with the other branches of your business. Many cloud ERPs have open APIs that more tech-savvy individuals can use to build custom integrations or use no-code tools like Zapier to automate workflows.
If you’re looking for an ERP, growth is inevitably a motivation for your search. On average, a company is on an ERP system for 7 years. With this in mind, it’s important to find a system that works today and in the future.
If you’re on an on-premise system, consider the additional server costs required to hold more data. Fulcrum supports scalability by hosting your data on Microsoft Azure, backed by 200+ data centers globally.
The beauty of modern SaaS products is the perpetual product improvement users get access to. While legacy systems often charge upfront perpetual licenses (more below), SaaS ERP systems give users free access to updates — Fulcrum commits upgrades weekly. Identify the growing ERP systems in the direction you want to take your company and incorporate this into your decision-making process.
Support — is there someone to help?
Having software so critical to business operations can be a high risk when done alone. Thankfully, most ERPs have some sort of support system setup; choosing the right one is an essential part of the buying process.
Implementation & changeover management
We’ve all heard horror stories of ERP implementation failures. Changing your entire business to a new system that affects your processes can be daunting and arduous. Take the time to understand each ERP’s implementation process and ask the tough questions now — you don’t want to be left behind trying to figure out the system by yourself.
Some ERPs rely on third-party vendors to get things up and running, while others have in-house ERP implementation services (or Launch, as we call it here at Fulcrum) to help you import your data and train your employees. In the sales process, ask for average implementation timelines for companies similar to yours. No ERP will be able to give you an exact estimate, but it’s beneficial to know if you’re committing to two months or two years. Modern systems, like Fulcrum, are often significantly faster to implement because they’re built on contemporary thinking and ease-of-use principles. Other systems that require a high amount of customization may take years to implement successfully.
Finding a community of like-minded people to support your business can be a practical means to unlocking new growth and opportunities. Look for communities, whether organized on Reddit or platforms like Slack or Bettermode, to see what the support networks look like (and get insight into some of the problems users are facing).
You’ll likely need continued support beyond implementation, so understanding how support exists in the long run is critical. Some ERPs rely on ticketing helpdesk systems for support items; others offer support at a cost. With Fulcrum, ongoing support is no additional cost and continues forever with a Customer Success Manager dedicated to each customer.
Cost — what’s the total cost of ownership?
It can be easy to fall prey to comparing ERPs based on cost. If ERPs were a commodity with equal value, then this would be a great way to choose — but no two ERP systems are the same. They each offer unique value and cost, and thoroughly performing a cost-benefit analysis is vital to choosing the right system. First, understand the different pricing strategies and how they affect your business.
Perpetual license. Most Legacy On-Premise ERPs offer their product through a perpetual license. In this model, customers pay a one-time upfront fee to purchase and own the ERP software indefinitely. The price may be based on the number of users, modules, or other factors. Keep in mind that additional costs, such as maintenance, updates, and support, may be charged separately.
Module-based pricing. Some ERPs offer a modular pricing approach, allowing customers to purchase individual modules or features based on their specific business needs. This provides flexibility and enables businesses to only pay for the required functionalities. However, adding more modules over time will increase the overall cost.
User-based pricing. This pricing model charges customers based on the number of users who need access to the ERP system. The cost-per-user may vary depending on the user's role (e.g., full access, limited access) and the level of functionality required.
Subscription-based (SaaS). In the Software as a Service (SaaS) model, customers pay a subscription fee, usually on a monthly or annual basis, to access the ERP software. The price may vary depending on the number of users, the chosen package or tier of features, and the level of support provided. This pricing model is common for cloud-based ERP systems.
Fulcrum prices on a subscription basis, with a one-time fixed implementation fee. We don’t charge per user as many systems do, so you never have to share seats or renegotiate every time you hire someone new. Instead, we price based on the size and complexity of your business and integrations. Because each manufacturer is unique, the price of Fulcrum is too. If you’re curious how much Fulcrum would cost for your business, schedule some time to talk to our team.
Beyond the cost of the software itself, there are several additional costs to consider.
Implementation. The cost of implementing an ERP can range from no cost to millions of dollars out of pocket, not to mention the cost of your team's time. If working with a value-added reseller, you’ll likely pay an hourly rate that can add up over time. If you choose to go this route, avoiding scope creep is critical to keeping costs within budget. Other ERPs may charge a one-time implementation fee to get the system up and running.
Support. Similar to implementation fees, support is often billed hourly, meaning even minor fixes or bugs can add up. With Fulcrum, support is included in the subscription price. No billable hours. No hidden fees.
Maintenance. If you have an on-premise system, you’ll need to maintain your servers and hardware. This cost varies based on the size of your company and other factors. You don’t need to worry about this cost if your system is hosted in the cloud.
Upgrades. Depending on the system, upgrades can be included in your subscription or at an additional cost. If you have a system with a module-based pricing structure, each additional functionality will cost more money. Other systems may charge an additional fee when moving from one version to another. With Fulcrum, updates are included in the subscription fee, and a customer success manager helps train you on updates as needed.
All of these items above are cost-related. Don’t get too wrapped up in the costs without looking at the benefits.
The benefits of each system will be different. Throughout the ERP evaluation process, identify the most significant benefits by framing your thinking with one simple question:
What could you stop doing today if you had [insert ERP name here]?
If you approach each conversation with this question in mind, you’ll have a better understanding of the opportunities you’re missing out on today.
Here’s a simple ERP evaluation framework you can use to find the best system for you:
- Identify the ERP options: Make a list of the ERP systems you are considering, including their key features, benefits, and any potential drawbacks.
- Determine the costs: For each ERP system, identify the costs involved, including upfront costs (software licenses, hardware, implementation), ongoing costs (maintenance, upgrades, support), and any indirect costs (such as the time required for training and adapting to the new system).
- Estimate the benefits: Then, estimate the potential benefits in terms of increased efficiency, improved decision-making, better resource utilization, and other factors that can contribute to your organization's growth and profitability. Consider both tangible (cost savings, increased revenue) and intangible (better customer service, improved employee satisfaction) benefits.
- Calculate the opportunity cost: The opportunity cost of choosing one ERP system over another is the difference in the expected benefits between the two options. To calculate the opportunity cost, subtract the estimated benefits of the less favorable option from the benefits of the more favorable option.
Opportunity Cost = Benefits of Option A - Benefits of Option B
- Project the return on investment (ROI): To calculate the percent ROI for each ERP system, divide the estimated benefits by the total costs associated with the system.
ROI % = (Estimated Benefits / Total Costs) x 100
- Compare the ROI and opportunity costs: Compare the projected ROI and opportunity costs for each ERP system to determine which option is the best fit for your organization. Keep in mind that a higher ROI indicates a greater potential return on your investment, while a lower opportunity cost means you are giving up less by choosing one option over another. The best option based on opportunity cost should have a value of 0.
- Consider other factors: While the ROI and opportunity costs are important considerations, also take into consideration the intangible benefits and costs we’ve outlined throughout this article. Some things will have anecdotal weight but no numerical value assigned to them (quality of support and training, future growth of the ERP system, etc.), so you may want to create additional columns for things like Support Score and online Reviews.