Few ERP solutions serve both manufacturing and distribution effectively

By Thomas Cutler -- Industrial Distribution, 11/30/2005

North American manufacturers are becoming distributors because outsourcing the manufacturing function redefines their role and purpose in business. 

North American distributors are crossing over more frequently and acquiring manufacturing firms as part of their function to control and manage the capacity to deliver product on time to their customers.

These two circumstances are causing ERP (Enterprise Resource Planning) vendors to reassess their target market, product functionality, and marketing outreach efforts. 

Most ERP systems are not able to adapt to the specific needs of distributors. While there are certain functional duplications in some areas of manufacturer and distributor operations, there are also several distinctions and differences.

Whether due to outsourcing, diversification, company expansion, or simple survival, companies are diversifying their offerings.

According to Tom Verzi, of Pronto ERP, “We see clients expanding into different businesses either by acquisition for growth purposes or internally just to survive due to the amount of manufacturing that is being outsourced to foreign countries.”

Even a rudimentary Google search for distribution ERP provides matches for bar-coding, WMS (Warehouse Management Systems), and other non-ERP systems with little cross-over functionality between manufacturing and distribution.

Some of the key ERP characteristics that are needed by distributors are often lacking and these are some of the key variables to review with an ERP vendor who has heretofore focused on the manufacturing sector. 

Few systems designs for manufacturers address the following:

* Sophisticated warehouse management system including flexible warehouse layouts, optimized picking paths and intelligent replenishment routines;

* Paperless processing for put away, replenishment, stock takes, transfers and receipts;

* Effective inventory management with high visibility of stock on hand;

* EDI messaging gateway for B2B commerce;

* Ability for real-time interfaces to transport carriers.

According to Matthew Marotta, CEO of Datacraft Solutions, a digital kanban leader, “The value of consumption-based replenishment all starts with the customer, not the sales organization. It breaks down the communication barriers of the organization and forces strategic partnerships with all parties in a very visible now global, supply chain.”

Manufacturing functionality
As more distributors take on manufacturing functions and acquire manufacturing operations to remain competitive, the capacity of their ERP system to function in both environments becomes a central factor in the efficacy of business expansion. 

One Canadian firm, Frank Brasier & Sons, which is currently celebrating 50 years in business, had 95 percent of its revenue derived from manufacturing saw blades in 2000. Five years later the company distributes the actual cutting machinery and equipment (and along with repairs and service). Distribution now represents 40 percent of the firms business. 

According to Christine Parravano, Brasier’s CFO, “Diversification was essential to our survival and growth.”

Service revenue has increased from five percent to 40 percent in just five years and is expected to continue rising. More than 60 percent of the company’s revenue is anticipated to come from service by 2008.

Critical to this revenue boost are technologies that can do the following:

Reduce repetitive procedures, so data is entered only once. Less data entry can mean fewer errors
Track by serial numbers which allows for comprehensive service records, sales, and profitability.

There are certain key manufacturing characteristic that are distinct from distribution. Some examples include:

* Product Data Management: Item control, Bill of Materials (BOM), routing, work centres, product configurator;

* Shop Floor Control: work orders, planning, production feedback, alternative routings, subcontract operations, costing and GL posting;

* Manufacturing Processes: Make to stock, repetitive, batch, make to order, assemble to order, configure to order;

* Quality Control: Traceability by lot, batch and serial number, laboratory system, conformance certificates;

Most ERP vendors have positioned themselves for a specific manufacturing or distribution application, creating limited market appeal. Just because there is a cross-over occurring in the marketplace does not mean most of these products can achieve the cross-functionality required. 

Thomas R. Cutler is the president & CEO of TR Cutler, Inc., a manufacturing marketing firm based in Fort Lauderdale, Fla. He can be contacted at trcutler@trcutlerinc.com or at (954) 486-7562.