What does the perfect ERP for electronics manufacturing services look like?
By Chintan Sutaria, CalcuQuote President and CEO
People often ask me if CalcuQuote is moving towards being a complete ERP solution. I semi-jokingly answer, “No way, people hate their ERPs. I like to build software that people love.” Since it keeps coming up, I decided to dive in a bit deeper to the subject of ERP and how they could better fit the use case of an EMS company.
IMPORTANT DISCLAIMER: CalcuQuote does not have any intention of building an ERP, now or in the future.
Why don’t people like their ERPs?
ERPs, or Enterprise Resource Planning systems, are often critical in managing day-to-day business activities for most EMS companies. Compositing information from supply chain management to project and risk management, a successful ERP system is agile and allows for the smooth flow of information between departments. It is important to specify the word “successful” as many folks we speak to have less than stellar experiences with their ERP systems. Let’s take a closer look at some of the top reasons ERP systems fail to meet their customers’ needs.
1. Most ERPs are outdated.
ERPs are massive in terms of scale and complexity. Any software large enough to manage all your business’ needs in one place is simultaneously large enough to create serious headaches when information isn’t transferred properly. Most ERP systems are almost monolithic in nature. They try to do everything for everyone without prioritizing tasks, and they rely on old frameworks for development. Application programming interfaces (APIs) and cloud-based data are often afterthoughts, limiting the ERP’s capabilities and preventing them from becoming more adaptable. Similarly, many users claim their experience leaves much to be desired. Non-intuitive design and multistep processes with too many clicks leave users feeling frustrated and confused as they navigate the system, often giving up before they’ve explored the ERP’s full potential. Finally, proprietary software stacks restrict user’s independence, and lead to high licensing costs, which ultimately increase prices for the customer. These challenges leave most ERP systems woefully in the past while customers are looking to increase their relevance in the present.
2. Due to magnitude and expense, ERPs are typically generalists with lackluster support.
ERP systems are designed to be expansive and to serve as a “one stop shop” for most businesses’ needs. This means they aren’t designed for specific use cases, small business budgets and IT capabilities or with modern security requirements in mind. This proves problematic for many PCBA contract manufacturers, especially those working in industries such as defense, in which International Travel in Arms Regulations (ITAR) is a major consideration. It’s crucial for CMs to use ERPs that fit their business needs and are flexible in terms of making improvements and innovating their software on a regular basis.
Flexibility is not a word often associated with ERP providers. In fact, rigidity and poor customer support are often at the heart of disconnects between EMS companies and their ERP systems. Simple feedback turns into expensive customization projects. Most business models don’t allow visibility into the use cases of their customers, making it nearly impossible to provide tangible support in one-off scenarios and, in many cases, ERP providers are simply too busy to listen and respond to their customers’ feedback. Communication is key in any relationship – business partnerships are no different.
Solving the Problems
We’ve identified an extensive list of pain points for EMS companies regarding their ERP software. In a perfect world, ERP providers would start the arduous process of fixing those problems immediately. In the real world, we know some of these issues are likely too large to tackle. With this being said, there are still actions that can be taken to make improvements. Here are the items an ERP software provider can take to be the best option for an electronics CM:
1.Managing approved component lists.
An EMS company needs to manage component relationships simultaneously at numerous levels. In some cases, a customer may simply provide a general description of a resistor and expect the company to make the optimal suggestion. In other cases, they’ll provide their own approved manufacturer list (AML) to be used on all their bills of material (BOMs.) The AML may be in a consistent state of change, and those changes can be communicated via emails, spreadsheets or ECOs. In other cases, customers may approve alternates for a specific BOM or purchase order (PO).
Most ERPs can handle some of these scenarios, but very rarely can an organization systematically handle all these varying scenarios through their ERP. At some point in the process, success depends on referencing an email or having a superhero within the company that “just knows how this customer operates.”
An ERP perfectly suited for the EMS industry would be able to create and maintain relationships between part numbers at any level of scope. This means that a BOM would know which components can be used in a single line item easily and clearly, with proper traceability.
Futhermore, the ideal ERP system would be able to recognize the approved components across various BOMs simultaneously as material requirements planning (MRP) ran so that the proper consolidation of part numbers could be recommended for volume purchasing.
2. Link to the supply chain.
Especially in a high-mix, low-volume PCBA environment, controlling costs is more about adding efficiency to the buyers’ time than negotiating pricing on specific components. All else being equal, if efficiency is increased in sourcing and executing POs on the purchasing team, there is a more significant impact to the bottom line than there would be by pressing suppliers on high-value parts.
The problem with increasing efficiency is that most older ERPs have an MRP that lives in a silo. Running MRP as a separate entity has always been a problematic practice. “Back in the day,” the workaround was sharing MRP demand through EDI or other batch communication mechanisms to suppliers. Subsequently, suppliers would respond back in batches.
A modern ERP should be integrated with the supply chain in real time – or close to real time, and with minimal human intervention. This means being able to adjust the MRP list based on information about current price, availability, and risk. It also means having the ability to automatically place POs based on demand signals.
Added efficiency reduces the total cost of purchasing the part, improving accuracy and creating a more agile supply chain system for a CM.
Electronics manufacturing grows increasingly sophisticated by the day. At one time, it was possible to start a CM business with a few soldering irons and a small room. Today, a multi-million dollar investment is necessary before even getting started. Part of that investment is in sophisticated equipment for placing tiny components, but expectations go far beyond simply placing components accurately on a board.
Customers today expect granular traceability in terms of which components were used on which boards. Controllers want to know the actual costs of a job (not weighted averages), so they can track and report profitability. Perhaps most importantly, all of this traceability is expected to occur without sacrificing profit margins through tedious data entry tasks.
Ultimately, the only realistic way to meet all of these expectations without collapsing under the weight of an over-engineered, data-entry-heavy process is to have an ERP that just gets it.
The ideal ERP would keep track of date codes, lot codes, and serial numbers. It would also be able to identify relationships and locations of part numbers in case an urgent need to fill a part need with a different approved component arises. The ERP would add all this traceability without adding error-prone, manual data entry. To make this possible, think barcode scanners, wireless workstation support, and a feedback mechanism for users to prevent mistakes.
4. Bonus: support and updates
The pace of change in the electronics industry continues to accelerate. A successful ERP should be able to keep up with those changes.
As employees change, there should be sufficient training materials, help articles and in-app usability to allow new users to onboard quickly and with a level of confidence.
As industry requirements change, the ERP should be able to react quickly with patches and new features.
There should be a sufficient number of customers with the unique use cases of a PCBA CM that the ERP pays attention to those needs and develops best practice solutions rather than one-off customizations that become impossible to maintain.
Finally, the ERP should have a customer service mindset in which customer feedback is taken seriously. It’s easy to get caught up in data flow and a “having seen it all” mindset. ERP providers cannot forget that the users of the ERP are genuinely trying to make a system work in their day-to-day lives. A great ERP would respond to its customers with the urgency that is required to ensure that their businesses stay operational.
While it’s true that CalcuQuote won’t be tackling ERP construction ourselves, we recognize that ERP frustrations are a genuine challenge for many businesses, and we like to help where we can. If you’re not happy with your ERP provider, CalcuQuote is always open to having a discussion regarding integration capabilities.