By Clare Goldsberry, Associate Editor

Keeping track of consumables inventory in a welding shop can be a painstaking job.

If it’s done manually things can fall through the cracks, leaving employees without the necessary equipment when they need it. While generally thought of as something only large companies use, Enterprise Resource Planning (ERP) can be useful for smaller shops, saving both time and money for managing consumables such as gases.

Enterprise resource planning evolved from Materials Requirements Planning (MRP) software, and generally contains a variety of functions beyond the materials planning feature. The additional functions that included are purchasing, inventory tracking, costing, and ordering. In small companies, one or two people typically might handle these functions manually, and given the initial cost of enterprise resource planning software, there might be reluctance on the part of small manufacturing companies to employ enterprise resource planning.

However, a study by the technology research firm, Aberdeen Group, shows that there are three areas of enterprise resource planning that can be critical for small companies: Functionality, ease of use, and total cost of ownership (TOC).

Cindy Jutras of Aberdeen Group, said that the company’s 2007 Enterprise Resource Planning in Manufacturing study focused on small manufacturers, and showed that 13 percent of the 1,500 responding companies do not have enterprise resource planning, and 8 percent are planning to implement enterprise resource planning within a year. That represents a significant increase over the same study conducted a year ago, Jutras said.

“One would tend to assume that the majority of manufacturers with no enterprise resource planning are tiny companies, perhaps running on spreadsheets, miscellaneous data bases or applications such as like Microsoft Money or QuickBooks by Intuit, Inc.,” Jutras said. The total cost of enterprise resource planning ownership in small companies was influenced by a variety of factors, including company size, number of enterprise resource planning users, depth and breadth of functionality deployed, and business benefits gained from enterprise resource planning deployment among others.

Rebecca Gill, marketing manager for Technology Group International Ltd. (www.tgiltd.com), a developer of enterprise resource planning software systems, said while it has been primarily larger companies that have adopted enterprise resource planning systems, smaller companies now are starting to pick it up also. The Technology Group focuses on small to medium-sized markets, which Gill said are migrating from really small software programs such as QuickBooks that cover accounting functions, to enterprise resource planning.

“Enterprise resource planning vendors realize that these small companies really need it [enterprise resource planning], because the lower end of the market has a big portion of the same needs as large companies,” Gill said.

“Companies moving to an enterprise resource planning system to manage inventory find that is one of the biggest returns on their investment. So much cash is tied up in inventory, and if they don’t have a good system they store a lot of inventory they don’t need. Enterprise resource planning can reduce costs associated with inventory and give small companies a quick return on their investment. However, it takes them awhile to get used to not having the ‘safety stock’.” “Safety stock” is inventory that is held by a company to ensure that it does not run out.

PSC Group LLC (www.psclistens.com) helps small to midsized manufacturers to evaluate their enterprise resource planning needs, determine the type of system that can do the job and help its customers negotiate the purchase and installation.

David Hough, director of supply chain operations for PSC, said an enterprise resource planning system can be purchased either as a complete package from a vendor, or it can be developed by the company, but basically it’s a “workflow” system.

“The idea in workflow is to include as many people as possible in that workflow so you reduce data re-entry and notify all people concerned throughout the process. Every step in that workflow can have rules written around it to remind, to schedule, to alert, all to automate the workflow process and remove elapsed time, the time spent waiting for something else to happen,” said Hough.

“If I’m sitting there waiting to weld and I don’t have a welding rod, then I slow the project down. But if I know up-front I’m going to need this particular welding rod and we don’t have any in stock, then enterprise resource planning allows me to alert materials management and purchasing so that I have the rods I need when I need them. Enterprise resource planning ties all the pieces together to make the process more efficient.”

Morton Welding (www.mortonwelding.com) replaced an old enterprise resource planning system with an updated one, but after 14 months of trying to implement it, it abandoned the project. The new system didn’t meet the company’s current capabilities, and the software selection process was wrong.

Morton Welding went to PSC for help. With 20,000 part numbers, Morton Welding is a custom machining company with extensive welding capabilities and a large customer base. It produces thousands of parts in small quantities, and with short lead times. Planning and scheduling were a challenge for the company, and Morton was dependent on a good enterprise resource planning system for its success.

Morton Welding had an operation in which processes were done in a certain way and wanted enterprise resource planning to make things better, Hough said. “We helped Morton Welding to understand that you should base your selection of enterprise resource planning software on where you want to be in the future rather than where you are today. If you’re going to make the change, make all the changes for the future of your business process. There’s no point in making a little better. Make it a lot better and grow into a system. Don’t spend twice for the software,” said Hough.

Rod Miller, information technology (IT) manager at Morton Welding, said that the two-facility machine shop benefits from enterprise resource planning, and that it works with the kanban system that the company also uses.

“When we get to a certain level in our gases, for example, we order more, but that’s a short lead item. Wire is also important,” Miller said. He added that PSC played an important role in helping the company to understand what it needed, and how to choose the best system. PSC also helped Morton Welding to select a vendor. “We’re just moving to this new system and trying to iron out the wrinkles.

In selecting enterprise resource planning software for a small welding company, Hough said he will look at a package that helps the company run the business inside of its the walls, and to look for a way to involve its customers and suppliers – those outside the company.

“It’s the mixture of enterprise resource planning with web services technologies that will make your business better. In a perfect world, people use a browser to find you, then place an order, and the welding company will send out an order or look at the portal so they’ll know what the supplier has and bring the needed inventory to the job site. It’s joining the customer with the supplier, with welder in the middle. Look at it as a whole process and find best way to do it,” Hough advised.

Gill says that enterprise resource planning for a small manufacturing can be extremely beneficial when it comes to service levels on the individual parts and supplies.

“How much do you really need in stock? An enterprise resource planning system can say ‘here’s what you need to stock inventory to maintain the 90 percent level. Once you start using an enterprise resource planning system and letting the system manage your inventory you’ll realize savings,” Gill said.

Inventory movement also is helped by a good enterprise resource planning system, Gill noted. “There tends to be a lot of activity on a plant floor, so the system can map out where should goods should be and move it from area to another,” she said.

Jutras says that small manufacturers who are jumping into enterprise resource planning for the first time should keep in mind that putting the system into place will require changes and hard work. Typically, business processes are developed over time and in an unstructured way, so “the possibility exists that no enterprise resource planning system will match exactly.”

She encourages companies to seek out enterprise resource planning systems providers that have customers in their industry; and to evaluate the fit and balance needed to adapt their business processes to conform with the software rather than aligning the software to your processes.

Hough suggested that it may not be a good idea to use enterprise resource planning, but rather to use a collaborative workflow method, depending on the size and structure of the company.

“These (collaborative workflow programs) are available in various systems, and you may be able to design a collaborative workflow to fit your business, even integrate your accounting, because those technologies allow you to talk to your customers and suppliers easier than traditional enterprise resource planning,” Hough said.

Gill said that the goal of Technology Group International is to provide practical and usable enterprise resource planning solutions. “We don’t put things in that people don’t want or need. Our user base gives us ideas to put in what people really need or want. We’re smaller firm ourselves, and we really listen to smaller companies,” she said.