Enterprise resource planning (ERP) systems were created for manufacturing companies decades ago, and they still have an important place in the software ecosystem within this industry. 

While most users of a manufacturing company can benefit from using ERP systems, the software provides benefits and challenges that vary significantly by type of user, department, and job position. For instance, ERP is critical for the production department regardless of its size and the level of complexity of its operations. Other teams like sales and marketing also use ERP, often with different software solutions such as customer relationship management software or CRM software, or marketing automation software.

The core of a manufacturing ERP provides functionality for production managers to plan and monitor all stages of the production cycle. They also use ERP to track their department's performance and provide other departments with valuable information. For instance, the accounting department needs to know how much it costs to manufacture a product, then compare it with the estimated cost and the sales price, thus determining the profit or loss for each product. 

This is the first post in a series of articles that will describe how ERP addresses the challenges faced by manufacturing companies and how the cloud delivery model makes it easier to implement ERP software and maintain it.

An integrated system for the entire company

The main business problem that ERP addresses is the need for companies to have an integrated system and a single source of the truth. This is particularly important for manufacturers because production requires various data types during all product life cycle stages. 

As described below, product information is shared by the design team so that the production department knows the technical specifications of the products they need to manufacture. At the same time, accounting teams establish the cost and price of the product based on its components, direct and indirect costs, profit margins, and so on. Once the finished products and their costs are well defined, the sales department provides production details on how many products have been sold and the estimated delivery time.

At first glance, all these benefits are provided by both cloud and on-premises ERP software. However, in reality, there are essential differences between the two types of delivery models, impacting an ERP system's cost and efficiency. 

Why cloud ERP for manufacturing is better than traditional software

• Reduced IT costs: The integrated system mentioned above requires a single database to store all business information. As the name implies, on-premises ERP requires buyers to install and maintain a database on their servers. This means that companies need dedicated hardware and software, and qualified IT personnel. A cloud database, on the contrary, is the vendor's responsibility, which can significantly reduce the IT costs of the buyer.
• Better integration: Even the most advanced ERP systems need to integrate with other software such as CRM software, HR software, or product lifecycle management or PLM software. When all these solutions are on premises, their databases are often managed using multiple servers, especially when manufacturers have more than one location. Integration of several software solutions can be challenging when they use different incompatible databases (Oracle, Progress OpenEdge, Microsoft SQL) and operating systems (Windows Server or Linux). The cloud makes integration easier by using application programming interfaces (APIs) which are software agnostic. 
• Flexibility: Cloud ERP can be accessed from any device connected to the internet. On-premises ERP functions as a client-server system, which means that the database is stored on a server, and a client application is installed on each computer that needs to access the system. Cloud ERP can be used on any computer or mobile device by anyone with the proper credentials.

But don’t take my word for it. Here’s what G2 reviewers think about cloud ERP:

Who uses manufacturing ERP and how

The main departments of a manufacturing company can be classified into three major categories:

• Front office: sales, marketing, and customer service teams
• Back office: accounting, procurement, and human resources teams
• Operations: procurement, production, product development, and logistics teams 

While each department benefits from the integrated system mentioned above, they also require functionality specific to their work. For instance, the accounting department needs features for invoice management, AP automation, AR automation, and so on. Likewise, the procurement team requires features for purchasing and spend management. 

All these used to be part of a single system, which made ERP cumbersome and complicated. Cloud ERP allows buyers to turn modules on and off based on their needs, which provides more flexibility and makes the system easier to use.

That being said, not every single feature can be added or removed from a cloud ERP system. In addition, advanced customization and personalization of the software require IT personnel with programming skills or vendor development services. It is therefore critical for each department of a manufacturer to clearly understand the standard functionality of the system and how to get additional features (usually through integration and development).

This series of blogs will describe how each department in a manufacturing company can use cloud ERP for its specific needs and address some of the limitations of this type of software. Since production is at the core of any manufacturing company, my next post will focus on this department.