What is ERP?
Enterprise resource planning (ERP) is a business system used to manage financials and reporting around activities such as accounting, sales forecasting, manufacturing planning and execution, customer care and support and shipping logistics.
The extent to which a company requires an ERP system to manage its financials often depends on the level of company involvement in the manufacturing process. Companies that manufacture in-house or produce complex engineered to order products typically use a comprehensive ERP system to help organize information between their finance, sales and manufacturing departments.
Companies that outsource manufacturing often use a smaller set of ERP tools that include financial, accounts payable, accounts receivable, inventory and procurement modules without the manufacturing resource planning module, since resources are typically managed by outsourcing partners.
ERP systems enable organizations to plan for orders and profitability by providing manufacturers with a real-time picture of their financial status. With an ERP system in place, companies can track orders from receipt through production and delivery in order to gain a better understanding of inventory levels, delivery lead times and production bottlenecks.
There are a variety of ERP business systems available on the market today with varying features and functionalities that all serve to provide a CFO with accurate financial reporting and insight into a company’s financial future.
What is PLM?
Product lifecycle management (PLM) is a business system that provides control of the product record across all development stages—from concept to design to production. With a PLM system in place, a company can manage product data including items, bill of materials (BOMs), approved manufacturer lists (AML) and product files. A PLM system also enables a company to track any changes to product information and communicate revisions to the supply chain.
With automated change processes built in to PLM, companies can manage key product decisions like product changes in real-time. Conducting engineering change requests and orders through a PLM system helps to consolidate, organize and track product data in a centralized location that is otherwise dispersed throughout a wide variety of organizational departments.
By capturing product data in a PLM system, manufacturers have access to the single and correct version of their product record at any point in time and can efficiently structure a streamlined change process.
|ERP and PLM support different business needs. The capabilities of each system:
|PLM: The system of record for your product
||ERP: The system of record for your financials
|Bill of materials (BOM) management
Change management (ECR, ECO, ECN)
How do ERP and PLM fit together?
ERP and PLM systems are complimentary tools that can communicate with each other, yet support distinct business needs. PLM is designed to manage a product from initial documentation as it is revised and released for production. ERP uses the product truth (product data that has been determined in a PLM system) to help companies manage production resources and financials among other business activities.
Because PLM is intended to manage the development of a product and ERP is intended to manage the resource planning for production, it makes financial sense to use these tools in sequential order. To organize and manage product data, product data should be initially stored in a PLM system. Once the product design has developed to a point where resources need to be managed to produce the design, an ERP system that integrates with the existing PLM system is helpful. By integrating ERP with PLM, the most up-to-date product data is available at any time and can be shared with the necessary departments to ensure accurate financial planning.
The risks of implementing an ERP solution without PLM
Running a business with solely an ERP system will result in a gap in the manufacturing process. Companies with only an ERP system in place often struggle to organize one of the most important parts of the business, the product record. Additionally, the resulting scrap and rework around the product in the office and the shop floor is often quite costly. By implementing a PLM system beforehand, an organization can be confident the product information is being accurately managed and the ERP system is working with effective data.
Because ERP systems are designed to read the BOM for transactional purposes only, most lack effective change functionality and are not conducive to departmental collaboration around the product record. Change history documentation is vital to understanding which change has occurred and when the change went into effect. Engineering departments also require accurate change history information to track design changes and collaborate around product data.
Ultimately, an organization that implements an ERP system without a complementary PLM system risks mismanaging product changes and conducting inaccurate financial planning. Organizations utilizing less robust solutions like Excel to manage BOMs and changes also put a company at risk for costly errors.
What problems arise when implementing ERP before PLM
Manufacturers that begin with an ERP system and then implement a PLM system can face various challenges to effectively manage the product record. For example, an engineering team without access to a PLM system to centralize designs and track revisions risks submitting inaccurate product data to an ERP system.
By managing product documentation and revision changes in a PLM system and then syncing final product data to an ERP tool, companies can avoid wrong part ordering and prevent inefficient spending. Product recalls and violating compliance regulations are other issues that can arise when product data is not first managed in a PLM system.
Synchronizing data and building a data connection may also be more cumbersome for a company when it implements a PLM system after an ERP system is already up and running. The time and money it takes to determine what product data should migrate from an existing ERP system to a PLM system are much better spent elsewhere in the production process. By storing product data in a PLM system and then migrating to an ERP system, a company will enjoy a more cohesive and efficient manufacturing process with fewer oversights.
Conclusion: Order of tool implementation matters
ERP systems and PLM systems have distinct functionalities which, when used together, give an organization complete control over its manufacturing processes. These tools, however, are not interchangeable. An ERP system helps a company manage the transactional activities around building a product, while a PLM system tells the story of a product at a specific point in time and the history of the product record.
Establishing your manufacturing process with an effective PLM system before integrating with a compatible ERP system will minimize organizational inefficiencies and transition costs as well as optimize the capabilities of each system across the entire organization.