A new industrial revolution is underway. Digital technologies are pushing manufacturers to embrace data and develop new business models. Custom manufacturing is gaining momentum in this marketplace, and organizations must take advantage of supporting technologies, such as enterprise resource planning systems, to help them keep up with shifting customer demands.
According to a Forbes report, the increased use of digital technologies in manufacturing is pushing organizations to embrace custom production quickly. This comes at a time when manufacturers face mounting pressure to respond to new customer expectations regarding service levels, delivery timelines and a general sense of sophistication in the industry.
Trying to keep up with these demands is incredibly problematic for companies without ERP software and even for those relying on legacy systems that lack flexibility to keep pace with business demands. Organizations need global shop solutions to connect operations across geographical and operational boundaries.
Custom Manufacturers need flexible ERP. Learn how to select the right system in our Guide to Selecting an ERP System in 7 Easy Steps
Custom Manufacturing and Inventory Management
Implementing custom manufacturing processes is highly dependent on changes to the supply chain. Historically, organizations have had a fairly straightforward situation here:
Production demands are forecasted based on historical data.
Manufacturing schedules are created according to these projections.
Raw materials and other supplies are ordered to avoid storing excess inventory but ensure there is always enough to maintain production levels.
This cycle repeats itself with slight changes based on quarterly or annual assessments.
In this context, ERP solutions are often necessary for larger manufacturers who are either making a wider range of items, handling a larger volume of goods or dealing with both. However, smaller businesses have long gotten by considering ERP systems too expensive to be valuable considering their supply chain management challenges.
This is no longer the case when custom manufacturing processes come into play. When moving from mass production of goods to smaller custom runs, businesses will need to handle a wider variety of goods throughout the supply chain. Keeping up with these requirements depends on careful coordination across business units.
Custom Manufacturers are increasingly turning to ERP for improving their supply chain efficiency
Consider the following scenario:
A custom manufacturer making light fixtures gets a call from a hotel chain opening a new location. The customer wants a similar product to a ceiling lamp that had been produced in the past, but with a different finish. The final run will be for 200 fixtures.
To meet this demand, the manufacturer will need to begin by interacting with its engineering department to identify how the different finish might impact the design and plans for the fixture and get an estimate of how long it will take to make those changes.
From there, the business will have to source the standardized raw materials for the fixture, possibly using the same vendor as used in the past for convenience and expediency. With that handled, it's time to source the materials needed specific to the custom fixture: paints, hardware, etc. All of these goods need to make it to the warehouse on time for the production run.
manufacturers face mounting pressure to respond to new customer expectations regarding service levels, delivery timelines and a general sense of sophistication in the industry
Because custom orders are frequent, it's essential that goods don't just sit in the warehouse unused. It will waste too much space and can contribute to excess inventory shrinkage. So while working with vendors to order supplies, managers must be scheduling production to ensure the manufacturing lines are ready to create the custom fixture as soon as possible after the necessary supplies arrive.
Once all of this is taken care of, the manufacturer must consider how distribution and ongoing service may need to be adjusted based on the unique elements of the custom fixture.
All of these issues create a much more complex supply chain in which each interaction is more dependent on others. Vendor management practices, for example, become much more important in a custom manufacturing environment because a vendor that is sometimes unreliable on shipments can derail production, damaging the customer experience. In the past, a delay of a day or two may not have mattered as much because you'd probably have some excess supply on hand – either in the form of raw materials or produced goods.
In a traditional manufacturing setup, inventory management is an important supporting part of the business. For custom production runs, inventory management tasks play a vital role in empowering the company keep up with operational changes and demands. Precision and predictability are essential, and it is extremely difficult to enact mass customization alongside on-time delivery without proper inventory control and management procedures in place.
When Custom Manufacturers need to change, they lean on their ERP systems to bring everything together
Using an ERP System to Manage Change
Custom manufacturing processes present an ongoing challenge. Forecasting production runs based on previous years becomes more difficult because of the wide range of items being manufactured and varying needs for different assets. Because of this, organizations must be more precise and bring in data from a wider range of sources to identify their demand for a given period.
Being able to pull information from a wide range of projects and identify common materials used across custom manufacturing runs can empower organizations to identify baseline inventory assets they need on hand and pin down the ideal quantities of those assets at different time periods.
ERP allows for stronger supply chain and inventory management in real time
Custom manufacturing software is an essential component in keeping operations running smoothly in light of all of the changes happening across the business. ERP systems make it easier to gather information in real time and communicate to stakeholders in various departments. This allows for stronger supply chain and inventory management in real time. Next, reporting tools built into the ERP setup can grab data from various projects, as well as customer and vendor interactions, to create reports that let managers and leaders understand what is happening at any given time.
All of this data empowers organizations to support custom manufacturing without being overwhelmed by the added overhead created when it comes to providing adequate supply, dealing with accelerated order cycles and accurately projecting demand.
Custom Manufacturing and Digital Transformation
The digital transformation movement is emerging as one of the most disruptive forces in the manufacturing sector. In one study, Kimberly Knickle, IDC's research vice president for IT priorities and strategies, explained that new digital technologies are pushing manufacturers of all sizes to change at a breakneck pace.
Transformational shifts are happening around what digital technologies can do in manufacturing, a trend that is extremely evident in the growing importance of flexible, cost-efficient ERP software. abas ERP provides the kind of powerful, cloud-based ERP platform businesses of all sizes can use to optimize their workflows, automate business processes and create the data value chains needed to balance supply and demand in a custom manufacturing environment.
The abas ERP system is a two-tier cloud ERP, providing end-to-end functionality needed to empower organizations to turn their inventory and supply chain management processes into valuable parts of the business. Customization is easy, but it isn't necessary because of our powerful feature set and ability to integrate with specialized systems, such as digital design platforms that house product plans.
Custom manufacturing is pushing organizations to change their production and supply chain practices faster than ever, and abas can offer the digital backend needed to not only keep pace with this disruption, but get ahead.
Demand and supply-side challenges in custom manufacturing
The custom manufacturer’s job starts with a customer order, and in the demand-driven world of custom manufacturing, the requirements for each product are completely unique. The entire production process, from design, to billing and manufacturing will be specific to that individual project. This means that there is a lot less operational predictability, since the manufacturer isn’t relying on traditional sales projections, but instead has to be able to react quickly to each individual order as it comes in.
As a consequence, a manufacturer has to have a much deeper understanding of its own supply dynamics. For example, procurement has to become a much more agile process in a custom environment. If a customer sends a design that requires a part or material the manufacturer is unfamiliar with, it will have to quickly track down a vendor, vet it for quality and an acceptable lead time and place the order.
Beyond this individual example, this sort of agility has to permeate the entire customer/manufacturer relationship due to the uncertainty that comes with every step of the production process. Customers can change designs after the procurement process has started, meaning that the manufacturer will have to quickly adjust to accommodate new materials or component part designs. Additionally, the manufacturer may find that it’s impossible to physically create a part based on the design after everything was “finalized,” necessitating changes to the original design. Having the operational flexibility to make these alterations quickly and correctly is critical for keeping costs to a minimum and ensure the project proceeds on schedule.
Why custom manufacturers turn to ERP software solutions
The primary facilitator of the manufacturer/customer relationship is an ERP system in which the entirety of the production process can be viewed, adjusted and reported on by stakeholders in every functional area on both sides of the transaction.
Agility, flexibility and responsiveness are the key reasons why manufacturers and their customers rely on ERP solutions to manage all stages of the process and the product.
For example, an ERP system will be able to easily integrate with CAD software. As a design is completed within the CAD program, the ERP system can automatically capture the costs of the design. But with the understanding that those designs and costs are hardly ever finalized right off the bat, the system allows users to make changes which will reflect new material requirements, lead times, costing and other relevant aspects of the project.
Another major ERP feature that custom manufacturers need is revenue recognition. Revenue recognition during production refers to the process of recording revenue as various milestones in a project are reached. This is different than traditional billing because the manufacturer can bill and collect money for a production process without being able to recognize the revenue for it. The revenue recognition principle states a company can record revenue when it is realized or earned. Under certain conditions, a manufacturer may be able to record revenue before the product is delivered to a customer.
Revenue can be recognized at the point of sale, before and during production, after delivery or as part of a special sales transaction. Long-term projects often require the buyer to make payments as certain milestones are reached, whether it’s the finalization of the original design, the creation of a working prototype or any other predetermined marker of progress. This is a common arrangement in the custom manufacturing industry since customized projects or products that can take months or even years to complete.
For custom manufacturers, ERP software serves as a collaborative platform that allows for greater visibility and flexibility throughout the entire production process, from the initial quote to the day the product is shipped. When customer requirements are driving the project, manufacturers need to be ready for the unexpected and possess the internal capability to make considerable changes on the fly.
Visit our References list to see some of the custom manufacturers we are working with or contact us today to speak with an abas ERP representative.