Why ERP systems Fail Molders & Extruders

Written by CyFrame


Why ERP systems Fail Molders & Extruders

We meet them all the time, at trade shows, association events and through industry referrals: Molders and Extruders who live with highly complicated software or ERP systems that not only consume more time and energy than they create but who require small internal armies to run their operations, often incurring unnecessary IT costs and expense.

It is not at all uncommon to find an untold number of external spreadsheets that are required to supplement the internal main financial and distribution system. Whether it’s purchased systems, customized or somewhere in between, these processors all have one thing in common; their systems simply cannot properly address the production side’s real-time reporting requirements in any consistent or integrated way that actually simplifies the process and creates a measurable gain in accuracy or efficiency.

Here are the top 3 reasons why:

  1. Keeping it flexible when it comes to Bill of Material / Recipes substitutions

    Plastics manufacturers continuously try to optimize their recipes to obtain the ideal product properties at the lowest cost possible. This includes the use of regrind depending on the quality of the regrind material and the impact of the virgin resins or additives available at the time of production as well as machine and external factors that will provide the best profitable outcome and speed to meet the delivery deadlines.

    It is an environment that requires the flexibility for quick changes to the recipes from not only the planning stages based on raw material availability and quality but all the way to the production stages where ambient temperatures, humidity, and production speeds conditions and actual material allocation play a significant factor into on the fly recipe adjustments.

    Most ERP systems are extremely rigid when it comes to modifying work orders and the related raw material once they are created. In these systems, raw material quantities are also expressed in per thousands of finished goods while the actual recipes are expressed in percentages making it very difficult to change them if at all possible.

    The result is that most systems fail to report accurate raw material usage or provide actual costing and will require constant and continuous inventory adjustments.

  2. Dealing with the creation and maintenance of the Bill of Material (i.e. BOM)

    Imagine an extruded product that is sold in 6 different lengths and 4 colors. This implies that there are 24 products in total or what is referred to as SKU. This means that ERP systems require 24 finished products to be defined. Same is true for molded products which could have even more iterations when considering decoration, labeling and assembly options. Each of these products SKU’s will require Raw Material, Labor Operations, and Machine specifications to be defined even though the same die or mold is used. Except for a color change, the raw material for these 24+ products will use the same recipe all the time. A generic system will inevitably require users to replicate the machine specifications and labor operations over and over instead of once for the tool and a once for each recipe.

    And it doesn’t end there! with periodic changes to the die or mold as well as raw substitutions, means a never-ending effort to maintain the system. Even more challenging is to have accurate product costing as that implies that complete machine setups are made for all 24+ products while changeover is quite short compared to the original setup of the production line. One has to conclude that this is an inefficient, very time-consuming process in standard ERP solutions that lacks accuracy and much to be desired when trying to estimate costs.

  3. Dealing with variable product costs and establishing the price.

    In addition to machine setup variables creating costing inaccuracies discussed above, molded and extruded finished products contain varying percentages of the same resins. Take for example a product with 30% of one resin content and another with 80%. All other things being equal, a 10% increase in that specific resin price will mean a 3% increase in cost in the product with 30% content and an 8% increase in cost in the product with 80%.

    Once the unit cost of the raw material is updated to the new price in a normal ERP, the estimated cost of the finished products must be recalculated from scratch. Then there’s the selling price that must be recalculated to maintain the desired profit margin. This results in a very time-consuming, inefficient administration exercises.

    In actual practice, molding and extrusion companies will often just end up applying a global increase for simplification. Some just won’t apply any increase at all while some of the brave few will actually go through the accounting gymnastics and do the work required to make an accurate calculation. The ones who don’t, risk losing disloyal customers to the ones who do simply because the price of some of their products will inevitably be overpriced leaving other products underpriced. Over time, this can erode a loyal client base and be quite devastating for the business.

Other reasons for ERP failure, or what can better be described as poor levels of integration and actual efficiency achieved, are due to significant gaps in compatibility with respects to the management of the manufacturing and related operations. ERPs should natively integrate into all aspects of the company especially the most critical sectors of production.

Companies who have succeeded enjoy all the technology advantages such as live Material Requirement Planning (i.e. MRP), optimizing production lines with scheduling with Capacity Requirement Planning (i.e. CRP) and get all the production efficiency and production profitability reports in real-time. Those who have not, can expect to constantly contend with scattered spreadsheet systems (often controlled by a few critical individuals in the company) and continue to suffer from conflicting information, lack of real-time visibility and data integration issues that often cause errors and contribute to poor internal communication.