MES: WHEN ERP IS NOT ENOUGH

ERP vs. MES, this is a constant topic of debate in many industries. The argument generally revolves around the capability of an ERP to handle manufacturing activities and whether or not an MES is really a necessity. Today, we will visit both ERP and MES and try to gauge which application is more suited for the management of a manufacturing plant.

First we will consider what an ERP is and what are its positive attributes; then we will visit its limitations. After understanding the ERP we take a look at a typical manufacturing plant and its requirements in terms of data and its subsequent analysis. Lastly we have a look at MES and how MES hits where ERP misses out, in a typical manufacturing environment.

ERP or Enterprise Resource Planning is a software application meant to provide an integrated platform for all functional areas of an organization; there are applications which go even beyond an organization up-to the secondary, even tertiary level in the value chain, in both forward and backward direction. A typical ERP application covers functions like Accounting, Finance, Purchase, Logistics, Warehousing, Marketing, CRM (Customer Relationship Management) and Manufacturing. Manufacturing has been listed as the last function as the role a typical ERP application plays in manufacturing is minimal, but more on that later. The ERP was basically designed to be a tool which integrates functions, optimizes resource planning, and provides a clear view of the various transactions between these functional areas. The salient features of an ERP are its integrated database, real-time operation/update and consistency in terms of appearance and usability.

So let’s consider a textile manufacturer, XYZ, which produces bath towels, rugs and shower curtains. The company is using a large and comprehensive web-based ERP application for its day-to-day operations, and both suppliers and customers can access the ERP system. The process begins when a customer places a requirement on the ERP system; a Purchase Order (PO) is generated automatically and begins to reflect in the accounts and customer service functions. The customer service acknowledges the receipt of the new order by accepting it on the ERP and a Pro-forma Invoice (PI) is then generated for the customer. Once the PI is approved, the order is live for the purchase and production function. The Purchase department can then place an order for the raw material by issuing a PO on the same ERP, in case of a vendor managed inventory; the PO would be generated automatically by the ERP and would reflect directly in the supplier’s database. Once the Raw Material is in the warehouse, the material is sent to the production on either an ERP based requisition or as per a fixed schedule configured in the ERP. Once the material is produced and shipped, the logistics department provides the required shipping details and the customer can view and track its shipment through the ERP.

The major benefit that organizations derive from an ERP is that it helps implement the business process to perfection and inculcates the best practices, which have resulted from experience or benchmarking. It also establishes a clear financial picture of transactions between various functions and outside players in the organizations value chain, resulting in better management and planning. In the above example the organization XYZ greatly benefits from its ERP, in terms of automation of the order processing, real-time purchase, acquisition of raw material and scheduling of production. The finance department is greatly benefited by the ERP as right from an incoming PO to an outgoing one the ERP captures everything and helps them analyze the entire process from a financial perspective. But what about the Manufacturing function? Although it is tightly integrated with the other functions through the ERP, what other benefits does it derive from the ERP system, besides timely scheduling of jobs and improved inventory management?

In modern management, manufacturing as a function is considered vital. The reason is that an efficient manufacturing unit can cut down costs and directly impact an organization’s bottom line. Today production plants are operating with automated equipment and the process has become very different from before. Manufacturing and the capability of an organization to produce goods faster, cheaper and better than competitors have become a critical aspect of market positioning and differentiation. Due to the highly automated nature of modern manufacturing it requires information from the process, which is beyond the capability of a typical ERP system as discussed above due the sheer span of function it covers.

A modern manufacturing unit requires real-time equipment data, production recipes, granular process data in terms of production lots, sub-lots and for certain lots every piece of that particular lot, process metrics related to waste, rejection, errors, efficiency, up-time, dynamic process flow, with contingency plans, etc. All of this becomes impossible for a central ERP system to provide as its main aim is to provide integration of the business process and not improve the overall effectiveness of the manufacturing.

Also, a problem that is inherent in modern manufacturing processes is the in-built complexity and variations which are created to keep the process differentiated from the competition. This poses a major problem for the ERP system as it may lack the scalability and flexibility required, because it is designed to operate a static function and can’t adapt to the dynamic nature of modern manufacturing set-up. To put it in a more simplistic manner, a typical ERP just lacks the scope and scale required to support the multiple and fast transactions of an automated manufacturing unit.

This is the point where an MES application hits exactly where an ERP misses. The MES is designed to replicate a manufacturing process and capture all its nuances. It provides the integration of activities within the manufacturing operation and even beyond. We will look at the capability of the MES to integrate with Enterprise based solutions in a subsequent post. However, today let’s focus on how an MES trumps ERP for manufacturing operations management. The MES has the capability of recording thousands of transactions which might take place in an hour in a large manufacturing plant.

It communicates directly with equipment and provides the decision-rich information from the entire process. It also has in-built analytics tools which allow better analysis of process metrics and fact based process control. It can be used to implement Lean, Six Sigma or TQM initiatives and act as the vehicle of continuous improvement and systematic cost cutting. MES by design is capable of adapting to the variations in a process, myriad recipes and complex work flows.

The three main aspects considered when choosing an MES instead of ERP for Manufacturing are speed, agility and integration. An MES becomes the ideal choice for a complex production process with multiple variations and massive number of transactions. An ERP is generally designed to support a homogeneous process with the absence of any variation; this standardization leads to its downfall when compared with an MES. Coming back to the original question ERP or MES, the answer is quite simple, ‘it depends’. Yes, it depends on the manufacturing process’ complexity and the extent to which manufacturing capabilities are important to your overall business strategy.