A short history of ERP system
Some decades ago, in the sixties, just around the time when computers were about to be introduced in commercial service, people realized that these machines were pretty good for keeping track of inventories and estimating materials needs for manufacturing. This gave birth to the idea of Materials Requirements Planning – a collection of tools and methods for planning and managing materials for production.
Some years later, this concept led to the introduction of Manufacturing Resource Planning – which added some process-related planning and scheduling concepts and techniques.
Once computer systems became commonplace and most organizations had them, the Enterprise Resource Planning concept was born, also known as ERP.
Evolution of ERP:
Now, ERP is not necessarily a single name or tool – it is rather a collection of utilities, concepts, and technologies that serve the purpose of unifying and automating all aspects of a business – basically anything that can be digitized, stored and processed with respect to a business’ minute-to-minute and day-to-day operations.
These days having an ERP for a large company is not optional anymore – they simply would not exist without one, and even mid-sized and small businesses are feeling a competitive pressure – as companies of every size and shape are introducing ERP systems, they are becoming better and more organized, which results in their growth, which in turn allows them to quickly grab market share from all those other companies in their respective industries that are behind the curve and are not implementing such systems.
Why do ERP systems provide such an advantage?
If you think about it, what is the goal of any manufacturing business? Not just jewelry, but other businesses as well. Or rather, what should be the goal (as it is not always)?
The goal is to get products to the customer in the most direct line and the fastest way possible while making a profit. Now, the profit part is interestingly not the most important part here – profit maximization will be the subject for another of my articles and videos. What is IMPORTANT here is that anyone who can create a more direct line from the idea – the thought of the customer to buy or get something made – to the customer WILL do better than others – it’s as simple as that.
The direct route matters – the more detours or stops you have to make along the way the more your revenues will fall and the more money you will lose. ERPs can create this direct route by integrating the different areas of your business into a data highway while making sure that any stops in the process are minimized. The key word here is “can” – as that is unfortunately very often not the case. Let’s see why that is.
First, it’s important to understand that there are two distinct flavors for ERPs – generic ERPs and industry-specific ERPs.
Generic ERPs and industry-specific ERPs
Generic ERPs, such as Oracle, SAP, Navision, and so on – are ERP systems that can perform general tasks well but are not particularly useful in any specific industry without extensive customization. These generic ERPs are usually very large, complex systems built mostly around financial concepts, not around production-oriented concepts. They have tightly integrated modules, all geared to support the accounting side of the business.
Now, while they usually allow some customization to get them to fit a specific industry, these customizations are very expensive, performed by outside consultants who may or may not have a good understanding of that industry – and all this will add to the implementation costs. Also, since they are not specialized on anything, they have user interfaces that can get overly complex, even for performing simple things.
On the other hand, there are the specialized ERPs - these are systems that have been built for an industry, with that industry’s best practices and unique use cases in mind. They provide functions out of the box those were designed with the industry user in mind and implemented by developers who have a deep understanding of the industry.
These specialized ERPs come in two variants: vertical ERPs and industry-specific ERPs. The difference is that vertical ERPs are essentially generic ERPs that have been modified to fit an industry – they have added modules and functions that are useful in a specific industry; that’s the vertical part: basically, they are generic ERPs that target a narrow industry vertical – like car manufacturing, healthcare, or distribution. On the other hand, industry-specific ERPs are built from the ground up for a specific industry – they have the industry in their DNA, so to speak, not just “made to fit” the industry.
Once you have decided to look for a management system or to replace your old system (whatever that is, pen and paper, Google sheets, or Miss Suzie in the back office who keeps everything in her head) you have two possibilities:
- you can look for a consultant who will explore the possibilities and will present the most promising solutions, or
- you can choose to do it yourself.
Whichever may be the case, you should NOT opt for a solution that is not jewelry-specific – you have to get something that was built for the jewelry industry from the ground up.
The reason is that the jewelry industry, and jewelry manufacturing, in particular, is very complex. Making and selling jewelry is part artisanship, part manufacturing, and part marketing – so you need a system that blends these together seamlessly.
This is especially true when you are dealing with custom jewelry: since every piece is different, there can be literally millions of variations and possibilities, and a system that does not “talk and understand” jewelry will not be able to manage such variety.
Add to this the fact that most jewelry can be fairly expensive, and you end up needing a system that is not only jewelry-specific but can also deal with the complexities of costing and pricing these custom pieces and keeping track of them in your inventory or your stores, not just until they are sold, but even afterward, when you have to make repairs or copies.
What aspects should you be considering when making a choice?
1. Have a list of functionalities that you need
This list should be divided into ‘Must have’ and ‘Nice to have’ categories. Must have item are things that need to be resolved or at least alleviated by the introduction of the ERP system; the “nice to have” items are things that could make some things easier but you can live without for the moment. This list of items will be very helpful when you are trying to narrow down your list of potential software to no more than five potential matches.
2. Check how jewelry-specific the system is
Every industry has its own specific items and processes that need to be tracked. Obviously, a car manufacturing software will not work for the manufacturing of jewelry due to the different specifics that need to be tracked.
The disadvantage of generic management systems is that they are nearly impossible to customize to the extent that the respective industry requires. Generic ERP systems are usually implemented by large corporations with pretty standard, mostly financials-related processes (as these are usually the same for every industry) and for whom there is no distinct advantage in using an industry-specific ERP – think food distribution or shipping services.
3. Flexibility versus the need for custom programming
Even if the system is jewelry-specific, a certain amount of customization cannot be avoided, maybe the layout of an invoice or re-arranging fields on certain printed forms to match your existing paperwork.
In any case, it is worthwhile to check whether your top five potential software choices can be highly configured without any programming (such as adding workflow steps, creating your own type of jewelry from components, setting up your own pricing structures, and so on) or rigid, so-called out-of-the-box solutions.
A software that can be highly configured will reduce or eliminate the need of custom development, while the smallest custom change to an out-of-the-box software will be generally expensive, if even possible (as some software vendors of commercial, out-of-box software don’t even offer customization).
Unless you are working in a niche market with some very different needs than most other companies, the amount of customization will range somewhere between 10 and 25 percent of your total cost - anything above this is considered extreme customization and can be regarded as a sign that you chose a less optimal solution.
4. Your client base (these would be the majority of your customers)
You should pay attention not to be fooled by a software that is trying to advance vertically.
„Many business software vendors pass off their solutions as being industry-specific however they will use another vendor's front end to create the illusion of having a very specific fit for your business.” - Engineering News
This would be for example a platform like Navision or by its most recent name, the Dynamics 365 ERP platform that is already present in the jewelry industry as well. These systems can be easily spotted by taking a closer look at the clients they have worked with. If they have a lot more clients outside the jewelry industry than inside, that means that they are not specific to anything, and are rather a generic ERP solution masquerading as a specialized one; so you should watch for these signs.
5. Integration possibilities
Integration is basically the practice of connecting one system to another. The latest generation of ERP systems, also known as postmodern ERPs, are process oriented and their best-known characteristic is that they can easily be integrated, or connected to other systems.
The typical setup for such a system is that there is a subsystem for every activity and process, like accounting, shipping, customer management, or online sales. It is extremely important that these systems can be connected because managing parallel systems can be very time-consuming if they don’t talk to each other.
My personal experience is that more and more companies that get in touch with us consider an excluding factor if our software cannot be connected with their website or let’s say, QuickBooks, which is the most popular bookkeeping software amongst jewelers.
The possibility to integrate is an increasingly important question, but the way of integration also plays an important role. There are two main technologies for businesses to exchange data electronically: EDI, or electronic data interchange, and API, or application programming interface. I will get into more details on these in more in one my other videos, but what you should know about them is that EDI was considered a pioneering technology in its own time, but now it’s about as useful as a fax - compared to this the API is getting more prevalent, as it’s much more flexible and it allows for real-time data transfer, which is hard to do with EDI.
6. Technology used
Now, you don’t have to know the newest or any programming languages, in most cases, you can see which software evolve with the ages simply by looking at them. The interface, integration possibilities, possibility to customize, flexibility are all a sign that shows how up-to-date the software is.
Many companies pride in working in the industry for 20-30 years, but if they haven’t placed their solutions on new platforms, then it may be very possible that they are promoting an outdated system.
It may be worth considering cloud-based solutions because many consider cloud-computing the technology of the future and they are gaining more popularity in the jewelry industry as well.
Dangers of NOT choosing a jewelry-specific system?
1. High customization level and high costs
One of the strongest arguments to a generic ERP system is the previously mentioned question of customization. Larger corporations may be able to afford these extra costs, but mid- and small businesses can rarely spare these expenses.
The catch usually is that at the beginning of implementation there’s only a very limited insight to the amount and level of customization needed – the devil, however, is in the details and those needs will be uncovered as the implementation moves along. Cost overruns in these cases are unavoidable and could overload the budget by as much as 80%.
The jewelry-specific software is usually made with the industry standards already built-in, where the differences are mostly how the processes differ from one company to another.
2. Longer training curve
During the implementation of a generic ERP system, you need to take into consideration that it will be more difficult for the staff to learn using it as there is no common language there. Questions will start arising like ‘Why does this information go there?’, ‘Why are we tracking this?’, ‘What should I do now?’ and so on. They are the ones that will help shed light on anything illogical.
As a contrast, industry-specific solutions are truly customer-centric. Since they are built with the manufacturer in mind to encompass his unique processes, there is typically more control and a better understanding of the end-users needs.
3. Support issues
It is very important that those who implement the system and those who will provide support are aware of the industry-specific standards. It is not enough to understand the programming language, to solve certain problems, one needs to have a deep understanding of the industry itself.
4. Update issues - high maintenance fees
In the case of generic systems, software updates are always a red flag. What happens when the ERP vendor updates its system?
You may have to purchase a new license for the new version (like you have to do for Navision for example) and not just that but you would have to wait for your integration specialist to come back and customize your software again as much of the customization may break with the update.
One of the best examples is the again the case of Navision which was further developed by Microsoft. Navision has been adopted in the jewelry industry by several large companies, but then a core update has made it incompatible with earlier versions.
This resulted in huge costs for these companies, both in development costs as well as lost revenue - because of many of them have abandoned Navision and turned to jewelry-specific software such as our own PIRO.
Even though generic ERP systems have been developed and used in the ‘60s, they only became available for middle-sized companies in the ‘90s, and for small companies only in the past few years.
Although there are quite a few software systems that have been developed along the lines of being jewelry specific, most of them are too rigid, developed for certain workflows and scenarios, and many are not even supported or updated anymore.
However, there are still a few systems out there that are relatively accessible for midsize and small companies and can be quite useful in the right circumstances – however you really need to make sure that whatever system you select for your business, it will be able to change and grow as your company changes and evolves.
Thanks again for reading this article or watching Next Level Jewelry – if you found this helpful in any way I hope that you will subscribe to my channel and that you will come back to see more videos about how to make your jewelry business better!