Many of today’s media outlets detail operational efficiencies and the transformation of their business models by leveraging new technologies such as artificial intelligence (AI) and Internet of Things (IoT). The reality, though, is that these shining lights of innovation primarily pertain to the industry’s largest organizations, which have been building their technology capabilities for years, if not decades.
But, that’s not the case for a significant portion of companies within the industry, which consider themselves small and mid-sized, at best.
While the implementation of emerging technologies such as AI and IoT are still far off for smaller food firms, 2020 just might be the year in which a significant number of companies make inroads with enterprise resource planning (ERP) or manufacturing resource planning (MRP) systems.
ERP and MRP software has been around for decades, and was originally designed for the largest of businesses, costing millions of dollars and years to fully implement. Over the past 20 years, though, more ERP and MRP software has been specifically designed for smaller businesses, with corresponding price points to fit smaller budgets.
However, smaller businesses in the food industry still have to work through a handful of internal challenges in order to move forward. Chief among the challenges is the lack of staff dedicated solely to information technology. Consequently, senior leadership don’t realize that there are many software packages built for smaller firms, and some software manufacturers have specific food industry experience. Additionally, they believe implementation, especially without dedicated IT professionals, will be time consuming, difficult and a distraction to staff.
Statistics for ERP and MRP usage for small and mid-sized firms is difficult to find, especially within the food industry, but according to MRPeasy, Dallas, Texas, only 25% of smaller firms use a true manufacturing ERP or MRP system. About 20% of firms within the food industry are still running their plants in an old-school, paper and pen fashion. The remainder of these smaller firms use some type of spreadsheet, accounting or customer relationship management software. Others use systems developed in-house.
There are issues both major and minor with each of these approaches, but all come with one benefit to the companies that use them: As riddled with inefficiencies as they are, it’s what they are used to.
This raises the question, “What is the tipping point for a food company to take the ERP/MRP plunge?”
The most common answers are:
- Overwhelming production or delivery delays created by poor inventory management.
- An increased inability to manage costs associated with vendors with the supply chain.
- Miscommunications – or a lack of communications – between accounting, manufacturing shipping and sales that creates internal strife.
- The realization that ERP and MRP software has evolved over the past two decades to better serve smaller organizations, and that it has been designed to be implemented and used by non-IT personnel.
Anecdotal evidence indicates that ERP and MRP usage is increasing at smaller firms, as they leverage newer software systems to manage manufacturing and supply chains. It could be that they see larger firms creating even more distance with AI and other technology, and recognize that an ERP system creates a good foundational platform not only for efficient operations, but also for the integration of more advanced software in the future.
In many cases, ERP and MRP systems being brought in by production managers who voice concern about the ability to process orders without a more up-to-date system. Other times, it’s accountants who raise the issue because they already work with several financial software packages and realize the benefits of easily sharing information about purchasing and procurement.
Even though implementation of ERP and MRP systems has improved, success still depends on having a dedicated “leader” with 50-100 hours available over 4-8 weeks to oversee the onboarding of the software. This includes working with the ERP vendor, understanding the needs and scope of its use within an organization and getting key employees in various departments engaged. And, if the leader is a mid-level employee, a senior executive needs to step up as a vocal sponsor and supporter of the project.
Somewhat surprisingly, there’s been pushback by smaller and mid-sized companies over the use of cloud services to deliver and maintain ERP software systems. Many software packages these days are maintained “in the cloud,” which means off-site. While it saves smaller firms from having to invest in various hardware, many have fears about reliability and security. The reality is that most firms don’t invest in cybersecurity solutions to the extent of cloud service firms, whose only mission is to house applications and ensure secure operations.
Overall, there is a sense that the rising tide of technology is lifting all boats, and that AI, IoT, Industry 4.0, blockchain, robotic process automation and other advances are pushing the smaller firms to move forward. In a challenging environment, those that do so will still be playing catch-up with larger firms, but should be able to create a competitive advantage among their peers.