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Top 5 ERP challenges for EMS providers

By Steve Linahan

The top five enterprise resource planning issues in the EMS business with ERP systems defined for their needs are not unlike an OEM’s. However, the system used and the way it is set up it is more of point of contention in the EMS business than your typical OEM business model.

Why is this?

EMS business live and prosper by being manufacturing and procurement experts. The EMS differential simply stated is twofold. First, a continual environment of change and migration as customers and products come and go with massive amounts of data to manage. One motherboard, from one OEM program can have 5,000+ parts on it. Multiply this by the EMS provider serving multiple OEMs, with each customer having multiple product families – each with multiple final configuration variations undergoing revision changes, not to mention product end-of-life management.

EMS is a constant changing environment but with huge amounts of data in constant flux.

The second influence is that EMS lives and dies by its nimbleness and reliance on data to drive decisions on components (think: prices, quantity, risk avoidance).

The EMS business model, right or wrong, lives on purchase price variance (PPV) creation and turning material or, inventory turns. Risk avoidance goes hand in hand to help insure the provider’s capitalizing on PPV does not overreach customer commitments.

Ranked below in reverse order of importance are the five major ERP system challenges facing EMS providers:

5.) Third-party alliances – Many providers add third-party appliances like saleforce.com or middleware such as Cast Iron to provide linkages. This can be a solution when ERP software does not have a needed function or module, the ERP system is out of date, functionality is not turned on and / or an alternate software vendor offers a slicker manner of performing a function.

Regardless, third-party systems have compatibility issues and although they may work well, they also have to be maintained. This opens the door for a third or even a fourth software vendor and often users still cannot update data or linkages. When this happens a manual work around with manual review processes are then employed as a manual update to the ERP system.

If you need to use a third-party system, use it, but use it with its fullest intent and maintain it so that system-to-system inputs and outputs are accurate.

4.) OEM customer ERP system – Electronics OEMs brought under the umbrella of an EMS production environment typically operate their own ERP system. So, as expected, they provide their data to the EMS provider, initially.

But any data provided by another entity must be analyzed, validated and mapped. I have yet to see any one EMS provider, or OEM, utilize their system the same way. Add to this most OEM customers just don’t understand the complexity of the issue of merging ERP system data.

EMS providers create algorithms to auto validate incoming OEM data to sort the customer data and load it into their system. This applies to OEM quote data. Thus recreation of data and validation of existing data from the ground up is a typical required action expected in any merge of data

3.) Data and data warehouse – There is usually a group of standard reports in an ERP system. Invariably, these reports are not sufficient for managing a manufacturer’s business. This need is even more important in EMS where head count resources are minimal and muscling though data is not really an option.

In EMS, providers must be masters at managing data. Large EMS providers manage considerably more material, and in orders of magnitude greater compared to OEMs.

So, many EMS providers become adept at creating macros to sort and parse allow data into common base data. Yet, the provider still needs to ask himself, “is this most or, all of the customer’s data?”

One OEM customer’s data is then managed separately, alongside all other individual data for each OEM customer. Then, it is also aggregated to a common database in the provider’s data warehouse.

What this means is the EMS provider must be able to sort through customer data ‘unique’ to that customer and, he must be able to get that data into useable, common-base data for components and vendor part numbers in order to manage commodities and source these items to vendors.

In EMS, if the provider cannot parse the data separated by customers, followed by merging this data so he can arrive at common components to generate usage and sourcing data, he is at an extreme disadvantage to generate PPV and competing for business in a cost-sensitive industry.

 

SEE ALSO
Essentials of EMS program management
Search EMS/ODM company listings

 

2.) User training – As with any organization there are users who master the system and those that are simply users. Teaching, instruction and mentoring should become paramount across the enterprise. This is a deep issue. Yet, surprisingly, little is invested in raising educational levels of those responsible for managing ERP systems.

Frequently, in my experience, when asking an ERP system user (buyer) why he purchased or wanted to buy a particular part, he cannot explain why.

“The system told me to.” This is common answer I get when asking a user why he bought the part(s). This is common within EMS and OEM companies, alike.

This highlights the fundamental tenant of ERP system implementation that needs to be addressed.

1.) Data integrity – It tears me apart data integrity out ranks ERP system knowledge (e.g. adequate training). So, I rationalize my ranking because I’m constantly reminded that even in systems managed by knowledgeable people, data integrity is still an Achilles’ heel.

As I referred to earlier, many EMS providers incorporate carefully scripted front-end macros, proprietary algorithms and other data-proofing tools. This validation in the system is constant across EMS providers.

ERP systems calculate actions to be executed based on data supplied from tables and data fields modified by system decision rules that were setup. ERP systems do not “think.”

In addition to all of this, as with any ERP implementation, to be effective it is paramount all data supplied is verified, suggesting MRP actions expressed in ERP output are consistent with desired intent.

For example, in ERP systems item master whenever a void data field (or default value) is present, it should be viewed in the same manner as an incorrect data value.

I can’t tell you how many times late deliveries on parts have been traced to a zero lead time when a part is actually 60 days.

Or, conversely, a plug number of 180 days was used and you wonder why you have six months stock on order for a 5-day lead time part when you analyze it.

These types of data disparities can more complex than described here, but all bad data issues can have major impacts on your business.

Besides, your ERP system is not any better than the data it manipulates.

If you have bad data, your ERP system generates bad actions systemically, and very fast.

Then, you’re left wondering why you have shortages or, too much inventory.

Often this results in hiring a new materials guru, consultants or even purchasing a new ERP system when the real cause is merely fundamental.

I’d laugh if this didn’t really happen. But sadly, data integrity issues are the bane of any EMS manufacturing and procurement organization.

 

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