Industry watch: A short guide to demystifying ERP and MES

Manufacturers are being overwhelmed by the introduction of three and four-letter acronyms that describe things they are said to need to adopt and incorporate into their companies to have any chance of surviving into the future – such as ERP, MES, IIoT, Industry 4.0, smart manufacturing and digital transformation, and so on.

Manufacturers deliver goods every day and every week of every year. It’s on time, or it’s late. There is no “substantially complete” or “almost done” or “nearly on time.” It’s done or it’s not, it’s on time or it’s late. It works or it doesn’t. That’s the manufacturers’ world – real, tangible and tactile. They deliver a good product that does what it’s supposed to, on time, with a warranty, and for a competitive price. If they do all that, they stay in business and earn the opportunity to meet their customers’ demands tomorrow. And if they don’t, they’re out of business. So, whenever a manufacturing company leader asks me about these new terms or fuzzy topics, I remind them that the smartest people in the room is them. Whatever technology they choose to adopt should be on their terms, to suit their purposes and to fit their processes.

Many manufacturers don’t know what the new terminology means, or how it really applies to their business. They often feel at least a small level of insecurity because of that, which causes them to delegate critical investment of time and money decisions to people who know technology (or the new technology terminology) but not the actual processes or products. Delegating the selection of new technology completely to technology-knowledgeable people instead of manufacturing-knowledgeable people usually costs the company not only money but also time.

Here’s an “everything you wanted to know about technology but were afraid to ask” list of questions I get asked most often.

Q: What is the definition of ERP?

A: “Enterprise resource planning” software allows the management of all the information and resources involved in a company’s operations by means of an integrated computer system.

Q: What is the definition of MES?

A: “Manufacturing execution systems,” are computerized systems used in manufacturing to track and document the transformation of raw materials to finished goods.  

Q: What is the difference between ERP and MES?

A: An MES tracks and collects information about each product through all stages of the production process. An ERP is an integrated suite of software applications that business managers can use to run almost every aspect of their organizations. An ERP may include an MES module, or an MES can be a standalone software.

Confused yet? If you are a technology person, it probably makes sense, and the differentiation may be as simple as this: MES systems are typically connected to machines and measure processes while ERPs typically measure the activity of the jobs. MES systems measure against a fixed efficiency target (OEE for example) while ERP systems measure actual against planned time and targets for each job.

If you are a production-focused person in a high mix, low volume operation, it usually comes down to getting jobs done according to what was planned. Did you deliver what was planned for, when it was planned? Success means being able to answer both of these questions with “yes”; failure is not being able to answer both questions with “yes.” Technology people suggest that you should use the ERP system to answer the two “yes-no” questions (did you deliver what was planned when it was planned?) and an MES system to give you more insights and data to refine and optimize your processes to make sure you get “yes-yes” answers more often in the future.

But, why two different but heavily overlapping systems? And where should things like bills of materials, work instructions, production schedules and checklists reside? The biggest reason this ambiguity is a major concern for many manufacturers is the cost and time associated with deploying either an ERP system or an MES system. It’s important to get the deployment – whichever you choose to do first – right.

Q: Why are there two different systems in the first place?  

A:  ERP systems evolved from MRP (material requirement planning), which was created more from an accounting and administration perspective than an actual machining and production perspective. MES evolved from machine monitoring, which was driven from an engineering and machine efficiency measurement perspective. One started out as a tool for administration, procurement and planning, and the other started out as an engineering and maintenance tool for machine monitoring, process improvement and downtime reduction. As they both continue to evolve and expand, there is now a lot of functional overlap.

Q: What should a manufacturer do first – ERP or MES?

A: MES systems are generally far less expensive and far easier to implement than ERP systems and there is far less disruption and inconvenience to the day-to-day operation of the business. MES systems are generally priced in the tens of thousands of dollars range and can be fully deployed in weeks while ERP systems are often priced in the hundreds of thousands of dollars range and routinely take six months to a year to get fully deployed. MES systems typically deliver actionable insights within 60 to 90 days. If those insights are acted upon, the return on investment is very short, sometimes within 90 days.

MES systems are great for engaging production personnel and feeding empirical information into a company’s CI (continuous improvement) team and process. Although the ERP investment is bigger, is often disruptive and takes more time, it has one significant and important advantage. An ERP system can provide visibility on the primary metric that matters most: Is the work getting done when it’s supposed to be done at the cost at which it was expected to be done? An ERP should be able to answer that question for you, while MES systems provide typically indirect metrics and measurements of success, such as uptime, runtime, OEE and opportunities for process improvement (downtime). 

So, which one should you do first? It depends on what you see as your biggest need in your business. Some companies have adequate production planning and administration systems already in place. So, starting with an MES system would make sense. Others don’t have the financial visibility and accountability on a product-by-product or project-by-project basis, and that lack of certainty is affecting their ability to win business or know what part of their business they should grow (or let go). In that case, an ERP would make sense.

In short, ERPs focus on the products being produced and the costs and resources involved; MES on the other hand places a focus on the machines and various plant-floor level processes, looking to improve efficiencies of the machines and processes. In a steady-state production facility (where the same products are continuously run, processed or packaged), an MES system may be the most beneficial investment to make. In a custom job shop, where the company produces single or low volumes of complex products, an ERP may be of more benefit. Some companies start with an MES because it’s less expensive and easier to implement, use the visibility to drive engagement and productivity, and then use the data and insights to better focus and measure their continuous improvement efforts, while taking the extra time to make sure they make the right ERP decision.

No one knows your business as well as you. As a LEAN colleague of mine always says: “People first, process second, and technology third.” Expensive technology doesn’t always make your business better, especially if it doesn’t fit your processes, and doesn’t work for your people. From a LEAN perspective, whatever does not add value to your customer is considered waste, whether that’s in administration, engineering or production.

Your technology choices should be focused on what delivers the most value to your customers – now, and in the future. What tools make your people better, your processes better and your product better? The question is not really about technology at all – it’s all about your business. 

Paul Hogendoorn co-founded FreePoint Technologies with the goal of giving manufacturers the benefit of information technologies that inform, empower and motivate their most critical asset – their people. He can be reached at hogendoorn.paul@gmail.com or linkedin.com/in/paulhogendoorn.