What the Duck?! Episode 8 Transcript
WHAT THE DUCK’S AN ERP? Learning Enterprise Resource Planning With Bruce Larson
Welcome to What the Duck?! A podcast with real experts talking about real issues in direct spend supply chain. And now, here’s your host, SourceDay’s very own supply chain Maven, Sarah Scudder.
Thanks for joining me for the What the Duck?! Another Supply Chain Podcast brought to you by SourceDay. I’m your host, Sarah Scudder, and this is the podcast for people working in the direct materials part of supply chain. Today, I’m going to be joined by Bruce Larson, and we’re going to discuss what to consider when setting up parts in your ERP and how to set up attributes to easily find these parts. If you work for a manufacturer struggling to set up parts in your ERP, then this episode is for you. I’m @SarahScudder on LinkedIn and @SScudder on Twitter. If you are new to the show, make sure to follow this podcast so you don’t miss any of our direct spend supply chain content.
Today, I’m excited to be joined by Bruce Larson. Bruce has been an Epicor ERP consultant for many years. After overseeing supply chain for a manufacturing company, Bruce started his own Epicor Consulting business about seven and a half years ago. He helps companies to improve the utilization of Epicor to assure a consistent approach is used in manufacturing. Welcome to the show, Bruce.
Good, thank you.
How did you get started in quality management?
Yeah, I got started in quality management. I was involved with manufacturing around the world for a technical company, and it was critical that the approach to quality was consistent throughout all of those sites. With ISO 9000 just coming out, I was involved with setting up that system in that company, and we used that as the means of getting consistency throughout the whole world.
Now, what is ISO 9000?
ISO 9000 is an international standard that you need to show how you’re controlling your processes. For instance, how, when you send a contract out to a customer, a customer response back, you’re reviewing that contract to see that you can meet all of the terms of that and checking all of the checks and balances in your system. When you send a PO out, how do you know that the supplier is using the correct revision for that part that you’re buying, for instance, too?
So, you started in quality management, you transitioned up at a couple of companies doing that type of work. Why the pivot to running a supply chain team?
Yeah, the pivot to the supply chain team, I had an opportunity. Somebody came in and said, “You know, you’ve been working with outside suppliers for their quality. You’re good at this. We want you to come in and run our supply chain organization for us.” And really, it fell right in line with what I had been doing. We’re doing a technology transfer here. I’m now doing technology transfers to the suppliers and using the system to help manage that.
How did you get connected with Epicor?
I was the general manager of a machine shop, and they had a green screen application for running the shop, but it just did not give us the information we needed. So, I did the software selection process and found Aptean at the car along with a couple of other systems, but what I really dug into it, I found Epicor, a really flexible system that met many, many of the needs of that business because The Job Shop.
What is Epicor?
Epicor is an ERP system that handles financials, CRM, supply chain, production, and engineering processes, in addition to even your field service or your case management. So, if you have a call, a ticketing system with customers, it handles things like that. It’s pretty broad, and what I have found working with it is it’s extremely flexible to allow customizations as you need to change your business or make it work for your business because the key with it is that a good ERP system is one that you can make it work for you and that’s the other way around where you’re working for it.
So, you decided to do something kind of brave and scary, you went out and started your own consulting firm, why?
You know, I had worked with a couple of different consulting partners for Epicor. I even worked for Epicor, and I found that I was constantly finding new customers. I was bringing new customers in, and I thought, why shouldn’t I just manage my own business and do this? And I have a passion with it too, and I have some approaches that are different from some of the other fall for companies, and it’s worked really well for me. Customers like the experience that I’m bringing to the table, and at the end of the day, you know, I can choose when I’m going to be working and where I’m working, and it’s just worked really well for my lifestyle now.
Who is your customer?
Well, I’ve got many different customers. I’m working currently with a company that makes machines that make pallets, and I’ve always wondered where pallets came from here, but this company actually has this little machine that puts out pallets when you give it wood. But I’ve also worked with distributors, machine shops making aerospace parts, and even an airplane manufacturer in Idaho, currently. And, you know, I’m working with about five different customers right now, so they’re pretty wide and varied.
What problem do you solve for manufacturers that you work with?
I’ll say the type of problem that I solve is: there are many times that I get in, and because when I’ll come in, we’ll just say Epicor can’t do what we wanted to do. It’s broken, in fact, we want to return it. And I’ve gone in and reviewed their process, sat down with them without the software and just said, “What do you want to accomplish here?” And after walking through that process, then I’ll say, “Give me a day.” So I’ll pick a day in their system, and I’ll come back and say, “Okay, this is what you’re looking for.” And I’m applying my background on Epicor so that I’m able to make it work for them, and I’ve been really successful with it. Sometimes it’s as simple as checking a box somewhere. Other times, it is going through, and I might change the rules in the accounting system so that it will change the account numbers for you automatically. In one case, I had a customer that was keeping track of how much they were buying product for and then pricing it accordingly, but in their system, the actual cost wasn’t matching up with the sale, and so I helped them implement lead costing. That was a fairly simple change, and I made some customizations for them also so that for the user, it was totally invisible, but for the finance team, it gave them better information.
What makes manufacturing companies a good fit for Epicor?
You know, it’s manufacturing, and I’ve been doing it for 30 years, and with all the different types of companies, Epicor has all of these different ways of providing products to customers. In your sales orders, you can buy it to orders, make it to order, or buy and pull it out of stock. You have ways of leveraging using outside suppliers to do the work. You’re able to capture those costs as you’re working with it. It’s extremely flexible. Now, granted, some people look at it, and they’ve seen all of these extra boxes on the screen, and that’s because it is set up to meet the multiple modes of manufacturing.
What I have worked with are companies that, after they get in and they’re running, then we can start hiding some of those fields or, you know, leveraging them in different ways. So it’s worked out really well across the board,
again, for manufacturing.
When you and I were prepping for our interview today, you mentioned something that I thought was really interesting: you built a tool in Epicor. Why, and what does it do?
I’ll say most of the tools that I built are probably dashboards, and I’ve built hundreds of them. But one that I’d say that is unique to me and my customers are using them. I’ve set up what I refer to as “x-rays,” and x-rays lets me look into their system and not just me, but them also see how everything is set up. Because there’s no one place to go into the system and see, “Okay, I have 16,000 parts. How are these parts set up? Or for planning purposes or for who’s the supplier for this part?” And likewise on the finance side, I have accounting set up, and the accounting setup is fairly complex. And with this finance x-ray tool, you’re able to actually see, “Is everything lined up the way you expected it to be?” Because you could be off by one digit or something, and that’s if they expect the results.
So one of the problems that you solve for people having your own Epicor consulting practice is one which you already mentioned: they don’t know how to use the system, so they get frustrated and just stop altogether. The other is people who don’t know how to optimize their ERP. Why do people struggle to optimize their ERP system so much?
I think some of it is old school. I’ve gone into many companies where they just, you know, I’ll have a buyer, and the buyer just loves their paper. They’ll run a report that might be an inch thick, and they get up their yellow highlighter and they start looking through it and highlighting, “Okay, here are the things I need to buy,” put a Post-It note down, and that’s their comfort, that’s their security blanket. What they haven’t learned is what some of the basic settings in the part setup that help them do their job more efficiently, effectively. And that’s where I’ll work with them to help them understand the capabilities of Epicor, and this is true with other systems too, that you can consolidate demand so that when you’re making one purchase order, you’re actually fulfilling the demand of five requirements that are out there. So you can consolidate those things. That’s, I think, really where I’ve helped people is understanding that, trying to get them away from the paper system and understanding how they’re able to share that information across the board with their other users or the other buyers, for an example.
What can a buyer do to get more people to use their ERP for more than just generating purchase orders?
Yeah, a buyer, a buyer, do you know? Considering they spend all the money in the company, it’s an important role. And I think when they start working with the engineers, they help them understand why it’s important that we look for consistency in the parts that we’re using, why it’s important that all of your fittings or your hardware try to have common hardware so you can buy more of one item instead of buying five different sets of bolts or something. It’s also that buyers can also relay back to engineering and manufacturing the need for really revision control and why it’s so important that when they’re sending information out to a supplier that they’re using the right information. And that’s part of it. I think the other part that buyers can also be helping companies know, especially with what we’re dealing with with supply chain now, it’s so prevalent that lead times have been pushed out, that you want to make sure that the right information is going to supplier and they’re committing back to you what their commitments are for delivering it. And I think that it all falls into place and then even as far as having the right pricing in there, the buyers can even be working with finance to make sure that they’re all on the same page on how the finances are working around the purchasing process. It seems to me it would be a no-brainer to have the pricing set up in the ERP. Why is that such a challenge? One is well for some companies, first understanding how the pricing structure works, and we’re talking the cost-sided equations. I won’t even get into the pricing where I’m selling the product to the customer, but on the cost side of the equation, you want to be capturing, try to capture all the different costs involved with it. And it’s also when you’re dealing with different suppliers, they can have different prices, and you can automate a lot of that. And again, it’s understanding that you can do that first off and then learning how to do it. And when you don’t know how to do it, reaching out to somebody like myself or going into system health to really dig in and see how can this be done because it’s a repeatable process versus writing it down on a Post-It or a notebook. And I’ve seen this many times where somebody will have a notebook saying, “Here’s my prices for all of these different parts,” and then hand-key in that information. So it’s really getting them and digging into the system and understanding how to use the system to make your job easier. So you mentioned the other side of the equation, which is kind of the focus of our conversation today, is about setting up parts. Setting up parts in an ERP system is not as easy as it may seem. Why? It goes back to garbage in, garbage out. And when you set up your parts, you want to make sure that you set up your strategy of what do you want to measure? If you set up all of your parts, but you don’t put any attributes against those parts.
It’s really hard to run your finances. Parts really fall into a few categories. You know, I’m what, in fact, what I’ve worked with it. I look at parts as either it’s raw material, it’s modified or sub-assembly type material, or it’s finished good. Those are the big, big areas. And can you say those buckets one more time?
Sure, the parts fall into three areas: raw materials, sub-assemblies, which are modified raw material, and then finished goods. Finish goods are obviously what’s going to be selling to a customer. And when you break it down into those categories, then you can also use different codes. And if a car it happens to be a part class, says when I put this part in inventory, it’s going to show up in the general ledger for raw material. Or when I put it in this other part, it shows up as finished good. Why that’s important is now when you run your balance sheet, you’re able to look at how much raw material do I have sitting in stock and how much finished goods do I have sitting in stock. And depending on your market, a lot of finished goods may be bad. If you do a lot of custom builds, you don’t want to have a lot of finished goods. You want to have all that raw material or the sub-assemblies to support the demands that’d be coming to you. And that’s just one of the areas. The other areas in setting up the parts where people miss is planning parameters. Planning parameters are really critical. And without getting into it too deep, you can set up date days of supply, which is consolidation of demands into one bucket so that you’re buying you’re doing a one-time buy or if you’re buying it in a larger volume, now you’re saving on shipping costs. And it also helps the suppliers supply in a larger volume. You can also set settings that when changes occur in your system, you may ignore those changes because they’re within a particular window where they’re called pine pencils, things like that. The other, you know, the last part I’ll talk about on setting up parts and that’s important, there are other ways to put attributes on parts. You can put analysis codes of when this material is being used. I have one customer that he, it was really important to know when he was using galvanized stainless steel or copper, and he wanted to know how many pounds in his product when it was shipping out the door in those three different materials. And he actually see how profitable he was because of those parameters and those attributes.
What are some of the things that a buyer should absolutely avoid when trying to tackle this part setup strategy that you’re talking about?
Yeah, the one thing is, you know, I already talked about the planning parameters, but if they skip the planning parameters and don’t do anything there, they’re creating more work for themselves because now they’re not consolidating, they’re not leveraging the system. The other is having parts that have multiple manufacturers under it. If they’re all the same, that works great, but they should be wary of some of those. I know, coming from the electronic business, even connectors, even though they say that it’s an RJ45, is not the same as another RJ45. I’ve actually had to do recalls because of a buyer buying the wrong manufactured part.
How would you describe your part setup strategy?
I would say that my part setup strategy really goes back to how do I want to report, and not only how am I going to report, but it’s going to be for different people too. How are our Engineers going to find some other parts of the system? How is finance going to be looking at the cost in the investments not only from a cost of goods sold but balance sheet, how much they’re running an inventory, and then also for the buyer, how they can leverage similar parts so they can find suppliers that are providing those similar parts so they can increase the volume supply with some of their suppliers because they’ve consolidated them. And again, it all goes back to those attributes of setting the different things up. I think the other part that in the background as I was talking about those three different areas is the strategy of having many, several people involved for several functions involved. It’s not just the engineering role to set up parts. It is really the responsibility and the different areas to set up parts and all in certain areas in the pastures.
So, there’s a lot to consider when setting up parts and determining your part strategy. This may seem overwhelming to some buyers. Where do you suggest someone starts? How do you tackle this kind of in small steps?
Now, one way to start is many ERP systems have a training database, and take a look at how the training database has been set up.
I’ve used that when I’ve worked with some customers too on training them, saying “Okay, you can see how they categorize this” by working with a consultant, working or visiting other users, trying in a user’s group, and talking to other users about how they’re setting up parts and working with parts. Definitely reading the manuals, and I know I’m a technical key where I’m one of those that will read manuals, but it’s amazing what you pick up just by reading through the manual and looking at all the fields that are presented to you in the part pasture. You might discover something that you could really leverage to make your job easier and more consistent again.
Setting up parts also ties back into the AP function. When you and I were prepping for our interview, you mentioned that you are still surprised, even in 2022, by how much time people spend entering AP invoices into the ERP. Who is doing this manual entry?
“Oh yeah, that’s one area that, yeah, I’ve looked at. I’ll be honest, at first I was really surprised when I went into finance and looked at how they were matching up invoices, and it was a very paper-based system. They’d get an email, they print it out, they put it in a basket, and then they’d enter it into the system. And a lot of times they would wait and tell the product that received in before they would enter it into the system. And so there’s constantly shuffling shuffling paper back and forth.
The problem is that you’re not leveraging some of the capabilities that the computer has. One of those capabilities is called optical character recognition, and it’s pretty, it’s not a very standard commonplace that you can put a document into this OCR software. It reads it, and not only does it read it, but it can read an invoice and say “this is the invoice number, this is the part number or the PO number, here’s the supplier”, and it pulls all that information together and enters it for you automatically.
The other key thing about this is that those suppliers, when they email out or send out electronically the invoice, they’re doing it at the time of shipment. They’re not waiting two or three weeks while the product’s getting to you, and this is when you have a huge opportunity to be checking between what is the price on that PO versus what’s coming in on that invoice. Your last statement then brings up the question around PO receipt variances.
What is a PO receipt variance? So, the PO receipt variance says, “Yeah, you set up the purchase order for fifty dollars for this part and in fact, the supplier may even come back and confirm it. Yes, it is going to be fifty dollars.” And between the time of your ordering and the time of their shipping, they may have had a change in their system, so they updated their price to sixty dollars, and they didn’t think of notifying you. They ship the other part but they send you that invoice right away. And when you put in that invoice and when you receive in that part of fifty dollars for sixty dollars, now you have a variance. The problem that can occur is back to the old school way of doing things that invoices sit in a basket. The part comes in, it gets received in, it goes into an inventory at fifty dollars because that’s what the PO was saying, and then they even get fish into a job. And then finance puts in that invoice, and they’re trying to match it up, and they say sixty dollars through fifty. We’ve got a problem, so we’ll go back to purchasing things and make sure we don’t receive it. We want, and it’s already done. In fact, that part may have already shipped out too, and that causes problems because now it’s that trickle-down effect of that 10 dollar difference, which is your balance, is going to show up as a variance and not as actual cost against that part. So your cost of sales is going to be skewed. And if you know enough of this, you really don’t know where you are. So it does it’s that garbage and garbage job, but I think it’s also that variance is we had a commencement biosupplier that didn’t beat the commit and of that price, and you didn’t catch it early enough in the game. Well, that’s really what, and there’s a lot of work to undo those variances if you want to you and try to undo them.
What can be done to prevent these PO receipt variances? You know, I think the key thing on preventing them is getting confirmations from your suppliers and also, even after you’ve got confirmation from your suppliers, some way sending a report out, whether it’s on a weekly basis, just saying, “Here’s the open POs that we have with you, here’s the price that you’re committed to.” And the other is that when the invoices come in, put the invoices in right away into your system. You don’t have to try to mesh them. There’s somebody to match them to, but then compare that invoice price to the PO price.
Before you do the receipt, those would be some of the steps that you could do to prevent the variances.
If people want to check you out, Bruce, where do you want to send them?
They can go to larsonsolutions.com, or they can send me an email at firstname.lastname@example.org, which is also on my website. There’s even a “contact me” button, and you can send a message and attach a file if you have any questions. I’d be happy to answer them.
Thanks for discussing what to consider when setting up parts in your ERP and how to set up attributes to easily find these parts with us today, Bruce. If you missed anything, you can check out the show notes. If you are new to the show, make sure to follow this podcast so you don’t miss any of our direct spend supply chain content. I’m @SarahScudder on LinkedIn and @SScudder on Twitter.
This brings us to the end of another episode of What the Duck?! Another Supply Chain Podcast. I’m your host, Sarah Scudder, and we’ll be back next week.