The Small Machine Shop ERP Software Problem.

The Small Machine Shop Software Problem. I had a back and forth discussion the other day with someone about implementing an ERP system in a small machine shop that I thought would be interesting to share some of my thoughts and hear from others. This is something of a soap box I tend to get on, I believe a businesses growth is often dependent on their ability to organize and ERP programs are the generally accepted means of implementing that organization.

To start off, I’m defining a small shop as anywhere from 1 to 3 employees(owner included). While there is a lot of work involved when a shop is larger, in my mind, the biggest hurdles for a small business is getting to employee #2 and #3. Especially after the 2020 shutdown, there has been a burst of shops opening up, usually being done solo, possibly with a partner or 2. I’d say that there is an enormous volume of machine shops that fit in this window but don’t get very much attention in a way they need. The hype folks starting out get is fantastic, the vocal support for those trekking on their own is great and necessary. What’s missing from this puzzle though is actual support. Most software aimed at manufacturing and machine shops specifically, aren’t priced for these smallest of shops and from a usability standpoint, a lot of them require a significant amount of effort to use and maintain. Something that is accepted in larger shops, but impossible with startups. Let’s dive into what I view as two of the main points of contention stopping the smallest of shops from adopting some of these key programs.

#1 Too Expensive to adopt.

One of the biggest hurdles stopping a small shop from adopting an ERP system or some software from helping them operate is the cost. When you’re starting up, almost every dollar you make goes right back into the business. Every cent has a variety of needs it has to fulfil from new tooling, to machine payments, to material for the next round of orders. A shop starting up usually doesn’t have a buffer so it’s operated as cash in, cash out.

This doesn’t really stop until the shop gets to a consistent $300,000+ per year when the speed of growth slows down relative to revenue. And yet, even operating at $100,000 annually there is dozens of moving parts to track at any one point and when just one person running every position, this adds up to an incredible amount of effort that could be helped by an ERP-like software solution.

The problem is, most ERP solutions start at around $700/month. For a shop making $100,000 per year, that’s 8% of their budget for what is essentially an organizational tool. 8% of your budget going to what is essentially a filing cabinet on steroids. The pay off once you implement it and use it for a period of time may make that cost worth it, but you have to find a way to hoof that cost until you see the payoff sometime in the future. Beyond that 8%, you may also have additional software costs such as the CAD/CAM software, accounting software, website and email costs. By the end of it, 10% of your revenue is gone before you’ve even looked at physical costs just to software.

#2 Usability is too complex

Another hurdle that often comes up with most ERP systems if you can make sense of the cost, is the amount of effort it takes to implement the program. ERP programs tend to have fairly rigid process flows they want the users to adhere to. The problem is when first starting out, while you may check all the same boxes in terms of process (quote, purchase, build, QC, finishing, QC, ship, invoice), a lot of times these are happening sporadically through out the day. Quote job A while you’re running job B and somewhere in that mix you need to buy material for job C and finish inspecting job D so it can ship.

ERPs, being the monolithic entities they tend to be, aren’t really nimble enough to make it easy to jump between key functions like that to keep up with the pace a startup operates. They may make it simple to use within any specific module, but if you miss any step or piece of information that system wants, there may be hell to pay to find what was missed and correct it. While it may just be 5 minutes to get that one task back up to speed, multiply that over all the tasks that need to be done at any point in time and it stacks up quickly. The impact of all those ‘quick tasks’ has a major effect when you are a one person shop due to the fact that for every minute you aren’t cutting chips, is a minute the business isn’t making money.

If you’re a larger business who has a larger budget and have employees who’s only purpose is to keep the machines moving, then it’s much easier to implement these systems without feeling the impact of lost revenue like a startup does. I think most ERPs are built for these businesses because its an easier product to build and an easier sale to make. Simply having a tool that can do the job is sufficient. But despite the size of the smallest of machine shops, it is ironically is a much more difficult problem to solve. The software solution can’t just do the job, but it needs to do it well.