Everything you wanted to know about ERP and MES but was afraid to ask

by | Jun 15, 2023 | Blog, Industry Article

Written by: Paul Hogendoorn, MEE Cluster Digital Transformation Consultant

Many manufacturers are overwhelmed by new three and four-letter acronyms that describe things they are said to need to be adopting into their companies to have any chance of surviving in the future. MRP, MES, IIoT, Industry 4.0, “Smart Manufacturing” – these are the most common new terms being bandied about, plus now also “AI”, “ML” and most recently “ChatGPT”.

The question I hear most often these days is “what’s the difference between ‘MES’ and ‘ERP’, and what should we do first?”. This is a timely and key question for many manufacturers feeling a pressing need to do something (anything!), because there are potentially significant cost, time, and wasted time (distraction, loss of critical focus) factors at stake if its done wrong.

But, before we shine the light on ‘MES’ and ‘ERP’, let’s sort through the fog a bit by putting first things first: manufacturers deliver the goods every day and every week of every year. Day in, day out; week in, week out. It’s on time, or its late. There is no “substantially complete”, or almost done, or nearly on time; its done or its not, its on time or its late. It works or it doesn’t. That’s the manufacturers’ world – a real, tangible, tactile world. They deliver a good product that does what its 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 of meeting their customers’ demands tomorrow. And if don’t, they’re out of business. Whatever technology a manufacturer chooses to adopt, it should be on their terms, to suit their purposes, to fit their processes. Keep this in mind as you read about on about ‘MES’ and ‘ERP’; your persistent application of your ongoing business practices and your proven product and customer knowledge is what has made your company the company it is today. IT technology can help you be more efficient, but it can’t replace – and it shouldn’t displace – any of that.

There is one more important thing to remember, before I offer my opinion on the best way to navigate through the MES and/or ERP question. Most manufacturing leaders know their businesses, their products, their people and their processes, but feel intimidated or “un-smart” when it comes to most of the new technical jargon, so they delegate the critical investigations to their IT department, or their CIO or CTO, or their engineering department. These are people that know technology (or the new technology terminology) but may not the actual manufacturing processes, or the products made in their plants. Remember that technology is a tool to make your people, processes and product better – in that order, so knowing your people, processes and products well is critical to making the right long term decisions. Delegating (or abicating) the selection of new technology to a technology knowledgeable person instead of manufacturing and company knowledgeable people usually costs the company not only money, but time.

So, with the above two major points in mind, here’s a “everything you wanted to know about MES and ERP technology but were afraid to ask” list:

Q: What does ERP stand for?

A: “enterprise resource planning” software, 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”, computerized systems used in manufacturing to track and document the transformation of raw materials to finished goods.    

Hmmm, there seems to be a lot of overlap there.

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 standalone software.

Confused yet? If you are a technology person, it probably makes sense, and the differentiation may seem clear. But if you are a manufacturing person, it probably makes less sense, because a manufacturer plans a job, executes on the plan, and then gets measured against what was planned. Did they deliver what was planned for, when it was planned? Success means being able to answer both 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. 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. With this in mind, the questions I then get asked are:

Q: which one should they do first – MES or ERP?   

A: It depends.

ERPs evolved from MRP (material requirement planning) systems, which were created more from an accounting and administration perspective than an actual machining and producing 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. They both continued to evolve and expand and there is now a lot of functional overlap.

There are a couple of significant differences worth clarifying. 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 10’s of thousands of dollars range (2 year, SaaS contract) and can be fully deployed in weeks while ERP systems are often priced in the 100’s of thousands of dollars range and routinely take 6 months to a year to get fully deployed. MES systems typically deliver actionable insights within 60 to 90 days, and 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 more disruptive and takes more time, it has a significant and important advantage (in my opinion): an ERP system can provide visibility on the primary metric that matters most, which is, “did the work getting done when its 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 (again, in my opinion) 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 is. 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 place a focus on the products being produced and the costs and resources involved; MES on the other hand places a focus on the machines and production 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 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, providing it assists with, and adds real-time visibility with, job planning, routing and the scheduling of subordinate tasks.

Some companies start with an MES because it’s the less expensive and easier to implement, using the visibility to drive engagement and productivity right away, and then using the aggregated data along with your people’s knowledge and experience, to derive fresh insights to help make the right ERP decision.

The most important takeaway from all this ties back to the first point in the opening paragraphs: whatever system you choose to do first, its critical that your manufacturing knowledgeable people are involved as primary influencers. As one of my LEAN colleagues and primary influencers always says: “people first, process second, and technology third”. The introduction of expensive technology doesn’t always make your business better, especially if it doesn’t fit your proven manufacturing processes and doesn’t work for your people. Remember, 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.      

If you are interested in a LEAN assessment on your over-all operation, or a “Digital Gemba” to help with your digitization efforts, please contact Paul Hogendoorn or David Rist at the MEE Cluster.