Choosing an ERP for a small manufacturer: what to check before you buy

We run our own factory at Jagannath Polymers on SAP Business One.

I will not tell you which ERP to buy, and I will not quote prices. Both depend on your factory, and prices change every year. I have also used only one ERP from the inside, so this is not a product comparison.

What I can give you is the list of checks I would do before signing, whichever product you are looking at. In my view, more ERP projects go wrong because of what the buyer did not check than because of the software itself.

First, do you need an ERP yet?

These are the usual signs that a factory has outgrown accounting software and spreadsheets.

1. The stock in the books does not match the stock on the floor, and nobody can say why.
2. You cannot tell what one product actually cost to make last month.
3. The same order is typed into three sheets and the accounting software.
4. Only one person knows where an order stands, and work slows down when he or she is on leave.
5. Invoices are made in one place and uploaded for GST e-invoicing in another.

If you make a few products in one location with a simple process, you may not need one yet. Good accounting software and a disciplined stock register can carry you for a while. An ERP will not fix a process that nobody follows. It will only record the mess faster.

Step 1: Write your needs list before any demo

Take one real order and follow it through the factory: enquiry, quotation, sales order, material planning, purchase, production, quality check, dispatch, invoice and payment. For each step, write down who does it, what they record, and what goes wrong today.

Then list the 10 reports you want to see every morning. For many factories that includes open orders, stock of key raw materials, production planned against production done, pending dispatches and money owed by customers.

Give this needs list to every vendor. Ask them to demonstrate against your list, not their standard demo. A standard demo is designed to look smooth.

Step 2: Test production and the BOM with your hardest product

The bill of materials (BOM) is the recipe for a product. A small manufacturer can have more complicated recipes than people expect.

Take packaging as an example. A printed pouch is made from a laminated roll. The laminated roll is made from printed film and plain film. The film is made from plastic granules. That is a multi-level BOM, and the ERP has to handle every level.

Check these in the demo:

1. Units of measure. You may buy in kilograms, produce in metres and sell in rolls or pieces. The ERP must convert between them for each item, not with one fixed formula.
2. Actual against standard. Real production rarely uses exactly the recipe quantity. The ERP should record what was actually used and show the difference.
3. Scrap and by-products. Can you record the scrap from each production order, and use reprocessed material again?
4. Production orders. Can you issue material against an order, receive the output, and book machine hours and labour to it?
5. Batch or lot numbers. If a customer complains, can you trace the batch back to the raw material lot?

Ask the vendor to set up your most complicated product live, in front of you, with your real numbers. Count the workarounds. Each workaround is something your staff will have to remember every day.

If you want to measure your machines later, the machine hours booked here are also the starting data for OEE.

Step 3: Inventory

1. Locations. Raw material store, work in progress, finished goods, and material lying with a job worker. Material sent out for job work is still your stock, and the ERP must show where it is.
2. Batches and expiry dates, if your products or raw materials have them, with first-in-first-out issue.
3. Negative stock. I would switch it off from day one. If the system allows you to issue material that it thinks you do not have, the stock figures will never be trusted.
4. Physical counts. Check how a stock count is entered and how the differences are posted.
5. Valuation method. Decide it with your CA before go-live, because changing it later is painful.

Step 4: GST, e-invoicing and the audit trail

This is where Indian law decides part of your requirement list. Confirm each point with your CA, because the rules change and details depend on your business.

1. E-invoicing. Under CBIC Notification No. 10/2023-Central Tax, dated 10 May 2023, e-invoicing applies from 1 August 2023 to taxpayers whose aggregate turnover has exceeded ₹5 crore in any financial year from 2017-18 onwards. Each B2B invoice must be reported to the Invoice Registration Portal (IRP).
2. The 30-day limit. From 1 April 2025, taxpayers with aggregate annual turnover of ₹10 crore or more must report e-invoices within 30 days of the invoice date, as per the GST Network's advisory No. 543. After that, the portal will not accept the invoice. So the ERP should create the e-invoice at the moment of invoicing, not in a batch at month end.
3. E-way bills. Ask whether the ERP can create the e-way bill from the same invoice data, so nobody types it twice.
4. Masters. HSN codes belong on the item master and GSTINs on the customer and supplier masters, checked once at entry rather than on every invoice.
5. Audit trail. For financial years starting on or after 1 April 2023, every company that keeps its books in accounting software must use software that records an edit log of each change, with dates, and the log cannot be disabled. The same rules ask for a daily backup of electronic books on servers physically located in India. Both are explained in the Institute of Chartered Accountants of India's Implementation Guide on Reporting on Audit Trail (revised edition, January 2024). These rules apply to companies, but the edit log is good practice for any business.

In the demo, ask to see an e-invoice generated live, and ask to see the edit log after somebody changes an invoice.

Step 5: Reports

The ERP holds the data.

What you need from it is answers.

Ask three questions. Can my own staff build a new report, or do we pay the partner each time? Can every report be exported to a spreadsheet? Can we read the data safely for a dashboard without slowing the system?

Then check your list of 10 morning reports, one by one. If a report needs custom work, write it into the contract with a date.

Step 6: Data migration

The item master needs the most care. Check whether your item list has the same item under two or three names, such as "48 mm brown tape" and "BOPP tape brown 48mm". Before migration, agree one naming rule and give every item one code.

1. Items: one code each, with unit, HSN code and the right item group.
2. Customers and suppliers: names, GSTINs, addresses and payment terms.
3. Opening stock: from a physical count on the cut-over day, not from the old books.
4. Open documents: pending sales orders, purchase orders, money owed to you and money you owe.

Choose the cut-over date carefully. The start of a month is the minimum. The start of the financial year on 1 April is the cleanest for accounts. Avoid your peak season. If your busiest weeks are the ones before Diwali, that is no time to learn a new system.

For the first month or two, check the ERP's stock and accounts against your old records every week. Fix differences while they are still small.

Step 7: Users and the shop floor

Count who will enter data and who only needs to view it. Licence types differ between products, and the difference adds up.

The shop floor is where ERP data is born. Store issues, production receipts and dispatches have to be entered by people who are busy, sometimes on a shared terminal or a tablet. Check those screens with the actual store keeper as well as the accounts team.

The owner has to use it too. If the owner keeps asking for the old Excel sheet, everybody else will keep making it.

Step 8: The implementation partner and support

The partner who sets up the system matters as much as the software.

1. Ask for two references from manufacturers of your size with a similar process. Visit them, and ask what went wrong in the first year.
2. Get the support terms in writing: who answers, how fast, and in which language your staff can speak to them.
3. Keep customisation to the minimum. Every custom change has to be tested again at every upgrade. Where the standard process is reasonable, change your process instead.
4. Agree how you get your full data out, in a standard format, if you ever leave.

If you plan a maintenance routine, check whether the ERP can schedule it. Our preventive maintenance starter plan explains what such a routine needs.

What drives the cost

I will not quote figures, but these are the lines that make up the total. Ask for each one separately.

1. Licences or subscription, per user type.
2. Implementation days.
3. Customisation and custom reports.
4. Server hardware or cloud hosting.
5. Annual support or maintenance.
6. Training.
7. Your own team's time for data cleaning, training and checking. It never appears on the vendor's quotation, and it can be the largest cost of all.

A checklist before you sign

1. The demo was run against your needs list and your hardest product.
2. An e-invoice and an e-way bill were created inside the ERP in front of you.
3. The audit trail was shown, and it cannot be disabled.
4. Two reference visits are done.
5. The data cleaning plan has names and dates against it.
6. The go-live date is outside your peak season.
7. Support terms are written into the contract.

Send each vendor the BOM of your hardest product a week before the demo, and ask them to show it to you live.