Many companies, after implementing an ERP system, often sigh and say: “We spent hundreds of thousands—or even millions—on the system, but we haven’t seen much value.” There are many reasons for this, but one of the most overlooked—yet absolutely critical—is material coding.
What is Material Coding, and Why Is It So Important?
Material coding is basically assigning each raw material, component, or finished product a unique “ID.”
For example, your company uses two types of screws—one 10mm long and the other 15mm. If both are simply called “screw,” the system has no way to tell them apart.
An ERP system is essentially a data-driven platform—it “calculates” based on data. If your material codes are messy, it’s like keeping a ledger where every client is just labeled “customer.” Of course the books won’t add up!
A Real Case:
A Manufacturing Company’s ERP Failure Traced Back to Bad Coding
This was a company producing electronic components. They invested heavily in ERP implementation. The initial planning and process design were done properly. However, once the system went live, they noticed persistent issues: inventory records were always inaccurate. The ERP showed stock, but nothing could be found in the warehouse—or vice versa.
After investigation, the consultants found the root cause: the company had over 300 types of resistors, but many of them were simply named “resistor.” The codes lacked consistency—some were based on Pinyin abbreviations, others used supplier numbers.
As a result, the same item had multiple codes in the system. Inventory data was scattered across duplicate entries, making it appear that there was sufficient stock, when in reality there wasn’t enough of the actual items needed for production. This led to constant material shortages, emergency purchases, and significant waste.
If Material Coding Is Poor, Your ERP Will Face the Following Problems:
- Inaccurate Inventory: The system tracks codes, not your team’s intuition.
- Duplicate Entries: The same material might be entered multiple times, scattering stock.
- Confused Purchasing: It becomes unclear who to buy from, what specs are needed, and what price is correct.
- Incorrect Costing: Items are grouped wrongly, causing cost miscalculations.
- Production Delays: APS scheduling fails due to inaccurate material availability data.
So, How Do You Code Materials Properly?
- Establish Clear Rules: For example, use a format like “Category-Spec-Model-Version” to ensure structure.
- Ensure Uniqueness and Stability: Each material must have one—and only one—code that doesn’t change.
- Avoid Redundant Names: Standardize naming conventions to prevent confusion like “Screw,” “SC,”
- Regularly Audit and Clean: Prevent “zombie materials” from accumulating due to careless data entry.
ERP systems are meant to standardize, streamline, and digitalize enterprise operations. Material coding is the foundation that supports all standardized data.
If you can’t even clearly define “what’s what,” your ERP will struggle to deliver value.
It’s like building a house—ERP is the structure, but material codes are the foundation.
Without a solid foundation, no matter how beautiful the house looks, it’s bound to collapse.