ERP_Classify, Don't Just Enter
"Later" Never Comes
"Item codes? Let's just put something in for now and get it running. We can fix it later, right?"
This is the most common—and the most dangerous—phrase I heard after joining a startup and working on ERP implementations. The person who said it was gone in six months, and the data left behind in the system was an unsalvageable mess that nobody could touch.
Let me be direct: "Later" never comes. Once master data is entered incorrectly, it becomes entangled with thousands of transaction records, making it virtually impossible to correct. The success of an ERP implementation is not determined by how quickly you can input data, but by how well you classify it from the start. Failed companies focus their first month on 'input'; successful ones focus on 'classification'.
1. Classification Isn't Just Tidying Up—It's Your Company's Constitution
Many people mistake category classification in an ERP as a simple act of sorting items. In reality, it is the process of establishing the foundational rules that govern all of your company's operational processes and financial decisions.
A flawed classification system makes it impossible to answer critical business questions:
Accurate Cost Accounting: "What is the exact direct material cost for this project?"
Process Automation: "Can we filter for raw materials requiring cold storage and apply a different receiving procedure?"
System Scalability: "When we add a new product line, can we expand the system without code conflicts?"
Category classification is not just about organizing items. It is the core logic behind cost accounting, the prerequisite for automation, and the heart of data governance.
2. The Principle is the Same, Whether SAP or Douzone
Major ERP solutions like SAP, Douzone iCUBE, Younglimwon, and ECOUNT each have their own terminology and approach. SAP enforces strong control through 'Material Types,' Younglimwon emphasizes BOM (Bill of Materials) integration, Douzone offers user-defined flexibility, and ECOUNT prioritizes simplicity.
However, regardless of the system you choose, the fundamental importance of a consistent classification standard based on your business logic remains the same. Your business operations should define the classification, not the other way around.
3. A 3-Step Strategy for Flawless Classification (with Real-World Examples)
Data classification follows three main steps: Define Scope → Establish Criteria → Systematize Codes.
Step 1: Define What to Classify
First, define the scope of master data to be managed in the ERP. This extends beyond just items.
Items: Raw Materials, Sub-materials, Semi-finished Goods, Finished Goods, Products, Consumables, etc.
Vendors: Classify by relationship type (e.g., Strategic, General, One-time).
Chart of Accounts: Set the standards for cost allocation.
Project / Cost Centers: Define units for profit & loss analysis.
Step 2: Establish Classification Criteria
This is the most critical stage. You must establish objective criteria that reflect your industry and business model.
Case Study 1: Bio/Medical Device Manufacturing
Key Objectives: Quality Control, Cost Tracking
Primary Criteria:
1) Storage Condition: (Ambient / Refrigerated / Frozen)
2) Cost Nature: (Direct / Indirect Material)
3)Quality Grade: (GMP / R&D Grade)
*Rationale: Storage conditions are a critical driver for automating Cold Chain logistics. Differentiating between direct and indirect materials is essential for accurate project-level COGS (Cost of Goods Sold) analysis.
Case Study 2: High-Mix, Low-Volume Production (Drones)
Key Objectives: Supply Chain Management (SCM), Adherence to Development Schedules
Primary Criteria:
1) Component Type: (Common / Model-Specific)
2) Procurement Lead Time: (Long-Lead Time / Standard)
3) BOM Level: (L1 / L2 / L3)
* Rationale: Classifying parts as "common" allows for bulk purchasing and optimized inventory management. Identifying "long-lead time" components is crucial for proactive procurement to prevent production delays.
Step 3: Systematize with a Code Structure
Once the criteria are set, translate them into a "smart code" system where each digit or segment has a specific meaning.
1. Bio Raw Material Code Example: 1103020015
11: Major Class (Raw Material)
03: Mid Class (Reagent - Refrigerated
02: Sub Class (GMP Grade
0015: Serial Number
2. Drone Component Code Example: 2201050032
22: Major Class (Electronic Part)
01: Mid Class (Common Part)
05: Sub Class (Long-Lead Time)
0032: Serial Number
This code structure empowers users to instantly filter data, generate precise reports, and trigger automated workflows, significantly improving operational efficiency.
Your First Month Determines the Next 10 Years
Category classification is often the most tedious and time-consuming part of an ERP implementation. However, this framework will serve as the unshakable foundation for your company's data management for the next five to ten years.
Instead of simply copying and pasting from an old spreadsheet, you must design your classification system with the future in mind—considering your company's growth, new business models, and the analytical insights management will require.
Pre-Implementation Checklist
What are our company's core revenue streams, and how should they be classified?
Is it likely that new business lines or product families will be added in the next three years?
What are the most frequent analytical reports requested by management?
What are the biggest problems with our current data management methods?
Do all departments (Sales, Production, Purchasing, Finance) use consistent terminology for the same items?
If you can answer these questions clearly, your ERP implementation is already halfway to success. Remember, the most valuable investment you can make for a successful ERP launch is allocating sufficient time and resources to classification.
