Practical Guide to ERP for Recipe/Formula-based Manufacturers

Understanding the features, functions, and architecture of an enterprise resource planning (ERP) system best suited to your type of manufacturing will help you reevaluate your existing systems or replace your existing spreadsheet-based processes. This practical ERP guide for process manufacturers examines the functional capabilities of a process-oriented ERP system versus that of a discrete manufacturing-oriented ERP application.
Enterprise resource planning (ERP) applications have grown from providing basic order processing, inventory management, and accounting functionality, to covering business processes that include support for bill of materials (BOM)-based and recipe/formula-based manufacturing. 

As a recipe/formula-based manufacturer, understanding the features, functions, and architecture of an ERP application best suited to your type of process manufacturing will help you during the process of reevaluating your existing ERP application or replacing your existing spreadsheet-based processes.

Presented by Ross Enterprise, a division of CDC Software, in conjunction with Technology Evaluation Centers (TEC), this practical ERP guide for process manufacturers examines the functional capabilities of a process-oriented, recipe/formula-based ERP application versus that of a broad, discrete manufacturingoriented, BOM-based ERP application.

Also in this guide:

  • Results and analysis of TEC’s 2012 market survey on process manufacturers’ level of satisfaction with their current ERP systems. You can use this analysis to compare your current ERP system’s level of support for process manufacturing-specific functionality against that of other process manufacturers.
  • A TEC checklist of key process manufacturing ERP functional requirements relevant to process manufacturing. This checklist can be used to create your own side-by-side comparison of ERP applications during your ERP evaluation and selection processes.

Critical ERP Functionality for Process Manufacturers

Recipe/formula-based ERP solutions designed for process manufacturers offer specific features in these main categories of manufacturing functionality:

1. Product definition (including ingredients and product families)
2. Process production management
3. Quality management
4. Inventory management

Product Definition

The product definition in process manufacturing differs from that of discrete manufacturing because the finished product is a compound that cannot be disassembled into its individual ingredients. Also, mixing the same ingredients can give rise to different results under different conditions. Here are some of the specific challenges related to product definition that process manufacturers face:

  • When creating the product definition in process manufacturing, it’s essential to ensure that the ingredients are compatible, since mixing the wrong substances (or even the right ones in the wrong quantities or under the wrong conditions) will not produce the finished product to specification. In the case of chemical mixing, such errors may even cause accidents. Although BOM-based applications can theoretically be used to create process manufacturing product definitions, the combination of mixing, blending, heating, and cooling operations found in process manufacturing often require calculations that are not found in a BOM. This is why recipes/formulas are used in process manufacturing as opposed to the BOMs of discrete manufacturing.
  • Conversion for units of measure (UOMs) is relatively straightforward for discrete manufacturers, but needs to be more robust for process manufacturers, because typically the ingredients used and the finished products produced are chemical substances that exist in different states (liquid, solid, or gas), with each being measured differently. Another important characteristic of chemical substances is their potency, which is their capacity to produce strong physiological or chemical effects—in other words, a small quantity of a substance with high potency can have the same effect as a larger quantity of the same substance with lower potency. This should be taken into account when defining products and the way their ingredients are combined. The ERP solution should also dynamically adjust formulas depending on variances in potency values. Furthermore, ERP systems for process manufacturers should allow companies to receive, manufacture, store, and sell in different UOMs for the same product.
  • Packaging of bulk substances that are often produced in a liquid state presents specific challenges for process manufacturers. First, different customers may need different types and sizes of packaging for the same product. Second, all packaging types should be tracked together with the UOMs of finished products and even their potencies. Finally, there are specific quality and safety regulations for packaging in process manufacturing. To manage these challenges, an ERP solution should allow inclusion or exclusion of packaging ingredients from the product definition, manage multiple types of packaging simultaneously for the same product, and track packaging UOMs from material purchasing through to production and the shipping of the final product.

The Ross Perspective

Recipe or formula definition

Product definitions are the foundation for any manufacturer’s business. They define the manufacturer’s unique processes, material inputs and outputs, labor requirements, instructions, and quality tests. Discrete manufacturers employ a BOM specification that produces one finished product from one or more material inputs. Process manufacturers employ a recipe/formula specification that produces one or more finished products in the same or different UOM, including expected co-products and by-products, from one or more material inputs. In some leading recipe/formula ERP applications, quality checks and material routing are included in the recipe/ formula definitions, rather than maintained as separate files.

As a process manufacturer, it’s critical that the ERP application properly account for and manage all ingredients and finished products, since it impacts a manufacturer’s ability to:

  • track actual material yields,
  • calculate available-to-promise and capable-to-promise of products with respect to production of co-products and by-products,
  • scale production based on ingredient levels or product output level, and
  • cost co-products and by-products.

Variable product characteristics, such as potency, pH, or moisture content, determine the ingredient proportions and equipment settings in certain process stages in process manufacturing. To effectively manage this variability, the ERP application should allow manufacturers to make adjustments to their “base” recipe or formula, in terms of ingredient proportions and equipment settings, without affecting the definition of the original “base.” Variations of recipes or formulas can also account for differences between plants, shifts, production lines, and equipment, as well as customer requirements (e.g., private-label products).

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