Process manufacturing has unique requirements differentiating it from other types of manufacturing. When selecting software for the process industry, special attention and emphasis should be placed on these requirements to ensure that a company can operate at optimal levels, consistent with how it does business and not with how the software lets the company do business. Be aware of both large software vendors, who try to be all things to all companies, and niche vendors, who lack the deep pockets to continue the product line and meet future needs. This article defines process manufacturing; discusses its formulation, packaging, and pricing issues; talks about interfaces; and provides cautions and caveats. Furthermore, these characteristics should be at the top of any software evaluation list.
The simplest and easiest-to-grasp definition of process manufacturing is that, once the output is produced, it cannot be distilled back to its basic components. In other words, once you put it together, you cannot take it apart. Think about it. Once you make a can of soda, you cannot return it back to its basic components such as carbonated water, citric acid, potassium benzoate, aspartame, and other ingredients. You cannot put the juice back into the orange. A car or computer, on the other hand, can be disassembled and the parts, to a large extent, can be returned to stock. Process manufacturing is common in the food, beverage, chemical, pharmaceutical, consumer packaged goods, and biotechnology industries. In process manufacturing, we talk about ingredients, not parts; formulas, not bill of materials; and bulk, not EAs (each). You may think that we are simply mincing words and terminology. But, as we will see later on this discussion, there is more than a subtle difference in their impact on manufacturing.
Formulation is a fairly easy concept, but don't think it is the same as a bill of materials (BOM). And be leery of the vendor who says you can. Formulation specifies the ingredients and their proportions (i.e., pounds, gallons, liters) needed to make the product. The first thing that you realize is that measurements are different. To be able to work with a formula, you need a flexible unit of measure (UOM) conversion engine running under the enterprise resource planning (ERP) software covers. Furthermore, you must be able to specify your own conversion rules to account for the unique requirements of your business.
Proportions of ingredients in a formula also highlight the need for another feature, namely scalability. Recalling that line about the Army cook who can only make meatloaf that feeds 500, a formula to make 500 liters of a chemical must be scalable to make 250 liters or 1,000 liters. Another aspect of scalability is the ability to make based on what you have.
An example will illustrate this point. If you are making a car and you only have two of the required four tires, you cannot make half of a car. In other words, you must have all of the parts in their required quantities to make the finished product. What would you do in process manufacturing if you want to make 1,000 gallons of soda but you only have 500 gallons of the required 1,000 gallons of carbonated water? You have the option of making half of the 1,000 gallons of soda. In process manufacturing you can make the most of a finished product based on the least quantity of an ingredient in stock. Furthermore, ERP software should calculate this for you and allow you to perform "what-if" analysis.
So what's the big deal? What would you rather tell the customer, who needs the 1,000 gallons of your chemical, as input into their finished product? "I can't give you the 1,000 gallons for two weeks" or "I can give you 500 gallons today and the balance next week."
The ingredients and when they are added into the manufacturing process must be integrated with the routing and production resources. Ingredients, particularly in the chemical industry, are not added at the same time. Typically, there may be some milling, more ingredients; blending, more ingredients; and chemical reactions, more ingredients. You would expect that the ERP software would integrate the act of adding an ingredient to the process with the station/step/resource in the process.
Finally, there is the matter of data conversion. Regardless of whether you are converting from process or discrete manufacturing software, conversion can be a daunting, time-consuming task. While this conversion can be automated, the programming and testing will probably take longer that a manual conversion. Accordingly, when looking at ERP software for the process manufacturing industry, take the time to determine how your existing product and formulas will fit into the vendor's structures.
A packaging recipe is similar to a formula but describes how the finished product goes through its final assembly. A packaging recipe addresses such things as containers, labels, corrugated, and shrink-wrap. In process manufacturing, the finished product usually is made in bulk but is rarely delivered in bulk form to the customer. For example, the beverage manufacturer makes soda in batches of thousands of gallons. However, as a consumer, when you buy soda, you can buy it in 12-ounce aluminum cans, 16-ounce plastic bottles, or 1-liter bottles. If you are restaurateur, you may have the option of getting 5 or 50-gallon metal containers that keep the beverage in syrup form so that carbonated water can be added later.
Why is this concept important? How often do you think that Coca Cola changes the formula for Coke? On the other hand, how often do they change the packaging to announce a special promotion? It would be easier to keep track of the weather than promotions. If the formula and packaging recipes are combined, every time the packaging changes, maintenance of the formula would be required. Likewise, when the formula is changed, all of the recipes would have to be changed. This increases the maintenance and chances for error. In process manufacturing, the formula to make the product and the recipe to pack the product should exist in separate structures to reduce the ongoing maintenance function.
In the production cycle, a work order is issued to make the product in bulk. Separate pack orders are issued to signify how the bulk material is to be containerized and shipped to the customer. This is important in process industries which make "brite" stock or private labels. For example, large grocery chains sell products, such as soups, soda, and meats, under their own brand names, hence private labels. Don't think, however, that these chains have their own manufacturing plants. Chains contract for these products. In the case of soups, process manufacturers create and warehouse non-descript, non-labeled aluminum cans of soup, hence "brite" stock. (Since the cans are filled, sealed, and, then, cooked under pressure, their shelf life can be expressed in months.)
By separating the product formula from a packaging recipe, a production order can be issued to make the cans of soup and, when the customer is ready to receive the soup, a work order can be issued to label the cans according to the customer specifications. Hopefully, you can see why the segregation of the formula and pack recipe works efficiently and effectively in the world of process manufacturing.
The one constant concerning pricing and the process industry is that there are no constants. Be it the nature of the products, pricing strategies varies widely and extensively. Such things as multi-tier pricing, volume discounts, regional discounts, sales territory discounts, percent off, and rebates are fairly standard and should be handled without major modifications. However, if you price goods based on the phases of the moon, Jupiter rising, and the mating habits of an adult baboon, this is not considered straight forward. Consequently, the pricing engine of the ERP software must be thoroughly examined to ensure that your common as well as complex pricing algorithms can be accommodated.
Understand that your customers will tolerate certain changes in new ERP software. But a change in the calculation of the price is probably not one of them.
Even with today's all encompassing ERP software, external interfaces are inevitable now or in the future. Making this requirement more critical is the movement back to "best-of-breed" software. Consequently, satisfying user needs outside the confines of ERP software will become more commonplace. Typical interfaces, that should be considered, are a virtual alphabet soup of systems. Warehouse management systems (WMS), manufacturing execution systems (MES), enterprise resource management (ERM), advanced planning and scheduling (APS), computer maintenance management systems (CMMS), electronic data interchange (EDI), supply chain management (SCM), customer relationship management (CRM), and radio frequency (RF) are just a few.
While the number of interfaces required for process manufacturing is not necessarily greater than those for discrete, the same cannot be said for the degree of complexity. Consequently, it is critical that you can comprehend, at least at a conceptual level, the data model and structures. When assessing process manufacturing software, it is important to appreciate what is involved in designing and installing interfaces. Even if you are planning to use vendor or third party consultants, the ongoing maintenance costs may not be trivial.
Including interfaces in this primer does not mean to imply that only process manufacturing software has this characteristic. However, it does imply that process manufacturing interfaces are usually a way of life. These interfaces are complicated and usually go through a labyrinth of data mazes and screen maps. Mix in what we talked about above—formulas, scalability, pack recipe, various UOMs, complex pricing algorithms, and hang on for a bumpy ride.
Cautions and Caveats
First, back-office systems such as the general ledger, accounts payable, and accounts receivables do play an important role in process manufacturing software. They just do not play a decisive role. Back-office systems don't make history; they record history. Particular emphasis should be paid to the systems that will either generate revenue or reduce costs. Back-office systems should be used in tiebreaker situations where two ERP packages appear to be equal in the areas of production, inventory control, customer service, and order processing.
It often appears that there are more discrete manufacturing software options than process in the marketplace. If this is true, you need to investigate the funding sources and their depth for a process manufacturing software vendor. This funding will dictate the flow of enhancements and new releases that will help your company keep pace with the industry; the vendor's ability to retain key staff members for programming, help desk, and consulting functions; and, of course, the financial competence of the vendor to remain afloat and in business. It is unlikely that you will have no reliance on the vendor for support. Consequently, no matter how good the software performs, nothing can replace that queasy feeling generated by an unstable vendor. Check your sources thoroughly; obtain an outside, independent opinion of the vendor's fiscal stability; and nail the vendor down on a timetable of future releases and what functionality they will provide. You will feel better if any of this can be incorporated into the contract to be signed.
Finally, discrete manufacturing software vendors sometimes claim to be able to do process, while process manufacturing software vendors claim to be able to do discrete. Hopefully, you now understand that these types of manufacturing environments pose unique and sometimes conflicting challenges. As illustrated in our example of the 1,000 gallons of chemicals needed by your customer, calculating available-to-promise (ATP) and capable-to-promise (CTP) in discrete and process manufacturing can take on completely different meanings. Consequently, it would be unlikely that a software package, claiming to handle discrete and process manufacturing, would be able to do either well. A check on the vendor references should help you ascertain where the vendor should be properly slotted.
Just like the products that they produce, discrete and processing manufacturing software have different focal points and solve different problems. Just as you would not put the proverbial square peg in the round hole, don't expect to be successful using software geared toward discrete, or even a hybrid, to work smoothly in the process manufacturing setting. Even process manufacturing software, purported by salespeople to talk and chew gum at the same time, needs to be investigated. Critical aspects such as formulation, routing, ingredients, unit of measures, and pricing must be evaluated relative to your business.
About the Author
Joseph J. Strub has extensive experience as a manager and senior consultant in planning and executing ERP projects for manufacturing and distribution systems for large to medium-size companies in the food & beverage, chemical, and consumer packaged goods (CPG) process industries. Additionally, Mr. Strub was a consultant and Information Systems Auditor with PricewaterhouseCoopers and an applications development and support manager for a Fortune 100 company.
He can be reached at JoeStrub@writecompanyplus.com.