Introduction
The basic features and functions common to enterprise resource planning (ERP) and supply chain management (SCM) software will only be briefly discussed herein. It is assumed that the reader already has a good understanding of these capabilities relative to process manufacturing. However, if this is not the case and you want more information in this regard, please see my article entitled, Process Manufacturing Software: A Primer.
This article will concentrate on those features and functions that present considerable challenges to traditional software vendors trying to gain a foothold in the food and beverage industries.
Specifically, this article provides an overview of the requirements for software offerings catering to food and beverage by discussing the following aspects:
- ERP Functions and Features
- SCM Functions and Features
- Additional Considerations
ERP Functions and Features
The software should offer the standard functionality expected from ERP software to support manufacturing and back office activities. The modules to support these activities include financial management, specifically general ledger (GL), accounts payable (AP), accounts receivable (AR), and fixed assets; financial control, specifically budgeting, cash flow, and standard and actual cost accounting; human resource (HR), specifically payroll and time and attendance; production and manufacturing; order taking; and customer service.
However, there may be additional and integrated modules not normally found in ERP packages. These modules may be worth investigating to determine if a vendor can supply this functionality later, when and if needed. This functionality can encompass warehouse management systems (WMS), maintenance management and control (computer maintenance management system [CMMS], enterprise asset management [EAM]), performance management and reporting (enterprise performance management [EPM]), logistic management (third-party logistics [3PL]), financial reporting and consolidations, and material safety data sheet (MSDS) management. Having the flexibility to incorporate this added functionality from a single vendor can eliminate many of the interface issues when similar modules are purchased from third party vendors. Let's look at the maintenance function to illustrate this point.
When you purchase a third-party maintenance management system, you would most likely get only an interface with your inventory and purchasing systems so that you could procure needed but out-of-stock repair parts. With an effective and more encompassing software offering, additional interfaces to payroll (such as using hourly rates to calculate labor costs of repairs); human resource (such as matching an employee's skills with equipment being repaired); warehouse management (such as homogeneously slotting repair parts); and supply chain planning (SCP) (such as providing visibility to planned equipment downtime) now become available. Furthermore, this type of integration can facilitate the cost justification of acquiring and utilizing these optional modules.
As one would expect from software tailored generally to process manufacturing but specifically to food and beverage, an ERP package should ably support the subtleties needed by food and beverage producers. Formulas should be scalable so that production batches can be sized based on the minimum quantity of on-hand ingredients. For example, if you are making a car and you only have two of the required four tires, you cannot make half of a car. Conversely, in the beverage industry, what 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. You should expect the software not only provide this type of re-formulization but automatically suggest such alternatives to keep your customers, at least, partially satisfied.
By maintaining the formulas and packaging recipes separately, the software should be able to accommodate "brite" stock and make-to-order (MTO) production runs, typical requirements in the food and beverage industries.
The term, "brite" stock, is common for private label food processors. 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 to be produced. In the case of soups, food processors create and warehouse non-descript, non-labeled aluminum cans of soup, hence the term, "brite" stock. Once a confirmed order is received, the private labels are then applied in a separate packaging run. A similar analogy can be made for a MTO scenario. Namely, you wait until the order is confirmed before you complete the manufacturing process.
As you would expect from packages serving the food industry, the software should offer "catch weight" functionality. By definition, catch weight is the recording of the actual weight of a product. For example, whereas a 50-pound case of meat lists for $100, in actuality the case is sold at $2 a pound based on the actual weight of the meat less the packaging material. Accordingly, capturing of this actual weight, which can be used for pricing, is known as the catch weight of the product. The software should take the process one step further by using catch weight to calculate the actual cost of manufacturing the product. Use of catch weight in costing is important because it provides a more accurate picture of the true production costs based on actual yields. The lack of incorporating catch weight in the costing calculation is tantamount to buying shoes without soles. They may look good but their lack of functionally will hurt your performance and ability to walk.
The software should support attribute management on the input side, namely ingredients, and on the output side, namely products. For inputs, attributes should be maintained to define the characteristics of the ingredients used in a specific formula. For example, a critical consideration in making orange juice is the acidity of the oranges. Based on the acidity, other ingredients, such as sugar and water, may be varied to bring the resulting juice output into acceptable ranges. Consequently, knowing the acidity attributes of the oranges will enable you to modify the formula accordingly. Likewise, a customer may require meat products with a certain lean consistency. By maintaining the attributes of various cuts of meat, you will be able to match a product's attributes with requirements of your customers and provide the flexibility of offering appropriate substitutions in out-of-stock situations. Finally, the underlying components within the software should be sufficiently robust to accommodate promotional, volume, and regional pricing practices common to food and beverage. While common in process manufacturing, the food and beverage industries stretch these practices to their collective limits and, therefore, should require special consideration and investigation.
SCM Functions and Features
Typically, ERP software supporting the food and beverage industries records what ingredients were used and what products resulted. Correspondingly, SCM functionality assists you in streamlining your operations to make them more efficient and cost-effective. From a SCM perspective the software should include the traditional modules to facilitate demand forecasting (how much of the product is needed), planning (where to make the product); and scheduling (what processes to use to make the product).
However, because of a tight integration with the other modules, the software should not only provide a view from inside the four walls of the plant but also into some of its nooks and crevices. For example, internal integration with a CMMS would enable the software to have visibility into resources and equipment that are offline or scheduled to be offline, thereby influencing the decision of selecting the most appropriate routing. Similar cases can be made for integration with other internally integrated processes such as warehouse management and attribute management.
The software should also enable integration with sub-modules, which would provide additional flexibility and efficiencies. These sub-modules include lot and sub-lot allocations, inbound logistics, cross-docking, and shelf life planning. By knowing what is inbound, the planning process gains increased visibility. As a result, the software should be able to take the advantage and be able to utilize "soon to be available" ingredients. This type of information can be incorporated in the planning and scheduling calculations.
Tanks are common storage containers for works in process in the food and beverage industries. However, tanks provide unique challenges. Typically, tanks require special handling such as pressurization and temperature controls. As such, SCM software should be able to account for the availability of tanks, tank volumes, special settings and controls, and the current status of each tank. You should expect the software to deal with and respond to the following type of tank-related questions:
Can the software handle product stored in tanks and, if so, can it maintain resource data needed for scheduling such as capacities, cleaning requirements, and changeover requirements?
Can the software handle the simultaneous or continuous flow of product in and out of the tanks?
Can the software record and utilize the minimum and maximum batch quantities for each tank? Minimum and maximum levels for each tank?
Can the software accommodate shelf life of the intermediate products stored in tanks? Maximum standing time per product in tanks?
One of the worst fears for a food processor and distributor is a call at 4:00 PM on a Friday, just before your staff is getting to leave for the weekend, from a restaurant whose customer said, "You know, this food tastes funny." The shock waves of recall reverberate throughout the organization. Anticipatory paralysis begins to set in. By meeting the requirements for such organizations as the European Union (EU), the Food and Drug Administration (FDA), and the International Organization of Standardization (ISO), the software's trace engine should provide accurate and current recall information for your customers, suppliers, and consumers. Thus, it can speed up and simplify the recall process. This, in turn, can reduce the effect, impact, and cost of such events, not to mention minimizing adverse media coverage. The functionality might particularly be appreciated nowadays with recent outbreaks of "mad cow" disease and other consumer concerns.
The software should offer yield optimization processes. These planning components are decision support tools focusing on calculating the most profitable way to process raw materials and ingredients to meet demand. The inputs for yield optimization include supply quantities and prices, demand quantities and sales prices, production costs and capacities, and inventory costs and capacities. The output is an optimized day-by-day production schedule of what to produce and how to produce it. The inventory levels at the end of each day and any requirements to move raw materials or semi-finished products between sites, locations, and/or tanks are also calculated. The latter benefit is achieved through the tight integration and complete visibility within the four walls of the production facility and warehouse.
In the food and beverage industries, there are usually several ways to slice the pie (no pun intended). For example, each grade of meat may be sold as a whole product or cut into parts. Likewise, it also may be sold at one or more levels or be further processed to create other value-added products. This can also be influenced by pack sizes and prices as well as co-products and by-products. When evaluating the yield optimization functionality of the software, you should expect that formularized inputs and outputs, capacity requirements, and costs for each alternate process are all analyzed and considered. In turn, customer and forecasted demand for each different type of meat product, plus inbound and on-hand inventories, should be considered when generating the primary cutting and secondary processing schedules. This technique effectively uses available inventories and resources and maximizes profitability.
Additional Considerations
Look for the software vendor to offer a fairly flexible pay-for-what-you-need pricing model. This is particularly valuable to the small and medium-size enterprises that do not need the full functionality required by larger enterprises. For example, a company with only one division and one location would have little need for a financial consolidation capability. If this function was bundled in with the finance and accounting modules, your company could be paying for software it has no intention of using. Determine whether modules can be decoupled, removed from the software equation via configuration parameter switches, and, equally importantly, from the cost of the software. For such modules as warehouse management, computerized maintenance management, personnel skills management, and others, the customer should be able to selectively evaluate the modules benefiting their organization and structure the software contract accordingly.
As with any package the software should be platform independent to provide greater flexibility in formulating and negotiating a total solution. By incorporating, say, a Java-based development environment, the hardware centric look of software packages can be minimized. Consequently, vendor's offerings can provide greater hardware independence by running on such middleware and hardware combinations as: IBM's DB2 with IBM's eServer iSeries; Sun Microsystems' Sun Solaris and Oracle 9i with Sun Microsystems' Fire Server; or Microsoft's SQL Server and Windows with Hewlett Packard (HP) and Dell servers. In so doing, a customer has greater options by which to negotiate down the price of the software, hardware, or both as a bundle.
The additional advantage of utilizing a Java-like environment is that the software almost automatically becomes web enabled. With a high-speed Internet connection, you now have a feasible and easy way to implement a solution to connect remote locations to the central software. In addition to providing a browser-based user interface and portal, collaborative opportunities with customers are available, thereby cementing your relationship. Now days, you should expect web-enabled capabilities as part of a vendor's standard offering. In the food industry such functionality can facilitate "spot" orders or increases to existing orders, resulting in new business otherwise lost.
Another module that falls into the category of "nice to have but not essential" is a customer relationship management (CRM) module. In addition to the traditional functions such as sale force and marketing automation, features within the CRM module should include promotion tracking, pro-active telesales (i.e. outbound order entry), customer business chain support, and support for vendor managed inventory.
The software should come with a limited number of pre-configured models to measure the performance of your business to include built-in key performance indicators (KPIs) for the food and beverage industries. Standard models should be available for sales, production, order fulfillment, distribution, maintenance, and warehousing. While not a major factor when initially establishing an ERP and SCM environment and becoming comfortable with its care and feeding, these analysis tools can be helpful to fine tune operations and smooth out manufacturing speed bumps.
Another module or subsystem, that is extremely useful in the food and beverage industries, is manufacturing execution system (MES). MES software records data and yields from every step of the production process. Such an interface fosters grower/farmer relationship management to provide visibility to crop and livestock maturity as well as grower/farmer SCM integration. Of these efforts, the latter – integration with SCM, is the most intriguing. Such integration will provide cradle-to-marketplace control of the manufacturing process. Instead of being a totally push environment, namely when the tomatoes are ripe you must make tomato soup, food and beverage processors alike will be able to more accurately schedule resources based on expected yields and timing.
Summary
The food and beverage industries have basic needs that an effective ERP and SCM offering can answer. However, more importantly these industries have special requirements and offer unique challenges to software vendors. Such requirements and challenges require detail investigation by prospective software buyers. The challenges include, but are not limited to, product formulization, ingredient categorization and sourcing, government mandated quality control, lot/sublot traceability, effective recall procedures, adaptability to a push environment, warehouse order picking strategies, and working with 3PL's.
Addition to looking to replace their legacy system or upgrade to more full functioning and integrated software, food and beverage companies should definitely look beyond the basic ERP and SCM packages. Companies would be well advised to plan 3-5 years after the implementation of ERP and SCM software is complete and anticipate future needs for such software add-on's as CRM, EAM, WMS, and EPM. You would rather have the option of working with your existing ERP/SCM vendor as oppose to having to develop interfaces to third party packages. While the lack of these optional components may not be a deal breaker, their availability could certainly be a tie breaker.
For more a detail analysis of the requirements of the food and beverage industries such as lot/sublot inheritance, picking strategies, rapid re-formulization, and modeling, you are encouraged to read my complementary article, Process Manufacturing: Industry Specific Requirements.
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 retail, food & beverage, chemical, and CPG process industries. Additionally, Mr. Strub was a consultant and Information Systems Auditor with PricewaterhouseCoopers and an applications development and support manager for Fortune 100 companies.
He can be reached at JoeStrub@writecompanyplus.com.