Essential Guide to ERP for Process Manufacturers

A Practical Guide to Successfully Addressing Your Industry-Specific Requirements

Executive Summary

Whether you are in the process of re-evaluating your existing ERP application or planning to install your first packaged system, your success will be highly dependent  on identifying ERP applications that have a strong process manufacturing foundation  and can support your unique requirements with minimum customization. This practical guide links the unique operations of process manufacturing with specific ERP capabilities. The key system requirements, as well as the most common functional gaps, are explained in plain English. Case studies from food and beverage, life sciences, chemicals, and other process industries are included to provide real-world insight into the value of ERP systems designed for process manufacturers and the costs associated with using the wrong systems.

Addressing the Unique Requirements of Process Manufacturers

The vast majority of ERP systems on the market today were originally designed for generic use across a broad array of industries, from aerospace to banking. Though some ERP systems incorporate specific capabilities for manufacturers, most of these were designed for discrete manufacturing. Over the years, process manufacturing “extensions” have been added to these systems in an attempt to address the unique needs of process manufacturers.

Although these extensions may appear to be appropriate for process manufacturers, when they are put into practice, many companies discover that they do not work effectively and create significant risk and overhead. The fact is that the underlying data model and functional capabilities of a process-oriented ERP application are inherently different than those of either a generic or discrete-oriented ERP application.

Unfortunately, during the course of a typical software evaluation, it can be very difficult to identify critical ERP system shortcomings without knowing exactly what to look for.

This practical guide examines critical ERP areas for process manufacturers in terms of key functional capabilities, data model characteristics, and enabling technologies, specifically focusing on:

• Accountability and management of ingredients, raw materials, and finished products, including co-products and by-products
• The ability to predict yields, scale production, cost products, and perform product recalls
• The effect of variable product characteristics and inventory attributes, including multiple units of measure (UOM) and shelf life, on various ERP functions
• The impact of the ERP data model on the application’s functionality and its required customization overhead and ongoing maintenance

To further assist in your ERP evaluation process, a summary of these critical areas is provided in the form of a Process Manufacturing ERP Checklist, which can be used to facilitate side-by-side comparisons and ensure that no critical requirements are overlooked.

In addition to product architecture and capabilities, potential software providers’ industry experience, expertise, and support should be considered during your ERP evaluation process. The companion paper “Essential Guide to ERP for Process Manufacturers: The Keys to Selecting Your Software Partner” offers additional insight and guidance in this area.

The Right Process Specification for the Right Type of Manufacturing

The process specification is at the heart of all manufacturing, detailing required processes, inputs and outputs, labor and instructions, and equipment and settings. The fundamental difference between a process-oriented ERP application and a generic or discrete-oriented ERP application is in its definition and usage of the process specification.

In discrete manufacturing, a multi-level bill of material (BOM) architecture is employed to produce one finished product (in its base unit of measure) from one or more inputs. In process manufacturing, a recipe or formula specification is employed to produce one or more finished products (including expected co-products and by-products) in bulk quantities of a specific unit of measure from one or more ingredients.

When a process manufacturer uses a generic or discrete-oriented ERP application to produce one or more finished products based upon BOMs, the manufacturer will face challenges in:

• Estimating the yields of co-products and by-products per job
• Calculating available-to-promise and capable-to-promise figures for products with respect to co-products and by-products
• Scaling production yields up or down based on ingredient levels or product output levels
• Costing co-products and by-products

The reason for these challenges is that an ERP application that uses a BOM simply does not properly account for and manage the multiple finished products produced by many process manufacturers.

In a multi-stage process, there are intermediate products that need to be managed. In process manufacturing, intermediate products may be classified as both produced and consumed products (e.g., recyclables such as energy or steam). For example, when steam from one process stage is recovered and used as an energy input to a second job, it is a by-product of the first stage and an input to the second stage. A process-oriented ERP application should be capable of reducing the cost of the first stage by the value of the steam used in the second stage. If the energy is sold to generate revenue, it is then classified as a co-product, with its revenue taken into consideration during product costing.

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

Snapshot: Summit Industrial Products
Summit Industrial Products, a synthetic lubricant manufacturer and a member of the Kluber Group, offers private labeling to its customers. Gear lubricants, hydraulic fluids,
and compressor lubricants are blended and stored in large volumes in tanks. The fluids are packed out based on color of container, size of container, and label on the container. Kluber can have an infinite number of private labels associated with one core part code.

“For instance, SH-46 is our lead compressor lubricant product. Well, I may have 200 private labels associated with that. The core recipe is still the same, but it gives me the ability to name it something unique in the system, to track it that way, to give it a unique color of pail, to give it a unique unit of measure—any other unique requirements
that the customer requires. Some customers, for instance, may have three or four different names. They may have three or four different private labels of the same product, calling it different names.”

Kelly Starr, EVP - Finance & Administration

Flexible Specifications Support Multiple Processes

Single-stage assembly, multi-stage assembly, and packaging are the standard processes executed by discrete manufacturers. A generic or discrete-oriented ERP application executes these processes based upon a multi-level BOM and a set of routing instructions. It’s important to note that in a multi-stage assembly job, a work order must be defined, planned, and executed for each stage. In each stage, the work order must create inventory for the outputs, transfer the output inventory from this stage to the next following the associated routing instruction (defined in another file), and then consume the output inventory so that it can be used as input for the next stage. As a result, a great deal of time and effort can be spent on BOM and routing maintenance as well as inventory management.

Process manufacturers have different needs, and an ERP system designed specifically for them can significantly simplify these steps. Batch reaction, mixing, blending, cooking, continuous flow, and packaging are just a few of the processes that may need to be executed by process manufacturers. A process-oriented ERP application employing a recipe or formula specification is capable of executing one or more process stages in concurrent, convergent, and/or serial fashion within a single process specification. The intermediate inventory between process stages should be automatically transferred from one process stage to another in terms of both inventory adjustments and routing. The routing instructions can be defined within the receipt or formula specification to ensure the routing is in synch with the defined process stages.

Snapshot: Litehouse Foods
Litehouse, a leading manufacturer of refrigerated dressings,dips, and sauces, streamlined its manufacturing processes by linking recipe specifications together. For example, salad dressings are produced using batch processes, which then feed a continuous process of cooking and packaging. With their process-oriented ERP application, Litehouse realized substantial cost savings in less than a year, increasing product fill rates by 10% while simultaneously reducing finished goods inventory by 6%, saving considerably on carrying costs.

Disassembly is one process that truly distinguishes a process-oriented ERP application from a generic or discrete-oriented one. Process manufacturers who employ a BOM for a disassembly process find themselves performing certain “workarounds,” such as entering negative values for BOM input quantities. Only a process-oriented ERP application employing a recipe or formula specification can accurately manage the disassembly process and provide full accountability of all finished outputs without workarounds.

Process-oriented ERP applications also manage discrete packaging using a recipe or formula. The ERP application should be able to link process specifications and packaging specifications together, but should maintain them separately in order to Produce different finished products that are similarly packaged Produce “brite” stock for future private labeling

Avoid process specification maintenance every time packaging changes and vice versa

Planning a single- or multi-stage production job based on “rates” (i.e., quantity per unit of time) is a standard mode of production. A process-oriented ERP application should support a “time per batch” mode, as well as “input-based” and “output-based” disassembly modes. For example, a leading chicken processor employs a disassembly process that is based upon the number of chickens to be processed (input-based disassembly), rather than the quantity of meat to be packed.

Flexible recipes and formula specifications allow process manufacturers to model their unique manufacturing processes in a series of controllable and repeatable process stages.

Better Accountability Results in Better Predictability and Scalability

Predictability and repeatability enable manufacturers to accurately forecast yields, standardize business processes, and improve customer service levels. Predictability and repeatability are dependent on how well an ERP application can manage material and process variability and account for all raw materials and finished goods in the manufacturing process.

Production jobs are highly predictable and repeatable in discrete manufacturing because of the low degree of product variability. With a higher degree of product variability in process manufacturing, the tendency is not to expect production jobs to be highly predictable or repeatable. But in fact, a process-oriented ERP application that employs recipes or formulas can account for and manage all raw materials and finished goods, thereby delivering a high level of predictability and repeatability.

Snapshot: Nexgen Pharma
Since implementing their ERP solution, Nexgen Pharma, a leading contract manufacturer of pharmaceuticals, vitamins, and other nutritional supplements, has achieved 60% revenue growth while streamlining their manufacturing processes. The ERP application’s ability to manage raw materials in its formulas was a contributing factor in streamlining its processes. For example, in situations when a recipe calls for an ingredient with 10% potency but finds only ingredients of 20% potency in stock, the formula can be adjusted based upon this alternate ingredient. By directing operators to dilute the inventory to achieve the specified final potency, the desired potency can be achieved. In addition, the formula can be adjusted to maintain other key product characteristics, such as total volume or size of the final product. This ability to adjust formulas is of particular importance for Nexgen Pharma OTC products, since its pills and caplets must be produced to meet specific size tolerances; therefore, the internal ingredients must be varied to maintain a specific strength and expected yields.Predicting and optimizing the yields of multiple outputs of a production job is very difficult for a process manufacturer using a generic or discrete-oriented ERP application that employs a BOM. Only a process-oriented ERP application is capable of predicting anticipated yields by comparing planned nputs to planned outputs and plugging these values into a recipe or formula specification prior to initiating a production job.

Snapshot: Cheese and Whey Products ManufacturerAt a leading cheese and whey products manufacturer, a standard recipe to make 100 lbs. of cheese must be scalable to make 1000 lbs. For example, a recipe that uses a linear yield calculation for producing cheese calculates that 50 lbs. of cheese will be produced from 100 lbs. of milk having a butter fat percentage of 25%. At time of production, if the actual milk used has a butter fat content of 20% (a 20% drop), the recipe predicts that the 100 lbs. of milk will produce only 40 lbs. of cheese (a 20% drop). But if the production job actually produces 44 lbs. of cheese, the actual yield would be calculated at 110%. With a generic or discrete ERP application, neither the butter fat variance nor the surplus actual yield could be easily factored into the manufacturer’s accounting; with their process-oriented ERP, it’s simple to do.

Recipe or formula specifications are designed to produce one or more finished products in bulk quantities. A batch run is expected to produce a quantity of finished products within a given range (i.e., between a defined minimum and maximum) in a given time period. For example, a chemical reaction within 10 liters of a solution (the minimum level) may take the same time as 50 liters (the maximum level) of the same solution in the same vessel. When batch runs are scaled up or down, the batch quantity ranges and the production times follow a “step” function, rather than a linear function.

Accurate Product Costing Increases Profitability

Accounting for all material and operational costs in the manufacturing process is one of a manufacturer’s biggest challenges. Without accurate and up-to-date cost information,
manufacturers cannot make informed decisions on key business issues, such as new product pricing strategies. Without the ability to link finished products to customer volume discounts, promotional rebates, and incentives, a manufacturer cannot determine product profitability.

An ERP application should capture, assign, and compare actual and standard costs for all finished products. Waste products typically have the cost of disposal charged back to the primary product. As for unexpected off-spec products, they can be considered as waste or stored and held in a quality control status, then later sold for a given market value. By-products are typically assigned a straight cost, but in situations where the by-products, such as energy, are available for sales, their revenue can be credited back to the primary product. Co-products are typically assigned a cost based on some percentage of the job or on a specific product characteristic, such as quality, weight, potency, or market value. For example, in metal production, the co-products’ cost can be based upon a percentage of total weight produced, unlike in a meat packing operation, where certain cuts of meat may be assigned a higher or lower percentage of cost based upon their market values.

By capturing and analyzing the actual versus standard costs for co-products and by-products, process manufacturers are able to optimize their manufacturing processes.

Snapshot: LA-CO
Faced with rising prices from chemical suppliers, LA-CO, a specialty chemical manufacturer, was concerned about keeping their costs lower than the competition’s. Their ERP application allows them to efficiently track and record raw material usage, which provides an accurate view of the true cost of the raw materials used to produce more than 2,000 of their specialty chemical products.

“The ability to monitor chemical raw material prices is a significant advantage for LA-CO, particularly in this day of rising material costs. While we have no control over the fluctuation of global costs, we now have intelligence about purchasing history, pricing, and raw materials usage, which allows us to extend lower prices to our customers than the industry standard. We have been able to turn many of our key chemical raw materials into commodities by certifying multiple vendors, giving us the ability to price-shop.”

Tom Wondra, Inventory and Production Control Manager

Process manufacturers who run generic or discrete-oriented ERP applications often experience difficulties in determining profitability by product and customer, as well as accurate forecasting and other cost analysis, due to the lack of accountability and tracking of all ingredients and finished products.

Snapshot: Fiorucci
Fiorucci, a leading specialty meat producer, could not tag and track meat by-products and trimmings for use in its other products using its existing ERP application. The company required a new application that would provide enterprise-wide product tracking and costing analysis so that it could account for losses in its raw materials.

“Since we did not have readily available detailed manufacturing information, it was extremely time-consuming to make informed decisions about the profitability of products and customers. We had a real need to know when and how to be profitable at the customer and product level, but could not access the information easily using our previous ERP application. Now, with our new ERP application, we are able to track products though their long curing processes, at a granular level, eliminating all errors related to manual processes. As a result, Fiorucci has increased overall operational efficiencies and significantly improved the bottom line.”

Chris Maze, CFO

Variability Must Be Consistently Managed

With many raw materials being supplied by farms, mines, and other natural sources, material variability is a primary concern for process manufacturers, since it affects the consistency and quality of their finished products. It stands to reason that a higher degree of variability will affect a broader number of functions in an ERP application and therefore will require deeper support capabilities.

A good indication that an ERP application may be capable of properly managing product variability is that the “Item” or “Product Master” supports an unlimited number of product characteristics for both raw materials and finished product types. A process-oriented ERP application should not only support user-definable product characteristics, but also contain predefined industry-standard characteristics, such as pH, potency, and moisture or fat content. These product characteristics play a critical role in various ERP processes, including inventory management, order management, production scheduling, manufacturing management, quality management, and product costing.

Managing variability starts with a purchase order for raw materials with specific product characteristics. At the time of receipt, these raw materials are inspected and product characteristics are validated against a set of tolerances. For some suppliers, payment is based upon the characteristics or quality of their delivered materials. During receiving, lot numbers may be assigned to raw material inventory based upon these characteristics so that the raw material can be tracked throughout the manufacturing process.

Snapshot: Tafisa Canada and Company
Tafisa Canada and Company, a leading manufacturer of particleboard and thermofused melamine panels, purchases a variety of wood materials from its suppliers, based on specific target characteristics of their finished wood products. With self-regulated and government-regulated environmental requirements such as Scientific Certification Systems (SCS) in place, Tafisa tracks raw materials in their ERP system to ensure that 100% of the raw materials were recycled. During the verification process, Tafisa captures specific product characteristics of the raw materials, such as quality and moisture. Tafisa then pays its suppliers based upon the “dry content” of their delivered raw materials. All of this is tracked and calculated in Tafisa’s process-oriented ERP system.

Many manufacturers schedule production based upon product characteristics or product groups (i.e., groups of materials with common product characteristics). Without proper consideration of product characteristics, a manufacturer will perform an excessive number of changeovers, which negatively impacts their resource utilization, inventory levels, and unit costs.

Snapshot: A.C. Legg
A.C. Legg, a leading producer of seasonings and custom blends, used to re-run five to ten production jobs per week due to inaccurate tracking of allergens with their old ERP application. The excessive equipment cleaning and sanitizing activities led to increased product costs. And with only four days available to fulfill orders, these re-runs taxed the company’s already overburdened production schedule. With their new ERP application, production jobs that contain the same food allergen can now be automatically grouped and scheduled in sequence, significantly reducing equipment changeovers, which increases equipment utilization and plant efficiencies.

Being able to deliver finished products that meet customer requirements has become a necessity for manufacturers to remain competitive in the marketplace. A certain material may be acceptable in one process specification, but not in another, because its product characteristics will not produce finished products that meet customer specifications. With full visibility into available raw material inventory and product characteristics, manufacturers can promise and produce finished goods that meet their customers’ requirements.

Snapshot: Oxford Frozen Foods
Oxford Frozen Foods, a producer of specialty fruit products, complies with Federal School Lunch Program requirements by tracking the country of origin (COO) of its ingredients through to their finished goods. When taking orders, Oxford can assure certain customers that their ordered products will contain only berries grown in the US, for example. Their process-oriented ERP application’s ability to manage inventory based upon product characteristics, in conjunction with its full lot traceability capabilities, helped Oxford rapidly comply with all FDA, USDA, HACCP, American Institute of Baking, and international security regulations.

When process manufacturers employ a generic or discrete-oriented ERP application that cannot effectively manage and track the variability of their raw materials and finished products, they often experience difficulties with inventory accuracy and visibility, which impacts the planning, execution and reporting functions in several key ERP processes.

Expired Inventory Is Lost Profit

Shelf life can be a daily concern for process manufacturers, especially for food processors. In addition to basic inventory rotation methods (e.g., last in first out, “LIFO,” and first in, first out, “FIFO” ), a process-oriented ERP application should support additional methods, such as shipping only the freshest or newest goods to certain customers and shipping products that will have a specified number days of shelf life remaining once received by the customer.

Snapshot: SeraCare Life Sciences, Inc.
SeraCare Life Sciences, Inc., a manufacturer of quality control products for infectious disease testing, manages some 40,000 lots of blood-related inventory. “Our ERP pplication enables us to manage inventory based on expiration dating of products for effective replenishing planning. The system calculates an expiration date based on the batch-creation date and typical shelf life. We can define re-test dates, because products can change as they sit on a shelf over time and their characteristics may need to be re-validated. We can even specify distribution days—the minimum number of days of shelf-life that must remain when an order is shipped.”

Richard D’Allessandro, Vice President of Information Technology

“No inventory will be used before its time” is a philosophy shared by many process manufacturers. For these manufacturers, inventory is managed by its aging date—before, during, and after production. For intermediate products that are produced in between multiple process stages, a process-oriented ERP application should be capable of automatically placing this intermediate inventory on hold until its aging period has concluded, at which time the next stage in the process is automatically initiated. For finished goods with associated aging dates, such as meat, wine, and cheese, this inventory is not considered for sale until it has matured.

Snapshot: Premium Brands
Premium Brands, a holding company for high-end deli and specialty meat producers, date-codes every individual item to the unique requirements of each customer. Special consideration must be given to the proper curing of its meats, both as ingredients and finished products.

“Our ERP application allocates product out of the warehouse to ensure the best rotation of product. With 39,000 sales units ordered and 252,000 kilograms being processed for shipment daily, the task is sizeable. The company is on track to slash lost revenues from returns by 50%in the next twelve months. This will add another 2 to 3% directly to the bottom-line company performance.”

John Christiaens, Director of Information Technology

By ensuring that the best rotation methods and quality standards of inventory are met, a process-oriented ERP application can significantly reduce customer chargebacks and improve customer satisfaction levels.

Greater Variability Requires Greater Quality Functionality

With little variability in discrete manufacturing, quality decisions are rather black or white. A received or manufactured part either passes or fails to meet a specification.
With the high level of variability in process manufacturing, it has more shades of gray when it comes to making quality decisions. Therefore, process manufacturers who employ generic or discrete-oriented ERP applications typically cannot effectively track the various quality conditions of raw materials and finished goods.

Shapshot: Fiorucci
Fiorucci, a specialty meat producer, defines quality requirements for authenticity in its recipes, including required curing lengths and standard procedures for producing the meats, in order to guarantee top-quality products to its largest customers.

“As an American company, we must guarantee that our products meet strict quality control standards regulated by the federal government. However, equally important, as an Italian company, we must ensure our product meets the quality standards of Italy as well as the standards of our loyal customers. With the vast functionality and flexibility of our process-specific ERP application, we’ve been able to exceed all of these requirements.”

Chris Maze, CFO

In a process-oriented ERP application, quality checks of raw materials and finished goods should be able to be defined in the recipe or formula to ensure that they are executed in proper sequence in a certain process stage. By collecting and analyzing quality data, a manufacturer may identify problems with raw materials, finished goods, or equipment.

Bi-directional Lot Tracing Speeds Recalls

Lot control is a standard ERP feature, in terms of assigning a lot number to a raw material or finished product, validating a lot number during receiving or order selection, and generating a variety of reports or queries based upon lot-related parameters. In process manufacturing, lot numbers are assigned to raw materials and finished products, including co-products and by-products, based upon their quality levels and production jobs. To ensure consistency of product characteristics, customer orders are typically fulfilled using the same lot.

Snapshot: Lawrenceville Bricks
Lawrenceville Bricks, a manufacturer of custom bricks, required the ability to partition an order within a single lot. The company faced difficulties with their previous ERP application when customers wanted to place a single order but then draw from the same lot throughout that order over an extended period of time. Their current ERP application has the ability to reserve elements of the same lot, which enables the manufacturer to have multiple releases and shipment dates within the same lot. As stages of the order are released, the rest of the lot remains on reserve status and is shipped as specified during the lifecycle of the order.

Lot inheritance is a critical ERP function that is responsible for tracking and tracing the lineage of all raw materials and finished products, including their characteristics and lot numbers. Due to the batch-run quantities produced in process manufacturing, a process-oriented ERP application should be capable of tracking and tracing an ingredient even if it is only present in minuscule amounts in a finished product; this is especially critical for chemical and life sciences manufacturers.

Lot traceability in many ERP applications is limited to a “one up and one down” snapshot, meaning information on a product is generated for its current state, one step before its current state, and one step after its current state. Full lot traceability requires the merging of a series of these snapshots, which can take days to complete with many ERP solutions. Although some ERP solutions automate the merging or linking of these snapshots, these automated jobs can still take almost a day to complete. Adding to the processing time is the possibility that there may be a large amount of historical lot-tracking data that requires processing (e.g., private labelers with large quantities of year-old rite” stock on their shelves).

Leading process-oriented ERP applications are optimized for full lot traceability. With “end-to-end” or bi-directional lot tracing, these ERP applications can quickly track raw materials from receiving into production, track finished goods from production to shipping, and identify the raw materials and resources that produced the finished products. As regulatory agencies continue to pressure process manufacturers to deliver 100% accurate lot traceability within shorter and shorter periods of time, bi-directional lot tracing enables process manufacturers to respond to product recalls in a matter of hours rather than days.

Integrated regulatory management capabilities help streamline compliance requirements by providing detailed quality assurance records and complete certificate-of-analysis information for all finished goods. With these ERP capabilities, process manufacturers can have a competitive advantage when seeking new business.

Snapshot: Baldwin Richardson Foods
Baldwin Richardson Foods, a specialty food producer of brand-name toppings and sauces, significantly reduced the time required to conduct mock recalls from up to two days to within two hours with their process-oriented ERP application. Without this level of lot traceability, the company would be in danger of losing its major accounts, including McDonald’s and Kellogg’s.“With our ERP solution’s automated lot-tracing procedures and integrated bi-directional lot-tracing capabilities, Baldwin Richardson Foods was able to improve the turnaround time on lot traceability. As a result, the company was awarded the prestigious Silliker Labs Gold Certification for Food Safety and Quality Practices.”

Michele Salva, Director of IT and Project Management

The Need to Simultaneously View Multiple Units of Measure

The units of measure (UOM) hierarchy defined for raw materials and finished products serves as the basis for tracking inventory as well as converting one UOM to the next level of UOM. For example, the first UOM might be a bottle; the second UOM, a case, containing 10 bottles; and the third UOM, a pallet, containing 24 cases.

Multiple UOMs are used in several ERP business processes. A process manufacturer can purchase goods in one UOM, stock inventory in a second UOM, issue finished goods in a third UOM, and perhaps even sell finished goods in a fourth UOM. But what if management wants to simultaneously view a specific product’s inventory by quantity and weight? A process-oriented ERP application should allow manufacturers to manage inventory in terms of bulk UOMs (e.g., gallons or pounds), packaging UOMs (e.g., six-packs of 12 oz cans or large
drums), and random attributes (e.g., catch weights and potencies)—all at the same time. In addition, inventory can be costed by potency units, color units, percentage solid, or any other unit.

Snapshot: Leading Steel Manufacturer

A leading steel manufacturer produces a variety of hot-rolled steel coils, which are used in the manufacturing of construction products, including welded profiles, hollow sections, cold roll-formed sections and steel pipe piles. By tracking its hot-rolled steel coil inventory by quantity, weight, and grade in its process-oriented ERP system, the manufacturer can quickly and easily fulfill its customer orders with the right number of coils to meet weight and grade requirements.

Product variability can play a role in UOM conversions. In addition to standard measurement conversions (e.g., US to metric), a process-oriented ERP application should support user-defined and automatic UOM conversions (e.g., liquids to solids, gases to liquids), which can be initiated from events within the manufacturing process, as well as from specific changes in inventory attributes.

From purchasing through inventory, order management through shipping, the ability to work with multiple UOMs simultaneously improves performance and customer service.

The ERP Data Model, Aligned and Simplified

Standard data library utilities found in most ERP applications allow the ERP software provider or manufacturer to “personalize” the existing ERP transaction field names, titles, and other related labels. An industry-specific ERP application based on a strong manufacturing and engineering foundation should come with predefined labels that reflect industry-standard terminology. Process manufacturers expect to see recipe or formula, ingredient, co-product, and by-product naming conventions reflected in the labels and parameters used in user screen transactions and reports. Industry-appropriate predefined labels can reduce both the initial system configuration and ongoing maintenance costs.

Generic ERP software applications can be quite flexible in accommodating many businesses without significant modification. To accomplish this, these applications require a fairly large number of configuration parameters and data tables. A process manufacturer’s IT staff must not only deal with a large, complex database, but with the cryptic data table names and field names within it. As a result, a broad-based ERP application can present a number of challenges to a process manufacturer’s IT staff in the areas of program customization, data conversion, report generation, and system integration.

In leading process-oriented ERP applications, industry-standard terminology extends from label-naming conventions down to database table and field-naming conventions. At this level, the use of industry naming conventions reduces the time required to perform IT activities, as well as the associated risks.

Snapshot: SI Group
SI Group (formerly Schenectady International, Inc.), a privately held global chemical company, discovered a significant difference in the number of data-model tables when replacing a leading large, generic ERP application with an industry-specific one.

“Our initial ERP solution had approximately 12,000 database tables that were difficult to decipher, whereas our current ERP solution has approximately 2,500 tables that have very intuitive names. Through simplification and focus, Schenectady now has a robust, functional system, which has greatly streamlined the global IT deployment and maintenance of its Enterprise Systems.”

Allen Look, Director of Global Information Technology

The difference betwen ERP data models for generic and industry-specific applications can also be recognized at the granular field-definition level. For example, tracking very minuscule amounts of an ingredient in a finished product requires certain data fields to be defined with the right number of decimals.

Snapshot: Wellington
This was the tipping point for Wellington, a custom contract formulator, manufacturer and packager of nutritional supplements, which could not meet the mandated tracking and tracing requirements of a regulatory agency with their initial ERP solution. “For example, the formula for a batch of any given liquid product may be over one thousand gallons, but require only several pounds of ascorbic acid. To maintain inventory accuracy when we manufacture that product, our system needed to know the amount of ascorbic acid contained in each bottle of finished product—which, for instance, could be in milligram quantities. Our initial ERP system couldn’t provide the level of accuracy required to avoid rounding errors. In our current ERP solution, the appropriate number of places after the decimal point allowed us to build product accurately and avoid inventory inaccuracy due to rounding errors. The ERP’s data model characteristics and lot traceability capabilities, as well as management of organic and non-organic products, helped us earn an organic certification through QAI (Quality Assurance International).”

Tony Harnack II, President

With a generic ERP application, many process manufacturers find their IT staff spending a large amount of time on ERP configuration and maintenance. A process-oriented ERP application reduces the administrative costs associated with configuration and maintenance and enables IT staff to focus on other corporate IT objectives.

Snapshot: Summit Industrial Products The management of units of measure was important at Summit Industrial Products, a synthetic lubricant manufacturer and a member of the Kluber Group. “In our previous ERP solution, we had a part data model of roughly 6,000 parts because we had every private label, every product, and every unit of measure in there as a unique stock ID or SKU. We took that original 6,000-part data model down to 200 parts in our new ERP part master database because of its private label, packaging UOM, and conversion capabilities. Look at the administration savings associated with that. That was huge for our company, to be able to go from a very complicated part structure down to a very simple part structure.”

Kelly Starr, EVP - Finance & Administration

Summary

If you are a process manufacturer actively searching for the right ERP application or are in the process of re-evaluating your current ERP application, you should focus on ERP applications that have a strong process manufacturing foundation. These applications support many industry “best practices” with which you can align your business processes.

By further investigating available ERP applications, you will discover that a process-oriented ERP application can successfully manage the variability of products and processes, accurately account for all raw material and finished products, and significantly improve product costing, production predictability, and scalability far better than a generic or discrete-oriented application. With the right baseline functional capabilities, data model structures, and enabling technologies, a process-oriented ERP application can support your business requirements with minimal customization and vendor professional services. As this guide and its case-study stories make evident, a process-oriented ERP application will enable you to standardize and accelerate your business processes while reducing operating costs and improving customer service levels.


Process Manufacturing ERP Checklist

To assist in your ERP evaluation process, this checklist summarizes the key points made in this guide to facilitate side-by-side comparisons of ERP applications.

Improving production through recipe/formula management

• When stages within a process specification are linked together, can the output of one stage become the input for the next stage, without having to perform an intermediate inventory transaction or define an unnecessary intermediate product?

• How does the system handle “conversion,” where the actual output is converted from the planned/scheduled output?

• Can yield analysis be performed by operation, ingredient, and user-defined calculation?

• Does the system support different units of measure throughout the process specification (e.g., weigh in drums, process in pounds, and package in cases)?

• Does the system support input-driven as well as output-driven process specifications?


Improving product costing

• Is absorption-based costing of direct activities performed as they occur, as well as during the recording of manufacturing costs based on predefined formulas?

• Can the system support allocation of multiple indirect costs such as energy, water, plant management, maintenance, and depreciation?

• How are the costs for reclaimed by-products credited back to the original job/batch?

• Can the estimated cost of a process specification be compared with the actual cost of a job/batch?

Managing multiple units of measure simultaneously

• Does the system support different units of measure for receiving, producing, storing, and selling the same item?

• Does the system provide visibility of all package units for a given bulk item without having to maintain substitution tables or logic and without having to define every packaging type as a unique item code?

• How does the system support formula-based conversions? Does it allow the definition and use of generic and item-specific units of measure and associated conversion formulas (e.g., automatic weight and volume conversions relative to a base unit of measure)?

Managing the variable characteristics of products

• Can the system update actual product characteristics based upon QC values recorded during manufacturing?

• Does the system dynamically adjust formulas based on variances in attribute or potency values?

Meeting regulatory compliance and accelerating product recalls through lot traceability

• Can product characteristics be used to force or limit the selection of specific lots/batches based on matching the actual characteristic values to a specific customer request?

• Does the system maintain full forward and backward lot/batch integrity when product is converted during manufacturing, without losing any audit or trace linkages?

• Are lots tracked at every step in the process (from receiving to manufacturing to shipping), capturing materials, production resources, people, processes, steps, and time?


Reducing customer chargebacks and inventory write-offs with expiration date management

• Can distribution days (minimum days of shelf life that must remain when product is shipped) be defined separately from standard shelf life?

• Can the system net the quantity of product reaching expiration from available quantity if demand does not consume all available inventory of that lot/batch by its expiration date?

CDC Software wants to ensure that you do not overlook any critical requirements during your ERP evaluation. For clarifications on these functional questions or to inquire about CDC Software’s full list of critical functions for process manufacturers, please contact us via the Ross Enterprise website, www.rossinc.com.

About Ross Enterprise

Ross Enterprise is an innovative suite of software solutions that help process manufacturers worldwide fulfill their business growth objectives through increased operational efficiencies, improved profitability, strengthened customer relationships, and streamlined regulatory compliance. Ross Enterprise offers industry-specific functionally for a variety of process industries, including food and beverage, consumer products, life sciences, chemicals, metals, and natural products. The comprehensive suite of solutions includes functionality in enterprise resource management (ERP), supply-chain management (SCM), customer relationship management, real-time performance management, order management (OMS), warehouse management (WMS), human resource planning, performance management, and business analytics. For more information, visit www.rossinc.com.

About CDC Software

CDC Software, The Customer-Driven Company,™ is a provider of enterprise software applications designed to help organizations deliver a superior customer experience while increasing efficiencies and profitability. CDC Software’s product suite includes CDC Factory (manufacturing operations management); Ross ERP (enterprise resource planning) and SCM (supply chain management); IMI warehouse management and order management; Pivotal CRM and Saratoga CRM (customer relationship management); Respond (customer complaint and feedback management); c360 CRM add-on products, industry solutions, and development tools for the Microsoft Dynamics CRM platform; Platinum HRM (human resources); and business analytics solutions.

These industry-specific solutions are used by more than 6,000 customers worldwide within the manufacturing, financial services, health care, home building, real estate, and wholesale and retail distribution industries. The company completes its offerings with a full continuum of services that span the lifecycle of technology and software applications, including implementation, project consulting, outsourced business services, application management, and offshore development. CDC Software is the enterprise software unit of CDC Corporation and is ranked number 12 on the Manufacturing Business Technology 2007 Global 100 List of Enterprise and Supply Chain Management Application vendors. For more information, please visit www.CDCsoftware.com.