MAKING PLANS for food and drink

Any manufacturer who supplies the major supermarkets is well aware of the difficulties of working profitably in the food and drink sector. Retailer power is very strong, putting enormous pressure on suppliers to reduce prices and improve delivery performance.

In the perishable foods sector, to take just one example, obsolescence is a critical issue, requiring excellent demand management, inventory management and resource requirements planning. Perishable goods cannot be made for stock in slack times and the manufacturing business needs to be very `agile' to adapt closely to the fluctuations of demand.

These days we talk a great deal about the extended supply chain, going all the way from the consumer, back to the retailer, manufacturer and raw material supplier. The emphasis is on managing the extended supply chain across corporate boundaries to meet consumer demand in the most effective fashion. And there is little doubt that integrated management of the extended supply chain is an issue in which manufacturers and retailers will increasingly get involved. E-commerce and EDI are examples of the sort of thing to be expected in the near future.

A start is being made with `vendor managed inventory' where the manufacturer takes full responsibility for all goods in the supply chain, including retailer stocks and inventory management, to ensure that the best possible balance between service and cost is achieved.

For the moment, though, ERP (enterprise resource planning) systems remain the preferred corporate-wide approach. As a management tool, supported by software, ERP has evolved over many years - from its early form as MRP (material requirements planning), evolving through MRPII (manufacturing resource planning) and now into its current form.

The concepts are not new and basically cover the planning and control infrastructure of a manufacturing enterprise. There are a number of software modules. The primary ones involved, shown in Figure 1 overleaf, can be supplied as discrete modules, but are usually more effective if supplied as an integrated system.

ERP includes integrated financial ledgers and human resource modules and, as such, has become the major data repository of the business. It does have great appeal and, frankly, there is no practical alternative today. Unfortunately it is often used inappropriately.

In fact, in some industries it is far from ideal. Let's take food and drink as an example. In its planning systems, ERP is very deterministic. It assumes that product structures and processes can be fully defined in a rigid bill of materials and an equally rigid process plan. The whole essence of ERP is that you decide what you want to sell and use static product and process data to calculate what you need to make or buy.

In many food companies life is just not that simple. Any company that uses natural products such as milk will need to take into account the variability of the raw material, but still need to produce a known product of consistent quality.

Take chicken pieces, for example: you are contracted to supply 2000 chicken wings in packs of two to the retailer. You buy in weight and you pack in pieces. ERP cannot very easily deal with issues such as variability in weight. Your chicken pieces cause other problems: unless you buy legless chicken you will have two legs for every two wings you get. You need to work out what to do with them - ERP will not be able to tell you. A reasonably competent ERP system will tell you how much of each by-product or co-product you will receive but it will not be very good at balancing your demand profile with your material profile to minimise waste.

Or, you buy spices in the Far East. Every order you receive has a different potency and needs to be mixed with other ingredients. Not only can ERP not tell you how much to order, when the material arrives it cannot cope with the problem that you have the same material in different lots, each one with a different potency.

ERP in its pure form, therefore, is not a good solution for many food and drink companies. Some foods are fairly deterministic (there are probably not many problems in tins of baked beans or canned drinks, for example) but most foods will have some of these issues - some more than others. Fresh foods, especially those made from material assortments such as non-frozen convenience foods, for example, can be an absolute nightmare.

At one time you had to take ERP (or rather MRPII in those days) as it came and make the best of it. Today the situation is much better. Competitive pressures in a very busy systems marketplace have forced ERP suppliers to look more closely at their customers' requirements and offer practical business solutions.

Today there are special ERP software versions for most industry sectors and food and drink is no exception. There are essentially two approaches. One type of supplier (most suppliers, for that matter) supplies standard ERP packages with a range of modifications and additions to meet many of the food sector's special needs. Other vendors go for broader industry specialisation to try to balance the conflicts of as large a market as possible with common industry specialisation. Clearly the narrower the sector for which the software package is written, the greater potentially its functional fit, but the smaller its potential market.

Balancing this conflict is a serious dilemma for specialist ERP vendors. For example, there are a number of ERP suppliers who `specialise' in process industries which, they would argue with some legitimacy, is very close to food and drink. Certainly their package will be closer to user needs than a standard, engineering orientated ERP package, but it may still not be very strong on specific food and drink, and in particular perishable food systems requirements.

And then there are the true experts, suppliers of real food and drink packages. A true food and drink ERP systems supplier will offer the specific functionality required by the sector.

There are some very specific features which food manufacturers look for in their ERP applications. Where in engineering environments it is the volume of product data which is the problem, in food and drink it is the complexity of process inputs. The basic product recipes are usually simple, but they are made complex by the many variables inherent in materials and processes.

Fixed bills of materials are not appropriate and systems must support formula and recipe based product configurations. ERP vendors in this sector normally use standard specifications which include all resources required to make a batch of product, including ingredients, labour, equipment, utilities, etc. They also include quality requirements and define all outputs including co-products and by-products.

A process specification is a group of one or more production stages, which are linked together with the output of one stage becoming the input for the next stage, so that there is no need to record inventory transactions between stages. Batches simply move from stage to stage. The process model mirrors the actual workflow through the factory and additional materials can be added at each stage.

Scheduling of manufacturing lines may be a key requirement and there is normally a requirement for finite scheduling software.

Not surprisingly quality assurance is essential. QC test data maintenance by batch is essential as is the collection and maintenance of QC test results. Lot traceability is obviously required, as is shelf life and expiration date control and quarantine stock control.

Clearly today's demanding retailers require excellent customer order management from rapid processing of orders to assured, on-time delivery. EDI capability is essential and the largest retailers now see this as the entry price to do business with them.

Food and drink manufacture, like other process manufacture, can be very capital intensive. Excellent asset management is therefore essential. The short response times governed by short shelf life and retailer demands require flawless manufacturing without unplanned stoppages and breakdowns.

There are clearly a number of special requirements that must be met by the ERP vendor to meet the needs of the food and drink manufacturer. Some packages meet these needs, many don't. Today the appropriate ERP software package may well give that extra edge to cost performance, yield and customer service to make the difference in an intensely competitive market. PE

This article is edited from an original by Rod Jones, managing director of Ross Systems (UK), a leading food and drink sector ERP systems supplier, and Gunther Kruse, a director of the change management and IT consultancy firm Scope Management.