ERP for the Food Manufacturing Industry
Achieving the desired results with Enterprise Resources Planning (ERP)
To simplify and illustrate the purpose of Enterprise Resources Planning (ERP) in the food manufacturing industry, let us look at an example of baking a cake.
To make a cake, we need to start with the recipe. The recipe contains the list of ingredients needed to put into the cake. The instructions of the recipe define the method on how to combine the ingredients and how to bake the cake.
There is more involved, however. The demand for making the cake comes from the request or desire from the family or friends. The cost of the cake is determined by the cost of all the combined ingredients, time spent as well as the equipment and electricity that was used. The assembly and manufacturing are determined by the skills. The return on the final product is the satisfaction derived from the gratitude and enjoyment of the people that ate the cake.
So how does this relate to a business and ERP on a larger scale, and in business terms?
- The product is the cake
- The base cost of the product is the cost of the ingredients.
- Manufacturing Costs comprise of the labour or time taken to produce the cake.
- Examples of additional expenses are
o Electricity
o Initial equipment costs
o Premises rental - The return is the money received when the product is sold.
Terms used in business would then be:
- Marketing
- Sales Orders
- Procurement
- Bill of Materials
- Manufacturing
- Sales
- Delivery
Bill of Materials (BOM)
The Bill of Materials is the list of all the ingredients (raw materials) which are needed in order to manufacture the product. This is a vital component in the manufacturing process where it links to various steps:-
- Sales Orders. Once a Sales Order is captured for a product, the quantity of raw materials needed to fulfil the sales order can be calculated by using the Bill of Materials. This feeds into Material Requirement Planning (MRP) where production schedules can be organised depending on the capacity and availability of raw materials.
- Procurement. By taking the quantities of raw materials available and calculating shortages, the system can suggest the necessary Purchase Orders needed in order to facilitate the fulfilment of sales orders. By using minimum and optimum stock levels, purchase orders can be streamlined to avoid out of stock situations.
- Manufacturing. During the actual manufacturing process, picking lists can control the stock issues from the warehouse. Problems in the manufacturing process can be identified by discrepancies in normal stock usage and the actual. Furthermorecosts of raw materials can be monitored, flagging any excessive costs increases.
The Importance of Batch Number Tracking
Batch number tracking is a method used to track raw materials and finished products that are used or manufactured. The purpose of this is to keep track of the raw materials and finished products so in the case of some sort of quality issue, the actual products or, in the case of raw materials, the products that were manufactured using those materials, can be identified and their location can be established.
Another important factor in the food manufacturing industry is the expiry date or shelf life of products. These are managed and controlled by means of batch numbers. A batch of products (raw or finished) will be allocated a unique batch number and an expiry date will be allocated to this batch. It is then easy to monitor and control when products have passed their expiry date or shelf life.
Batch numbers allow products to be traced through the whole process, from procurement from a supplier, all through the manufacturing process to sales invoice and delivery to the customer.
With this information that can be retrieved from the ERP system, all products that are within the affected batch may be easily identified and if necessary allowing for the recall and replacement of the affected products.
This goes a long way in providing product quality control and customer satisfaction. Customer satisfaction and care are extremely important for future sales.
What is all that to do with Enterprise Resources Planning (ERP system)?
An ERP software system is an extremely valuable tool for the company in the food manufacturing industry. It ensures the whole business process is efficient and streamlined and as a result, profitable.
Because, with an ERP system, all the data is integrated, then all the different areas of the business processes are linked and information is available from a single source point across all areas of the business. Different areas of a business do not operate in isolation from each other. They are interdependent. The more seamlessly information is shared across all these various areas, the more efficient the whole business will perform.
Below is a brief outline:
1. Marketing
- Customer Relation Management (CRM)
2. Sales Orders
- Financial (Pending Cash flow and Sales)
- Material Requirement Planning (MRP)
3. Procurement
- Purchase Orders (According to demand based on sales orders)
- Financial (Accounts Payable, Banking, Financial Statements)
4. Bill of Materials
- Individual Product Requirements relates back to Purchase Orders
5. Manufacturing
- Production
- Time Sheets
- Work in progress
- Batch Number Tracking.
6. Sales
- Financial (Invoicing, Product Demand, Profitability, Accounts Receivable, Banking)
7. Delivery
An ERP system integrates all these areas (and more) of the business.
Areas of control and feedback in the business using ERP
Closed-loop systems require that functions and processes need to be checked against tolerance levels setup for the correct functioning of a System. A business is an ever-changing entity that needs consistent feedback and checking against either a business plan or planned growth.
Feedback and who gets the feedback is important. Each area of a business should able to provide feedback to the various heads of departments
The heads of each of these departments can then view the feedback results from the ERP system and then take the action required to maintain the goals set for each department.
