The Food Manufacturing Brainstorm features industry experts sharing their perspectives on issues critical to the overall food industry marketplace. In this issue, we ask:
What are important factors for food manufacturers to consider when deciding whether to make a software expenditure?
Lisa Lawrence, Vice President and Chief Financial Officer, Aspen Systems, Inc.
Food manufacturers have unique considerations when performing a cost/benefit analysis for the purchase of software. Software that accommodates government regulations for tracking, tracing and proper labeling is essential to a company’s continued existence. However, the true return on investment comes from the following factors:
- Accurate inventory by scanning, weighing and barcoding inventory. This allows better control of inventory, minimizes spoilage and maximizes yields.
- Accurate forecasting of future demand. This will provide better customer support, reduce customer shortages and provide timely inventory purchasing.
- Reliable sales and profit information. Accurate information is essential for profitable and intelli gent decision making. It allows a company to excel in the competitive climate dictated by the food industry.
- Flexible software. Food manufacturing software should be flexible, scalable and designed to grow with the company.
- Labor savings through automation. Most importantly, the software solution should be supported by a company that truly understands the complexities inherent to the food industry. The software company should have a proven track record of providing solutions to companies already in the food industry.
Under these conditions, an investment in software will pay for itself many times over and increase the company’s net profit.
Jim McCooey, President and Owner, Computer Associates, Inc.
Most people agree that purchasing ERP software to manage your business is not something you want to do too often. But when the time is right, your decision should be based not only on a checklist of software features and functions or even the total cost of ownership (TCO). The biggest decision you make is the company you choose to partner with.
The most successful ERP deployments are characterized by regular and ongoing communications between you and your software partner prior to, during and long after software "go-live" date. As your business evolves, the vendor can proactively develop the new capabilities you need to stay competitive. At the same time, you want a partner with a long-term market focus and a commitment to continually support industry-best practices and state-of-the-art technologies that help you improve efficiencies and drive down business costs.
Once you’ve selected your partner, it’s time to move on to that checklist of must-haves. According to government regulations, food processors must be able to trace every ingredient in their products. In the case of a recall or allergen alert, you must be able to isolate problems quickly and with absolute accuracy. ERP software can track individual bins, containers and packages as they move through the manufacturing process and distribution chain. In addition, ERP software can help you meet health and safety requirements by providing robust batch recipe management capabilities that track all recipe data, including descriptive information, ingredients, quantities and costing information.
In food manufacturing, excess inventory is more than just wasted cost. When perishable raw materials are involved, surplus inventory and delays in processing can also lead to quality and safety issues. Inventory optimization is a traditional characteristic of most ERP solutions. Materials Requirements Planning (MRP) provides a just-in-time inventory solution that integrates your sales, manufacturing and purchasing activities. It helps reduce inventory carrying costs and delays caused by lack of raw materials while providing a complete roadmap of what’s needed and when based on production capacity, resources, minimum inventories and vendor lead times.
The use of barcoding is another key consideration. ERP software with built-in barcode label reading, printing and scanning lets you perform accurate and speedy quality checks across your entire product lines, as well as tracking detailed cost information at every step of the process. You can scan barcodes on work orders, read all of the items required at each stage of each recipe, then scan the pre-measured and barcoded raw materials for that step to ensure that the product contains all the right ingredients added in the right sequence.
Nick Bova, Senior Vice President of Operations, Junction Solutions
Food and beverage manufacturers face a number of unique challenges that can be addressed by a strategic investment in technology and subsequent process improvement. They include:
- Improving control over operations and finances
- Simplifying compliance with regulatory and customer-driven mandates
- Connecting with customers, suppliers and employees across the business
When evaluating new or upgraded technology, consider several factors. Does the system support growth, mitigate risk or enable greater cost control? Let’s look at each of these factors separately.
Growth or change within the business can come from shifts in the marketplace, organic growth or acquisition. If your business is growing, it’s important that the system has the flexibility and scalability to enable easy adaptation to changes.
Decision-makers should consider the benefits of standardizing on one platform across multiple plants or multiple locations. Having complete, fully integrated visibility into data gives executives a 360-degree view of business performance, along with greater insight into their customers, providing a stronger foundation for business decisions.
Can the solution mitigate the main types of risk in the food and beverage industry: supply chain, compliance and (in some cases) government reporting? Manufacturers that leverage technology for streamlined compliance also often discover that the resulting process improvements actually net the company additional cost savings.
An example of where technology helps with risk mitigation is in a recall situation. Having technology that provides visibility and expedient reporting and tracking can help a manufacturer quickly pinpoint the source of contamination and take swift corrective action. This is critical not only from a compliance perspective but also in minimizing costly write-offs and potential legal action.
A main benefit to having the right technology solution in place is an improved ability to manage and control costs. Visibility into real-time inventory, scheduling and order management integrated into the general ledger can increase a manufacturer’s ability to accurately view business performance and identify costly process inefficiencies. For example, a manufacturer of goods with a limited shelf life can use scheduling software and direct-store-delivery to limit losses due to spoilage and optimize inventory management. This reduces costs on the manufacturing side and enables retailers to sell a fresher product to their customers.
A thorough understanding of your business goals and strategy is vital when beginning to evaluate the potential fit of a technology solution, its benefits and its impact on your organization’s performance and profitability.
Jack Payne, Vice President of Enterprise Software, CDC Software
There are a number of key factors that food manufacturers are considering and should be considering when justifying software expenditures. The most common and traditional factors are the economic justifications that are internal to the organization and the external influencers including regulatory compliance and food safety.
Many food manufacturers face tight margins in their business and evaluate various projects to reduce both the overall cost to run the business and product cost. In most cases these are internally influenced projects and are evaluated based on either projected ROI or ROR results. Closely related and included in this category are projects that are focused on increased revenue without facility expansion, such as organizations that are capacity constrained and cannot meet all market demand.
In the past few years there has been increased influence on food safety and traceability from both customers and governmental agencies. The Global Food Safety Initiative (GFSI) is a major influence in the marketplace for food manufacturers that produce consumer products, as well as food ingredient manufacturers supplying the food manufacturers, requiring certification to standards such as HACCP and SQF 2000. Most manufacturers require software solutions to efficiently capture necessary information and make the data accessible for timely access. Many manufacturers see this as a requirement for continued business with existing customers and do not take into consideration the economic benefits that can come from consistent standards through reduced product cost, increased product quality and reduced rejects and rework. In addition, this can be a strategic competitive advantage in increasing market share with existing customers and acquiring new customers.
Closely related to food safety are also brand protection and consumer confidence. Prior to the influence of GFSI, the most forward thinking food manufacturers were also including this in their evaluations. While GFSI standards are targeted to prevent food recalls, unfortunately food recalls are still a real liability that all food manufacturers face. Traceability systems that can quickly trace and contain a recall provide long term brand protection to the business. With the widespread popularity of social media an uncontained recall can erode or eliminate consumer confidence. These are also key factors that food manufacturers should consider.
Steve Thomas, Senior Vice President, Columbus IT
Too often organizations approach a software investment as simply a replacement to an older, outdated system or a means to eliminate some manual processes. Food manufacturers who rush into an investment for these reasons may not have clearly defined critical success factors and therefore lack the ability to justify their expected benefits and overall investment. Understanding what issues you seek to solve, short term and long term ROI goals and the metrics for tracking success prior to evaluating software solutions and making an investment can save you considerable time and money.
There should be metrics internally attached to these ROI goals that may be targeted to reduce losses, improve profits or grow revenue. Perhaps you are targeting reducing spoilage and waste through better warehouse management or improved manufacturing processes. There may be a desire to grow product market share or improve distribution through better business intelligence. Regardless of what they are, attach metrics and measurement criteria to your goals, so you can celebrate your success and investment in one year and five years.
Having these factors documented and agreed upon as a project team will help you drive your functional and technical requirements, guide your implementation road map and help measure your projects’ success post-"go-live." Thoroughly understanding your success factors and the issues that are driving them also gives the organization and the software partner the opportunity to validate whether these are realistic expectations and if these are issues that can be solved by technology.
Additionally, food processors need to gauge their willingness to refine business processes. Technology solutions can provide you the tools to solve common issues and help you meet your goals; however, optimum success can only be achieved when refined processes bridge the gap between business and technology.
Understanding your success factors in advance can help you identify potential hurdles, show stoppers or a project that just plain won’t be successful. The right partner can help you sort all this out prior to making an investment.
Chad Collins, Vice President of Marketing and Strategy, HighJump Software
Many food manufacturing companies, though they may be rife with technological innovations, are lacking some of the most critical capabilities for this industry. Despite the pervasiveness of technology in the food and beverage supply chain, many companies lack full visibility from supplier to store shelf — no small oversight in a highly-regulated industry, where traceability failure could jeopardize food safety and put your businesses at risk of compliance failure and legal liability. Food manufacturers need to consider the following ways software can benefit their operations:
Supplier Collaboration: Achieving and maintaining collaboration between your distribution operation and your supplier network reduces cycle times through real-time communication of demand and order status. A modern supplier enablement application can dramatically increase the speed of receiving operations and lower inventory levels.
Complete Production Traceability: Supply chain software that includes advanced traceability and recall management tools gives you peace of mind that you will be ready in the event of a recall. The system automatically creates a full genealogy of every product made, tying batch numbers, lot numbers or other data to the appropriate finished products, as well as back to the production order or demand signal.
Warehouse Management System: A Warehouse Management System (WMS) provides a foundation of best practices for receiving, put-away, flow-through, inventory management, order processing, replenishment, loading and shipping. A WMS provides food manufacturers a highly accurate picture of inventory and increased visibility of warehouse operations.
Transportation Management System: A transportation management system (TMS) manages the processes around the shipment of freight, helping you select the right carrier across all modes, rate the movement, tender the load, print the shipping documents, track the load, bill others for the freight and pay the freight bill from the carrier.
Route Accounting System and Mobile Sales: For food and beverage companies that distribute directly to retail locations, a route accounting system (RAS) integrates all the functions of the order-to-delivery process. A modern mobile delivery system combines order processing, delivery, off-truck sales, invoice management and comprehensive settlement capabilities to streamline daily direct store delivery activities and help improve customer satisfaction. u
Patrik Sjoberg, Product Director, Food & Beverage Solutions, Lawson Software
First, all software investment decisions must be aligned with your corporate visions and strategies. Today, most software is purchased to gain competitive benefits in the food value chain. For a food manufacturer this almost always involves improving customer service levels, compliance to customer or regulatory requirements such as food safety, or removing costs from the supply chain.
Second, make sure that the future ownership of the software and the cost of implementing the software have been accepted by the lines of business. Most successful and rewarding implementation projects are sponsored by someone in top-level managerment, securing internal resources for turning the core software into real business benefits.
Third, document the solution and secure a long-term process for how to introduce new employees into the solution. Make sure that the solution and the business processes related to the solution are well secured to work not only for the next 12 months but for the next 5–10 years. It is very common to find solutions that worked great 2 years ago no longer working, not due to software, but due to people skills. Software never deteriorates, but people skills do.
Fourth, Make sure that your solution can grow with your company and your future expansion into new lines of business or into new market places. Once you have acquired a major piece of software you will most often keep it for 10 years or more. Solutions that fit perfectly today, but lack flexibility, may become very costly in the long term.
Fifth, evaluate your vendor to see if they are truly committed to support your industry and your company today and in the long run. Take a look at their track record of developing software and serving your industry. Make sure that the basic design and structure of the software is built and designed for your industry. If you need, for instance “Catch Weight” or “Attributes” and it is not properly built into the core of the solution, you will hardly be able to add it as a “bolt-on” customization to the product. For the future, do they have processes that involve customers in future development of the software?
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