For process manufacturer’s in particular, production and inventory control, planning, scheduling and product costing applications improve productivity and reduce costs at production sites throughout the world, says Ian Huntly, CEO of Rifle-Shot Performance Holdings, representatives of Aptean, a global leader in enterprise application software (EAS).
For many, however, their applications are either original home-grown systems which fit them to a “T” at the time they were built, or discrete bill of material based systems lacking core process manufacturing functionality. Because of growth and changing industry requirements, many process manufacturers are coming to the realisation that these systems are no longer adequate to support their business objectives.
If you are going to replace or complement your existing systems, how do you get started, particularly if you have no experience in selecting and buying packaged software? The problem is that the things that could spell trouble for you are buried deep within the very foundation of the software – its initial design.
Buyers in process manufacturing sector are the most vulnerable since the vast majority of the software offered in the marketplace has been designed for discrete manufacturing (automotive, electronics, machine tools and so on) These suppliers need to have added functions to their software to accommodate process requirements.
As you might expect, there are compromises when a system is adapted to different business model. As such, there are limitations. Will these limitations be a problem for your production site? This paper should help you find the answers.
Enterprise resource planning (ERP), in short, should provide all employees in the corporation with information to support them in performing their jobs in near realtime. Since everyone will be dependent upon the data from this pervasive information system, everyone is dependent upon everyone else in the organisation to input accurate and timely data.
Manufacturing products like chemicals, pharmaceuticals, or even foods is a very complicated business with unique requirements. The complications of balancing preferred sequencing in production against customer demands against the need to keep this high fixed cost facility running, to drive unit costs down, is just one example of pressures that will be placed upon an ERP system.
Your tools for managing your ERP system must have enough robust functions to mirror your information requirements, however complicated they might be.
Without these functions you will have to either change the way you do business (undesirable); use another tool to manage that part of the business (better); or change your ERP system (preferred).
While no packaged ERP solution will meet anyone’s requirements perfectly, finding the closest fit to your requirements means that the ERP tool will leverage everyone’s productivity and improve the company’s overall performance.
Looks good to me
Selecting software from all of the choices in the marketplace is a bewildering experience. The first step is to determine what you really need in a system in order to provide the best business fit possible. This is a tedious task, but there are some tools which can help you in this effort. Remember that you need to identify those information requirements which are unique to your particular business.
One can never know everything there is to know about the complex details of an ERP system before purchasing that system. So one must know which questions to ask the suppliers.
So what are these questions? You need to ask about parts of the ERP system which are critical to your success as a process manufacturer, but which are not universally required around the world by every industry.
Remember that the majority of ERP suppliers are selling their systems to many industries – automotive, aerospace and defence, electronics, banking, insurance, health care and chemical companies. The general ledger requirements are all the same, but there are significant differences in other segments of the ERP offering, particularly procurement, production and sales.
The danger is, of course, that in looking at the surface of ERP systems they all seem to be doing a good job. And sometimes the fatal flaw is not sitting on the surface of the system waiting to be easily seen. The flaws are typically down deep in the system, far beneath the surface, to be found only when you actually go to use the tool.
This paper will describe some of these fatal flaws so that you can, if you need these features in your ERP tool, ask the various ERP suppliers how they will support your need.
Unit of measure conversions
The unit of measure is all pervasive in an ERP system and is often not thought about. If your ERP system does not provide you with a sufficiently robust tool in the area of unit of measure conversion, and you want to have a universally consistent information system, then you will be forced into a difficult decision.
Unit of measure (UOM) is a single field on any screen in an ERP system, but not having robust enough function to support UOM and its conversion could be a fatal flaw.
Quality is just for Inspectors
While the unit of measure is pervasive and so common as to be almost taken for granted, quality is another critical factor for most process manufacturers and it is completely invisible. What the process ERP system must do is to make the quality parameters visible to those who need to know.
Since the ‘need to know’ personnel are throughout the whole business, the ERP system must treat quality as an intrinsic part of the whole, not just an “add on” module used only by laboratory personnel or quality inspectors.
There are many places where quality is critical to the management of the operations. If mistakes are made in these areas, the results could range from a small cost problem to a lost customer to real safety hazards.
Lot number equals serial number
Tracking various quantities of products with different qualities requires some reference number in the ERP system. For some suppliers, the need for ‘‘lot control’ is translated by them to mean the same as serial number control for their machine tool manufacturers. This is another example of a tool which is not up to the job.
There are really two problems with this “serial number” approach. One is the tracking of materials themselves, especially if there are fluctuations in quality during the actual production run. The second has to do with control over the use and sale of the materials with various quality parameters.
Only one way to make a product
The complications of the “physical picture” mirrored in the ERP system do not stop with how lots are tracked. Another complication comes from the evolution of process manufacturing itself. Within the chemical enterprise, if not within a single production site, there are various technologies which can be used to produce the same end item. This is a reality in the chemical world and the same holds true for manufacturers of pharmaceuticals and food and beverage products, but is not typically accommodated in the traditional ERP systems design.
For the machine tool maker there is only one way to assemble their machines. The systems originally designed for these types of manufacturers went so far as to force the manufacturer to decide the one way in which assembly worked, and the one list of materials.
For a process manufacturer, having only one statement of how product is made is not sufficient. If there are old processing lines and new processing lines which make the same end item, then both are valid. Their differences are, however, critical and significant.
No fixed cost analysis
Some ERP suppliers will entice you with their costing power derived from data in the general ledger. This so-called cost-centre costing works with allocation logic which parallels the movement of materials from one cost centre to the next in the manufacturing process.
This tool will be sufficient for you if you have only one, or a very few products flowing through these cost centres. If you are introducing more and more products and their variants into your processing facilities, you will soon outstrip the power of the G/L based costing system.
The ideal process manufacturing costing system will allow you to understand the impact of not only volume throughput changes, but the changes in product mix as well. Some process manufacturers have departments which do nothing but work with the ‘what-ifs’ of changes in volume and mix at specific plants, as well as shifts in production volume and mix from plant to plant within the enterprise.
Given the volumes of production coming through some of these facilities, small improvements in the unit costs mean big differences to the bottom line.
Manage materials above all else
The make-up of costs, however, is not just dependent upon the absorption of fixed costs by the volume of production. Each product’s cost has other elements which may be significant to see when analysing the performance of various operations. Certainly there are material costs, but the typical ERP system places too high a priority on understanding, managing and controlling materials. In fact, they place materials as the top priority in the system, and with good reason.
Typically, the material costs for the process manufacturer are not the most significant cost. The cost of capacity is usually the highest cost. Therefore the prime driver of the business is the optimisation of the utilisation of the capacity. The process manufacturer’s ERP system should not force them to plan materials prior to planning capacity.
Fatal Flaw No 7 – Only one output
A bill of material based ERP system has one architectural assumption which cannot be changed: the manufacturing process takes many things and makes only one thing. From this architectural foundation grows the total system. If your manufacturing processes are essentially ‘assembly’ processes (blending operations, for example), then this model of your process will suffice. However, if your manufacturing processes are complex producing by-products, co-products and recycle streams, a bill of material based ERP system will fail you in the end.
If the output is not a by-product, however, but a co-product the cost calculations from a typical ERP system will not assist you in understanding the relative cost of the various co- products. What you really need is a system which will allow you to direct the system to calculate processing costs up to the point of the co-product’s production (it may come out of the process before the last processing stage) and to apportion costs based upon some % distribution. Alternatively you might want to use a volume or weight distribution factor. Either way the ideal system will follow your rules.
The selection of the right tool is not easy, but knowing what you need is the first step. These ‘fatal flaws’ are just some of the areas where little things, which don’t quite match the way you run your process manufacturing operations, can begin to spell big trouble for your company.
The power of an ERP system is the easy access to and interchange of information through all parts of the organisation.
If a group has to play tricks on the system to get it to work and if they are making mistakes because they don’t understand how to use the system, or they develop their own ‘side systems’, which work better, and then half-heartedly fill in the blanks for the accountants in the ERP system, your hard work and investment in your ERP system will be a wasted effort.
It does not have to be like that. Spend a little time studying what you need and what the ERP vendors have to offer. There is the right tool out there for you.
