There are several dimensions of accelerated change that require deployment of an advanced ERP environment with special capabilities:
Customer Fulfillment. Product lines keep expanding to meet ever evolving customer and geographic opportunities presented by new markets. Channels, especially in the new developing regions of the world, present one-of-a-kind challenges, specific to local needs or consumer preferences.
ERP Helps Process Manufacturers Cope with Chaos (Part 4)
Forward-oriented perspective. Metrics or planning methods grounded in past occurrences are like driving your automobile by looking in the rear view mirror. This focus may not help in determining what will occur in the future across channels and market segments, or adequately support a more demand-driven production environment.
Hidden capacity and inventory. To compensate for inadequate information, optimization capabilities and inability to respond in a timely fashion; companies have built excess capacity and inventory buffers. While this minimized risks to customer services, return on assets or working capital was significantly impacted. With the new realities of restricted credit markets and ever changing external markets, these factors of hidden capacity and shadow inventory will likely result in longer term inability to react, reduced customer service and cost write-offs.
Greater detail. Product demand plans are often aggregated and optimized at product family level to support more timely sales and operations planning. Product forecasts, on the other hand, need to be granular enough to buffer or optimize variability and variety across planning and production schedules. If you don’t have a system that can support the demand planning process with the flexibility to support both needs, you’re flying blind or are vulnerable to sudden market shifts.
Time to action. Manual processes and inadequate or standalone tools limit a company’s ability to proactively respond to market opportunities or specific customer needs. Awareness of a potential excess batch of product can be proactively communicated to Sales and Operations management teams to shape additional demand or promotion of that product.
Production optimization. A business reality for many process-oriented manufacturers is that production schedules are rarely feasible, and often do not result in the best cost-revenue trade-offs.
In this “new-normal” there are two paths to business success:
• Continuous improvement by addressing one problem at a time or a plan to solve a series of smaller challenges.
• Transformation through an overarching vision and framework of future capabilities.
Either path may converge with the other at some point, and each approach holds pitfalls if the other path is not considered in some way. Continuous improvement implies building on the current foundation of business planning processes and supporting information technology. It addresses one problem at a time, as functional needs warrant, or as business pain points need to be addressed. Processes are improved utilizing various continuous improvement mechanisms such as those common in lean or six-sigma initiatives.
In this approach, an improvement is likely to focus on one business process or area. For example, the company might scrutinize a production bottleneck such as a packaging line for how to improve performance with new scheduling, changeover and maintenance practices. Or the S&OP leader may push a specific group such as finance to be more active in the process to ensure planning results increase profits.
Continued in Part 5
As companies rationalize or increase products, plants and distribution facilities, supply chain variability mandates the ability to continually change without custom coding. For many companies, the breadth of products, markets and plants require the ability to concurrently support multiple planning strategies. Tactically, it becomes essential to have deployed an ERP system that can do so automatically.
ERP Helps Process Manufacturers Cope with Chaos (Part 3)
Variety. The new economy is one where competitiveness and customer loyalty are predicated on service and product choice. Changing channels, market demographics and consumer tastes lead to the need for product and packaging variety. Brand expansion, new channels, and regional expansion may all demand new SKUs. Process manufacturers now face special challenges related to more frequent needs for managing incremental or totally new formulations, products and packaging.
Process oriented manufacturers must adapt to this chaos. In the “new normal”, business is not static and process manufacturers must have enterprise systems that make them more agile and responsive to constantly changing business conditions. The unique nature of inputs and outputs is driving more process manufacturers towards adopting hybrid push-pull manufacturing planning, scheduling, and distribution methods. Inbound materials can often be push dependent, relying on the timing of harvest, season, or yield factor of an inbound commodity. Inbound packaging and many ingredients are pull based.
On the outbound side, process manufacturers need to ensure that their finished goods production and distribution processes are pull-oriented given the volatility, variability and variety at play. Hybrid push-pull supply chain planning provides the means for maximum operational efficiency. To maximize return of assets or working capital, an ERP system must support product line, sales channel and customer segmentation level strategies. Planning must balance specific constraints in production, shelf life, or production lot control with customer responsiveness and overall competitiveness. Being more demand-driven requires leveraging ERP technology to integrate the processes of product development through product packaging and distribution, irrespective of global region. All of this must be supported by analytical and decision-making processes that support business and operational insight.
Multi-plant or multi-region planning presents added complexities which outmoded MRP/MPS, re-order point techniques, or other conventional planning approaches cannot effectively manage. Clearly, even advanced planning and scheduling techniques not designed for the variables and realities of process manufacturing are likely to be inadequate.
In this environment, traditional “best practice” planning may fail. Traditional “best practice” planning can fail if it does not account for or support the current challenges of volatility, variability and variety challenging today’s process focused manufacturers.
Lack of an integrated and responsive new product introduction process can cause many product launch failures. Few companies today can integrate design and engineering information with production planning, sourcing, compliance and supplier information for more timely product launches, as well as a more seamless time-to-volume ramp-up with market attractive products. Traditional systems do not always allow the company to quickly sense that a new product has wide customer acceptance, and quickly achieve time-to-volume when the product is at its most attractive margin point.
Continued in Part 4
In the wake of the continuing global financial crisis, particularly in Europe, many economists predict that uneven market demand, increased regulation, and tight credit are likely to continue for the foreseeable future. Constant volatility, variability and variety will become the “New Normal” even through the economic recovery and subsequent cycles. This presents extraordinary challenges to chemicals, specialty chemicals, consumer packaged goods, pharmaceutical, and food and beverage process manufacturers.
ERP Helps Process Manufacturers Cope with Chaos (Part 2)
Shifting markets, more empowered buyers whose spending patterns align with evolving lifestyles, the rise of the mega retailer or customer that control larger percentages of distribution and demanding end-consumers are generating intense business pressures for reliable, consistent, ontime delivery despite the uncertainty. Globalization provides the opportunity to sell into and profit from new markets, but brings new and different business risks in maintaining margins and remaining the supplier of choice. More empowered consumers, the effects of consolidated distribution, and the speed of the web can now amplify the effects of a potential product recall.
This impact can lead to huge write offs, erosion of shareholder value, or complete damage to the brand.
Volatility. Rapid economic changes increase volatility in markets. The current global recession has led to overcapacity in certain regions, with increasing power shifts toward mega retailers, product buyers and consumers. One clear sign of that is price volatility. Price volatility leads to increased financial risk for suppliers. As a result, buyers must be prepared to rapidly respond to either supplier quality erosion or even supplier failure as an unfortunate new norm.
There were 15 major food recalls in the U.S. last year, with producers only able to recover 40% of the product. Such recalls can also reduce shareholder value of the producing company dramatically. Increased regulations that vary by region indicate additional needs for:
• Accurate data capture,
• More details on sub ingredient compositions,
• Integration of compliance validation,
• More granular lot-tracking
• Timelier reporting and traceability.
Competitiveness comes from the flexibility to support constant change. Continual process improvement, flexibility and market responsiveness are now the key differentiators for process manufacturers. This does not alleviate pressure on reliability and quality; it makes them more difficult to achieve.
Variability. Process manufacturers have always needed to factor in variability to achieve quality, market success and customer satisfaction. On the supply side, quality, quantity, current cost and shelf life of inputs are often controlled by the vagaries of mother nature. Formulas and recipes are used to control material and processing based on local market variability and yields. The recent advent of biofuels introduces competition for supply, as commodities can be channelled into other, sometimes more profitable products. In some cases, process manufacturers have to manage a defined push system of inputs based on existing contracts.
On the output side, constantly changing markets, channels and demand patterns require more adaptability to meet or create market trends. This, in-turn, requires more demand-focused or pull-driven production and higher-mix scheduling. Production strategy must be able to accommodate higher mix with either higher or lower volumes An increasing trend toward increasing outsourcing of manufacturing to external co-packers introduces more exposures for uncontrolled variability, since external manufacturer systems lie outside internal process control systems.
Continued in Part 3
Pharmaceutical manufacturers are scrambling to comply with impending global legislation that will mandate sweeping changes to packaged drug coding and marking operations. With major upheaval in the industry – pressure on patents, counterfeit products, greater complexity in releasing new medications, and a spotlight on manufacturing efﬁciency – drug companies face more challenges today than at any other point in history.
Pharmaceutical ERP: The Key to Traceability (Part 1)
For companies that produce medications, track and trace capability is no longer a valiant goal – it’s a critical requirement. Even if there was no compliance issue at stake, no one wants to put a single person at risk, let alone tens, hundreds or thousands. Yet, incidents of medication-related illnesses show up in the news every day. Amid demands for more stringent legislation for “end-to-end traceability,” pharmaceutical manufacturers struggle to adequately track and trace their products.
The “trace” part of the formula is visibility into where a product has been, looking backwards at the inbound supply chain of ingredients and materials. “Track” refers to understanding product location as it moves forward through the distribution chain. While some believe that “track” and “trace” are independent of each other, experts indicate they are interdependent.
Consider this: if a toxic product turns up on a retail shelf, it’s imperative to have a thorough understanding of every stop along the way, not just from your door to the retailer’s hands, but also inventory handling, inbound supply shipments, your suppliers’ handling and production, their suppliers’ harvesting and production, and so on. To meet rigorous traceability requirements, manufacturers must arm themselves with the right tools, processes, and insight to uncover and report every element along the supply chain – from origin, all the way to the shelf or provider. And, the cost of all this insight can’t be a barrier to enterprise ﬁnancial success. Pharmaceutical manufacturers face risks that are unique to their industry; medications begin with formulations. So should your ERP system. If you’re ready to take traceability to the next level, there are a few things you’ll need to know.
#1 — NOT ALL ERP IS CREATED EQUAL . If you’re using an industry-agnostic ERP system, you probably have some insight, but likely not enough. Since most manufacturers don’t need end-to-end traceability – that is from absolute origin to ﬁnal dispensing point – the average ERP system generally provides only one level of trace in each direction. With this scenario, a drug maker’s system would only provide detail about their direct ingredient distributors. But, what about the facilities that produced the binders or capsules? What if any one of them had a problem along the way? Moving even further back in the supply chain, it’s anybody’s guess about the plant growers or chemical formulators. Without the ability to trace an unlimited number of points along the supply chain, it could take weeks or months to pinpoint problems. Meanwhile, your business could face massive ﬁnancial devastation due to complete recalls, lost inventory and liable actions.
Continued in Part 2