Managing the big four variables in food and beverage manufacturing
Food and beverage manufacturers face a critical business need to adapt to production variability. These variables that play a major part in processing operations include quality, quantity, expiration and cost. Note the following specifics related to each variable and how a specific enterprise resource planning (ERP) solution could address associated challenges.
- Quality: Receipts from day to day vary in quality; for example, the percentage of butterfat for a dairy product, Brix in sugar for a beverage producer, or protein and fat for a meat processor. This affects what outputs can be produced from a set quantity of inputs received. Having an ERP solution that can recalculate recipes or bills of materials based on input quality is critical.
- Quantity: Any given day, food manufacturers receive products directly from farms or commodity processors and are required to adjust their production to accommodate what is actually received each day and the quality factors mentioned above. Having a forecasted demand for the week is key; for example, in the case of a processor that must adjust production because of an extra 2,000 pounds of raw inputs received under a commodity contract. Forward scheduling is essential to managing shifting quantities. This effort goes beyond traditional material requirements planning. An ERP system can address this forecasting demand challenge.
- Expiration: Consumer demand pushes and pulls the food processor for certain products throughout the year. Some products sell evenly, while others do not. For instance, food products like sour cream during the holidays or ice cream in the summertime exemplify the seasonal highs and lows of raw milk demand, and involve balancing the shelf life of the product with varying uneven demands throughout the year. For meat processors, contracts require them to deliver a product to stores with a certain remaining shelf life. Having inventory tracked, not by last-in, first-out or first-in, first-out, but by a first-expired, first-out system is critical. This, along with an ERP allocation system as part of order management, is critical in ensuring the right product and code dates are going to the right customers. This saves the processor not only in returns, but also reduces the need for selling products below market due to expiration dates.
- Cost: Costs can vary monthly, daily or weekly depending on the ingredients. Having an ERP solution can help manage various costing scenarios, allowing for substitutions in production planning simulation based on cost and variable recipes, and allowing food and beverage manufacturers to be nimble and make day-to-day changes to minimize cost and price changes, and maintain margins. Examples of this include butterfat cost changes at dairies, commodity meat pricing for varying lean percentages of ground beef, cooking oil and other commodity inputs. Varying the type of beef used to make an 85 percent lean hamburger could mean as much as a 3 to 5 percent margin variation. Similarly, cooking fried snack foods in differing oils could change the end product quality and affect costs and returns. Managing these scenarios and allowable substitutions is a daily activity for food and beverage manufacturers.
ERP systems are not all the same. While researching the systems for your food and beverage business, look for critical functionality such as production recipe, cost and execution capabilities like the ones described above.