We are now more than 20 years into a business world driven, in good part, by ERP systems and the efficacies they enable. (The term “Enterprise Resource Planning” was first employed by the research and analysis firm Gartner Group in 1990 as an extension of MRP—first, Material Requirements Planning;  later, Manufacturing Resource Planning—and Computer Integrated Manufacturing. While not supplanting these terms, ERP has come to represent a larger whole.)

A recent survey of CIOs indicated that ERPs were “essential to the core of their businesses, and that they could not live without them.” They also acknowledge that many of these systems are out of date technologically, or, in the case of those that have newer systems, troublingly expensive with customization and maintenance costs. It is time to consider the questions: is your business running as well as it should be? If not, why not? Your current ERP system may be the dynamo it was intended to be, but if it has become outdated or outrageously expensive to operate—a dinosaur or a devil in the making—chances are it is doing more harm than good in today’s increasingly contested global competition. Regardless of your business or industry, the time has come to examine your ERP system dispassionately.

• Should you continue with your current system?
• Is it time to upgrade?
• Is it time to change?

These are not easy questions to answer. In part one of a multi-part post, this article is designed to give you an overview of what needs to be considered as you go through this interrogative—and potentially invigorating—process.

Why Consider Change?

To survive and thrive in today’s marketplace, companies must improve and streamline their operations and business processes to increase productivity, drive down costs, and foster innovation. These were principal motivating factors in the original implementation of ERP systems. Even as those systems have changed and evolved, ERP’s importance to business vitality has increased as competition has expanded. In a period of upheaval, such as the one we are living in, change is the norm and should not be postponed but rather embraced.

While ERP systems were designed to improve business processes, they sometimes impose bad ones. As you gauge the effectiveness of your current ERP system, do so in light of your core business processes. Is the system facilitating efficiencies and greater productivity, or is it forcing action based on its own structure?

Initial ERP systems were often inflexible, forcing organizations to bend their business processes to the needs of the software rather than the needs of the business. Or the software required significant, expensive, and time-consuming customization to gain a little flexibility. When business processes evolve and software remains static, a chasm emerges between the original implementation and the changing requirements of the business. This may continue over time to the point where the ERP system becomes an impediment rather than an enabler—in other words, dysfunctional.

Many companies with older ERP systems have augmented them with other software to gain functionality that was lacking in the initial ERP System implementation but subsequently deemed necessary. The data from these newer systems must integrate into the existing ERP System, and in numerous instances this has proved costly, problematic, or both.

Integrating data to ERP systems from these reactionary systems can be challenging, as even before their addition, data migration to ERP was often given inadequate atttention due to its typical position in the production phase of implementations.

As ERP systems evolved, the problem of integration has been addressed by the expansion of functionality. The idea is to replace standalone systems—and eliminate siloes of information—with the capabilities inherent in the new ERP System. Independent software vendors have also developed industry-specific modules that are tightly integrated to the core ERP application. As companies have persisted in their need for third-party applications outside of core ERP, ERP vendors have developed application interface tools (APIs) designed to ease integration challenges.

Access to both resources and support personnel is also an issue that demands consideration. As you assess the technology of your ERP system, consider where the vendor will be ten years from now, and what kind of support will be available at that time. Ongoing support must be a given if you are to stay with your current ERP system technology, just as your own organization’s ability to change must be considered if new technology is to be implemented.

Remember that when you purchase an ERP system, that purchase is not static but dynamic: the product, the vendor, and their relationship with your organization must develop and support your goals through the years to come.

Your ERP system’s ability to provide the reports and information is another important aspect to consider in evaluating current system status:

• Are you getting the reports and information you need to run your business effectively?
• Can users run their own reports queries or do they need to turn to IT for support?
• If so, what are those costs in terms of time and labor to develop these custom reports and inquires?
• How easily can you access reports and inquires?
• How easily can you export them to desktop applications like MS Excel?
• Is the information you’re getting real-time, actionable, and easy to understand?

Often a company will experience pain, or even failure, because during its planning, reporting tools and inquiries were not considered as important as other system components.

Many companies have no idea what the total costs are to operate their ERP system because only a handful of the costs are quantifiable. Hard costs (e.g., license fees, maintenance fees) can be easily expressed and are readily available, but soft costs are more difficult to grasp, and can be very costly in terms of labor, productivity, and time. In fact, if you were to just look at hard costs, a new ERP system will almost always appear to be a more expensive option than staying with the current one. But when total cost of ownership is evaluated, accounting for both hard and soft costs, a new system may be warranted because of the productivity gains, time savings, and increased revenue opportunities that a new system brings.

Weighing the costs and benefits of retaining an existing ERP system against the costs and benefits of changing to a new one is something that companies will do sooner or later. If your current business environment has you thinking sooner is the better of these options, then there is a methodology to follow that will inform the decision you must make—a decision that will have a shaping, and perhaps decisive, influence on the future course of your business.

Next Time/Part 2: The Process of Examination:  Detailed Steps To Determine if You Should Keep Or Replace Your Existing Solution

The world is risky enough—if your company is considering a new ERP system, consider the safest bet on the market: Microsoft Dynamics AX 2012.

Join us live on September 8 and see the new safe and powerful ERP system for discrete and process manufacturing and distribution companies in one of these cities:  Minneapolis, Dallas, Irvine, Portland, Charlotte, Grand Rapids or Cincinnati.  We’ll also hold launch events in Atlanta on September 29 and Boston on October 4.

Each launch event will be held at the local Microsoft office in each city, and will feature Dynamics AX 2012 highlights from Microsoft CEO Steve Ballmer, insights from Gartner Group ERP Analyst Nigel Montgomery, plus the opportunity to see AX 2012 in action from both a high level and industry-specific perspective.

All attendees will be able to take advantage of special Dynamics AX 2012 offers from event sponsors Sunrise Consulting and Edgewater Fullscope. Each attendee will also be registered to win free Xbox Kinect system.

If you have any business manufacturing processes that are causing you enough pain to consider looking a new enterprise resource planning system within the next two years, come see what is in Microsoft Dynamics AX 2012 and how it may be able to help make your job easier and your company more profitable.

Visit http://bit.ly/axlaunch to learn more or register.

With potency pricing, a manufacturer sets purchase pricing and inventory value based on the received material’s active concentration (i.e., potency) or some other quality-controlled values (fat content, protein content, etc). This is a key requirement for process industries where low margins require costing and margin analysis at the lot level. It’s required in industries such as dairy and feed which measure and pay based on butterfat content or protein content, and is standard business practice for pricing precious metals. This is equally applicable to any process industries company that manufactures or distributes high valued, active ingredient based products.

Common enterprise resource planning (ERP) solutions price materials according to linear pricing schedules, but in process industries, multiple factors come into play in determining compensation for a supplier. The Fullscope Process Accelerators:

• Provide a flexible formula that allows companies to pay suppliers based on actual quality results for potency.
• Assign actual inventory value for each inventory lot that is potency-controlled.
• Help record more accurate margins based on the actual potent value of materials sold or consumed.

Using milk again as an example, a typical dairy producer will send a tanker with paperwork specifying that this tanker of milk has a certain stated butterfat and protein content. But the manufacturer, the buyer of the milk, wants to run their own tests because the agreement is that payment will be made based on the manufacturer’s quality analysis result. Or, payment could be based on the average of the milk vendor’s value and the manufacturer’s value: the buyer and supplier can meet halfway.

A typical ERP solution pricing scheme won’t address that scenario.

Fullscope Process Accelerators use an advanced pricing formula that gives the manufacturer the ability to define which characteristics are going to drive the price. It can be the concentration alone or multiple characteristics of an incoming shipment. The formula applies equally well to chemicals, food, or metals. The system will calculate a price and hence the inventory value based on those user‑defined characteristics.

A large part of our Process Accelerators’ elegance and utility comes from flexibility: even though the metals industry will use a different formula than those used by the dairy or chemical industries, each can build their own formulas easily.

Lot Genealogy and Traceability

Lot genealogy is the ability to automatically transfer properties of a raw material lot to a manufactured item’s lot. An effective lot genealogy system must transfer key lot characteristics. For example, a manufacturer may use a metal coil that has a certain alloy content and mechanical strength. If this coil is cut into a smaller one, those properties need to follow the smaller coil as well. Sometimes this is referred to as parent-child inheritance. A manufacturer wants the characteristics from the original coil to carry over into the product that ultimately contains the small coil. They also want to be able to transfer shelf life information. There are rules about combining materials with different shelf lives into one package. One should take the earliest individual material shelf life and make that the expiration date for the overall product.

Genealogy applies to two things: first, the attributes or characteristics, and second, the shelf life. Both need to be carried over. In a formula where the raw material defines the shelf life or the characteristics, the finished good, which will consume the raw materials, needs to inherit the properties of its raw materials.

Here’s a bit of terminology: an end item is a typical formula where something is consumed and made into a finished good. A co‑product occurs when an end item is produced, but there is also a co‑product that can be used for some other purpose—either to resell or to use in another production process. Take, for example, a jumbo roll of paper 60 inches wide. A manufacturer may cut five 11-inch rolls out of it, leaving 5 inches of trim. That trim is a co-product. It’s still good and can be reused or re-blended to make more paper.

Fullscope Process Accelerators set lot genealogy at the formula level and allows inheritance for both end items and co-products.

Product Sequencing

The Process Accelerators also add key capabilities to Dynamics AX in this arena. It adds functionality that considers demand for a product having a certain characteristic such as color, flavor, or package size that can prove problematic if produced out of sequence; or, conversely, it may prove more cost effective if sequenced properly.

Consider paint production. Sequencing from light to dark (white-yellow-green-blue-red-black) can minimize cleanup and setup during changeover. The Fullscope Process Accelerators allow manufacturers to define an optimum sequence based on prioritization of simple or complex characteristics of the product.

So What’s the Takeaway?

Process manufacturers focus their business activities around the development, manufacturing, assembling, and selling of products and the delivery of related services. The defining characteristic of process manufacturing—namely, that once a process manufacturer produces a product, that product cannot be reduced back to its constituent parts—makes control of the manufacturing process critical and risk-intense.

By providing more powerful functionality to Microsoft Dynamics AX ERP, Fullscope Process Accelerators help strengthen the already strong position of Dynamics AX among mid- to large-sized process manufacturers in the chemical, pharmaceutical, food processing, pulp and paper, metals, and cosmetics/health and beauty segments. It does so by leveraging three key areas—potency, lot genealogy, and product sequencing—to mitigate risk, provide more efficient and effective control of the manufacturing process, and improve both asset valuation and margins to better compete in a demanding global marketplace.

Process manufacturers purchase products that have a certain active ingredient; for example, a drum of raw material whose potency is 75 percent means that 75 percent of the material in the container is active. The balance is filler or an inactive ingredient such as water or some other stabilizer that makes storage, use and transfer of the active ingredient safe and possible.

What manufacturers really care about is how active the ingredient is: its potency. Process manufacturers pay their raw materials vendors based on the concentration of what they receive. All production recipes are based on a specific nominal concentration of the material being used; inventory is valued based on concentration.

Fullscope’s Process Accelerators for chemical, food and beverage and life sciences industries extend ERP system Microsoft Dynamics AX by adding a number of fields around potency to improve its definition and automate its use in the manufacturing process. Key among these fields is “base attribute,” a generic term that refers to the key active characteristic of the product. Another is whether the attribute is fixed (i.e., can it or can it not be altered after the value of the base attribute is set?). A third is “adjustment principle,” which indicates which type of potency calculation or concentration adjustment (difference additive, compensating ingredient, or filler) has been used for the recipe. Finally, how the attribute value is to be recorded (e.g., inventory receipt or lab verification) is documented.

At the formula level, the Process Accelerators allows a target concentration to be set with the Dynamics AX ERP system. If what is available in inventory does not meet the established concentration of the recipe during batch production, the Process Accelerator will suggest adjustments accordingly based on the actual concentration of the selected active ingredient.

In the process industries, there are three types of concentration adjustments: one is called “difference additive,” simply consuming more or less of a material based on its concentration; a second is called “compensating ingredient,” where a quantity of a second ingredient is added according to whether the concentration of the active ingredient is over or under specification. (For example, water is added to compensate for the level of acidic acid in vinegar production.)  The third adjustment is simply adding “filler.”   Consider prescription medication. An ibuprofen capsule may need to be 300 mg, but the active ingredient (i.e., ibuprofen) is not 300 mg. Filler is added to the active medicinal ingredient to comprise the 300 mg capsule.

Fullscope Process Accelerators use this information to provide Batch Balancing to speed and improve production. In Dynamics AX ERP, a batch formula is defined interactively based on the concentration of a key ingredient or ingredients. The Process Accelerator picks inventory lots based on current potency, automatically calculates the required active ingredient, determines the quantity needed for the compensating ingredient or filler, and finally creates a material consumption transaction based on the adjusted formula.

This is a very common scenario in the food industry, where, for example, a manufacturer is producing a batch of yogurt. If the butterfat content of the milk is more or less than required, a quantity of water or skim milk needs to be added. For a host of reasons, companies don’t want the operator to have to do the math for that calculation. Therefore, the Process Accelerators automate the process and makes it simple for the operator to come up with a properly balanced set of ingredients. As each batch is launched, each Process Accelerator provides a screen for the operator that shows every ingredient and its actual concentration. It shows batch number, quantity, and attribute value. Depending on which inventory batch or lot is selected, when the operator hits a button to balance batch ingredients, the system automatically rescales the formula based on the lots selected. This procedure helps ensure quality, reduce costs, and eliminate waste.

Watch Next Month for:  Potency Pricing, Lot Genealogy and Traceability, and Product Sequencing

While the process manufacturing market is typically categorized as large and mature, it remains one of the most competitive and dynamic segments of manufacturing. In today’s frenetic global markets, process manufacturers must evolve to meet the challenges of changing market demands, the increasing commoditization of products, and the volatility of pricing in energy and raw materials.

Industry analysts define process manufacturing as in the middle of a transformation in which established systems with deep functionality on older technology are being displaced by more sophisticated and agile systems. A modernization is clearly underway.

The stakes have never been higher for process manufacturers as they replace or upgrade their systems: they need to boost quality, efficiency, safety, and regulatory compliance for maximum productivity and process control. For the major process segments including chemicals, pharmaceuticals, food processing, pulp and paper, cosmetics and metals (industries whose business model is typically high volume, low margin), the ability to improve margins and to cost product and inventory based on the active ingredients central to their recipes are key to maintaining and improving competitive vitality.

Microsoft Dynamics AX is a leading ERP system for process manufacturers that offers broad and robust functionality, and it delivers low TCO through integration with other Microsoft products and technologies.

A new offering from Fullscope takes industry functionality to a deeper level. New Process Accelerators for Microsoft Dynamics AX provides powerful and detailed capabilities to help food and beverage, chemical and pharmaceutical manufacturers achieve the following:

• Manage active ingredients throughout their operations by enabling them to buy raw materials and cost finished goods more precisely by potency.
• Scale formulas up or down, automatically, by the identification of potent ingredients.
• Track lot inheritance.
• Define product sequencing, which is evaluated based on multiple characteristics, to reduce downtime and changeover costs in the production schedule.

Each Process Accelerator has been designed to address complex processes through an easy interface to automate activities as much as possible to reduce error.  Each one also provides flexibility for a manufacturer’s procurement, design, and regulatory compliance personnel so that they can easily value their inventory of materials for potency-dependent products, address factors that influence production, and trace with precision what was used in the production process. The idea is to automate processes for production and traceability as much as possible.

The Fullscope Process Accelerators for each industry integrate with the Process Industry layer of Microsoft Dynamics AX and provides new functionality concentrated in three basic areas:

1. Potency, including automated batch balancing for raw materials and potency-based purchase pricing
2. Lot genealogy
3. Product sequencing

This article uses the word “potency,” but some process industries may use the terms assay, concentration, or even others. The underlying technology in the Process Accelerator supports these potency-like types of requirements found across the chemical, food and beverage and pharmaceutical industries.

Coming next month:  The Power of Potency

With Microsoft Dynamics AX, users have the ability to filter by numbers, words and/or dates. For example:

1..10 finds all the values from 1 through 10

1/1/2009..12/31/2009 finds all dates between 1/1/09 and 12/31/09

!Smith finds all except “Smith”

..1000 finds any number less than or equal to 1000

1000.. finds any number greater than or equal to 1000

<1000 finds any number less than 1000

>1000 finds any number greater than 1000

A,D finds “A” and “D”.

To retrieve the saved query, press Control F3 on the form and click the drop down list box on Select Query and select the saved query. Click OK to apply.