Don’t Pay the Price for Ignoring Co- and By-Products

November 20, 2012

For food and beverage manufacturers, by-products are the unfortunate leftovers of producing valuable products and co-products. By definition, by-products are the manufacturing outputs that can’t be resold, repurposed or reused. They’re refuse.  By-products don’t add anything to production except effort and cost. It’s tempting to just ignore them and simply write them off as the cost of doing business.

But we all know by-products don’t just go away, and in most cases food and beverage manufacturers understand they ignore by-products and their costs at their own peril. There’s a price to pay. In some cases, the costs of not dealing with by-products properly are regulatory, environmental or safety problems and penalties. In other cases, the costs are less onerous, usually not knowing the true costs of production or misstating your real margins on products and co-products. Most food and beverage manufacturers must deal with both the internal and external impacts of producing by-products.

Fortunately, Microsoft Dynamics AX 2012 for the food and beverage industry makes identifying, tracking and accounting for by-products a straightforward, well — by-product, of planning and managing production. With a little preparation and forethought, Dynamics AX will help you capture critical by-products information during manufacturing and use that information to calculate the costs of by-products and handle any required regulatory reporting.

To effectively manage by-products in Microsoft Dynamics AX, you need to follow a three-stage process:

  1. Identify by-products resulting from the manufacture of a product, gather the data that describes them and define these by-products in Dynamics AX;
  2. Systematically capture production data as you manufacture products and co-products and produce the by-products; and
  3. Pass the collected data to the appropriate Dynamics AX functions, evaluate it and incorporate it into internal analyses and external reporting.

While these steps over-simplify things a bit, it’s basically the same process you follow in defining and using any set of data within Dynamics AX. Each of these steps includes a number of subsidiary tasks and involves decisions and potential mistakes that could affect the quality of the resulting information and external reports. Fortunately, none of the tasks or decisions is very difficult once you understand your data, your requirements and the steps you need to follow.

In most cases you can easily identify the by-products and co-products resulting from the manufacture of a product because your company has been manufacturing the product for some time and you can find the information on the production floor or gather it from those familiar with the product. Don’t assume all by-products are identified in the recipes or formulas you’ve been using. Often if a recipe or formula has been used for a while, final products and co-products are readily identified, but obvious by-products such as waste water may have been eliminated or overlooked. These by-products or either known to everyone and assumed to be accounted for in the burden assigned to the product and co-products, or they’re considered too trivial to matter. Before you decide to ignore any possible by-product, make sure you’ve investigated and identified what it really costs, not just what everyone assumes it costs. As labor, transportation and utility rates rise, so will the costs of dealing with by-products. They may no longer be as trivial as originally assumed. In investigating the by-products of a process, you may also find some that have been unknown or overlooked until you took the time to find out.

For new products or products that are being manufactured in a new way the initial information you’ll have will be projected by-products and costs. In most cases these will be identified in the proposed recipe or formula or in the planned production processes. As with existing products, don’t assume this is true. Walk through the recipes and processes with the product developers and process engineers to ensure you understand the details completely and that nothing has been left out. Make sure the costs of disposing of the by-products have been accurately estimated. Once the product is in production and you have experience with the processes and have captured actual production data, revisit the original estimates and adjust them to reflect the real results.

In the next segment we’ll discuss how to define by-products in Dynamics AX. After that, we’ll explore how to use the resulting production data to generate accurate compliance reports and build an understanding of the true costs of the by-products.

 

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