January 2005 | Case Studies | I.T. Toolkit

Got Milk? ERP System Lets You Know

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Milk processor Milnot takes control of inventory with an ERP system designed for process manufacturers.

Manufacture an electric razor or a bottle of shampoo and, in a sense, you end up with the same thing in both cases: an item consumers pick up at the store, pay for, and carry home.

But the steps for assembling parts into a razor or blending ingredients into shampoo are quite different. And companies engaged in these two kinds of production—discrete manufacturing from components, and process manufacturing from ingredients—have different information technology needs, says Scot McLeod, vice president of marketing at Atlanta-based software company Ross Systems.

When software developers first introduced enterprise resource planning (ERP) systems for manufacturers, discrete manufacturing presented the larger opportunity. So most of the applications were designed around a bill of materials and routing, "giving manufacturers the pieces and parts that needed to be put together, then defining the order in which to put them together," McLeod says.

In process manufacturing, instead of assembling parts the producer mixes ingredients, perhaps heating or cooling them, or otherwise changing their state. To complicate matters, ingredients may vary in composition. Milk, for instance, comes with higher or lower percentages of fat and water, depending on the time of year and what the cows have been eating.

"If process manufacturers use a system originally designed for discrete operations, they will have difficulty maintaining their recipes and formulations," McLeod says. "Imagine having to carry a separate part number for the final product every time the attributes change—this is basically what they have to do."

Meeting Standards

In the post-Sept. 11 world, process manufacturers face yet another challenge—the need to meet standards defined in the Bioterrorism Act of 2002, which requires food processors to keep records on the sources of their ingredients and packaging, and the destinations of their finished goods.

If the U.S. Food and Drug Administration (FDA) believes the food involved poses a health threat, the processor must be able to trace the sources of the ingredients in a contaminated lot, and identify who received finished goods made from those ingredients. The company must produce this information—a function known as "lot tracing"—within four hours during weekday business hours, and eight hours otherwise, so officials can conduct a recall.

Where's the Pork?

Tracking the sources and destinations of food ingredients is difficult, "because of all the mixing and blending," McLeod says. "And processors create intermediate products that then go into further products."

For example, pork produced in a slaughterhouse is shipped to a sausage manufacturer, and the sausage produced there is then shipped to another company that makes frozen pizza. If the pizza makes someone sick, the processor must trace that sausage back to its source, and locate any other products containing meat from the same batch.

To address these challenges, Ross Systems developed iRenaissance, an ERP system designed for process manufacturers. The suite includes modules for managing financials, customer service, manufacturing, performance, product, suppliers, quality and regulation, and supply chain.

Companies using iRenaissance include manufacturers in the food and beverage, life sciences, chemical, metals, and natural products industries.

The Milnot Company, a St. Louis-based manufacturer of evaporated and condensed milk, began using iRenaissance in 1997. Among other benefits, the company gained greater control over its inventory, nearly eliminating both outages and write-offs for excess stock.

In 1998, Milnot acquired Beech-Nut Baby Food, which soon afterwards implemented the iRenaissance financial modules. Last July, Beech-Nut began using the rest of the iRenaissance suite.

Before implementing iRenaissance, Milnot used numerous separate software packages to run its manufacturing operation. Because these applications weren't integrated, employees transferred data from one system to another by rekeying, or by using data export/import functions. The transfers didn't always work correctly, allowing important data to fall through the cracks.

"Somebody would update something in one system, but it never got updated in the other modules," or else the update took time to occur, says Connie Huck, Milnot's controller.

This left the systems perpetually out of sync. When the company received a large order for evaporated milk, for example, the software that controlled packaging inventory wasn't notified until it was too late. "We often ran out of packaging. We never had the right labels in stock. Inventory wasn't correct," Huck says.

When it came to monitoring milk inventory, human error sometimes got in the way. Milk is measured in pounds, and "if the pound key was punched incorrectly, or if employees punched a different unit of measure, we had trouble balancing our milk," Huck says.

Milnot also lacked the information it needed to conduct a quick lot trace. "If we knew what product to recall, we would look at the last invoices to find out how many cases of that product were produced," Huck says. "Then we called it all back."

The company distributes milk under its own name, and makes private-label products for stores. Milnot-branded cans were especially hard to track down because the company shipped them to multiple customers.

"Our recalls are very, very seldom," but conducting one using the old, highly-manual process took as long as two days, she says.

Right Size, Right Price

When Milnot decided to replace its disparate applications with an integrated ERP, it chose iRenaissance largely because of the pricing, Huck says. With $90 million in annual revenues at the time, Milnot didn't need, and couldn't justify investing in, any of the big-name ERP systems.

The Ross Systems product was a better fit. Also, iRenaissance is "straightforward and simple. Company officials thought it was user-friendly enough that everybody could make the transition smoothly," Huck says.

Now that all of its management applications are integrated, Milnot's employees have complete visibility of orders and inventory.

Because the system is web-based, with access available through any computer equipped with a browser, anyone who needs to view data in the system can do so, whether they're in the St. Louis headquarters, in the Milnot production plant in Seneca, Mo., or on the road.

"Everybody has visibility of our customer shipment data," Huck says. "Employees can see what's occurring at any point in time, and production planning can be done correctly."

The company no longer finds itself short of stock, and it no longer has to write off large volumes of unused inventory. Milnot used to accumulate some $200,000 a year in write-offs. "This year it was $1,700," Huck says.

From 48 Hours to One

By automating lot tracing, the system helped Milnot cut the time needed to locate questionable product from two days to one hour.

Instead of poring over paper invoices, "we're now able to key in the lot number and see who got the product in question, and where it was shipped," Huck says.

This is possible because iRenaissance tracks the milk from a particular lot—usually a tank truckload—through the manufacturing and distribution process, McLeod explains.

One lot of milk might be divided into different batches to make different products, such as condensed milk and evaporated milk. Some of those finished products might be packaged with the Milnot label and shipped to different stores; others might be packaged for sale under a private label and shipped to a single customer's distribution center.

"Because we track lots through the stages of the system—all the way to customer delivery—we're able to hit a button, put in the supplier's lot number, and have the system automatically generate a disposition list," McLeod says.

"We can see if some of the lot is still in inventory; if it has been used, but is in intermediate products; if it's on the manufacturing floor; or sitting in finished product in inventory, waiting for shipment to customers," he continues. "And we can tell if part of it has already been purchased by a customer and shipped out."

Because Beech-Nut has been using the full iRenaissance system only since last summer, Milnot has not yet evaluated the benefits the software provides to that business, Huck says.

Beech-Nut has always kept a tight rein on its inventory, so its goals with the iRenaissance system lean more toward increasing efficiency in the manufacturing process. This is a challenge for the baby food manufacturer because the fresh fruits and vegetables that go into its products vary in composition, much as milk does.

What's Next?

Milnot's plans for the future include making better use of the supply chain management functions in iRenaissance by implementing production forecasting.

While the product portfolio is relatively small, Huck says, "we've got 200 SKUs, and, with seasonal production, we have to make sure we're making the right products. We need to make sure we have the right inventory on hand."

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