In the last newsletter I tried to address why traditional Enterprise Resource Planning (ERP) systems have difficulty fitting the dairy industry. In summary these include:
- The nature of dairy as a “batch” process industry versus discrete or process industry.
- Use of item codes to describe product attributes – while butterfat and non-fat solids are a part of cream they are not separate item codes for inventory or costing purposes.
- Dairy Costing 101 – with several class prices not being known until after the month is over, it is difficult at best to know what it costs to produce your product.
In this article, I will describe how DSI handles these important but unique aspects that make dairy so difficult for software systems to track and support.
Dairy as a Batch Process Industry
We realized long ago there were two pieces to the dairy manufacturing process. The first is what we call the hard side inventory items (plastic caps or packaging). This side can be handled by most ERP systems that allow users to update formulas with actual production. The second piece that is unique to dairy and represents 60% - 85% of the product cost is the diary liquid side of the equation. Dairy liquids are always different run-to-run and these differences should be captured and used for shrinkage, yield and costing to get a true picture of a plant’s efficiency.
Dairy liquids are also unique because the actual tests for most runs of dairy liquids are not known at the time of production. This is because the samples have to be processed by the lab; it is often the next day before the test information is available. Many systems can’t function or report accurate production information on the component level. So if there is a shrinkage problem at the butterfat level, it just shows up in the monthly financials and the accounting department starts trying to isolate its product loss in spreadsheets that either go nowhere or are difficult to follow for plant personnel.
The DSI system solves these requirements by having separate functions and rules for dealing with dairy liquids and hard side items. We do this behind the scenes to provide a user with a single interface.
Components as Item Codes
The great work around in most ERP systems for components is to provide an item code for each component. In DSI’s system, the user can report the amount of milk taken to the filler. We track components as attributes of the dairy liquid and the component test(s). This allows plants to track their product shrinkage at both a total pound and component level. True shrinkage tracking throughout the plant!
Dairy Costing 101
This is probably the area of the greatest frustration for plants I visit. The accounting department goes about preparing the financial statements. It then invests another three to five business days each month (sometimes much more) trying to create costing for the dairy products because the manufacturing system can’t handle or support dairy costing. Why?
- The cost of dairy liquids used in production is not known due to timing of the class announcement.
- The exact quantities used in a batch or day are only estimates from a formula.
- A pound of butterfat used for a Class I product is not the same cost as a pound of butterfat in Class III.
The whole purpose of the accounting department is to analyze the information from the manufacturing system, not create it.
The DSI production system has separate functionality for dairy liquid tracking and costing. The system allows users to update both the dairy liquid quantities and tests for a period up to 30 days after the production period month end. This can be done without affecting production or shipping of the product. Furthermore, the costing system allows the user to cost the dairy liquids used on blend, skim/butterfat, or multiple component pricing methods or any combination of these and will compute the FMO class utilization settlement amount for the period, if desired. We do this by allowing costing to be done at the component level within the dairy liquid.
Thus, if the butterfat in a run of ice cream mix was made from cream or milk the system will use the Class II butterfat cost plus a premium dictated by the procurement department to determine what the dairy liquid cost was in that mix. The user can then compare the true cost of the dairy liquid to standard costs determined by the accounting department. In light of the roller coaster prices, dairy has experienced over the last few years, this feature is extremely valuable and powerful.
The last piece of costing is that users can cost or value their product based on market prices plus a premium and take into account other cost factors such as storage and transfers. This is predominately useful for cheese manufacturers – particularly those that age their product.
In summary, the whole point of the ERP system is to provide better information without adding extra personnel. We believe that if you look under the covers of most ERP software you will see what makes DSI’s solution unique and able to provide your company with a quicker return on investment.
This is a fairly common question right now in the dairy industry. More than at any time, management is looking to know what did it actually cost to produce a product. I refer to this as the “retail consolidation effect” as margins continue to put pressure on manufacturers. It started in other industries and is starting to ripple through the dairy industry.
To get at the true cost of a dairy item, unless you are a cut/wrap operation or wholesale distributor, you eventually have to arrive at the tracking/costing of milk and dairy liquids at the component level. This is where the whole issue of dairy and traditional ERP (Enterprise Resource Planning) systems quickly become complicated.
We have seen a variety of ways traditional ERP systems have attempted to track dairy liquids at the component level and I will share my thoughts on why it is so difficult:
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Dairy is not a discrete industry nor is it a process industry like the beverage industry. It is batch process, a hybrid of both. I firmly believe that if your software vendor describes the product formula as a standard bill of material, it is an indigent choice. Ultimately, it won’t fit or provide you the information for accurate costing of your products.
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Butterfat is not an item number. The most common method of trying to accomplish dairy costing in a traditional ERP system is to set-up item numbers for butterfat, one for protein, etc. Sometimes people end up with Class I butterfat or cream butterfat etc. The reason being, that without giving a separate item number, you can’t cost the dairy liquid. This creates a lot of extra product formulas with countless detail records, this forces you to revisit how to create meaningful reports at the sub-assembly level for them to make sense to a user. Next, you have to deal with item substitutions in a method that makes sense. If your product calls for milk butterfat, what do you do if the product is made with butterfat from cream? In a large sense these item transfers require personnel time and effort that really does not provide value, but is required for the ERP system to balance and provide any realistic information.
3. Dairy pricing and timing –many ERP systems have to know the price of the product at the time it is ordered for the system in order to cost the item. As we all know, this is not the case in dairy. There are plenty of instances where the product is sold to the customer before the cost of the dairy liquid is known. In a traditional ERP system, these are captured as pricing variances that then flow through costing in a variety of mechanisms. Some are quite sophisticated, however at the end of the day this is more work than value.
The whole point of the ERP system is to provide better information without adding extra staff. In our next newsletter, I will discuss how our manufacturing systems deal with the three key aspects that make dairy so unique. If you wish to discuss these items or understand further how DSI’s dairy specific ERP solutions might meet your needs, please contact DSI directly at 262-723-5726.
DSI recently attended the North Central Cheese Industry Association (NCCIA) conference in Rochester, MN at the beginning of November. The conference showcased a number of award winning cheeses including this years Grand Champion - Blue Cheese for the Caves of Faribault. The conference showcased a number of award winning cheeses from Kraft Foods, Land O Lakes, First District Association, Le Sueur Cheese, and Bongards Creamery.
Participants had the opportunity to listen to a number of presentations which included a panel discussion and covered topics facing the dairy industry including dairy economics, reducing sodium levels in products, environmental management, and many others. There was also the opportunity to grade the winners of the cheese contest and a formal dinner. The yearly auction was a success, generating almost 5,000 dollars in donations to the NCCIA.
DSI will also be attending both the IDFA Dairy Symposium and the All Star conventions coming up in early 2012. More information on these to come.
Data Specialists will be attending two conferences in the upcoming weeks!
Coming up February 29 - March 4, 2012, we will be attending the The All Star Association 2012 Convention in Indian Wells, CA http://www.allstardairy.com/convention/
Please let us know if you are interested in meeting with Ryan Mertes, President and/or Tom Filak, Sales Manager as they will be attending on behalf of DSI. Call for an appointment at 262-723-5726.
DSI will also be attending the International Cheese Technology Exposition (WCMA), April 10 - 12, 2012. DSI's Booth is #507 -- As always, we look forward to seeing all of you on the road!http://www.cheeseexpo.org/
DSI Customer Conference 2012 will be held May 20 - 22, 2012 at the Grand Geneva Resort in Lake Geneva, WI. Our Customer Conference focuses on the needs of our customers and the further education in the use of our software, including new enhancements. Our key note speakers will address the trends and future of the dairy industry giving everyone a prospective for the coming year. Registration forms will be available mid-February.
The Dairy Business Innovation Center and the Division of Workforce Development recently hosted a workshop focused on dairy processing. The workshop took place in Monroe, WI at Blackhawk Technical College and focused on several employers in the area and what they do on a day to day basis. The agenda included speakers from Roelli Cheese, Family Fresh Pack, Klondike Cheese and Lactalis USA. The workshop also included a tour of Emmi Roth USA (located right next door to the college) which provided an entertaining overview of how they produce their cheese.
The workshop was a great showcase for Green County – all of the presenters had success stories to talk about including expanding their current staff, building additions on to their plants, and introducing new product lines.
For more information on The Dairy Business Innovation Center, please click here:
http://www.dbicusa.org/
Thank you to everyone that attended and DBIC & DWD for putting this together!
June Dairy Month
The original celebration of “June Dairy Month” started back in the late 1930’s as a movement to help include more dairy products in home across the country and to help distribute more milk during the summer months. Today the month is celebrated across the country in a variety of ways: dairy farm tours, local breakfasts provided by farmers or distributors, ice cream socials and sharing of recipes that include dairy products.
Here are just a few examples of how places across the country are celebrating this month:
http://www.wdtimes.com/news/article_8d4d8798-9b64-11e0-9ff1-001cc4c002e0.html
http://wjbc.com/thank-a-dairy-farmer-during-june-dairy-month/
http://www.kansascity.com/2011/06/20/2962059/family-meals-matter-june-is-dairy.html
http://www.brownwoodnews.com/index.php?option=com_content&view=article&id=5513:june-is-national-dairy-month&catid=36:life&Itemid=59
http://www.agrinews.com/farm/bureau/members/bring/farm/to/city/story-3658.html
Welcome to the first edition of the Data Specialists Inc (DSI) blog! This blog is designed to be another way to get information on the dairy industry, new products, services and events being attended by our employees. As we move forward you’ll find links to videos showcasing presentations from our customer conferences as well as other conventions. As active members in the IDFA, All Star Dairy, and WCMA you’ll find that we’re active in events all over North America.
We plan on delivering content that will help you get to know DSI, the people behind the scenes and a look at the future of the dairy business one article at a time. Many of you are familiar with our staff from our quarterly newsletters – this will be a way to highlight and link content that we can’t fit into the newsletter you’re accustomed to seeing. You will see more regular postings and links to electronic versions of our newsletter as we continue to improve the ways we can connect you.
In conjunction with this blog you’ll also have multiple ways to follow Data Specialists online including links to our twitter page, LinkedIn pages, and any other articles that might be of interest to you.
Speaking of twitter here is our handle - http://twitter.com/#!/dataspecialists
You can also find us on LinkedIn at - http://www.linkedin.com/company/2134319
We also would like to help promote dairy across the globe – if you have a story or something you’d like to see highlighted in our blogs or any of our information, please feel free to contacts us. Suggestions are always welcome!
In the spirit of National Dairy Month, the second edition of our online blog series will focus on activities and campaigns surrounding this very important month!