DSI Blog

Why Doesn't Traditional ERP fit the Dairy Industry

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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:

1.  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.

2. 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.