The Problem with Keeping Milk out of your ERP
By: Thomas Filak, Data Specialists, Inc.
In previous articles, we’ve discussed some of the many complications with the dairy industry and the dairy industry. (click here for our popular Dairy ERP piece titled “Why traditional ERP doesn’t fit Dairy”) The complications of dealing with milk in a computer system that is designed for more generic manufacturing are numerous. These systems often cannot account for components, they are not able to deal with delayed pricing, class pricing, liquid inventory, and some even have a hard time with random weighted items. Notice I have not mentioned the concept of federal order reporting and class utilization, either. Generic ERP systems often require work arounds or an enormous amount of custom programming to handle these instances.
How are most dairy companies handling these complications and scenarios? They’re leaving their milk out of their ERP system.
On the surface it would seem this is the simple, easy answer to avoiding a lot of headaches. A more thorough review highlights the short comings of this approach, and the complications it creates. It avoids the complications from custom coding, and most figure that Excel (do we need some MSFT TM symbol here?) is a powerful enough tool to help them with their analysis.
In this approach, the manufacturer avoids the milk complication by picking production up at the point of the creation of a finished good product. There is some manual tracking as production occurs, but it is almost entirely focused on traceability and lot tracking for the purposes of food safety. Hand tracking of milk losses and components is almost non-existent in a good portion of the dairy industry. In nearly every circumstance these numbers – actual loss numbers – are backed into by an accountant on a spreadsheet at the end of a given time period (e.g. monthly).
The spreadsheet approach is a common strategy for most of the customers we see with aging ERP systems. These spreadsheets are often populated a day or two after production is done and entered by hand by someone in the office, and then sent over to finance or accounting. Often referred to as “make sheets” these documents track anything from the amount of milk taken to a vat or separator, all the way to the amount of finished goods inventory created. These “make sheets” are often the blood of the production staff and nearly sacred. While they provide a good source of information, their existence as a reporting tool is limited by both their accuracy and their timeliness.
It’s not just milk – It’s the components.
Tracking a liquid is a complicated task without accounting for the makeup of the liquid. In our industry, the true cost of milk is in the butterfat, solids non fat, protein and solids within the milk. Even if milk is accounted for on a spreadsheet – how accurate is your costing at a component level? Can your spreadsheet account for the quality of each load of milk, each production run, and all of your finished goods?
Can true production efficiency be obtained without accurate shrink calculations?
The “make sheets” we see at the plant level often account for production in terms of what was used, what was made, and lot numbers. What is often lost at the point of production is what was lost. In dairy production, no matter what the product is you’re creating, there is some inherent shrink involved. It doesn’t matter if the shrink occurs due to a CIP, overfill, or one of the countless human errors that can happen between raw materials and loading a truck for shipping.
There are also yield considerations. Every customer we visit has some sort of benchmark for yields, a standard they are hoping to obtain. While most companies are doing yield calculations for each production run or each production day, most of that data is coming from calculations that are being done based upon information gathered from the “make sheets,” meaning that this information is often days or weeks behind when the production actually occurred. How difficult is it to work with your production staff to fix an issue that happened on a Tuesday three weeks ago? The delay in reporting and error rate on these make sheets often causes missed training opportunities to help increase the efficiency of your production floor.
Obtaining true costs is nearly impossible without tracking your milk in your ERP system.
Dairy costing is a complicated and often time consuming process for many of the companies we meet with. The difficulty of balancing the milk that is paid for versus what ends up in your silos is just the beginning of a long and complex calculation that takes in consideration anything from procurement shrink, to production shrink, all the way to cooler or warehouse shrink. Without managing the milk in the ERP system, the numbers for costing calculations come in spreadsheets and handwritten notes. Along with that there are some stray emails noting production variances and another note from milk accounting with final numbers that have been settled on for milk purchases.
Someone in finance then spends a day or two tracking all of these things down, putting it into yet again – another spreadsheet – and goes through the complicated task of making sense of it all. What are the odds that all of this information is correct, and that their costing calculations will be accurate?
There are many reasons companies choose to track their milk outside of their ERP system, however I keep coming back to the same question over and over again:
How many other industries would try to track their most important and most expensive raw material by hand?