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Why Food & Beverage Manufacturers Need an Advanced MRP

May 13, 2022
Plex Systems’ Ara Surenian explains why the importance of material requirements planning for food processors.

Are you feeling OK about the MRP in your ERP? If you’re feeling unsure, then listen in to this informative conversation I had with Plex Systems’ Ara Surenian about material requirements planning, especially as it relates to enterprise resource planning.

Ara and I kick things off talking about how supply chain planning can help with inventory lots as well as with labor issues. We then segue over to a discussion about risk management and wrap things up talking about what’s going on with the current packaging and material shortages and how Plex can help food and beverage processors plan for all of it.

Transcript

Food Processing: Welcome to this special bonus episode of the Food for Thought Podcast. Ara, let's talk about inventory, specifically, expiration of inventory lots. How can supply chain planning help?

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Ara Surenian: One of the difficult things often found when planning with spreadsheets or within MRP of an ERP system is that forward-looking view of when inventory could expire before it is consumed. This is a challenge, particularly as demand is constantly changing, orders are coming in, and supply is being delivered. Understanding how all these variables come together and are applied against when a lot of inventory could expire before it's consumed, it's hard to do in a typical transactional system. The beauty of supply chain planning is the ability to actually model that out. Typically, it will start with a forecast that takes into account your current inventory levels and how it's broken out into different lots, with each lot having its expiration date, use by date, or whatever date that's important to the particular company.

When that forecast and requirement is driven forward, it will look at how that inventory is being consumed, taking into account the first expiring lot and then so on. By doing this, a planner can gain visibility on the potential risk in their current inventory levels and how quickly demand is consuming that inventory. When there is excess inventory left over, decisions can be made much faster in terms of, "Where else could we use these goods? Do we need to potentially have some sort of a promotion to consume those goods? Is there another source, a requirement that these can be placed against?" Having this visibility of the future allows companies to better plan and understand where the risk is in their inventory to ensure that they don't leave inventory that is going to go to waste.

FP: How can a supply chain planning platform like Plex help with labor issues, specifically the labor shortage the food and beverage industry has been experiencing?

AS: This issue is affecting a lot of companies (labor, and resources against demand). Because planning is a forward-looking view of the world, the beauty is that by seeing what's going to potentially happen and that what potentially happens is also tied to what recently has happened. If you're taking into account your accuracies, your actual to plan data, then there is confidence in the plan, and companies are more readily able to address what their needs are in the future. As an example, let’s say some items are being produced on a set of production lines and those production lines have been affected by labor shortages that are undermining and cutting into the capacity of those work centers. Understanding that, companies and the people in the supply chain and the operations area could look at the different resources that could be available. Maybe there's another production line that could produce these goods or another set of machines so that they can split the requirements across them. Maybe they have to produce in different batches in order to take into account producing in a different work center.

Having that forward-looking view of what could happen based on forecast inputs and order releases, alignment can be created between demand, supply, and capacity, and understanding where the risk is in their production processes, contingencies can be put into place to better meet those requirements. If labor is one, then there is risk there, and understanding that risk, quantifying it, looking at alternate sources will allow companies to better meet those requirements, and in the worst case, they may have to change their demand to accommodate their limited resources. This is always the last thing companies want to do, is turn away opportunities. But having this very proactive view of what's going to happen and how best to address that uncertainty is really a key component of success.

FP: Can you tell me more about how the supply chain helps with risk management?

Learn more On-Demand

Maybe you have ERP (enterprise resource planning) maybe you've long had MRP (material requirements planning) or PRP (production requirements planning). But it's time you upgraded to ARP: Advanced Requirements Planning. Keep the conversation going and learn more about ARP by watching our On-Demand webinar, When MRP Is Not Enough: Advanced Requirements Planning, with our friends at Plex. 

AS: Risk is a hot topic in today's world because of everything that's going on, particularly the Russian-Ukraine war, which has put a spotlight on sunflower and oil. Every day, something new pops up and creates a long line of disruptions, as we have seen over the last couple of years. Supply chain planning tools allow companies to understand by having their demand and their supply appropriately categorized, and then also by actively evaluating how well suppliers are performing against plan, understanding geopolitical challenges, and the impact it has on their supply chains, allows for companies to look at things in a forward-looking manner, not in a purely reactive manner. As those disruptions occur, companies that are equipped with a formal supply planning process are much more able to understand those impacts and what it would potentially yield and affect in their ability to meet customer demand.

It's all about assessing where the risk is. For instance, is it your top-selling goods, your most critical customers, or perhaps it’s allocating the resources to best meet the needs of those category of products and customers that really generate the revenue and the gross margin for a particular company. From there, looking at the data, risk can be evaluated, looking at lead times, and are lead times increasing, decreasing? How well is a supplier performing on their delivery commitments? If companies can map their supply chain, all the way to the root of where it gets started, then if geopolitical issues do pop up, they can understand there's risk here and they can take action today to best address that potential risk that could undermine the performance of the company. It's looking at things really holistically, understanding in detail who your customers are, your suppliers are, the products, focusing on the critical few instead of the trivial many, then mapping out the supply chain to understand the full extended supply chain and all the links that are apparent, and if possible, taking it all the way to the source so that if things do pop up, certain actions can be taken to best address those surprises.

FP: How does supply chain planning help with the current packaging and material shortages?

AS: Just like in your previous question about risk, it's all connected. Looking forward, understanding, and categorizing your most important products, your most important materials, coming up with contingencies and understanding if there's a certain product or a material that runs out, are there alternate options available or alternate supply sources available, is key in today's world. It's not simply just doing what you're always doing, but planning for the inevitable surprise. And by categorizing and defining risk against all your supplies, all your suppliers, allows companies to more keenly focus on those entities that could create the most disruption for the business which we've seen before. Companies that really have a critical view of what's going to happen and all the risks and inputs and how they go about meeting the needs of their customers are best equipped to also seeing where the opportunities are to shift requirements elsewhere or find alternate sources and understand the financial impact of those decisions.

If you've got the lowest cost supplier today for a key material, and that could be at an attractive price; however, through the analysis, it's determined that there's high risk here, a company should then say, "Okay, what are the alternatives available? What is the impact of this alternate against my cost? How much margin will I be giving away, and in doing so, will this carry me through this challenging period to continue to satisfy my customers?" And in doing that, companies must be prepared to ensure the material is going to meet all the specs, the quality requirements, any other requirement that is necessary to meet the needs of the customers and, build out that plan accordingly. It really is about looking at the business holistically, prioritizing, modeling out all the different potential scenarios, understanding the impact of the different scenarios as it relates to revenue and cost, identifying alternate suppliers for your most critical goods to ensure that if something goes wrong or there's delays, there's an appropriate backup available. And those companies that have done that consistently are the ones that have navigated through every crisis that comes before them because they're constantly planning and adjusting to the needs of their customers and the reality of their supply.

FP: If someone wanted to know more about what Plex has to offer, how could they go about doing so?

AS: The best place to go is right to our website, Plex.com, which is all the offerings Plex offers from manufacturing, execution systems, quality, ERP, as well as supply planning.

FP: Well, Ara, I want to thank you so much for being on this special bonus episode of the Food for Thought Podcast.

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