Power Lunch: Where ERP Systems Fail to Deliver

Oct. 23, 2015
So-called enterprise-wide applications do not address the entire needs of food processors businesses and that may be a missed opportunity for many in the industry.

Some food processors may find their information technology needs are being adequately met through the implementation of a comprehensive enterprise resource planning (ERP) system. Others, in particular first-stage processors, have found serious gaps in a multitude of required software functions and features as it relates to the supply side of their businesses. The opportunity for improving grower contracting and raw product management using an enterprise-wide application is similar to the gains that have been achieved on the finished goods side of the business in the deployment of applications like SAP, Oracle or Microsoft Dynamics.

Scott Turner is president of Turner Innovations Inc., an agri-food IT consulting company. He can be reached at [email protected].

A veteran plant controller for a large fruit and vegetable manufacturer once confided in me that more than 40 percent of his costs in a case of peaches could be considered raw product-related. These expenses might be the actual purchase of the product from the grower but also includes inspection, delivery and storage. Yet this same person indicated that his current ERP system did little, if anything, to assist in the management of those costs.

Without a comprehensive information platform that is accessed throughout the organization, employees find themselves filling the IT void using spreadsheets, “one-off” databases and inadequate legacy systems that fail to provide a basis for effective decision-making and analysis.
Raw product quality, time in storage, production yields and harvest timing are just a few of the data sets that can assist in improving processing yields for plant managers and the planning process for the sales/marketing team. This data can only be of value when it is aggregated and normalized with every organizational discipline, from agriculture to manufacturing to sales, accessing the same facts and figures in order to continuously improve the business.

Consider that even a minimal increase in “pack out” or “processing yields” (measuring raw product in and finished goods out) yields a significant improvement to the bottom line of a processor. That raw product line item on the income statement should warrant the scrutiny it deserves simply because of its relative size to other operating expenses. Simply driving down the price paid to growers may not yield the best results for profitability.

An alternative approach toward gains in plant efficiencies is to incentivize growers to deliver better quality that minimizes losses in the manufacturing process. This can only be achieved through a determination of the drivers for quality in the way of genetics, environment and management practices. This process requires good data as a starting point, and that excludes spreadsheets and personal databases as a source for that data.

“We have found that there is little in the way of a correlation between the grading system for incoming product and the actual pack out results in the plant. If we could figure out which raw product -- that is from where and under what growing conditions -- yields the best results as far as our market is concerned, we might be able to minimize the variability of the incoming product,” said John Sniffen director of operations and finances for New Aces Pecan.

Certainly improving cost controls on the left hand side of the supply chain is a good reason to implement proven systems but another one might be related to traceability. Trace and track is not simply the mechanics of using bar codes or RFID, although they are an important component of that function. It also involves the gathering of information about the product that might include issues regarding food safety and origin.

More and more retailers are requesting information about the actual crop history on food items, and not simply for recall purposes. They are also being pressured to substantiate environmental sustainability claims for the products they sell. This can only be possible through access to the agricultural producers’ data relating to their growing practices. If the data is only available from a number of disconnected and disparate sources, it is highly unlikely that it will have any value in determining where the product came from and how it was grown.

Food processing executives, and not just the CIO, have to question whether ERP systems are truly enterprise-wide in the delivery of solutions for their businesses. It may be worthwhile to seek out those companies that offer applications that address a company’s needs for supplier contracting, logistics, inspection, storage, food safety and raw product optimization. These supply side applications are complementary to most large scale financial management systems and can be easily integrated to provide a valuable and comprehensive solution for many food manufacturers.

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