The whole Y2K thing has come and gone, and most food manufacturing companies have an enterprise resource planning computer system humming away at many of their business functions following a flurry of implementation activity. So you'd think that ERP users and vendors would be able to sit back and catch their collective breaths for a while. Right?

Hardly. The shiny new "E" train is pulling out of the station, and missing that ride, for many if not all food companies, could mean fiscal disaster. Therefore, software vendors are scrambling to increase the functionalities of their ERP packages to incorporate features that would improve receipt of orders from customers, production scheduling with vendors and all else that goes along with playing in the e-commerce arena.

"Nearly all of the process ERP vendors are moving toward what they're calling an 'e' system," notes Ted Pliakos, vice president of sales for formula management software vendor Advanced Software Design in St. Louis. "If they're not there yet, they're quickly trying to develop it. I see it as a must-have in the next couple of years."

The reason that Web-enabled ERP will be a must-have for one food company that is another food company will be stealing its lunch money, or more significantly its shareholder revenues, by squeezing costs out of its supply chain and also by providing better, faster and cheaper service to its customers.

As much as 70 to 75 percent of the cost of a finished product leaving the gates of the food plant is the result of raw materials and packaging materials costs, explains Roddy Martin, research director in consumer package goods and life sciences manufacturing verticals for AMR Research in Boston. By the time the product reaches the grocer's shelf, that same percentage has been eaten up by supply chain logistics costs. Wringing costs out of these supply chain issues is exactly where the e-commerce scenario focuses. And in the tight-margin world of food manufacturing, the ability to reduce costs through some type of e-commerce solution may well become a critical factor for profitability in the coming months.

Installing an ERP system with e-commerce functionality would seem like a straightforward-enough answer for food companies. Only problem is, an ERP system with the whole wish-list of e-commerce functionalities hasn't yet climbed the ladder of software evolution.

In the beginning, most ERP packages concentrated on consolidation of disparate information islands throughout the corporate environment, with primary focus on financial management. The threat of the Y2K bug helped spur ERP implementations throughout that market space. The new evolution of ERP systems, says Martin, is taking place in two phases. In one phase, ERP vendors are working toward more efficient coupling of the front office-based ERP system with the manufacturing plant floor. The other phase, taking place concurrently, is seeking to create a better bridge to the supply chain. When all is said and done, the ERP system of the future might be envisioned as a Web-linked triad of front office, manufacturing operations and supply chain.

"ERP vendors have to find a way of extending their processes out to be able to deal with the integration of the supply chain and customer relationship management, and integration with the manufacturing plant so they can do a better job of managing the highly competitive raw materials cost of a product," says Martin.

What this new ERP software would enable is the ability for the food industry to better embrace the concepts of demand-based manufacturing, in which products are made and delivered only when the customer asks for them.

Not that switching to a "pull" system will come naturally for an industry with a long-standing "push" tradition in which food companies bought up large amounts of manufacturing capacity, then kept production volumes as high a possible to achieve economies of scale. What the marketplace didn't necessarily want would be discounted or couponed to get it off the shelves.

In the demand model, manufacturing capacity is balanced with actual demand and forecast, and no room is left for production disparities caused by yield fluctuations resulting from the inherent variabilities found in the raw materials on which the food industry depends. After all, the ability to rapidly accept customer orders is only half of the e-commerce paradigm; one also must be able to deliver the product almost as promptly as the customer is able to ask for it. Any number of e-businesses—and their unhappy, empty-handed customers—who have experienced Web overload problems will attest to that.
"What a lot of companies are missing when they talk about e-commerce and supply chains is that once you start promising an order over the Internet, whether it's a business-to-business transaction or a business-to-end customer transaction, the bar has been raised," cautions Wonderware Corp.'s vice president of product marketing, Richard Howells.

"If I can place an order for a product in 10 seconds, I'm assuming as a customer that I will receive that product in the same timely manner. What you have to have in place to do that is a manufacturing system, an inventory control system and an order processing system that you can trust to be able to react to that order. Or the visibility to see that you can already satisfy that order based on the planned production schedule," he says.

Included in that visibility issue is the ability for a manufacturer as well as its customers to know when critical manufacturing assets have gone out of service.
"You're getting pressures from the supply chain with changing customer demand, but you've got to take into account that you also have changing demands from your plant floor," Howells notes. "If a machine breaks down, it's just as important for the customer service person to know that, or the quality control person or the maintenance person, as it is to know when a new order comes in."

To satisfy market demand for their own products, many software vendors are looking to expand their offerings' functionalities through acquisitions or partnerships that would supply a missing piece of the ERP puzzle. As an example, Irvine, Calif.-based Wonderware (or more accurately, its U.K. parent company, Invensys), last year bought ERP provider Marcam Solutions and enterprise asset management vendor Avantis to create solutions that complement the process control space in which Wonderware grew up. The company also partnered with Advanced Software Design for formula management capabilities. Similar scenarios are being played out in boardrooms of other ERP vendors as the relatively new e-commerce model becomes better defined.

"It's all about coordination and synchronization," says Martin. "As companies build these (e-commerce) processes to be able to coordinate and synchronize, the ERP system, in a sense, has fallen a little behind that coordination and synchronization hub. First of all because they didn't offer the supply chain functionality, then because they missed the e-commerce piece quite significantly. Lastly, some of the ERP players were pretty arrogant and said they would deal with all of the manufacturing stuff themselves. The reality is that they didn't. There's a whole lot of opportunity in the manufacturing plant that they simply don't deal with."
Martin expects that this year will be used by software vendors to get their arms around e-commerce and related supply chain issues, and next year will see the greater-functionality ERP systems becoming pervasive throughout the food industry.

"Next year will be the year of big activity in IT and consolidation in the food industry, and (ERP) strategy sessions now will become projects towards the end of this year and into 2001," he predicts.

by G. Jeffrey Hoch, Field Editor

© 2000 Putman Media

Reproduced with permission of Food Processing.  This article can be seen in the May 2000 issue under the "Plants of Tomorrow" section.  For subscription information, visit their web site at www.foodprocessing.com.