ESSENTIAL GUIDE TO ERP FOR BAKERIES:

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1 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES: Specific Capabilities for Unique Requirements

2 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 2 ABOUT Whether you are in the process of re-evaluating your existing ERP application or looking to replace your existing spreadsheets, it s important to focus on applications with strong capabilities to support your unique requirements, so that you don t have to change the way your business operates. This practical guide links many of the unique business processes for the bakery industry to specific software capabilities available in processedbased ERP solutions. Case study references provide insight into the capabilities needed to successfully manage by-products and co-products, variability of ingredients, and finished products and processes. It also addresses how the right ERP solution can significantly improve product costing, production predictability, and scalability, as well as handle compliance issues related to tracking and traceability. Whether your business processes include baking bread for distribution in retail grocery stores or serving at a school, making buns for a fast food chain, or creating exquisite desserts for restaurants, this ERP Essentials guide is for you. To further assist in your ERP evaluation process, a checklist of specific capabilities is provided for use during the solution evaluation process.

3 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 3 ADDRESSING THE UNIQUE REQUIREMENTS OF BAKERIES Most ERP applications support the needs of accounting, but when it comes to purchasing, inventory, manufacturing, and sales, they don t meet the unique needs of a commercial bakery. Why? Because most standard ERP applications are generic, broad-based applications that support discrete manufacturing instead of food manufacturing, including bakeries. The fact is that the underlying architecture and functional capabilities of a process-oriented ERP application are vastly different than a generic, broad-based or discrete-oriented ERP application. Today, many vendors offering discrete ERP applications claim to be able to support food manufacturing requirements. In most cases, they are wrong. This paper gives you the tools to effectively evaluate whether any application can handle the critical areas that support the unique requirements for your bakery in the most efficient, effective way. The distinction is important because you will want an application that has best practices for bakeries built into the solution, without special coding, and without creating extra steps in the process that slow you down on a day-to-day basis. You will want a fast implementation without special add-ons. All process-oriented ERP applications are not equal, either, so due diligence is required when going under the covers of each ERP application. Simply because a package supports food manufacturing doesn t mean it will support the requirements of bakeries. This practical guide examines these areas in terms of key ERP functional capabilities, data model characteristics, and enabling technologies, specifically: well as spices, seeds and other ingredients, in addition to a variety of finished products The ability to track and trace ingredients and possible allergens to support requirements of the USDA, FDA, GFSI, and customers in mock recalls and product recalls The ability to predict yields, scale production, and accurately cost products The effect of variable product characteristics and inventory attributes, such as package weights, shelf life and multiple units of measure, on various ERP functions, specifically inventory management, order management, production scheduling, manufacturing, QC management and product costing The impact of the ERP architecture and design on the application s functionality and its required IT maintenance The need to incorporate various technologies to improve visibility, collaboration and system interoperability A summary of these critical areas is provided at the end of this document in the form of an ERP functional questionnaire to be used during your software vendors product demonstrations. As you embark on your journey to select the perfect fit solution for your bakery, you should also consider a software provider s industry experience, expertise, and support. Of course this is an important consideration that will impact your ERP implementation, and is as important as the product architecture and capabilities. This white paper s companion piece ERP Essential Guide for Process Manufacturers: The Keys to Selecting Your Software Partner offers further insight and guidance into the importance of a software provider s focus, its product adaptability and total cost of ownership. The inventory, accountability, and management of common ingredients such as flour, yeast, and eggs, as

4 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 4 THE RIGHT RECIPE FOR BAKERS The recipe is the foundation that defines the manufacturing, yield, quality, and costing processes of bakeries of all sizes. Each recipe defines the process or processes, material inputs and outputs, labor requirements, instructions, and quality checks. The difference between a generic or discrete oriented ERP application is in its definition and usage of the recipe. A good process-based ERP extends the recipe capability by allowing you to link multiple recipes together to form a process specification to define the flow of all processes between inventory points, streamlining the planning, manufacturing, inventory and costing activities. In discrete manufacturing, a multi-level bill of material (BOM) is applied to produce one finished product in its base unit of measure from one or more inputs. In the Ross ERP solution for bakeries, a recipe is used to produce one or more finished products in the same or different unit of measure (including expected co-products and by-products), from multiple material inputs. When a bakery chooses to employ a generic or discreetoriented ERP application to produce one or more finished products, based on BOMs, they will be challenged in these areas: Tracking multiple products from one dough starter Tracking toppings such as frosting or seeds that might have excess usage Managing recipes that include regrind from finished products Managing inventory for standard/net weight with dual units of measure and inventory quantities, such as units, packages, or cases Calculating available-to-promise and capable-to-promise figures for products with respect to co-products and by-products Scaling production yields up or down based on ingredients levels or product output levels Track and trace from supplier receipts to customer shipments Accurate tracking and costing of co-products and by-products Accurate product costing and comparison of standard/estimated cost to actual cost Tracking of actual yield and comparison to standard yield Excessive inventory transactions from not having streamlined the use of process specifications to link recipes Measuring of actual quality test results and comparison to specification Why the challenges? An ERP application that uses a BOM simply does not properly account for and manage the unique business processes of a bakery. In process manufacturing, variable product characteristics such as potency, grade, ph, or moisture content determine the ingredient proportions and equipment settings in certain process states. To effectively manage this variability, a processoriented application should allow manufacturers to make adjustments in ingredient proportions and equipments setting to their base recipe or formula specifications without affecting the definition of the original base specification. Variations of recipe or formula specifications can also account for differences between plants, shifts, production lines, and equipment, as well as customer requirements (e.g., private label products). FLEXIBLE SPECIFICATIONS SUPPORT MULTIPLE PROCESSES Assembly and packaging are the standard processes executed by discrete manufacturers. A generic or discrete-oriented ERP application executes these processes based upon a multi-level BOM and a set of routing instructions.

5 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 5 It s not that simple when you are baking many different products or producing similar products to meet variety of customer specifications. For example, a recipe for hamburger buns may be portioned in different sizes from one restaurant to another; one may add sesame seeds while another specifies dried onions. Bakeries have different needs, and an ERP system designed especially for them can simplify these steps. A process-oriented ERP application using a recipe is capable of executing one or more processes in parallel and/or serial fashion within a single process specification. The intermediate inventory between process stages should be automatically transferred from one process state to another in terms of both inventory adjustments and routing. The routing instructions can be defined within the recipe to ensure the routing is in synch with the defined process stages. In the baking process, many bakers have to manage multiple outputs, both co-products and byproducts, in a process that a discrete BOM doesn t address. Mixing, kneading, fermentation, molding and baking, and slicing and packaging, are just a few of the processes that are executed by bakers. Only a process-oriented ERP application using a recipe is capable of executing one of more process stages in concurrent, convergent, or serial fashion within a single process specifications, while providing full accountability and costing of all finished outputs. The bakery industry especially benefits from an ERP system that can support supply-based processes, such as different varieties of breads, rolls, or other baked goods. Process-oriented ERP applications are able to manage processing and packaging by using a recipe. The ERP application should be able to link recipes and packaging specifications together, but should maintain them separately in order to: Produce different finished products that are similarly packaged Produce product for future private labeling Produce and track intermediates Flexible recipes allow bakers to model their unique manufacturing processes in a series of controllable and repeatable process stages. BETTER ACCOUNTABILITY RESULTS IN BETTER PREDICTABILITY AND SCALABILITY Predictability and repeatability enable bakeries to accurately measure yields, standardize business processes, and improve customer service levels. Predictability and repeatability depend on how well an ERP application can manage material and process variability and account for all raw materials, intermediates, and finished goods in the manufacturing process. Production jobs are predictable and repeatable in discrete manufacturing because of the low degree of product variability. With a higher degree of product variability in process manufacturing, the tendency is not to expect production jobs to be highly predictable; however, a processoriented ERP application that uses recipes can account for and manage all raw materials and finished goods, therefore delivering a high level of predictability and repeatability. Predicting and optimizing the yields of multiple outputs of a production job is very difficult for a process manufacturer using a generic or discrete-oriented ERP application that relies on a BOM. Only a process-oriented ERP application is capable of measuring yields by comparing inputs to outputs and tracking these daily. Tracking and analyzing yields is critical for every bakery, as low yields can result in financial losses. One example of managing yields and profit is making decisions regarding the finished product that comes from a single starter product. For instance, a dough can be sold fresh in tubes, frozen, baked or integrated into another baked product. Knowing what is in inventory, and cost of producing each individual item, can give a bakery a lot of power in determining how to proceed with a batch of dough.

6 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 6 ACCURATE PRODUCT COSTING INCREASES PROFITABILITY Accounting for all material and operational costs in the production process is one of the biggest challenges for bakeries. Without accurate and up-to-date cost information, you can t make informed decisions on key business issues, such as product pricing strategies. Without the ability to link finished products to customer discounts, promotional rebates, and incentives, it is difficult to determine product and customer profitability. Your ERP application should capture, assign, and compare actual and standard or estimated costs for all finished products. Proper handling of costs is critical to accurate costing. Waste products typically have the cost of disposal charged back to the primary product. As for unexpected off spec products, such as bread that is beyond its optimum delivery day, they can be considered as waste or held in a quality control status, then later sold for a given market value. By-products are typically assigned a straight cost, but in situations where the by-products are available for sales, their revenue can be credited back to the primary product. Co-products are typically assigned a cost based on some percentage of the job or on a specific product characteristic, such as quantity, weight, potency, or market value. For example, in a bakery, some products may be assigned a higher or lower percentage of cost based upon its market value. For example, a bakery s common use of regrind in cake recipes can be easy with a process-based ERP, but difficult to manage using a bill of materials. Many companies depend on a percentage of regrind to manage costs and consistency of their bakery products. This by-product of one process becomes a recipe ingredient in another process. To manage and cost your products appropriately, a process-based ERP solution is essential. A bill of materials ERP solution will require significant coding to accommodate this process, which not only drives up the cost of implementation, but can negatively impact the timeline as well. By capturing and analyzing the actual versus standard or estimated costs for co-products and byproducts, bakeries are able to optimize processes and make better decisions on product pricing. MANAGING VARIABILITY Material variability is a key concern for since it impacts the consistency and quality of the finished product. A good indication that an ERP application may be capable of properly managing product variability is that the item or product master supports product characteristics for both ingredients and finished product types. An ERP application tailored to the bakery industry should support user-definable product characteristics, but also contain predefined industrystandard characteristics such as ph, potency, or buttermilk content. These product characteristics play a critical role in various processes, including inventory management, order management, production scheduling, manufacturing management, quality management, and product costing. Many manufacturers schedule production based on product characteristics or product groups (i.e., groups of goods with common product characteristics such as bread type or size). Without proper consideration of product groups, a manufacturer may perform an excessive number of changeovers, which negatively impacts their resource utilization, inventory levels, and unit costs. Being able to deliver products that meet customer requirements has become a necessity for bakeries to remain competitive in the marketplace. A certain product may be acceptable in one process specification, but not in another, because its product characteristics will not produce finished products that meet customer specifications. For example, one customer might order hamburger buns in a specified size while another prefers larger buns with sesame seeds. With full visibility into available raw material inventory and product characteristics, manufacturers can promise, produce, and ship finished goods that meet their customers requirements.

7 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 7 Situations may also arise where customers place orders that are unexpected or require a shorter turnaround time than usual. An effective ERP system allows the baker to check ingredient availability, scale production appropriately, determine whether it is possible to promise delivery as requested, or work with the customer to seek other solutions. MANAGING INVENTORY TO IMPROVE PROFITABILITY Shelf life can be an on-going challenge for bakeries. In addition to basic inventory rotation methods (e.g., last in, first out (LIFO) and first expiration/first out (FEFO)), the ERP application should support additional methods, such as first expiry, first out when selecting ingredients for production, based on the supplier or packer production date. This should also be carried forward when selecting goods to ship to customers. Inventory in the bakery industry is managed by the expiration date of product lots before, during and after production. By ensuring that the best rotation methods and quality standards are met, a process-oriented ERP application can provide tools to monitor customer specific distribution days based on the remaining shelf life of current products, significantly reduce customer charge-backs, prevent transactions for expired lots, and automatically write off product when it reaches its expiration date. The result is improved product quality, greater customer satisfaction, and less expired inventory in-house. GREAT VARIABILITY REQUIRES GREATER QUALITY FUNCTIONALITY With little variability in discrete manufacturing, quality decisions are usually black or white. A received or manufactured part either passes or fails to meet a specification. With the high level of variability in process manufacturing, there are more shades of gray when it comes to making quality decisions. That s why process manufacturers who use generic or discrete ERP applications typically cannot effectively track the various quality conditions of raw materials and finished goods. Bakeries do not always deal in black and white however. Modifications may need to be made on the basis of butterfat content in dairy products or size of eggs available to manage to a recipe. In a process-oriented ERP application, quality checks of raw materials and finished goods should be able to be defined for supplier receipts, inventory, manufacturing, and customer shipments. By collecting and analyzing quality data, a manufacturer may identify problems with raw materials, finished goods or equipment. ACCELERATING PRODUCT RECALLS Lot control is a standard ERP feature, in terms of assigning a lot number to a raw material or finished product, entering a lot number during receiving or order selection, and generating a variety of reports or queries based upon lotrelated parameters. Lot traceability is a crucial ERP function that is responsible for tracking and tracing the lineage of all raw materials and finished products, including their characteristics and lot numbers. Due to the batch-run quantities produced in process manufacturing, a process-oriented ERP application should be capable of tracking and tracing an ingredient even if it only present in miniscule amounts such as a certain spice in a finished product; this is especially critical for bakeries In many ERP applications, lot traceability is limited to an inventory snapshot, meaning information on a product is available for its current state. Full lot traceability requires the merging of inventory records, which can take days to complete manually with many ERP solutions. Although some ERP solutions automate merging or linking this information, these automated jobs can still take almost a day to complete.

8 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 8 Leading process-oriented ERP applications are optimized for full lot traceability. With end-to-end or bi-directional lot tracing, these ERP applications can quickly track raw materials from receiving into production, track finished goods from supplier invoice to customer invoice, and identify the raw materials and resources that produced the finished products. As customers and regulatory agencies continue to pressure process manufacturers to deliver 100% accurate lot traceability within shorter and shorter periods of time, bi-directional lot tracing enables process manufacturers to respond to product recalls in a matter of minutes, rather than hours or days. This capability allows bakeries to pass customer mock recalls and certification audits. In the event of an actual product recall, the ability to remove suspect products from the shelves quickly minimizes consumer risk as well as the scope of recalls. Taking quick action helps protect the long-term value and reputation of the brand. With more stringent regulations and traceability requirements on the horizon for the food industry, including bakeries, the ERP application must be able to provide the necessary tools and resources. When supported by these ERP capabilities, bakeries can have a competitive advantage when seeking new business. SIMULTANEOUS VIEW OF MULTIPLE UNITS OF MEASURE The units of measure (UOM) defined for raw materials and finished products serves as the basis for tracking inventory as well as converting one UOM to the next level of UOM. For example, the first UOM might be a loaf; the second UOM a case containing 10 loaves; the third UOM a pallet containing 24 cases. Multiple UOMs are often used by bakers, who may purchase ingredients in pallets, stock inventory in pounds, issue finished goods in cases, and sell finished goods in a package or a loaf. What if management wants to view a specific product/s inventory by quantity and weight? A processoriented ERP application should allow manufacturers to manage inventory in terms of bulk UOMs (e.g., gallons or pounds), packaging UOMs (loaves of bread or packages of buns) and random attributes all at the same time. In addition, inventory cost analysis can be performed using any other unit. From purchasing through inventory, order management through shipping, the ability to work with multiple UOMs simultaneously improves performance and customer service. THE ERP DATA MODEL, ALIGNED AND SIMPLIFIED Standard data dictionary utilities found in most ERP applications allow the ERP software provider to personalize the existing field names, titles, and other related labels. Applications designed especially for the bakery industry should come with predefined labels that are appropriate for the industry. In process-oriented ERP applications, industry-standard terminology extends from label-naming conventions down to database table and field-naming conventions. At this level, the use of industry naming conventions reduces the time required to perform IT activities, as well as the associated risks. The difference between ERP data models for generic and industry-specific applications can also be recognized at the granular field-definition level. For example, tracking very miniscule amounts of an ingredient, such as a spice or nut, in a finished product requires certain data fields to be defined with the correct number of decimals.

9 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 9 SUMMARY If you are a bakery searching for the right ERP application or are in the process of re-evaluating your current ERP application, you should focus on applications with a strong process manufacturing foundation that easily manages the unique requirements of your industry. By investigating available ERP applications, you will discover that a process-oriented ERP application can successfully management the variability of products and processes, accurately account for all raw material and finished products, and significantly improve product costing, production predictability, and scalability far better than a generic or discrete-oriented application. Designed with the right baseline functional capabilities, data model structures and enabling technologies, a process-oriented ERP application can support your business requirements with minimal customization and consulting services. A focused solution will conform to your business rather than requiring you to change your business to use it, while reducing operating costs and improving customer service levels.

10 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 10 ERP CHECKLIST FOR BAKERIES To help you evaluate and select the ERP solution that is right for your business, use this checklist to create your own side-byside comparison of ERP applications. Improving production through recipe management When stages within a recipe are linked together, can the output of one stage become the input for the next stage, without having to perform an intermediate inventory transaction or define an unnecessary intermediate product? How does the system handle conversion, where the actual output is converted from the planned/ scheduled output? Can yield be measured by operation and across the process? Does the system support different units of measure throughout the process specification (e.g., catch weights, units, pounds, packages, cases)? Does the system support input-driven (for supply) as well as output-driven (for demand) process specifications? Managing the variable characteristics of products Can the system update actual product characteristics based upon QC values recorded during manufacturing? Can the system accept or modify recipes based on actual values, such as fat content in milk or butter. Reducing customer chargebacks and inventory write-offs with expiration date management Can distribution days (minimum days of shelf life that must remain when product is shipped) be defined separately from standard shelf life? Can the system net the quantity of product reaching expiration from available quantity if demand does not consume all available inventory of that lot/batch by its expiration date? Managing multiple units of measure simultaneously Does the system support different units of measure for receiving, producing, storing, and selling the same item? Can the system support catch weights with verification to minimum and maximum catch weight? Can the system support net weight or standard weight products (and track give-away)? Meeting regulatory compliance Does the system provide adequate record keeping to meet FDA and customer requirements? Can product characteristics be used to force or limit the selection of specific lots/batches based on matching the actual characteristic values to a specific customer request? Accelerating product recalls through lot traceability Does the system maintain full forward and backward lot/batch integrity when product is converted during manufacturing, without losing any audit or trace linkages?

11 WHITEPAPER ESSENTIAL GUIDE TO ERP FOR BAKERIES 11 Are lots tracked at every step in the process (from receiving to manufacturing to shipping), capturing materials, production resources, people, processes, steps, and time? Is the traceability program capable of handling recalls and mock recalls in minutes instead of hours? Improving product costing Can actual costs be tracked and compared to standard or estimate cost? Do you have options for standard cost, weighted average cost or actual cost by lot? How are costs for co-products and by-products handled? Can the estimated cost of a process specification be compared with the actual cost of a job/batch? More than 9,000 customers around the world rely on us to give them a competitive edge. By providing innovative, industry-driven enterprise application software, Aptean helps businesses to satisfy their customers, operate most efficiently, and stay at the forefront of their industry. For more information, visit: Copyright Aptean All rights reserved.