Time to reflect - Lot Expiration

Yesterday I celebrated by birthday. (insert noise makers here)
I had a GREAT day doing all the things I like to do best. That is what a birthday is about anyway – isn't it?
This blog the topic kept running through my head- "Lot Expiration" and "Shelf Life". I know it is a morbid thought but I just had to get it out of my brain and share it with my formula manufacturing friends.
Formula manufacturers – particularly in the food industries – are keenly aware of the issues associated with lot expiration and the financial impacts it can cause when a lot reaches the end of its prescribed useful life. What otherwise was once a perfectly suitable product has become as popular as the last kid picked on the recess kickball game. Not a fun site – trust me.
So how does a formula manufacturer address the ticking clock that is always running? Here are some ways.

• Build a time machine go back to a time to address the issue. Not feasible but could be very effective.
• Reduce the time to manufacture and progress toward a make-to-order model. This is very effective for the small batch manufactures with excess capacity in the manufacturing area. By holding inventory in raw materials you reduce the likelihood of finished good lot expiration – now you have to manage the raw material expiration but managing a fewer number of common raw materials is often easier than many finished goods.
• Monitor lot production/expiration dates and notify appropriate users of lots reaching 50% of their useful life. This is pretty easy with today's technology. Imagine receiving an email from your system identifying the expiring lots with ample warning to take corrective action. As long as your ERP system data is hosted in an ODBC compliant database (such as MS SQL) then the task is pretty simple.

I feel pretty fortunate because tools are available in today's technology to deal with lot expiration. Vicinity by Vicinity Manufacturing is the primary application that I support on a daily basis. It helps my clients to reduce the time to production AND to notify user of aging finished goods lots. So 2 out of 3 is not bad. A little work with your IT group can make this issue a thing of the past leaving time to address bigger issues.
As a footnote: We are still working on the time machine concept – maybe by my next birthday we will have the perfected.
Until next time – take care and I look forward to talking with you soon

Scheduling by Formula – Why Bother?

I was at a client the other day and heard an interesting discussion.
The production scheduler was discussing an issue with the production manager about how the scheduler was scheduling production. The production manager was making the case that the scheduler was killing the production efficiency by changing products as often as he was. Production would like to run long runs of the same formula to avoid costly changeovers. Instead he was contending that the scheduler was requesting partial batches and forcing more clean ups than needed.
The scheduler was arguing that he was changing products to keep inventories low. His position was that low inventories was in the best interest of the company and the only way to accomplish that was to run short runs and for only the quantity needed.
So who was right?
My two cents is that a company needs to balance the needs of the customer (on time product often achieved by holding FG inventory) and reduction of working capital (keeping inventories as low as possible). But how can you do that in a formula based manufacturing facility?
The easiest way to achieve this balance is to look for opportunities to produce finished goods that share the same formula. In some facilities producing bulk formula is a possibility and then fill to order. From this bulk multiple finished goods can be produced off of the same blending/mixing batch of a formula. The result is to reduce the number of mixes of the formula which reduces the number of times a change over occurs in blending.
In other facilities multiple finished goods can be filled directly from the mixing tank without much bottling like changes.
It is important for a formula manufacturer's scheduling tool to be able to combine finished good SKU's by formula and then by filling line. This allows a scheduler to better see the opportunities to run like products at the same time. Thank goodness for me the application they are implementing (Vicinity) has this capability out of the box. This is not characteristic of products designed for assembly or discrete manufacturing.
So how did this end?
The scheduler looked out into the future at sales orders and forecasts and allowed the production manager to make some product that would be needed in upcoming weeks. At the same time the production manager grouped the formulas in a specific sequence to reduce his change over time.
Both came to me and asked that we move up the implementation of Vicinity scheduling. Not a bad day for me that is certain.

Microsoft Dynamics™ and Formula Manufacturing

Ask most ERP analysts and they will agree that Microsoft has entered the ERP software space and they are now a player to stay and they are in it for the long run. With four applications with strong and broad installation bases of customers Microsoft is a key player in the ERP industry.
Formula manufacturers should know that Microsoft Dynamics has offerings to help make your company more profitable. I will spend a few moments bringing you up to speed on how Microsoft Dynamics can deliver for you.
Microsoft acquired the four applications from 2001 - 2003 and each had a strong track record in providing core financial and distribution functionality prior to the acquisitions. These products include

• Microsoft Dynamics AX – Axapta
• Microsoft Dynamics NAV – Navision
• Microsoft Dynamics GP – Great Plains
• Microsoft Dynamics SL – Solomon

Each product has been branded – along with Microsoft CRM – as Microsoft Dynamics. So when you are on the Microsoft web site and see the term Dynamics – this is the brand name for all four ERP solutions and CRM.
Each application has strengths and should be viewed independently. They have their own development groups but share core Microsoft technology that assist in rapid development. As time moves on the products are moving toward each other and share functionality written by developers working across the products – such as web services and sharepoint. Also realize that not all Microsoft Dynamics resellers (VARs) sell and support all the products – in fact most VARs only support one or two Dynamics applications. So when evaluating Microsoft Dynamics it is important to match a reseller with the specific product being offered.
Each of the products compete successfully against all other similarly priced solutions.

Microsoft Dynamics AX (Axapta) – Written for the larger organization. I would recommend it for companies over $150 million in annual sales. The implementation requires significant consulting resources and is best suited for companies with significant IT resources.

Microsoft Dynamics NAV (Navision) – Navision is a major player in Europe and is known for it customization capability. It fits well for those companies that need significant localization and customization to address unique business issues. Companies of $5 million - $150 million in sales should consider this product.

Microsoft Dynamics GL (Great Plains) – Great Plains has been a well known ERP application in North America for many years. It has consistently been the leader in the market for English speaking countries. It fits well for those companies that need only limited customization and are looking for strong out of the box functionality based on US business standards. Companies of $5 million - $150 million in sales should consider this product.

Microsoft Dynamics SL (Solomon) – Solomon is becoming the Microsoft Dynamics solution geared toward project accounting. It should known that Solomon is very strong in inventory control and order processing. So while this application is moving away from manufacturing it competes very well against all other inventory, distribution and financial applications in the market. Solomon has strong customization capability and a very loyal install base. Companies of $5 million - $150 million in sales should consider this product.

As a formula manufacturer if you review Microsoft Dynamics on your own - without the assistance of a VAR experienced in formula manufacturing -you may not see how these solutions can address your manufacturing needs. This is because Microsoft Dynamics evolved from a financial and distribution application with strong discrete/assembly manufacturing offerings. Out of the box Microsoft Dynamics is challenged by the unique requirement of formula manufacturers and are critical for you to run your business. Issues such as MSDS, scheduling by formula, QC tracking, variable yields by batch and weight/volume conversions are foreign to Microsoft Dynamics. But there are great resources in the Microsoft Dynamics family that address these challenges.
Microsoft has been very public in its position that it will provide deep core functionality for each of the ERP solutions. They have written the applications to fit well into certain key industries. They do realize there are unique requirements in various industries that they are not able to provide by themselves. Formula manufacturing is NOT one of those industries Microsoft targets directly.
While developing the applications Microsoft has allowed Independent Software Vendors (ISVs) to extend Microsoft Dynamics into various vertical industries – such as formula manufacturing. Because of this you are able to achieve tremendous economies of scale with Microsoft Dynamics and still maintain the industry focus written by industry experts with years of domain industry knowledge.
When Microsoft Dynamics is extended with an ISV solution (such as Vicinity – www.vicinitymanufacturing.com) the result is a feature reach, technology advanced and widely accepted ERP solution at an affordable price. Microsoft Dynamics delivers the most popular financial and distribution applications in North America and Europe and the ISV (Vicinity) provide business critical specific formula manufacturing functionality such as

• Formula management
• Compliance documentation (MSDS, COA, Country of Origin)
• Lot control and tracking
• QC results and analysis
• Batch yield analysis
• Scheduling by formula
• And much more

So if you are in the market for an ERP solution you would do well to consider Microsoft Dynamics matched with an ISV solution like Vicinity.
Contact information:
Microsoft Dynamics – http://www.microsoft.com/dynamics
Vicinity – http://www.vicinitymanufacturing.com

It is time to retool – managing a shrinking economy

It is no secret that the US economy is tightening and the months ahead may be leaner than the months that have passed. As I travel from one formula manufacturing facility to another and meet with owners, managers and line workers I have gained a few insights that I would like to share with you.
If you are over 40 years of age you have now experienced at least one economic pull back and at least one economic expansion in the manufacturing sector. If you are over 50 you have probably experienced more than one.
One fact remains true - The US economy will change and eventually it will be stronger than it is today. With this change we will be faced with different challenges then we have in front of us now. The key is to ride out the down times while preparing for the next wave. The most successful companies are able to manage down times while retooling for the expansions.
How do you do that?
The key to a down market is cash flow and liquid working capital. In other words find ways to increase the cash flow and increase working capital. But don't do that at the expense of your future. Don't get caught flat footed when the market begins to come back. Your competition is hoping you will do just that.
Below are some ways to squeeze out working capital while investing in the future. It is all centered on cash. If you can watch the cash and working capital you will find you have plenty to make it through the slow times and will be in a position to complete as the market comes back around.

Reduce the inventory part numbers – Examine inventory levels of raw materials, packaging, intermediates and finished goods. Look for ways to reduce the number of different inventory items you are carrying in inventory. The more items you carry the more you will need to invest in safety stocks or relationships that you need to manage. Are there raw materials or packaging that can be consolidated my adjusting the formulas slightly? Look at your top 20 raw materials by value – which of those are only used in a small number of finished goods or intermediates? Those items may be able to be consolidated or the formulas may be able to be reworked.

Identify domestic suppliers - Look for local suppliers of the items even if they may cost a bit more per unit. You may be surprised that the offset in transportation and carrying costs may out-pace the cost savings of supplying from a foreign supplier. Additionally during an economic slowdown in the US foreign products become more expensive due to the currency exchange rates. Take this time to help your neighbor. You may appreciate the same attention from one of your local customers.

Collaborate with suppliers around your schedule - By working with your suppliers you can commit to a schedule that they can expect and you can live with. The result is lower carrying cost for both of you and a lower price per product. Remember that if your customers could give you insight into the future sales you would be more willing to reduce prices. The same is true with your supplier. The better your schedule the lower the price you will pay.

Shrink safety stocks - Take this opportunity to reduce safety stocks to an appropriate level considering a slowdown in business. When you are running an operation at 25% more volume you may need more safety stock. When business demand decreases the requirement for this inventory is lowered. Take a realistic look at the inventory levels for each of your items. Start with the items you carry the most – sort in descending order by value of inventory.

Promote most profitable items – If the market is absorbing a shrinking amount of sales then make sure you are selling the products that bring you the most return. Don't promote those items with limited return. Instead invest in advertising of those items that have the highest chance of sale and greatest return. Look at each of your finished goods and compare average selling price to actual production costs. Start with the finished goods that you sell the most by quantity (not price). Are you selling the most of the items that you receive the least return?

Review formulas yields – Concentrate part of your R&D money on refining the products that you will continue to sell the highest quantity. Once these are identified look for ways to reduce the costs and increase the yields. This will provide more profit for the same sale. Only focus on those items that have a high likelihood of sales. You may be amazed at the cost savings by squeaking 1-2% more yield out of each batch. Slow times are the times it pay to be frugal.

Reinvest in systems – In a down market there are often incentives in interest rates or government programs to assist companies to reinvest in the future. Many states provide tax credits for retraining your employees on newer technologies. Additionally as a market slows down it is common for interest rates to lower. Take advantage of this time to wisely invest in your information systems. As the market comes back the companies that have re-tooled will be ready to win in the recovering market. If you wait for a better market you will be fighting growing demand with limited supply.

All of these items are very manageable. The key is to get started. The sooner you look into managing cash flow and working capital the easier any economic downturn will become. Additionally don't trade long term successes for short term benefits. This economy will be back stronger than ever. Many companies make it through slow times only to be crushes as the business returns.
If your existing systems are not delivering the data I outlined above you need to do the best with what you have and address your systems issues immediately. I can guarantee that having the right information will pay for itself many times over in a shrinking or a growing economy. Putting this data at your finger tips is not as expensive as you may be lead to believe.
The primary message is to get started today and if you need help ask for it. There are some real challenges ahead of you but each can be addressed with creative thinking and access to accurate data.

Profit motive run amuck – Foreign vs. Domestic

This global economy is really hurting us in our own neighborhoods and few are willing to look at why. Formula manufacturing is often in the center of this firestorm.
As I travel from one formula based manufacturer to the next I sense a real turmoil over the profit driven decisions to import foreign packaging and materials versus employing people in our own local economies. "I can get it 25% cheaper from country X versus domestically."
Given: The profit motive drives all businesses to find the lowest cost alternatives to producing products given a similar quality. After all, the purpose of a corporation is to maximize the wealth of the stockholders.
I just don't buy the argument that because the component is cheaper per unit that it is the best decision for your formula based manufacturing company. There are many more factors that should be considered.
So let me share some insights that need to be taken into consideration in determining the decision to buy locally or import foreign.

1. Scheduling – go to any procurement officer and ask them if everything was equal would they prefer to source their components 1,000 miles away or 10,000 miles away? Simply from a scheduling and logistics discussion – it is much easier to deal with a 1 week lead time vs. a 12 week lead time. These variables that the scheduler must address are not trivial. Because of this there is a strong argument that because your supply chain reaches across the ocean you are placing significantly more work on your procurement group. In the end that costs you productivity and money.
2. Quality – as quality concerns continue to grow from imported products the testing requirements for those using these products also grows. By bringing an imported product into your supply chain you are subjecting the quality of your products to standards not customary for your market. In other words the quality standards expected in your market may be far higher than the quality standards normal in your trading partner's market. To keep quality to the appropriate level will require additional oversight, testing of inbound components and a more complicated recall process. Each of these will cost you time, efficiency and eventually money.
3. Cost – when evaluating whether an imported component truly costs less than a domestically supplied component make sure to address the known and potential costs associated with that business relationship. How many trips overseas will it take to ensure a reasonable relationship? What is the cost of managing that relationship? What will it cost you when a shipment is delayed by natural or political reasons? Can you really absorb those costs? How much additional inventory are you going to carry to buffer the variation in foreign availability? What is in the political water related to tariffs and import fees? If there is a problem what will it cost for you to meet with someone in authority to address the problem?
4. Customer – More and more of your customers will not take delivery of product that is produced from components sourced from certain countries. We are seeing a strong push toward Country of Origin disclosure. What will you do after you have chosen to source a material from one of these countries that your larger customers have banned? Will you source from multiple locations and what will it cost you to verify that you can track the source of each lot by country? Sourcing domestically addresses these concerns.

So in the end I am not convinced that the price per unit is the only consideration in determining the source of certain components. In addition to price per unit consider what changes will take place in logistics, quality assurance, hidden costs and the mind of your customer.
Sadly I am seeing many companies ignoring the additional data and they are changing their supply chains without considering all the facts.
If price is the only reason to source from a foreign market I think it is prudent to consider the factors above. Profit motive is important but it is not the sole consideration.
As a last point – is it possible that a current domestic customer yours could outsource your business because they can get it cheaper from a foreign source? If so you may want to give all of this a second thought before it happens to you as well.

10 reasons manufacturing software projects fail

Every project, no matter the size, has a certain level of risk - the bigger the project the bigger the risk.
The best way to manage project risk is to understand the causes of project failure.
In the 1990's I read an article that resulted from a study commissioned by APICS. The article spoke about how often manufacturing software projects fail and the top 10 reasons these projects fail. This study interviewed manufacturing companies that had recently implemented a new manufacturing information system and attempted to quantify success or failure. The results were worse than the author expected.
That study indicated that 1 in 8 projects was deemed a success by management – 7 in 8 were deemed a failure.
That is a very low number and seems a bit worse than I would believe. The article did go on to provide some insight that I really agree with and would like to share with you. The author followed up with the 7 in 8 companies that deemed their project as a failure and identified the common themes across these companies.
Below is a list of these common characteristics:

1. Lack of management commitment
2. Part-time or no internal project leader
3. Limited input from various departments in the organization
4. Lack of project focus or goal of the new system
5. Project seen as an IT project and not a business project
6. Lack of training on new system
7. Limited feedback on project status
8. Selected the wrong software to address the business issues
9. Inadequate outside resources
10. Financial resources inadequate to achieve results

So after 20 years of performing implementations I have to agree with the above list. The projects with the greatest challenges have often had one or more of the above items. The good news is that most of these items are completely in your control. So let's focus on addressing the items you can influence.
To reduce the risks in manufacturing software projects here are some items to consider.

• Is this the most important project on your company's agenda for the next 6-12 months and can management articulate that fact?
• Do you have a near full time project leader that understands most parts of your business? How long has this person worked for your company?
• Do you have a cross-functional team that can support the project leader?
• Does this team universally know the purpose and focus of this project? If you ask each member why we are doing this project, do you get the exact same answer from every team member?
• Is the focus something other than IT? Is there real business benefit that everyone can rally around?
• Have you considered how different people learn? Some require one-on-one, other require manuals and others repetition – does the plan account for each learning style?
• How organized is the project leader and can that person report the status of the project in a clear and concise manner? If so, can the organization change course if needed?
• Have you talked to other users that are using the exact system you are implementing? Did these companies have similar business issues before they started and have the issues been addressed by adding the new system?
• Does the outside firm supplying training, support and programming have a clear understanding and experience in your industry?
• Can you really afford the upfront costs to achieve your desired results?

Most companies are not able to address every issue on this list prior to their project. The key is to limit the number of them and manage the risks of the ones you can't. But based on my experience if you do not have management commitment, a near full-time project leader, a cross-functional project team and a clear and concise project goal – you should not continue.
Aside from that - keeping an open dialogue before, during and after the project with your team (including outside consultants) will take you a long way to reducing risks.
Best of luck on your project and I hope these insights provide a certain level of clarity.

Bar coding – the misunderstood technology

I spend a lot of my day talking with formula based manufacturing companies about their business issues. About 50% of these conversations involve the request for bar coding. When asked about what business issues they are trying to solve with bar coding I typically get some of the following expectations:

• Increase physical inventory accuracy
• Reduce effort to identify inventory location – Bin tracking
• Reduce lot expiration
• Increase accuracy of usage/yield reporting
• Provide real-time access to usage and production
• Support lot tracking from material usage through shipping

Each company believes they have real issues around inventory control and solving these issues may yield tremendous results.
The problem is see is often in the definition of bar coding. Bar coding by itself does not solve any of these issues. Bar coding as a technology needs help from other applications and processes. What they are describing is a Warehouse Management System (WMS). The simple act of scanning a bar coded item is nothing more than a data collection exercise – what you do with that data is the key to solve the issues.
Well designed and implemented WMS systems can assist a formula manufacturer gain a better understanding of inventory levels, rotate lots prior to expiration by directed picking and improve the inventory accuracy through faster cycle counts. They do this by setting best practices for inventory movement and assist users to follow the business processes. Every time a person touches inventory the user must notify the system and that inventory must be tracked from the time it arrives on a truck to the time it leaves to a customer.
In my experience the key challenge is to ensure timely and proper application of the bar code label. Once that is done much of the remaining work is in execution and discipline when inventory is touched.
As soon as a company introduces flawed business practices the WMS system falls apart. A formula manufacturer must be able to perform all its processes to a high level of excellence prior to expecting positive results from the WMS system. Unfortunately few companies really understand this.
So for my clients we implement in this order: Financials, distribution, production, compliance, scheduling and then WMS. Only until the business processes are clearly understood and implemented will a WMS solution truly yield the results they expect.
I once heard a mentor of mine once say – "Bar coding (WMS) is great. It can screw you up at the speed of light". Do yourself a favor and get your processes under control prior to introducing WMS.
When you are ready - there are some terrific WMS systems to assist you achieve your desired results. While picking an ERP solution you should make sure there is a solid WMS solution as part of the deliverable. If you already have an ERP solution make sure your systems are well under control before adding WMS. Failure to do either of these may cost you dearly in the future.