I wanted to share a real life example of ROI and how yours truly ignored it for months if not years. I think I can also tie this into your business and formula manufacturing.
Last week we cut over our phone and internet service to CBeyond – a publically traded telecom based in Atlanta. While I was satisfied with my previous carrier my internal phone system was outdated and we had limited ability to change features without a series of expensive site visits. The phone system had to go – I knew that for years.
One day a month or so ago a solicitor for CBeyond stopped by my office. I used to get these visits into my office every couple weeks and I routinely dismissed them as an inconvenience. For some reason this time I gave them my card and told the salesperson to send me some information. What was I thinking?
Wouldn't you know it? Two days later I received a packet of information in the mail and a couple pleasant emails. Before I knew it I had an appointment with this salesperson in my office to talk about what they could do to help me with my business.
It was not until that face to face meeting that I had stopped long enough to see what I was doing with my existing system. I was paying my previous carrier about $1,500 per month for services that I did not need and did not receive services that I wanted. The salesperson was successful in showing me that I could get what I wanted for about $500 per month but I would have to change phone systems. Little did he know that a new phone system is really what I needed.
So like most people I bought myself some time and sent the salesperson away. In the back of my mind I was looking for why this deal was too good to be true. What is the catch? I had every intention of ignoring the data right in my face and continue down the path of my existing system. Honestly – I was not sure how much a new phone system would cost and was not interested in the change at this point.
I did not have all the data yet and was not ready to make a decision - much less a change.
A couple weeks later I was in a conference with some Microsoft Dynamics ISV owners - much like myself. The topic of internal phone systems came up and I asked the question - Has anyone heard of this new provider? Immediately a friend spoke up saying it was the best thing he had done in years and they were very happy. When I asked further about the physical phone system he replied that it was ridiculously inexpensive and he gave me the name of a consultant that does all the work.
48 hours later I had a quote for a phone system from Logic Speak ($3,000 for a 10 phone system) and we were off to the races.
The problem has been solved and we are a better company for the change. The total cost was $3,000 up front plus $500 per month in services.
Compare that to $1,500 per month. That is an ROI of 3 months! Every month after the first three months I am making $1,000 per month – and I have more flexibility and more control. THAT is a positive ROI.
So how is this relevant to formula manufacturers and how can you use my experience in your business?
How old is your existing ERP system? Did you replace it with the Y2K conversions? If you system is 10 years old you really should look around. You have gotten your value from your existing system and you may find that changing is not as expensive as you might think.
So here is the blueprint that I used for my phone system that I think is relevant to selecting an ERP solution.
- Identify if there is a need that has to be addressed – for me it was a better phone system
- Quantify that need – what cash will it bring into my company if I make the change? – for me it was reducing my phone bill from $1,500 to $500 per month – for you it may be reducing inventory or identifying low batch yields
- Talk to others about your issues and hear their solutions – search the web and find companies that specialize in your business. They have solved the problems before – leverage on what they have done.
- Engage with a professional that understands your business and can deliver the change that is needed. Be open and honest about what you are trying to accomplish and give the professional a chance to work with you to find a workable solution.
For me the key was in leveraging people that had been through the process before. I gained confidence in the hardware supplier immediately. He knew what he was doing. From there I let the professionals do their thing and got out of their way.
The result for us is a state of the art phone system that meets our needs today with a local service provider that makes our problems go away in short order and for a reasonable rate. I could not ask for better than that.
So if you are not getting what you should out of your existing system and you think it is time for a change then follow the steps above. Feel free to reach out to me and of course check out our solution at Vicinity Manufacturing . If you want to try out our phone system just call us at 770-421-1777 – we are a better company for the change.
I also feel it is important to share the names of people that have helped me in my successes.
John Stulak – Ethotech - Microsoft ISV friend who just switched to CBeyond and gave me the courage to move forward
Andrew Griffin – Cbeyond sales representative – he did all the right things at the right time
Jared Kee – Logic Speak Inc. – provider of phone system and the guy that made this work
So here is your take away:
- What are the top 5 pains that is costing your money?
- What is the value of solving those pains?
- Who out there has solved these pains in the past?
- Why am I waiting to solve these pains if there is a positive ROI?
I would like to challenge some conventional wisdom during economic downturns in the formula manufacturing sector. I propose that during slow economic times it is critical to re-tool and invest in the future. It is much better to rework business processes while production is slow than when you are rushing to get orders out the door. Your project team has more time to focus on what makes your company great and what you customers really need from their supplier. When times are busy no one has time to address these critical topics.
I am working with number of formula manufacturing clients that are taking this relative slow time to rework their business and manufacturing processes. They are expecting that the market will rebound and when it does they will be ready. They are betting that their competition will be rebounding with obsolete systems and this will turn into huge market share gains when the sales return.
These clients are focusing on some of the following areas:
- Reduction of inventory values to free up working capital by better inventory accuracy
- Understanding future raw material price increases and the impacts on finished good costs to either identify cheaper substitutes OR differentiating their higher quality product in the market place
- Retooling the scheduling process to better utilize existing capacity by implementing shop floor scheduling and MRP
- Identifying formulas with lagging production yields to reengineer the formula or process or phase out the products if possible
By keeping a keen focus on the immediate goals that not only increase working capital today but also position the company for greater demand in the future, these companies are staying afloat today while becoming the leaders of tomorrow.
So the key is how to you pay for such an endeavor?
The items above are not as expensive as you might imagine. Vicinity from Vicinity Manufacturing coupled with Microsoft Dynamics is one example of an inexpensive ERP solution that addresses all these issues for formula manufacturers without breaking the bank. There are others in the market as well but one thing that makes Microsoft Dynamics so much more attractive today is financing available via Microsoft Financing. You owe it to yourself to take a look.
So what are you waiting for? Is your system a result of Y2K and approaching 10+ years old using outdated technology?
Is your competition sitting back waiting this out or are they preparing for the next wave? Can you really afford to wait to find out?
So I challenge you to think toward the future with an eye on today. It can be done with a reasonable budget and is more affordable then you might think.
Identify and replace current components with eco-friendly alternatives
I am not putting myself up as a research laboratory chemist. Instead I want to talk about some of the challenges and opportunities of identifying alternative eco-friendly alternatives.
There are a number of challenges to replacing any raw material with any other raw material. I get that. The key is to reduce those challenges so the cost of change is not as significant.
When you identify that an alternative material exists which is more "Green" than a current material you must first identify all the formulas in which this material is used - a multi-level where used report is key at this stage.
Not only are you altering the formula receiving this new material but potentially every other formula that uses that formula as an intermediate. In other words if you have a multi-level formula structure you must also look at all the other formulas impacted by this change.
Fortunately formula manufacturing software applications handle this analysis fairly well. Specifically Vicinity from Vicinity Manufacturing addresses the challenge with remarkable ease.
Typically you will need to review the impact on the formulas from a physical properties perspective. Does this change impact the Viscosity or pH or Refractive Index?
Performing this analysis can be time consuming if the right tool is not utilized. Fortunately some of the more current formula manufacturing applications in the market – such as Vicinity - can assist with this review turning the task into a reasonably clerical matter.
Finally – once the impact is known for each of the formulas you will need to substitute the new material for the old material and potentially other supporting materials in the formula.
This task is tricky but is done by some of the better applications on the market. Take a look at the material substitution capability within Vicinity to see how this is addressed.
So what is the payoff?
Besides replacing a potentially harmful raw material with one that is more eco-friendly you are potentially reducing the overall cost of your formula. If nothing else you have built a model to replace raw materials based on price – not only because they are good for the environment.
So go ahead – take a look at a raw material that has a known substitute. How does your existing system assist you or hold you back? Know that today there are systems that can make this process much less painful than you may be experiencing. Hopefully this is one less barrier to "Going Green".
So this is the end of my "Green" message. I challenge us all to be more environmentally conscience in our manufacturing, reduce our carbon footprint and use materials that are easier on our planet.
And if you don't do it for our children's children then do it because often times you will become more profitable. In either case we all win.
Increase yields to consume fewer raw materials per finished goods produced
This is the second installment of how formula manufacturers can embrace the "Green Initiative".
Well this seems to be too obvious. Don't all manufacturers attempt to squeeze every drop of raw material from their process to increase production yields? And why is this Green?
You would be amazed at how few companies actually look at their yield analysis by formula over time. It is more common than not that a company looking back at production over the past 6 months will find certain formulas or processes that are resulting in less than ideal yields. This can go on for years without being detected. The financial impact is tremendous.
The problem is that the yield differences from batch to batch may be minor and subtle shifts may not be detected on a single batch. Each subsequent batch is often compared to the previous batch. If there is no significant one-time shift the change is often undetected.
Comparing batch yields over time – 6 months or greater – can show alarming results. A formula yield may shift 1-2% over time and not be noticed. This has the result of passing profits right through the finished good and not realized by your company.
So why is fixing this issue being Green?
The less you consume to make the same finished good helps do your part in reducing the consumption of valuable resources. It takes energy to make most products we consume. We have to dispose of the raw material packaging and we consume energy to transport the materials from the supplier to your facility.
By increasing your yields by 1-2% for your highest volume items can result in a significant reduction in the consumption of raw materials. The reduction helps our environment AND saves you money.
So how do you do this?
Target a formula that has a significant volume. Look at the yields by batch for this formula over the pasts 6 months. Do you see a trend? Do you see variation? If either is true you have found a potential target. Once you have identified a formula spend a little time with production and R&D and see if you can identify the source of the variation or change. Watch the batch carefully the next time it is produced. What is causing the change or variation? The answer is probably staring you right in the face.
Vicinity by Vicinity Manufacturing (www.vicinitymanufacturing.com) has added a standard query that allows a user to view yields by formula/batch for any period of time. This data can be viewed in Vicinity or easily exported to Excel or statistical packages. Additionally Vicinity has added capability to notify key personnel when a batch is out of a tolerable yield range. Corrective action can be taken immediately.
So get started. This one is easy. Increase your yields and do your part in helping the Green Initiative. Along the way you will be saving your company a lot of money. Both are good things.
As a conscientious member of this environment I felt it was appropriate for me to share some ideas on how companies can "Go Green" and still make a buck.
As I prepare my thoughts I find that this topic is broader than a single blog supports. So I am going to break my thoughts into three different topics.
- Efficient use of machines – lower carbon footprint
- Increase yields to consume less raw material per finished good
- Identify and replace current components with eco-friendly alternatives
So watch over the next few days as I release more on these topics. For now let's start with scheduling.
Efficient use of machines – lower carbon footprint
One of the key advantages formula manufacturers have over assembly manufacturers is our ability to fulfill multiple finished good requirements with one batch. We can make different packaged items from the exact same formula. These finished goods may be in different sizes or the labeling may be different. The common element is the formula.
Therefore there is an opportunity to consolidate production and make multiple finished goods from the same batch or compound.
So why is this "Green"?
One of the key initiatives of "Going Green" is to utilize all our resources wisely. By consolidating our production where ever possible we are reducing our overall energy consumption. This reduction can have a significant positive impact on the carbon footprint of the manufacturing facility.
So how can you accomplish this today? And why am I not already doing it?
The key is to group all finished goods by formula and then schedule at the formula level. Not all manufacturing tools support this scheduling model. Your tool may only schedule by finished good SKU. Without a scheduling tool written specifically for formula manufacturing this goal may be tough.
Fortunately there are some manufacturing applications that do in fact address this challenge. Vicinity by Vicinity Manufacturing has formula based scheduling at its core. A user can view the schedule by facility and then by formula. Within a formula the finished goods are scheduled. This view of the production allows your scheduler the opportunity to perform needed consolidations and fill the production gaps with products that family well with a proposed schedule. You can make more products with fewer batches.
If every company could reduce the number of batches or change-overs by 10% we would see a profound impact on our utilization of energy.
Not only is scheduling by formula good for the environment it is also often times more profitable.
So take a look at your scheduling tools and see how you and your organization can do a better job of reducing the number of batches and fulfill more finished goods with single runs. The dividends will be seen beyond your bank account – our children's children will thank us.
It seems that once a month I get a very pleasant email from a well meaning consultant asking if I would like to respond to a Request for Proposal (RFP) or Request for Information (RFI). The first few years of being in practice I took a day or two to wade through pages upon pages of questions about features and forced to answer "yes", "no", "with customization" etc to questions that could have easily been asked of a doctor's office. Very few RPFs are written in such a way that the key business issues are highlighted. Instead they are VERY broad and limited in specificity.
So now I just say "no thank you" and move on with other projects.
You may ask why I do this and why would I walk away from an opportunity. In general companies that spend $20k with an outside consultant on an RFP for a $100-200k project have bigger issues to address than software.
My experience shows that for companies with sales volume of $5 million - $200 million there are 4-5 primary providers of software for the formula manufacturing sector. A subset of that group is typically in every opportunity that I see.
Here is a secret: each of these 4-5 applications do a fine job for their clients and have a full range of functionality from financials through distribution and manufacturing. So the key should be place on finding those industry specific applications and spending time differentiating the implementation firms and less time on RFPs.
Here is another secret. As a young consultant with Arthur Andersen and Deloitte & Touche I was engaged to generate many of these RFPs. A number of companies paid my firm big money for a list of 100-200 features to include on a check list. That did not make for a good RFP.
So how should a formula manufacturing company go about finding some of these qualified applications?
- Ask your suppliers and customers – those happy with their system are willing to tell you what they use
- Attend trade shows or have your attendees look for applications while they are touring the expo
- Take a look at the industry publications and web sites
- Search the internet for key words to your industry (chemical, food manufacturing, batch processing software, MSDS, COA)
- Look for formula manufacturing add-ons to the more popular ERP solutions (Microsoft Dynamics, Sage, SAP etc)
- Contact a consultant with industry background. If they cannot name 4 software applications without hesitation then move on to someone who does
Once you have a list of names then run them through an acid test and shorten your list
- Look at their web site – does their product focus specifically on formula manufacturing or do they treat all manufacturers as the same? – see the Vicinity Manufacturing web site at http://www.vicinitymanufacturing.com/ for a good example of this
- Have a 15 minute phone call with a representative – if they don't use industry terms then move on
- Obtain a high level web demo of the best solutions using demonstration data – no more than 1 hour
When this is complete you should have a good idea of what applications have the best chance of meeting your objectives. The next phase is to communicate your primary business issues and your vision on how to address the issues. Once the vendors understand your needs they will be in a position to provide a comprehensive presentation.
During your process it is fair to assume that all the applications perform accounting functions well. They all cut checks and print invoices. Instead focus your attention on business issues such as reducing inventory levels, identifying and addressing batch yields and generating compliance documents such as MSDS and COAs. This will focus both you and the vendor on topics that will result in positive results for your company.
So in the end the process of selecting software is not as difficult as it might seem – if you are working with someone that knows your business. In today's software environment there are plenty of good industry solutions available – the trick is finding them. Once you find them the difference will be obvious.
Resist the temptation to pay a consultant for them to learn what you need only to communicate to other companies in the form of a features checklist. Take it from a software supplier – they really are not helpful, cost you a lot of money and in many cases turns off potentially viable applications from consideration.
Good luck on your search and remember that there are a number of good companies out there waiting to help you address your business challenges.
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
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