Process manufacturing ERP: formulas and recipes

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Process manufacturers transform materials into completely new products.  They convert agricultural products and chemicals into intermediate products and for final consumption.  Unlike a discrete manufacturer’s products, those of a process manufacturer can never be converted back to their original state.

Formulas and recipes

A formula consists of ingredients and quantities needed to produce a specific quantity of some product.  The formula includes processing steps and processing time required to produce that same quantity.  

Each ingredient can scale in different ways as the production quantity changes.  Some ingredients will double as the production quantity changes from 10 to 20 units of output.  Another ingredient is required in a single quantity regardless of the expected output. Think of yeast when baking bread.  That little package is all you need whether baking a single loaf or a dozen loaves.

The requirement for scaling is especially important.  You might have a demand for 100,000 Kg. You do not want an ERP that only allows production in batches of 40,000 Kg., as you will be over or short of demand by a significant quantity.  True demand should rule and not some artificial limit imposed by your ERP system.

Check out the top process manufacturing ERP systems with our free guide

By-products

ERP also has to deal with by-products.  You are making product A, but halfway through the process, you drain off unnecessary liquid.  There is a market for that liquid so it is not waste but a product B you can sell on the side.  The expected output from a production job usually will include a positive quantity of product A and a negative quantity of product B (which signifies you are moving a quantity of that product back to inventory after the job is complete) and an ERP system for a process manufacturer will meet that requirement.

Co-products

Co-products are also common with process manufacturers.  A co-product could be a secondary item or, often, the co-product is another product that is made from the same or similar ingredients and follows the same process flow.  Co-products will both be included as expected outputs from a production job.

Catchweight

Catchweight originates with the fishing industry.  A ship returning from the fishery will have a known weight of fish and a cannery or other food processor will buy that weight.  Only after sorting will the exact weight of several kinds of fish be known and only after processing will we know the weight of the actual useful yield of those fish separated from the bone and other scrap.

The same phenomenon is frequently found with many types of food processing.  Someone buys a truckload of steers based on the gross minus tare of the trailer.  Later we learn the weight of meat those steers will yield.

Compliance

Compliance is an important requirement for all businesses today including those who use process manufacturing.

CGMP, or current good manufacturing practices, is a critical measure of whether an ERP is suited for process manufacturers.  The business’ quality management systems defines their good manufacturing practices and the formulas and recipes captured in the ERP control whether production work will be used for those jobs.  Further, when employees capture their time, and as ingredients are issued to those jobs, the actual time and materials used can easily be compared to the CGMP standards within those jobs.

HACCP, or hazard analysis and critical control points, is a preventative approach to guard against and control biological, chemical, and physical hazards from procurement, handling, and production through manufacturing, distribution, and consumption of products.  These safeties relate particularly to process manufacturers. Those critical control points should be documented in the process flow component of formulas and recipes. At each point, an appropriate measurement should be made and recorded in the ERP system ensuring that many HACCP requirements are met.

Process manufacturers must track procured ingredient materials as well as intermediate and final production items.  Lot numbers are a common way to enable this necessary tracking. At the time an item is added to inventory, whether through production or procurement, a lot number is assigned.  Then as that lot is issued to subsequent production jobs or sold to consumers, the lot number issued is part of the ERP record. Later, if any problems arise, the manufacturer can easily and quickly drill down from the lot number of the suspected problem through every ingredient lot ever used in the production of that suspected lot.  The manufacturer can also then drill upward from those ingredient lots to determine if a problem lot was used elsewhere and there could be yet unidentified concerns with other sold lots.

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Many products must report the proportion of ingredients a percentage of the final product. This is the result of simple math when both the ingredient and the final product use the same class of measurements such as milligrams and ounces.  How do you calculate the percentage when the final product is measured in milligrams and the ingredient in a volume measurement such as liters? What about when the liquid is consumed during production by evaporation or a chemical reaction?  This situation is common and process manufacturing ERP systems must be able to reconcile a wide variety of situations when the formula and recipe use different units of measurement.

Product grades

Some products made by process manufacturers will yield different grades in the final products.  The formula or recipe might be identical and the processes involved seem the same but the ingredients are organic matter so Mother Nature governs some of the results and not necessarily the manufacturer.  The highest-grade yield sells for the highest margin and has the most customer demand. However, lower-grade yields also can be sold profitably. If your products yield different grades, be certain the ERP you choose can adequately handle your requirements.

Shelf life

Process manufacturers must have controls over shelf life at the final product level as well as the ingredient level.  Compliance requirements tell the manufacturer to publish a use-by date or a best-consumed-by date label on the products it sells.  The ERP system will calculate that date based on the dates of the manufacturing process steps and the age of ingredients. Both these factors are related to the formula or recipe the manufacturer uses.

Ingredient shelf life usually is related to the procurement date of the ingredient.  ERP should capture the procurement date and track the usage of the ingredient. A stale ingredient should not be used at any time in production and the manufacturer will normally manage inventory to schedule use well ahead of the shelf life expiration date.  In cases where there is no demand, the manufacturer will know to dispose of that ingredient from inventory well ahead of any time when its use will be a problem.

Reasons to change a formula

Once you have a formula or recipe that yields the desired product many would say, “Leave well enough alone”.   However, that is not always possible, or even necessarily the best course of action. Some ingredient might become unavailable unexpectedly or become too costly due to conditions beyond the manufacturer’s control.

Process manufacturers have the same pressures as any business to constantly reduce costs.  If a lower-priced ingredient becomes available, there is a good reason to change the recipe.  The process itself might be changed which means the formula will change. Perhaps someone finds a way to reduce mixing time or the business decides to purchase a new mixer that reduces the necessary time.  Once the revised process is defined and documented, update the ERP system to lock in the improvement.

Changing a recipe or formula is a significant task, as extensive testing is needed to ensure the product has not changed and will meet all the requirements from customers and compliance enforcement.  Engineers might feel the formula they developed over time and with difficulty is the best possible formula and hesitate to make a change regardless of the reasons for change. Your business will need to carefully evaluate to ensure the benefits outweigh the risks.  Then begin the testing process again to certify the revised formula or recipe will be satisfactory.

Whatever process manufacturing ERP system you choose, formulas and recipes are at the heart of the system.  Those formulas and recipes must be versatile as well as powerful. They also must be agile to enable your business to react to changes in demands or supplies quickly and accurately.  Your products depend on them in order that you can produce the products with the quality your customers depend upon. Beyond your own customers, there is a world full of government and industry standards your ERP must help you meet.  Even if your customers like your products any of these third parties can make your business life difficult or even put you out of business. Make certain the ERP you choose both defends the way you make your product and enables you to continue making and improving the products your customers want.  Process manufacturing ERP formulas and recipes perform similar work to a discrete ERP’s bill of material while resolving much more difficult working conditions.

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Tom Miller

About the author…

Tom completed implementations of Epicor, SAP, QAD, and Micro MRP. He works as a logistics and supply chain manager and he always looks for processes to improve. He lives near San Francisco Bay in California and can be found on the water in his kayak or on the road riding his motorcycle. Contact Tom at customerteam@erpfocus.com.

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Tom Miller

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