Epicor ERP Software
Metrics That Matter: Part Two
In our initial post on the metrics report issued by the Manufacturing Enterprise Solutions Association (MESA International) and LNS Research, we provided the study’s list of 28 metrics identified as most used by manufacturers to best understand manufacturing performance and opportunity areas for improvement. Today we look at the second and third questions the report answers: “How does my company’s performance improvement compare to industry?” “How do we connect operational metrics to financial metrics?”
 
All those surveyed were asked about specific levels of three critical metrics: on time completed shipments (OTCS), overall equipment effectiveness (OEE), and successful new product introductions (NPI). The other 25 metrics were surveyed to uncover average annual performance improvement percentages, which were combined into eight categories:
  • Financial: 8.6 percent
  • Inventory: 15.0 percent
  • Innovation: 7.8 percent
  • Responsiveness: 10.0 percent
  • Efficiency: 17.0 percent
  • Quality: 13.7 percent
  • Maintenance: 14.9 percent
  • Compliance: 18.5 percent

The consistent double-digit improvement indicates the strides the manufacturing sector is making.

Respondents were also asked about changes that occurred in their businesses since over the last year:

  • Increased the number of products, SKUs or variants: 71 percent.
  • Increased volatility of customer demands: 66 percent.
  • Introduced more complex products: 64 percent.
  • Customers demanded increased traceability documentation: 54 percent.
  • Shortened the time of new product introduction: 45 percent.

In light of these challenges, the improvements listed above are even more impressive.

Relationships Between Financials and Operationals
Many positive correlations were found between average annual metric improvements and average annual financial metrics. (This has been true for every MESA Metrics Survey since 2006.)
  • The average percent of successful NPIs was 72 percent, with the top 7 percent of performers achieving 90 percent or better.
  • The average OEE was 71, with the top 11 percent of performers achieving 80 or better.
  • The top performers in NPI had average annual financial improvements of 16 percent versus 8.6 percent for all others.
  • Those with OEE of 80 or better had average annual financial improvements of 14 percent versus 8.6 percent for all others.

Respondents with NPIs of 90 percent or better reported average annual financial improvements of 16 percent. These respondents also had 32 percent annual improvements in customer fill-rate/on-time delivery/perfect order versus an average of 12.5 percent overall.

Those with OEE of 80 or better had average financial improvements of 14 percent. Specifically, 11 percent of respondents had 20 percent annual improvements in Revenue per Employee/Productivity versus an average of 8 percent overall.

For more information, check out http://info.epicor.com/Manufacturing-Metrics/ and the infographic here.
 
Posted by Stewart Baillie, Vice President, Products, Manufacturing
Metrics That Matter: Part One
The Manufacturing Enterprise Solutions Association (MESA International) and LNS Research released the annual “Manufacturing Metrics that Really Matter” report. The report merits reviewing, which we will do in a series of posts. This post recaps the first question the study answers: “Which metrics are being used to best understand manufacturing performance and opportunity areas for improvement?”
 
Twenty-eight manufacturing metrics were identified as being the most utilized by discrete, process, and hybrid/batch manufacturers. The study grouped each of these metrics with the associated top-level area of improvement/goal for each:
 
Improving Customer Experience and Responsiveness
  • On-Time Delivery to Commit: The percentage of time that manufacturing delivers a completed product on the schedule that was committed to customers.
  • Manufacturing Cycle Time: The speed or time it takes for manufacturing to produce a given product from the time the order is released to production, to finished goods.
  • Time to Make Changeovers: The speed or time it takes to switch a manufacturing line or plant from making one product over to making a different product.
Improving Quality
  • Yield: A percentage of products that are manufactured correctly and to specifications the first time through the manufacturing process without scrap or rework.
  • Customer Rejects/Return Material Authorizations/Returns: How many times customers reject products or request returns of products based on receipt of a bad or out of specification product.
  • Supplier’s Quality Incoming: The percentage of good quality materials coming into the manufacturing process from a given supplier.
Improving Efficiency
  • Throughput: How much product is being produced on a machine, line, unit, or plant over a specified period of time.
  • Capacity Utilization: How much of the total manufacturing output capacity is being utilized at a given point in time.
  • Overall Equipment Effectiveness (OEE): A multiplier of Availability x Performance x Quality that can be used to indicate the overall effectiveness of a piece of production equipment, or an entire production line.
  • Schedule or Production Attainment: What percentage of time a target level of production is attained within a specified schedule of time.
Reducing Inventory
  • WIP Inventory/Turns: A commonly used ratio calculation to measure the efficient use of inventory materials. It is calculated by dividing the cost of goods sold by the average inventory used to produce those goods.
Ensuring Compliance
  • Reportable Health and Safety Incidents: The number of health and safety incidents that were either actual incidents or near misses that were recorded as occurring over a period of time.
  • Reportable Environmental Incidents: The number of health and safety incidents that were recorded as occurring over a period of time.
  • Number of Non-Compliance Events/Year: The number of times a plant or facility operated outside the guidelines of normal regulatory compliance rules during a one-year period. These non-compliances need to be fully documented as to the specific non-compliance time, reasons, and resolutions.
Reducing Maintenance
  • Percentage Planned vs. Emergency Maintenance Work Orders: An indicator of how often scheduled maintenance takes place, versus more disruptive/unplanned maintenance.
  • Downtime in Proportion to Operating Time: This ratio of downtime to operating time is a direct indicator of asset availability for production.
Increasing Flexibility and Innovation
  • Rate of New Product Introduction: How rapidly new products can be introduced to the marketplace and typically includes a combination of design, development, and manufacturing ramp up times.
  • Engineering Change Order Cycle Time: How rapidly design changes or modifications to existing products can be implemented all the way through documentation processes and volume production.
Reducing Costs and Increasing Profitability
  • Total Manufacturing Cost per Unit Excluding Materials: All potentially controllable manufacturing costs that go into the production of a given manufactured unit, item, or volume.
  • Manufacturing Cost as a Percentage of Revenue: A ratio of total manufacturing costs to the overall revenues produced by a manufacturing plant or business unit.
  • Net Operating Profit: The financial profitability for all investors/shareholders/debt holders, either before or after taxes, for a manufacturing plant or business unit.
  • Productivity in Revenue per Employee: How much revenue is generated by a plant, business unit, or company, divided by the number of employees.
  • Average Unit Contribution Margin: A ratio of the profit margin that is generated by a manufacturing plant or business unit, divided into a given unit or volume of production.
  • Return on Assets/Return on Net Assets: A measure of financial performance calculated by dividing the net income from a manufacturing plant or business unit by the value of fixed assets and working capital deployed.
  • Energy Cost per Unit: The cost of energy (electricity, steam, oil, gas, etc.) required to produce a specific unit or volume of production.
  • Cash-to-Cash Cycle Time: The duration between the purchase of a manufacturing plant or business unit’s inventory, and the collection of payments/accounts receivable for the sale of products that utilize that inventory—typically measured in days.
  • EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization is a calculation of a business unit or company's earnings, prior to having any interest payments, tax, depreciation, and amortization subtracted for any final accounting of income and expenses. EBITDA is typically used as top-level indicator of the current operational profitability of a business.
  • Customer Fill Rate/On-Time delivery/Perfect Order Percentage: The percentage of times that customers receive the entirety of their ordered manufactured goods, to the correct specifications, and delivered at the expected time.
How does list compare with the metrics you’re using? Are there any metrics you would add?
 
For more information, check out: http://info.epicor.com/Manufacturing-Metrics/.
 
Posted by Stewart Baillie, Vice President, Products, Manufacturing
ZBA Bank Reconciliation Procedure
Generally, divisions or subsidiaries of multi-location organizations use Zero Balance Accounts (ZBA) to make the best use of cash and credit lines.  ZBAs will automatically clear the balance to zero (or some nominal amount such as $5,000) by doing a daily transfer to/from the Corporate consolidating bank account (or Line of Credit).  The following illustrates an effective methodology for recording the ZBA sweep transactions and reconciling the appropriate bank accounts.
Assumptions:
  1. Two ZBAs are setup.  One for Disbursements (A/P check clearing) and one for Deposits and other miscellaneous transactions including outbound wires and ACH/EFT.  There are many other combinations of accounts, but the following concepts remain the same.
  2. The Division/Subsidiary utilizes online bank reporting to access daily/weekly/monthly transactions without waiting for bank statements.
  3. The bank reconciliation process is completed as part of the month end process, preferably on the first day of month end.  Alternatively, it can be done weekly or daily.
Procedures:
  1. AR and AP Transactions:
    • All deposits (not just customer payments) must be entered into Epicor ERP so they can be cleared in Bank Reconciliation.  These can be done in AR/Cash Receipts Entry, using “New Misc Payment.”
    • All disbursements (not just AP checks) must be entered into Epicor ERP so they can be cleared in Bank Reconciliation.  These can be done in AP/Payment Processing.
  2. Sweep clearing and Bank Reconciliation.  This must be done every month, but can be done daily or weekly if desired. 
    • Run the report from the bank to determine the total net value of checks that cleared during the month/day/week, and do a Bank Transfer from the appropriate Intercompany Bank Account (or Line of Credit) to the Disbursements account.
      • Alternatively, you can do a “Bank Adjustment” if you just want it to go to a GL Account for Intercompany.
    • Run the report from the bank for the Deposits Account to determine the total net value of “sweeps” during the month, and do a Bank Transfer from the Deposits account to the appropriate Intercompany Bank Account (or Line of Credit). 
      • The alternative “Bank Adjustment” option can also apply here.
    • Clear these Bank Transfers (or bank fees) and all other transactions that cleared the bank, using Bank Reconciliation.
    • Don’t forget to reconcile your bank statement so your GL account balances.

Posted by Paul Jackson, Senior Consultant, Epicor

ERP Part Numbering Standards for Manufacturing (Part 2)

In the previous blog post, we went over types of part numbering and general recommendations from Epicor. In this post, we will be giving a summary of part numbering options.

Standards for your Customers, Suppliers, and Manufacturers
This section refers to the base part numbering. It may not be within your control to change the part numbering methodologies of your suppliers, manufacturers or customers. It is, however, possible to have your own part numbers for all of the above.

Why Have Your Own Numbering System?
Why not use your supplier or customer part numbers for numbering your own parts?  There are a few reasons:

  1. Consistency: Just as you have multiple customers, your customers will have multiple part numbering standards.
  2. Elimination of Duplicates: What if two of your suppliers, or two of your customers, happen to both use the same part number to call out two different items? Now you have to come up with some method for eliminating these accidental collisions of data.

Summary of Options
There are several numbering options outlined below. Epicor recommends the third, “semi-meaningful” numbering system for most companies.

Meaningful Part Numbering
This is where the digits of the part number each have a specific meaning, resulting in the ability for a knowledgeable user to know what a part number translates into. However, having a completely meaningful system makes for a very complicated structure, and necessitates a strong engineering organization to control the part number assignment. Some companies choose to only use a fully meaningful part numbering system on their finished goods.

Non-Meaningful Part Numbering
In this case, the part number itself does not mean anything significant. This could be a sequentially assigned number, or can appear to be random. Also, sorting by part number is totally meaningless. When searching by part number, you must know what you want.

Semi-Meaningful Part Numbering (Recommended)
This is a system where there is some meaning in the part number—defining the type of part, but not down to every final detail. Not all attributes of the part are defined. At some point, there becomes too many attributes to track in the part, so a sequential number is assigned to differentiate from other similar parts. The actual description and differences are stored in the part description, as well as the part’s drawing.

To learn more about part numbering rules, best practices and recommended formatting, download the white paper ERP Part Numbering Standards for Manufacturing here.

Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services

ERP Part Numbering Standards for Manufacturing (Part 1)
There are many opinions on the subject of “proper” part numbering systems within the manufacturing world. Many companies will fall into what can be called an “accidental” part numbering scheme, and still others end up over-thinking their designs. This blog series will present you with guidelines for developing and using good part numbering techniques within a manufacturing company.
 
The first thing to note is that a part number is generally not a description of the part; there are separate fields for holding the actual description, as well as part class and product group. Having part numbers defined by whether a part is purchased or manufactured is not recommended, as this can change over time. Anything that can change should not be embedded into the part number.
 
Every part has a “Part Number,” which is also the primary index for the part table; this may also be called an “Item Number” or a “Stock Keeping Unit” (SKU). There should be only one part number set up for each item that is kept in stock. We assume that each part number represents a specific item, and there are no duplicate items.
 
Here are 4 different types of part numbers you should be aware of:
  • Manufacturer Part Number: Since you may have multiple manufacturers for any one part number, it is possible to have multiple manufacturers and multiple manufacturer part numbers assigned to any one of your part numbers. An enterprise resource planning (ERP) system is able to store cross-references to multiple manufacturers’ part numbers.
  • Supplier Part Number: A supplier part number is the number that your supplier/vendor labels your part. Your supplier may be a manufacturer, or they may be a distributor for another manufacturer. Since they may reference their part number differently than the manufacturer, you can create a three-way tie between your part, the manufacturer part, and the supplier part.
  • Customer Part Number: The ERP system can also have a customer part number cross-reference. Since multiple customers can purchase the same part, there can be multiple customer part numbers that reference your part. Customer part numbers also have their own descriptions.
  • Internal Part Cross-reference: This final part number option is to create an internal, secondary method of calling out a part number. The internal number can be used as a shortcut to a longer part number, or it can modify any serial numbering methodologies for the base part. It is also possible to have multiple internal cross-references.
In the next post of the Part Numbering Standards for Manufacturing blog series, we will be giving a summary of part numbering options. For more information on Epicor consulting services on this and other aspects of ERP, visit here.
 
Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services
Implementing Consignment Inventory (Part 3 of 3)

In previous blog posts, we covered the definition, initial setup and advantages of managing consignment inventory using Epicor ERP v9 or v10.

Several other questions remain to be answered, i.e.: “How do we verify the consignment inventory quantities?” and “How do we finish the contract without ending up with extra inventory?”

Cycle Counting/Physical Inventory
Consignment inventory is still an asset of the company that currently owns it. It is therefore the distributor’s fiscal responsibility to periodically count that inventory to make sure it is still in its proper place. If you have used the procedures defined in the previous blog posts, then you can use the standard cycle counting or physical inventory module that is built into Epicor ERP v9 or v10.

Since Epicor supports counting by warehouse ID, you can simply initiate a physical inventory for your consignment warehouse. If you have multiple customers, you would have multiple warehouses, with each warehouse to be counted separately.

Of course, in order to do this inventory check, you still need access to the inventory itself, or you need a trustworthy customer that will return the physical inventory results.  It is up to you to determine what you are going to do with any adjustments that are found.

  • If during the count, you find more parts that were supposed to be there, that may mean:
    • You have overbilled your customer for product they did not actually use, or
    • You shipped more parts than you acknowledged in the electronic transfer order.
  • If during the count, you find fewer parts than you were supposed to:
    • Your customer has used more parts than they have told you about.

In either of the above two cases, you need to confirm that there is a clear declaration of who is responsible for any variances found during the physical inventory. If you followed all of the procedures, there should be no unverified variances in the shipment. This would then leave only one option for the variance: issue a credit or an invoice for the difference in inventory quantity.

Closing the Contract
As the contract is coming to an end, you want to ensure that you do not end up with large quantities of inventory sitting in your customer’s consignment warehouse. At some point, they will not want that inventory anymore, and you will need to take it back (unless you have a clause in your contract to protect you).

Our recommendation is to closely monitor those parts as the contract is winding down, to make sure you have reduced or eliminated the minimum on hand/safety stock levels that you have defined throughout the system. Also, verify that any forecasts that the customer has delivered represent real, sellable product.

Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services

Implementing Consignment Inventory (Part 2 of 3)

In the previous blog post, we covered the definition, initial setup and advantages of managing consignment inventory using Epicor ERP v9 or v10.

Below are the steps that must be done to implement a new consignment customer with a new consignment part, assuming that you already have a consignment plant (in v9) or site (in v10) set up in the system.

  1. New consignment agreement is placed by the customer
    • Create a “Consignment Warehouse” for this new customer (one time for each customer).
    • Define minimum stocking levels in the consignment plant/site; i.e., if your contract says you are to always have 100 on hand, then set 100 as the minimum on hand for the consignment plant/site.
    • Define minimum stocking level at the manufacturer’s local plant. This would be any inventory that you want to keep on hand to fulfill any rush requirements. Typically, this is less than or equal to the minimum consignment level above.
    • In the consignment plant/site, specify that this item is a “Transfer” item, and that the “Supply Plant/Site” is your main manufacturing plant. Also specify the transfer lead time (the number of days that the item will be in transit).
    • Create the MRP forecast for this customer part in the consignment plant (i.e., you are forecasting that the inventory will be consumed from consignment, not from your local stores).
    • Note: at this point, you do not have to have any firm Sales order entered… MRP Forecasting + minimum on-hand will drive the first fulfillment of consignment inventory.
  2. Run MRP
    • MRP will see that you are currently below the minimum in the consignment plant, and will generate suggested transfer order requirements from the manufacturer’s plant to consignment.
    • MRP will then add these requirements to the minimum on hand specified in the manufacturer’s plant, and will generate “unfirm jobs” to fill these demands (even without a firm sales order).
  3. Firm Job, and Make Product
    • This is a normal job in your local plant.
    • When complete, the product is received to stock.
    • Once in stock, it will show on the suggested transfer order shipments.
  4. Ship Transfer Order from the manufacturer’s plant
    • Transfer orders generate Transfer Order Packslips. These packslips show the address of the demand (the consignment plant). It is your paperwork that goes to the customer.
    • Note that this is not a customer shipment…it is a transfer, because you are not transferring ownership, only moving inventory locations.
  5. Receive Transfer Order into Consignment
    • This is done once you receive confirmation from the customer that they have received the shipment.
    • This function actually takes the inventory out of “In transit” and puts it into the consignment plant.
  6. Consumption of Consignment Inventory
    • In most cases, your customers give a report showing what items were consumed. When this happens, an order needs to be entered, shipped and invoiced.
    • There are several ways that this can be done, but easiest is to create a new “counter sale” sales order. Counter sales allow for an order to be entered, “shipped” and immediately invoiced without all the extra processing.
    • When you create the counter sales order, you tell the system that you are selling it from the “consignment warehouse” location. This then automatically reduces the quantity on hand in consignment.
    • If there are a large number of parts consumed each day, then this could be automated with a Service Connect process to create and ship the orders. Alternately, an Excel spreadsheet could be copied and pasted into the counter sale section on the sales order.
  7. Replenishing consignment locations (basically, Go to Step 2 above)
    • If the customer’s consumption above did not reduce inventory below the “minimum” on hand in the consignment plant, then nothing will happen.
    • But, if it does reduce the on hand below minimum, then when MRP has its nightly run (see step 2 above), it will create another transfer order suggestion to move more inventory from your main stock to consignment.

Consignment Summary
While there are “urban legends” that Epicor ERP v9 and v10 cannot do consignment inventory because there is not a consignment module, this is not true, and as shown above, the actual steps are not difficult. In fact, once set up, the system will self-fulfill as the customer consumes the inventory. The manufacturer may need some help from an Epicor consultant in setting this up the first time, but once the model is complete, it can be easily replicated.

In the last part of this series, we will discuss how to verify the quantities and finish the contract for consignment inventory.

Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services

Strategies for Planning and Scheduling in Food Manufacturing

The food industry has changed dramatically since the millennial turn. Consumers are more demanding, driving up expectations across a range of factors, including availability, price, quality, freshness, and service. Retailers are more demanding as well, expecting replenishment systems that allow them to meet volatile demand while keeping costs low. The regulatory environment has pushed tracking and traceability to the fore. Pressure on pricing is constant as well, fueled by increasing competition, and the business is ever more promotion-driven. Add to this shrinking product lifecycles and the proliferation of private labels.

In this daunting environment, small and mid-sized food manufacturers face a host of challenges, including:

  • Developing new products. In markets with an unquenchable thirst for the new, there are ever-more products and SKUs. This had led to a growing number of suppliers. Often products that are here today are gone tomorrow.
  • Customer retention. Quality is now a universal expectation, along with competitive pricing. Service demands are higher than ever before, with excellent service really being a component of quality. To meet retailers’ demands, controlling costs while meeting schedules is critical.
  • Improved process efficiency. To compete, food manufacturers have had to drive up productivity and efficiency. Supply chain integration is key to achieve this goal, along with implementation of Lean manufacturing methods. The need to improve and manage yield is constant.
  • Schedule compliance. With shortened time-to-delivery, shelf life management issues, and increasingly schedule variability, schedule compliance is a significant challenge.
  • Regulatory compliance. Compliance demands are an increasing concern as government regulations (e.g., safety, environmental) become increasingly strict and complex.
  • Market volatility. Having the ability to respond to uncertain market demand is vital, particularly as materials and energy costs rise.

From a planning and scheduling perspective, these challenges pose a litany of operational requirements to food manufacturers. Manufacturers must:

  • Execute dynamic scheduling for normal and special demand variation.
  • Support product (and especially new product) SOPs, recipes, operator instruction, and compliance.
  • Ensure schedule changes are made to accommodate contract variation.
  • Be capable of seasonal planning within forecasts.
  • Have necessary visibility to ensure efficient operation while assuring compliance.
  • Have forecasts and schedules that enable change for special and promotional products.

While this is a formidable list, successful food manufacturers are meeting these demands with a number of effective strategies:

  • Simplify forecasting, planning, and transactions.
  • Implement dynamic daily scheduling and planning systems for faster and more effective responsiveness to change.
  • Enable paperless production and control with built-in compliance to minimize risk.
  • Build in real-time visibility across the enterprise for alerts and analysis.
  • Establish closed-loop control between the back office and production floor.

Enabling technologies have provided the necessary functionality to support these strategies, including dynamic planning and scheduling tools, what-if analytics, real-time visibility, agility for seasonality, capacity, and maintenance management, and automation of process control. Among the benefits being realized by adopting these strategies and the tools to implement them: better decision making, stronger internal and external connections, more reliable delivery on shorter production and supply schedules, greater business efficiency, and significant cost savings.

Posted by Tom Muth Senior Manager, Product Marketing, Epicor

Food and Beverage Manufacturers Drive Down Waste

In a post on thinkeatsave.org, waste reduction has been identified as the number one trend in food and beverage for 2014:

For some time now manufacturers' sustainability efforts have been zeroed in on, with a more recent shift in focus being to reduce food lost or waste, wherever possible. Food loss during production and food waste at the retailer and consumer end of the food-supply chain will be heavily scrutinized. Ingredients derived from the waste stream will also hold enormous potential.

Campbell’s Culinary TrendScape also cites food waste awareness as a top trend for the year.

These pronouncements come in the wake of the food industry’s first-ever analysis of food waste data collected directly from food manufacturers, retailers and wholesalers. Released in June of last year, the study was conducted by consulting firm BSR and commissioned by the Food Waste Reduction Alliance (FWRA), a cross-sector industry initiative led by the Grocery Manufacturers Association (GMA), the Food Marketing Institute (FMI), and the National Restaurant Association (NRA). Among the study’s findings, which are expected to accelerate industry food waste reduction efforts:

  • The food waste profiles of the food manufacturing sector and the grocery retail/wholesale sector differ significantly, which reflects their different operating environments. Extrapolated to the entire United States, in 2011:
    • The manufacturing sector generated a larger volume of food waste (44.3 billion pounds), but the large majority (94.6 percent) was diverted from landfills to higher uses, such as donation and recycling.
    • The retail and wholesale sectors generated less food waste (3.8 billion pounds), but they diverted a smaller proportion (55.6 percent) to higher uses.
  • Despite significant differences in the total amount of food waste the sectors generate, they donated and disposed of similar amounts:
    • Amount of food waste disposed:
      • Manufacturing: 2.4 billion pounds
      • Retail and wholesale: 1.7 billion pounds
    • Amount of food donated:
      • Manufacturing: 700 million pounds
      • Retail and wholesale: 670 million pounds
  • In total, 4.1 billion pounds of food waste was disposed in 2011 in landfills or incinerators. This represents only 8.5 percent of the 48.1 billion pounds of food waste generated collectively across the food manufacturing, retail, and wholesale sectors.
  • Based on the survey results, companies have opportunities to continue to reduce the amount of food waste they generate within the supply chain, as well as to identify options for directing it toward higher uses, as outlined in the EPA’s Food Waste Recovery Hierarchy.
    • Food manufacturers have an opportunity to continue to reduce the amount of food waste they generate and to move up the food waste hierarchy to increase the percentage they donate.
    • Food retailers and wholesalers have an opportunity to divert more waste from landfills to higher uses, while continuing to focus on reducing the amount of food waste they generate.

To support this effort, an article on Food Drink Europe lists six ways food manufacturers can help consumers drive down waste:

  • Extend shelf life through packaging and processing innovation.
  • Provide clear date labels.
  • Provide clear storage, freezing, defrosting and preparation instructions.
  • Make dispensing food easier.
  • Provide a variety of portion sizes.
  • Inform consumers about packaging and labeling innovations that help prevent food spoilage.

The BSR report notes eight “farm to fork” actions taking place in the private sector (of which manufacturers are a key component) that are facilitating waste reduction efforts:

 
Source: BSR
 
Enabling technologies that can affect and reduce waste through the supply chain inlcude dynamic planning and scheduling tools, what-if analytics, real-time visibility, agility for seasonality, capacity, and maintenance management, and automation of process control. Among the benefits being realized by adopting these strategies and the tools to implement them: better decision making, ,insight into waste before occurance, stronger internal and external connections, more reliable delivery on shorter production and supply schedules, greater business efficiency, and significant cost savings.
 
Posted by Tom Muth Senior Manager, Product Marketing, Epicor
Introduction to Consignment Inventory (Part 1 of 3)
Definition
Consignment inventory is inventory that is:
  1. Owned by the manufacturer
  2. Shipped to the customer, but not invoiced until—
  3. Consumption of the inventory is advised by the customer—at which time, it is invoiced.

Consignment and Epicor ERP v9 & v10
Epicor ERP (v9 & v10) does not have a “consignment module” per se, but it does support consignment very well, with well-defined procedures. For example, the method described below has been used by multiple companies in the aerospace industry.

There are several deviations from this model that can cause it to malfunction.  We conclude this post by highlighting those pitfalls so they are not pursued.

Consignment with MRP-Multi-Site Advantages
By setting up consignment in the manner described here, there are many advantages and processes that can be managed within Epicor ERP v9 or v10. These include:

  1. Forecasting of consignment usage by location
  2. Management of minimum stocking levels by consignment location
  3. Management of minimum stocking levels at manufacturer’s location to fill consignment emergencies
  4. Automatic replenishment of minimum levels at the consignment location
  5. Ability to cycle count/physically inventory a specific customer’s inventory
  6. Easy shipment of “Transfer Orders” to move inventory to consignment location
  7. Material requirements for future consignment deliveries are still calculated based on the forecast that is entered into consignment

The Required Initial Setup
To process consignment inventory, there are several modules required, as well as some specific setups.

  1. Must have Material Requirements Planning (MRP)
  2. Must have Multi-site
  3. Must create a new “Plant” (in v9) or “Site” (in v10) to hold “Consignment Inventory”

Optional Setup Items
There are some decisions that are optional, depending on the customers, and the products that are shipping to those customers:

  1. You can set up either one consignment plant/site for the entire company, or one consignment plant/site for each Customer Ship-To. The reason is:
    • If you ship common assemblies to multiple consignment sites, then it is easier to track requirements if there is a separate plant for each location.
    • But if there are no common parts between customers, then creating one plant (or site), with one warehouse for each customer, is sufficient.
  2. You can alternatively create separate cost tables for each plant. This allows the plant to have its own average cost. However, many companies do not want this to happen, and tie the costs of the consignment plant to the main plant.

Pitfalls of Skipping Steps or Incorrect Setup
As stated above, there are several pitfalls that are potential causes for failure and should be avoided:

  1. Some think that these consignment locations are supposed to be “non-net inventory”… this is not true. They must be considered “nettable” inventory in order for this to work.
  2. Ignoring forecasts, or putting forecasts in the wrong location.
    • Forecasts should always be entered, and they should be entered into the consignment plant.
    • Forecasts are what drives the future purchases (and even manufactured job orders, if the lead time on purchasing/manufacturing is longer).
  3. Forgetting transfer lead time.
  4. Entering sales orders against the wrong plant. All consignment usage must be “shipped” (consumed) from the consignment plant.

In the next post, we will discuss the consignment process in action.

Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services
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