An ERP system is the central nervous system of dairy companies. So far so good. However, there are some essential points that you need to consider when you opt for an ERP as it will have effects that will reach far into the future.
Dairy managers need to take account of a growing number of factors in their business. Unlike in any other sector, the production is subject to external influences: volatile prices and demand, society’s demand for more sustainability and transparency, growing demands on quality assurance, or changing environmental conditions. These factors force the dairy industry to implement (sometimes rather costly) changes. Yet, the day-to-day business is difficult enough as it is. Dairy companies need to secure their gross margins by optimizing the production costs. If you aim for customer-oriented and flexible production to keep your business competitive, there will be no way around permanent digitalization.
This is where the problem lies: how can you achieve this? Which solutions can you use? How can you avoid the classic problems? Ultimately, it often comes down to the same seven questions I am asked by many company leaders, IT managers, and factory managers.
1. Why are so many dairy companies unhappy with their IT solutions?
A typical case in this industry: new non-industry specific ERP systems are frequently adapted and customized over a longer period after the implementation, because the standard systems in this industry do not meet the initial or evolving requirements of dairy. What happens then?
It takes more and more time and money to adjust the ERP system updates to your tailored solution – up to a point where this is no longer possible. The way out chosen by many businesses is to swap necessary functions to other IT solutions. The result: a tangled mass of systems and discontent in IT and executive management.
2. What its better, specialized software or “best of breed”?
In other words, the company has long opted for specialized software. Which means, in detail: sales chooses a particularly effective CRM system for the acquisition of new customers; accounting relies on a comprehensive financial software; a special dairy industry solution is used for costing; and the ERP system only covers materials and supply chain management. Specialized solutions certainly are very powerful and offer interesting features. In the end, they are usually more expensive in acquisition and implementation, and the prices for maintenance and training of the staff are higher.
The crucial question is: do you actually need such a comprehensive, complex solution for the tasks on hand? What may, at first sight, appear to be an efficient solution with optimized applications for the respective area will soon reach its limits in the day-to-day work. All of these systems need to be maintained and kept up to date. Plus, they need multiplied data storage as well as a steady link to other systems.
What we frequently see is data silos. This means that the data is only available in a single application, and other potential users have no access (not in real time) or they don't even know that this information is available. However, with a shallow level of integration. In tedious manual work, the data from all systems, especially from quality management and production, has to be gathered from the various applications or Excel and related to each other. This is in no way efficient.
You may have solved the task for the time being, but there is a risk that you simply put off the problems. The most likely result is a heterogeneous IT landscape consisting of many single IT solutions that, at some point, will become difficult to administrate and that will be hardly affordable.
The question of best of breed or comprehensive system misses the point. Ultimately, the question is which of the systems provides the optimal combination of individual adjustments and easy maintenance. This could be best of breed, but it could also be an industry ERP.
3. Why does a standard solution usually beat an individual solution?
The idea of a standard software is to cover the needs of as many users as possible. BUT, an ERP solution for an engineering business, for instance, cannot meet the requirements of a food company or a dairy. Non-food industry ERP systems require individual solutions, installation, data migration, customization, maintenance contracts, and user licenses – all of this has its price.
This issue can be solved with a solution that generally builds on food-specific requirements. It is not a question of whether a system has a modular architecture. This is a must, because not all dairy businesses use the same modules in the initial implementation. It is rather a question of whether the system is used in other food areas with comparable requirements so that adjustments in the parameter settings would make it ready for use in your dairy. Some good examples for this are product development, recipes and bills of materials that are often quite similar in the food or cosmetics industries. Why not make good use of the knowledge and best-practice solutions from the dairy sector or similar industries that could also help you in your business? Why not think outside the box and find out where similar requirements have already been fulfilled?
This will be easier still if the updated or supplementing services the dairy industry calls for were already implemented in a system so they are available for all users in the dairy industry. This allows you to make decisions based on reliable real-time information, to work more efficiently at lower production cost, and at the same time, ensure compliance with quality standards and traceability for successful export trade. Flexible production planning also encompasses the management of resources and raw materials to compensate any market volatility.
Constituting a high future value, this is a secure investment. The advantage of a “standard” solution is that your processes and your production are digitalized without having to modify the software so your system solution will remain release-capable.
4. Why is integration the most important factor of success?
A Google search for full integration and ERP yields 19,100 results (on 25 November 2021). When you read all this, you will for sure learn a great deal about general features, processes, and perhaps also suppliers – yet, as I see it, this is not going to take you any further.
From a dairy company’s perspective, a full integration should be portrayed in a system that supplies all required programs in its standard version. I am not only referring to the classic modules (SCM: procurement, material requirements planning, logistics and storage, production ERP; plus: materials management, sales, HR management, finance and accounting, marketing, controlling), but also to food-specific components like APS (advanced planning and scheduling), traceability, labeling, MES, QM/QS, certification management (auditing), and line control, to name but a few. Apart from that, you need dairy specific modules like milk payment and balancing of accounts.
In the end, you avoid the somewhat elaborate task of supplementing features in an industry ERP system, which would require the integration via APIs and interfaces. It saves you a lot of work, money, and trouble since everything is an integral part of the package. You'll probably stick to some of your individual solutions, so you do need some interfaces (ideally standard ones), but only where you cannot do without them.
5. Why do you have second thoughts of a solution that seemed ideal at first sight?
No purchases without supplier scoring. That's a must. Leaving plain facts and figures aside, a far-reaching investment decision like for an ERP system demands a proper assessment of whether the supplier or service provider has the potential to keep the solutions up to date and to secure continued development.
Call in your purchasing department as early as possible. But before you do, you should be clear about your requirements. A price comparison (frequently based on hardly comparable user numbers like named users or concurrent users) is just one factor, as it does not take account of the interfaces or the vertical integration - which might lead to a significant cost increase. Try instead to consider all cost factors so as not to miss out any opportunities, or you risk dropping a provider from the race simply because the offer seems too expensive at the first glance.
6. Why is it important to visit reference customers?
It's a sine qua non. Reference visits are an important point, if not the most important one, before you short-list a potential vendor. After all, you want to see the solution working in the field.
Talk to the market players who know the dairy ERP business. Get them to show you the latest references. And then you start your tour. The vendor does not need to come along, unless you insist on it. The reference customers should be frank in their reports, you don't want a watchdog to be present. Take your time - at least a full day - and watch the system in action. Ask all questions, and involve all stakeholders at the company. I know from experience that a reference customer will come clean with you. In one day, you will get to know a lot about the solution, about the vendor, about the challenges, and about the benefits of a solution.
7. Why is the current-state analysis an important element in the vendor selection?
How to find a vendor with whom you could actually develop a concept? This is usually the crux of the matter: don’t let yourself be tricked by promises and gobbledygook written on paper. These might be interesting points, but they are not the crucial for your decision. A lot can be promised, but ultimately it is the implementation that counts. Try to get to the bottom of this reality during your reference visit, and also during the - highly recommended - current-state analysis.
The current-state analysis of your processes by a potential vendor provides an opportunity for you to see the real quality of the vendor and to challenge the expertise and the best-practice solutions from real projects. You will quickly find out if this is the partner with whom you could implement the necessary change processes.
At this stage, a dependable provider will clearly demonstrate the development potential of your business beyond the current state. But be warned, in the field of ERP, usually only the traditional SCM is scrutinized, besides the ERP modules. Yet, the processes should be openly discussed in all departments. What do your employees tell you? What is bad, what is not running in an optimal manner? Where is rework required? A qualified vendor will take the role of a consultant, moderator and interviewer to record these points and to discuss them in detail in further workshops.
In light of Industry 4.0, you should look past commercial topics and zoom in on production. Middleware solutions, such as MES, are commonly used without thinking about the further processing of this data (keyword: silos). The inevitably complex integration and data exchange of the production system calls for the analysis of all production data. Just the minor details and exact interface definitions for existing SCADA systems, stand-alone equipment, scales, labelers, and sensors could be added later on. There are some individual differences: while one dairy currently only focuses on the X-ray inspection system or on printers, another company would benefit from comprehensive production control with data exchange (plan/actual data).
Avoid selecting potential vendors simply based on paper and data criteria. All you would get is disappointment because the project could not be implemented with the planned scope, quality, and schedule, and subprojects were not implemented at all. A current-state analysis might involve some work, but it gives you the opportunity to revisit your project schedule and the planned selection scenarios, and to significantly improve the quality.
Conclusion
It takes time to find a vendor who addresses the requirements and needs of dairy companies. Time for reference visits, current-state analyses, and meetings. But it’s worth it: from a specialized ERP service provider, dairy companies will get ERP consulting as well as a tailored concept plus an ERP and digitalization strategy that facilitates the successful implementation of the project. You should clearly consider your anticipated requirements in the selection of a potential vendor. Once installed, you will work with your ERP systems for some 10, 15 years or more. However, this not only requires continuous development of the ERP system (as for example in new releases), but also the general capability for vertical integration.
With its “Made in China 2025” project, China is setting the standard for all dairy businesses. The same changes are implemented in this country, but taking a step-by-step approach, as these changes need to be profitable. BUT, when you answer the profitability question in the affirmative, then you should no longer hesitate!