White Paper (Updated July 2017)

A Beginner's Guide to ERP for Food Companies

Highlights

For any company, investing in integrated business software, also known as enterprise resource planning software (ERP), is a lengthy and complex undertaking. You’ll need to look at virtually every business process in your company and integrate it into the new system. For food manufacturers and distributors with wide ranging operational and regulatory requirements, it’s an especially challenging task.

This beginner’s guide will help you determine if your food company is ready for an ERP implementation, and how you can set yourself up for success.

In this guide, you’ll learn:


Recognizing when you need ERP software

In the early stages of managing a business, you can handle transactions between you and your customers as well as between departments in your company manually or with basic business software. At this early stage, the costs of adopting something more sophisticated outweigh the benefits.

But once a business starts to grow, two things happen.

First, the volume of activity becomes more than you can reasonably handle with basic software, and administrative tasks start bogging down your operation because the current processes don’t scale well. Second, now that the business is well established and bumping up against larger competitors, it becomes important to get scientific about optimizing your operation for maximum profits.

That optimization depends, among other things, on keeping good records and collecting actionable insights from them. When that pressure appears, adopting more sophisticated software becomes an absolute requirement if you want to reach the next level of growth. The need for software that integrates the different parts of your company — sales, finance, purchasing, production and more — into one cohesive whole becomes painfully clear.

Typical symptoms include, but aren’t limited to:


When you experience these symptoms it starts becoming clear that a lack of technical sophistication is holding you back. This is where most companies start looking for alternatives, which is a bit too late; selecting and implementing new business software that’s truly integrated can take a year or more. Be alert to when these signs begin showing themselves rather than waiting until working around them has become a daily ordeal.

Experiencing the symptoms above is enough reason to take action. Company size is secondary. The best ERP vendors are flexible enough to adapt to most companies’ needs and budget, so don’t assume you’re too small.

Manufacturing ERP: two broad categories

Before moving on, it’s important to get some definitions out of the way because they play a major role in identifying the right ERP partner for you.

ERP systems for manufacturers broadly fall into two categories: ERP for discrete manufacturing and ERP for process manufacturing.

Discrete manufacturers make products by assembling parts. Products like these can be disassembled into their constituent components. Examples are cars, computers, machines and equipment.

Process manufacturing creates products from formulas or recipes. They can’t be unmade or disassembled. Examples are food, chemicals, pharmaceuticals and cosmetics.

It’s important to understand the difference between these two categories before you begin exploring ERP solutions because the demands of a food manufacturer — a type of process manufacturing — go beyond what a discrete manufacturer will need. Scaling batches, substituting ingredients, tracing ingredients and optimizing shelf life are just a few examples of functionality that’s critical to a food manufacturer and that some ERP systems won’t do well (or at all) because they’re not built for process manufacturing.

Look for, at least, software that caters to the unique demands of a process manufacturer. Better still would be software that specializes in the food industry because it’s more likely to offer the functionality a food producer needs without extensive customization or workarounds. Examples of important ERP functionality not often seen outside the food industry include allergen management, reverse bills of materials (BOMs) and nutritional information calculations.

Anatomy of an ERP system

Newcomers to the concept of integrated business software often have trouble wrapping their heads around the idea. Here’s a fairly thorough (but not exhaustive) list of what that integration can include. Some of the benefits are nearly universal among ERP systems while others are more specialized and relatively uncommon.

Quality

Food safety and compliance

Warehouse and inventory

Manufacturing and production

R&D and product development

Reporting and analytics

Sales

Purchasing

Finance

Plant maintenance and preventative maintenance

Other features

Beginning your search and managing the process

If you’re suffering from the symptoms we described earlier and the features above sound like something that would save your company considerable time or money, then it’s probably wise to take the next step and begin searching for more capable business software.

Many companies will engage a consultant at this point: someone who is an expert in evaluating business software and matching it to a particular company’s requirements. Since those activities aren’t your specialty, it can be money well spent, though many companies do well by educating themselves a bit and doing without a consultant.

Either way, here are some tips on how to manage the process and make the right product and vendor selection.

1. Start with a needs assessment

Reflect on the common experience of going grocery shopping without a shopping list. You probably forgot some things you really needed and bought some things you didn’t. ERP selection presents a similar risk, so determine beforehand what you need, then shop with an eye to those features.

2. Use a vendor evaluation matrix

Now that you know what you want, write it down and determine the relative priorities. The goal here is to create a scorecard that will facilitate an objective evaluation of the options. Objectivity is critical. You don’t want to base a decision this important on emotion.

Many successful large procurement projects, of all kinds, start with a matrix like this. If you’ve decided to hire a consultant to help you, this is one of the areas where they can potentially add great value.

A note about objectivity: while you want to assign scores to each criterion to keep evaluations and comparisons as objective as possible, some of your criteria may be inherently subjective. For example, it may be important to you to work with a company that’s friendly, professional, stable or on the leading edge of technology. These attributes are hard to quantify objectively, but you can include them in your matrix anyway. Treat and measure them as objectively as you can, but accept that some of the things that will be important to you will be inherently subjective. That’s okay. If friendliness is important, it doesn’t help to leave it out just because it’s hard to measure or may stir debate.


Sample vendor evaluation matrix


Criteria

Weight

Rating

Score

Support for multiple production facilities 10 7 70
Easy remote access 7 5 35
Ability to create custom reports 8 10 80
Sales commissions features 5 4 20
Food industry expertise 6 9 54
Works with GS1 standard barcodes 3 3 9
Data security 10 6 60
Cost (higher rating = cheaper) 8 4 32
Add Criteria (weight x rating = score) 1-10 1-10 TBD

Vendor Score

360

3. Create a request for proposal

Now that you know more or less what you’re looking for, it’s a good time to issue an RFP. Writing a good RFP takes time and effort, but being thorough and clear about what you want will result in proposals that are much easier to objectively evaluate and compare.

Include your scoring matrix in the RFP so vendors know exactly how you’ll make your decision. As a general rule, if you want vendors to propose – and deliver – exactly what you need, be transparent about it. The greater your transparency and specificity, the higher the quality of the responses your RFP will receive. If you’re not sure what you want or need in a particular area, you can say that and ask for recommendations. Conversely, if you know what you want, disclose it.

Lastly, be concise in your RFP and encourage vendors to do the same. If you know what you want and a vendor knows how to deliver it, neither you nor they should need 40 pages to communicate it.

4. Evaluate objectively, look for a good fit and make your choice

If you gave your scoring matrix and RFP the attention and effort they deserve, this task will be relatively straightforward, though it can take a long time if you have complicated requirements.

It’s good practice to involve a cross-section of the company in making the evaluations. You’ll get broader insight, plus you’re more likely to get widespread buy-in for the final decision if a good cross-section of employees were involved in making it.

5. Prepare and lead the organization through the implementation

This topic is complex enough to warrant its own whitepaper, and we’ve written one. Besides the technical challenges of implementing new software, there will be organizational and behavioral challenges. ERP first timers usually underestimate them. Make sure you choose a vendor that can offer more than just technical ability; change management expertise is essential.

Summary

In an industry with tight profit margins, fierce competition and strict compliance requirements, having the right business management software is critical to maintaining and growing market share and profitability. With the right process and the right partner, implementing integrated business software can remove the barriers that are holding your company back. Watch for the symptoms, assess your needs, be objective and engage help if you need it. The risks are significant, but so too are the potential rewards.

Join our mailing list

Subscribe to receive white papers, videos, product information and other resources that help you do food better.

Join