Bills of materials: One key to food and beverage ERP success
Ask us what one high-impact way is to ensure the success of any ERP software implementation project, and we’ll answer rather quickly: Bills of materials (BOMs). While you know what they are — simply the list of ingredients and their quantities that go into each product to yield a batch of a given size — you might not realize they take on an even greater role in the context of ERP selection and implementation.
Unfortunately, we see many businesses get lost in the weeds, making BOMs more complicated than they need to be. But if you’re considering moving to an ERP, or you’re in the implementation stages, or you just want to get more out of your current system, you do need a deeper understanding of BOMs. Otherwise, you’re putting your project ROI at risk.
When it comes to BOMs, simplicity is your friend.
The devil is in details in large ERP projects, and missteps can cost big-time, but when it comes to BOMs, simplicity is your friend. Let us explain.
Align BOMs with business goals.
Food processors and food manufacturing companies use BOMs for a range of purposes, from materials planning and product costing, to managing coproducts and byproducts and waste. The challenge is to be clear about why you’re using BOMs and to set them up in your ERP in a way that aligns with, and helps achieve, those business goals.
Take the food processor that wanted to use BOMs to calculate inventory between production steps. The company had three or four BOMs for one production line alone — one set for chopping and slicing, one for freeze-drying, and one for packaging. After each step on the line — that is, every few minutes — operators had to stop, run to the office computer, and enter in data.
Can you picture the resulting cascade? The line slowed down. Operators had to take their attention off production. Costing issues arose due to the need for more operator time. Data grew muddy because production steps overlapped.
Managers had great intentions in creating several BOMs for the line. They wanted accurate, granular data to support costing and pricing, material requirements planning (MRP) and purchasing, and inventory management they believed would provide a greater degree of control. But in this case — and most cases when it comes to BOMs — less is more, while still giving you the accuracy you seek.
Not setting up your BOMs effectively can have a surprising ripple effect in terms of dollars and customers — an impact that might not be detected for weeks or months. Costs may rise due to excess ingredient usage or yields that are off. You might end up over- or under-purchasing materials and, playing out the scenario, needing to tell a customer you can’t make their next delivery. Particularly with products that use seasonal commodities, you don’t get a second chance to harvest your raw materials.
If your business goals involve accurate, efficient production, costing, inventory management, and on-time orders to customers, using BOMs effectively is a must.
Many food manufacturers and processors believe their production teams already know how to set up BOMs because they use them every day. But knowing how to blend your products isn’t the same as knowing how to translate those tasks into effective BOMs.
Take the blending operation of a food manufacturing business that makes pink lemonade. The company implemented a new ERP system. The next time lemonade ingredients came to the line, the blending team used the BOM, and the pink lemonade turned out — wait for it — not pink. With the R&D team 1,200 miles away, the team scratched its collective head, until someone figured it out: The BOM wasn’t set up properly — it had been missing its coloring agent. The line shut down for six hours, an expensive mistake.
The real lesson here? Don’t be afraid to seek outside expertise and guidance. When it comes to ERP, don’t assume you have BOM experts in-house.
Assess your needs.
The first step to effective BOMs for food manufacturers and food processors begins before you even pick a system, with a needs assessment. This is when you set up the entire project to succeed. It’s where you take a hard look at the business and identify your needs. Then and only then can you truly be sure the ERP systems you’re considering can meet them.
Questions you should be asking (and answering) during an assessment include: How do our products work? What ingredients are we blending? What are our yields and variability? What are our intermediate products, coproducts, and byproducts? What’s tricky about what we produce? What special process or functionality do we need? Are there substitutions? Limitations? (No fruits and vegetables from a particular country, for example?)
These questions are just a small part of an assessment process and, from here, you can develop formal business requirements for vendor proposals and demos. Some requirements may winnow the field of competitors quickly — for example, many ERP systems can’t effectively handle BOMs with positive yields, multiple units of measurement, or coproducts and byproducts.
Leverage BOMs for accurate data and ERP ROI.
Functionality around BOMs in the food and beverage industry is critical to ERP selection, just as properly setting up your BOMs is key to the success of your entire ERP implementation (and your business). Don’t put customer relationships or your ERP ROI at risk — seek objective help from industry experts, ask the right questions, and set up your BOMs effectively from the start.
You’ll reap the benefits in accurate data that supports your business goals, on-time customer deliverables, and ... pink lemonade that’s actually pink.