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Food Manufacturing: Plan, Plan, And Plan! [Part 1]

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During times of uncertainties, planning plays a critical role in the survival of businesses, especially the Food Manufacturing industry which heavily relies on external economic and socio-economical factors. An important survival advice I was taught back in days while studying Engineering, it’s always handy to go back to the fundamentals to overcome unexpected situations! We will dig our way though planning by building a planning framework based on supply chain fundamentals.

A Planning Framework?

While all manufacturer implements some form of Manufacturing Planning and Control (MPC) system – which is concerned with the planning and controlling of all aspects of manufacturing, including procurement of raw material, scheduling the production, and shipping to customers -, it is key for the success of the business to implement an effective MPC framework.

Simplified MPC Diagram

Let’s Take a Step Back First!

The main goal of businesses is to maximize the long-term financial performance and the value to their shareholders, with other stakeholders taken in consideration. Financial performance is measured by many metrics, we will focus on one metric called Economic Value Added (EVA) which measures company profits in excess of the cost of capital (debt and equity), which when compared to other metrics, is an internal and management-controllable measure [Source: Kay, I., Madu, M., & Johnson, P. (2020, March 8). Assessment of ISS’s Use of EVA in CEO Pay-for-Performance Model. The Harvard Law School Forum on Corporate Governance.]

There’s no profit unless you earn the cost of capital – Alfred Marshall

Let’s lay it down first, EVA is a measure of Net Operating Profit After Tax (NOPAT), less cost of capital, that measure can be expressed by the Return on Capital Employed (ROCE) and the Weighted Average Cost of Capital (WACC), multiplied by the Capital Employed (CE):

EVA = (ROCE - WACC) x CE
ROCE = NOPAT / CE

Ugly Formulas, Pretty Visualization

EVA Visualized

It’s clear that value won’t be created unless revenue exceeds all costs, including the cost of capital, in simpler terms, ROCE has to exceed WACC, but how can a business achieve that?

In our article, we will focus on measurable and Supply/Demand-related factors such as:

  • Higher Revenue
  • Lower Cost
  • Lower Working Capital

On one hand, in order to achieve high revenue from a demand perspective, businesses in general, and food manufacturers in particular, need to reduce their stock-outs. And to lower their costs, they need to reduce their inventory carrying cost, cost of material, distribution costs, etc.

On the other hand, in order to lower working capital, businesses need to optimize their Cash-to-Cash (C2C) cycle time – a metric describing the average days required to turn a dollar invested in the raw material into a dollar collected from a customer -, and one important factor to optimize the C2C is reducing safety stock levels.

Cash-to-Cash Visualized

While the 3 factors might look contradictory, this is where MPC comes in place, the effectiveness of an MPC framework is to balance the trade-offs of the 3 factors to support supply chain initiatives and potentially achieve the business’s ultimate goal to increase the value for shareholders.

A Contradiction, Yet Manageable!

Back to our MPC framework, there are 3 main entry points, Demand Management, Sales and Operations Planning (S&OP), and Resources Planning, in our article we will focus on Demand Management and S&OP, and explore an overview of Demand Planning and how technology can add value to the overall MPC framework.

S&OP balances the sales and marketing activities of a company with its production ensuring that manufacturing will support its sales activities and strategy. Demand Management is the business gateway to marketplaces (Customers), it allows businesses to do activities such as forecasting customer demand, order management, communicating back promises of delivery, and orders statuses and changes [Source: Jacobs, Robert F., William L. Berry, Clay Whybark, and Thomas E. Vollmann. 2018. “Demand Management in MPC Systems.” Chap. 3.1 in Manufacturing Planning and Control for Supply Chain Management: The CPIM Reference. 2nd ed. New York: McGraw-Hill Education.].

Demand Management must conform to the business strategy, manufacturing capabilities, and customer needs, and those factors define different MPC environments. A key classification of an MPC environment is something called Customer Order Decoupling Point (CODP).

The CODP is the point in the material flow where the product is tied to a specific customer order [Source: Olhager, J. (2010, December). The role of the customer order decoupling point in production and supply chain management. Computers in Industry61(9), 863–868.]; E.g., When a customer buys cereal off the shelf in a retail store, the CODP is the finished good (Cereal), but when a customer orders custom-made cereal (for example, U-RAAW! Health Foods), the CODP is now the raw material, meaning it moved further down the supply chain.

It’s key to understand the role of CODP and different manufacturing situations such as make-to-stock (MTS), assemble-to-order (ATO), make-to-order (MTO), and engineer-to-order (ETO). CODP divides the flow into two categories upstream – forecast driven -, and downstream – customer order driven – allowing manufacturers to adopt different situations for a varity of products.

We will focus on CODP in the dominant manufacturing situation of food manufacturing businesses (MTS) and how it fits within the supply chain planning matrix (Stadtler and Kilger, 2000).

MTS Supply Chain Planning Matrix

Working Our Way Backwards, Introducing Demand Planning!

To maximize EVA, we mentioned 3 factors, Higher Revenue, Lower Cost, and Lower Working Capital. The main goal of Demand Planning to identify the sweet spot to maintain optimal stock levels that would minimize inventory carrying cost, and material cost.

In the coming article we will explore the tools and techniques of Demand Planning and how we can apply them in Oracle NetSuite, leaving you now with an introduction to Oracle NetSuite Demand Planning:

https://youtu.be/8YUGW5pOqi8

Want to discuss further?

it’s important to work with a partner that understands your business as well as the product itself, and we at Haya Solutions Inc. pride ourselves on a track record of successful ERP implementations. With +25 years of combined experience in many verticals such as Manufacturing, Wholesale Distribution, Retail, Medical Equipment, Construction, Insurance, Healthcare, e-Commerce, and many more, working with customers private and public Small and Medium Enterprises.

Drop us an email for a free consultancy call on our website.

 

Food manufacturing: now what?

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Status quo

With the war in Ukraine and the risk of entrenched recession in many financial systems across the globe, the food manufacturing industry has been impacted by an unprecedented increase in energy and raw materials commodities prices and a dramatic decrease in consumer demand.

Nonetheless, according to the Food and Agriculture Organization of the US (FAO) and the World Bank, the markets have shown a recovery from the volatility that was not seen since 1970.

By taking a quick look at the FAO Food Price Index (2014-2016=100), we notice that we are at levels that exceeded the financial crisis in 2008, however, the short-term trend is downwards, which is also confirmed by a recovery in the Commodities Price Index (2014-2016=100) for Q3 2022:

FAO Food Price Index from Q1 2006 to Q3 2022

FAO Commodities Price Index from Q1 2006 to Q3 2022

Source: FAOSTATS Sept 2022

On the other hand, the energy market is showing mixed signals, while the trading prices are on a downward trend (August to July comparative statistics), the World Bank Energy Index (2016=100) Q3 2022 is on the upward trend for the foreseeable future, which is attributed to the disruption in Natural Gas supplies in EU:

World Bank Energy Price Index (Q1 2016-Q3 2022)

World Bank Nomial Monthly Prices - Crude Oil

Source: World Bank Pink Sheet Sept 2022

With the supply mainly relying on energy and raw materials, the demand can be looked at by many factors, more importantly, the Consumer Price Index (CPI), which measures the overall change in consumer prices based on a representative basket of goods over time.

A quick look at a 12-month change in CPI for the US and Canada shows the soaring increase in prices that’s officially reported by the two governments, which might suffer from downward/upward biases for political or economical reasons:

12-month price change CPI - US

12-month price change by geography - Canada

Source: Stats Canada, Sept 2022

CPI is important because it’s a measure of inflation, which in return reflects on the consumer purchasing power, while a sharp increase in the CPI doesn’t necessarily imply a sharp decline in demand, due to many socio-economical factors.

With supply and demand impacted by a volatile market, there’s also another important factor, the supply chain, a hugely troubled sector yet recovering since COVID-19, adding to the hardships of managing a food manufacturing business and resulting in squeezed profit margins which are already squeezed due to the competition.

As the lead time for purchases increases due to supply chain disruptions, delays in manufacturing attributes to different reasons, and a long Inventory Turnover cycle -Averaged at 55 days for US manufacturers [Source: First Research, Food Manufacturing, July 2022]-, there’s a major risk of inventory expiration and product recalls.

By also considering other factors, such as Accounts Receivable Aging Average at 40 days and a shy Working Capital Turnover -A measure of how efficiently a company uses its capital to generate sales- sitting at 11% for Small and Medium-sized US Manufacturers [Source: First Research, Food Manufacturing, July 2022], it’s clear that without proper management of the operations, businesses might fail to commit to their financial obligations in the short run and inevitably go bankrupt.

A Deep Dive Into Ops, How Tech Can Help?!

“More data beats clever algorithms, but better data beats more data. – Peter Norvig”

Procurement

It’s common in the food manufacturing industry to trade commodities on futures contracts, with the increased volatility, it became a necessity to keep up to date with the rapid fluctuations in prices and reflect that on the books, and managing those contracts without Commodity Trade Risk Management (CTRM) software gets harder and harder every day, especially when Mark to Market (MTM) Accounting is required.

With CTRM software combined with Enterprise Resource Planning (ERP) software capabilities, food manufacturers add more data touchpoints to their procurement that allows them to determine the true cost of a commodity over a period of time.

Sales and Marketing

While sales driven by large contracts with retailers, B2B Contracts, is the norm in the food manufacturing industry, many players in the market rely on other channels like independent distributors, brokers, internal salesforce, or direct store deliveries. It’s worth mentioning that adopting an e-Commerce or Omnichannel approach would dramatically increase revenue as it’s estimated that the global food and beverage e-Commerce market size is reaching US$ 566.04 billion by 2028 according to Million Insights.

Supply Chain Management

By combining the accurate history of purchase contracts, item receipts, landed costs, vendor bills, sales orders, inventory fulfillment, and invoices, food manufacturing businesses are now able to use advancements in the technology industry using Artificial Intelligence and take insightful decisions on time to purchase and whom to purchase from, to reduce lead time, also plan the manufacturing to satisfy the demand, seasonal or year-round.

Manufacturing

As most manufacturers rely on automated manufacturing processes, incorporating the data from the production lines’ control systems using Supervisory Control and Data Acquisition (SCADA) systems with purchasing and sales data, would allow manufacturers to implement lean manufacturing operations and methods such as Value Stream Map (VSM), which if implemented properly provide visibility on downtimes and waste during the different manufacturing processes and help increasing efficiency.

Financials

Due to the nature of the food manufacturing industry, it incorporates heavy investments in land lots, production lines, and technology that must be regularly upgraded and maintained. It also highly relies on research and development to improve existing products and introduce new ones to the market. It’s worth mentioning that many food manufacturing businesses employ seasonal workers for different types of workloads in the production cycle.

Also, many manufacturers are operating in many countries and have different taxation and financial reporting requirements (GAAP/IFRS).

With all of these data sources, accurate financial management, e.g., Assets Depreciation, Payroll, Cash flow Management, Expenses Tracking, Commodity Trading Gain/Loss, etc., requires a battery-included system that provides real-time reporting of different operations.

Which System Fills The Gaps?!

There are many ERP systems that provide features tailored for specific industries, while those systems might provide a good set of features to serve the business needs, all businesses should resort to an ERP system that allows them to scale from day one and eliminate the need for future migration to other systems, this is where Oracle NetSuite® fits.

Introducing Oracle NetSuite®

NetSuite Stairway for Food and Beverage Manufacturers

 

NetSuite’s ERP software is the industry solution of choice for inventory and order management, e-commerce, financials, and CRM.

Run your business on a single, true cloud platform.

Eliminate multiple systems and bring your data into one unified platform, and integrate with your preferred CTRM and SCADA systems.

Know your operations like never before.

Gain insight from data gathered across your organization and empower your employees with the information they need.

Get a 360-degree view of your customers.

Record every interaction automatically in a single, searchable system—from marketing and sales to service and support.

Engage your customers everywhere.

Deliver seamless shopping and service experiences across web, mobile, in-store, and call-center.

Now What?!

Organisations are successful because of good implementation, not good business plans. – Guy Kawasaki

While any ERP system in general and Oracle NetSuite, in particular, would work as long as it incorporates the features needed for current and foreseeable business needs, it’s important to work with a partner that understands your business as well as the product itself.

We at Haya Solutions Inc. pride ourselves on a track record of successful ERP implementations. With +25 years of combined experience in many verticals such as Manufacturing, Wholesale Distribution, Retail, Medical Equipment, Construction, Insurance, Healthcare, e-Commerce, and many more, working with customers private and public Small and Medium Enterprises.

Drop us an email for a free consultancy call on our website.

WEBINAR | OnFloors Business Growth on Cloud ERP

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OnFloors Business Growth on Cloud ERP



 

About The Webinar

Flooring manufacturers and distributors need real-time visibility into raw material, manufacturing lead time, market demand, supply chain, and financials. However, many still rely on legacy systems, spreadsheets, and manual processes to run their operations.

OnFloors, a Canadian online distributor and retailer, has a mission to cut the middleman and provide a wide range selection of high-quality flooring products with a “one-stop” shopping experience.

Join OnFloors and Haya Solutions for this exciting discussion regarding solutions, challenges, and the journey in leveraging NetSuite to transform the business.


You’ll Learn how NetSuite and Haya helped OnFloors with:

  1. An overall 150% Return on investment (ROI) with NetSuite
  2. Lower operational costs by 30% due to the elimination of deficiencies with manual processes
  3. Real-time visibility into their business results in improved decision making
  4. Leveraging Omnichannel Distribution to provide the best customer experience
  5. Scalability for long-term growth

Featured Speakers:

Mostafa Gamal
Professional Services Manager at Haya Solutions Inc.

Joyce Zhang
General Manager at OnFloors

Richard Zhang
IT & Operations Manager at OnFloors

The future is for M-Commerce

, , , , , , , , , , , , , , , , , , , , , , , , , Haya Solutions Inc., Software Development Projects

The future is for M-Commerce

ecommerce

What’s M-Commerce?

In the Covid era, no one on earth still doesn’t know what e-commerce is. Purchasing online became a fact and a common practice worldwide. The term “m-commerce” came to the surface in early 2020 referring to purchase and pay online but by using a mobile device instead of a computer or a laptop. (Investopedia)

The e-commerce and m-commerce together are growing dramatically year over year, and they both made 4 trillion dollars in 2020, with a market share of 18% of the total retail industry sales. They are also expected to generate total revenue of 7 trillion dollars in 2025 contributing 25% of the total retail industry sales. (emMarketer)

M-commerce continues to grow

Statistics show that 68.1% of all website visits in 2020 came from mobile devices. In 2018, 79% of smartphone users have made a purchase online using their mobile devices. In addition, here are some wow statistics gathered by Christo Petrov in November 2021 and published on TechJury:

  • Mobile commerce sales will reach $3.56 trillion by the end of 2021.
  • More than 1B mobile phone users use their phones for banking worldwide.
  • Mobile accounts for over 67.2% of all e-commerce.
  • 67.03% of the global population owns a mobile phone in 2021.
  • 79% of smartphone users have made a purchase online using their mobile devices.
  • In 2020, US mobile retail revenues were $339.03 billion.
  • 72.9% of all e-commerce will be m-commerce by the end of 2021.

The conclusion

From the previous statistics and figures we came to the following conclusions:

  • The e-commerce and m-commerce are still growing and will continue to grow
  • The m-commerce is still growing and will continue to grow overriding the e-commerce

Therefore, the investment for the future should focus on selling products and services in a Mobile App rather than on Web Stores.

Market Impact

Many e-commerce leaders and companies start building mobile applications only without a web browser to help small businesses and start-ups start their m-commerce business without the web store. This approach helps these businesses to kickstart quicker and with minimum investment.

That’s in addition to the Mobile App other benefits such as:

  • Better overall experience for customers, Ecommerce already made shopping more convenient
  • Variety of payment options including mobile e-wallets such as (Google Pay, Apple Pay)
  • A true omnichannel experience, since you can check the mobile App products while you are in the physical store
  • Mobility, since customers can use it anywhere
  • Lower the cost of building a web-store
  • Quicker development

ecommerce demo

 

Start your m-commerce

Haya Solutions Inc. also took these statistics and future readings into their strategic planning consideration. They developed an m-commerce platform consisting of:

  • Customizable Mobile Application for any retail business and brand
  • Administration web portal to enable business Admins to manage the mobile platform
  • Mobile Payments Integration
  • Pre-approved in Apple Store and Google Play

Haya Solutions Inc. launched the platform to the market at a very cost-effective price in line with small businesses’ budgets, and also in a high quality that any Large Enterprise needs.

You can start your m-commerce business today and sell your products and services via an App approved in the App stores in 4 weeks’ time.

Read more…

 

References:

https://www.perficient.com/insights/research-hub/mobile-vs-desktop-usage https://www.investopedia.com/terms/m/mobile-commerce.asp
https://techjury.net/blog/mcommerce-statistics/#gref
https://www.emarketer.com/content/global-ecommerce-forecast-2021
https://www.outerboxdesign.com/web-design-articles/mobile-ecommerce-statistics https://techjury.net/blog/mcommerce-statistics/#gref