By allowing bakeries to monitor all aspects of the business—accounting, production and sales—enterprise resource planning systems can help meet target numbers.
More wholesale bakers are taking a page from the manufacturing industry by bringing enterprise resource planning (ERP) systems into their baking operations.
These systems return a range of benefits, including inventory tracking and the capability to analyze business transactions in detail to find cost savings potential, says Kerry Glynn, president of GlobalBake USA, Richmond, Va., which makes ERP software.
ERP systems link production with business processes-new orders, purchasing, credit, accounting, supply chain management and planning. They connect business headquarters to multiple production facilities, warehouses and sales offices. By linking these operations, ERP helps executives understand and forecast all the factors-from sales and purchases to asset use and hiring-that might affect profits, says Jay Deakins, president of ERP system provider Deacom Inc., Wayne, Pa.
ERP systems can help bakers adjust business strategies to meet changing customer needs, Glynn says. In fact, Red Hen Baking Co., Middlesex, Vt., which uses the GlobalBake system, has cut product returns and boosted its profit margin by 3 percent after implementing ERP.
“There are real opportunities amidst the gloom and doom for those willing to find and exploit them,” Glynn adds. “But bakers' ability to plan ahead clearly and carefully is more important than ever before.”
As recently as a decade ago, ERP implementation could be costly with lengthy installation. Once the system was in place, management had to get up to speed on how to effectively crunch the numbers their systems churned out. Once established, most companies did see their bottom-line financials nudge up, thanks to the broad view into operating numbers and the zoom-in and cross-section focus the system provides, says Frank Scavo, president of the information technology research firm Computer Economics, Irvine, Calif.
Now, more than 20 years after the ERP buzz began, nearly every manufacturer-no matter its size-has a system of some sort in place, Scavo adds.
Small manufacturers, including food manufacturers, such as bakeries, usually have some sort of overarching system that operates similarly to an ERP system, he says. “Maybe they're running QuickBooks or an accounting system. So, even though they don't have anything that could properly be called ERP, those systems function in ways like ERP.”
But within the last several years, wholesale bakeries are casting aside homegrown, cobbled-together systems in favor of actual ERP systems, Deakins adds. Lower costs, easier implementation and systems targeted to smaller businesses are helping ease the transition to ERP.
In fact, the baking industry is perfectly suited to benefit from ERP installation, Glynn adds. About 200 bakeries across the nation use GlobalBake's software.
“Bakers do the same series of things over and over again every day, but a disjointed system of QuickBooks and spreadsheets and Excel files makes it hard to get an overall picture of the business,” he says. “That's one of the areas of benefit-control over all areas of the business in one centralized place.”
“Baking might not fluctuate as much as other manufacturing markets, but bakers still need to get a handle on their ups and downs,” Glynn adds. “They need to know what things cost and their margins. They need to keep an up-to-the-moment eye on them.”
The financial boost ERP can bring comes about in part because of its prediction capabilities. The system operates with up-to-the-minute information and links accounting, inventory and production in a way that allows management a bird's eye view into overall operations and allows managers to predict monthly orders in order to maintain adequate inventory levels and ease stockpiled inventory.
Also, by tracking and analyzing current manufacturing processes, improvements can be found and made, says Jim Shepherd, senior vice president of research at AMR Research, Boston, which tracks the ERP industry.
“The beauty of ERP,” Deakins says, “is it brings in sales and purchasing. Controlling all that in one spot allows you to better control business processes.”
ERP allows bakeries to track ingredients from the vendor to specific batches in production. “Let's say you bought flour from this vendor and found out later it might be contaminated,” Deakins says. “Because the flour would be specified by batch within the system, you could immediately pinpoint when the bad batch arrived because everything you received for the past three weeks would be specified. One of the goals is isolation. If only one batch is bad, you can find it and eliminate it; you don't have to empty out the entire warehouse.”
The batches can be isolated with such precision because the ERP system allows users to barcode by batch and track them through the arrival and baking process. Bakers who make use of an ERP system could tie bar codes to incoming shipments of flour, Deakins says. Finished products can be tracked before and during shipping in a similar manner.
“Every time you use flour from a lot, you scan it with a bar code gun that essentially says ‘I'm using it for this batch of cookies,’” he adds. “When it's a finished product you also bar code and scan and it goes to a particular retailer or bakery you supply. That lets you trace all the way through to where the product eventually goes.”
The tracing feature is particularly useful in recall situations, with the potential to save wholesale bakers and the customers they supply hundreds of thousands of dollars they might otherwise lose, he adds.
“In the recent peanut butter recall, companies had to throw out everything made with the peanut butter from that vendor because they couldn't track it to batch level,” he says.
For a look at how ERP helped streamline operations, cut product returns and saved money at a wholesale baking company, look to 10-year-old Red Hen Baking Co., which supplies a network of supermarkets and restaurants with artisan bread.
The company employs 15 full time staff members who make up to 2,000 loaves and 2,000 rolls each day. The plant operates 18 to 24 hours per day, seven days a week. Production cycles can be up to 18 hours because of the long fermentation process, which makes quality control difficult and production scheduling crucial, says co-founder Randy George.
“Efficiency is a big challenge in our business,” George says. “Each day here is a distinct unit, we have a different order of production every day, and the combination is never exactly the same.”
Matching production to demand has traditionally been a challenge for Red Hen executives, he adds. “Returns were the beast nobody could get their head around.”
Management forecasted demand using good old paper and pencil and could never get projected order numbers within the 10 percent accuracy rate it targeted, he adds.
Better management of returns was the initial motivating factor for Red Hen to look for a new system. About three years ago, the company implemented an ERP system from GlobalBake. The system includes the vendor's sales history and forecasting modules.
After implementation, George saw rapid reduction in customer returns, bringing return rate as a percentage of sales below the company's 10 percent target for the first time. That helped bolster Red Hen's profit margin from 2 percent in 2005 to more than 5 percent in 2006, George says.
Sales figures also jumped as the company better matched supply to demand using the ERP system. At first, George says, managers didn't believe the production numbers the software predicted. But checking the numbers against actual order numbers told them the system has predicted accurately, he adds.
“What surprised me was that not only did our returns go down, reducing our waste, sales also went up as we better met demand,” George says.
Red Hen finished 2006 with sales up 24 percent, and George attributed 10 to 15 percent of that number to the seven months of that year the bakery worked with its new ERP system.
Red Hen has since rolled out other ERP modules in order to move production management and scheduling into the overall ERP system.
While wholesale bakers may not think an ERP system is for them, Red Hen is certainly not alone in the benefits it's seen by bringing in such a system, Glynn says.
“ERP really helps with your overall strategy in so many ways,” he adds.