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Find Hidden Money' With Your ERP System

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  • 1. statusreport Technology ERP SYSTEMS Find ‘Hidden Money’ With Your ERP System Tracking rebates, inventory management among the methods. By Brian Schiavo I n these days of plunging profit margins and lower retail expectations, warehouses, distribution centers and production facilities need to find ways to lower their bottom line in order to survive. More and more, compa- nies are turning to their enterprise resource planning (ERP) software systems as their primary tools to cut costs and manage such things as purchasing, labor, inventory, cus- tomer service and order tracking. In addition, companies are using their ERP PAYBACK: ERP systems systems to find sources of “hidden cash” that allow food manufacturers are waiting for them to tap into. to keep track of all the “The rich functionality in ERP software for rebates their customers the food distributor has really come a long way are allowed to claim. in the past five years. Processes like rebate and chargeback management, line buying and to manually find the evidence to prove it is process industry marketing for Infor, Alpharet- purchase order optimization are now available practically impossible.” ta, GA. “If the store sells $100 worth of sausage right out of the box, no modification,” says Not only can an ERP system help accrue and they’re expecting an invoice for $90 back, Paul Pretko, industry principal for wholesale all the information necessary to prove rebate but Tennessee sends them one for $95, it could distribution, for SAP, Newton Square, PA. scenarios, it can also prompt distributors lead to questions, even withheld payment.” Rebate tracking, which is considered a regarding rebate requirements. At that point, Odom’s can go into the Deduc- form of “cost recovery,” is an incredibly “Our order entry and purchasing modules, tion Workbench portion of its ERP system and involved process that would require hun- when combined, have the ability to track see all the things its salesperson had in the dreds of man hours if it was done manually; rebates that you can get from manufacturers contract for that deal, in order to justify the with very little assurance that some asset in order to make sure the claim is met,” notes invoice amount. Perhaps the local sales rep recovery opportunity wasn’t missed. Kurien Jacob, CEO of AFS Technologies went to the store and verified the product was “These are typically purchase-based Inc., Phoenix. “If Kraft says you need to buy not in the front section of the freezer, but was rebates,” says Pretko. “An example would 100,000 cases a month to get a 10 percent located in the traditional freezer section instead be if a distributor such as U.S. Food Ser- rebate, the system will track that and not only and this was why Odom’s billed them back the vice makes an agreement with Heinz on tell you you need to claim the 10 percent, but extra five dollars. Because the system allows condiment procurement, which says: ‘if you if you’ve only purchased 95,580 cases and the manufacturer to flag such exceptions in the purchase 10 percent more product than you you have five days left, it will prompt you that order, they can provide proper reconciliation. did last year, we’ll give you an additional six you need to buy the rest of the cases. If you “We handle all of this through the promo- percent discount on all purchases.’” don’t claim your rebates, it’s lost money.” tions portion of Adage—our ERP system,” In this scenario, he says, the distributor Jacobs says most of his company’s cus- says Mike Hader, director of IT, for Odom’s would have to accrue all the transactional tomers will recover the cost of their system Tennessee Pride, Madison, TN. “It creates information from all of its purchases orders within the first year of ownership, just by the entries for the general ledger so that it and bundle them up in order to create an tracking their rebates. flows right through our financials and then open vendor AR account for the amount they’d ERP systems also allow food manufacturers we set up accruals designed to accrue what- expect Heinz to send them in a rebate check. themselves to keep track of all the rebates that ever the stores’ promotional allowances are “If it’s done manually, you’re looking at their customers are allowed to claim. supposed to be. The system makes sure they tens of thousands of transactions and hun- “Say a store has a deal with Odom’s Ten- get the proper credit at the end.” dreds of different agreements,” says Pretko. nessee Pride sausage that involves a $10 dollar “You can easily have leakage where you rebate for putting the product in the front of the Tracking Chargebacks should have received a check for a certain frozen food section and for placing an ad in the ERP systems can help companies make amount, however you received less. Trying paper,” says Rory Granros, global director of sales-based cost recoveries, typically from 32 OCTOBER 2008 • f www.foodlogistics.com
  • 2. manufacturers. “Suppose a company quotes “We roll up our demand daily,” says Odom’s need to make more of—all because they can on a bid for a county public school system Hader. “This allows us to see for every single compare daily orders and demand against to provide all the food for them,” says SAP’s thing we make, what our outstanding orders daily purchasing. Pretko. “To get the business Heinz has to are and what’s due to ship tomorrow and the Being able to get more out of their resourc- offer a deal to the school system that is at a next day.” es with demand planning and being able price lower than the distributor’s price.” His company micromanages that demand to identify seasonal demand trends allows The idea is that the distributor will provide against inventory so that they know precisely companies such as Odom’s to increase their a proof of sale back to the manufacturer any what raw materials they need and what they revenue streams. d time it ships ketchup to the schools and Heinz is supposed to make it up on the back end. “Of course manufacturers always ques- Savings Through Efficiency tion these claims later on,” says Pretko. ERP systems can be utilized to allow companies to track their fuel consumption, “The first thing they say is: ‘who approved an important consideration in these days of $300 barrels of oil, especially when most that agreement?’” companies transportation management systems are geared up for $50 barrels. Pretko says the ERP system can attach “An ERP system’s main function is the aggregation and gathering of data and put- documents to the agreement that the dis- ting it into a common format so you can make informed decisions,” notes Greg Smith, tributor will be able to pull up, including associate partner, business solution professional consumer packaged goods industry, emails verifying the agreement from the IBM Global Services, Armonk, NY. “Inputting this data into the ERP system allows manufacturer. “The second thing they say is them to determine the true cost of their fuel spend.” that ‘I don’t believe this amount is correct. I Once a company has this baseline understanding, it can begin to interpolate the data need it itemized.’” via a transportation management system, in order to find ways to reduce the spend. It Fortunately the distributors’ ERP system may take such actions as combining routes and other cost-cutting strategies. can capture every single sales order that Another way ERP systems can increase efficiency is through the creation of shared goes to the school district against that agree- service models. For example, an organization with multiple locations may have food ment, time stamped and auditable, thereby buyers at each branch and this could lead to duplication of efforts. providing the empirical evidence required. “You can use the system to consolidate the spend and buy your goods centrally from the main warehouse,” says Paul Pretko, industry principal for wholesale distribu- Demand Tracking tion, for SAP, Newton Square, PA. “That leaves only locals buys, such as produce, to “Another area that ERPs can save our be done at each of the locations.” customers money in is through purchasing,” Instead of having five buyers in each branch, a company could downsize to per- explains AFS’ Jacob. “The cost of money and haps two buyers. credit is high and companies need to make An ERP system can also help warehouses streamline labor and the number of sure they don’t buy too much inventory, people a warehouse has “touching a case.” while at the same time making sure they “ERP systems enable automated and efficient warehouse management techniques have the product that they need on hand that reduce the number of people you need to operate a warehouse,” Pretko explains. when they need to ship it. One way is by facilitating cross-docking. The system can target goods that can be ERP systems like the one AFS sells show taken off the inbound and moved directly to staging areas—and from there directly to buyers what the right quantities of goods to buy the outbound. It can also direct workers to perform “interleaving” techniques—com- are, based upon ordering histories from years’ bining tasks in order to save time—such as combining put away with picking tasks so past. This provides an accurate clue as to what that workers aren’t returning from aisles with empty forklifts. –B.S. they will need to fill their current orders. www.foodlogistics.com • f OCTOBER 2008 33