Manage formulas, maximize profit

May 3, 2010
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Pursuing best practices with the right tools in managing formulas can help processors maximize revenue growth while controlling bottom line costs.

Manufacturers who adopt formula best practices aren’t doing one thing differently; instead, they adopt a number of strategies to improve the performance of their product development process. Source: Aberdeen Group.
For processors, the key to profitability is spurring top revenue growth and controlling the bottom line cost of ingredients, and this can be accomplished by managing a product’s recipe or formula, according to a study entitled The State of PLM for Process Goods  from Aberdeen Group. Aberdeen found those companies who employed best practices in a structured approach to developing and optimizing formulas, termed formula best practices (FBP), achieved 15% greater net change in year-over-year revenue growth, 5% greater percentage of revenues coming from new products, 3% greater margin advantage on new products and 13% greater likelihood of achieving cost-of-goods targets.
Survey results showed that the FBP process manufacturers demonstrating these characteristics shared common capabilities, which include:
    * FBP companies are 28% more likely to employ a formal process to assess product concepts and 21% more likely to use a structured development process (e.g., phase-gate or waterfall).
    * FBP companies are 25% more likely to generate characteristic calculations, 42% more likely to automatically generate specifications and 64% more likely to automatically notify the formulator of the use of banned substances.
    * FBP companies are 17% more likely to manage centrally material lists and 22% more likely to manage formulas.
    * FBP companies are 119% more likely to build and 60% more likely to manage formulas with product lifecycle management (PLM) tools.
According to the study, those processors that have not yet adopted procedural practices to build formulas in a structured manner and optimize them should define and implement those best practices. Those who still use heavily customized spreadsheets and desktop tools to manage formulas should invest in a solution such as a PLM or ERP-with-a-PLM module that integrates formulation management and the automated management of the product development process.
For more information, visit Aberdeen Group.

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