Columns

Managing Software: Identify options if fatal flaws develop in ERP software

Niche software may be able address ERP fatal flaws in back office functions relating to pricing, trade promotion, and trade receivables.



After food companies start to implement an Enterprise Resource Planning (ERP) system, they may discover that the software doesn’t provide all of the functionality their business requires. These shortfalls can be characterized as “fatal flaws.” If a company uncovers a fatal flaw in their ERP software, they have three choices: keep their paper-based/labor-intensive system, develop in-house software, or look for niche software to “bolt on” to their ERP. One area where niche software may address ERP fatal flaws is in the back office functions relating to pricing, trade promotion, and trade receivables.

In the food industry, pricing is a complex set of business processes that often go beyond the scope of normal ERP functionality. Generally, food manufacturers have a national invoice price for each SKU. The net that is ultimately received for a product is reduced from the national invoice price and involves three factors: “invoice deviations” which are list price concessions that appear on the invoice; “after-invoice deviations” which are rebates set up as invoices from distributors, retailers, or foodservice end users for promotional programs tied to product sales; and “trade promotion payments” tied to direct marketing expenses like retail slotting allowances.

All reductions in the net price have to be planned, approved, and tracked to determine their impact on sales. After-invoice deviations and trade promotion commitments must also be accrued as liabilities to ensure that they are reflected in financial reporting. The issue of “deduction management” comes up because the back office process actually involves two payment streams – one from the customer to the manufacturer for product sales and the other from the manufacturer to the customer for promotional activities. Often, the customer deducts their claim for promotional activities directly from the manufacturer’s product sales invoice.

For Harold Rosemann, CFO of Cookietree Bakeries in Salt Lake City, UT, tracking promotion planning to sales results is a critical issue. Rosemann told Food Engineering he needs to know how his promotional spending is impacting his sales results, but he also needs to keep ahead of short paid invoices. For requirements like this, software vendors must have both promotional planning and deduction management functionality. It is this combination of functional depth that is often difficult to find outside of niche vendors.

Software solutions

Software vendors are attacking the back office issues in different fashions. As expected, niche software solutions are more focused on industry and segment-specific issues. General ERP vendors all provide pricing management functionality but may not address industry specific issues. Process industry ERP vendors have more experience with specific industry issues and may include more detailed functionality by industry, but may have specific strengths in particular market segments where they have existing clients.

Niche vendors utilize industry-specific functionality to compete with global vendors. Alex Ring, president of the Synectics Group in Orefield, Pennsylvania, a provider of trade promotion management (TPM) software observes that, “Generic software does not meet the unique needs of the food industry. Food is different than hardware, and within food, retail and foodservice are different.”

Jim Stromvig, information services manager at NORPAC, a Salem, Oregon, frozen food manufacturer, has found that niche software vendors can provide “functionality that is an improvement over the paper processes, but most will require you to make some modification to your existing business practices.”

You must register or login in order to post comments.

Multimedia

Videos

Image Galleries

Frito-Lay Casa Grande Gallery

Frito-Lay Casa Grande was chosen as Food Engineering's 2011Sustainable Plant of the Year.Part learning lab, part sustainability showcase, the Frito-Lay facility in Casa Grande is the focus of the snack food manufacturer’s ambitious goal of creating a blueprint for sustained production in a resource-strapped tomorrow.

05/25/11 2:00 PM EDT

Seven Surprising Uses for Spray Technology

On-Demand: Processors clean, coat, cool, dry, and lubricate products and equipment in dozens of areas in a plant thousands of times a year. Even though it may not be obvious, spray technology is often the backbone of these operations and can be used in many more.

THE MAGAZINE

Food Engineering Magazine

may 2012 cover

2012 May

Check out Food Engineering's May issue!!
TABLE OF CONTENTS SUBSCRIBE

THE FOOD ENGINEERING STORE

Package-Design-Workbook
Package Design Workbook: The Art and Science of Successful Packaging

The book will address all aspects of the creative process including choosing a package format, colors and materials, final finishes, and special considerations such as awkward objects and unique display conderations.

More Products

Clear Seas Research

Clear Seas ResearchWith access to over one million professionals and more than 60 industry-specific publications,Clear Seas Research offers relevant insights from those who know your industry best. Let us customize a market research solution that exceeds your marketing goals.

Food Master

Food MasterFood Master 2012 is now available!

Where the buying process begins in the food and beverage manufacturing market. 

Visit www.foodmaster.com to learn more.

STAY CONNECTED

Facebook Twitter  logo YouTube